Farfetch shares surge as José Neves hails 'fantastic Q3' despite losses
Luxury fashion e-tail giant Farfetch had plenty of positive developments to talk about from its third quarter when it delivered its results on Thursday. But the bottom line was that the company remains loss-making and those losses increased in the three months to the end of September.
Yet its investors picked up on the positives in the results report and its shares staged a mini revival in after-hours trading. Those shares have been tanking since the high-profile IPO in September 2018 and continued to fall this week after analysts at Bernstein warned the company “burns cash too fast”. But that seemed to be forgotten as the firm’s Q3 losses came in lower than expected and after-hours trading saw the shares up around 20% at time of writing.
That really was an impressive increase, so what exactly was it that investors liked? Well, first let’s deal with the ‘bad’ news. The net loss widened by 10.6% to $85.5m. This was largely driven by movements in adjusted EBITDA, depreciation and amortisation expense, share-based payments, and other items linked to acquired businesses and investments. And the adjusted EBITDA loss widened 10.3% to $35.6m.
Now for the better news. Founder and CEO José Neves said the company had “a fantastic Q3, beating all our expectations, and continuing to capture market share at a rapid pace”.
The justification for that view was clear. Revenue surged to $255.48m from $134.54m a year ago while gross merchandise value (GMV) was up to $492m from $310m as it grew market share organically and also made acquisitions. Digital Platform GMV increased almost 38% $420.3m and currency-neutral, it was up nearly 40%. It was all helped by its August New Guards Group buy, as well as an increase in the number of clients supported by Farfetch Platform Solutions, growth in transactions through its managed websites and the purchase of Stadium Goods, its premier sneaker and streetwear Marketplace.
Gross profit rose to $115m from $67m and active consumers on its digital platform increased to 1.889m from 1.24m.
Looking at the revenue rise in more detail, it was primarily driven by 44.% growth in digital platform services revenue to $156.5m and the addition of brand platform revenue from New Guards. Meanwhile, in-store revenue increased by 121.9% to $9.1m. primarily due to the addition of revenue from New Guards’ directly-operated stores and growth in Browns stores.
It wasn’t 100% positive though — average order value (AOV) dipped slightly to $582 from $585 and the digital platform’s gross profit margin fell to 53.2% from 60.3%.
Despite the negatives, the company clearly made progress, especially in deepening its relationship with the world’s most popular luxury brands. That’s hugely important as it works towards what it hopes will eventually be profitability in a luxury e-tail market that’s hugely competitive.
Farfetch said it continued to add breadth and depth to the Marketplace offering through expanded partnerships with luxury brands and retailers. The top 10 brands supply more than doubled year-on-year as of the end of the quarter and it increased supply points with existing brand partner Saint Laurent in the US, Canada and Mexico.
It also "helped advance Prada's direct-to-consumer distribution initiative as their exclusive third-party partner in offering its Linea Rossa collection for Autumn/Winter 2019".
And it signed new e-concessions with Golden Goose and Sunglass Hut, among others, bringing total brand partner count to just under 500, while it “maintained 100% retention of top 100 direct brand partners over past three years”.
It also integrated New Guards on the Marketplace with all of that company’s brands, including Off-White and Marcelo Burlon County of Milan, “now leveraging Fulfilment by Farfetch and selling directly on the Marketplace as e-concessions”.
And it grew its boutique network to more than 700 retailers, bringing total direct brand and retail partners to more than 1,200.
So what does it expect to happen in the current quarter? It’s predicting digital platform GMV growth of between 30% and 35% year-on-year and an adjusted EBITDA loss of between $21m and $31m.
There was no talk of when the company might be profitable but, as mentioned above, its investors didn’t seem to mind on Thursday.
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