Farfetch, the luxury fashion online marketplace, has published its first-quarter financial results, which showed slower growth compared to previous quarters due to challenging macroeconomic conditions in the fashion industry. The company expressed concerns about the potential impact of the wider economic backdrop on fashion businesses across all price levels. José Neves, the founder, chairman, and CEO of Farfetch, also indicated that the company is not committed to making an investment in Richemont’s Yoox Net-A-Porter e-commerce unit.
During Q1, Farfetch experienced a 1.7% increase in Gross Merchandise Value (GMV) and a 2.5% increase in Digital Platform GMV, reaching $930.8 million and $809.5 million, respectively. Although revenue rose by 6.1% to $514.8 million, the gross profit margin decreased from 45.5% to 44.8%, and the Digital Platform Order Contribution margin dropped from 33% to 32.7%. Consequently, the company reported a Q1 adjusted EBITDA loss of $35.8 million, which was wider than the $19.2 million loss from the previous year. However, the company achieved a net profit of $728.8 million due to a one-off non-cash benefit.
Farfetch attributed the growth in Digital Platform GMV to increased orders on the marketplace, higher average order values driven by full-price items and increased items per order, and strong growth in the Americas, Middle East, and Korea. However, softer demand in key markets like Russia and China offset this growth. Russian trade was suspended in March with no indication of when it might resume, while local Covid-19 restrictions in China impacted orders.
Brand Platform GMV, on the other hand, decreased by 11.2% to $99.7 million, primarily due to delays in order shipments and resulting cancellations caused by the transition to a new warehouse partner. Although the transition has been completed, delayed shipments could still impact margins in Q2. Changes in foreign exchange rates also contributed to the 4.5% decline in GMV.
Despite the challenges faced in Russia and China, José Neves expressed confidence in Farfetch’s core business and highlighted efforts to align the company with lower near-term growth. He believes this strategy will position Farfetch to exit 2022 from a position of strength. The company saw strong marketplace growth in the Americas and the Middle East and continues to develop customer and luxury brand relations.
CFO Elliot Jordan emphasized Farfetch’s resilience and ability to adapt to the changing macro environment. He pointed out the 64% growth of Digital Platform GMV on a two-year basis and the company’s operation at scale in the global luxury market. Given the current environment, Farfetch plans to allocate resources to leverage its platform model advantage, increase market share, and ultimately enhance profitability and deliver value to shareholders.
Looking ahead, Farfetch has revised its outlook for the full year, anticipating Digital Platform GMV growth of 5% to 10% and Brand Platform GMV growth of 10% to 15%. The adjusted EBITDA margin is projected to be between 0% and 1%. However, the company acknowledges the uncertainties posed by the ongoing COVID-19 pandemic, macroeconomic factors, and geopolitical turmoil, such as the war in Ukraine, which may significantly impact its future performance.
Despite the cautious outlook and wider loss, investors reacted positively to Farfetch’s Q1 results, causing an increase in the company’s shares. Investors possibly expected worse news and were relieved by the reported figures.
Here are two relevant links for further information on Farfetch:
1. Farfetch Official Website
2. New York Times Article on Farfetch’s Q1 Earnings
