Farfetch Ltd, the popular online luxury retailer, experienced a significant decrease of 22% in its shares on Friday. This drop marks the largest percentage decline the company has seen in over two years. The reason for this sharp decline is Farfetch’s downward revision of its growth forecast, citing a decline in demand for high-end fashion. The company admitted to overestimating the strength of demand during the third quarter, leading to their disappointing performance.
Farfetch’s CEO, Jose Neves, explained that their results fell short of expectations due to a shift in full-price sales growth. While the growth remained high, it was lower than anticipated. This unexpected dip in demand played a major role in the company’s overall diminished performance.
In recent weeks, several luxury goods companies have reported significant increases in quarterly sales, benefiting from the rebound in consumer demand after the relaxation of Covid-19 restrictions. However, Farfetch reported a growth in gross merchandise value (GMV), which measures transaction volumes in e-commerce, of about 23%. This fell short of their previously forecasted growth rate of 30%. As a result, the company revised its full-year GMV growth forecast to approximately 33%, down from the initially projected range of 35% to 40%.
On top of the lowered growth forecast, Farfetch also reported a larger-than-expected quarterly loss. The company attributed this loss to higher shipping costs and investments in new marketing methods. Farfetch has been adjusting its marketing strategies to counter the impact of Apple Inc’s privacy policy changes, which have limited advertisers’ ability to attract new customers. These unexpected expenses further contributed to the disappointing financial performance.
Following Farfetch’s announcement, J.P. Morgan lowered its price target for the company by $2 to $51. The brokerage acknowledged that the company’s shares may face a period of underperformance but expressed optimism about an improvement in demand during the upcoming holiday quarter.
As a result of the forecast cut, Farfetch’s shares plummeted to $35.50 in premarket trading, erasing all the gains the company had made since November 12. It was on this date that the company announced its ongoing discussions with Richemont, the owner of Cartier, regarding the potential acquisition of a minority stake in Richemont’s online business.
Farfetch’s recent struggles highlight the challenges faced by the luxury retail industry as consumer demands and market dynamics continue to evolve. Despite this setback, the company remains a prominent player in the online luxury space and is positioned to capitalize on future opportunities as it strives to regain its growth trajectory.
Useful links:
1. CNBC: Farfetch shares plunge 22% after luxury retailer lowers its 2021 outlook
2. Bloomberg: Farfetch Plunges on Weaker Forecast, Bigger-Than-Expected Loss
