Farfetch’s Q1 results on Thursday presented an underlying story of progress with talk of a return to profitability soon. However, the luxury fashion e-tail giant also suffered from the negative impact of currency exchange and a tough environment that meant some red ink in the accounts.
Q1 revenue rose 8% year on year to $556.4 million, although that was less than the increase would have been at stable exchange rates with a constant currency (CCY) rise of 12%.
Gross Merchandise Value (GMV) edged up just 0.1% to to $931.7 million, but would have been up 4% if exchange rates had been stable.
Meanwhile, Digital Platform GMV fell 1%, while rising 2% CCY to $799.7 million. This was due to more markdown sales, those currency exchange issues, and a shift in customer demand towards lower-priced products, “partially offset by an increase in the number of items per order”. It saw a decrease in Marketplace average order value (AOV) from $632 to $566
The performance also reflected ongoing headwinds from the suspension of trade in Russia, and mainland China where demand hasn’t yet fully recovered due to Covid restrictions only recently being lifted. These factors were partially offset by growth in other markets, however.
Brand Platform GMV rose 10% (or 15% CCY) to $109.7 million and in-store GMV increased 3.8% to $22.3 million. It would have been up 10% if not for those exchange rates. The increase was driven by additional openings of New Guards brands’ stores in the last 12 months, as well as like-for-like growth from existing stores.
Meanwhile, the gross profit margin was down 160 bps at 43.2% and it made an adjusted EBITDA loss of almost $35 million (similar to a year ago), plus a post-tax loss of $174 million compared to a profit of $729 million this time last year.
So, plenty of negative figures in there along with the positives. But revenue came in better than analysts expected and losses were narrower than they’d been predicting, so the firm’s shares jumped in double-digits in late trading after the results were released.
Founder, chairman and CEO José Neves was upbeat. “I am delighted to report that Farfetch was back to growth in [the] first quarter,” he said. “Our results represent the first step towards achieving our plan for 2023, our Year of Execution, and demonstrate our strong execution in the face of continued macro headwinds.
“Our sequential improvement in GMV growth in the US and China, our two largest markets, as well as in orders across the Farfetch Marketplace, indicate the strength and resilience of our core business.
“This, on top of our recent launches of Ferragamo and Reebok, with Neiman Marcus Group on track for the second half of the year, and progress we are making on our profitability and cash flow initiatives, confirm we remain on track to deliver on our plan for 2023.”
Clearly, it’s the underlying performance that the leadership is focusing on rather than some minus symbols in the headline figures.
And CFO Elliot Jordan also said he was “very pleased” with the numbers. “We have delivered what we set out to achieve, with accelerating underlying growth, disciplined cost control and improved cash flows. We have successfully navigated through unprecedented macro challenges, and through continued focused execution, we remain on track to deliver a year of luxury market-beating growth, a return to profitability and positive free cash flow”.
The business had plenty going on in Q1. During the quarter, the company continued to increase the supply from both multi-brand retailers and e-concession partners; Farfetch Platform Solutions (FPS) launched Ferragamo’s European e-commerce channel, representing the initial phase of the brand’s global replatforming initiative; it launched an in-store app in Ferragamo flagship stores, (“empowering sales associates with a single-view of customers to deliver a unified shopping experience”); it expanded the FPS relationship with Harrods via the launch of a fully localised luxury Chinese destination; and it also implemented Harrods’ e-concessions-as-a-service with JW Anderson.
Importantly too, the company continued to “build on digital and artificial intelligence (AI) capabilities to increase personalisation and drive engagement on the Farfetch Marketplace”.
This helped active customers grow to approximately 4 million, as retention improved and more personalised comms delivered improved conversion.
Meanwhile, its New Guards’ portfolio continued to focus on direct-to-consumer channels “while creating culturally relevant collections”. There was plenty of activity happening around Off-white, Palm Angels and There Was One, and post-period end, New Guards commercially launched its European partnership with Reebok with that brand’s e-commerce sites in Europe replatformed by FPS.
With all that happening, the company expects full-year group GMV of approximately $4.9 billion, Digital Platform GMV of around $4.2 billion, Brand Platform GMV of $0.6 billion and an adjusted EBITDA margin of 1% to 3%.
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