Farfetch Q3 Hit by Russia Exit, China Lockdowns

Farfetch is everywhere in luxury, not just serving as the digital platform for boutiques, but also signing deals with Compagnie Financière Richemont to eventually gain control of Yoox Net-a-porter and with Neiman Marcus and Ferragamo to help power their digital businesses.

While that has the company fortifying its position in one of the last areas of strength in a weak and chaotic consumer market, the platform is still waiting for those high-end dollars to flow to its bottom line.

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Now the company is trimming costs as it seeks to deliver on a promise to deliver adjusted earnings before interest, taxes, depreciation and amortization next year.

Farfetch’s third-quarter revenues rose 1.9 percent to $593.4 million, an increase of 14.1 percent in constant currencies. The value of the goods sold through its platform, or the gross merchandise volume, slipped 4.9 percent to $967.4 million, which would have been an increase of 4.2 percent in constant currencies.

The quarter had some tough year-over-year comparisons, given that Farfetch stopped its operations in Russia following the invasion of Ukraine and has also been hit by COVID-19 restrictions in China. Russia and China were two of the platform’s three largest marketplace markets last year.

Farfetch’s active customer count for the quarter grew by 8.6 percent to 3.9 million from a year earlier. And gross profit margins increased 160 basis points to 44.9 percent and adjusted losses before interest, taxes, depreciation and amortization tallied 4.1 million.

The company’s net losses for the quarter ended Sept. 30 totaled $274.9 million and compared with earnings of $769.1 million a year ago, when a gain of $901 million in the fair value of investments boosted results dramatically.

Investors were feeling antsy and sent shares of the company down 9.7 percent to $8.25 in after-market trading on Thursday.

But José Neves, founder, chairman and chief executive officer, told analysts: “Luxury is an incredible industry, which has demonstrated its resiliency over the decades and is expected to grow from circa $350 billion in 2022 to over $500 billion by 2030. Farfetch has built a platform for this industry in pursuit of a unique mission that sees us more galvanized than ever as we continue to navigate the challenging macro environment.”

Neves said the company has been using the opportunity of a difficult market to do some streamlining.

“In this year of macro headwinds, our focus has been on furthering the rationalization of our cost base,” Neves said. “In this vein, we’ve taken the opportunity to redesign the entire Farfetch organization in order to seize the sizable enterprise milestones ahead with a sharpened focus on efficiency and profitability.

“And while this is ongoing, I’m pleased with the initial results and the performance of our energized leadership team under this new framework,” he said. “This reorganization is enabling us to fundamentally restructure our headcount allocation and cost base.”

Neves added, “In 2023, we expect to return to solid growth while also delivering adjusted EBITDA profitability and positive free cash flow.”