Farfetch Q3 Hit From Russia Exit, Lockdown In China

Farfetch is all over luxury, not just as a digital platform for boutiques, but is also signing deals with Compagnie Financière Richemont to eventually take control of Yoox Net-a-porter and with Neiman Marcus and Ferragamo to boost digital the businesses.

While the company thus strengthens 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 into its bottom line.

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

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

The quarter had some tough year-over-year comparisons, given that Farfetch halted 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 biggest markets last year.

Farfetch’s number of active customers for the quarter increased by 8.6 percent to 3.9 million compared to the previous year. And gross margins rose 160 basis points to 44.9 percent and adjusted losses before interest, taxes, depreciation and amortization came in at 4.1 million.

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

Investors got jittery and sent the company’s shares down 9.7% to $8.25 in after-market trading on Thursday.

But José Neves, founder, chairman and CEO, told analysts: “Luxury is an incredible industry that has proven its resilience over the decades and is expected to grow from around $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 used the opportunity of a difficult market to do some streamlining.

“In this year of macroeconomic headwinds, our focus has been to drive rationalization of our cost base,” said Neves. “With that in mind, we’ve taken the opportunity to redesign the entire Farfetch organization to capitalize on the big business milestones ahead, with a greater focus on efficiency and profitability.

“And while this is ongoing, I am pleased with the initial results and the performance of our dynamic leadership team in this new context,” he said. “This reorganization enables us to fundamentally restructure our staff 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.”

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