Farfetch Sales Growth Slows in Fourth Quarter
Farfetch managed to grow sales through the pandemic but the pace slowed in the fourth quarter, when the firm made good on its promise to show a profit on an adjusted basis.
The company’s revenue expanded 41.3 percent for the quarter ended Dec. 31 to $540 million, driving a gross merchandise value of $1.1 billion through its platform. That marked something of a slowdown as sales for the year grew quicker, rising 63.9 percent to $1.7 billion, producing a gross merchandise value of $3.2 billion.
On a net basis, the bottom line was hit hard by $1.9 billion in fair value losses on what the company said was embedded derivative liabilities in the fourth quarter, driven by an increase in the company’s stock price. The fair value changes included revaluation losses on the company’s debt.
Net losses for the quarter tallied $2.3 billion, compared with losses of $110.1 million a year earlier. Losses for the year tallied $3.3 billion.
But the company focused on its first-ever quarter of adjusted earnings before interest, taxes, depreciation and amortization — a hurdle it’s been promising to clear for some time.
Adjusted EBITDA totaled $10.3 million in the quarter, a sharp turnaround from losses of $17.9 million a year ago.
José Neves, Farfetch’s founder, chairman and chief executive officer, said: “2020 put the Farfetch platform to the test, but thanks to our robust capabilities, resilient operations and utmost perseverance from our more than 5,000 Farfetchers, we rose to the challenge and enabled our nearly 1,400 Marketplace sellers and Farfetch Platform Solutions clients to continually serve millions of luxury consumers across the globe. We cemented our leadership as the largest global online destination for luxury fashion, accelerated our Chapter 2 initiatives with strategic partnerships advancing our position to be the global platform for the luxury industry, and demonstrated the scale and attractiveness of our business model as we achieved the key milestone of adjusted EBITDA profitability in the fourth quarter.”
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Losses per share tallied 6 cents in the quarter, much better than the 34 cents analysts had penciled in.
On first blush, investors took a step back and pushed shares of Farfetch down 8.7 percent to $58.25 in after-hours trading Thursday.
But the company is still massively ahead in the stock market. A year ago, Farfetch’s stock was trading at $10.17. Then the market was in wait-and-see mode evaluating the company and its evolving model, which included adding its own brands — and inventory risk with the New Guards Group — to the platform.
Those doubts seem to have been erased as the New Guards Group brands, including Palm Angles and the licensed Off-White, have added to the business.
Farfetch has also reasserted its platform approach, linking with Alibaba and Compagnie Financière Richemont (with the backing of Kering chief François-Henri Pinault’s Artemis) in a mega-partnership that could rewrite global luxury rules.
With the partnership, the company is not only bringing its Farfetch platform to Alibaba’s Tmall, tapping into millions of Chinese consumers, it will also be doubling down on what it calls “luxury new retail,” bringing a more connected experience to physical stores.
While Farfetch is a business that is very much of the fashion world — connecting small boutiques with online customers, ranking as a retailer itself by owning Browns and consumer obsessed — it also has a high-tech heart.
And that means constantly fiddling, tweaking services and adding on new features. The platform is by nature modular so new functionality can be plugged in easily.
The latest update is a link up with Wishi, which borrows a page from Stitch Fix, and offers shoppers fashion recommendations that are vetted by both AI and human stylists.
The new service, currently in pilot, offers some of the flavor of Farfetch’s high-touch Private Client program, but at scale.
Scale is in many ways the name of the game for Farfetch, which is emerging as a vital e-commerce link for luxury — a world that for years scorned the web, but is now embracing it fully.
Farfetch might have some big friends as it takes on luxury, but it doesn’t have high-priced clicks to itself. The newly public Mytheresa said it saw a 28.2 percent rise in active clients last quarter, to 569,000, and Revolve said this week that it would be investing more in its high-end Forward business.
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