Farfetch Rides Luxury Market’s Momentum
● The luxury retail platform grew its top and bottom lines in the most recent quarter.
Farfetch's growth plans are in full swing. The luxury e-tailer revealed quarterly earnings Thursday after the market closed — fresh off the news that Farfetch will scoop up a majority stake in the
Yoox Net-a-porter platform, alongside Emirati businessman Mohamed Alabbar — revealing an impressive three months of growth despite industry-wide headwinds. It also painted a picture of the bifurcation of luxury shoppers in the era of inflation and market uncertainty.
“They're definitely still shopping,” José Neves, Farfetch's founder, chairman and chief executive officer told WWD. “Luxury is a very resilient industry. It will continue to be resilient, more than any other industry, certainly in fashion. In terms of Farfetch, this is also what we're seeing.”
In the most recent quarter people were buying high-value items like fine jewelry, watches, handbags and limited-edition sneakers. The firm even beat out its record $2.4 million watch sale with an even higher sale during the quarter. (Although Neves wouldn't reveal what it was.)
“People are not going from Hermès to H&M,” Neves said, referring to fears of a recession. “You're not going to go to a dinner party, or a wedding, or a social event with last season's dresses if you love fashion, if you're into this part of culture. You're still going to invest in these investment pieces. This is a category where people continue to be engaged with. And for the high-net-worth family, these are not big-ticket items. That's not where they cut their spending from.
“We saw it during COVID[-19],” he added. “People were at home — literally — and still buying fashion. We actually grew very fast.”
In the most recent quarter, the luxury platform boosted gains on both top and bottom lines, causing the stock, which closed up 0.32 percent to $9.54 a share Thursday, to jump another 18 percent during after-hours trading. That's on top of the 21.05 percent the stock closed up Wednesday, after the news of the majority acquisition of YNAP — which includes Net-a-porter, Mr Porter, Yoox and The Outnet online stores in its ecosystem — from luxury fashion house Richemont was confirmed.
“This could be a truly transformative transaction, that would solidify [Farfetch's] number-one position in the digital luxury space; materially ramp [gross merchandise volume] and the credibility of the [faster payment systems] platform through e-concession buildout on YNAP, plus the addition of Richemont's digital business; and give [Farfetch] access to Maisons goods on their marketplace,” Ike Boruchow, senior retail analyst at Wells Fargo wrote in a note. “It appears that, at a high-level, all of these dynamics are taking place. This essentially teams up Farfetch with its largest competitor, adds greater negotiating leverage with brands and fuels a material GMV/EBIT ramp for Farfetch.”
His firm rated Farfetch's stock “overweight” and set a price target of $25.
The YNAP transaction is also a way for Richemont — parent to Cartier, Chloé, Montblanc, Piaget and Dunhill, among others — to unload the luxury platform while leveraging Farfetch's digital expertise. Per the terms of the non-cash deal, which is valued at around 2.7 billion euros, Farfetch will gain a 47.5 percent stake in the business and then acquire
100 percent of YNAP in three years' time. The sale of the initial 47.5 percent stake in YNAP is expected to be completed by the end of the 2023 fiscal year.
“We're very excited about our role in the [luxury] industry and how this can benefit brands, not just the Richemont brands, but every brand in the industry,” Neves said. “There are over 1,000 brands that sell on the YNAP platform. We sell over 3,500 brands on the Farfetch platform.”
Oliver Chen, managing director and senior equity analyst at investment firm Cowen, wrote in a note that the deal is “accretive on a top- and bottom-line basis.
“We also like the prospect of more coveted jewelry and watch inventory on the Farfetch platform,” Chen said. “Further, from a customer base perspective, YNAP skews more to older consumers (35-plus), which will be an opportunity for Farfetch to broaden its audience.”
Not that Farfetch is lacking customers at present. Executives on Thursday evening's conference call said the platform acquired more than 500,000 new customers during the quarter, even with the 50,000 or so shoppers the firm lost because it ceased operations in Russia.
In addition, total revenues for the three-month period ending June 30 increased nearly 11 percent to more than $579 million, up from approximately $523 million a year ago. Gross merchandise value — which the company defines as the total dollar value of orders processed net returns — grew 1.3 percent year-over-year during the quarter, to $1 billion.
Neves added that — outside of Russia, where Farfetch closed down, and China, which had additional COVID-19 lockdown restrictions during the quarter — full-price selling grew 20 percent, year-over-year.
“Which is especially strong if we compare it with the comps last year in Q2 [when] the growth was 100 percent,” he said.
Gross profits grew to nearly $268 million as a result, up from $230 million the same time last year.
For the full 2022 fiscal year, Farfetch is now anticipating digital platform gross merchandise value (which excludes in-store and brand GMV) to be flat to up 5 percent, year-over-year, while brand platform gross merchandise value via the owned e-commerce sites, stores and direct business will be flat to up 10 percent, year-over-year. The firm expects adjusted EBITDA to be flat for the year.
“Of course we're not immune to macro factors,” the CEO told WWD. “We lost Russia. Russia was seven percent of our GMV and growing north of 70 percent, year-over-year. So it was a market where we had a great team and we enjoyed great success for a few years. It was our third largest market. So that decision to stop operations in Russia impacted our business.
“China is our second largest market and obviously the COVID-19 restrictions there had a strong impact,” he added.
Farfetch ended the quarter with approximately $575 million in cash and cash equivalents.
Shares of Farfetch are down 76.4 percent, year-over-year.
Still, Neves said he remains “very bullish on the medium- and long-term prospects for our business. In fact, I think we're going to have an incredible 2023.”