22 May Farfetch Limited, New Home To Reebok In Europe, Posts Solid Q1 Revenue Growth
Farfetch Limited, the London-based global luxury fashion goods platform and the new home for the Reebok brand in Europe and global collaborations, reported that first-quarter revenue increased 8.1 percent year-over-year to $556.4 million from $514.8 million in first quarter 2022. The increase was driven by an increase in Digital Platform Revenue of 6.5 percent to $421.5 million, a 13.9 percent increase in Brand Platform Revenue to $114.5 million, as well as a 9.6 percent increase in In-Store Revenue to $20.5 million. Excluding the impact of changes in foreign exchange rates, revenue would have increased 11.8 percent year-over-year.
Digital Platform Services Revenue increased 7.7 percent year-over-year driven by first-party revenue. Digital Platform Services first-party revenue increased 28.2 percent as compared to the previous year, as continued stock clearance activity drove increased sales of first-party products on the Marketplace. Digital Platform Services’ third-party revenue decreased 5.0 percent year-over-year driven by a decline in third-party Digital Platform GMV, partially offset by an increased third-party Take Rate. Excluding the impact of changes in foreign exchange rates, Digital Platform Services Revenue would have increased 11.0 percent year-over-year.
Digital Platform Fulfillment Revenue represents the pass-through to consumers of delivery and duties charges incurred by global logistics solutions, net of any Farfetch-funded consumer promotions, subsidized shipping and incentives. Digital Platform Fulfillment Revenue increased 1.7 percent year-over-year, exceeding the overall Digital Platform GMV decline of 1.2 percent due to the growth in duties and delivery charges, which was greater than the change in Digital Platform GMV.
Brand Platform Revenue increased 13.9 percent year-over-year, which is greater than the increase in Brand Platform GMV due to $4.8 million net economic benefit from the Reebok partnership that commenced in March 2022. Excluding the impact of changes in foreign exchange rates, Brand Platform Revenue would have increased 20.0 percent year-over-year.
José Neves, Farfetch Founder, Chairman and CEO, said, “I am delighted to report that Farfetch was back to growth in first quarter 2023. Our first quarter 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 (Gross Merchandise Value) in the U.S. 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.
At the same time, we continue to focus on our medium- and longer-term goals, including our mission to be the leading global platform for the more than $360 billion luxury industry. We believe we are uniquely positioned to go after this opportunity and have demonstrated a track record of strong growth over the years, having grown GMV three times as fast as the industry between 2019 and 2022. I am extremely confident in our ability to continue expanding our reach across this resilient luxury industry and in our prospects of delivering sustained profitability and free cash flow over the coming years.”
Digital Platform
Third-party transactions generated 78 percent of Digital Platform GMV in first quarter 2023 with a third-party take rate of 32.9 percent
New Guards Group
New Guards’ portfolio continued to focus on direct-to-consumer channels while creating culturally relevant collections:
- As the Official Style and Culture Creator for AC Milan, Off-White partnered with AC Milan’s charity foundation Fondazione Milan to launch a limited edition t-shirt exclusively available on off—white.com, with 100 percent of proceeds donated to Fondazione Milan’
- Following its acquisition of Reebok in 2022, Authentic partnered with Farfetch to operate its business in Europe, re-platform its European e-commerce sites and drive the brand by expanding its luxury collaboration offerings globally.
- New Guards Group (NGG), a wholly-owned Farfetch company, is managing the partnership and has formed a new division, NGG++, to operate the Reebok brand and focus on accelerating opportunities for NGG brands’ sportswear and sneaker categories;
- In May 2023, commercially launched European partnership with Reebok;
- Reebok e-commerce sites in Europe re-platformed by FPS; and
- Wholesale operations now engaging with key strategic accounts.
ESG
Modes, an Italian boutique partner on the Marketplace and FPS client, partnered with Luxclusif in launching a trade-in program for pre-owned bags
Gross Merchandise Value (GMV)
GMV increased 0.1 percent in first quarter 2023 at $931.7 million, compared to $930.8 million in first quarter 2022. Excluding the impact of changes in foreign exchange rates, GMV would have increased 3.6 percent year-over-year. Digital Platform GMV decreased $9.9 million from $809.5 million in first quarter 2022 to $799.7 million in first quarter 2023, representing a year-over-year decline of 1.2 percent. Excluding the impact of changes in foreign exchange rates, Digital Platform GMV would have increased 1.9 percent year-over-year.
Digital Platform GMV performance in first quarter 2023 reflects continuing headwinds from the suspension of trade in Russia, where trade ceased in March 2022, and mainland China, where demand has not yet fully recovered following the relaxation of regional COVID-19 restrictions. These factors were partially offset by growth in other markets. Digital Platform GMV performance also reflects a decrease in Marketplace AOV from $632 to $566 driven by an increased mix of markdown sales, the currency translation impact of a strengthened US Dollar and a shift in customer demand towards lower-priced products, partially offset by an increase in the number of items per order.
Brand Platform GMV increased 10.0 percent year-over-year from $99.7 million in first quarter 2022 to $109.7 million in first quarter 2023. Excluding the impact of changes in foreign exchange rates, Brand Platform GMV would have increased 15.4 percent year-over-year. This increase was due to a larger portion of the Spring-Summer collections being shipped in first quarter 2023 than in first quarter 2022.
In-Store GMV increased 3.8 percent year-over-year from $21.5 million in first quarter 2022 to $22.3 million in first quarter 2023. Excluding the impact of changes in foreign exchange rates, In-Store GMV would have increased 10.0 percent year-over-year. The increase was driven by additional openings of New Guards brands’ stores in the last twelve months, as well as like-for-like growth from existing stores.
Gross Margins
Digital Platform Gross Profit Margin decreased 510 bps to 49.2 percent in first quarter 2023, from 54.3 percent in first quarter 2022, as Digital Platform Services costs of revenue increased at a higher rate than Digital Platform Services revenue. The decrease in Digital Platform Gross Profit Margin was driven by one-off charges related to duties and shipping, alongside an increased mix of Digital Platform first-party revenue (which typically generate a lower margin), driven by increased sales of first-party products as the company continued sell-through activity of Brown’s inventory.
Brand Platform Gross Profit Margin increased 330 bps year-over-year to 52.2 percent, driven by the inclusion of a full quarter of net economic benefit from the Reebok partnership, which commenced in March 2022, in addition to inventory provisioning related to delayed deliveries in the prior year.
SG&A
Selling, general and administrative (SG&A) expenses increased $27.4 million or 7.0 percent year-over-year, from $391.4 million in first quarter 2022 to $418.8 million in first quarter 2023.
Demand generation expense decreased $10.7 million or 15.7 percent year-over-year to $57.5 million in first quarter 2023. As a percentage of Digital Platform Services Revenue, demand generation expense was 16.9 percent, compared to 21.5 percent in first quarter 2022. This decrease was driven by increased marketing efficiencies and continued redistribution of spend between territories during first quarter 2023.
Total investment in technology, which includes technology expense and investments in longer-term development projects which are treated as capital items, was 14.0 percent of Adjusted Revenue in first quarter 2023, as compared to 13.4 percent in first quarter 2022, reflecting an increased investment in capitalized spend.
General and administrative expense increased $24.6 million, or 15.0 percent, year-over-year in first quarter 2023. This increase was said to be primarily driven by investments to support the new Reebok business and a $25.2 million increase in relation to a one-time favorable gain on foreign exchange hedges in first quarter 2022, which were in a position to cover future receipts of Russian rubles. These were partially offset by underlying cost savings, as the company continues to rationalize fixed costs and drive efficiencies.
General and administrative expense increased as a percentage of Adjusted Revenue to 39.6 percent compared to 37.6 percent in first quarter 2022. This increase was primarily driven by the gain on settlement of foreign exchange hedges in the previous year.
Profit/(Loss) After Tax
Profit/(loss) after tax decreased $903.0 million year-over-year from a $728.8 million profit in first quarter 2022 to a $174.3 million loss in first quarter 2023, primarily driven by gains/(losses) on items held at fair value and re-measurements, which decreased $915.1 million year over year.
EPS and Diluted EPS
First quarter 2023 basic EPS was a loss of 43 cents and diluted EPS was a loss of 43 cents, as the effect of all potentially dilutive instruments was anti-dilutive.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA increased by $1.0 million to a loss of $34.7 million, representing a 2.9 percent improvement compared to first quarter 2022. Adjusted EBITDA Margin improved by 90 bps from (8.2) percent in first quarter 2022 to (7.3) percent in first quarter 2023, primarily due to declines in both demand generation expense and technology expense as a percentage of Adjusted Revenue.
Liquidity
Liquidity as of March 31, 2023 was composed of cash and cash equivalents of $485.9 million, compared to $734.2 million at December 31, 2022. The decrease of $248.3 million was said to be primarily driven by a net cash outflow from operating activities of $155.7 million, primarily related to seasonal working capital needs of the Farfetch Marketplace, as well as a net cash outflow from investing activities primarily relating to investments into capitalizable longer term development projects.