Farfetch still lossmaking in Q1, but GMV rises, China growth surges

By

Sandra Halliday

Published
Apr 16, 2020

Farfetch released some preliminary Q1 figures on Thursday and while it continued to grow in the first three months of the year, it said that it has seen a slowdown in growth from its larger markets in Europe and North America of late. 

It has also been facing an increase in promotional activity from some industry participants, as well as brands “assessing production capacities for winter collections in light of some factory closures”.

The luxury e-tail giant hasn’t seen “any material impact to our diversified supply and logistics platform to date”, but added that any prolonged interruptions to, or cessations of the operations of our fulfilment centres and production studios, or our sellers and logistics partners “would have a material adverse impact on our business”.

But while the current consumer spending backdrop remains uncertain, it expects that the online channel will be a major beneficiary of any spending that does happen. 

For Q1, its preliminary figures suggest general merchandise value (GMV) growth of between 43% and 46% and digital platform GMV growth that comes in between 17% and 19% higher. It also said its brand platform is expected to deliver GMV of around $105 million, in line with expectations.

The company expects Q1’s digital platform order contribution margin to be in line with that of Q4 last year, and exceed its targeted minimum of 30%.

It will remain loss-making with Q1 adjusted EBITDA being a loss of between $21 million and $25 million, which is ahead of guidance. The loss after tax should come in anywhere between $70 million and $125 million. 

A year ago, its adjusted EBITDA loss increased by $6.6m, or 27.8%, to $30.2m. And its after-tax loss ballooned 115.4% to $109.3m.

There was good news about China in the report with the company saying that GMV in the China region in the last two months of the quarter grew faster than it had done in the whole of last year. But despite such bright spots, the company is finding it impossible to issue any guidance for the full year because of the uncertain environment caused by the coronavirus pandemic. It’s not expecting consumer activity to return to normal levels until next year.

CEO and founder José Neves said the firm has “continued to focus on executing on our strategic and financial objectives. Much like we did during the 2008 financial crisis, Farfetch has been focused on supporting the luxury industry in navigating the rapidly changing environment to provide a platform for the industry so that it can flourish in the longer-term. In this spirit, we launched our #SupportBoutiques initiative to harness the power of our community to meaningfully help the hundreds of boutiques across our seller base, the majority of which are small businesses.”

He added that digital transactions are expected to represent a significantly larger proportion of the overall industry as a result of the crisis: “With current retail store closures, travel restrictions, and shifting consumer preference and shopping habits, I expect to see an acceleration of this secular shift to online. This should also spur further online adoption by brands and retailers of our platform. We believe our preliminary first quarter 2020 results reflect the strength of our business model in a changing environment.”

Farfetch also seems confident that it has the cash to get through the current difficult period and said it ended Q1 with cash and cash equivalents of approximately $420 million. But it has taken actions to further support its liquidity in the short term, although it gave no details.