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Fewer Promotions and More Active Consumers Helped Farfetch Narrow Q3 Loss

Global luxury fashion technology platform Farfetch Ltd. outperformed Wall Street’s expectations, narrowing its third-quarter loss and posting higher revenue than the consensus forecast.

In a Nutshell: The company beat its third-quarter guidance for digital platform gross merchandise value. Digital platform GMV for the third quarter was $420 million, representing a jump of 37 percent year-over-year and buoyed by increases in the number of active consumers. The company said Thursday that it has expanded its direct brand and boutique network to more than 1,200 partners, and also has retained 100 percent of its top 100 brand partners over the past three years.

During the quarter, the company completed its $675 million deal to acquire brand platform firm New Guards Group, which is also the licensee of luxury streetwear brand Off-White. Farfetch has integrated all New Guards brands, which are selling directly on the “Marketplace” as e-concessions. In the third quarter, New Guards Group contributed $62.7 million in brand platform GMV.

Elliot Jordan, chief financial officer, said, “We are also pleased by the early strategic and financial benefits from the acquisition of New Guards Group, which, coupled with the stronger unit economics and continued operating leverage in our digital platform, have contributed to a significant year-over-year improvement in EBITDA (earnings before interest, taxes, depreciation and amortization) margin.”

Combining digital platform GMV and the brand platform GMV, total GMV for the quarter jumped 58.7 percent to $492.0 million.

For the quarter, the company said, “Top 10 brands supply more than doubled year-over-year as of the end of third quarter 2019.” Farfetch also saw “increased supply points with existing brand partner, Saint Laurent, in the U.S., Canada and Mexico.” The company signed new e-concessions with Golden Goose and Sunglass Hut, among others, which in total brings its “total brand partner count to just under 500.”

Also in the quarter, Farfetch grew its boutique network to more than 700 retailers.

Net Sales: For the three months ended Sept. 30, revenue jumped 89.9 percent to $255.5 million from $134.5 million.

Included in the revenue gain was a 44.0 percent growth in its digital platform services revenue to $156.5 million, essentially the pass-through of delivery and duties charges net of any customer promotions and incentives funded by the company. The company said the impact of promotions in the quarter “was lower than that in the second quarter 2019, reflecting our strategic decision to reduce promotional activity.”

Earnings: The net loss for the quarter was $85.5 million, or 28 cents a diluted share, compared with a loss of $77.3 million, or 30 cents, a year ago.

Wall Street was expecting a loss of 37 cents on revenue of $243.6 million.

For the fourth quarter, the company said it expects an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $21 million to $31 million, digital platform GMV growth of 30 percent to 35 percent year-over-year, and brand platform GMV of $80 million to $90 million.

CEO’s Take: José Neves, founder, CEO and co-chairman, said, “Through our revolutionary technology, services and reach, we will continue to deliver an amazing service to our community of over 1,200 brands and boutiques, while also delighting fashion lovers around the world.”

The company captured market share “at a rapid pace,” Neves said, citing its $1.8 billion of digital platform GMV and 1.9 million active consumers over the past 12 months.

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