Farfetch saw its stock tank more than 36 percent on Thursday after its first Capital Markets Day, in which the company provided a new outlook for both the fiscal years ahead that disappointed analysts and shareholders.
For 2023, the online luxury marketplace expects gross merchandise value (GMV) of $4.9 billion, a forecasted increase of approximately 20 to 22 percent year-on-year from the company’s full-year 2022 outlook.
This is expected to be driven by an annual 8 to 10 percent growth of the underlying business, estimated at $350 million in revenue, as well as new GMV from signed partnerships of approximately $500 million.
Adjusted EBITDA margin is expected to be between 1 percent to 3 percent throughout 2023, an increase from the company’s outlook of a -3 percent to -5 percent margin loss in 2022. The improvement is expected to be driven by improved gross profit and order contribution margins in addition to operating cost savings of approximately $85 million.
Yet while these numbers are all positives for the Stadium Goods, Off-White and Heron Preston owner, Farfetch expects to incur $170 million in costs to implement its widening array of partnerships.
Two years ago, Farfetch entered its biggest partnership to date when it inked a $1.1 billion deal with Swiss luxury giant Richemont and Chinese tech titan Alibaba in an effort to scale the companies’ luxury offerings to audiences in China. The investment in the market is a massive undertaking on its own, but according to Farfetch’s reports, average order value (AOV) in China is $800, an impressive 30 percent higher than the company’s global AOV.
Fast forward to August 2022 when Richemont sold more than half of its stake in Yoox-Net-A-Porter (YNAP) to Farfetch, with both companies now owning a 47.5 percent share of the luxury business.
2022 has seen Farfetch ink deals with more top names in luxury including Neiman Marcus and sister brand Bergdorf Goodman, as well as Salvatore Ferragamo. With the partnerships, Farfetch will provide software and other services to help bolster those companies’ e-commerce operations, while strengthening the latter’s presence on the Farfetch marketplace. As partners, Bergdorf Goodman and Neiman Marcus will join the Farfetch Marketplace, adding participating brands in key global geographies.
Farfetch subsidiary New Guards Group also teamed with Reebok in an effort to elevate the footwear company with new luxury collaborations. The Reebok partnership is projected to generate $250 million to $300 million in 2023, Farfetch said.
“There are only a few mega heritage sneaker brands—Nike, Adidas, New Balance, Reebok and Puma,” said Davide de Giglio, founder and CEO of New Guards Group during the call. “Reebok is the only heritage brand part of that group with no place in the premium market. We will change that. We own the market, own the channel, we have the right consumers and we are very strong on collaborations. We know how to position Reebok in the right way. There is a lot we can do with collaborations.”
If anything, the company’s lofty ambitions to merge luxury and technology beget a double-edged sword. While the new partnerships significantly expand Farfetch’s potential reach, they are burning through money to make this reality happen. Net losses continued to mount for the company in its most recent quarter, amounting to a $274.9 million after-tax loss in the period.
During the investor call, Farfetch chairman, founder and CEO José Neves highlighted the company’s Luxury New Retail (LNR) vision, which is designed to break down siloes across channels and brands via the platform, so that consumers can shop for their favorite luxury brands everywhere.
Neves cited Bain & Company data indicating that 75 percent of luxury purchases will still happen in physical stores in 2025, “but we believe that incredible human experience scan and will be elevated by digital technologies.”
“We don’t wake up and think ‘Today I’m going to be an online customer or I’m going to be an offline customer or I’m going to be monobrand or I’m going to be multibrand,” Neves said. “What happens in reality is customers start today having breakfast in Bergdorf Goodman. They cross the street, they go to Gucci, then they will check their Farfetch app while they have lunch and add something to the wish list. Perhaps if we’re lucky, they will buy something before they go to sleep on the Farfetch app.”
For the longer term, Farfetch forecasts doubling its GMV from the expected 2023 totals, with the company selling approximately $10 billion across its four major business pillars throughout full-year 2025. Adjusted Revenue is forecast to be approximately $3.5 billion, out of which:
The company’s marketplaces are projected to represent $3.8 billion of GMV, with expected revenue growth of 8 to 10 percent per year with goals to reach $1.7 billion in adjusted revenue.
The platform solutions business pillar, which was driven by the addition of brands like Bergdorf Goodman, Ferragamo and Yoox Net-A-Porter, as well as Richemont’s maisons, is forecast to drive $4.3 billion in GMV and $300 million in adjusted revenue.
Farfetch’s third pillar, the company’s “brand platform” comprising the New Guards labels, is forecast to represent $1.5 billion in GMV, driven by 5 to 10 percent revenue growth that could reach $1.5 billion in revenue and contribution from the signed partnership with Reebok.
Revenue from fulfilment services is forecast to represent $900 million.
Gross profit margin, as a percentage of adjusted revenue, is forecast to be approximately 60 percent. Gross margin across Farfetch’s marketplaces is anticipated to be roughly 60 percent, driven by increased revenue from high-margin services and a higher mix of third-party GMV. The platform solutions business is estimate to have a gross margin of around 75 percent. New Guards Group’s gross margin is forecast to be approximately 55 percent, driven by an increased mix of direct-to-consumer channels.
The online luxury marketplace held its earnings call in November, revealing that revenue increased 1.9 percent year-over-year to $593.4 million, and jumped 14.1 percent on a constant-currency basis. The volatile foreign exchange rates also significantly impacted GMV, which declined 4.9 percent year-over-year to $967.4 million on a reported basis, but increased 4.2 percent year-over-year on a constant-currency basis.
Gross margin was a bright spot for Farfetch, increasing 160 basis points (1.6 percentage points) to 44.9 percent, from 43.3 percent in the year-ago period.