Financial News

• Generated Record Gross Merchandise Value of $1.4 Billion in 2018 and $466 Million in Q4 2018
• Continued to Capture Share in Online Personal Luxury Goods Market with Platform GMV Up 56% in 2018 – Growing More Than Twice as Fast as the Overall Online Industry – and Up 51% in Q4 2018
• Q4 2018 Revenue Grew 55% with Platform Services Revenue Up 68% in Q4 2018
• Active Consumers Up 45% and Number of Orders Increased 58% in Q4 2018
• Expands Partnership with JD.com to Complete Its "Premier Gateway to China" for Luxury Brands

LONDON--(BUSINESS WIRE)-- Farfetch Limited (NYSE: FTCH), the leading global technology platform for the luxury fashion industry, today reported financial results for the fourth quarter and full year ended December 31, 2018.

“By all measures, 2018 was a blockbuster year for Farfetch,” said José Neves, Farfetch Founder, CEO and Co-Chair. "We continued to lead the online personal luxury goods market, growing GMV 55% for the year – more than twice as fast as the industry."

"We also exited our first decade as a company with an incredible foundation for realizing our platform vision globally, including in China, with the announced acquisition of Toplife solidifying Farfetch as the Premier Luxury Gateway to China."

"Over the next ten years, the luxury industry is expected to grow to an estimated $500 billion, and online sales will potentially grow to represent an incremental $100 billion opportunity. Farfetch is uniquely positioned to capture the lion's share of this opportunity."

Elliot Jordan, CFO of Farfetch said, "I am thrilled with our record GMV performance and the growth of Farfetch during 2018, which exceeded expectations. Our increasing scale has enabled us to leverage our efficiencies and lean into our customer proposition with new initiatives such as our Access loyalty program, to boost the lifetime value of our customers and enhance long-term shareholder value."

Consolidated Financial Summary and Key Operating Metrics (in thousands, except as otherwise noted):

Recent Business Highlights

• The Farfetch Marketplace continued to increase its share in the online personal luxury market, and all three geographic regions – Americas, EMEA and APAC – exceeded 50% GMV growth in 2018
• Entered into an agreement to acquire and integrate JD.com's Toplife into Farfetch's China platform, gaining Level 1 access on the JD.com app, which combined with Farfetch's site, app, WeChat stores, CuriosityChina, and logistics solutions is set to provide luxury brands a full suite of solutions for accessing the Chinese market
• Completed the acquisition of premier sneaker and streetwear marketplace, Stadium Goods, in January 2019, expanding Farfetch's offering in the fast-growing $70 billion premium sportswear market
• Farfetch Black & White Solutions launched six new brand sites in fourth quarter 2018 and ended the year with 17 clients. Recent launches include two LVMH brands, JW Anderson and Emilio Pucci. Also entered a strategic partnership with Harrods, the world's most famous department store, to create a state-of-the-art global e-commerce destination for their customers and provide related services
• Initiated the global rollout of Access, Farfetch’s customer loyalty initiative designed to reward frequent and increased spend with benefits ranging from early and exclusive access to various events and sales, free shipping, extended returns, a personal stylist and Fashion Concierge, among others
• Added breadth and depth to our Marketplace offering with the addition of new sellers including luxury brands, Giuseppe Zanotti, Acne, and Altuzarra. Also expanded department store partnerships with the launches of Rubaiyat, a premier luxury fashion retailer in Saudi Arabia, and Tryano, a specialized concept department store in United Arab Emirates
• Collaborated with Balenciaga to launch an exclusive capsule collection on Farfetch.com, and teamed up with Ermenegildo Zegna to launch its Ermenegildo Zegna XXX capsule collection in the U.S.
• Enhanced Fulfilment by Farfetch capabilities in Europe with addition of a fourth fully scalable warehouse in Rome, Italy
• Expanded Browns CEO, Holli Rogers' role to also oversee Farfetch's fashion strategy as the company's Chief Fashion Officer

Fourth Quarter 2018 Results Summary

Gross Merchandise Value and Platform GMV

GMV increased by $155.8 million from $310.7 million in fourth quarter 2017 to $466.5 million in fourth quarter 2018, representing year-over-year growth of 50.1%. Platform GMV increased by $155.2 million from $307.0 million to $462.2 million, representing year-over-year growth of 50.6%.

The increases in GMV and Platform GMV were primarily driven by a 57.5% increase in Number of Orders from 600,100 in fourth quarter 2017 to 945,200 in fourth quarter 2018, which primarily resulted from a 44.6% growth in Active Consumers to 1.4 million, and an increase in transactions per Active Consumer as we saw strong demand from consumers across our global markets. These factors were partially offset by the 4.9% decrease in AOV from $670.4 to $637.3, which mainly reflects the foreign currency translation impact of the U.S. dollar appreciation over the past year, as well as increased investments in our customers, which resulted in a lower level of fulfilment revenue relative to Platform GMV.

Revenue

Revenue increased by $69.1 million year-over-year from $126.5 million in fourth quarter 2017 to $195.5 million in fourth quarter 2018, representing growth of 54.6%. The increase was primarily driven by higher platform services revenue. Platform services revenue increased by $67.1 million or 67.9% year-over-year, reflecting increased Platform GMV, with higher growth in first-party as compared to third-party GMV. Third-Party Take Rate remained relatively flat year-over-year.

Revenue by type of good or service (in thousands):

Cost of Revenue and Gross Profit

Cost of revenue increased by $39.6 million, or 64.1% year-over-year from $61.8 million in fourth quarter 2017 to $101.3 million in fourth quarter 2018. The increase was primarily driven by the increases in cost of goods associated with first-party sales, as well as the delivery, packaging and transaction processing expenditures incurred as a result of an increased Number of Orders in fourth quarter 2018 as compared to the prior year period.

Our gross profit margin decreased from 51.2% in fourth quarter 2017 to 48.2% in fourth quarter 2018 primarily due to lower fulfillment revenue per order, on average, as Marketplace cost efficiencies were offset by investments in customer initiatives, including our loyalty program. Additional factors impacting gross profit margin include an increased mix of first-party sales, which have a different gross margin profile than our third-party business; and the impact of retail pricing, particularly on first-party gross margin.

Selling, general and administrative expenses by type (in thousands):

Fourth quarter 2018 demand generation expense increased 45.9% year-over-year to $33.9 million in fourth quarter 2018, or 20.5% of platform services revenue, representing a year-over-year improvement of 309 bps, which primarily resulted from performance marketing efficiencies in driving Platform GMV growth. These efficiencies partially offset the gross profit margin impact on Platform Order Contribution Margin which decreased 468 bps from 40.1% in fourth quarter 2017 to 35.4% in fourth quarter 2018.

Technology expense, which is primarily related to research and development and operations of our Marketplace features and services, increased by $6.0 million, or 49.5%, in fourth quarter 2018 compared to the same period in 2017, which was primarily driven by a 54.7% increase in technology staff headcount and higher software and infrastructure expenses to support the continued growth of the business.

General and administrative expense increased by $3.8 million, or 7.2%, in fourth quarter of 2018 compared to the same period in 2017. General and administrative costs as a percentage of Adjusted Revenue decreased from 51.6% in fourth quarter 2017 to 33.3% in fourth quarter 2018, reflecting improved efficiency of corporate and platform service costs, as well as a reduction of accrued employee compensation expense.

Share based payments decreased by $4.9 million, or 63.4%, in fourth quarter 2018 compared to the same period in 2017, primarily due to the fair value re-measurement of our cash-settled share based payment awards and provision for employment related taxes on share based payment awards.

Adjusted EBITDA

Adjusted EBITDA was ($14.6) million for fourth quarter 2018, improving by $8.8 million, or 37.7%, compared to the same period in 2017. Adjusted EBITDA margin improved from (22.8%) in fourth quarter 2017 to (8.6%) in the same period of 2018, reflecting benefits from our prior period investments to support our growth as well as improved efficiencies in selling, general and administrative expenses, which have grown at a slower rate than Adjusted Revenue.

Loss After Tax

Loss after tax decreased by $44.9 million, or 81.9% year-over-year in fourth quarter 2018 to $9.9 million. This was driven by a year-over-year decrease in the operating loss from $34.3 million to $24.6 million combined with unrealized foreign exchange gains from the revaluation of our receivables and payables in fourth quarter 2018.

Outlook

The following forward-looking statement reflects Farfetch’s expectations as of February 28, 2019 based on the performance of the Marketplace through the initial first quarter 2019 period:

For the first quarter of 2019, Platform GMV is expected to grow approximately 40% year-over-year, and Adjusted EBITDA margin is expected to be approximately (22%) - (24%), prior to any benefit from the adoption of IFRS 16 which became effective on January 1, 2019.

For full year 2019, Platform GMV is expected to grow approximately 40%. The company expects to continue to make investments to grow the business, including for its recent acquisitions, while also leveraging costs, and estimates full year 2019 Adjusted EBITDA margin of approximately (18%) - (19%), prior to any benefit from the adoption of IFRS 16.

Conference Call Information

Farfetch will host a conference call today, February 28, 2019 at 4:30 p.m. Eastern Time to discuss the Company’s results as well as forward-looking information about Farfetch’s business. Listeners may access the live conference call via audio webcast at http://farfetchinvestors.com, where listeners can also access Farfetch’s earnings press release and slide presentation. Following the call, a replay of the webcast will be available at the same website for 30 days.

Forward Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this release that do not relate to matters of historical fact should be considered forward-looking statements, including, without limitation, statements regarding the success of our expansion into the China Market and our expected financial performance and operational performance for the first quarter of 2019 and full year 2019, as well as statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “forecast,” “estimate,” “may,” “should,” “anticipate” and similar statements of a future or forward-looking nature. These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to: purchasers of luxury products may not choose to shop online in sufficient numbers; our ability to generate sufficient revenue to be profitable or to generate positive cash flow on a sustained basis; the volatility and difficulty in predicting the luxury fashion industry; our reliance on a limited number of retailers and brands for the supply of products on our Marketplace; our reliance on retailers and brands to anticipate, identify and respond quickly to new and changing fashion trends, consumer preferences and other factors; our reliance on retailers and brands to make products available to our consumers on our Marketplace and to set their own prices for such products; fluctuation in foreign exchange rate; our reliance on information technologies and our ability to adapt to technological developments; our ability to acquire or retain consumers and to promote and sustain the Farfetch brand; our ability or the ability of third parties to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information; our ability to successfully launch and monetize new and innovative technology; our dependence on highly skilled personnel, including our senior management, data scientists and technology professionals, and our ability to hire, retain and motivate qualified personnel; José Neves, our chief executive officer, has considerable influence over important corporate matters due to his ownership of us, and our dual-class voting structure will limit your ability to influence corporate matters, including a change of control; and the other important factors discussed under the caption “Risk Factors” in our final prospectus under Rule 424(b) filed with the U.S. Securities and Exchange Commission (“SEC”) on September 24, 2018 in connection with our initial public offering as such factors may be updated from time to time in our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. In addition, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements that we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this release are inherently uncertain and may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, you should not rely upon forward-looking statements as predictions of future events. In addition, the forward-looking statements made in this release relate only to events or information as of the date on which the statements are made in this release. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Consolidated Statement of Operations Reclassification

We have revised previously reported revenues and cost of revenues for each of the first three quarters of 2018 to reflect certain sales originally reported on a third party basis (i.e. net revenue presentation), as being on a first party basis (i.e. gross revenue presentation). These revisions had no impact on gross profit or loss after tax in those periods, and had no impact on any of our unaudited condensed consolidated statements of financial position, changes in equity or cash flows during 2018. The Group has determined that these revisions are immaterial to the previously reported financial information, and there is no impact on any previously issued annual financial statements. There was no impact to other prior periods.

Non-IFRS and Other Financial and Operating Metrics

This release includes certain financial measures and metrics not based on IFRS, including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue, Platform Services Revenue, Platform Gross Profit, Platform Order Contribution, and Platform Order Contribution Margin, as well as operating metrics, including GMV, Platform GMV, Active Consumers, Number of Orders and Average Order Value.

Management uses Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue, Platform Services Revenue, Platform Gross Profit, Platform Order Contribution, and Platform Order Contribution Margin

• as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis, as they remove the impact of items not directly resulting from our core operations;
• for planning purposes, including the preparation of our internal annual operating budget and financial projections;
• to evaluate the performance and effectiveness of our strategic initiatives; and
• to evaluate our capacity to fund capital expenditures and expand our business.

Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue, Platform Services Revenue, Platform Gross Profit, Platform Order Contribution and Platform Order Contribution Margin may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate these measures in the same manner. We present Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue, Platform Services Revenue, Platform Gross Profit, Platform Order Contribution and Platform Order Contribution Margin because we consider them to be important supplemental measures of our performance, and we believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies. Management believes that investors’ understanding of our performance is enhanced by including these non-IFRS financial measures as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations period over period and would ordinarily add back non-cash expenses such as depreciation, amortization and items that are not part of normal day-to-day operations of our business. By providing these non-IFRS financial measures, together with reconciliations to IFRS, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.

Items excluded from these non-IFRS measures are significant components in understanding and assessing financial performance. Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue and Platform Services Revenue have limitations as analytical tools and should not be considered in isolation, or as an alternative to, or a substitute for loss after tax, revenue or other financial statement data presented in our consolidated financial statements as indicators of financial performance. Some of the limitations are:

• such measures do not reflect revenue related to fulfilment, which is necessary to the operation of our business;
• such measures do not reflect our expenditures, or future requirements for capital expenditures or contractual commitments;
• such measures do not reflect changes in our working capital needs;
• such measures do not reflect our share based payments, income tax (credit)/expense or the amounts necessary to pay our taxes;
• although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA, the assets being depreciated and amortized will often have to be replaced in the future and such measures do not reflect any costs for such replacements; and
• other companies may calculate such measures differently than we do, limiting their usefulness as comparative measures.

Due to these limitations, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue and Platform Services Revenue should not be considered as measures of discretionary cash available to us to invest in the growth of our business and are in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with IFRS. In addition, the non-IFRS financial measures we use may differ from the non-IFRS financial measures used by other companies, and are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with IFRS. Furthermore, not all companies or analysts may calculate similarly titled measures in the same manner. We compensative for these limitation by relying primarily on our IFRS results and using these non-IFRS measures only as supplemental measures.

Platform Gross Profit, Platform Order Contribution and Platform Order Contribution Margin are not measurements of our financial performance under IFRS and do not purport to be alternatives to gross profit or loss after tax derived in accordance with IFRS. We believe that Platform Gross Profit, Platform Order Contribution and Platform Order Contribution Margin are useful measures in evaluating our operating performance because they take into account demand generation expense and are used by management to analyze the operating performance of our platform for the periods presented. We also believe that Platform Gross Profit, Platform Order Contribution and Platform Order Contribution Margin are useful measures in evaluating our operating performance within our industry because they permit the evaluation of our platform productivity, efficiency and performance.

Farfetch reports under International Financial Reporting Standards (“IFRS”). Farfetch provides earnings guidance on a non-IFRS basis and does not provide earnings guidance on an IFRS basis. A reconciliation of the Company’s Adjusted EBITDA guidance to the most directly comparable IFRS financial measure cannot be provided without unreasonable efforts and is not provided herein because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that are made for future changes in the fair value of cash-settled share based payment liabilities; foreign exchange gains/(losses) and the other adjustments reflected in our reconciliation of historical non-IFRS financial measures, the amounts of which, could be material.

Reconciliations of these non-IFRS measures to the most directly comparable IFRS measure are included in the accompanying tables.

The following table reconciles Adjusted EBITDA to the most directly comparable IFRS financial performance measure, which is loss after tax:

The following table reconciles Adjusted Revenue and Platform Services Revenue to the most directly comparable IFRS financial performance measure, which is revenue:

The following table reconciles Platform Gross Profit and Platform Order Contribution to the most directly comparable IFRS financial performance measure, which is gross profit:

“Active Consumers” means active consumers on the Farfetch Marketplace. A consumer is deemed to be active if they made a purchase on the Farfetch Marketplace within the last 12-month period, irrespective of cancelations or returns. The number of Active Consumers is an indicator of our ability to attract and retain an increasingly large consumer base to our platform and of our ability to convert platform visits into sale orders.

“Adjusted EBITDA” means loss after taxes before net finance costs/(income), income tax (credit)/expense and depreciation and amortization, further adjusted for share based compensation expense, other items (represents items outside the normal scope of our ordinary activities) and share of results of associates. Adjusted EBITDA provides a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance. Adjusted EBITDA may not be comparable to other similarly titled metrics of others.

“Adjusted EBITDA Margin” means Adjusted EBITDA calculated as a percentage of Adjusted Revenue.

“Adjusted Revenue” means revenue less Platform Fulfilment Revenue.

“Average Order Value” (“AOV”) means the average value of all orders placed on the Farfetch Marketplace excluding value added taxes.

“Gross Merchandise Value” (“GMV”) means the total dollar value of orders processed. GMV across our platform is inclusive of product value, shipping and duty. It is net of returns, value added taxes and cancellations. GMV does not represent revenue earned by us, although GMV and revenue are correlated.

“In-Store Revenue” means revenue generated in our Browns retail stores.

“Number of Orders” means the total number of consumer orders placed on the Farfetch Marketplace, gross of returns and net of cancellations, in a particular period. An order is counted on the day the consumer places the order. The Number of Orders represents an indicator of our ability to generate sales opportunities for luxury sellers through our Marketplace. Analyzed in the context of Active Consumers, the Number of Orders provides an indicator of our ability to attract recurring purchases on our platform and also, the effectiveness of our targeted advertising.

“Platform Fulfilment Revenue” means revenue from shipping and customs clearing services that we provide to our consumers, net of consumer promotional incentives, such as free shipping and promotional codes.

“Platform GMV” means GMV excluding In-Store Revenue.

“Platform Gross Profit” means gross profit excluding In-Store Gross Profit.

“Platform Order Contribution” means gross profit after deducting demand generation expense, which includes fees that we pay for our various marketing channels. Platform Order Contribution provides an indicator of our ability to extract consumer value from our demand generation expense, including the costs of retaining existing consumers and our ability to acquire new consumers.

“Platform Order Contribution Margin” means Platform Order Contribution calculated as a percentage of Platform Services Revenue.

“Platform Services Revenue” means Adjusted Revenue less In-Store Revenue. Platform Services Revenue is driven by our Platform GMV, including revenue from first-party sales, and commission from third-party sales. The revenue realized from first-party sales is equal to the GMV of such sales because we act as principal in these transactions, and thus related sales are not commission-based. Platform Services Revenue was also referred to as Adjusted Platform Revenue in previous filings with the SEC.

“Third-Party Take Rate” means Platform Services Revenue excluding revenue from first-party sales, as a percentage of GMV excluding GMV from first-party sales and Platform Fulfilment Revenue. Revenue from first-party sales, which is equal to GMV from first-party sales, means revenue derived from sales on our platform of inventory purchased by us.

Certain figures in the release may not recalculate exactly due to rounding. This is because percentages and/or figures contained herein are calculated based on actual numbers and not the rounded numbers presented.

About Farfetch

Farfetch Limited is the leading global technology platform for the luxury fashion industry. Founded in 2007 by José Neves for the love of fashion, and launched in 2008, Farfetch began as an e-commerce marketplace for luxury boutiques around the world. Today the Farfetch.com Marketplace connects customers in over 190 countries with items from more than 50 countries and over 1,000 of the world’s best brands, boutiques and department stores, delivering a truly unique shopping experience and access to the most extensive selection of luxury on a single platform. Through its business units, which also include Store of The Future, Farfetch Black & White Solutions, Browns, and Stadium Goods, Farfetch continues to invest in innovation and develop key technologies, business solutions, and services for the luxury fashion industry.

For more information, please visit www.farfetch.com.

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Investor Relations Contact:
Alice Ryder
VP Investor Relations
IR@farfetch.com

Media Contacts:
Susannah Clark
VP Communications, Global
susannah.clark@farfetch.com
+44 7788 405224

Brunswick Group
farfetch@brunswickgroup.com
US: +1 (212) 333 3810
UK: +44 (0) 207 404 5959

Source: Farfetch Limited