Financial News

• Q3 2020 Gross Merchandise Value and Digital Platform GMV growth rates accelerate – up 62% and 60% year-over-year, respectively, to record highs of $798 million and $674 million, respectively
• Q3 2020 Revenue increases 71% year-over-year to $438 million
• Q3 2020 Gross Profit and Digital Platform Order Contribution up 82% and 98% year-over-year, respectively
• Gross Profit Margin of 48% and Digital Platform Order Contribution Margin of 37%
• Q3 2020 Loss After Tax of $537 million
• Q3 2020 Adjusted EBITDA improved to $(10) million from $(36) million in Q3 2019
• Announced global partnership with Alibaba and Richemont to accelerate the digitization of luxury industry; strategic partners to invest total $1.15 billion in Farfetch Limited and new Farfetch China joint venture

LONDON--(BUSINESS WIRE)-- Farfetch Limited (NYSE: FTCH), the leading global platform for the luxury fashion industry, today reported its financial results for the third quarter ended September 30, 2020.

José Neves, Farfetch Founder, Chairman and CEO said: “The Farfetch platform continued to accelerate in third quarter 2020, setting another quarterly GMV record and further indicating we are witnessing a paradigm shift in favor of online luxury. The Farfetch platform is not only capturing this opportunity but is helping drive this paradigm shift both for luxury consumers and brands.

“What we are seeing is the acceleration of the secular trend of online adoption in luxury – an industry that is still very underpenetrated. The capabilities developed across the Farfetch platform over the past 13 years in anticipation of the eventual digitization of the luxury industry uniquely position Farfetch to capture this opportunity today. And our recently announced partnership with Alibaba and Richemont further position us to seize the opportunity to bring the luxury industry into the next generation and drive sustained growth and market share for many years to come.”

Elliot Jordan, CFO of Farfetch, said: “I’m delighted by the results of our third quarter, reflecting strong momentum behind the Farfetch platform and an acceleration of growth on the marketplace. This strong growth in revenue, steady improvement in unit economics and further operating cost efficiencies means we are another step closer to achieving the key milestone of operational profitability in the near-term.

“The strong underlying financial profile of Farfetch and recent investments by our new strategic partners who form part of Luxury New Retail initiative means we are well placed to support the global luxury industry in navigating the continued growth in online over the coming years.”

Consolidated Financial Summary and Key Operating Metrics (in thousands, except per share data, Average Order Value, or otherwise stated):

See “Notes and Disclosures” on page 19 for further explanations. See “Non-IFRS and Other Financial and Operating Metrics” on page 19 for reconciliations of non-IFRS measures to IFRS measures. As we acquired New Guards in August 2019, our results for third quarter 2019 include only two months of New Guards’ performance.

Recent Business Highlights

COVID-19

• Maintained continuity of operations with health and wellbeing of Farfetch employees, partners and customers continuing to be our top priority
• Collaborated with boutique and brand partners to drive continued growth of their digital sales via the Marketplace; Autumn-Winter 2020 supply reached previous year levels despite initial delays at the beginning of the quarter
• Maintained and expanded our relationships with logistics partners, preserving continuity of fulfilment and delivery operations, with no material disruptions to lead times or customer service levels during third quarter 2020
• Following the heightened restrictions recently announced by European governments, we have closed our retail stores in affected locations and will continue to comply as these measures evolve

Luxury New Retail

• Announced a global partnership with Alibaba and Richemont to accelerate the digitization of the luxury industry
  • Alibaba to launch Farfetch luxury shopping channels on Tmall Luxury Pavilion and Luxury Soho
  • New China joint venture to be formed to operate Farfetch marketplace in China; to be 75% owned by Farfetch, with remaining 25% owned equally by Alibaba and Richemont
  • Farfetch and Alibaba to leverage their platforms and augmented retail technologies to pursue Luxury New Retail initiative to accelerate the digitization of the global luxury industry
  • Farfetch and Alibaba form Luxury New Retail steering group; to be joined by Richemont Chairman, Johann Rupert, and Artemis Chairman, François-Henri Pinault
  • Alibaba, Richemont and Artemis to invest in Farfetch Limited and new Farfetch China joint venture a total of $1.15 billion

Digital Platform

• Re-branded Farfetch.com in conjunction with global ‘Open Doors to a World of Fashion’ brand campaign in September 2020, designed to build brand awareness and to continue capturing market share of the online luxury fashion industry

• Accelerated GMV growth to 60% in third quarter 2020 driven by acceleration across all three geographic regions – the Americas, EMEA and APAC, including each of our top 5 countries, which grew faster than during second quarter 2020
• Third-party transactions generated 83% of Digital Platform GMV at a take rate of 30.4% in third quarter 2020
• AOV recovered to a (1)% year-over-year change from an (18)% year-over-year decline reported last quarter driven by increases in sales of full-priced and higher-priced items, despite continued shift into lower-price categories
• Digital Platform Order Contribution Margin increased to 37% year-over-year, driven by a significant decrease in funded promotions and efficiencies in demand generation spending
• Continued high levels of customer engagement, with an increase in Active Consumers of 45% year-over-year; app installs increased over 70% year-over-year, increasingly becoming a preferred channel for consumers
  • Continued to build membership in our loyalty program to 2.5 million enrolled ACCESS members, and enhanced features to increase awareness of program benefits

• Expanded offering to Marketplace consumers with signings of new e-concession partners Moncler, Dolce & Gabbana, Ralph Lauren and watch maker RADO, our first e-concession from the Swatch Group, among other labels; also added new supply points from existing brand partners
• Added new features to enhance customer experience
  • Launched new iOS and Android app in China, providing a more localized experience
  • Initiated rollout of improved delivery features in select markets
    • Expanded shipping capabilities to enable multi-leg logistics, which incorporate services from multiple providers and increase flexibility of our fulfilment operations
    • Piloted new customer communication solution in Germany and the Middle East with ParcelLab aimed at providing customers increased transparency in their shopping experience, from check-out to delivery, including returns
  • New virtual sneaker try-on available on the Farfetch app, allowing customers to simulate the experience of trying-on their new favorite sneakers
• Farfetch Platform Solutions re-platformed e-commerce sites for Palm Angels, Marcelo Burlon County of Milan and Ambush
• Celebrated the 50^th anniversary of Browns with a combination of online and offline activities, including over 40 exclusive capsule collections in collaboration with household names such as Givenchy, Balmain, Fendi, Loewe and Off-White, among others
• Opened second store for Stadium Goods in Chicago, also adding a new market center for consignment intake and operations

New Guards

• For the sixth consecutive quarter, GMV from New Guards brands, in aggregate, exceeded GMV for any other single brand on the Farfetch Marketplace in third quarter 2020
• Generated third quarter 2020 Brand Platform Revenue of $112 million, a year-over-year increase of 79%, reflecting the timing of New Guards’ acquisition in Q3 2019, as well as strong demand for New Guards’ brands
• New Guards’ brand portfolio continued to create culturally relevant collections
  • Off-White released second homeware collection, and new sneaker collaborations – Off-White x Nike rubber dunk in “Green Strike” and Off-White x Air Jordan 5 "Sail"
  • Palm Angels continued to gain traction and became one of the top 10 brands on the Farfetch Marketplace, based on GMV

Third Quarter 2020 Results Summary

Gross Merchandise Value (in thousands):

Gross Merchandise Value (“GMV”) increased by $305.8 million from $492.0 million in third quarter 2019 to $797.8 million in third quarter 2020, representing year-over-year growth of 62.2%. Digital Platform GMV increased by $253.8 million from $420.3 million in third quarter 2019 to $674.1 million in third quarter 2020, representing year-over-year growth of 60.4%. Excluding the impact of changes in foreign exchange rates, Digital Platform GMV would have increased by approximately 61.0%.

The increase in GMV primarily reflects the growth in Digital Platform GMV and $49.7 million increase in Brand Platform GMV from New Guards as a result of our August 2019 acquisition and a strong demand for products within their brand portfolio. The increase in Digital Platform GMV was primarily driven by growth in Active Consumers to 2.7 million in third quarter 2020, increased available supply from over 1,300 partners, and growth of direct-to-consumer brand sales from New Guards. This was partially offset by a decrease in the Marketplace AOV within the Digital Platform from $582 to $574 due to a higher mix of sales of lower price categories, a trend that has continued since the outset of COVID-19 restrictions, and lower units per order. However, we have seen a positive trend during third quarter 2020 with consumers purchasing higher price-point items and a greater mix of items sold at full-price as we progressed through the quarter. During third quarter 2020, we also saw year-over-year growth in transactions through websites managed by Farfetch Platform Solutions, primarily driven from incremental activity from websites newly launched throughout 2020, including Harrods.com, Off---White.com, and Palmangels.com among others.

Revenue (in thousands):

Revenue increased by $182.2 million year-over-year from $255.5 million in third quarter 2019 to $437.7 million in third quarter 2020, representing growth of 71.3%. The increase was driven by 68.1% growth in Digital Platform Services Revenue to $263.0 million, plus the impact of the acquisition of New Guards during third quarter 2019. In-Store Revenue increased by 25.8% to $11.4 million, primarily driven by the acquisition of New Guards retail stores in August 2019, as well as the opening of new stores throughout the year, partially offset by reduced foot traffic across our retail store network as a result of COVID-19 restrictions.

The increase in Digital Platform Services Revenue of 68.1% was driven by 60.4% overall growth in Digital Platform GMV. Digital Platform Services first-party GMV, which is composed of our sales of owned-inventory including First-Party Original, is included in Digital Platform Services Revenue at 100% of the GMV. Digital Platform Services first-party GMV increased 113.9% year-over-year to $105.9 million, primarily driven by the integration of New Guards to the Farfetch Marketplace during fourth quarter 2019, as well as growth in Browns, primarily driven by a higher sell-through of full-price products.

Digital Platform Fulfilment Revenue represents the pass-through of delivery and duties charges incurred by our global logistics solutions, net of any Farfetch-funded consumer promotions and incentives. Whilst Digital Platform Fulfilment Revenue would be expected to grow in line with the cost of delivery and duties, which increase as Digital Platform GMV and order volumes grow, variations in the level of Farfetch-funded promotions and incentives will impact Digital Platform Fulfilment Revenue. In third quarter 2020, Digital Platform Fulfilment Revenue increased 86.8% year-over-year, a higher rate as compared to Digital Platform Services Revenue growth, due to a reduced number of Farfetch-funded promotions year-over-year.

Cost of Revenue (in thousands):

Cost of revenue increased by $88.4 million, or 63.0% year-over-year from $140.3 million in third quarter 2019 to $228.7 million in third quarter 2020. This was primarily driven by the increased volume of transactions driving up costs associated with delivery and duties, the addition of Brand Platform cost of revenue related to New Guards since its acquisition in August 2019, and the cost of goods associated with the growth in first-party GMV.

We are reliant on third-parties to provide shipping and delivery services, and potential changes in their operations due to the ongoing impacts of COVID-19 could result in future impacts to our service levels or cost of revenue, however there were no such material adverse impacts to our service levels or cost of revenue in third quarter 2020.

Gross profit (in thousands):

Gross profit increased by $93.9 million, or 81.6% year-over-year, from $115.1 million in third quarter 2019 to $209.0 million in third quarter 2020, primarily due to growth in our Digital Platform Services Revenue and the addition of New Guards gross profit starting from August 2019. Gross profit margin increased from 45.1% to 47.8% year-over-year, primarily driven by a higher Digital Platform Gross Profit Margin as well as a higher Brand Platform Gross Profit Margin. Digital Platform Gross Profit Margin increased from 53.2% to 54.5% year-over-year driven by increases in both third-party and first-party gross profit margins, partially due to fewer Farfetch-funded consumer promotions during the period. The increase in first-party gross profit margin also reflects an increased mix of full-price sales, and higher margin first-party revenues from sales of New Guards brands’ owned-products sold direct-to-consumers through our platform.

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

Third quarter 2020 demand generation expense increased 34.6% year-over-year to $46.2 million, driven by the increase in GMV. However, in third quarter 2020, demand generation expense as a percentage of Digital Platform GMV improved from 8.2% to 6.9% year-over-year, as we saw the benefit of our focus on mobile app installations help drive a lower paid digital marketing mix compared to third quarter 2019. In addition, we saw lower paid digital marketing costs as a percentage of Digital Platform GMV year-over-year, with a less competitive digital advertising environment due to COVID-19 leading to efficiencies in our paid channels, alongside other incremental demand generation efficiencies.

Technology expense, which primarily relates to development and operations of our platform features and services, and also includes software, hosting and infrastructure expenses, increased by $7.5 million, or 33.5%, year-over-year in third quarter 2020, mainly driven by an increase in technology staff headcount. We continue to operate three globally distributed data centers, which support the processing of our growing base of transactions, including one in Shanghai dedicated to serving our Chinese customers. Third quarter 2020 technology expense as a percentage of Adjusted Revenue decreased from 9.8% to 7.7% year-over-year as Adjusted Revenue growth outpaced growth of our underlying technology costs.

Share based payments increased by $50.1 million, or 157.7%, year-over-year in third quarter 2020. The increase was mainly due to an increase in our share price during third quarter 2020 as compared to a decrease in our share price during third quarter 2019. Employment related taxes and the cost of cash-settled awards increased by $33.8 million and $18.9 million, respectively, primarily as a result of the change in share price and quarterly revaluation. Grants of additional equity-settled awards also contributed to the year-over-year increase.

Depreciation and amortization expense increased by $18.9 million, or 53.8%, year-over-year from $35.1 million in third quarter 2019 to $54.0 million in third quarter 2020. Amortization expense increased primarily due to $31.4 million of amortization recognized on intangible assets acquired in recent acquisitions. Amortization expense also increased as a result of the historical investment into technology, where qualifying technology development costs are capitalized and amortized over a three-year period. Depreciation expense primarily increased as a result of new leases entered into across the group during the last 12 months and, to a lesser extent, due to depreciation on property, plant and equipment from recent acquisitions.

General and administrative expense increased by $49.2 million, or 52.3%, year-over-year in third quarter 2020, primarily due to additional performance-based employee compensation accrued in third quarter 2020, the addition of New Guards starting in August 2019, marketing spend related to our brand campaign launch in September 2020, and an increase in non-technology headcount across a number of areas to support the expansion of our business. General and administrative expense decreased as a percentage of Adjusted Revenue to 37.1% compared to 41.2% in third quarter 2019 primarily due to Adjusted Revenue growing more than the general and administrative expense as a percentage of Adjusted Revenue.

Other items of $0.9 million in third quarter 2020 primarily reflects transaction-related legal and advisory expenses.

Gains/(losses) on items held at fair value and remeasurements (in thousands):

In third quarter 2020, we recorded a $77.8 million present value remeasurement loss related to Chalhoub Group’s put option over their non-controlling interest in Farfetch International Limited, compared to a $53.8 million present value remeasurement gain related to the put option in third quarter 2019. The $295.3 million fair value losses on embedded derivative liabilities comprised $138.2 million fair value revaluation loss related to $250 million 5.00% convertible senior notes due 2025, and $157.1 million fair value revaluation loss related to $400 million 3.75% convertible senior notes due 2027. There were no fair value losses on embedded derivatives in third quarter 2019 and no change in the fair value of acquisition related consideration in third quarter 2020.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA improved by $25.3 million, to $(10.3) million in third quarter 2020, for the reasons described above. Adjusted EBITDA Margin improved from (15.6)% to (2.7)% over the same prior year period, primarily reflecting higher gross profit, lower general and administrative expenses, lower demand generation expense and technology expenses as percentages of Adjusted Revenue.

Loss After Tax

Loss after tax increased by $446.5 million to $537.0 million in third quarter 2020. The increase was primarily driven by losses on items held at fair value and remeasurements, which increased $405.4 million year-over-year, as well as increases in share-based payments, general and administrative expenses, and depreciation and amortization expense, partially offset by an increase in gross profit, as explained above.

Liquidity

At September 30, 2020 cash and cash equivalents were $756.7 million, an increase of $434.3 million compared to $322.4 million at December 31, 2019. The increase in cash and cash equivalents is primarily due to the private placement of convertible senior notes in first half 2020, partially offset by a net cash outflow from operating activities, mainly due to the funding of our operations in the nine months to September 2020, as well as New Guards’ investments into its brand portfolio.

Events After the Reporting Period

As part of the November 5, 2020 agreement between Farfetch Limited (the “Company”), Alibaba Group (“Alibaba”) and Cie Financiere Richemont SA (“Richemont”), Alibaba and Richemont have each agreed to purchase $300 million of 0% convertible senior notes due 2030 (the “Notes”) issued by Farfetch Limited for total gross proceeds of $600 million. The additional capital will support Farfetch’s long-term strategy of delivering a global technology platform for the luxury fashion industry and facilitate the Company’s continued focus on executing its growth plans and driving towards operational profitability. Additionally, Artemis has agreed to purchase 1,889,338 of our Class A ordinary shares for total gross proceeds of approximately $50 million. The sale of the Notes to Alibaba and Richemont, and the issuance of shares to Artemis, is expected to settle on or about November 17, 2020, subject to customary closing conditions.

Alibaba and Richemont will also invest in Farfetch China, taking a combined 25% stake in the new joint venture that will include Farfetch's marketplace operations in the China region for $500 million ($250 million each). The investments by Alibaba and Richemont in Farfetch China and the establishment of the joint venture are expected to be completed during the first half of calendar year 2021, subject to the satisfaction of closing conditions.

In conjunction with the above strategic developments, Farfetch has agreed to close its consumer-facing channels on JD.com, Inc.’s (“JD.com”) platform. The Level 1 access button, acquired in 2019 as part of the acquisition of Toplife, provides direct access to Farfetch’s direct consumer-facing channels on JD.com. As at September 30, 2020, the carrying value of the Level 1 access button was $6.0 million. As a result of our agreement to terminate this channel, management impaired the full value of the Level 1 access button from the execution date of the binding agreement, in line with the requirements of IAS 36 Impairment of Assets. An impairment loss on intangible assets of $5.8 million, which is outside of the normal scope of our ordinary activities, will be recognized in our fourth quarter 2020 results on the consolidated statement of operations.

Outlook

The following forward-looking statements reflect Farfetch’s expectations as of November 12, 2020.

For the Fourth Quarter 2020:

• Digital Platform GMV of $880 million to $910 million, representing growth of 40% to 45% year-over-year
• Brand Platform GMV of $85 million to $90 million
• Positive Adjusted EBITDA

Uncertainties resulting from the spread COVID-19 and the evolving nature of the situation could have material impacts on our future performance and projections. Factors involving COVID-19 that could potentially impact our future performance include, among others:

• disruptions to our operations, fulfilment network, shipments
• reduced or delayed supply from potential factors, including reduced inventory from brands and retailers, as well as additional shutdowns
• weakened consumer sentiment and discretionary income potentially arising from a prolonged shutdown and declining macro-economic conditions

Conference Call Information

Farfetch will host a conference call today, November 12, 2020 at 4:30 p.m. Eastern Time to discuss the Company’s results as well as expectations 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.