Farfetch Announces First Quarter 2021 Results

• Q1 2021 Gross Merchandise Value and Digital Platform GMV growth of 50% and 60% year-over-year, respectively, to $916 million and $790 million, respectively
• Q1 2021 Revenue increases 46% year-over-year to $485 million
• Q1 2021 Digital Platform Order Contribution Margin improves 100 bps year-over-year to 33%; Gross Profit Margin declines 80 bps year-over-year to 46%
• Q1 2021 Profit After Tax of $517 million includes $660 million non-cash benefit arising from lower share price impact on items held at fair value and remeasurements
• Q1 2021 Adjusted EBITDA improves to $(19) million, from $(22) million in Q1 2020
• Upgrades Digital Platform GMV outlook for full year 2021

Farfetch Limited (NYSE: FTCH), the leading global platform for the luxury fashion industry, today reported financial results for the first quarter ended March 31, 2021.

José Neves, Farfetch Founder, Chairman and CEO said: “Farfetch is off to a tremendous start in 2021 with stronger than expected acceleration in the business in the first quarter and higher full-year growth expectations than initially anticipated. Our brand partnerships have never been stronger, and our customer and brand building initiatives are resonating well to drive awareness of our value proposition and retention of our valuable consumers. I am also very enthused by the positive consumer reaction to our recent launch on Tmall’s Luxury Pavilion, and the momentum building behind our Luxury New Retail vision as we see it being adopted by luxury partners around the world. I am more confident than ever in our position to go after the significant growth opportunities we see as a digital enabler of the global luxury industry – a nearly $300 billion opportunity which we remain laser-focused on and plan to continue investing behind to deliver significant value over the long-term.”

Elliot Jordan, CFO of Farfetch, said: “I’m extremely pleased with Farfetch’s strong first quarter where we exceeded our own expectations for GMV growth, while also achieving improved unit economics, operating leverage and adjusted EBITDA as compared to the prior year period. In light of the continuation of this strong momentum against a more favorable consumer backdrop, we are even more optimistic about our growth expectations for the year, and the value in continuing to invest behind our long-term growth opportunities as we continue to focus on delivering our first full year of adjusted EBITDA profitability 2021.”

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 18 for further explanations. See “Non-IFRS and Other Financial and Operating Metrics” on page 18 for reconciliations of non-IFRS measures to IFRS measures.

Recent Business Highlights

Group

• Farfetch was recognized as a TIME100 Most Influential Companies of 2021, for our relevance, impact, innovation, leadership and success
• COVID-19:
  • Maintained continuity of operations throughout the business and continued to work closely with our global logistics partners to preserve continuity of fulfilment and delivery with no material disruptions during first quarter 2021
  • Retail stores remained closed due to lockdown measures in affected locations across Europe

Digital Platform

• Third-party transactions generated 85% of Digital Platform GMV at a take rate of 29.7% in first quarter 2021
• Launched new brand campaign labeled “The Perfect Match” in April 2021, highlighting Farfetch’s role as a platform connecting consumers with boutiques around the world
• The Farfetch Marketplace offered a record number of stock units across more than 3,550 brands from nearly 1,400 sellers as both multi-brand retailer and e-concession supply growth accelerated, including from our Top 10 brand e-concessions who more than doubled available stock units year-over-year
• Elevated the customer experience with introduction of interactive livestream events enabling Private Clients to engage with creators of brands such as AZ Factory and JAY AHR
• Continued to partner with brands to highlight their products and collections on the Marketplace, including the first of a four-part year-long ‘Imagined Futures’ collaboration with Gucci focused on sustainability, as well as Burberry’s genderless Spring-Summer 2021 collection and the Tag Heuer Connected watch
• Advanced Luxury New Retail (LNR) initiative:
  • Full launch of Farfetch storefront on Tmall Luxury Pavilion – making over 3,000 brands available to Alibaba consumers
  • Opened newly relocated Browns boutique in London, fully equipped with latest version of Connected Retail technology to offer visitors an integrated, personalized and interactive experience
  • Expanded partnership with CHANEL with the implementation of Connected Retail technology in CHANEL boutique in Monaco
  • Signed global department store, Printemps, to help design the in-store technology and connected retail experience for their new 300,000 square foot flagship planned for Doha, Qatar
  • Expanded e-concession-as-a-service integrations for Harrods with additions of Zegna and Brunello Cucinelli
  • Appointed by Cidade Matarazzo complex in development in Sao Paolo, to implement our Connected Retail solution to create a technologically advanced luxury experience across the complex’s entire 300,000 square foot retail village

New Guards

• New Guards’ portfolio continued to create culturally relevant collections
  • Off-White launched ‘I Support Black Women’ initiative with Trinice McNally, which aims to amplify the voices of black women, as part of its quarterly PSA fundraising program and unveiled second activewear collection, named “OFF ACTIVE”
  • Palm Angels introduced new staple sneaker, the “Palm One,” and collaborated with famed art book publisher, Rizzoli, to launch a limited-edition zine in celebration of its Spring-Summer 2021 collection
  • Ambush released a capsule collection with Nike and partnered with Moet & Chandon to design limited editions of their iconic champagne bottle

Environmental, Social and Governance (ESG)

• In partnership with African fashion, art and culture media brand, Nataal, worked to raise the profiles of Black-owned brands, boutiques and creatives via the Farfetch Marketplace
• Collaborated with 30 Middle Eastern and international designers to release an exclusive capsule collection for Ramadan
• Launched Farfetch Fix, a luxury restoration service powered by The Restory, enabling customers to seamlessly book a repair or restoration service online and extend the life of their luxury purchases
• Highlighted ability for European customers to make a positive choice to reduce emissions by opting for standard delivery
• Released our 2020 Conscious Luxury Trends report on the behaviors of luxury consumers and the luxury industry with regards to sustainability issues, leveraging the power of our data to support our brand and boutique partners
• As part of Earth day celebrations in April, Farfetchers remotely planted over 5,500 trees to drive positive change and help reduce the impact of carbon emissions

   

First Quarter 2021 Results Summary

Gross Merchandise Value (in thousands):

Gross Merchandise Value (“GMV”) increased by $304.7 million from $610.9 million in first quarter 2020 to $915.6 million in first quarter 2021, representing year-over-year growth of 49.9%. Digital Platform GMV increased by $295.1 million from $494.9 million in first quarter 2020 to $790.0 million in first quarter 2021, representing year-over-year growth of 59.6%. Excluding the impact of changes in foreign exchange rates, Digital Platform GMV would have increased by approximately 54.3%.

The increase in GMV primarily reflects the growth in Digital Platform GMV driven by strong order growth, new consumer acquisition and an increase in Marketplace AOV from $571 to $618 resulting from a higher average selling price, foreign exchange rate movements, higher full price mix of items sold and increased number of items per order. During first quarter 2021, we also saw year-over-year growth in transactions through websites managed by Farfetch Platform Solutions, primarily driven by incremental activity from newly launched e-commerce sites over the past year, including Harrods.com and Off---White.com which were launched in first quarter 2020.

Revenue (in thousands):

Revenue increased by $153.6 million year-over-year from $331.4 million in first quarter 2020 to $485.1 million in first quarter 2021, representing growth of 46.4%. The increase was primarily driven by 68.1% growth in Digital Platform Revenue to $362.1 million partially offset by comparatively lower Brand Platform Revenue growth of 4.5% year-over-year.

The increase in Digital Platform Services Revenue of 54.4% was driven by 59.6% overall growth in Digital Platform GMV with Digital Platform Services first-party GMV, which is comprised of our sales of owned-inventory including First-Party Original, and included in Digital Platform Services Revenue at 100% of the GMV. Digital Platform Services first-party revenue increased 58.9% year-over-year to $104.8 million, primarily driven by our continued focus on growing New Guards direct-to-consumer sales on the Marketplace and the respective websites of the New Guards portfolio brands.

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 first quarter 2021, Digital Platform Fulfilment Revenue increased 151.7% year-over-year driven by Digital Platform Fulfilment cost growth, due to increased pass-through costs resulting from a shift in regional mix of sales and impacts of Brexit leading to higher duties, in addition to a decrease in promotional activity.

In-Store Revenue increased by 25.4% to $10.7 million and was primarily driven by the opening of additional New Guards portfolio brand stores over the past year, partially offset by temporary store closures and reduced foot traffic across our retail store network as a result of COVID-19 restrictions.

Cost of Revenue (in thousands):

Cost of revenue increased by $86.1 million, or 48.4%, year-over-year from $178.1 million in first quarter 2020 to $264.2 million in first quarter 2021 slightly ahead of Revenue growth. The increase was driven by 151.7% growth in Digital Platform Fulfilment cost of revenue where pass-through duty costs increased as a result of Brexit and a shift in regional sales mix, and 47.2% growth in Digital Platform Services cost of revenue to $129.5 million. Brand Platform cost of revenue remained stable year-over-year, and In-Store cost of revenue decreased due to temporary COVID-19-related store closures.

Digital Platform Services cost of revenue increased at a lower rate than Digital Platform Services Revenue primarily driven by the increased margins across first-party products sold on the Digital Platform as a result of increased mix of full price sales and other higher profit margin products.

We rely on third parties to provide shipping services, and changes in their operations due to the ongoing impacts of COVID-19, as well as supply and demand for delivery services as online adoption accelerates across industries, may impact our service levels or cost of revenue.

Gross profit (in thousands):

Gross profit increased by $67.5 million, or 44.0% year-over-year, slightly below Revenue growth, to $220.9 million in first quarter 2021. Gross profit margin marginally declined year-over-year to 45.5% from 46.3%, primarily driven by fulfilment revenue growth at a higher rate than Gross profit growth and therefore margin dilutive.

Digital Platform Gross Profit Margin increased to 54.7% in first quarter 2021, from 52.5% in first quarter 2020 primarily driven by an increase in the mix of full price sales within Browns, and more sales in higher profit margin products from New Guards Group brands. This was partially offset by an increase in certain unit costs associated with operating a global ecommerce business and the recognition of European Digital Services Tax which was previously included within Selling, General and Administrative expenses through second quarter 2020.

Brand Platform Gross Profit Margin increased 260bps year-over-year to 51.4% primarily driven by exchange rate fluctuations.

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

Demand generation expense increased $23.9 million year-over-year to $61.9 million in first quarter 2021. As a percentage of Digital Platform Service Revenue, first quarter 2021 demand generation expense increased from 20.5% to 21.6%. The movement was driven by increased mix of paid channels and increased investment in demand generation as we continue to target new customer acquisition.

Technology expense primarily relates to maintenance and operations of our platform features and services, as well as software, hosting and infrastructure expenses, which includes three globally distributed data centers, including one in Shanghai, which support the processing of our growing base of transactions. Technology expense increased by $7.2 million, or 27.5%, in first quarter 2021 year-over-year. The increase was mainly driven by an increase in technology staff headcount.

First quarter 2021 technology expense continued to scale as a percentage of Adjusted Revenue, decreasing from 8.7% to 8.2% year-over-year as Adjusted Revenue growth outpaced growth of our underlying technology costs.

Depreciation and amortization expense increased by $2.7 million, or 5.2%, year-over-year from $51.3 million in first quarter 2020 to $54.0 million in first quarter 2021. Amortization expense increased principally due to an increase in amortization of our technology investments, where qualifying technology development costs are capitalized and amortized over their useful lives. Depreciation expense primarily increased as a result of new leases entered into over the past year.

Share based payments increased by $13.8 million or 51.4% year-over-year in first quarter 2021. The increase was mainly due to additional grants of equity-settled awards. This is partially offset by a decrease in employment related taxes and the cost of cash-settled awards, primarily as a result of the change in share price and quarterly revaluation.

General and administrative expense increased by $33.2 million, or 29.8%, year-over-year in first quarter 2021, primarily due to an increase in non-technology headcount and Digital Platform operational costs across a number of areas to support longer-term strategic initiatives. General and administrative expense decreased as a percentage of Adjusted Revenue to 35.4% compared to 37.0% in first quarter 2020 as we continued to leverage our operations base to efficiently grow Adjusted Revenue.

Other items of $4.7 million in first quarter 2021 primarily reflect transaction-related legal and advisory expenses.

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

The $630.4 million fair value gains on embedded derivative liabilities in first quarter 2021 was primarily driven by the decrease in our share price during the period. The fair value gains on embedded derivative liabilities in first quarter 2021 is comprised of the following revaluation gains on our convertible senior notes: (i) $214.3 million fair value gain related to $250 million 5.00% notes due 2025 (the “February 2020 Notes”); (ii) $256.4 million fair value gain related to $400 million 3.75% notes due 2027; and (iii) $159.6 million fair value gain related to $600 million 0.00% notes due 2030. These notes have provided strong liquidity to fund ongoing capital needs and invest in various growth initiatives. The $44.0 million fair value gains on embedded derivative liabilities in first quarter 2020 was primarily driven by the decrease in our share price during the period and the fair value gains on embedded derivative liabilities related to the February 2020 Notes. The remeasurement gains on put and call option liabilities in first quarter 2021 related to a $28.7 million remeasurement gain in connection with Chalhoub Group’s put option over non-controlling interest in Farfetch International Limited, compared to a $21.4 million remeasurement gain in first quarter 2020.

Impairment losses on tangible and intangible assets (in thousands):

There were no impairment losses in first quarter 2021. The first quarter 2020 impairment charge of $2.3 million related to a reduction in the carrying value of the right-of-use asset, and property, plant and equipment at one of our smaller retail locations. This resulted from our quarterly considerations of potential impairment of assets, including our retail stores, whereby indicators of impairment were present.

Profit After Tax

Profit after tax increased by $595.8 million year-over-year to $516.7 million in first quarter 2021. The increase was primarily driven by gains on items held at fair value and remeasurements, which increased $594.4 million year-over-year.

EPS and Diluted EPS

First quarter 2021 diluted EPS was $(0.28) and basic EPS was $1.44. Diluted EPS assumes a full conversion of the convertible notes and that the settlement of the Chalhoub liability held on the statement of financial position at March 31, 2021, would have been exercised and settled respectively in shares at the beginning of 2021. As such, diluted EPS excludes the gains on items held at fair value and interest costs related to the Chalhoub liability and the convertible notes, net of any applicable tax, while including all outstanding equity instruments that have a dilutive impact.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA improved by $3.1 million, to $(19.2) million in first quarter 2021 as a result of our growth, improving unit economics and scaling of the fixed cost base. Adjusted EBITDA Margin improved from (7.4)% to (4.7)% year-over-year, primarily reflecting declines in both general and administrative expenses and in technology expense as percentage of Adjusted Revenue.

Liquidity

At March 31, 2021 cash and cash equivalents were $1,247.6 million, a decrease of $325.8 million compared to $1,573.4 million at December 31, 2020. The decrease in cash and cash equivalents was primarily due to the seasonal reversal of working capital benefit in fourth quarter 2020.

Outlook

The following forward-looking statements reflect Farfetch’s expectations as of May 13, 2021.

For Full Year 2021:

• Digital Platform GMV of $3.725 billion to $3.865 billion, representing growth of 35% to 40% year-over-year
• Adjusted EBITDA margin of 1% to 2%

For Second Quarter 2021:

• Digital Platform GMV of $910 million to $945 million, representing growth of 40% to 45% year-over-year
• Brand Platform GMV of $50 million to $60 million
• Adjusted EBITDA of $(23) million to $(25) million

Uncertainties resulting from the COVID-19 pandemic 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, and shipments
• weakened consumer sentiment and discretionary income arising from various macro-economic conditions
• increased costs to support our operations
• slowing e-commerce consumer activity as vaccinations gain acceptance and populations resume to pre-pandemic activities and lifestyles

Conference Call Information

Farfetch will host a conference call today, May 13, 2021 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.

1. Refer to “Revisions to Previously Reported Financial Information” in Notes and Disclosures on page 18

1. Refer to “Revisions to Previously Reported Financial Information” in Notes and Disclosures on page 18