Farfetch’s José Neves Looks Beyond Stock Drop to Structural Gains
José Neves might be busy burnishing his reputation as fashion dealmaker extraordinaire with talks underway to tighten ties between his Farfetch and Johann Rupert’s Compagnie Financière Richemont — but Wall Street is still keeping the profit pressure on.
Shares of Farfetch dropped 23.2 percent to $35 in after-hours trading on Thursday after the luxury platform posted strong third-quarter growth that was nonetheless short of the significant growth envisioned in August.
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Farfetch’s adjusted earnings before interest, taxes, depreciation and amortization for the quarter ended Sept. 30 tallied $5.3 million. That compared favorably with losses of $10.3 million a year earlier, but fell shy of the $10 million in adjusted EBITDA the company projected just this August. (Reflecting a quirk of accounting and the impact of a lower share price on items held at fair value, the company’s net profits totaled more than $769 million).
Farfetch’s third-quarter revenues rose 33.1 percent to $582.6 million from $437.7 million a year earlier, driving gross merchandise value up 27.4 percent to just over $ 1 billion.
The company’s digital platform GMV grew 23 percent, shy of the roughly 30 percent gain the company projected in August.
Bernstein analyst Luca Solca said: “Farfetch has produced an outright negative surprise in [the third quarter], as the all-important digital platform GMV growth is 6 percent below consensus and adjusted EBITDA is 28 percent below consensus. It is conceivable that Farfetch may face organic headwinds at this point, as consumers resume some of the old physical retail shopping habits, while Farfetch has to deal with lower promotion intensity.”
Neves, the company’s founder and chief executive officer, said the supercharged full-price growth seen at the end of the second quarter did not carry on into the third quarter with a sector-wide slowdown in the trend, which has since perked back up.
“The reality is it’s very hard to predict the evolution of explosive sales growth in an unprecedented marketing environment,” the CEO told analysts on a conference call.
But he stressed that the company is moving into the “post-lockdown phase” of COVID-19 stronger than it was before the pandemic.
“Q4 is back on track,” he said.
While the aftermarket stock drop at least temporarily erased $3.9 billion from the company’s market capitalization, Neves has practice at this, having weathered the sky-is-falling-moments before, particularly when the company bought New Guards Group and moved to more full-price sales.
“The sky is always in the right place,” Neves told WWD in an interview. “I would love it if people would take a little step back and look at what this company is delivering.”
He noted that comparing the results to 2019, GMV on the company’s digital platform grew by 89 percent in the second quarter and that accelerated to 97 percent in the third quarter.
“We had a very multifaceted, let’s call it, macro-environment,” he said of the business of forecasting results in the midst of a pandemic. “I would invite you…to find me a company at scale in luxury online or offline that is growing at that sort of pace.”
Beyond dealing with quarter-to-quarter sales — and finding even strong growth is not good enough for some — the CEO is also in late-stage talks with Richemont to, potentially, build and open a shared platform with the luxury giant’s Yoox Net-a-porter business. The deal could bring in Farfetch’s tech savvy and Richemont’s other brands, such as Cartier, into the mix.
While that would be and could be a very big deal for fashion — along the lines of the partnership Neves formed with Alibaba and Richemont last year — it is still just a part of the complex vision that is coming together at Farfetch.
Neves describes the talks with Richemont as part of a larger whole.
“We are on a mission to build the global platform for luxury,” Neves told analysts. “We believe luxury is going to be revolutionized by the digitization of the physical experience. We call this Luxury New Retail, the seamless merger of both the offline and online modes of shopping. And I believe 2022 will be a year where [Farfetch Platform Solutions] will expand and unlock significant potential for Farfetch. Our platform can be leveraged in many ways. Our current flagship product is the FPS end-to-end suite of e-commerce [software as a service] solutions, where we count Harrods and over 20 other luxury companies as clients.
“You will have read the announcement from Richemont, which describes the potential adoption of this end-to-end FPS suite, both for their Maisons and YNAP, as well as Richemont Maisons joining our marketplace,” the CEO said.
“While we work on progressing these conversations, we continue to have a strong FPS pipeline of other enterprise clients, and we’ve seen an acceleration of discussions now that the post-lockdown phase of the COVID-19 pandemic has been stabilizing.”
While Neves declined to address the talks with Richemont in the interview, when asked, he did talk about the need for fashion companies to get used to partnering up to tackle big issues.
“We need to partner more and compete less,” he said. “If we want to really tackle climate change, biodiversity, it’s really, really important that the industry joins voices and partners.”
He pointed to the efforts of LVMH Moët Hennessy Louis Vuitton, Richemont and Prada to join forces on product authentication.
“You’re starting to see examples of this more and more,” he said. “And I think this will be more important. These are big existential problems that fashion is going to face in the next decade. There are other things. It doesn’t make sense for each one of us to reinvent the wheel, it doesn’t make sense for every company to hire 2,000 engineers. It makes sense for companies to form partnerships.”
Certainly, Farfetch is partner-ready.
Neves and team are also introducing beauty to the platform next year in a bid to grow more important to luxury brands, looking to build a big advertising business à la Amazon, expand its distribution operation and more.
The CEO has positioned himself in the middle of the fashion system and now is trying to change it — or shift it so more of the industry and the business feeds into his platform.
“We have the audience,” he told analysts, speaking of the company’s growing media potential, but making a point that is broader. “We have now 3.6 million active clients. We have tens of millions of unique visitors across our multiple storefronts. This is a very high quality audience with an [average unit value] of north of $600. This is unique prime territory for the luxury brands.”
And, he said, “Where consumers go, brands follow.”
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