Farfetch (FTCH) stock drops after Q3 numbers miss estimates
19:22, 19 November 2021
Shares of luxury fashion online platform Farfetch (FTCH) opened Friday morning almost 20% lower than they closed yesterday as the company took a hit on after-market trading following the release of Q3 earnings that fell short of investors’ expectations.
The biggest price drop happened right after the markets closed at 4 pm ET with the stock nosediving from $45.68 to $34.00 in 25 minutes.
It was a harsh rebuke for a company that posted increases in sales, revenues and profits when compared to Q3 2020. Gross merchandise value – the total value of merchandise sold on the platform – broke $1bn (£740m) in 2021, up from $798m in 2020. Revenue increased from $438m to $583m, and gross profit rose from $209m to $252m.
Revenue less than anticipated
But that wasn’t enough to assuage investors who expected even more from Farfetch. Although the company beat estimates on loss per share, which came in at $2.09, revenues fell short of Dow Jones estimates and reduced the forecast for the full year.
“The reality is, it’s very hard to predict the evolution of explosive sales growth in an unprecedented market environment,” Farfetch founder and CEO José Neves said on a 18 November conference call discussing the Q3 earnings.
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Slow autumn/winter season
Neves downplayed the significance of Farfetch’s numbers landing lower than originally anticipated, saying the company had simply shifted from hyper growth to high growth.
“In September, we saw a later start to the autumn/winter ’21 season,” Neves said. “At the macro level, Google trends indicate the impact was industry-wide, with slower search growth for luxury products in Q3, which has shown signs of recovery since then through October.”
Largest transaction was $1.3m
Stephanie Phair, Farfetch’s chief customer officer, spoke to investors about the dynamics of the company’s high-end customer base.
“The number of transactions exceeding $100,000 has quadrupled year-on-year in Q3, and in October, our fashion concierge team supported a customer with a $1.3m transaction, setting a new record for our highest-ever sale.”
When it was founded in 2007, Farfetch challenged existing beliefs that wealthy shoppers held regarding online shopping for luxury goods. Well-heeled consumers were accustomed to enjoying velvet-glove treatment while shopping at brick-and-mortar designer boutiques where they could handle and examine the clothing.
Retailers and brands also had to be convinced because the prevailing sentiment at the time was that selling luxury goods online was a threat that would undermine the cachet of pricey product lines.
Founder began programming at age 8
Neves, an entrepreneur from Portugal, discovered his passion for the digital world when he first started programming at eight years old after receiving a computer for Christmas that didn’t come with video games, just a programming manual. In 1993, the 19-year-old Neves started a software business. His family had a history with shoemaking, so his contacts led to fashion companies becoming clients. He also designed his own shoe line and opened a boutique.
Then Neves began to dream bigger, aspiring to bring hundreds of brands together on a single global online marketplace.
“Fashion – especially for the Millennial generation – empowers people and is one of the most important ways to manifest one’s individuality,” Neves wrote in a letter enclosed with the initial public offering prospectus in 2018. “People want to feel unique and that means finding that product that maybe only exists in very limited quantities on the other side of the world. This is why I believe Farfetch empowers individuality.”
Internet won’t replace boutiques
Despite the success of Neves’ company and his enthusiasm for the online model, he still believes internet sales will never wipe out the traditional brick-and-mortar boutique model for luxury fashion.
“There is something magical about the physical retail experience. As a boutique owner 20 years ago, I discovered the interior design, the scents, the ability to touch the fabric and try on the clothes and, most importantly, the human touch and storytelling that digital will never completely replace.”
Headquartered in London, Farfetch has customers in 190 countries and territories, and sells goods from 1,400 brands.