Farfetch Inc. is cutting back — and so are its stockholders.
Shares of the luxury e-commerce platform plummeted 34 percent to $3.14 in after-hours trading after the company confirmed it’s exiting the beauty category, turned in a weak second quarter and cut its outlook for the year.
Farfetch, which sees itself as a kind of operating platform for the global luxury business, made its move into beauty just last year, acquiring Violet Grey and tapping founder Cassandra Grey as an adviser.
The deal was followed by a broader rollout of beauty in April 2022, when more than 100 prestige brands launched on the marketplace.
Given Farfetch’s deep relationships with many of the main luxury brands — and the platform’s ambitions to be a one-stop luxe shop — the company saw potential to log into a lucrative market. But beauty is its own world and is notoriously tricky to navigate for even established fashion players.
The beauty business never gained the necessary traction, and WWD first reported on Aug. 8 that Farfetch was exiting the category, according to industry sources.
On a conference call with analysts on Thursday, José Neves, Farfetch founder, chairman and chief executive officer, confirmed that exit and said the company is exploring its options for Violet Grey, setting up a potential sale.
Neves also laid out a very tough quarter and forecast for the broader platform.
Farfetch’s revenues for the three months ended June 30 slipped 1.3 percent to $572.1 million from $579.3 million — well below the $649 million in sales analysts projected, according to FactSet.
Gross merchandise value — or total value of goods being sold through Farfetch’s platform — was flat at just over $1 billion.
Adjusted losses before interest, taxes, depreciation and amortization widened to $30.6 million from $24.2 million a year earlier. And adjusted losses power share were flat at 21 cents.
Jose said the company has doubled down on its cost cutting program, eliminating $150 million of planned fixed cost this year over the past two months.
Last year, the company struggled with the closure of its Russian business following that country’s invasion of Ukraine. And while the marketplace businesses in China and the U.S. were expected to help pick up the slack this year, that hasn’t been the case.
“Like in the U.S., we believe this [weakness in China] is not Farfetch specific as other luxury brands have similarly indicated, China is not growing as quickly as previously expected after its reopening in December,” Neves said. “Whilst brands are reporting strong in-store growth against comps during the previous years, strict lockdowns online sales have not recovered as quickly as expected by many in the luxury industry.”
A luxe look on Farfetch.
Courtesy
The pain is expected to continue as Farfetch cut its outlook for the full year.
GMV is expected to come in at about $4.4 billion for the year, and while that’s above the $4.1 billion last year, it’s well below the $4.9 billion forecast in May.
And adjusted EBITDA margin is slated to rise 1 percent for the year, instead of the 1 percent to 3 percent gain projected in May.
“I am confident the combination of our decisive actions in terms of focus on profitability and cash generation and our unwavering commitment for our long-term vision will result in more big wins across our key strategic initiatives while driving us towards achieving our stated 2025 profitability targets,” Neves said.
Wedbush analyst Tom Nikic described Farfetch’s report as “very disappointing.”
“Farfetch remains an extremely challenging business to wrap one’s head around, with highly volatile fundamentals and one of the most confusing models in our space — both the business model and the financial model,” Nikic said.
That’s been true for some time with the company prone to big stock swings up or down depending on how the winds are blowing in a particular quarter.
