Farfetch Limited

Good afternoon. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch third quarter 2021 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star, then the number one on your telephone keypad, If you'd like to withdraw your question, again, press star 1. Thank you. I'd now like to turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference.

Hello, and welcome to Farfetch's third quarter 2021 conference call. Joining me today to discuss our results are Jose Neves, our Founder, Chairman, and Chief Executive Officer, Elliot Jordan, our Chief Financial Officer, and Stephanie Fair, our Chief Customer Officer. Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ, please see the risk factors section of our Form 20F, filed with the SEC on March 4, 2021. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures to the IFRS financial measures in our earnings press release and the slide presentation, both of which are available on our website at farfetchinvestors.com. And now, I'd like to turn the call over to Jose.

Thank you, Alice, and thank you all for joining us today. On this call, I will give you an overview of Q3 results and share how we navigated the dynamics over the quarter, as well as touch on the stronger trends we're seeing to date in Q4. I will also cover the exciting developments we're planning for our luxury new retail vision, and our FPS Business Unit. And finally, provide a quick preview of some of our strategic initiatives for 2022. Starting with Q3. In Q3, Farfetch extended our track record of delivering aggressive market share capture. Digital platform GMV increased 23% year-on-year in Q3, with group GMV up 28% year-on-year. And we are continuing to demonstrate significant market share capture at a faster rate than our 30% CAGR target. We accelerated our two-year stack digital platform GMV growth from 89% in Q2 to a tremendous 97% in Q3. No at-scale luxury fashion company, including e-tailers, has reported such fast growth. While this growth was unrivaled, our results fell short of our forecasts, as the extraordinary full price growth rates we had seen through the first part of the quarter shifted to what were still very high levels, but lower than what we had seen exiting Q2 and during the first part of Q3. The reality is it's very hard to predict the evolution of explosive sales growth in an unprecedented market environment. In Q3, we had to forecast against both strong comps from 2020, as well as hyper growth of our full price sales at 90% year on year exiting Q2. In September, we saw a later start to the autumn-winter 21 season. At a macro level, Google Trends indicates the impact was industry-wide, with slower search growth for luxury products in Q3, which has shown signs of recovery since then through October. In other words, what was hyper-growth in full-price sales at 90% year-on-year exiting Q2 shifted into high-growth, in the crucial autumn-winter 21 full-price months of September. This shift in demand, combined with IDFA, contributed to higher demand generation costs, resulting in lower levels of profitability than what we had expected for the quarter. During this period, the teams have invested in order to test and learn how to navigate this macro environment. And I'm delighted to share that in Q4 to date, we're back to our previous levels of profitability while continuing our strong market share capture. Through the first six weeks of Q4, we have seen regular improvements in our largest market, the US, and the China Singles Day event earlier this month was strong. Overall, this puts us on track to deliver digital platform GMV growth of 18% to 22% in Q4, which translates to circa 80% growth on a two-year stack. Our Q3 decision to use our profitable LTV over CAC ratios to test and learn how to adapt our demand generation strategies in the face of IDFA and other media inflation pressures, has already delivered meaningful improvements. And so far in Q4, we have seen a recovery in demand generation as a percentage of sales. And our contribution is on track to be 30% to 35% in Q4. Moving to Luxury New Retail and our FPS segment, where we have some key strategic developments. We always said Farfetch was more than just a marketplace. We are on a mission to build the global platform for luxury. We believe luxury is going to be revolutionized by the digitization of the physical experience. We call this Luxury New Retail or L&R. the seamless merger of both offline and online modes of shopping. And I believe 2022 will be a year where FPS 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 SaaS 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 the Richemont Maisons joining our marketplace. I want to reiterate that there is no guarantee any deal will be successfully completed. 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. Let me walk you through what's getting luxury brands and retailers incredibly excited about FPS. One, connected retail, where we have Chanel, Browns and Thom Browne among our clients, is a truly revolutionary technology that fundamentally changes the experience of luxury customers in Star. Two, our Curiosity China team offers best-in-class China expertise and a suite of products that has enhanced the digital presence in China for circa 60 luxury brands, including Armani, Audemars Piguet and Moncler. Three, we have launched this year our e-concessions as a service solution, which transforms luxury retailers into marketplaces and allows brands to streamline their distribution. If they are already one of our nearly 600 e-concessions, they can do this with minimal work. The results are extraordinary and a win-win for retailers and brands, with sales from e-concessions powered by FPS for Burberry, Zenga and Brunello Cucinelli growing at Harris.com to the tune of triple digits year-on-year since launch. A major milestone for this product was achieved this month with the launch of the Gucci e-concession. As a result, Harrods has access to more than 7 times as many Gucci SKUs as were previously available on harrods.com. Looking more broadly, the tem for marketplace SaaS solutions, which convert retailers or even brands into marketplaces, is booming, with companies like Miracle reaching multi-billion dollar status. We have a unique proposition here, as I believe we are one of the few marketplace SaaS solutions in fashion and, in my view, the only one with at-scale credentials in luxury. And as such, this could, stand alone, represent a very large opportunity for Farfetch in the long term. And, last but not least, far, our uniquely compelling FPS global payments and logistics capabilities enable clients to sell, receive payments and handle logistics in 190 countries out of the box. Companies like Global E have shown the multi-billion dollar potential of this area of the size industry. I believe Farfetch has a stronger offering than others, with unrivaled presence, alliances and expertise in China, but also Middle East, Russia and Latin America, markets that are crucial for luxury, but also key for other fashion companies in general, And in the long term, we will aim at building a very sizable business out of this standalone FPS module. While many of our new prospects are interested in the FPS end-to-end suite, others are preferring to initiate their use of our platform by using one or more of these FPS modules, which we think is a great way to expand our offering with quicker sales cycles for the future. And each of these modules represent, I believe, a multi-billion dollar TAM on their own. In 2022, we plan to modularize our offer further, which will also allow us to broaden the appeal of these solutions, expanding from luxury to other segments of the market. Watch this space. To summarize, I believe 2022 will be a pivotal year for our platform vision, for L&R and for FPS. There is a lot to be done and we're really in day one of this opportunity. But I continue to maintain that this platform vision expands our potential as a company in a very powerful way. As we approach the close of the year, we are also now focused on 2022 in terms of our longer-term bets for the marketplace. And I'd like to provide a preview of how I'm envisioning next year. To start, I believe we will exit 2021 and, in fact, what were the hardest two years in the recent history of luxury, stronger than we've ever been. to kick off 2022 with incredibly powerful dynamics in all areas of our business and all regions. I'd like to highlight three of our key strategic initiatives for 2022 that are of particular importance and expected to deliver long-term impact to the marketplace. First, our beauty launch is on track for next year with exciting partners to present a compelling, crossover proposition to luxury consumers. Stephanie will update you further on this initiative. Second, we will be investing behind EdTech and building out our media solutions team to develop a meaningful advertising business over the next two to three years. Media Solutions posted another record quarter in Q3, with campaigns for a wide range of brands from Prada to Margiela to Balenciaga and Mani among many others. Also, we see further opportunity in working with our new beauty brand partners to enter the enormous beauty advertising market. Third, in 2022, we will double down on fulfillment by Farfetch, with many initiatives to boost the volume we ship from our distribution centers in the US, EU and China region. This will be a major factor in reducing our long-term logistics costs and boosting our order contribution over the next few years. I will now let Stephanie update you on all things brand and customer.