Farfetch Limited

Good afternoon, and welcome to Farfetch Q2 2022 results conference call. My name is Layla, and I will be your conference operator today. 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. 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 second quarter 2022 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 group president. 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 factor section of our Form 20F filed with the SEC on March 4, 2022. 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.

Hello, everyone, and thank you for joining us. I am thrilled to be speaking to you today after having signed and announced our long-term partnership with Richemont, which marks a major step in Farfetch's mission to become the global platform for luxury. I cannot emphasize enough the importance of this transaction, not just for Farfetch and Richemont, but for the entire luxury industry. 15 years ago, I founded Farfetch for the love of fashion with the dream of creating a global tech platform for an industry that previously never had one. The vision of connecting creators, curators and consumers of fashion worldwide to one single digital platform tailored for the very specific needs of the luxury industry was and still is at the core of Farfetch. the industry very much needed a platform. We believe that what was needed was a revolutionary platform that attended to the unique features of luxury, whilst always thinking ten years ahead and building line of code after line of code, year after year, an advanced set of capabilities that allows us to seamlessly converge the various modes of shopping. online, offline, monobrand and multi-brand globally. And that's what we've built, with Herculean effort and patience, year after year. All that you have observed from Farfetch over this 15-year journey was a single-minded pursuit of the vision which we call Luxury New Retail. the seamless convergence of all modes of shopping, the connecting of the best players in this industry, be them luxury retailers or brands, and the unlocking of the best customer experiences everywhere, from East to West. In 2015, we acquired 50-year-old iconic boutique crowns, back then a circa $25 million turnover family business, and transformed it into the star of the future, while also expanding it to a business expected to generate circa half a billion dollars in 2022. Over the course of this seven year period, we have steadily pursued our luxury new retail vision, which was first unveiled at our 2017 Farfetch OS event. There, we launched Gucci F90, the seamless integration of the Farfetch site with 10 global Gucci flagship stores, which was followed by an investment from Chanel and an exclusive collaboration that has reinvented the Chanel retail experience of the future at their Paris flagship and several other locations. FPS also launched Harrods, perhaps the most iconic department store in the world. And soon afterwards, we expanded our luxury new retail vision to China with an alliance with Alibaba, Richemont and Kering. All this has led to a transformation of 2022 for luxury new retail. This year, we signed and invested in Demon Markets Group, a leading US luxury omni-channel retailer, and also in a 360-degree partnership with Salvatore Ferragamo to be their digital partner in reinventing this heritage brand. And yesterday's announcement represents the culmination of these carefully engineered deals. and the extension of our L&R initiative with Richemont marks an inflection point, advancing Farfetch's mission and vision to revolutionize luxury. We believe this validates, especially when seen together with all the partnerships of the past years. Not only that luxury needs a tech platform, but also that Farfetch is perfectly positioned to answer that call. We are thrilled with the myriad possibilities Distil opens to expand YNAB's reach to our attractive marketplace audience, bring their curated supply to enhance far-fetched consumers' experience, and enable their brand partners to leverage our e-concession integrations to transition away from wholesale distribution, among many, many other possibilities. We plan to work closely with Cartier and other rich moment zones to innovate their already incredible luxury experience, both online and in their 1,250 retail stores worldwide. We are excited by the transformation we can enable at YNAB, a group which includes the pioneers of luxury online retail, Net-a-Porter and Yuke's, which as brands themselves are very complimentary to Farfetch. all of us serving different modes of shopping, customer profiles and geographic focuses. In the years to come, and upon YNAB's successful transformation, which we expect will return the business to profitability, we are excited about the possibility of consolidating them under the Farfetch group, as a portfolio of different marketplaces benefiting both sellers and customers globally offering more choice, better experiences and more innovation. There is a lot to be done and still a lot to prove and we are energized by that. This endeavor never ends because with each milestone our horizons expand further. Despite the growth and synergies this deal brings, the combined groups would represent only 3% of this vast global industry. There is plenty of growth to go for, and strong secular tailwinds that we aim to continue to capitalize on. What is pretty clear, in my view, is that Farfetch has positioned itself to be the preeminent digital platform for luxury. and the responsibility is now ours to continue to execute and deliver on this shared vision. More recently, whilst we've been executing on our unwavering pursuit of the luxury new retail vision, we have also continued to deliver on our core business performance, as evidenced in our underlying Q2 results. Excluding Russia and mainland China, each of our three Marketplace regions, Americas, EMEA and APAC, delivered high single-digit growth over a tough Q2 2021 Comp, when overall Marketplace GMV was up around 40%. Additionally, on a three-year basis, Marketplace GMV growth, excluding Russia and China, accelerated versus Q1 2022. In Q2, we also continued to see the results of the progress we've been making in transitioning the marketplace to a predominantly full price destination. As full price GMV increased double digits and markdown sales, on the other hand, declined once again double digits. Outside of these three factors, which were expected and discussed on our Q1 2022 call, Q2 underlying performance remained very strong, with full price Marketplace GMV, excluding Russia and mainland China, growing circa 20% year-on-year for the second consecutive quarter. This is before accounting for FX volatility. In fact, I'd like to point out that all the figures I've shared do not take into account the significant foreign exchange rate volatility, which impacted our reported results in Q2. At constant FX, on a year-on-year basis, digital platform GMV increased 2%, Brent Platinum GMV grew 68% and revenue increased 21%. Elliott will expand further on the impacts of currency rate volatility. All of this is to underscore that our underlying business remains extraordinarily strong, with growth accelerating on a three-year basis outside of macro volatility factors. These encouraging performance indicators against the current macro environment demonstrate the resilience of the luxury industry and further demonstrate Firefetch's steadfast and proficient response to the adverse macro factors the industry is facing. Finally, I'd like to update you on some organizational evolutions we have made to better position us to achieve our platform long-term vision and re-accelerate growth in 2023 while also driving a more efficient operating structure. As we shared on our last call, we are taking advantage of 2022 being a year of lower growth to further rationalize our business, to have more efficient, more profitable and more powerful operations as we aim to exit 2022 and enter 2023 from a position of incredible strength. I also believe this is the right time for Farfetch to evolve the design of its organization to further align it with our mission of becoming the global platform for luxury. This reorganization sees the Farfetch platform at the core of our entire business. This common platform services our three business units, marketplaces, which include our B2C activities, platform solutions, essentially composed of our B2B activities, mainly FPS, but also newly acquired SaaS companies that extend FPS's ecosystem and brand platform which consists of all NGG activities that are not included in the other two business units i.e. all non-digital NGG activities such as directly operated retail stores and select wholesale. We believe that this structure will allow us to drive cost efficiencies by scaling our business, enhancing our profitability and allowing us to invest in our technology and ops platforms at a larger scale. Historically, the marketplace has not had a single leader accountable for its entire P&L. But I am taking this opportunity to reinforce the platform philosophy across our organization with clear accountability around each of the three PUs. As such, we have reorganized the business according to these principles and have created two new roles. Chief Marketplace Officer, who will be accountable for the performance of the marketplace's PU and Group President, whose role is to position our Firefetch Group capabilities to the industry, ensuring our three BUs work together to deliver on Firefetch's mission to be the platform for luxury. I am delighted to share that Edward Sabach, previously VP Marketplace, will take the post of Chief Marketplace Officer and that Stephanie Fair will be our Group President. I am excited with this new structure and I believe it prepares us for the incredible growth ahead of us in 2023 and in years to come. One of the benefits of this work has been the identification of a number of duplications and overlaps across the previous org. This means that we will be able to streamline our organization and reduce our headcount around overlapping functions and teams. But because we have areas of our business that are adding large clients and growing rapidly, Our overall headcount by year 2022 is still expected to be just slightly higher than year 2021. At the exec level, two of our executives will be transitioning out of the business. Chief Marketing Officer, Gareth Jones, as well as Chief Commercial and Sustainability Officer, Jorge Belloli, who will be succeeded by our Senior Vice President Commercial, Steven Eggleston, who has been with Firefetch for almost seven years. Giorgio will remain on board to help with the transition until the end of 2022 and then in an advisory capacity through the end of 2023. I want to thank both Giorgio and Gareth for their incredible contributions to advance Farfetch's mission to be the global platform for the lecture industry and for building teams with amazing talent to carry us through our next phase. I also want to thank all those Farfetchers who have been an incredible part of our journey and will now part ways with us as part of this reorg. They are all incredibly talented. We wish them the very best and we are sure they will do extremely well. And now I'd like to congratulate Stephanie on her new role and pass the call to her to update you on the progress we're making within the Farfetch group.