Farfetch Limited

Good afternoon and welcome to Farfetch Q3 2022 results conference call. My name is Olivia and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. Thank you. I now like to turn the call over to Alice Ryder, VP of Investor Relations. Miss Ryder, you may now begin your conference.

Hello, and welcome to Farfetch's third 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 20-F 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. Thank you for joining us today. Since 2019, we've navigated unprecedented world events and captured market share, placing us on track to broadly double our business over a three-year period, both in terms of GMV and revenue. Along the way, we cemented our ambition of becoming the global platform for luxury, advancing transformational partnerships that we believe will deliver us strong growth and profitability in years to come. Luxury is an incredible industry which has demonstrated its resiliency over the decades and is expected to grow from circa $350 billion in 2022 to over $500 billion by 2030. Farfetch has built a platform for this industry in pursuit of a unique mission that sees us more galvanized than ever as we continue to navigate the challenging macro environment. I am pleased to report that in Q3 we delivered year-on-year revenue growth of 14% and GMV growth of 4% on a constant currency basis with improved order contribution margins. This is in spite of the significant impact from our stoppage of operations in Russia and continued impacts of COVID restrictions in China, which were two of our three largest marketplace markets in 2021. In this year of macro headwinds, our focus has been on furthering the rationalization of our cost base. In this vein, we've taken the opportunity to redesign the entire Farfetch organization in order to seize the sizable enterprise milestones ahead with a sharp and focused on efficiency and profitability. And while this is ongoing, I'm pleased with the initial results and the performance of our energized leadership team under this new framework. This reorganization is enabling us to fundamentally restructure our headcount allocation and cost base. And we are already seeing some initial benefits with SG&A costs declining quarter over quarter in Q3. The fact that this was achieved in parallel with our continued investments in our new FPS and NGG strategic initiatives also demonstrates the scalability of our platform. And we're doing all of this whilst remaining focused on our North Star, as the incredible opportunity to build the Global Platform for Luxury becomes more relevant and attractive than ever. Another area of focus in the current environment has been on further expanding margins through a greater emphasis on disciplined growth. As a result of this initiative, Q3 gross profit margin increased 160 basis points year-on-year to 45% and digital platform order contribution margin expanded 580 basis points year-on-year to 32.4% and we plan to extend this trading strategy through Q4. In the current global macro environment, we're seeing continued digital media cost inflation for luxury, especially in the US, as well as reports of higher inventories indicating we're going to be heading to a very promotional environment. We've made the strategic decision of prioritizing margin profitability over growth in this promotional market, which is reflected in our revised full year 2022 guidance. Overall, our achievements in delivering disciplined underlying growth, expansion of margins, and reduction of the fixed cost base position Firefetch to emerge from this period as an even stronger business. As such, in 2023, we expect to return to solid growth, while also delivering adjusted EBITDA profitability and positive free cash flow. And we will continue to focus on these top priorities while also supporting the strategic partnerships that we signed in 2022 for launch over the next two years. Nieman Marcus Group, Ferragamo, Reebok and subject to regulatory approvals Richemont and YNEP. We are tremendously excited about the future and are planning to share more details about our 2023 and long-term plans in our upcoming Capital Markets Day on December 1st. And now, I'd like to let Stephanie update you on our audience and the strategic value we are bringing to brands.