Farfetch Limited

Good afternoon and welcome to Farfetch Q1 2023 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 first quarter 2023 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. Please note that unless otherwise stated, all comparisons on this call will be on a year-over-year basis. During today's call, we will also be displaying a slide presentation throughout our prepared remarks, which can be accessed as part of the live webcast at farfetchinvestors.com. Following the call, the slide presentation will also be uploaded to the site. 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 8, 2023. 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, which is 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. I'm pleased to report that Farfetch is back to growth. This is despite the continued headwinds from Russia, China and the stronger US dollar, with Q1 2023 adjusted revenue up 4% or 13% on a constant currency basis, and adjusted EBITDA margin improving for the first time in five quarters. We have set 2023 to be our year of execution, and I'm delighted that we are absolutely delivering as reflected in our Q1 results, as well as recent milestone launches. Our key 2023 launches, including Reebok and Ferragamo, have either been delivered or remain on schedule for launch later this year, as in the case of Neiman Marcus Group. Additionally, our announced transaction with Richemont continues to advance through the regulatory review process and our cost reduction and working capital initiatives towards achieving our 2023 profitability and free cash flow objectives are well on track. Underlying our Q1 performance is strong execution across our business. I'd like to share with you some recent highlights across our three business pillars, marketplaces, platform solutions and brand platform. Within marketplaces, the Farfetch marketplace demonstrated notable progress with underlying growth as measured by order growth, ex-Russia and China accelerating to 18% in Q1 as compared with 12% in Q4 2022. With respect to China, we saw a marked improvement in Q1 mainland China GMV. While still in decline, it was to a lesser extent than in Q4 2022, and I'm pleased to share that performance has continued to ramp up as we expected, with GMV back to growth quarter to date. I have just spent a week in mainland China and Hong Kong, and I am very excited by what I witnessed. Not only does the country seem to be back to normal with a lot of positive energy, it is also clear that the appetite for luxury is very strong. This makes me even more enthusiastic in light of what Farfetch has built in this market. I believe we are the only Western company succeeding at a multi-hundred-million-dollar scale in online luxury in China. In fact, very few Western Internet companies have been able to find a strong product-market fit in China. Yet Farfetch, thanks to the unique dynamics of the luxury industry, our continued investment in localized operations over the past eight years, And an amazing team on the ground has created a very differentiated platform for luxury brands to reach their Chinese customers digitally. China is expected to represent more than 25% of the luxury industry by 2030. and with mainland China at less than 10% of our overall business, this means we have significant potential for further growth as our recovery in this market accretes positively to our overall 2023 plans. We are also delighted to see our internationalization efforts pay off in other key luxury markets, including in Latin America and the Middle East, where GMV grew strong double digits in Q1. Turning to the US, in Q1, GMV declined as expected, as a result of our reduction of US online marketing investment by more than 20% over the last three quarters in light of the heightened promotional environment and our increase focused on optimizing for profitability. But we're pleased to see that we have actually increased the active customer count and orders by high single digits and that US GMV declined to a lesser extent in Q1 than in Q4 2022. We expect the promotional dynamic will moderate over the course of the year as retailers sell through their inventory positions. And as we start to comp 2022 declines in Q3 and Q4, we expect the US to be back to growth in the second half of 2023. and in the wider Americas region, thanks to the significant growth and scale of our Brazilian and Mexican businesses, we delivered positive growth, which shows the power of operating a truly global platform, something Stephanie will discuss further today. With our second business pillar, Platform Solutions, the teams have been laser focused on supporting our existing clients while also delivering on our 2023 launches. To this end, I am delighted to report that in Q1, we expanded our relationship with key strategic partner, Harris. with FPS's launch of Harris.cn providing the iconic retailer with a localized e-commerce channel to cater to a pivotal audience of Chinese luxury consumers. The platform solutions and brand platform teams have also delivered unplanned 2023 launches. We were thrilled to launch the initial e-commerce channel for 360-degree partner Ferragamo in Europe, with US and key international markets launching in the coming months. Additionally, our new brand platform license, Reebok, went live this month thanks to FPS's launch of the European e-commerce channel and the brand platform's kickoff of wholesale operations. Later this year, we look forward to also launching Bergdorf Goodman as part of our broader partnership with Neiman Marcus Group, which remains on track for H2. And finally, our announced transaction with Richemont continues to progress through the regulatory review process, with approvals now received in markets including the UK and China. The transaction remains subject to approval from a number of other regulatory authorities around the world, with whom we continue to work closely. Our Q1 results reflect our disciplined focus. Based on our performance, we remain on track to deliver on our 2023 plan, which is the first step towards achieving our medium-term targets and our longer-term mission to be the leading global platform for luxury. This represents a more than 360 billion opportunity today. With technology at the core of our business, we have consistently led innovation in the luxury space, having been chosen to be the long-term innovation partners by companies such as Chanel, Richemont, Kering, Harrods, Neiman Marcus and others. One of the areas we are most excited about is the recent developments that large language models are bringing to the field of AI. We're already in a leading position with respect to AI in the luxury industry, with significant in-house data science, AI and machine learning teams. And we have been active in this space for many years now. Our longstanding partnership with Microsoft has opened up the opportunity to access the most advanced version of ChatGPT, and our tech teams have been developing several concrete applications of ChatGPT for the luxury space. I believe this could be a significant development for Farfetch. Our unrivaled range is the reason why our customers choose Farfetch. But large language models open up areas like search and discoverability and storytelling of our brand catalog to provide a much easier to use, hyper-personalized interface for our luxury customers. Large language models also offer other potential applications to augment the productivity and quality of providing customer service and creating product descriptions, for example. This is an exciting development in FireFetch's long history of successes in AI and machine learning. There's still a lot to be discovered in this field and along the way we will always have the customer in mind and the need to provide a truly exceptional luxury experience. I am very excited by the near-term prospects of rolling out consumer-facing applications of these new AI developments and I look forward to opportunities for FireFetch platform solutions to collaborate with brands in developing AI applications to enhance their own digital channels. With that, I will turn it over to Stephanie.