Not all retailers are suffering. Farfetch Ltd (NYSE:FTCH) is a luxury e-commerce company that has seen its share price soar over the last year.
Farfetch stock is up 210% year-over-year, 160% year-to-date, and an eye-watering 350% since hitting March lows of $5.99.
Why is Farfetch Ltd doing so well in light of the coronavirus pandemic, a global recession, and isolation orders? Especially at a time when millions of Americans have filed for unemployment, and well-known companies like J C Penney Company Inc, Hertz Global Holdings Inc, Neiman Marcus Group Ltd. LLC, J.Crew Group, Inc., Pier 1 Imports Inc, and Brooks Brothers have filed for bankruptcy protection?
It’s precisely for these reasons. And more. Farfetch doesn’t cater to the average shopper. Its target audience consists of those who shop for luxury (read expensive) items.
For starters, the rich have gotten richer during the pandemic. Just like they did during 2008’s Great Recession.
The wealthiest Americans fully recovered their losses associated with the Great Recession within three years. Within 10 years, their wealth had soared by over 80%.
Contrast that with the average American during the financial crisis. Over the same time frame, only 20% had fully recovered their wealth. (Source: “Billionaires are getting even richer from the pandemic. Enough is enough,” CNN, May 11, 2020.)
Fast forward to 2020, and not much has changed. A growing number of Americans, roughly 30%, don’t have an emergency fund. Even before the coronavirus pandemic, roughly 80% of Americans were living paycheck to paycheck. The opposite is true for the wealthiest Americans…or wealthiest people anywhere. (Source: “78% Of Workers Live Paycheck To Paycheck,” Forbes, January 11, 2019.)
And Farfetch Ltd is capitalizing on this growing wealth and the shift to buying luxury goods online. That’s not going to change even after things get back to “normal.”
FTCH Stock Overview
You may not be a billionaire, but you can at least make money off of them.
Through its subsidiary, www.Farfetch.com, Farfetch sells luxury goods to house-bound consumers in the Americas, Europe, the Middle East, Africa, and Asia-Pacific. (Source: “Investors,” Farfetch Ltd, last accessed September 3, 2020.)
As the No. 1 global online luxury platform, the Farfetch Marketplace connects 2.5 million active consumers in over 190 countries with approximately 1,300 of the world’s top brands, boutiques, and department stores.
Some of the more well-known brands that Farfetch.com sells include “Prada,” “Miu Miu,” “Balenciaga,” “Aquazzura,” “Manolo Blahnik,” “Versace,” “Alexander McQueen,” and “Burberry.”
The joy of Farfetch.com is that it also provides consumers with a chance to discover boutique brands they might not otherwise be familiar with. It’s tough for smaller companies and boutiques to reach a global market, but Farfetch makes it easier.
The company also owns two Browns retail stores in London, England, one Stadium Goods retail store in New York City, and two New Guards Off-White stores in Las Vegas and New York. On top of that, it operates approximately 50 New Guards franchised retail stores.
Chart courtesy of StockCharts.com
Record Second-Quarter Results
On August 13, Farfetch Ltd announced that revenue for the second quarter ended June 30 increased 74% year-over-year to $365.0 million. (Source: “Farfetch Announces Second Quarter 2020 Results,” Farfetch Ltd, August 13, 2020.)
That growth was driven by a 48% increase in gross merchandise value (GMV; the value of everything sold on its platform) and a 34.6% increase in digital platform service revenue to $237.6 million. Second-quarter digital platform GMV was up 34% at a record $651.0 million.
Second-quarter brand platform revenue came in lower than expected, at $66.0 million. But that was because of delays in the fall-winter 2020 shipments, as retailers focused on selling through spring-summer 2020 inventory.
Gross profit increased by 86.9% year-over-year to $74.1 million.
Farfetch is working towards turning adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) profitable in 2021. In the second quarter of 2020, adjusted EBITDA improved to a loss of $25.0 million from a loss of $37.5 million in the same period last year.
Because of COVID-19, the company’s online traffic volume increased significantly, up more than 60%; more than doubling the number of app installs and reflecting the largest addition of more than 500,000 new customers.
On the brand front, second-quarter 2020 in-season stock was at its highest level, with more than 380,000 stock keeping units (SKUs) from over 3,500 brands. The company also maintained a 100% three-year retention of the top 100 direct brands and top 100 boutique partners.
José Neves, Farfetch founder, chairman and CEO said, “Second quarter 2020 was record-breaking for Farfetch. Digital Platform GMV was an all-time high $651 million, we attracted more than half a million new consumers – our highest ever, and brands and retailers leaned in to offer the broadest selection of luxury fashion we have ever seen on the Marketplace.”
Farfetch Ltd’s Business Outlook
For the third quarter of fiscal 2020, Farfetch expects to report:
- Digital platform GMV of $588.0 million to $609.0 million, representing growth of 40% to 45% year-over-year
- Brand platform GMV of $90.0 million to $95.0 million
- Adjusted EBITDA loss of $20.0 million to $25.0 million
Farfetch Ltd is an e-commerce company that has tapped into an underdeveloped, fragmented industry that’s ripe for long-term growth. It has been adding new brands and boutiques and the number of new customers is at record levels. As a result, revenues are up and the company is targeting adjusted EBITDA profitability in 2021.
All of this should see the company grow and generate significant free cash flow, which also happens to bode well for investors.