Farfetch Announces Fourth Quarter and Full Year 2022 Results

• Record Revenue in 2022 of $2.3 billion, up 3% year-over year (or up 12% year-over-year at constant currency)
• 2022 GMV decreases 4% year-over-year to $4.1 billion (or increases 2% year-over-year at constant currency)
• Q4 2022 Revenue decreases 5% year-over-year (or increases 2% year-over-year at constant currency) to $629 million
• Q4 2022 Gross Merchandise Value ("GMV") decreases 12% year-over-year (or decreases 5% year-over-year at constant currency) to $1.1 billion
• Q4 2022 Digital Platform GMV decreases 12% year-over-year (or decreases 6% year-over-year at constant currency) to $1.0 billion
• Q4 2022 Brand Platform GMV decreases 15% year-over-year (or decreases 3% year-over-year at constant currency) to $100 million
• Q4 2022 Gross Profit Margin of 41.1% (a decrease of 600 bps year-over-year) and Digital Platform Order Contribution Margin of 31.5% (a decrease of 90 bps year-over-year)
• Q4 2022 Loss after Tax of $177 million
• Q4 2022 Adjusted EBITDA of $(35) million
• Cash and Cash Equivalents of $734 million as of December 31, 2022

Farfetch Limited (NYSE:FTCH) ("Farfetch" or the "Company"), the leading global platform for the luxury fashion industry, today reported financial results for the fourth quarter and full year ended December 31, 2022.

José Neves, Farfetch Founder, Chairman and CEO, said: "I am proud to report Farfetch adeptly navigated unprecedented macro headwinds throughout 2022 to deliver growth on a constant currency basis, with full year GMV of $4.1 billion. Our performance also means we captured market share on a 3-year stack basis, with GMV nearly doubling since the onset of the COVID-19 pandemic - a truly remarkable accomplishment.

"Farfetch enters 2023 as a significantly more efficient business following our strategic reorganization and cost rationalizations. Our solid start to the year gives me confidence 2023 will be a Year of Execution with growth building throughout the year as we comp the previous year's macro headwinds and launch exciting new partners to deliver strong growth, Adjusted EBITDA and positive free cash flow.

"The mission to be the global platform for luxury is now more relevant than ever, and Farfetch continues to advance towards that exciting vision."

Elliot Jordan, CFO of Farfetch, said: "I'm pleased to report our fourth quarter 2022 results which demonstrate that we continue to deliver solid underlying performance, are managing to navigate unprecedented external factors and are clearly focused on the actions needed to return the business to profitability and generating positive free cash flow in 2023. Our long term trajectory has been one of strong GMV growth, operating cost leverage and improving full year Adjusted EBITDA margins. We expect to return to this position by the end of 2023, which will be a great year for Farfetch."

Consolidated Financial Summary and Key Operating Metrics (in $ thousands, except per share data, Average Order Value, Active Consumers or as otherwise stated):

Recent Business Highlights

Digital Platform

• In the fourth quarter 2022, third-party transactions generated 80% of Digital Platform GMV; Third-Party Take Rate was 32.4%, supported by record media solutions revenue which increased more than 50% year-over-year
  • First-Party Original generated 4% of Digital Platform GMV in fourth quarter 2022
• The Farfetch Marketplace continued to offer customers the most extensive selection of in-season luxury fashion on a global platform from over 1,400 sellers, as supply from both multi-brand retailers and e-concession partners continued to increase year-over-year to total stock units of over 15 million in fourth quarter 2022
• Continued to build on digital and artificial intelligence capabilities to increase personalization and drive engagement on the Farfetch Marketplace
  • Launched 'FARFETCHED for you', powered by our proprietary algorithm, which recommends a weekly set of up to 100 new pieces curated to each customer's personal style
  • Leveraged augmented reality technology in launching interactive 3D viewer tool for select handbags available on the Farfetch Marketplace
  • In North America, introduced ‘Violet Code Approved' by Farfetch on the Farfetch Marketplace
• Media Solutions continued to sign new accounts including Longchamp, Etro, and Jil Sander, and featured new and innovative campaigns including:
  • Valentino's Fall Winter 22 ‘Pink PP' Collection which provided Private Clients early access to the collection and exclusive products
  • The reveal of Ferragamo's new creative direction by Maximillian Davis with an exclusive Spring Summer 23 capsule on Farfetch
• FPS launched additional Harrods e-concessions-as-a-service launches including Balmain, and Cashmere in Love
• Launched installments of Farfetch BEAT, the concept retail series that introduces exclusive product experiences to an international audience:
  • Partnered with Esteban Cortázar in the re-release of some of his most iconic designs worn by Paris Hilton, Ashanti, and Kim Cattrall, for exclusive launch on the Farfetch Marketplace
  • In January 2023, Palm Angels curated a limited-release package for the Farfetch Marketplace that include customizable versions of their University sneakers
  • Off-White joined forces with the legendary Chicago Bulls to create an exclusive limited-edition capsule collection in February 2023
• Featured Gucci's Cosmogonie galaxy installation at our Browns boutique in London
• In January 2023, in partnership with Outlier Ventures, a leader in early-stage Web3 incubation, launched the second cohort of the Dream Assembly Base Camp

New Guards Group

• New Guards brands continued to focus on direct-to-consumer channels while creating culturally relevant collections:
  • At the Abu Dhabi Formula One race, Palm Angels unveiled a partnership with Haas F1 to add its creative lens to the team's content and channels as its 'EntArtainment Curator'
  • Isamaya Ffrench joined Off-White as Beauty Curator in February 2023

Fourth Quarter and Full Year 2022 Results Summary

Gross Merchandise Value (in thousands):

GMV decreased $149.2 million from $1,289.1 million in fourth quarter 2021 to $1,139.9 million in fourth quarter 2022, representing a year-over-year decline of 11.6%. Excluding the impact of changes in foreign exchange rates, GMV would have decreased 5.3% year-over-year. Digital Platform GMV decreased $133.7 million from $1,146.2 million in fourth quarter 2021 to $1,012.5 million in fourth quarter 2022, representing a year-over-year decline of 11.7%. Excluding the impact of changes in foreign exchange rates, Digital Platform GMV would have decreased 6.0% year-over-year.

Digital Platform GMV performance in fourth quarter 2022 reflects continuing headwinds from the suspension of trade in Russia, where trade has been ceased since March 2022, and mainland China, where regional COVID-19 restrictions continued to impact trade during the fourth quarter. Digital Platform GMV performance also reflects a decrease in Marketplace AOV from $635 to $549 driven by the currency translation impact of the strengthening of the US Dollar, as well as a decline in average selling price, which was partially offset by an increase in the number of items per order.

Brand Platform GMV decreased 14.5% year-over-year from $117.2 million in fourth quarter 2021 to $100.2 million in fourth quarter 2022. Excluding the impact of changes in foreign exchange rates, Brand Platform GMV would have decreased 3.4% year-over-year. The decrease on a constant currency basis was driven by a change in the delivery schedule in shipping of the Spring-Summer 2023 collections.

In-Store GMV increased 5.6% year-over-year from $25.8 million in fourth quarter 2021 to $27.3 million in fourth quarter 2022. Excluding the impact of changes in foreign exchange rates, In-Store GMV would have increased 16.8% year-over-year. The increase on a constant currency basis was driven by additional openings of New Guards brands' stores in the last twelve months, as well as like-for-like growth from existing stores.

Revenue (in thousands):

Revenue decreased $36.5 million year-over-year from $665.7 million in fourth quarter 2021 to $629.2 million in fourth quarter 2022, representing year-over-year decline of 5.5%. The decrease was driven by a decrease in Digital Platform Revenue of 3.7% to $506.4 million, a 16.2% decrease in Brand Platform Revenue to $98.2 million, partially offset by 9.3% growth in In-Store Revenue to $24.5 million. Excluding the impact of changes in foreign exchange rates, revenue would have increased 2.2% year-over-year.

Digital Platform Services Revenue decreased 2.1% year-over-year driven by third-party revenue. Digital Platform Services first-party revenue increased 11.5% as compared to the previous year, primarily driven by increased sales of first-party products on the marketplace supported by increased clearance activity. Digital Platform Services third-party revenue decreased year-over-year by 10.2% impacted by the same factors driving GMV, partially offset by growth in advertising revenue. Excluding the impact of changes in foreign exchange rates, Digital Platform Services Revenue would have increased 4.4% year-over-year.

Digital Platform Fulfilment Revenue represents the pass-through to consumers of delivery and duties charges incurred by our global logistics solutions, net of any Farfetch-funded consumer promotions, subsidized shipping and incentives. Digital Platform Fulfilment Revenue decreased 11.0% year-over-year, less than the overall Digital Platform GMV decline of 11.7%, resulting from a slight increase in pass-through of such costs to consumers in fourth quarter 2022.

Brand Platform Revenue decreased 16.2% year-over-year, which was greater than the decline in GMV, due to the reduction of revenue of $1.9 million generated by the net economic loss from the Reebok partnership that commenced in March 2022. Excluding the impact of changes in foreign exchange rates, Brand Platform Revenue would have decreased 5.0% year-over-year.

Cost of Revenue (in thousands):

Cost of revenue increased $18.5 million, or 5.2%, year-over-year from $352.3 million in fourth quarter 2021 to $370.8 million, driven by increases in cost of revenue in each segment.

Digital Platform Services cost of revenue increased year-over-year primarily due to an increased mix of first-party revenue, partially offset by a decrease in third-party Digital Platform Services cost of revenue.

Gross profit (in thousands):

Gross profit decreased $55.0 million, or 17.5%, year-over-year, to $258.4 million in fourth quarter 2022. Gross Profit Margin decreased 600 bps year-over-year to 41.1%, driven by margin declines across all three segments.

Digital Platform Gross Profit Margin decreased 590 bps to 47.4% in fourth quarter 2022, from 53.3% in fourth quarter 2021, as Digital Platform Services costs of revenue increased at a higher rate than Digital Platform Services revenue. The decrease in Digital Platform Gross Profit Margin was driven by the decline in Digital Platform first-party Gross Profit Margin, as a result of continued stock clearance and provisioning activity on Browns products.

Brand Platform Gross Profit Margin decreased 1,490 bps year-over-year to 44.2%, driven by the recognition of the net economic loss from the Reebok partnership in fourth quarter 2022, the impact of stock clearance activity and non-recurring discounts received from vendors in the prior year.

Selling, general and administrative expenses (in thousands):

Selling, general and administrative expenses increased $56.8 million or 14.1%, year-over-year, from $403.4 million in fourth quarter 2021 to $460.2 million in fourth quarter 2022.

Demand generation expense decreased $22.9 million, or 25.5%, year-over-year to $67.1 million in fourth quarter 2022. As a percentage of Digital Platform Services Revenue, Demand generation expense was 15.9% compared to 20.9% in fourth quarter 2021. This decrease was driven by increased marketing efficiencies and continued redistribution of spend between territories during fourth quarter 2022, such as the strategic decision to pull-back spend from the United States.

Our total investment in technology, which includes technology expense and our investments in longer term development projects which are treated as capital items, remained largely flat at 11.6% of Adjusted Revenue in fourth quarter 2022 and 11.3% in fourth quarter 2021.

Technology expense primarily relates to maintenance and operations of our platform features and services, as well as software, hosting and infrastructure expenses, which include three globally distributed data centers, including one in Shanghai, which support the processing of our growing base of transactions. Technology expense decreased $4.3 million in fourth quarter 2022 year-over-year, or 14.1%. This was driven by an increase in investments into capitalizable longer term development projects, including marketplace initiatives and re-platforming projects, as well as benefits from cost efficiencies in fourth quarter 2022.

Depreciation and amortization expense increased $16.3 million, or 23.4%, year-over-year from $69.7 million in fourth quarter 2021 to $86.0 million in fourth quarter 2022. This was primarily due to the amortization of the $364.1 million intangible asset recognized in relation to the Reebok partnership in March 2022 as well as increased amortization expense driven by increased technology investments, where qualifying technology development costs are capitalized and amortized over their useful lives.

Share-based payments increased $17.8 million, or 36.0% year-over-year in fourth quarter 2022 due to increased equity-settled grants in 2022 and a lower credit from share price movements related to employment-related taxes in fourth quarter 2022 compared to fourth quarter 2021.

General and administrative expense increased $43.0 million, or 27.5%, year-over-year in fourth quarter 2022. Cost savings arising from the streamlining of our cost base, including headcount reductions, were more than offset by an increase in realized foreign exchange losses and hedging losses, the consolidation of businesses acquired over the past year, and marketing initiatives to support New Guards brands. Additionally, in fourth quarter 2021 there was a reversal of accrued variable compensation which did not recur in fourth quarter 2022.

General and administrative expense increased as a percentage of Adjusted Revenue to 36.6% compared to 27.4% in fourth quarter 2021. This increase was primarily driven by slower growth in Adjusted Revenue and the factors mentioned in General and administrative expense above.

Gains/(losses) on items held at fair value and remeasurements (in thousands):

The $112.9 million of remeasurement gains on put and call option liabilities in fourth quarter 2022 are related to a $51.7 million gain on the remeasurement of the put and call option over the 40% of Palm Angels' share capital not owned by New Guards, a $39.0 million gain on the remeasurement of the put and call option resulting from the November 2020 strategic agreement with Alibaba Group Holding Limited ("Alibaba Group") and Compagnie Financiere Richemont SA ("Richemont"), a $18.5 million remeasurement gain in connection with Chalhoub Group's put option over their non-controlling interest in Farfetch International Limited, and a $3.8 million gain on the remeasurement of the put option over Alanui S.r.l.

The $59.0 million remeasurement gains on put and call option liabilities in fourth quarter 2021 were related to a $61.1 million gain on the put and call option resulting from the November 2020 strategic agreement with Alibaba Group and Richemont, a $7.2 million remeasurement gain in connection with the Chalhoub Group's put option over the non-controlling interest in Farfetch International Limited, and a $0.7 million gain on the put and call option over the non-controlling interest in Alanui S.r.l., partially offset by a $10.0 million loss on the put and call over the 40% share capital in Palm Angels not owned by New Guards.

The $38.0 million of fair value gains on embedded derivative liabilities in fourth quarter 2022 were primarily driven by the decrease in our share price during the period. The fair value gains on embedded derivative liabilities in fourth quarter 2022 were comprised of the following revaluation gains on our convertible senior notes: (i) $6.3 million fair value gains related to $250 million 5.00% notes due in 2025 (the "February 2020 Notes"); (ii) $20.3 million fair value gains related to $400 million 3.75% notes due in 2027 (the "April 2020 Notes"); and, (iii) $11.4 million fair value gains related to $600 million 0.00% notes due in 2030 (the "November 2020 Notes"). These notes have provided strong liquidity to fund ongoing capital needs and invest in various growth initiatives.

The $157.9 million fair value gains on embedded derivative liabilities in fourth quarter 2021 were primarily driven by the decrease in our share price during the period. The fair value gains on embedded derivative liabilities in fourth quarter 2021 were comprised of $22.4 million fair value gains related to the February 2020 Notes, $92.1 million fair value gains related to the April 2020 Notes and $43.4 million fair value gains related to the November 2020 Notes.

Impairment losses on tangible and intangible assets (in thousands)

Impairment losses of $98.4 million in fourth quarter 2022 primarily comprise $93.8 million relating to intangible assets, including goodwill, and $4.6 million relating to tangible assets allocated to smaller cash generating units ("CGUs") within the Company. The impairment resulted from our annual impairment assessment, primarily reflecting the macroeconomic environment. No impairments were noted on significant CGUs in fourth quarter 2022.

Profit/(Loss) After Tax

Profit/(loss) after tax decreased $273.6 million year-over-year from a $96.9 million profit in fourth quarter 2021 to a $176.7 million loss in fourth quarter 2022, primarily driven by a decrease in gross profit of $55.0 million, an increase in selling, general and administrative expenses of $56.8 million, a decrease in gains on items held at fair value and remeasurements of $69.8 million and $98.4 million of impairment losses.

EPS and Diluted EPS

Fourth quarter 2022 basic EPS was $(0.44) and diluted EPS was $(0.66). Diluted EPS assumes that the Chalhoub liability, the Palm Angels liability and Farfetch China Holdings Ltd ("Farfetch China") liability held on the statement of financial position at December 31, 2022 would have been settled in shares at the beginning of fourth quarter 2022. As such, diluted EPS excludes the gains on items held at fair value and remeasurements related to the Chalhoub liability, Palm Angels liability, Farfetch China liability, net of any applicable tax.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA declined by $70.7 million to a loss of $34.6 million and Adjusted EBITDA Margin declined from 6.3% to (6.3%) in fourth quarter 2022, primarily due to growth in general and administrative expenses and a decline in Adjusted Revenue.

Liquidity

Liquidity as of December 31, 2022 was comprised of cash and cash equivalents of $734.2 million. The decrease in cash and cash equivalents of $628.9 million for the twelve months ended December 31, 2022, from $1,363.1 million at December 31, 2021, was primarily driven by a net cash outflow from operating activities of $536.6 million primarily as a result of funding working capital; the strategic minority common equity investment of $200.0 million in the Neiman Marcus Group in May 2022, and cash payments for business combinations and intangible assets of $222.5 million, partially offset by a $369.1 million increase in cash from the net proceeds of the $400.0 million Term Loan.

Foreign Exchange Rate Fluctuations

"Constant currency" means translating current period financial data at the prior year average exchange rates applicable to the local currency in which the transactions are denominated.

Our financial information is presented in U.S. dollars, which differs from the underlying functional currencies of certain of our subsidiaries (including New Guards whose functional currency is the euro), exposing us to foreign exchange translation risk on consolidation. This risk is currently not hedged and therefore our results of operations have in the past, and will in the future, fluctuate due to movements in exchange rates when currencies are translated into U.S. dollars.

At a subsidiary level we are also exposed to transactional foreign exchange risk because we earn revenues and incur expenses in a number of different foreign currencies relative to the relevant subsidiary's functional currency, mainly the pound sterling and the euro. Movements in exchange rates therefore impact our subsidiaries and thus, our consolidated results and cash flows. We hedge a portion of our core transactional exposures using forward foreign exchange contracts and foreign exchange option contracts; however, we are exposed to fluctuations in exchange rates on the unhedged portion of the exposures.

Outlook

Uncertainties resulting from the impact of the COVID-19 pandemic particularly in the China region, suspension of trade in Russia, macroeconomic factors and geopolitical turmoil could have material impacts on our future performance and projections. Several factors that could potentially impact our future performance include, among others:

• disruptions to our operations, fulfilment network, and shipments;
• fluctuations in foreign exchange rates;
• weakened consumer sentiment and discretionary income arising from macro-economic conditions;
• increased costs to support our operations;
• slowing e-commerce consumer activity as vaccinations gain acceptance and populations resume to pre-pandemic activities and lifestyles; and
• reduced demand for our offerings and services.

The following reflects Farfetch's expectations for Full Year 2023 as of February 23, 2022:

• Group GMV of approximately $4.9 billion
• Digital Platform GMV of approximately $4.2 billion
• Brand Platform GMV of approximately $0.6 billion
• Adjusted EBITDA margin of 1% to 3%

Conference Call Information

Farfetch Limited will host a conference call today, February 23, 2023, at 4:30 p.m. Eastern Time to discuss the Company's financial results as well as expectations about Farfetch's business. Listeners may access the live conference call and accompanying slides via live webcast at http://farfetchinvestors.com, where listeners can also access Farfetch's earnings press release. Following the call, a replay of the webcast and slide presentation will be available at the same website for at least 30 days.