Luxury online fashion marketplace, Farfetch, once hailed as a game-changer in the luxury e-commerce space, is now grappling with a series of financial and strategic challenges that have left investors and analysts concerned.
Farfetch’s recent Q2 earnings report painted a grim picture. The company’s revenue dipped by 1.3% YoY to $579.35 million, missing the consensus estimate of $648.27 million. This disappointing performance sent its shares plummeting, with a more than 30% drop in after-hours trading. The company’s adjusted EPS stood at ($0.21), albeit better than the anticipated ($0.28).
The lackluster earnings report prompted swift reactions from Wall Street. JPMorgan analysts downgraded Farfetch from “Overweight” to “Neutral” and slashed the price target to $6. KeyBanc followed suit, citing diminished confidence in the company’s near-term prospects.
Farfetch’s operational decisions have come under scrutiny. Its New Guards Group, which houses brands like Off-White and Palm Angels, witnessed a staggering 40% YoY slump in sales. The company attributed this decline to decreased orders for autumn and winter merchandise from department stores in key markets, including the US and UK.
Moreover, Farfetch’s decision to shut down its nascent beauty business at the end of the month has raised eyebrows. This decision marks a significant shift from its earlier strategy, where the company aimed to capture a slice of the lucrative $70 billion beauty market.
The luxury fashion industry, valued at over $1.1 trillion, is undergoing a seismic shift. While the sector is projected to grow at mid-to-low double digits in the next half-decade, Farfetch’s position in this growth trajectory seems uncertain). The company’s challenges are emblematic of the broader industry’s struggles, with giants like Kering and Burberry also reporting subdued revenues.
Macroeconomic factors further cloud Farfetch’s outlook. The looming threat of a recession, coupled with rising inflation, could dampen consumer spending in the luxury segment. Such challenges are already manifesting, with Farfetch revising its sales outlook downwards by $500 million for the year.
From an investment standpoint, Farfetch’s route to profitability appears rocky. The company’s high G&A expenses and the looming need for additional financing in the near future have raised red flags.
Once a beacon of innovation in the luxury e-commerce space, Farfetch now stands at a crossroads. As the company navigates its internal challenges and external economic pressures, the broader financial community watches closely, pondering a crucial question: Just how deeply in trouble is Farfetch?