Farfetch is starting to get back into growth mode — and the good graces of Wall Street.
Shares of Farfetch shot up 16.8 percent to $5.07 in after-hours trading on Thursday after the company reported first-quarter results that showed gross merchandise volume had inched up 0.1 percent to $931.7 million. Revenues for the quarter increased 8 percent to $556.4 million.
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The stock is still well off of Farfetch’s 52-week high of $12.89, but the jump back gives the company some welcome momentum.
The first-quarter performance marked a significant turn for Farfetch, which saw GMV drop 12 percent in the fourth quarter, when China was hindered by COVID-19 lockdowns and the comparisons were hurt by the closure of the company’s Russia business.
Now José Neves, founder, chairman and chief executive officer, is looking to press forward to profitability — with cost cuts and a flurry of new partnerships — while positioning the company to lead in the buzzy world of AI.
Farfetch, the rare fashion company that is also a real player in tech, has a long-standing partnership with Microsoft that has allowed it to access the most advanced version of ChatGPT to develop luxury applications.
In an interview with WWD, Neves, a technologist at heart, acknowledged the broader societal concerns around artificial intelligence.
“Any technology is a double-edged sword,” the CEO said. “And technologies can always be used for good or not.”
But in fashion, he said the application of AI would be more straightforward compared with the ethical questions faced by the broader search platforms.
“In terms of our industry in particular, fortunately it’s all about celebrating individuality, celebrating style, celebrating creativity,” he said. “And one of the things that is important in fine-tuning and training these models is really making sure that we’re focused on what we’re all about, which is discovering this amazing world of fashion globally. And bring that in an elevated and personalized way to customers and not really get into areas that in other businesses will be very problematic.
“The key is to have the customer in mind, to have the brand’s image in mind and always make sure that we elevate the customer experience,” Neves said.
That is not a new idea at Farfetch.
“We always take a very customer-centric view,” Neves said. “We don’t like technology for the sake of technology. We don’t think that that works in any industry, but particularly in our industry. This is an industry of inspiration, of discovery of a very, very demanding customer and a very, very demanding seller on the platform.”
And he said Farfetch already uses AI to help it connect consumers, for instance by giving personalized recommendations that have helped convert shoppers into buyers.
“Three years ago, we’ve really recognized that personalization was a key strategic initiative for us and we increased the size of our machine-learning data science teams and really invested in the talent to build on this type of technology,” Neves said. “And it has really paid off. So we’ve seen our recommendation engine, which is built entirely in-house, our rank algorithm, which ranks the products on a one-to-one basis and personalizes it to the personalized communications.”
Now the company is going to be exploring the potential of AI’s conversational skills.
“We’re developing three proofs of concepts, three prototypes, which I’ve seen already and made me very excited personally as a technologist,” Neves said. “It can’t be just a mechanical robotical conversation. It has to be an inspirational, engaging conversation. And even in the early different elements, we’re already seeing that and the way the models learn and get better very quickly, [it’s] quite impressive.”
Count AI as one of the many things on the agenda for Neves.
The CEO told analysts on a conference call that 2023 would be “our year of execution,” that the deal to start operating Yoox Net-a-porter was on track and that “cost-reduction and working capital initiatives toward achieving our 2023 profitability and free cash flow objectives are well on track.”
In the first quarter, Farfetch posted adjusted losses before interest, taxes, depreciation and amortization of $35 million. The target is to get adjusted earnings before interest, taxes, depreciation and amortization margins to 1 to 3 percent for the full year.
Net losses tallied $174 million for the first quarter.
As Farfetch waited out tough comparisons following the exit of Russia in the wake of its invasion of Ukraine, it has been busy building new businesses.
“Our 2023 launches, including Reebok and Ferragamo, have either been delivered or remained on schedule for launch later this year, as in the case of Neiman Marcus Group,” Neves said.
And China is waking back up, too.
“I have just spent a week in mainland China and Hong Kong and I am very excited by what I witnessed,” Neves said. “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.”
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