Farfetch Limited (NYSE:FTCH) Q3 2022 Earnings Call Transcript

That falls through the order contribution with significantly higher levels of margin and will take us towards our longer term targets of 60% over the long-term because it’s higher than that in terms of accretive to order contribution. In demand generation, again, great savings year-on-year. The team has done a fantastic job to spot areas of opportunity, to drive efficiencies. We were down 20% in terms of spend in the US. And the GMV impact on that was significantly less than that. So we were able to drive improving margin in that market and focus on really the high-end customer. We’ve seen great retention at the top end of the customer base. The private client is up 90% — over 90% retention. Good AOV within that group as well when you sort of — obviously, in the US, you don’t need to adjust that for currency, but more broadly, when you adjust for currency, the spending is strong in that client base.

And others that we target online, whether that’s our access customers at gold, platinum, silver, seeing good efficiencies from that higher LTV customer bracket, which we’re very, very focused on. And when you do remove your demand generation spend as we have done year-on-year, by bringing it down to the lowest level in five quarters at 19% of revenues, you’re effectively removing that marginal incremental customer that isn’t that valuable. And we’re seeing lots of promotions come into the next quarter. We’re not going to participate in that high level of promotional activity. Again, that will mean a will be weaker than previously planned, but we’d rather not invest in those customers and see our margin decrease. The plan is to hold our order contribution margins well-above 30% in the quarter ahead.

The other levers just to touch on, obviously, the first-party business, again, very heavy in clearance activity at the moment. So low levels of gross margin in the 20% range. That’s not where we want to be long-term. We would expect to be able to return that gross margin up to industry levels of 35% to 40% gross margin as we clear through this excess inventory. This inventory came about because of the slowdown in sales in Russia and China, which were unexpected. We have to clear through that stock over the seasons, but then would see that margin improve. Then as we move forward, and we’ll touch on this a bit more at the Capital Markets Day on December 1st. The plan is to move away from first-party stock and sales and more towards third-party driving our GMV growth moving forward.

The GMV on third-party, the gross margin, I should say, on that was 70% this quarter, very, very strong up 700 basis points year-on-year, thanks to shipping efficiencies. So a double whammy there of improving order contribution margin, shift away from first party to higher gross margin third-party business. And through the efficiencies, the fulfillment team delivering on our shipping model with improving relationships with a broader mix of carriers with more localized supply, routing, returns to consolidation centers where we can deliver more efficiency in terms of unpacking or helping to drive savings in our returns and our outbound shipping in our duties, which were down 700 basis points as a percentage of Digital Platform revenue this quarter.

Then I’ll touch on FPS. Again, a big feature of the Capital Markets Day, where we will be breaking out the economics of FPS for our investors to see. As we add incremental GMV of this part of the platform, we see very accretive order contribution margins flowing through and will expand order contribution margins over the near to longer — the medium to longer-term. And then lastly, of course, underlying commissions. You’ve seen our underlying commissions improve again to help boost the take rate up to 32.6%. That’s with renegotiations on brand partners. We’re bringing up the lower level take rates and commissions to help the overall blended mix, so lots of opportunities to continue to see that number move over the near-term. On China, maybe José?