What happened

Shares of Farfetch Limited (NYSE:FTCH) were gaining today after the luxury fashion e-commerce company smashed expectations in its third-quarter report, bucking a broader negative trend in apparel.

As of noon EST, the stock was up 8.3%.

Two pairs of sneakers sitting on furniture

Image source: Farfetch.

So what

Farfetch showed no signs of slowing down during the pandemic as gross merchandise volume (GMV) on its platform rose 62%, driving a 71% increase in revenue to $438 million, which easily beat estimates at $367.1 million.

The company also saw margin expansion in the quarter as gross margin rose 45.1% to 47.8%, driving an 82% increase in gross profit to $209 million. Its adjusted EBITDA loss narrowed from $36 million to $10 million, and the company posted an adjusted loss per share of $0.17, an improvement from a per-share loss of $0.20 a year ago and better than estimates at a loss of $0.40 per share.

Farfetch announced a partnership in the quarter with Alibaba and Richemont, who will invest $1.15 billion in Farfetch, which sparked a surge in the stock when the news broke early in November.

Luxury sales have held up surprisingly well during the crisis as the wealthy consumers have been relatively unaffected by the pandemic, and the industry sees a permanent shift to digital platforms like Farfetch's.

"What we are seeing is the acceleration of the secular trend of online adoption in luxury – an industry that is still very underpenetrated," CEO Jose Neves said in a statement. "The capabilities developed across the Farfetch platform over the past 13 years in anticipation of the eventual digitization of the luxury industry uniquely position Farfetch to capture this opportunity today."

Now what

Farfetch's guidance for the fourth quarter was also encouraging as the company expects a 40% to 45% increase in digital platform GMV to $880 million to $910 million and positive adjusted EBITDA. A number of analysts responded to the report with generous price target hikes.

Despite its focus on apparel, Farfetch appears to be one of several e-commerce companies that have benefited from an acceleration in the transition to e-commerce, which explains why this growth stock now up more than 300% this year. 

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