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Farfetch investigated for possible disclosure violations

Tom Bottomley
16 August 2019

According to a report on PR Newswire, US law firm Hagens Berman is investigating Farfetch Limited for possible disclosure violations, urging investors with losses to contact them.

Another recent report on The Times website today says that the online luxury retailer, which it says had more than $2 billion wiped off its market value last week, faces more problems as it has emerged that there are actually now five US law firms preparing class action suits.

The firms’ investigations concern the veracity of Farfetch's statements about the company's business model, particularly related to the company's growth and profitability. These representations allowed Farfetch to go public in September 2018, raising over $880 million.

However, on 16 May 2019, Farfetch released disappointing Q1 results, disclosing accelerating losses. Then, on 8 August, reported another quarter with wider-than-expected losses of $89.6 million. It also reported a $675 million acquisition of New Guards Group, which owns the Off-White, Palm Angels and Heron Preston brands, which sent shares plunging 40%.

Farfetch founder and CEO José Neves attempted to allay investor concerns by highlighting that Farfetch “continued to deliver market-leading growth in second quarter 2019.”

However, the acquisition of New Guards Group raised eyebrows, amid concerns over a seemingly unfamiliar business strategy. Pursuing ownership of its own brands is a markedly different strategy from giving brands a route to market, which is Farfetch’s traditional business model.

The investigation is looking in to how Farfetch may have misled investors about the company's growth and profitability outlook, as well as its new strategy direction.

Also of note was the announcement last week that Farfetch Chief Operating Officer, Andrew Robb, is leaving the company.

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