THG update sends shares lower as it warns on profits

THG update sends shares lower as it warns on profits

THG’s trading statement on Tuesday sent its shares down by over 10% as it warned on profits, although it may have felt it had done enough to support the share price with news of record sales, a strong balance sheet and cost action taken to increase profitability longer term. 


But it downgraded its expectation for FY22 profit with adjusted core earnings to sit between £70 million and £80 million (from a forecast of £100-£130 million in October).

Back then it had said demand for its products was resilient, but on Tuesday it added that disruption in the UK courier network during December impacted online gifting demand in beauty in particular.

Clearly not everything is perfect for the company, which is a major online beauty and nutrition products retailer, as well as offering full-service e-commerce for other brands.

It said group revenue in FY22 rose 3.3% year on year (4.1% excluding Russia) and 39.6% over two years to reach to £2.25 billion. It had been targeting one-year growth of 10%-15%.

The key THG Beauty division’s revenue rose 6.1% and 57.7% over one and two years, to reach £1.18 billion. And the tech-focused Ingenuity division rose 7.1% and 51.6% to £208.1 million.

Core divisional revenue (including the Nutrition unit) was up 4.8% and 42.4% over one and two years to reach £2.06 billion. But there are ‘non-core’ operations too. THG OnDemand fell 16.9% while ‘other’ revenue fell 0.1%. Both

The company said it made “significant” investments in its price strategy through 2022 “to support long-term customer retention, alongside new customer growth in established and emerging markets”. 

And it said its cost base is “well positioned” following the completion of a divisional reorganisation, with around £100 million of cost savings and efficiencies identified and implemented in the year. A further £30 million of savings is targeted for delivery during FY23.


It added that THG Ingenuity is “gaining momentum following the pivot to focus on higher-value and higher-margin contracts, with further major contracts close to agreement, building upon the recent expansion of the Matalan

The Ingenuity division has been seen both as the future hope for the business and a drain on its performance. In Q3 2022, it had announced the aforementioned re-positioning and the company said this move “has enabled THG Ingenuity to fully capitalise on larger scale, more complex, long-term opportunities”.

During 2023, it expects to add over £1 billion incremental GMV to the Ingenuity platform.

As mentioned, some parts of the business are under review as the company aims to simplify the group and to look at loss-making categories and territories within the THG OnDemand division. 

OnDemand is its proprietary production facility “which enables brands and  influencers to launch a product line on-demand, maximising trends and emerging market opportunities”.

THG added that the lowered EBITDA expectation comes from the “combined impact of the lower full-year sales outturn, the dilutive impact of loss-making categories under review, alongside the timing of impending new Ingenuity contracts”. 

As for the future it said it has “margin recovery confidence in FY23 and beyond”. This is supported by: the full-year effect of the £100 million cost savings actioned, including exiting loss-making categories; US warehouse automation that will be live in Q1 2023; and substantially lower raw material buying costs.

CEO Matthew Moulding, said: “With the completion of the divisional reorganisation, and around £100 million of annual efficiency savings already delivered, the group enters 2023 with strong momentum to achieve substantial margin expansion. We remain highly confident of delivering adjusted EBITDA margins in excess of 9% over the medium term.”

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