THG shares fall amid guidance cut; H1 revenue £1.1bn

THG CEO Matthew Moulding

Shares of THG plc, the Manchester e-commerce, beauty and nutrition giant, fell about 11% on Thursday after it cut its full-year sales and profit expectations.

That’s despite reporting that its revenue rose 12.3% to a first-half record of £1.1 billion in the six months to June 30.

THG, formerly known as The Hut Group, said it now expects FY 2022 adjusted EBITDA of between £100 million and £130 million and revenue growth of 10.% to 15%, down from previous guidance of sales growth of 22% to 25%. 

The group said first-half adjusted EBITDA fell 60% to £32.3 million, with an operating loss of £89.2 million for the six months “reflecting consumer price protection investment strategy.”

THG went public at £5 a share in September 2020 and the stock rose to around £8.

However, THG shares have since fallen more than 90% to around 43p  — slashing the firm’s stock market value to roughly £540 million — following a disastrous presentation to investors last October and concerns over the company’s structure, transparency and governance.

In June this year THG shares fell after two potential bidders for the firm walked away and THG said it had rejected all recent takeover approaches as undervalued.

THG on Thursday also announced board changes, with the appointment of former Microsoft and Propertyfinder executive Gillian Kent and former Cineworld Group and N Brown Group executive Dean Moore as independent non-executive directors.

Zillah Byng-Thorne, senior independent director, is stepping down from the board with immediate effect, together with non-executive director Andreas Hansson. Damian Sanders will assume the role of interim senior independent director.

THG said: “As previously announced, the board and nomination committee will continue their search for suitable additional independent non-executive directors to further strengthen the board as appropriate.”

THG CEO Matthew Moulding said: “I’m proud to report the group achieved record H1 revenues of £1.1bn, delivering +12.3% growth against a challenging global backdrop, alongside a strong prior year performance during lockdown.

“The group continues to deliver significant infrastructure development, which in turn has supported market share growth through improved localised service as well as substantial operational savings.

“The first half of this year saw continued strong customer metrics, with active Beauty and Nutrition customers now 113% higher on a three-year basis.

“Our highly engaged, global customer base, with high repeat rates, is a key asset of the business. Recently achieving 10 million app downloads from launch in early 2020, further strengthens the group’s relationship with consumers and our first party data advantage.

“Against the tough macro-economic backdrop, we have prioritised our loyal customer base, over maximising near term gross margins focusing on retention and growth of consumers.

“The strength, resilience and agility of our vertically-integrated business model, coupled with automation, has enabled us to significantly invest in price protection for consumers currently facing unprecedented cost-of-living challenges.

“Supporting our consumers through 2022 has been offset through reducing 2023 capex, with the Board viewing this investment as yielding a better return for shareholders and consumers alike in the near term. 

“With a strong balance sheet and category leading positions within substantial end markets that continue to benefit from long-term structural growth, we have confidence in our ability to deliver long-term value for shareholders and remain on track to be cashflow positive in 2024.”

REACTION:

Russ Mould, investment director at AJ Bell: “THG declared it had made ‘substantial progress’, but investors who have suffered a 92% share price loss since the company joined the stock market may think otherwise.

“While it has reported record first-half revenue at £1.1 billion, it is still making an operating loss. Costs have been going up and margins are being squeezed.

“THG boasts of a loyal customer base but when it sells commoditised products, this loyalty is going to be tested as consumers look hard for ways to save money – and that could mean buying their protein or beauty products from somewhere else.”

Victoria Scholar, Head of Investment, Interactive Investor: “THG reported a 60% slide in first half core earnings to £32.3 million on revenues up 12.3% to £1.1 billion.

“Its gross profit margin also fell from 46.5% in H1 2021 to 42.1% in the same period this year.

“The e-commerce group said it expects a challenging outlook for consumers ahead and downgraded its full-year sales and profit expectations.

“It has been a rollercoaster ride for THG shares this year with series of potential takeover bids which ultimately fell through.

“THG has also been caught up in the broader tech sell-off as rising inflation and interest rates obliterated demand for high growth tech stocks.

“It was once seen as one of Britain’s most exciting tech hopes, soaring 30% on its first day of trading on the public markets in 2020.

“However, investors have had a torrid time with the stock lately; shares are down by more than 90% over the past year and down double digits this morning.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.