Pure Beauty

THG shares sink after profit warning

By Alessandro Carrara | Published: 16-Sep-2022

Rising interest rates and energy costs led THG to update its full-year guidance for the remainder of the year

THG shares slumped by 10% yesterday after the British e-tailer issued a profit warning in its half-year 2022 results, despite posting strong revenue growth for the first half of the year.

While the performance seen in H1 led THG to have a confident outlook for the following six months, rising interest rates and energy costs are anticipated to place pressure on consumers.

THG now expects adjusted earnings to be between £100m to £130m, down from £161m it reported last year.

Group revenue increased by 12.3% to £1.1bn during the period, with THG’s beauty arm representing 51% of the group’s sales.

The 20% increase in beauty sales to £553m was boosted by the business’ acquisitions of Cult Beauty and Bentley Labs in 2021.

The company’s nutrition category, meanwhile, saw sales rise by 1.1% year-on-year to £332m.

"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 consumerism,” said Matthew Moulding, CEO of THG.

“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.”

THG shares sink after profit warning

Gross profit increased to £443m from £437m with a margin of 41.1%, with the UK market being highlighted as a lead performer.

US consumer sales also benefited from the business’ integration of beauty e-commerce site Dermstore and double-digit growth for its nutrition category.

Operating losses were reported at £89.2m, impacted by international delivery costs primarily in Asia.

"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,” added Moulding.

“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 shares crash comes amid a difficult period for the e-commerce retailer in 2022.

In June, Shareholder Belerion Capital, together with King Street Capital Management, confirmed that they would not make an offer for the business.

Last month, THG rejected a £2.1bn buyout offer from the investment groups, which triggered a jump in share price.

Candy Ventures, the investment business of British property tycoon Nick Candy, also bowed out of the chase, but was not thought to have tabled an offer to THG.

THG’s statement, however, which was released on the same day, said that all recent approaches for a buyout had been “unsolicited” and that it was the unanimous opinion of the Board that the offers made were “unacceptable and significantly undervalued the company”.

The company’s new Chairman, Lord Charles Allen, who replaced Moulding in the role in March, said in its annual report that THG’s Board will face “detailed scrutiny” for the remainder of the year.

Allen said at the time that the board’s composition will remain his “prime focus” to ensure a “suitably equipped” leadership team is in place.

To top it all off, Moulding’s net worth slipped down The Sunday Times Rich List back in May from £1.4bn to £700m, dropping 78 places to 230 on the list.

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