THG issues profit warning after sales miss estimates

The company said it now expected adjusted core earnings of £70-80m for 2022, down from the £100-130m forecast in October.

THG, formerly The Hut Group, said soaring raw materials prices and the timing of new contracts in its Ingenuity division, the online platform which provides sales and fulfilment services to third-party brands, had hit sales.

It decided to review lossmaking categories and territories within its OnDemand unit to increase focus on its core beauty and nutrition operations in addition to Ingenuity as it looked to save £100m a year.

A further £30m of savings had been identified and will be implemented in 2023, the company added. Full-year group sales excluding Russia rose 4.1% to £2.25bn, well short of its far short of its 10-15% target.

“Core commodity prices used within our nutrition division have seen significant deflation since their record highs in 2022, giving us confidence in significant profit progression as we move through the year ahead, against a much reduced group cost base,” said chief executive Matthew Moulding.

“We remain highly confident of delivering adjusted EBITDA margins in excess of 9.0% over the medium-term.”

AJ Bell investment director Russ Mould said THG had "once again failed to deliver the goods".

"In an environment where plenty of retailers are saying that trading has either held up well or self-help measures are helping to drive a recovery in earnings, THG bucks the trend by issuing a profit warning."

“One of THG’s key selling points was its ability to take third party brands direct to the consumer online, handling all the design, production, packaging, marketing and delivery. This business unit is now up for review, suggesting that it could get streamlined or even given the chop entirely.

“Just as many bricks and mortar retailers have been forced to review their business and focus on what they do best rather than continuously try to expand, online players are also doing the same. We’ve seen a period of rapid sales growth for online entities, but times are changing."

“If the stock market doesn’t buy into THG’s realignment efforts that raises the chances of founder Matt Moulding finding someone to help him take the business private.”

Reporting by Frank Prenesti for Sharecast.com