THG hails progress despite investment meaning wider operating loss

By

Sandra Halliday

Published
Sep 15, 2022

British online retail giant THG announced its interim results on Thursday and said it made “substantial progress” in the first half of the year as it continued to build “a strong, sustainable global platform supporting THG brands and Ingenuity clients”. 

It achieved record revenue of almost £1.1 billion, “underpinned by a stable customer behaviour metrics driving market share gains in large Beauty and Nutrition markets”. That figure was 12.3% higher year-on-year and on a two-year basis it was up 59.4%. 

But adjusted EBITDA was down over 60% at £32.3 million, and the company's operating loss widened from £17.4 million to £89.2 million. This reflected its consumer price protection strategy with “certain non-recurring costs, which continue to reduce”. But its medium-term guidance, including cost efficiencies and commodity price improvements, suggest it will see margin recovery in the second half and during 2023.

It's all-important THG Beauty operation was the biggest part of its business with first-half revenue of £552.8 million, up 20% on the year. That was also an 87% rise against two years ago.

The company operates a number of other businesses, but the key one that takes in its e-commerce operations for third-parties is THG Ingenuity and there, revenue was £104.2 million, rising 21.4%. It was up 69.5% against two years ago. Ingenuity commerce revenue also rose 25.1% to 22.9 million and surged 232.3% on a two-year basis.

The company said the lower revenue growth overall compared to the growth that had been seen in the previous year reflected the boost it got during lockdown, as well as “market uncertainty across consumers and corporates linked to macroeconomic events”. 

Beauty, as its biggest unit, was clearly a key driver but its expansion wasn't all about organic growth as it partially reflected the impact of the Cult Beauty and Bentley Labs acquisitions. Overall, THG Beauty has doubled in size since the firm’s IPO.

The company said a strong customer acquisition and retention engine has powered growth in Beauty and Nutrition active customers, supporting high customer repeat rates which account for around 80% of D2C revenue across Beauty and Nutrition.

The company saw over 10 million app downloads in the period, with app customers representing 11.4% of group D2C revenue, up from 5.1% a year earlier.

Greater app participation has partially mitigated rising marketing costs, with customers acquired at lower costs through this channel and typically ordering more frequently and spending more per order.  

THG said its UK revenue grew in excess of the group rate in H1 and the US became a more important market for the firm, with “US participation at 20% reflect[ing] the successful integration of Dermstore and double-digit growth in Nutrition”.

As mentioned, the company invested in price protection and the reduced gross profit margin at  42.1% (down from 46.5%) primarily reflected the strategy to partially shield consumers from adverse macroeconomic conditions and a period of unusually high raw material costs.

But cost controls, automation, and efficiencies across the global warehouse and fulfilment network delivered a 100bps distribution cost reduction, as well as improved customer delivery.