Hut profits plummet in fresh blow to Moulding
THG’s woes continued as it slashed its profit forecasts in yet another blow to founder Matt Moulding.
On another bleak day for the ecommerce company, shares dived 21.4pc as the former stock market darling delivered its latest dismal update to long-suffering investors.
THG – formerly The Hut Group – said it expects to have made profits of between £70m and £80m in 2022.
That was down from an earlier projection of £100m to £130m.
It was the fourth time THG – whose brands include Myprotein and Look Fantastic – has trimmed profit forecasts in just 12 months.
Profit was dented by a slowdown in sales growth, elevated raw material costs – particularly for whey protein – and the timing of contracts.
Shoppers were also deterred from purchasing Christmas gifts online last month due to disruption in the UK courier network, with demand for beauty products hit, THG said.
Moulding’s retail empire also pointed the blame at its loss-making arms, including the OnDemand division, which includes the Zavvi and Pop In A Box websites.
A strategic review probing trading activities outside the core beauty, nutrition and ingenuity divisions is set to conclude in the first-half of the year.
While sales rose by 35.1pc in 2021, they were up just 4.1pc last year.
Online retailers have seen sales surge in recent years but ‘times are changing’, according to AJ Bell
investment director Russ Mould. ‘We’ve seen a period of rapid sales growth for online entities, but times are changing,’ he said.
‘At the end of the day, it’s all about profit and cash flow, and if anything is acting as an impediment then it must change or go.’ In contrast to other retailers posting resilient trading or pointing to a recovery in earnings, THG’s profit warning has bucked the trend.
Around 2,000 jobs at THG, which was founded in 2004, were axed over the past year, with the company saying it was primarily a process where voluntarily departing staff were not replaced.
The Manchester-based company – which owns brands including Cult Beauty, ESPA and Illamasqua – has seen its share price sink around 70pc in the past year.
Its blockbuster listing on the London Stock Exchange in 2020 saw the firm valued at £5.4bn in the largest IPO since Royal Mail’s in 2013.
Since then, 50- year- old Moulding ( pictured) has said the ‘obvious lesson’ following THG’s debut was ‘don’t IPO in the UK’ and expressed regret at choosing London over Wall Street.
Analysts yesterday said the latest setback would boost the likelihood of Moulding searching for a way to de- list the firm.
Last summer,
THG batted off several approaches to take the firm private, with Moulding arguing all proposals ‘significantly undervalued’ his business. It snubbed indicative proposals including from a consortium led by Belerion Capital Group Limited and King Street Capital Management, while property tycoon Nick Candy’s Candy Ventures also pulled out of the running. Yesterday, Moulding highlighted record sales of £ 2.25bn despite ‘numerous challenges across the world’ and said the group was entering 2023 with ‘strong momentum to achieve substantial margin expansion’.
THG said it has already achieved around £ 100m of annual cost- cutting and was eyeing an extra £30m of savings to be delivered this year.
Profits are anticipated to recover in the current financial year due to cost-cuts, automation in the US and an easing of raw material inflation.
Stockbroker Davy said it was now forecasting full-year earnings of around £110m for 2023 for THG, down by 30pc on previous estimates.
THG has pledged to increase prices at a ‘ slower and lower’ pace than inflation, in a bid to retain customer loyalty as they grapple with the cost of living crisis.
Zainab Atiyyah, an analyst at Third Bridge, reckons the retailer will outperform its beauty rivals, including gaining market share from US giant Sephora in the next few years, due to ‘ aggressive’ pricing and international expansion plans.
However, with consumers predicted to see a 5-to-10pc cost inflation in core beauty products over the next year, Atiyyah said the company would need to push for more discounting from suppliers.