THG profit margins will miss market forecasts despite revenues hitting over £2bn

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THG shares fell 7% this morning as the online retail giant warned that profit margins would fall below market expectations due to unfavorable currency movements despite revenues hitting over £2bn .

The Manchester-based company, which has beauty and nutrition businesses as well as e-commerce services, posted record revenues of £2.178 billion for the 12 months to December 31, 2021, from £1.613 billion sterling in 2020.

The company saw growth across all of its divisions with the biggest increase in its beauty division with revenue rising from £751.6m to £1.116bn.

Sales of THG nutrition increased from £562.3m to £659.5m, THG OnDemand increased from £101.3m to £128.1m and THG Ingenuity increased from £137.3m to 194, £3m.

It also reported a 29.7% increase in fourth quarter revenue from £559.8m to £711.7m, while increases were also reported across all divisions.

The company said the start of 2022 is expected to be a comparably tougher time due to global lockdowns a year ago and record raw material prices within its nutrition division.

He said adjusted EBITDA margin for fiscal year 2021 is expected to be between 7.4% and 7.7%, which is below market expectations of 7.9% due to unfavorable currency movements.

CEO Matthew Molding said: “Despite challenging conditions, we have grown our revenues and expanded our business model, in particular THG Ingenuity, well ahead of the expectations expressed when we went public 16 months ago. At the same time, we have welcomed approximately 3,000 new employees worldwide to the Group, the majority of whom are in the UK, and have successfully completed numerous transformation projects, including the opening of our technology campus British 1 square meter, ICON.

“During the year, the group also invested approximately £1 billion in infrastructure, technology and mergers and acquisitions to further develop the long-term growth prospects of our core business divisions. We remain committed to our investment strategy for growth through our global execution network and technology platform.

The shares were trading at 171.02p per share this morning compared to last night’s close at 185.60p.

The group has had a tough year with its market capitalization plummeting and shareholding down by a third, wiping £1.85bn off the company’s market value.

Shareholders have not been convinced by the group’s plans to separate the Ingenuity division from the company’s beauty and nutrition business.

AJ Bell analyst and chief investment officer Russ Mold said the company’s behavior since going public hasn’t helped its investor relations.

“Failure to provide the level of detail investors want about the company, questionable corporate governance standards and CEO Matt Molding’s comments that he wished he had never started THG is bad practice. as far as investors are concerned, and they’ve voted with their feet, which has left the stock price languishing well below its IPO price,” he said.

“The fact that THG expects revenue growth to slow in 2022 is all the more reason for disgruntled investors to keep shaking their heads in disbelief.

“Online companies that portray their history as rapid growth need to live up to the hype. So far, THG comes across as a poorly trained runner who brought sprint tactics to a marathon and discovered that he could not maintain momentum at maximum rate.

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