THG posts £500m operating loss as Apollo mulls takeover

THG has posted widening losses of almost £500m although it said profitability had improved in the first quarter of its current year.

Despite receiving a preliminary offer to buy the business from private equity group Apollo yesterday, THG said it planned to push ahead with its plan to move to the premium segment of the main market of the London Stock Exchange, which will see founder and CEO Matt Moulding retire his special share in September.

In its full year, sales edged up 2.7% to £2.24bn at the online retail group, however, operating losses hit £495.6m, up from £137.5m last year.

However, adjusted EBITDA pre-SaaS costs sat at £74.3m, down from £161.3m last year. THG said it was nearing completion of a three-year major infrastructure investment programme, which has involved significant investment and transition costs.

Yet, it is seeing a less than two-year return on investment. The global capability it provided the group gives it “increased confidence in [its] ability to continue to capture market share whilst accelerating both profitability and free cash flow generation”.


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THG margins improve in first quarter

In the first quarter, sales from continuing operations fell 5.6%, after THG opted to discontinue what it termed non-core categories, primarily within its THG OnDemand division.

The retail group warned that 180 jobs were at risk at the division earlier this month. It has also de-prioritised certain geographies as it focuses on boosting margins.

It made profitability and cashflow improvements over the quarter, which the group said “support the expectation for significant margin recovery through the year”.

THG expects to grow sales between low to mid-single digits over 2023 and said adjusted EBITDA is expected to be in line with consensus. It hopes to rebuild towards historical margins of around 9% in the medium term.

Despite the widening losses, Moulding insisted it was making good progress against its strategy.

He said: While FY 2022 adjusted EBITDA was not where we planned at the start of the year, this was largely the result of our strategy to minimise the impact of inflation upon our customer base. This investment in their retention, and longer term growth, was the principle driver behind the reduction in gross margin.

“The challenging macro and inflationary environment required decisive action across the business with around £100m of efficiency savings delivered. A much-improved outlook on many key cost inputs gives us confidence in an improved financial performance as the year progresses.”

In 2022, its platform business, THG Ingenuity, was the star of the show with sales up 9.1% year on year, or 42.5% on a two-year basis, with revenue of £159.6m. The group said it had a strong pipeline in this division in 2023.

Sales at its beauty division, which includes Look Fantastic and Cult Beauty grew 4.5% – up 54.1% on a two year basis – to £1.2bn. THG Nutrition, which includes brands such as MyProtein, edged up 2.4% to £675.1m.

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