Shares in THG have fallen sharply after the online shopping group warned profit margins for 2021 would come in below expectations and the early part of 2022 would be more challenging compared with the same period last year when global lockdowns fuelled sales.
The company, founded and run by Matthew Moulding, announced on Tuesday that margins for 2021 would be 7.4% to 7.7%, against estimates of 7.9%, but should recover this year. Its shares fell 9% after the update, to 169p, well below the float price of 500p in September 2020.
Manchester-based THG (formerly known as The Hut Group), which runs beauty and nutrition websites including Lookfantastic, Cult Beauty and Myprotein, made record annual sales of £2.2bn in its first full year as a public company, up 37.9% on 2020 and helped by acquisitions. Sales grew 27% in the fourth quarter to £711.7m.
Moulding has pinned his hopes on the growth of Ingenuity, a division building direct-to-consumer websites for other companies. It increased sales by 42.7% to £57.4m, making it the fastest-growing division between October and December.
THG warned that the early part of 2022 would be more challenging because of the tough annual comparison and record commodity prices within the nutrition division. It expects revenue growth of 22% to 25% this year, including £108m to £112m sales from Ingenuity.
Russ Mould, an investment director at AJ Bell, said: “The only way THG is going to win back the market’s favour is if it delivers better than expected figures consistently for at least two or three quarters. Unfortunately, its latest update doesn’t pass the test as it flags margins are slightly below expectations.
“Under normal circumstances, a business delivering the level of growth seen in THG’s latest update would be applauded by the market. Sadly, THG has shot itself in the foot thanks to the way it has behaved as a listed company since joining the stock market. And that means only something spectacular will lift the share price.”
THG has been through a torrid 12 months on the stock market after its £4.5bn flotation turned out to be the biggest London stock market debut since 2013. Its shares, which had soared after the group floated, slumped more than 70% in 2021. The drop cost its investors, among which Moulding is the biggest shareholder, about £6.9bn in paper losses.
Moulding has alleged the company’s shares have been unfairly targeted. THG handed over a dossier of data to the Financial Conduct Authority, the UK’s financial watchdog, last week after observing irregular trading of its shares. Moulding has claimed hedge funds colluded in a “pretty aggressive short attack” on THG’s shares last year.
The shares were affected in November after it emerged that BlackRock, the retailer’s largest institutional shareholder, was halving its stake.
Moulding and the business have attracted criticism for his role as both executive chair and chief executive, which is against best corporate governance practice.
The board also signed off a pre-flotation deal that saw Moulding acquire THG’s offices, warehouses and leisure facilities, before immediately becoming the company’s landlord by leasing those buildings back to the company for an annual rent of £19m.
“Failure to deliver the level of detail about the business desired by investors, questionable corporate governance standards, and comments by chief executive Matt Moulding that he wished he’d never floated THG all amount to bad practice as far as investors are concerned, and they’ve voted with their feet which has left the share price languishing well below its IPO price,” Mould added.
Moulding said on Tuesday the firm’s achievements in 2021 included the opening of its 1m sq ft UK technology campus. It hired 3,000 people last year, mostly in the UK.
“Despite challenging conditions, we have scaled revenue and expanded our business model, particularly THG Ingenuity, well ahead of expectations given at our initial public offering 16 months ago,” he said. “The new year has started well, and we remain confident in delivering our strategic growth plans during 2022 and beyond.”
Moulding told analysts: “Beauty tends to be one of the last things that people would stop spending on. In nutrition the move towards healthier living is very much still there.”.