Shares of THG fell sharply on Tuesday after the online retail group warned that profit margins for 2021 would be lower than expected and said the start of 2022 would be tougher compared to the same period last year when global shutdowns fueled sales.
The company, founded and run by Matthew Moulding, said margins for 2021 would be 7.4% to 7.7% against estimates of 7.9%, but said they should recover this year. The shares fell 9% after the update to 169p, well below its floating 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, achieved record annual revenue of 2.2 billion sterling in its first full year as a public company, up 37.9% on 2020. and helped by acquisitions. Sales rose 27% in the fourth quarter to £711.7m.
Molding pinned its hopes on the growth of Ingenuity, a division that creates direct-to-consumer websites for other companies. It increased its sales by 42.7% to £57.4 million, making it the fastest growing division between October and December.
THG warned that the start of 2022 would be more difficult, due to the difficult annual comparison and record raw material prices within the nutrition division. He expects revenue growth of 22% to 25% this year, including sales of £108m to £112m from Ingenuity.
Russ Mould, chief investment officer at AJ Bell, said: “The only way for THG to regain market favor is to consistently deliver better than expected numbers for at least two or three quarters. Unfortunately, its latest update fails the test as it reports that the margins are slightly lower than expected.
“Under normal circumstances, a company showing the level of growth seen in the latest THG update would be applauded by the market. Unfortunately, THG has shot itself in the foot through its behavior as a listed company since going public. And that means that only something spectacular will drive the stock price higher.
THG went through a torrid 12 months on the stock market after its £4.5 billion IPO in September 2020 proved to be London’s biggest stock market debut since 2013. Shares of THG, which had soared after the group’s IPO, fell more than 70% in 2021. The decline has cost its investors, of which Molding is the largest shareholder, around £6.9 billion in paper losses.
Molding alleged that the company’s actions had been unfairly targeted. THG handed over a data dossier to the Financial Conduct Authority, the UK’s financial watchdog, last week after observing irregular trading in its shares. Molding claimed hedge funds colluded in a “pretty aggressive short attack” on THG shares last year.
Shares were hit in November after it emerged that BlackRock, the retailer’s largest institutional shareholder, was cutting its stake in half.
Casting and the company have drawn criticism for his role as both executive chairman and chief executive, which goes against best corporate governance practices.
The board also signed a pre-float agreement which saw Molding acquire THG’s offices, warehouses and leisure facilities, before immediately becoming the owner of the company by leasing these buildings to the company for a annual rent of £19 million.
“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,” Mold added.
Molding said on Tuesday that the company’s achievements in 2021 included the opening of its 1m² UK technology campus. It hired 3,000 people last year, mostly in the UK.
“Despite challenging conditions, we have grown our revenues and expanded our business model, particularly THG Ingenuity, well ahead of expectations expressed when we went public 16 months ago,” he said. “The new year has started well and we remain confident in delivering on our strategic growth plans in 2022 and beyond.”