THG (GB:THG) posted its interim results for 2022 with 89.2 million of operating losses – up from £17.4 million in the previous year.
The conpany is facing higher raw material, delivery, and administrative costs.
The company’s group revenue grew by 12.3% to £1.1 billion. The company has a strong grip over its beauty segment, which delivered growth of 20% and contributed 51% to the total sales.
The company followed a policy of not passing on the higher costs to its customers, and as a result, margins have been squeezed.
The company hopes to maintain its market share with a loyal customer base.
AJ Bell investment director Russ Mould said, “THG boasts of a loyal customer base. But when it sells commoditized products, this loyalty is going to be tested as consumers look hard for ways to save money – and that could mean buying their protein or beauty products from somewhere else.”
Post the announcement of the results, share prices were trading down by 18%. Overall, the stock is witnessing a massive decline of 92% in the last year.
What does THG do?
THG is a global retailer selling various brands directly to customers through its e-commerce platform.
The company has around 300 local websites and ships products to 195 locations. The company’s product range includes premium brands in beauty, nutrition, luxury, and lifestyle.
Revised outlook
The company has trimmed down its full-year sales and profit guidance. The company now expects its revenue growth to be in the range of 10–15% as compared to 19-24% as stated earlier. Earnings are reduced from £161 million to between £100 and £130 million.
Jefferies analysts said, “The inability to precisely triangulate a base from which margins can rebuild remains an overhang.”
Is THG a buy?
According to TipRanks’ analyst rating consensus, THG stock has a Hold rating.
The THG price target is 100p, which implies an upside potential of 147%.
Conclusion
The surge in online sales during lockdown has now faded. Along with this, rising inflation is putting an extra burden on profits.
The company’s interim results don’t paint a good picture, with shrinking margins and a gloomy outlook.
