The THG (LSE:THG) share price was falling heavily today (14 September) after the digital commerce firm reported its H1 earnings. As I write mid-morning, the shares were down 15% to 74p.
That’s still more than double last October’s share price of 32p, it should be said. But overall, we’re looking at an 88% collapse since the stock started trading on the London Stock Exchange three years ago.
Why has the firm’s interim report sparked this latest sell-off? Let’s take a look.
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Headline figures
Prior to this half-year earnings release, investors were keen to see whether the company could bring costs under control to improve EBITDA profitability. And how this would affect growth in its three core divisions (Beauty, Nutrition, and Ingenuity).
Well, the answers are in and the market didn’t like what it saw.
For the six months to the end of June, group revenue fell 9.3% to £969.3m from £1.07bn the year before. Here’s how that broke down on a division level.
| Beauty | Nutrition | Ingenuity | |
| Revenue | £538.7m | £340.7m | £320m |
| Growth year on year | -10.4% | +2.6% | -14.9% |
Meanwhile, continuing adjusted EBITDA of £50.1m improved 22.9% from £40.8m last year. And that was above the top end of guidance, which the firm had put between £47m and £50m. A margin of 5.3% was up from 4%.
| Beauty | Nutrition | Ingenuity | |
| Adjusted EBITDA | £10.6m | £47.1m | £3.4m |
| Growth year on year | -40.4% | +71.9% | -50.8% |
The end result of all this was a loss of £99.5m in the first half. That was wider than last year’s £89.2m. Management attributed this increase to a £26.2m one-off charge related to the disposal of its loss-making OnDemand business.
Digging deeper
There were some worrying numbers in the report, I feel. Chief among them was the slowing growth and declining profitability in its Ingenuity division. This is the e-commerce platform that helps other brands with their digital strategy and sales.
Previously, this was seen as the growth engine of the business. Now it seems to be sputtering badly.
Also, we can see that adjusted EBITDA for the Beauty segment fell 40% to £10.6m. This unit houses popular retail brands such as Lookfantastic and Cult Beauty. Now, there was a one-off de-stocking in manufacturing issue, but the firm is facing some challenges here.
Nutrition was a bright spot, as the high price of whey eased, boosting margins.
Looking forward, management said that sales trends were “gradually improving” into the second half. However, it still lowered its full-year revenue forecast, signalling a potential decline by as much as 5%.
The previous forecast was for single-digit growth, so that’s not great, and almost certainly played a big part in the sell-off.
Will I buy the stock?
I was bearish on the stock before the report due to the continuing losses, and that hasn’t changed.
Yes, the business is finally taking decisive action to improve its profitability, which is a positive. But as it pulls back on spending, growth is inevitably going to be sacrificed. Still, the slowdown in its Ingenuity unit is alarming, I feel.
My portfolio is largely made up of growth and dividend shares. However, I’m not sure whether THG is a growth stock today, and it obviously doesn’t pay dividends as it’s loss-making. Therefore, I think there are far better opportunities elsewhere right now.
