THG Issues Profit Warning as Online Retailer’s Woes Worsen

Katie Linsell, Bloomberg News

THG Plc's The Hut logo on a mobile phone arranged in London, U.K., on Friday, Jan. 28, 2022. THG Plc warned that profitability missed analysts' estimates and said sales growth will decelerate this year amid high prices for protein shake ingredients and continued uncertainty from the pandemic. Photographer: Hollie Adams/Bloomberg , Bloomberg

(Bloomberg) -- THG Plc warned that sales will miss guidance this year as consumer appetite drops on the higher cost of living in the UK. The shares dropped.

The embattled British online shopping emporium said Thursday that adjusted earnings before interest, taxes, depreciation and amortization will fall below 2021 levels to £100 million ($115 million) to £130 million with revenue growth of 10% to 15% in fiscal 2022. That’s compared with previous guidance of flat earnings this year and sales growth of 22% to 25%.

THG’s shares have slumped this year as investors question the company’s business model and governance controls. Steep hikes in raw material costs, including whey for the retailer’s protein shakes, are also weighing on THG. Another blow came in July when key investor SoftBank Group Corp. ended a deal with the retailer that gave it the option to buy a 20% stake in THG’s Ingenuity business.

Read More: THG Shares Dip After SoftBank Investment Option Is Ditched

The company said that the outlook for consumers through 2023 remains “challenging” though it believes it can continue to grow sales by about 20% to 25% in the medium-term.

THG fell 11% to 43.50 pence at 8:12 a.m. in London trading on Thursday after earlier dropping as much as 15%. That was the shares’ lowest level since the company’s initial public offering two years ago.

Separately, the company said that Zillah Byng-Thorne and Andreas Hansson would step down from the board. Damian Sanders was named interim senior independent director. THG is overhauling its leadership structure to “ensure it is best-placed to generate long-term value creation for shareholders.”

It named former Microsoft Corp. executive Gillian Kent and Dean Moore, a former chief financial officer of Cineworld Group Plc, as non-executive directors effective on Thursday.

Two separate takeover approaches for Manchester-based THG ended without a deal earlier this year after the company was said to have not engaged or eased concerns over the amount of debt in the proposals. Entrepreneur Nick Candy and a consortium of Belerion Capital and hedge fund King Street Capital Management walked away in June.

Read More: Nick Candy and Belerion Capital Drop Pursuit of Retailer THG

Founded in 2004 by Matthew Moulding and John Gallemore, THG, formerly known as The Hut Group, started out selling CDs but today operates hundreds of websites offering beauty, skincare and health-food products as well as helping rivals sell online via Ingenuity.

Moulding has kept a tight grip on THG as a major shareholder, landlord and chief executive and only relinquished the role of chairman in March. He has pledged to give up his golden share, which allows him to veto a takeover, smoothing the way for THG to move its listing to the premium segment of London’s Stock Exchange.

(Updates share price in fifth paragraph)