Following today’s release of THG’s figures for the year ending 31st March 2023; Sophie Mitchell, Associate Retail Analyst at GlobalData, a leading data and analytics company, offers her view: “In an endeavour to distract from a significantly lower than anticipated full-year revenue growth, THG highlighted what it deemed to be a positive start to FY2023, despite its sales falling by 8.6% to £469.4m in its Q1. THG rationalised this decline in revenue by stating it was a result of it prioritising higher margin sales as it pointed to a significantly improved exit rate. Although affected by tough trading conditions and being up against strong comparatives from Q1 FY2021, its competitors’ online beauty sales demonstrated robust growth in the period, whereas THG’s fell by 10.7% as its platforms Lookfantasic and Cult Beauty came under increased competition.
“The UK’s health & beauty market leader Boots reported a rise of 17.0% for digital sales in its Q2 to the end of February, accounting for 15% of its total sales, illustrating the growing threat Boots poses to beauty online pureplays and its ability to generate significant sales growth despite the difficult online trading conditions in December 2022. To better compete with Boots and other beauty players, THG may need to rethink the USPs of its platforms. Where Cult Beauty previously had exclusivity on ‘cult’ brands from its launch in 2008, players such as Sephora, Space NK and Boots now offer the same if not more brands to consumers, with current cult brands such as Rare Beauty noticeably missing from Cult Beauty’s offer, so THG may need to investigate more exclusive contracts for its retailers with new and unique beauty brands. In FY2022, THG cited its strategy to shield consumers from adverse macroeconomic conditions and high raw material costs, particularly in the nutrition sector, as the reason for a reduced gross profit margin of 41.3% (FY2021: 44.7%). Its Q1 results demonstrate that this strategy has started to bear fruit, with nutrition being the only sector in growth, with sales rising 4.5%.
“On Monday it was revealed that THG had received a takeover approach from US investor Apollo, resulting in a share price jump of 34% to 88p. Whether this offer materialises is yet to be seen, however it may be a necessary move to reinvigorate sales growth for the group. Additionally, the full impact of the closure of its OnDemand division is yet to be seen, with the announcement of 180 jobs being at risk earlier this month. THG also announced a 10-year partnership with online beauty retailer Maximo group, which will focus on re-platforming allbeauty.com and fragrancedirect.co.uk to the Ingenuity platform. This partnership is expected to add over £150m gross merchandise value to the Ingenuity platform annually, but this should not distract from the group’s focus on its own core beauty proposition. The impact of these potential events could take the year in various directions for THG, so it will be interesting to see if the improved financial performance, which hopes to see significant margin recovery through the year, will come to fruition.”
