What next for THG share price as losses widen?

Having rallied over the summer, THG’s share price fell sharply last week as the group revealed operating losses had widened in the first half of the year. THG also lowered its full-year sales target.

• THG’s share price fell 20% on Thursday last week, having rallied over the summer.
• Operating losses widen to £99.5m in the first half of 2023.
• Cost-cutting programme brings the number of job losses to 2,500 since 2022.

THG’s [THG.L] share price tanked over 20% last Thursday, after the company reported widening losses for the first half of the year and revised down its sales forecast for the year.

The company — best-known for its beauty and health businesses, including Lookfantastic and Myprotein — pointed to inflationary pressures, but noted that adjusted EBITDA was up year-on-year.

Considering THG shares had been rallying over the summer, could last week’s sharp downturn be an entry point for those interested in the stock?

What’s happening with THG’s share price?

Until last week’s sudden downturn, THG shares had been on a rally over the summer. THG’s share price surged around 70% between the end of May and the beginning of September, with the stock hitting an intraday high of 102.5p on 1 September. Bulking up the share price were takeover rumours and CEO Matthew Moulding giving up his Special Share, which had allowed him to veto hostile takeover bids.

THG’s share price closed Friday at 67.58p, trading well below a 52 week-high of 118.1p (its 52-week low was 31.15p). The stock is also below both its 50-day moving average and its 200-day moving average.

Interim losses hit THG’s share price

THG’s pre-tax losses widened to £133m in the first half of 2023, up from £108m for the same period the previous year. Revenue fell 9.3% to £969.8m. For the full-year, THG now expects revenue growth of between 0% and -5%; previously it had guided for a “low to mid single-digit” range.

On the plus side, adjusted EBITDA rose 22.9% year-on-year to £50.1m. This was at the top end of guidance. THG also saw improved cash flow improvement of £350m.

At THG Nutrition, which includes the company’s protein powder businesses, sales grew 2.6% to £340.7m. However, THG Beauty’s sales dropped over 10% to £538.7m following an “industry-wide” destocking, although the company said that since the start of August its beauty business had returned to growth.

Ecommerce platform Ingenuity saw a 14.9% drop in sales to £320m Despite this drop, THG pointed to new client wins, including L'Oréal US, and a strengthening pipeline.

Matthew Moulding described the results as “strong” in a statement. The THG boss said that the results reflected “inflationary pressures” and a policy of sacrificing margins in the short-term to protect customers, but noted the company’s cash and adjusted EBITDA performance.

“Inflationary pressures provided significant challenges to consumers and businesses alike over the past 18 months. Our strategy of supporting our consumers through 2022, sacrificing margins in the short-term, is bearing fruit. This is reflected in the strong first-half results we've posted today, across adjusted EBITDA and cash,” Moulding said.

Where next for THG shares?

THG has had a turbulent time since it went public. Last year THG’s pre-tax loss widened to £550m.

To get costs under control THG is trying to streamline. This has resulted in an additional 500 jobs cut this year, bringing the total reduction since the start of 2022 to 2,500. The company said that further investment in technology, automation and the simplification of its operations will continue to benefit both distribution and administrative costs.

Along with job cuts, THG is unloading non-core businesses with cycling equipment provider ProBikeKit going to Mike Ashley’s Frasers Group [FRAS], while its OnDemand division underwent a management buyout.

Despite dumping two underperforming businesses, THG acquired financial freesheet City A.M. in a pre-pack deal at the end of July. Moulding argued that having the paper in the THG stable would help the company reach a new audience.

Cost-cutting and offloading underperforming assets could help pressure nervous shareholders providing there’s more evidence that the strategy is working.

THG’s shares have a 12-month median price target of 85p from analysts covering the stock, suggesting a 25.8% upside on Friday’s close.