Takeover-target THG sees margin recovery after Q1 sales dip

THG (THG.L), the online retail platform that said on Monday it had received an approach, reported a drop in sales in its first quarter but said profitability and cash flow had improved, supporting its expectation for significant margin recovery.

The British company, which owns beauty and nutrition e-commerce sites as well as an online platform serving third-party brands, reported adjusted core earnings of 64.1 million pounds ($79.5 million) for 2022.

Excluding an accounting charge, adjusted earnings came in at 74.3 million pounds, enabling the company to meet guidance of 70-80 million pounds that it downgraded in January.

Chief Executive Matthew Molding said the earnings did not come in where he had planned at the start of the year, largely due to minimizing the impact of inflation on its customers.

One of the biggest challenges had been the rising price of whey, which makes up about half of the cost of goods in its nutrition division focused on protein products, he said.

"Now what we're seeing is commodity pricing probably somewhere back at the 2019 levels," he said in an earnings presentation. "We should see some significant rewards off the back of the fact that we made those customer investments."

THG reported a 2.7% rise in full-year revenue to 2.24 billion pounds ($2.78 billion) and said it expected a similar low- to mid-single digit rise this year.

However, its first-quarter revenue declined by 8.6%, an outcome it said was largely as planned due to prioritizing higher margin sales.

Shares in THG surged more than 40% on Monday after it said it had received a "highly preliminary" buyout proposal from Apollo Global Management APO.N, without disclosing terms of the plan.

The shares were down 7% in early deals on Tuesday.

Reuters