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THG says it will absorb some inflationary costs to build long-term relationships with repeat customers as it reports record sales – but a £186m pre-tax loss

Image courtesy of THG

THG says it will absorb some of its rising inflationary costs in order to keep prices steady so it can focus on building long-term relationships with the repeat customers that now account for about 80% of its direct-to-consumer sales. It reported record full-year revenues and said the business had almost doubled in size over the last two years as shoppers shifted their brand purchases online – while at the bottom line its pre-tax losses narrowed to £186m.

The business plans to limit the effects of inflation on the customers who buy from its brands by absorbing some of the rising costs in shipping and raw materials such as whey – although there will still be price rises at a lower level. Its focus will be on building a loyal customer base for the long term – 80% of revenues at key brands Lookfantastic and Myprotein are from returning customers – and it believes that inflation will have a “largely transitory” effect.

Its beauty and nutrition businesses now have 16.4m active customers – 95% more than in 2019. Some 78% of all its direct to consumer customers are repeat customers, and average order values have stayed stable. Influencers, says THG, have played “an important role in cost efficient marketing”, and it has also developed strategic relationships with social media, marketing technology and automation partners. Mobile apps, meanwhile, are credited with improvements in order values and frequency.

The update came as The Hut Group (THG) reported revenue of £2.2bn in its latest full-year, to December 31 2021. That’s 35.1% ahead of the previous year and 91.2% ahead of two years ago. Its beauty business remains the largest part of its business, with sales of £1.1bn (+48.7% year-on-year (YOY)), followed by its nutrition business, with sales of £659.5m (+17.3%). Its businesses providing technology to third party brands also showed fast growth – with THG Ingenuity sales of £194.3m (+41.5%) and THG OnDemand sales of £128.1m (+26.5%). Revenue from its Ingenuity Commerce business, which operates ecommerce businesses on behalf of brands, grew by 135.2% to £45.4m as it grew the number of brand websites that it operates.

But at the bottom line it reported a pre-tax loss of £186.3m – down from a loss of £534.6m a year ago. That reflects distribution, administrative and finance costs, including investment.

In the first quarter of its current year, group revenue came in at £520.2m, 16.3% ahead of last year and 84% ahead of the previous year as demand remained “encouraging” in comparison with the global lockdown of the previous year. In the coming year, THG says it “plans to limit the impact of cost pressures on our consumers by maximising efficiencies in our operating model, absorbing some of the pricing pressures, and raising prices at a lower rate to underlying input costs”. Those cost pressures come as a result of the war in Ukraine – where THG is also supporting both UK and Ukraine-based staff – Covid-19 related lockdowns in Asia, and inflation affecting almost all of its costs. THG says measures including ongoing automation in the network, vertical integration and cost saving will help to offset some of these pressures.

THG chief executive Matthew Moulding says: “2021 was a pivotal year for online commerce globally, with changes evident right across our business and key markets as consumers and brands increasingly adopt digital ways of engaging. The pandemic has changed the way business is conducted and consumers behave, creating opportunities for THG to invest in support of our strategic growth ambitions.”

Investment of £1bn during 2021 went into its technology campus in Manchester – including a new automated warehouse – and into the expansion of a global distribution network that dispatched more than a million items a day at peak period, and into acquisitions including the Dermstore and Cult Beauty brands and Brighter Foods food manufacturing business.

Looking ahead, THG continues to expect that full-year sales will be between 22% and 25% ahead of last year, when foreign exchange rate fluctuations are excluded. The effect of the Russia Ukraine war is expected to affect revenues by a further 1%.

“In our first full year as a public company, 2021 saw us scale revenue and expand our business model, well ahead of targets set at IPO,” says Moulding. He said the company had reported record group revenues over the last year and had effectively doubled in size in the last two years.

He adds: “Alongside significant revenue growth, FY2021 saw us acquire and successfully integrate a number of complementary businesses, deepening our vertical integration across both Beauty and Nutrition and expanding our reach to consumers across the globe.

“The operational resilience and performance of our Ingenuity infrastructure, especially during our peak trading period was a highlight, as was the opening of our automated warehouse at our ICON technology campus, delivering material improvements and cost savings across our global storage and delivery infrastructure. Our technology platform is now powering an expansive list of global brands across a multitude of sectors, and the number of third-party websites has almost doubled during the year.”

He said that while “numerous” indicative offers for the THG business had been put forward in recent weeks, all had been deemed unacceptable by the board because they fell short of ‘fair value’. “We continue to focus on delivering our exciting growth strategy across a number of large global sectors and prepare to step up to the premium segment of the LSE at the appropriate time,” he says.

Commenting on the figures, Sofie Willmott, sector head for heath and beauty at data and analytics company GlobalData says: “Although THG aims to absorb some of the rising supply chain costs, such as the higher price of whey and increased freight costs, it intends to increase product prices, similarly to plenty of other retailers and manufacturers. Raising prices is essential to go some way to protect margins with EBITDA margin dropping to 7.4% in FY2021, down from 9.3% in FY2020 and forecast to be even lower at c6% for FY2022.

“Despite its revenue figures painting a rosy picture and suitors proposing takeover bids for the company (although all offers have been deemed unacceptable), investors are not fully convinced that THG can fulfil its IPO promise and shares are down over 80% on last year. Bringing in chairman Charles Allen in March may help restore some confidence in the longer term but THG now has more shoes to fill and must quickly find a new leader to steer Cult Beauty given that its founder, Alexia Inge, resigned this week following reports of a change in company culture and ways of working since it was bought by THG.”

Third-party brand strategy

THG is now operating the ecommerce operations of a growing number of brands on behalf of their owners. Its Ingenuity Commerce business, which operates ecommerce businesses on behalf of brands, grew by 135.2% to £45.4m as it grew the number of brands that it operates. In the first quarter of 2022 it operated 202 live websites for clients – up from 133 a year earlier.

“Globalising a digital brand is incredibly complex and expensive with a high failure rate, which is why so few brand owners have ever done it successfully across multiple territories,” says Moulding in today’s statement. “The migration of websites trading substantial GMV is not without execution risk and the group’s experience in this regard has delivered meaningful improvements to the all-important customer experience. This positions Ingenuity as a partner of choice for brands looking to invest in and develop their digital and cross-border strategies.”


THG says it aims “to leave the world a better place than we found it”, and it is following science and data based goals including to offset all of its historical operational emissions by the end of 2025. During 2021, it planted 830,000 trees through its THG Eco division.

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