THG momentum continues as strategic programme pays off

THG, the Manchester-based online retail giant, has continued its Q4 momentum into the first quarter of the financial year with ongoing revenue growth and a “standout” performance from its beauty division.

Total group turnover in the three month period to March 31, 2023, rose by two per cent to £459.9m.

This included £267.6m from beauty, a 9.3% year on year improvement, although the nutrition division’s £150.8m sales represented a nine per cent decline.

THG Ingenuity, the group’s ecommerce engine, which it outsources to external customers as well as its own divisions, achieved sales of £37m from external customers, a 4.1% increase.

THG Ingenuity internal revenue underwent profitability improvement plans through 2022 and 2023, which included the discontinuation of non-profitable categories in addition to the sale of OnDemand. As both Beauty and Nutrition return to growth, internal revenue will also benefit, albeit at a slower rate than external sales, given the anticipated volume of contract wins.

THG said its strategic focus on higher margin sales through fiscal year 2023 has been rewarded, with continuing revenue growth of 4.5%, building on the 1.1% growth achieved in the fourth quarter of 2023.

THG Beauty delivered a standout Q1 performance following targeted changes to geographic strategy through 2023, focusing on more profitable customers and territories closest to the group’s global distribution hubs.

Customer numbers have increased, with 8.8 million during Q1 2024, compared with 8.6 million the same time last year. Average order values also increased in the respective periods, from £63 to £64.

Performance in the UK – more than half of online Beauty revenue – was notably strong, ahead of the overall Beauty business growth.

App participation grew to 24% of online revenue (Q1 2023: 15%), with particularly strong participation in the UK at 35%.

Increased app revenue participation supports deeper relationships with THG’s customers, providing valuable first party data and lessening the reliance on paid marketing channels.

THG Beauty further increased market share in the UK total premium beauty market, and further enhanced its fragrance credentials with 10 new brand launches.

The group said its Myprotein continues to be the fastest growing sports nutrition brand across UK retailers.

Expectations for the current financial year and medium term guidance remain unchanged, with a continued focus on revenue growth, margin progression and cash generation.

Group revenue growth in the first half is anticipated to be in the range of plus two per cent to plus five per cent, on a continuing basis and minus one per cent to plus two per cent on a reported basis, moving towards high single digits in the second half, reflective of the onboarding of new contracts within Ingenuity, growth in offline sales within THG Nutrition and full Myprotein rebrand product availability.

Following developments in the Middle East, the group continues to monitor the situation, with Israel accounting for around one per cent of group sales, weighted towards Nutrition.

CEO, Matthew Moulding, said: “Following the group’s return to revenue growth in Q4 2023, it’s pleasing to report an acceleration in Q1, which is testament to the hard work and dedication of our people, who’ve remained focused on the task in hand despite the tough macro-economic backdrop.

“It’s also clear that the accelerated infrastructure investments made during 2019-2022, specifically into our fulfilment network and tech capabilities, are playing a significant part in delivering competitive advantage. With this major capex programme behind us, these investments will continue delivering meaningful savings, which accelerate further as new Ingenuity partners are onboarded.”

He added: “The Q1 performance of our largest business, THG Beauty, is especially encouraging. The operating model changes made throughout 2023, including focusing on more profitable territories and customers, temporarily impacted growth for much of last year, however, since Q4, we are seeing tangible benefits from these actions. This is reflected in THG Beauty’s loyalty membership reaching 2.3 million people at the end of Q1, less than two years after launch.

“Beauty delivered double digit growth in the quarter (constant currency basis), with a high quality, loyal customer base bringing greater profitability per order across a more efficient cost base.

“Ingenuity, having pivoted towards larger, multi-service partners, is now also seeing the benefits of its own model changes. Another quarter of solid external revenue growth at +5.9%, is underpinned by monthly recurring revenue growth of +26.3%.

“The response to the Myprotein elevation rebrand has been fantastic. While these changes naturally impact short term revenues as old and new branded products are swapped out, the strong positive response from online consumers and offline retail partners alike underpins confidence once full product availability is restored.”

THG’s shares rose 5.21% in early trading this morning following the update.