LONDON — Shares in online beauty retailer THG, formerly known as The Hut Group, fell nearly 20 percent on Tuesday after the company saw losses widen to 540 million pounds in fiscal 2022 due to inflationary pressures and write-downs.
The share price fell to 0.77 pounds at the close of trading, after having rallied on Monday following THG’s confirmation that private equity firm Apollo Global Management Inc. had made a preliminary bid. THG described Apollo’s bid to acquire the entire issued share capital of THG as “highly preliminary” and non-binding.
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Apollo needs to make an offer by 5 p.m. on May 15, or walk away, according to THG, which has struggled on many levels since it listed on the London Stock Exchange in September 2020.
THG owns online retailers including Cult Beauty and Lookfantastic, and brands such as Perricone MD and Espa. It published its 2022 results on Tuesday, showing that group revenue rose 2.7 percent to 2.24 billion pounds.
Losses for the financial year widened to 540 million pounds from 138 million pounds.
THG said losses increased for a variety of reasons, including its efforts to limit customers’ exposure to commodity cost increases, and its 275.4 million pound write-down of the software it uses to operate third-party websites.
It also listed a series of non-recurring costs in the period, including 32.4 million pounds spent on a strategic review; 18.5 million pounds on international deliveries, predominantly in Asia, and mainly linked to COVID-19 restrictions, and 14.8 million pounds in administrative costs following a company reorganization and related layoffs.
Matthew Moulding, cofounder and chief executive officer of THG, said that while adjusted EBITDA, or earnings before taxes, depreciation and amortization, in 2022 “was not where we planned at the start of the year, this was largely the result of our strategy to minimize the impact of inflation upon our customer base.”
Moulding said the outlook for fiscal 2023 was “much improved” due to declining input costs, and said that THG’s Ingenuity division, which operates websites for third parties, has been repositioned and reorganized.
“It is now paying dividends, evidenced by recent announcements and a strong 2023 pipeline,” he said. Earlier this month, THG Ingenuity inked a 10-year partnership with the beauty e-commerce retailer Maximo Group, which owns sites including Allbeauty.com and Fragrancedirect.co.uk.
THG Ingenuity said it will become Maximo’s “key U.K. operational partner,” providing warehouse and fulfillment services from second quarter 2023.
Following a three-year infrastructure investment program, Moulding said THG has “the technology infrastructure and the global fulfillment capability” to ensure that it’s “well positioned to capitalize on this path of growth.”
In fiscal 2023, THG said it is expecting low- to mid-single-digit growth. The group added that “profitability and cashflow improvements” in the first quarter point to “significant margin recovery through the year.”
The company said it is working toward recovering historical adjusted EBITDA margins of around 9 percent during the medium term. By comparison, adjusted EBITDA margin for fiscal 2022 was 2.9 percent.
Given its declining share price, structural and management woes, THG has been no stranger to unsolicited bids.
Apollo is one of many private equity firms to have made a run at the company.
Last April, Moulding said the board had received “indicative proposals from numerous parties in recent weeks,” but they rejected them all because they didn’t reflect the value of THG.
Moulding did not elaborate on who the suitors were, what price they offered, or even how serious those offers were.
According to British press reports at the time, the top suitors were American private equity giants Leonard Green & Partners; Advent International, and Clayton, Dubilier & Rice. They all declined to comment at the time.
Despite a blockbuster IPO, THG had a rocky start on the public markets with investors questioning Moulding’s oversight of the company, and the value of the Ingenuity platform, which licenses end-to-end e-commerce solutions to brand owners, provides various other digital services and undertakes beauty product development and manufacturing for third parties.
THG has since taken steps to rectify those issues, with Moulding stepping down as joint chairman and CEO, and giving up his golden shares in the company, which gave him special veto powers and the ability to block takeover attempts.
Shares in THG are currently trading well below the float price of 5 pounds.