THG: The Leaner Turnaround Is Real, the Growth Isn't Proven Yet

THG just delivered the kind of print a turnaround investor dreams about. First-half revenue rose 7.2% to £828.7 million, ahead of the company's own guidance, and adjusted EBITDA — the profit measure management steers by — more than doubled to £42.8 million. The shares fell roughly 15% at the worst point of the day anyway, and by the next morning were trading near the bottom of their 52-week range. That gap between the numbers and the price is the whole story of THG in one day: the company is finally getting leaner and more profitable, and the market still won't buy the "growth" part of the pitch.

To make sense of that, you have to know what THG is and where it's been. It's a British online retailer and brand owner you'd recognize only by its properties: Myprotein in sports nutrition, and Lookfantastic and Cult Beauty in prestige cosmetics. It listed on the London Stock Exchange in late 2020 near 500p a share and became one of that market's great fallen stars, collapsing to single-digit pence territory as growth slowed, costs ballooned, and the market soured on its founder-heavy, acquisition-fueled model. Over the past two years management has been dismantling that structure: it demerged its Ingenuity e-commerce technology arm, sold off non-core assets (including ingredients business Claremont for £103 million), and cut headcount by roughly 25% in 18 months. The streamline was the entire bet: run a smaller, simpler company and let the profit fall through.

H1 2026 is the first real proof that worked. Revenue is growing again at the best pace in years, both Beauty and Nutrition have grown for four straight periods, and the profit leverage is showing up — adjusted EBITDA margin expanded 210 basis points to 5.2%. That is still a thin margin for a retailer, but the direction matters more than the level: this is a business whose economics are finally bending in the right direction.

The "leaner" half of the story is not just margin, either. Management guided to £25 million to £35 million of positive free cash flow for the full year, a state THG has rarely occupied. And the cash is doing what cash does on a deleveraging balance sheet: management expects leverage to fall to roughly one times EBITDA during 2027 and says a meaningful non-core disposal could leave it net cash positive by the end of next year. Founder and CEO Matthew Moulding put his own money behind the thesis in February, buying £8.5 million of shares at 34.93p each.

So why did the stock fall on a beat? Because the market priced the profit, then focused on the growth guide behind it. Management told investors that third-quarter revenue will grow only about 2% on a constant-currency basis — a sharp step down from the 7.2% first half. The reasons are a genuine mix of the temporary and the structural: new EU parcel import duties that took effect July 1 (the bloc removed its €150 customs exemption and replaced it with a flat €3 per-parcel charge, which directly taxes the small beauty orders Lookfantastic ships into Europe), the phasing of own-brand beauty sales into the fourth quarter, a European heatwave that slowed demand, and packaging-component shortages tied to shipping disruptions in the Strait of Hormuz that delayed U.S. manufacturing dispatches.

That last list matters because it separates what's a one-off from what's a cost of doing business. THG's growth was never high-margin, high-durability growth; it's a low-margin consumer-goods e-commerce model that runs on volume and price. The single biggest cost pressure at Myprotein is whey protein, which THG says has risen roughly fivefold since 2021 — that's why it's leaning on volume (units sold jumped 57% in the half to 58.5 million) and cost mitigation rather than simply pricing through. Management now points to a flood of new whey supply entering the market as a cost tailwind into 2027. If that comes, the margin and cash-flow story gets easier; if prices stay high, the thin cushion gets no thicker.

This is the frame for the whole call: the market is not doubting that THG got cheaper and better. It's doubting whether the growth can hold at a level that justifies the multiple — and whether the profit can keep compounding without a fresh cost shock. That is why the stock trades at roughly seven times trailing EBITDA on an enterprise value around £880 million. Cheap, yes. But cheap can reflect genuine uncertainty about durability, and it usually does.

The next two quarters are the test. Management says fourth-quarter revenue growth should re-accelerate to 6% to 7% on the gifting season, with advent calendar sales alone expected to exceed 250,000 units — that's the falsifiable claim that decides whether the ~2% third quarter was a duty-and-phasing hiccup or the start of the next stumble. There are also two side variables that could move the story independently: an HMRC VAT claim on THG Nutrition, with an update promised by the end of October, and the possibility of a further non-core disposal that would accelerate the path to net cash.

Separate the two ideas here, the way you should with any turnaround. The business quality has genuinely improved — margins, cash flow, and the balance sheet are all better than they were a year ago, and the restructuring is showing up in numbers rather than a slide deck. The stock quality is a different question: it's cheap, but the cheapness is there because the next quarter of growth is expected to slow sharply and because the model has little margin for surprises. For a holder, the right question is whether the Q4 re-acceleration lands and the whey tailwind arrives; for a watcher, the risk is that "cheap" turns out to be the price for a growth rate that can't be counted on. The Q4 print, not this one, decides which THG you own.