THG Plc (HG0.MU) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to THG's Q3 2025 Trading Statement. We are joined today by THG's Chief Executive Officer, Matthew Moulding, and members of the executive team. [Operator Instructions] I would now like to hand the call over to Matthew Moulding. Please go ahead.

Good morning, everyone, and thank you for joining us for THG's trading update for the third quarter of 2025. As we announced in the statement this morning, trading momentum has continued to improve with organic growth hitting its highest rate since COVID. THG Beauty and THG Nutrition are now both in growth with the group delivering revenue growth of 6.3% in the quarter, reflecting payback on the business model changes made throughout 2024 and earlier. Now looking at our businesses in more detail. In THG Beauty, a return to growth was supported by a strong advent calendar launch and solid momentum in U.K. retail, including double-digit revenue growth for Lookfantastic, demonstrating the strength of our online retail proposition. After a weaker start to the year, performance in the U.S. was much stronger with increasing loyalty through subscriptions and category growth outside of our core in prestige skincare. In THG Nutrition, Myprotein achieved revenue growth of plus 10% with growth in both online and offline channels. Social commerce and marketplace channels are delivering particularly well, and we're increasingly launching exclusive products on platforms such as TikTok, including the recently launched Myprotein and Jimmy's Iced Coffee Impact whey protein. These exclusives drive engagement and demand for the brand, helping to capture new audiences. Within offline, our global retail footprint has expanded significantly as we launched clear whey protein into 2,500 U.S. CVS stores and secured our first ever retail presence in the Middle East through a multi-category partnership with Spinneys Supermarkets. Our strategy of partnering with leading brands continues to deliver market-leading results. Our Müller collaboration was the U.K.'s #1 protein dessert despite the collaboration only launching 12 months ago. In leisure, a new partnership with Everlast Gyms will see 60 in-gym Myprotein kitchens across the U.K. and Ireland, embedding our brand directly into the daily lives of the fitness community. Now let's look ahead. We're well positioned as we enter the group's busiest, most profitable and cash-generative quarter. At H2 results, we gave group growth guidance of between plus 3.9% to plus 5.9% for H2. Q3 performance of plus 6.3% positions the group favorably against this guidance as we now commence our peak trading period. With both operating model changes and additional cost efficiencies proving successful, we remain confident in the outlook for both 2025 and into 2026. So in summary, Q3 was a solid performance. Our focus remains on driving sustainable growth, strengthening our market positions and deepening customer engagement and loyalty. And with that, we will now open the lines for questions.

[Operator Instructions] The first question today comes from the line of John Stevenson from Peel Hunt.

I've got one question on Beauty and 2 on Nutrition. I will start with Beauty. Lookfantastic U.K. is now into double-digit growth. And can you give a little bit of insight behind the customer KPIs behind that in terms of what you're seeing in U.K. engagement activities and anything else? I appreciate Advent has launched and gone well, but interested in the sort of drivers behind on the customer side. And then on Nutrition, obviously, a lot going on. Can we talk about some of the growth drivers and category performance behind that? Hydration is obviously accelerating. I think apparel is still one of your fastest-growing categories. Is there anything else you'd like to call out? And finally, on Matt within subscriptions, I mean, massive growth against the first half. I'm not sure if that's pricing driven, if there's any sort of sense of how sticky those subs customers are.

Sure. I think on subscriptions, there are benefits to being a subscriber. So there's definitely a pricing advantage for people to do that, which generates the stickiness and gives the demand for people to sign up. So we're very focused on that, and that's an initiative that the Myprotein team have been building out now for the past 12 months and seen some good success. I think to call out some other things within Nutrition, I think we touched on it at the half 2 results as well, John. You're right that the sportswear category is seeing exceptional growth and also really strong margin progression as well to such an extent, it's quite quickly becoming our highest gross profit category at this rate. It's right up there pushing the likes of vitamins, which is a very high gross profit margin. So it's a deliberate strategy that we're building upon where, obviously, whey protein as a core category remains super important for the consumer, but it's one of the lower margin categories, especially when you consider potential for whey volatility. Now there's a number of ways we've been tackling that over the past couple of years. And clothing is one of those, the bitumen build-out is another. The offline partnerships, the licensing as well is really key. And so you recall as well, we've had some FX pressures, which haven't really gone away yet either. If you look at the yen, it's still at around 200 level. And when we IPO-ed, it was at 135, and that was our second biggest territory. So the devaluation of the yen has been quite painful for us to achieve through. And that's also led to us developing some of the model out as well around the licensing arrangements and localized manufacturing in different territories. And so you'll see more of that where -- especially around offline, I think we announced the deal that we've done with a major Korean conglomerate where they're going to be dealing with the offline channel for us, and they'll do the manufacturing, and they've obviously got all the relationships with all the retailers, and they'll be putting into stores. We'll then get a license fee off the back of that. But at the same time, then still big -- quite a strong market for us. We'll be dealing with the online model as we already would do. So we're developing the model for nutrition to different markets in different ways to suit what's the right way of us trying to crack success over there. But generally, the offline has gone very well. We're obviously looking forward to a time when the whey protein prices start to fall, and that would bring us some great progress. But there are some other areas where you're seeing really good commodity progress, the likes of creatine, which is a key category these days in the health and wellness space, you're seeing that, that commodity pricing is near record lows. And so you've got an ability to lock that in for a sustained period of time into the future. You took up to 12, 18 months, you can lock that pricing in and say, well, that's enough for that business model to be a great success for us. And we're looking at doing that across various commodities. You obviously wouldn't want to do that in whey protein right now when it's at record highs. So there's a lot of progress going on in the Nutrition business. It was an eventful year last year. The rebrand, I think I think someone called it out as being the worst rebrand in history. I think we probably -- it doesn't motivate when you hear things like that, but I think we're pretty pleased with the progress that we're making there and super proud of the rebrand and the results that is delivering. So I think that's probably the main kind of call out that I would give. I mean the other question you had around some of the beauty customer dynamics, look, John, I've got to be honest with you. I'd be starting to get out of my depth if I get into the real macro details of some of the data points within the beauty consumer behavior. What I can tell you is from my level, what I focus on is the number of app users we've got, and that's at record highs. Obviously, we've got really strong following across the app users. I also then look at the loyalty schemes that we operate as well and the loyalty schemes have been a real success. And actually, I was quite resistant to those loyalty schemes. So that really is one for the management team where they pulled me into doing them. But we are seeing real good stickiness across the consumer. It's very volatile within beauty within which brands are successful. As you may have seen in some of the big corporates out there where brands that have been successful for the past 5 years suddenly aren't anymore. But that's the beauty of our model where we bring these new brands to market and put them in front of customers and helping some of that shift to happen from time to time. But yes, we're pleased with it. I think the one thing to call out in Beauty as well Lookfantastic is doing it especially well. Last year, it was lagging a little bit where you've still got a drag on the business right now is the brand piece has been choppy, various initiatives we've had going on in there, but that should now start to ease as well. So we'll be [indiscernible] update our own brands. I put a post on LinkedIn this morning around one of our smaller brands, Christophe Robin. So I think that one will be back in growth pretty quick given [ Taylor Swift ] is an avid user of it. But trying to get that brand business into a much stronger position. And so that stops to be a drag is also a priority in Beauty, but I think we're in reasonable success there now on the go forward.

[Operator Instructions] The next question comes from the line of Andrew Wade from Jefferies.

A couple from me. First one on Nutrition. It sounds like most of the growth in there driven by price. But I think that sort of belies the volume growth that you're driving from the offline piece. So obviously, you're going to get the licensing sort of smaller revenue proportion on that. Could you just talk a bit around that, sort of how much more product is out there given what you're doing offline and sort of how you're using that to build the customer base? That's the first one. And then second one on -- you touched on own brand there. How should we be thinking about the phasing of investments in that and sort of the timing of disruption and benefits in terms of your investment in the own brand?

All right. So in terms of answering the nutrition question on how much extra product is out there. I think to give you a small fact on that, the Müller as an example, had the sell-in to retailers in Müller now. I think we're on our third month of 2 million Myprotein units into retail in a month for 3 consecutive months. So I know it's certainly to -- I'm expecting the third month when I see the data to come through with the same as well. Now the sellout is a bit different, but obviously, we're interested in the selling just as much. So but 2 million units just in protein yogurts under the Müller partnership. That gives you an idea of the extent of the touch points that we have in that -- if you were to look at Iceland as a retailer, we're probably doing in the region of about GBP 70 million a year of frozen meals with Iceland across 2 different types of ranges that we have with them. Now the average meal is somewhere in the region of about GBP 3.50, GBP 3.50, I think, given all the average product. There are some cheaper products in that we sell. So you get an idea there, there's GBP 20 million of products probably going out the door just in frozen foods, and that's pretty much limited to Iceland. There are some other distribution points, but it's very successful for them. So they do control distribution of that, and they do have an exclusive on that range of products in there. Then when you look at the other things that we're doing in as far as Japan, we've had this partnership for a long time with ITOCHU, where they do in retail stores, they will provide ready-to-drinks, just a small range of flavors. And that's in -- I think it's like 200,000 stores now over there. It's been expanded from just being in the 7-Eleven stores or whatever it's called. And so in every store, they're selling 1 or 2 units a day. So it's huge volumes that you would see going out on touch points, but that won't necessarily represent itself on the revenue line. So when something like that doing GBP 70 million worth of frozen meals, we're taking a good percentage of that. But obviously, it's less than 10%, but it's more than a few percent. So it's really, really good for us, but we don't recognize the revenue or anything similar with the licensing deals all over the world. And with Müller in the last, we're only taking a percentage of that revenue. So it is a large-scale operation that's taken a few years to build out, but super pleased with the progress that we're making there. Offline by comparison, though, we are largely delivering that ourselves across all the retail stores, and we will be recognizing the revenue -- you're right to say, well, there's obviously some price benefit going into the whey protein side, but it is worth noting that things like creatine, creatine was at a record high explosive high for a period of 2 years and now it has come back down quite significantly, and that's true of quite a few commodities. So it's not that all nutrition products they are operating at elevated pricing at the moment. And then the final point to say on your volumes as well is that last year, we were discontinuing the entire brand and packaging of the Myprotein range as we move to the new branding. As a result of that, then you've got a huge amount of volume that you've got to get through and you do that through discounting. So you have got quite a bit of volume that you comping versus the prior year through that, which is worth taking into account. So there's a lot going on, a lot of moving parts. But generally speaking, as you touched on there, we focus on how much -- where is the touch point, how is the brand health? Are we doing the right things with the right retailers. And even if we're only recognizing a small part of that, but it becomes -- it feels like it's a really key brand expansion initiative, then we're more than happy to do it. The effort that goes into it and the rest of Beauty is -- the own brand business is a really solid business. It's like everything, right? When things are a bit choppy, everyone quite rightly questions, is it worth the effort or what are you doing? Beauty as an entire division was put under that microscope a couple of years ago from external parties. But just a reminder of some of the brands that we have in there, we have a really good brand called ESPA, which is if you enter any of the real high-end spas across the world, it's in those spas. It's in the palaces across the Middle East, most of them are built by ESPA and ESPA products in there. It's a really, really solid brand. We paid, I think, about GBP 80 million, GBP 90 million for that brand a good few years ago. So we're pleased with the direction of travel of that brand. We have Perricone MD, which is the first real doctor brand in the U.S., really high price point, multi product. I think we paid $50 million for that during COVID. And that brand, in particular, is the one that caused a few drag points as some of the orders that have got into its major retail channels has been a bit more volatile this year, but that's much more positive now, and those orders are flowing again. So we expect that drag to come to an end. Then other brands that we've got in there, Christophe Robin, which is the Taylor Swift one, which is a hair care brand. I think we paid about GBP 30 million for that, something of that order, that kind of level. And again, that's a really good French hair care brand. But -- and they require some work. But ultimately, they are high margin. And last year, they were working really well to the collective. This year, we've had some choppiness. And next year, I've got no doubt that they'll be in a really strong position and will have been worth the effort across the team in some of the changes we've made.

The next question comes from the line of Lara Simpson from JPMorgan.

I actually just wanted to come back to portfolio optimization. I know it was a talking point at H1, you obviously continued with sort of business exits and closures. We've had the Claremont disposal. But you did talk about sort of, I think it was GBP 300 million that was still invested in sort of stand-alone Beauty and Nutrition manufacturing facilities. Can you just give us a bit of an update on your review across the portfolio, how you're thinking about the core assets in Beauty and Nutrition and if we could expect any more disposals in the foreseeable future?

Sure. Look, as you would expect, since we've announced the sale of Claremont, there's obviously a lot of interest in the background as to some of our other manufacturing assets in particular and the performance of that. And it would be fair to say we've had formal approaches on some of those assets. We're pretty clear as to how we stand on these things, which is the private market valuations, as we saw with Claremont are robust. So if we receive interest in an asset where we believe we can make a deal work for us without in any way negatively impacting the existing business models that we have in nutritional Beauty, then sure, we will entertain that and derive a fair valuation for one of those assets, especially if it's a material value, right? So if it's something that's like with Claremont, it was GBP 100 million plus consideration. So then sure, we would do that, especially given the valuations that are on at THG and the wider PLC market today. So I think that's probably as deep as I should go into that. I think we've been pretty frank and open to say, look, we could quite readily put an RNS out at any point to say we've done a transaction. It would be something that's relatively noncore at a fair market value that delivers something that we're pretty pleased with. And -- but how long will that be before we do that? Who knows? It will depend on achieving the right price point if those prices arrive. But that's probably as much as I can say right now.

There are no further questions. So handing back over to Matthew for closing remarks.

All right. Well, thank you, everybody. I think a big thanks -- I did say on the LinkedIn this morning, a big thanks to the team involved, and we're really pleased with the quarter that's gone by, special moment to have both of those businesses in growth. And I just want to say thanks to the team.

Thank you for joining today's call. You may now disconnect.