THG slumps on margin miss, inflation concerns return with oil at a seven-year high, and Hotel Chocolat delivers sweet Christmas trading

THG

“The only way THG is going to win back the market’s favour is if it delivers better than expected figures consistently for at least two or three quarters. Unfortunately, its latest update doesn’t pass the test as it flags margins are slightly below expectations,” says AJ Bell Investment Director Russ Mould.

“Under normal circumstances, a business delivering the level of growth seen in THG’s latest update would be applauded by the market. Sadly, THG has shot itself in the foot thanks to the way it has behaved as a listed company since joining the stock market. And that means only something spectacular will lift the share price.

“Failure to deliver the level of detail about the business desired by investors, questionable corporate governance standards, and comments by chief executive Matt Moulding that he wished he’d never floated THG all amount to bad practice as far as investors are concerned, and they’ve voted with their feet which has left the share price languishing well below its IPO price.

“The fact THG is guiding for revenue growth to slow in 2022 is even more reason for disgruntled investors to keep shaking their heads in disbelief.

“Online companies that pitch their story as rapid growth need to live up to the hype. So far THG is coming across as an ill-trained runner which has brought sprint tactics to a marathon and found it can’t sustain momentum at top pace.”

Markets

“Having yesterday reached heights not seen in more than two years, the FTSE 100 was under pressure on Tuesday.

“A rise in oil prices to a seven-year high and a continuing, though below inflation, rise in UK earnings has put the spotlight once again on inflationary pressures and a cost of living crisis.

“Traders are eyeing the $100 per barrel mark for crude oil for the first time since 2014, with the perceived diminishing threat posed by Omicron to the global economy and supply constraints and disruption driving the black stuff higher.

“The question now is whether OPEC will take action to address the surge in the market, or risk demand destruction if it doesn’t.

“US futures markets are pointing to a flat start when Wall Street resumes after Martin Luther King Day. However, the steady stream of US earnings reports, which this week includes Netflix, Bank of America and Goldman Sachs, could help tip the scales in either a positive or negative direction.”

Hotel Chocolat

“It seems many of us discovered our sweet tooth over Christmas with Hotel Chocolat unveiling a trading update which has gone down as well with shareholders as a box of its luxury chocolates.

“The company is literally firing on all cylinders – noting that its six key growth drivers are supporting the accelerated sales profile.

“This includes initiatives like its Velvetiser in-home drinks system, which brings with it steady sales of accompanying consumable items, its VIP Loyalty reward scheme and its expansion into the US and Japan. The core market in the UK is performing well too.

“The company has done well during the pandemic thanks to the investment in its digital arm and its push to add subscribers, creating a highly visible revenue stream.

“At the moment Hotel Chocolat’s physical stores and online sales seems to be complementing each other to reinforce the strength of the underlying brand, though there is some risk that the digital operation begins cannabilising in-store demand.

“The company has taken Thorntons’ place as the destination of choice for premium but still affordable chocolate-based treats. Continuing international expansion and an ongoing push into wholesale markets represent growth levers for the future.

“Its ‘gentle farming’ initiative to support cacao farmers shows it is aware of ESG considerations too.”

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