Earnings call transcript: THG Holdings sees stock rise after H2 2025 recovery

THG reported 2025 revenue growth of 2.3% YoY with a H2 recovery led by THG Beauty (Lookfantastic: +16.2% sales during cyber trading); shares jumped 8.33% after the earnings release. Adjusted EBITDA declined modestly due to record-high whey prices and strategic own-brand investments, and the company remains unprofitable on a last-twelve-months basis despite a market cap of ~$5.99bn and liquidity of GBP333m following refinancing to 2029. Management gave EPS guidance of $3.68 (Q2 2026) to $5.32 (Q4 2026) and noted a potential VAT claim >GBP60m; key near-term risks are whey commodity volatility and Japanese yen weakness.

Analysis

The earnings reaction understates the asymmetric payoff here: THG’s improvement in customer LTV and migration to app/social channels creates operating leverage that will magnify margin moves when commodity headwinds abate. That dynamic makes THG’s P&L more sensitive to two external cycles — input-cost normalization and a positive VAT/legal outcome — so equity returns will likely concentrate around those binaries rather than steady topline expansion.

Second-order winners include platform and services that monetize higher-AOV transactions (payments providers that support FSA/HSA flows and DSP/last‑mile couriers). Conversely, ingredient suppliers and near-term Asia D2C exposures remain the most levered losers if whey prices and FX volatility persist, since THG’s mitigants (licensing, channel shifts) are slower to offset sustained input inflation.

Key catalysts and time horizons: the legal/VAT outcome is a sharp binary in the medium term and should create a lump-sum liquidity re-rating if positive; whey capacity coming online later next year and any meaningful yen appreciation operate on a multi-quarter cadence and drive margin re-acceleration or re-compression. The primary risk to the constructive view is persistent structural uplift in protein input prices or a broader consumer discretionary drawdown that erodes the higher-value repeat cohort — either would make the recent repricing look premature.

Key Decisions for Investors

• Long THG (THG.L) on 6–12 month time horizon with a protective hedge: accumulate into any >10% pullback, sizing to 2–3% portfolio weight and buy 6–9 month puts ~20% OTM sized at ~25% of notional to cap downside ahead of the VAT/legal binary. R/R: asymmetric upside if VAT outcome and input-cost normalization occur; limited downside via the put.
• Long FLEX (FLEX) 3–12 months: buy call spread (e.g., 6–9 month ITM/OTM) to capture secular growth in health-care payment flows and higher AOV financing without paying full premium. Risk: consumer pullback; Reward: higher take-rates and volume from health/beauty customers.
• Long UBER (UBER) 6–12 months via long-dated calls or stock: exposure to increased same‑day delivery volumes and merchant partnerships; hedge by selling short-dated volatility if options chosen. Risk: lower margin per delivery if pricing competition intensifies; Reward: durable revenue per merchant uplift.
• Event-driven options play on THG: buy 3–6 month out-of-the-money calls ahead of the HMRC update only if implied vol drops; alternatively buy puts if implied vol spikes — asymmetric entry around the announcement. R/R: defined premium risk for binary outcome exposure.
• Avoid directional exposure to SMCI and APP based solely on this print. These names are not beneficiaries of the retail/social-commerce dynamics described and carry idiosyncratic execution risk that makes them poor hedges for THG exposure.