THG Beauty, which owns pureplay retailers including Lookfantastic and Cult Beauty, expects to return to growth in the next financial year as sales grew at a double-digit rate in the last quarter and the premium beauty market in the UK remains “extremely buoyant”, according to chief executive Lucy Gorman.
Speaking to Retail Week, Gorman said scaling back has brought a positive shift in the business after THG posted “a record profit performance” in 2023, rising above the pandemic-era highs.
The beauty division was singled out for praise despite a drop in sales as it returned to growth in the second half of the year, after it went through key repositioning changes to improve profitability.
The global health and beauty market grew 5% in 2023, according to forecasts by GlobalData. THG’s beauty business, in comparison, underperformed compared to competitors like Boots, Space NK and Sephora in the premium beauty segment, with a 4.4% decline in sales.
Gorman said a drop in sales was expected as the division reduced investments in marketing and prices in the UK.
“In Q4, we saw double-digit growth in the UK. I think it’s fair to say that on a full-year basis, it would look like beauty underperformed the market. I think while the focus on profitability has been largely regional, there has also been an element of us reducing our marketing and price investment in the UK and reshaping strategy so that the UK delivers higher margins for us,” she said.
“You saw that play out in half one. So from a growth perspective, yes, we didn’t grow quite as fast as the market in the UK in half one. However, we did improve profits and profitability in the UK over that time. And then, in half two and certainly Q4, we believe that we outperformed the UK market growth.”
Gorman said the UK has always been a huge focus for THG but even more so now as the premium beauty market grew between 5% to 10% in 2023 and the category in the UK remains “extremely buoyant”.
She added: “The UK has our renewed focus given it is our home region and the most profitable given how well invested we are from an infrastructure and a scale perspective. Equally, the beauty market is particularly robust.
“Different estimates suggest different things but I think we can quite comfortably say that premium beauty grew between 5% and 10% in 2023, and the forward-looking projections are equally as positive. With that, you’ve obviously got a further shift to online penetration. And so the outlook for the premium beauty category in the UK is extremely buoyant.”
As the division grew at a double-digit rate in the last quarter of the year, it expects to return to sales growth with a contribution of 6% EBITDA margins in the medium term.
Gorman concluded: “Growth will be fuelled by stronger growth in the UK with some further headwinds as we continue to scale back in some of our international regions. Which then becomes a tailwind next year, as we’re then in a position where we’ve done all the pulling back and we’re looking to rebuild and deliver growth and sustainable profitability in the regions in which we operate.”
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