We reported on THG (LON: THG) or The Hut Group shares yesterday. The problem was a report in the newspapers over the weekend that certain suppliers were limiting deliveries to THG. Today’s announcement is that this is not happening: “Dermalogica has not placed and is not looking to place any restrictions on its trading relationship with THG Beauty, including with regard to the supply of stock. “ Then comes the second point “overall revenues generated are de minimis to the Group, at c.0.1% of FY 2021 sales.” So there.
This could be taken to be the end of the matter. Except it isn’t, not quite. The share price did drop on that weekend rumour which is why the announcement today. To try to correct that share price drop of course. But don’t ever forget that share prices are a function of what people believe rather than actual, checkable, reality. So, if people are moving the share price at THG on the basis of an unsourced rumour in the weekend press then folk are nervous about what’s going on at The Hut Group.
Specifically, about high-end beauty products the problem is that they’re desirable because they’re expensive. Manufacturers – like Unilever for Dermalogica – really don’t like people doing significant or excessive discounting. That something expensive is available cheap diminishes the brand, the value proposition.
So, that leads to questions about why THG is so discounting. Whether or not it’s going to have supply problems as a result, we still want to know well, why the discounting? It might be just let’s go conquer the space which would be fair enough. It could be that the company is striving too hard to make sales targets – we’d prefer that companies ease through these, not strain to get there. Or – and this doesn’t apply to the well-funded THG – it could be a dash for cashflow indicating financial stress.
The existence of deep discounting on premium products can, therefore, in and in itself, be thought of as something to examine further at the very least. It’s even possible to take this one step further and note that the denial of supply restrictions is stated as applying only to THG Beauty and also “is not aware” meaning to the current knowledge of THG. That still leaves room for suppliers to be uneasy about what is being done and bringing in supply constraints as a result. They’ve just not warned The Hut Group yet.
The real takeaway here though is not the specific products nor even the story about supply restrictions. It’s the fragility of the share price in the face of such really very minor stories. If such near trivial news can move the share price then that THG share price is going to continue to be very volatile.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.