THG's EBITDA Beat Masks Harder Questions on Margins

What the H1 numbers show

The headline figures look solid. Revenue grew 6.5% in the first half, according to the company's trading update. Adjusted EBITDA of at least £40m represents a 36% increase on a reported basis, rising to 95% when adjusted for the sale of Claremont Ingredients in September 2025, the company said.

THG Beauty's skincare division grew 9.2% year to date, while Myprotein delivered year-to-date unit growth of 60%, according to the update. The group said free cash flow in H1 was the strongest since 2021, though it did not disclose a specific figure.

Matt Moulding, THG's chief executive, said the company is "on track with our growth and margin expansion strategy across the group," according to the trading update published via BusinessCloud.

The numbers arrive after a prolonged restructuring. Since its 2020 IPO, THG has sold its Ingenuity technology platform and Claremont Ingredients, narrowing its focus to a pure-play beauty and nutrition model. Persistent questions over corporate governance, and Moulding's dual role as CEO and major shareholder, have weighed on the share price throughout that period.

Myprotein's retail push and the whey cost squeeze

Myprotein's 60% unit growth figure is eye-catching, but it warrants scrutiny. A significant portion of that expansion has come from offline channels: the brand has been rolling out physical retail concessions and standalone locations across the UK and Europe. The company said Myprotein outpaced the broader sports nutrition market by 50% in B2B channels.

The question is whether that volume translates into margin. Physical retail carries higher fixed costs per unit than direct-to-consumer e-commerce: rent, staffing, and distribution overheads all compress contribution margins unless average order values or basket sizes compensate. THG did not break out margin data by channel in the update.

Compounding the pressure is whey protein inflation. Moulding described commodity cost levels as "unprecedented" in the trading statement. Whey prices have been elevated across the UK sports nutrition market for several quarters, squeezing producers who cannot pass costs through to consumers without risking volume declines. THG's response has been category diversification; the company noted that approximately 18% of Myprotein's direct-to-consumer customers purchased activewear in May 2026. Activewear carries different margin profiles to supplements, but building a credible apparel proposition alongside incumbents such as Gymshark is a multi-year effort.

The unit economics question

For operators watching THG's retail expansion, the critical metric is contribution margin per channel, not aggregate EBITDA. A 95% EBITDA uplift adjusted for a disposal flatters the underlying picture; it removes a lower-margin business from the base period. Without segmental disclosure, it is difficult to assess whether physical retail is genuinely accretive or simply adding revenue at the expense of blended margins.

TikTok Shop and the social-commerce bet in beauty

THG Beauty's Lookfantastic platform claimed the position of number-one multi-brand beauty retailer on TikTok Shop, according to the company, delivering year-on-year revenue growth of 48% in Q2.

Social commerce is a fast-growing channel in UK beauty. TikTok Shop's algorithm-driven discovery model favours brands that can produce high volumes of short-form content, and Lookfantastic's ambassador strategy, including a recent Olivia Attwood launch that THG said delivered "strong conversion," fits that playbook.

The risk is familiar to any operator scaling on a third-party platform: margin compression. TikTok Shop's commission structure, combined with the promotional cadence required to maintain visibility, can erode unit economics. Brands that win on social commerce tend to do so through volume rather than pricing power. For THG, the 48% Q2 growth rate is impressive, but the durability of that growth depends on whether Lookfantastic can retain customers acquired through TikTok on its own direct channels, where margins are higher.

The broader competitive context matters too. Asian direct-to-consumer beauty brands are expanding aggressively into the UK market via the same social-commerce platforms, often at lower price points. THG's ability to defend share will depend on brand equity and curation, not just algorithmic reach.

The £78m VAT claim: what operators should know

THG disclosed that its retrospective VAT claims of £78m against HMRC remain ongoing, according to the trading update. The claims follow a ruling in favour of Sun Warrior against HMRC, which established a precedent around VAT treatment for certain supply-chain structures common in e-commerce.

The company did not provide a timeline for resolution or indicate the probability of recovery. If successful, a £78m cash inflow would be material; for context, it would represent nearly twice the H1 adjusted EBITDA figure.

For other e-commerce businesses with similar supply-chain arrangements, the Sun Warrior ruling is worth monitoring. The precedent could apply to companies that import goods, process or repackage them, and sell direct to consumers, a model common across nutrition, beauty, and wellness sectors. Operators in those categories should assess whether their own VAT treatment aligns with the principles established in the case.

The bigger picture

THG's H1 update tells a story of a business generating momentum after years of restructuring. Revenue is growing, EBITDA is expanding, and cash flow is improving. The strategic shift toward physical retail and social commerce is delivering top-line results.

But the update leaves open the question that matters most for long-term value: whether these newer channels are genuinely margin-accretive or whether they represent a volume strategy that flatters aggregate growth while diluting unit economics. Until THG provides segmental margin data by channel, that question will persist.