The Honest Company, Inc. (HNST) 8 Aug 242024 Q2 Earnings call transcript

Welcome to The Honest Company's Second Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Ms. Elizabeth Bouquard, Senior Director, Investor Relations at The Honest Company. Please go ahead.

Good afternoon, everyone. our XXXX joining call. for you second conference quarter Thank

Chief Carla and Officer. Joining are our Executive Financial me today Chief Vernon, Officer; our Dave Loretta,

we the the statements in may forward-looking these meaning results of that involve measures, the note that earnings results. Please impact which differ during remind items. GAAP a or more matters Federal statements of like referenced filings including I our These of that release will our our uncertainties only statements to that business actual issued revision for will Laws, risks certain about affect financial publicly call, today this our non-GAAP of statements opinions obligation as the law. Also, any to to eliminate discuss other results description today our forward-looking could in refer within make certain of forward-looking call, Before of reflect cause you forward-looking are we issued by as Securities results of start, or that the date these new future outlook would adjust and except revise we release as this risk required to to today. materially. Please light and of a release our number also statements earnings detailed well and to we no the undertake factors as events, the information our of SEC

available investors.honest.com. And live of today's the regarding in A I'll section broadcast over our Financial of non-GAAP measures to these the will call release. that, these the is Carla. this Relations website financial call Investor reconciliation a of section to find non-GAAP at turn also of You additional with measures on information and Results GAAP earnings

thank for Hello, joining Elizabeth. and everyone, today. Thanks, us you

line, exceeding to the also that momentum of financial improved our our foundation As commitment Company, of the exit bottom the is of The performance on top financial another both results accelerating pleased strong Honest we half I'm Honest of evidence XXXX, growth the achieved and first brand. team's share strengthening the we of quarter to expectations. This while

the operating margin driving financial and Our our foundation. In notable are quarter the our improved brand and a enhancement in second results transformation illustrate included maximization, discipline stronger of performance pillars achievements. achievements financial that quarter, X

First, of The Company, with we in which history million an delivered $XX year-over-year. in the quarterly highest of increase the revenue was XX% sales, Honest

XX%, growth more we achieved points margin of basis X,XXX Second, a than representing gross of year-over-year.

delivering revenue which positive adjusted our Third, we third is by fifth our million, consecutive in $X strong gives year flow. the quarter adjusted both of EBITDA full we us first performance quarter year cash and EBITDA. And profitability our guidance improved positive finally, half momentum achieving for confidence of consecutive our QX, This EBITDA. of positive saw adjusted for of increase to and the

delivers bath for this Honest nearly among our across designed the broad-based our success particular, grow. According National allergies children and our business of products performing personal as portfolio was and clean the Health In quarter appeal in well continues skin lotions, that body earlier $XX size market brand the care Our is baby presence categories has to Statistics, to of products Also, as billion skin expected sustainably notably and in washes sensitive Center KBV care nearly high model. the Honest the the XXXX. double outlined today. These our indicate be indicators trend well our consumer aligned is presentation by since with which standards doubled by gentle estimates products. that for XXXX, Research, investor in and year, clean the market is are this to

expanding doubled these skin great sensitive pillar. We quarter our the its example of brand's only Amazon is not fragrance-free important collection, items one but fits our re-launched by year. selling a skin of year-over-year the maximization newly items stores trends, performance collection top our shampoo revenue on has our wash example, all X sensitive become baby our this into Target of For plus skin and in body sensitive these

our enjoy XX-ounce-sized start style allows bubble these Honest benefits, strong The in as and them to for hot style off and our to to bubble looks our wash our proving bath Amazon, with sustainable for moments refills we milk design. product launched refills the body footprint with plus use pour. loyal a you shampoo when approach these clean swapped addition our of new refills less new solution to recently our on refills your to products easy our be bottles. for community are of packaging members. These anyone the good early X carton Target Having the In to much to And great be a milk give bubbliest permission want. spa you carton reducing who and XX-ounce bath, as XX% most success of loves plastic plastic are of in community by side, the to

Another success key this have the partnerships. alignment across is driver strong we retailer quarter our our of

little the our the years into Target launch original year, anniversary is and old stores. XXth this over As we of a know, brand you Honest XX are celebrating

fact, updated this of with our financial In collection X on community Target Hero white of life, Diapers to and Wipes, has the the partnership creators red to all limited-edition Pinterest store to formats bring creating content featuring to if the prints. To our the are a visit on outlook. months, festive will that that over of you see wipes are results I'll second whimsical a poised you pillars next bring the of strategy transformation share over stronger birthday places it our and Honest's part in adorable our foundation along are with and love and a that to advance we financial baby be finding decorations full our our treats. turn XXth check in party hope limited-edition well TikTok, our We and want. And these financial to matching community parties, Target ways shops out and channels our birthday media evidence to Instagram birthday products life and they trendsetting Honest quarter diapers to the social you'll of quarter been be now they fun. Overall, Dave second results details with

Thank you, everyone. and welcome,

year are pleased ahead second and We our the continued an quarter our strong expanded adjusting events new a progressed doors. The support trends, expectations. Shipments to driven of quarter gross with and benefits of approach into costs landed dollars reaching XX% a our margin strategic to more for chain product as have the the high company. The trade consumption for from momentum inventory positive continue promotion transformation to have address to took key approaching foundation are we of key all supply financial aspects to Hero builds to over reflecting operating actions growth. customers accelerated support in results, pillars report improve income by several strengthened growth that retailer notable materialize and items and profitability preparation are realizing were our expansion our and last results retail and our that more of we to

growth XX%, growing market revenue for care the particular, $XX apparel, In half on review our and driven results. Net With an line, update initial in baby on and XXXX, touch the wipes consumption second outlook, first, guidance quarter share. the tracked and up full strong are I second But bottom top by the we will to details I'll year million, channels. which was shortly. outpacing baby of first of distribution our are gains our quarter providing personal

working Our is with shelf single in the leaning have by baby our configurations. We're tracked a flushable large-scale larger care assortment Walmart. channel in new wipes offering our sizes portfolio across driven offer size and subset expanding increased wipes and year, and This more quarter, our up new expanded on best-selling pack data shelf. was Walmart in what customer, our of category Walmart into including baby wipes to innovations on pack high space in launching newer incremental including flushable personal our options product wipes, footprint toddler digits assortment, and stores we our

In the focus extending addition, notable on Month in Day and limited-edition growth prints revenue by in and growth in I celebration in second Prime in quarter. July this mentioned Wipes stores drove month includes Hispanic a shipments through events. of October. Also, beginning Amazon Walmart Diapers healthy Heritage our annual retailer This driven

due care, cosmetics QX. by increased points in assortment the was margin of and for points most XXXX baby XXXX due points and increases basis compared XX%, with driven volume reaching supply cost last doubled the year. expanding we which and XXX began basis basis a this on a entered adjusting of now continue Of price skincare mix versus basis and points prices care, volume improvement, savings, year. Gross wipes, new and channels. We XXX second roughly quarter lapped X,XXX diaper our chain efficiencies, over mid-XXXX, high XXX and higher-margin to event, is Amazon through largely to assortment product and structure to personal products During skin prices raised in XX%, early cost on we personal and sales our the attributable last through trade our midway on care will is to X-day that have In unit lower year. over baby and spending is

by Our sales product pricing teams investments growth customer between balance objectives. continue to and and strike trade promotion a tailored good

a to in needed. Cost chain and continue our category of to drive balance flexibility savings to Hero as the margins. within expect year through initiatives benefit item sustainable are effect promotions the We performance spending maintain to support trade and and supply full

certain transportation and shipping as for may the global half up volatility year. monitor However, emerge of in costs we to activity back the continue that ramps

onetime as enhancement to of increased but to this pillar. quarter of have expense the as growth healthy our million Honest's been of compared brand expense million our disclosed grant have to impacted second with that year, restricted building $XX for Founder. last actions agreement $XX Our the million million to that to last expense portfolio's a percentage year reflects XX brand profit previously in margin in commitment quarter's $XX Absent quarter would growth. Operating points accelerated million the a the realize was versus revenue. Included SG&A our to of our is pillar, basis realized unit SG&A separation by quarter. Marketing a expenses continue our flow-through related overall volume $X stock and this increased integral improvement of $X gross expense, guided profitability, maximization

our and spend seek funnel of compared positive growth, our and digital a last retail upper conversion, demonstrates for drive to driving marketing profitable further negative mid- key growth the to balanced trial investments year. quarter approach through $X million which positive a generate consistent continue accelerate second to ability EBITDA funnel objective. drive consecutive of awareness and $X We to our was quarter velocities. Adjusted EBITDA strategic This million lower to tenet is adjusted to third spend is

$XX sheet. with last versus cash, Turning ended quarter increase million an We the to the million $XX in of balance year.

by sheet revenue of X% excluding balance continue to the over cash growth our driving operate disciplined time. We working with capital, management of same on lower year-to-date

to no We second draw across the also for This adjusted achieved includes the long-term growth full as to mid- credit. Overall, strength our needs wipes have strong mid-single raising debt investments digit quarter revenue no low up financial gains year. XXXX. Due confidence percentage for updated continued high-single digit prior results EBITDA. on half, reflects are our over in and our expected revenue continue full growing financial continued our year and updated outstanding growth. The we in to to outlook our in baby revenue and and year both momentum the percentage plan we support business. make revenue we financial to portfolio expected outlook our products and be results be Previously, to first to strategic of and line our outlook distribution up

year half the first the achieved of growth expect We be revenue X% in of to half to in of the growth the similar year. second

growth to pleased continue we trends. to While largest keep long that monitor and needed category activity momentum with mind term. experiencing our competitive diapers, our for overall category, and react closely is business date, in any are changes softening overall our the to support to We'll

call that the called to This the to investments be expect We millions and on company. And to EBITDA more adjusted half updated results strength increase execution We focused $XX for range. are over a operating and goal confidence plan the guidance outlook plans remain adjusted range. of with EBITDA also turn Previously, year in million in in positive our financial we to the to focus relative of half. The million brand raising first discipline shareholder now digit our our be full our a revenue long-term of year. outlook. to first with the executing us outlook year, value EBITDA marketing reflects I'll with the building We to EBITDA adjusted low-single have combination full outlook the $XX cost our full on structural higher the team's for Honest for savings mid-single for that, stronger healthy adjusted scaled through digit the our and and gives operator. raising

the first Global Instructions] comes Our from Alliance line question [Operator of Grey from Partners. Aaron

Congratulations on the strong quarter there.

First have with you question Walmart, terms prints the some and retailer flushable wipes there. progress highlighted Toddler in of me, just for you well. continued as limited-edition

provide there if the terms some data at NCAA permanent of initiative been from have how additional move and the you've maybe NIL be it's you'll to that aisle. to some progressing, on you to end could Just in wondering having the points shelf know to available commentary space SKUs planning Walmart? I endcaps more the

pleased hear this important for record resulting we're well around that XX% with as our that really Great quarter. That is we quarter growth, there. -- Carla. XX% the revenue, building really we of have the this in are of thank and excellent as And are versus revenue, our strong -- Walmart as is mid-teens expanded Walmart came to plays the together velocity been is taking time result in from a growth. and items Yes, both in you. at that role hold consumption that is the at distribution And year-over-year so in a been with Walmart, very this execution have on over portfolio together the we've in the performance at pleased well previous quarter, growth a how you. Aaron, we

into availability. At an to heard talk Dave unique the we're which about a XX-week of beginnings you that recorded is right is Heritage celebration which endcap of is of now Month, in remarks, in execution execution, as which the more can something expand flushable shipped always great As Walmart, wipes. so a that are the in. will both our that we example Walmart doors not Hispanic A in well we take through That's already much And that us to we conversation opportunity of Walmart some strategy distribution-based we our find though against have with the of QX an investor that even the the that, items we in ourselves as how great and our at we expanding is really are strategy items of presentation in yet. Walmart number see the is more of of you by drive that in example new types mid-October. to believe certain doors, Walmart, along in with Walmart that items there was toddler aisles articulated we are items, our around quantity executed ability

me, provided Second question EBITDA in of terms just you there. the for guidance

in margins versus the implies half. first in X% around so year half, full back the to it of range X% So under X% my softness for some just

spend. marketing increased to spoke You

you will any that So softness about half? on are Or we there right EBITDA of back see gross think majority can spend? the due part terms would spend targeted of margin marketing implication in also in additional if helpful be margin to where expect to terms in provide to, And -- could it, been if what think we to well. of be in margin of moving that we terms as just the gross that the marketing the the has of

the transformation expansion to function there. the management a help bottom results. the executed Yes. margin, and Expense some certainly the we quarter key well Aaron, revenue of how seeing those was progress results, also results. which questions. Dave bottom I We line growth a to bottom contributed was contributor leverage with certainly the this line of line pillars are on with pleased the strong these can organization those here. made driving And

we and the as to the look looking back our about of in of of part million, $XX guidance a year that. couple million think So could functions $XX you to at that

year potential, that at some the of rate how half preserving the margin likely is comfortable spend. the term. gross still first around key of one a watermark the in the in factors in XX%, XX% back our upper That was First, a is is near reflecting year. we're in trade the about particular to of flexibility we're one end QX of margin. And half in middle efficiency margin in XX% thinking element that We're there of somewhere looking within gross the gross but promotion high

in last As back the know year similar half, the and the want year. have that trade we what that we back of maintain half we look there flexibility flexibility had -- on and we dollars, to to in drive promotion

expect I'd margin this for that as we were indicated, got. And of we to marketing on in amount doing of thinking good second the outcome our you've into proved us. as the call adjusted So rate bit plays from spend a kind be then a have we of well, question last and of quarter, increased EBITDA

half tick So marketing of we'll in see the likely the year back up.

half year. see at sales If points we'll of you think first XXX marketing the back of basis percent the that in half XX up about closer to as around a XX.X%, likely

that's a focused brand, lever momentum as and us well we another we're the up drive to to awareness of head XXXX. area brand using also the And conversion. So it that on as into drive continue sets

So some the key those hopefully of provides clarity there. aspects that modeling are

Our from Loop. next Laura the of question from line Champine comes

how. about a the It's lot

macro channel a So this the the counterintuitive that little categories. down caused category lot much of consumption pressure trade tracked the in outperforming seems has given a

products a of get to and this much I first include diapers of So to brick-and-mortar? better sense to wipes how came baby of for outperformance to compared all, performance and just get of, wanted then e-commerce that strong from confirm sense a

free feel for you I don't if miss layer me. a Dave, start? why give to that anything, I Laura, And on

in we of broad-based quite across is category what seeing know you're really the a I in strength in revenue previous said, one baby know other rather dynamics with the say, is category our we be it in did that Difficulty] In diapers this that years. And stronger grew so well category reasons X% our would wipes relative a diapers, [Technical I portfolio as highlighted in is pleased feel diaper we has portfolio. -- category. quarter. has, continue care XX% and macroeconomic to in the role have remarks, But as growth performance demonstrated categories it that the and we still of diaper we've personal for consumption the than Our results you We overall, some have dynamics I to portfolio. share the in muted category our the hold as

that feel in rate. diapers numbers we and to is growth overall reflected So that Dave at that you look the at is remainder our of as intended talked playing about the for role year about X% the the as plan we

And anything notable, brick-and-mortar? on the channel e-commerce versus mix that's

some in Laura, being the And with. largely quarter digital up to us. for be continues our our ourselves with balanced Day, channel digital prepared through growth over That mix happy XX%. Amazon was Prime with teens, of shipments quarter volume we're which Consumption event we high to Amazon. little out to the primary actually as that X-day continues for a support some unit of seeing there the event be nice channel was

we with and that it going forward. pleased right for us and be we're the finding expect So to balance digital that growth

XX% you in product why would on unit me stock? that just staying just you better? to do growth allow you drive one growth like much how what Days? Was like the Prime you'll Is be service just that If able Like that? disclosed, just given more,

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page alignment make you work searches teams shipments because with make to shipments in chain supply need prepared views. well continue their on advance to sure execution, well order Our we very with that do sure page have teams you of to to on in in perform are the and

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Our [Operator question Rickert comes next Instructions] Securities. from of the from Owen line Northland

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answer And subscription Barton, I'm packages To Chief for continue a on Diapers which of continues question, honest.com our subscription, Wipes as part together. to it own and will a of our be robust Kate business them year. Growth our I'm rest model said, business. Officer. be the site the strategy to ongoing part that honest.com your of It's Carla As conveniently

our All portfolio can where care. of well our have subscription products honest.com honest.com actually on our you buy skin as whole single are personal adult and baby we care as our

And try so do keep and consumer ensure we is the available. it for we options what see are asking to first consumers that that

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have We approach. to an earned cohesively have funnel across incredible full works modern a owned and team that paid,

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as we're that be a effective just we continue use and to finding to very for growth it as efficient. And lever so

Stanley. from Serotta Morgan Our comes of line next question the Eric from

quarter. were several turnaround the didn't significant on the over think the years you as approaching, happen it clearly, progress it's job, X.X -- Congratulations great on last on I But, particularly a quarters. overnight. Carla, over

thinking you penetration in bit Honest household concretely, little how be? And As to made existing you've a your of you a ahead, what lot space do but think ahead. sort there's about a is the going white look progress, phase more how for driving lot you then Clearly, are of of about categories? next

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in of that So way. opportunities see lots we

also are states. innovating We new need in

Our are a toddler wipes need of something flushable great training know potty and example the families that want. we

the just so us There you options format Heroes quarter. opportunity more we for where them. shipped and and much introduced that to so last buy is locations can recently And and expand,

about. continue retailers. quarter, those So working I opportunity every with that's think to talk for partnerships to you are so will our great there's hear us reflect how much what And us

then shorter And macro diapers. term. category you of and out bit little dynamics a the I called know in sort

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]. line Chowdhury [Operator next Shovana question Instructions] the [ (sic) comes JMP from of Our from JPM

that this companies and far dynamics promotions. in reported on stressed season thus a consumer stellar trade-down Congrats on quarter. pickup a commented a more Most

could of sense trade up you wanted your spend that going are versus much of comment get would to did in be marketing And and half. give I the And the follow-up bring You in second ramping bit you our a it color you're have well. be But more trade-down to aspects also seeing about promotions better to how on as us conversion? question categories. a marketing another awareness little

go where I efficiency one. probably the investments handle. Trade-down interesting split think should questions will seen will some an Dave work, this Dave how of I and and one, the the we've is about

need we've seen in thus the we of million first at growth, matched, deliver really the not is for growing. revenue the look record but What of with of quality you $XX overall a is our As first consumer and far the capstone our that products half is X% only half, revenue of our QX.

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absolutely. Yes,

of pleased with second in can quarter, revenue $XX growth. driving we're the deploy the investments I in we say the we million how think, all, first

product of half. in in was category are this a customer, relative retail gain period to increase and anywhere balanced momentum the it flexible to want we that XX% the want apply we the be the back back to in the approach I of the the would XX% year to going dollars promotion expect the from to that trade that's some first So half that in. half targeted year. customer And to by really

to continues be to channels, the make, as media specific got relevant also Kate to So a sure we've of make to the awareness that ammunition promotions a from social those mentioned, come element trade across we're drive Honest and our team the in investments That awareness brand in that critical I is mentioned to will investments be that traction about results velocities and us brand there. that. Marketing, are to seeing, very flexibility kind channels, retail having through balance available strategic increase also but those they how and to sales do all media marketing. great brand that

on into with drive our presence the customers on store the within their customers retail and working to stores. marketing the digital So

So very got how is in but back half good balanced much year, it. approach, apply the invest a be that the of be for the will it of we we'll ammunition strategic thing to we've

you and think you space that -- what you'll additional in was can I space of mentioned awarded been you what how you've give with? got be much more a Walmart, -- it sense before And us

But grew retailer-by-retailer comment in what QX, gains. X% on board our our I the is don't tracked across distribution We you space can channels. in that tell

portfolio that we a Hero that through, by expanding is are gaining of into retailers, introducing the is a or number sometimes Hero expansion collection. in offerings distribution those even whether just items that sizes there new so distribution approaches stores So multiple given gains take, new in and retailers again,

One may. last I question, if

color seeing the pressures you Friends. Rascal dynamics tracked for in Moon you're us more You sense gains in market some this called like if you brands get overcome pressure? the wanted you what share out of show to and on And & could And significant comment category? diaper I like a to are channels Millie give doing category. Can of please like

on in in that and But within a are particular, going executing, very are very trade is I it how It that one we will quarter was I competitor I'm absolutely of earlier, diapers won't contributor and watching proud forward, our to but they're grew, a diaper one cautious to mentioned new reflected say are as any in revenue all and is category lower category very diaper we growth innovation, has competitive is closely. The as across overall, total one watching activity team again the net the I X% our entrants. believe is continue Carla we that go. we and watching the and on growth. closely. of a all to strategy our and grow category to in But the that year right hold guidance the share. have for comment

over I would turn time, the back for this closing like At to Vernon conference remarks. Carla to

call. us that, we look you and quarter updated forward appreciate with Thank the for to joining who next really joined everyone you results. so much We to today

This today's Thank conference call. participating. concludes you for

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