The Honest Company, Inc. (HNST) 12 Nov 242024 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Honest Company Third Quarter 2024 Earnings Call. [Operator instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Allison Malkin of ICR. Please go ahead.

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

from Joining Financial are the Chief today Officer, Executive Loretta. Chief Company and Honest me Vernon; Officer, Dave Carla

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

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

dedication XXXX. us the performance The details delivering the third for pleased of and of Hello, their today. you in quarter for cleanly and of commitment is large our improvement of joining Allison. personal and care Honest Thanks, strong to teams our everyone, to designed due I'm consumer-loved of the continued collection thank financial to share a products. part

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third the X results For financial of fiscal quarter XXXX, include our notable achievements.

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

generated last of strong points representing for and Second, lastly, And we we consecutive XXX of With XXXX EBITDA. achieved $X raising quarter million, our of full representing year. our adjusted revenue and gross both expansion are a EBITDA. adjusted an same the third the momentum XX%, quarter, year positive we margin this EBITDA period guidance basis over in adjusted of performance fourth

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On I recent transformation how saw off. in organization and across strengthening pillars our confident top focus improvement discipline. a distribution to #X financial our this center, the remains visit Las and margin operating While through our our is of foundation growth, team we're margin and paying Vegas enhancement priority line our my

business identified pallets correctly pallet And items ordered set down to that chain demonstrates are previously teams would and the management. transformation that a save into ability a and our the This when how on partial product of prior to without reassemble our team cumbersome quantities pallets to us down broken order optimization brand each the and year, needed break order visit, to only our retailers, partnership in identity to apply shipping. and During speed. with our mixed and the In frequently be and pillars and model. retail labor, our largest team case our pallets were then allowed of to get reassemble improvement to logistics cases label time years, approach the process labeled they to back need scale smaller, This This supply to those labeled unlock Honest power of receive pallet shared now them. quantities. optimized full prior in a our the the turnaround pickup simply

share to I would like that, financial I the outlook. and continued will Honest updated the close, our financial commitment thank for and the momentum third to details As team of on driving this improvement results quarter. to over performance extraordinary to incredibly our their this And of our quarter execution proud Dave it Honest team I'm and turn financial with for entire brand. I

Thank you, Carla.

pillars. transformation key across we quarter toward surpassed and As our accomplishments noted, expectations third saw results our financial significant metrics, our

and the execution XX% provided as of support which we increase distribution we of velocity business. cost by the performance our guidance to And this year, are new by On view the supply and and issued disciplined benefits our included profitability reached raising top in XX.X%, expansion, We SG&A high time our balanced press in margin the events. leading of demonstrated of cost our transformation savings. to and line, the continues and in digital The in through spend annual chain efficiencies driven reflecting revenue retail was shipments as expansion growth, grow, our deliver a generated efficiencies quarter. gross product for revenue today, and second strong structure pillars margin across our across gross our release year-to-date gains positive

our third to turn me Let quarter results.

our consumption which our and was largest third and at velocity. noted, to period wipes increases net up in previously, revenue channel maximization We consumption Amazon, quarter, year million, advanced tracked down pillar the noted prior portfolios. $XX in brand was with same comparative digital Carla customer, across compared X% products X% distribution strong And grew XX% the in balanced baby categories, our revenue Also driven the period. growth up XX%. the by As retail seeing performance from were

increased role realize which consumer We allowing core is in bigger our a lives. play demand to continue daily to consumers' business Honest across offerings,

our across spend per drove household penetration In quarter. is in community our purchasing household fact, categories, which brand multiple and the increased

sprints benefited mentioned, of our quarter, to the Hispanic XXth from and Heritage celebration Target shipments in and Month. wipes retail the I events edition revenue Walmart at anniversary limited including support As also diapers in collection

Day October. strong and saw shipments for events July Prime we in in Amazon Additionally, preparation

cost expanded with quarter cost and XXX and reductions. chain incredibly sold. performed count a products third Day, During related the Wipes Gross versus with record in was terms our the Conscious year, last XX.X%, of basis supply points product reductions XXX unit well basis to margin performing XXX XXX deals October top site-wide our new to related in points points Clean landing Prime for XXX basis roughly volumes

and sustainable from cost we by profitably Through also discipline to enhancement As are are new the grow in can margin our ability commodity guided and supply for operating This chain levers the disruptions ever-changing potential sourcing savings. logistics. our we benefit or our mindful we an tariffs, in actively price as for to business pillar, increases pillar, planning that use response confident includes to landscape. we

compared expenses. million a this percentage year, of Breaking quarter down XXX as Moving further, year. $X operating total, revenue of of to last generated points to increased In decreased compared points the revenue on XXX as leverage. third percentage to expense a last basis basis but SG&A

Marketing related million from expense XX.X% $X of as expected. $X to to organization of year this said, Our nonrecurring of to the In were year, leverage in million last $X $X.X included has totaled managing third million. year-over-year. That the the SG&A across XX.X% the we expense. quarter $XX expense prior increased nonrecurring million contributed of million while versus revenue diligence around quarter's additional revenue majority the growth generating to this an legal fourth expense and revenue quarter, strong expect

the We The expansion continue to awareness margin brand household versus balanced expenses an to gross combination seek income increase million an $X of operating revenue a the improvement led increasing in growth to and last in operating year. offset trial, in penetration. for loss building double-digit quarter gaining approach and and operating

and $X transformation is EBITDA highlights of that the driving growth This million $X pillars of our negative as the compared quarter last execution adjusted fourth adjusted strategy through million consecutive EBITDA our year. profitable positive In intended. is positive to was addition,

Turning sheet. to the balance

the and to was no continue million a $X million Inventory $XX from financial outstanding. foundation end build strong with decrease at quarter of end We quarter million, debt a $XX cash to end of of our the we XXXX. remain expected the appropriate growth. with of level the levels we'll as quarter enter inventory We comfortable fourth quarter and our third maintain support of

third and pillar second is driving to quarter quarter a led in operating Our of capital $X sequential our usage, the versus in efficiencies discipline of increase cash last flow $XX compared to working the million million which year.

guidance. to Turning

second Given performance EBITDA guidance the are adjusted we time year. and our and full outlook, strong for revenue our positive this increasing year

outlook. share First, revenue our let me

our guidance to for percentage raising We guidance which are range. an high year-over-year, revenue is the range our single-digit high percentage now single-digit mid- revenue the to to previous growth increase growth in

plan As on of fluctuations expect quarterly you to experience an earlier may we and flow, business view do QX benefited which distribution rates on are our shipments, aware, annual the due we not XXXX. the Based timing of our we timing order of to current in and basis, gains the repeat growth of shipments.

expected $XX costs, previous making of the $XX versus million of in with we we're over we costs on controlling from Second, range to now in expect EBITDA an significant million. to of supply the and margins adjusted improvement million progress range last the $XX efficiencies. margin expanding and $XX product million guidance in to This XX% as $XX chain Annual year. from is savings XX% of benefit the million represents gross

which we look investments do places margins our we ahead, The business our we the products model. flow, execution the availability our generate of for believe strong support annual are strategy and of asset-light deliver expanding Honest the future in and we business in all shops. ultimately foundation from benefits cash As strengthened expand to community expect profit our growth, of have also make revenue ongoing to growth

the our continue our result, over increased As I'll we a drive operator. well believe gains building we the And to for positioned and with are that, to turn on shareholders. value financial call

does Grey with Aaron come question And from AGP. the first Instructions] [Operator

quarter. Nice

So, first trends, shipment me, about benefits. question but talked some mentioned you consumption strong also for

implied curious could that XQ. much of growth believe So shipment softer the if how you impacted the for quarter. led the quantify I benefits to also

that there. So helpful be would

X% quarter, X this do retail Aaron, rate And the about The growth period level, in Amazon, XX%. really of when up for resemble XX% blend excited consumption together, is that Dave. time. of with trend saw we're revenue kind we of you the that our they at

So and with delivered performance that pleased the how it. team

supply and event line second the terms that an Target incremental realize, third and did next really the Walmart event Day with that those at of we In Amazon Prime were in ended. then since the about and had, talked we we into the that the week Prime Day, after was our events quarter, an week at shipments that the both July Day Prime just both our retail in quarter October and first

points and attributed some around you business percentage put [indiscernible] to rate, our of the roughly consumption ongoing really context from supplying standpoint for revenue X could be events. think the in to order is as So growth that it to of to balance those inventory X growth a the percentage And flow.

Great. Okay. appreciate it. I

me. for question Second

cash for investments we that kind nice as balance. to guys growth last a bigger bear just So think more you drive picture, talked continues about call, to fruit guys, of building you

do the kind continued even margin you of marketing keep different of that trade kind growth as more confidence deeper the down season, line? letting forward pushing holiday much more just of lever have XXXX drop So in investing or guys on and gross the look digging we on to the and bottom and going versus how to side into drive to

Yes, Aaron. sure,

with how As we're trade marketing out second that where we to we the increase promotion the did and for half pleased the talked about the us. spend of both investments, year, intend played in

quarter, we that and was you over in and marketing promotion was in period as up trade saw was deeper to little last of third relative applied As it a say for the year what time. XX% [indiscernible] well

trial. the dial marketing with drive of to comfortable kind and we've got flexibility awareness our So right to up we're brand that

playing around we evidence which the that shared in household We're that in out XX increased year-to-date penetration. stats that's basis points of a think X.X%, I is the at and rate. Some quarter,

the results the and seeing brand we're So consumer awareness that of acceptance.

to awareness move And we'll period so the as our we're also but the you in the brand we give we promotion employed to XXXX, both remaining we've comfortable third guidance initiatives on when the to in some through the color of a we'll of period. of some quarter dollars, we the continue that marketing with got trade quarter. year. that of continue time into And that And that lot that do velocities the flexibility drive for expand give

question And with Owen comes Markets. Northland Rickert the from Capital next

Congratulations are really space? that on you are another any guess store quickly, just would great [indiscernible]. how I the penetrated end I on And guess, what's there? How you segment dollar thoughts and viewing opportunity there thoughts be more helpful. the of your in your

for is you. and talk to you you asking. This for Carla, joining nice to Owen, thank Thank us.

investor currently If our distribution-based distribution how see In see communicated provide our some distribution the aisles, this of our overall, strategy. facings, that are you We're progress overall have with growth you presentation distribution quarter, doors, X% at strategy growth pleased same strength the love we stores, at opportunity. we take we're the quarter is is strategy, will fact our a of against we velocities intentional and a as our and time. that growth of plan that And to long-range we've model. an slides, growth our our what very where very those on that's online, where have we look long-range in growing, making growing underlying shelves with you update following

that And distribution overall. represented the same excitement XX,XXX are we available just the than time various date, doors across all might less retail an driving are is of so half channels velocities we the the at of little up we've doors of. for which retail about That's a growth, in such X% think been indicator brick-and-mortar brand. To retail the

in to we content that will not regard sense And that this is right really only to have the way the distribution channel, the all us know sensitive dollar awareness focused opportunity ingredient have don't us to XX% households products. fit being sure which very channels channel and into in think know makes any of families of that growth. runway today, in step their drive help for our we making the more places be. Currently, and brand the on do to young the forward same are we very the are but shop We is the that we with needs that that we the there enormous grow So to look than continue available in we that compelling. skin and where channels

Great. was then secondly, more maybe of And that discussed the previous in you for those what helpful. call? worked That on well some were be XQ? very keeping could initiatives eyes What some provide the new And color on should we our marketing quarter? earnings on

we Yes. just been it got improving the exactly does, that Well, marketing middle marketing balance where it brand of here the on the lower funnel and team and but overall, we've effectiveness only think spend I has of activities. upper, what our not world-class a

whether tent you used to great might of Dyson boxes the in our across very rates So marketing growth or the top was performing of wipes dollars because the all all Nike in the as vacuum we've really with one Days of partnership retailer-specific our also across of XXX ankle That's quarter it strong Target strength, fact Amazon of buy wipes addressed remember We double-digit Day, the in our a some we is wipes sense the Prime strong top reported, in Day, you our our that use in both deals. most Prime pole Week got to Dave our those with into had items. cleaners marketing that's XXX call, plug recent whatever socks is how directly retailers. on Circle and And boxes Prime our items count, among may that or retailers. XXX box

that In across addition campaigns to various that, consumer the team they media. forms the had several executed of

campaigns sensitive some that We aligned benefit. with have our skin are strongly

from for thread the complementary this initiatives will us feature a focused of with all variety events be will results. one they that doing our marketing strong a are seeing Skin really people consumer-focused sensitive to on to balance products common Skin across Honest. Campaign. of and continue the execution really trustworthy the ran actually within with We're very able share with a skin. good are to What retailers, our set So you a see variety bigger, we called larger That campaign was along are portfolio campaign benefits of quarter both amplifying with to activities that that and our portfolio,

with And Morgan the next Stanley. question comes from Mohsenian Dara

step in going and and out So margins, similar The a level quarters success Carla, forward any sustainable think the here? XX% as was hoping on that we've a as you consumption year. just XX% now touched then just both of term? year. you beyond? from to key the and take And you that question takes gross tracked how marketing range strong that just to just channels how trends X sustainability sustainable a going through look the digital, I we're full look there seen XXXX on longer You about and the for puts could beyond back Are some we this year Is forward? is

it's Sure. to hear really you today. Dara, great

of year-over-year. in well I all that household think of what penetration. the underlying such we've was the also points scale consumption basis. Are household and I seeing increase penetration, has to I really consumption we've in that the is to it data We're the X% thank is consumption Dara, on way talking been consumption, the great up which MULO look that blend for quarter, recent overall driving household year-to-date. Track up consumption was are X.X% the elements to working it we the really that of of you the on everyone seeing about price? really basis of in for towards consumption strong. our units? Dave when velocities that that are at What quarter Those that consumption strong just some over point complemented an you Together, talk of Amazon I've the and household as So been on measures would remind is of increased fact consumption? strong the indication and recapped XX as penetration now a which call. grown us are at, To try that XX% channel penetration. the the experienced joining that are balanced has Are quarters This of our very about like we a that sustainability by

So of driven our unit that transaction from in consumption transactions price almost are and increase. items are has growth is our advance, increase price when speak, basket advances larger market. Honest done a not consumption a of Honest. period price we've larger so X% buying to people X% actually where That's lapped demonstration all during sizes That because or we've buying with per us they actually

that of our and and consumption quarter. I for repeat drivers our has overall also loyalty rates grown look is in repeat the and our Additionally

of the they we highly offer we all are those aligned So indicators and the tell have benefits with me serve. fundamentals that products that consumer

consumption, But future can't about at about partners with our consumers. any I alignment would say and me Of what feel fundamental basis. the course, specifically speak do very of will and indicators drivers look consumption we I that the have great the about our what retail I I tells on when

Dara, there, margin you touch on that kind the sustainability I'd too. be of happy had to question gross

we've even kind what's and What chain think some set. are supply cost improvement the see and going we the expand structural. our level over we're now of opportunity savings. in And the made to to that that Those both structural significant fulfillment cost to see As about savings it. term we points, of continuing pretty with that longer X,XXX got is and we year-to-date, the they're when basis a to little improvements know product sustainable product continue at support combination right we've

that traction, teams some Our there that chain are going with continuously sourcing improvements And seeing across lastly, in network. the then we some of picture. margin portfolio the growth, benefit say, sees leverage opportunity sales revenue And aggressively that see most the are will supply from as after overall our our the can to be highlights it's is as categories you of beneficial of growth. where I'd

of what's expansion the play the And a supports that long-term profitability out of tenet mix your us. higher-margin to equation. question. based on will a part And so core know how be of for over is time, going margin portfolio also But we hopefully, that's

Anna our Glaessgen from And next question with Riley Securities. B. comes

Prime to and see love the tool just convert new do as and DTC in generally and existing new consumers. the to reach ability a those buying Day customers? its that efficacy I'd to advantage bulk Amazon historically, customers discounts you customers as to on Or the taking start are who of

the quarter. quadrupled specifically. with don't shoppers Amazon to new-to-brand But And new-to-brand this on know Anna, Amazon quarter actually are this is think we we what track to know you. each the last when in Carla. Nice number I to in degree We I talk that behavior our were from you purchase that all getting quarter, quarter we we first-time reported shoppers. we

the able which with are so product powerfully of who we a higher category we our ecosystem, haven't in gain And very work to we doing general, and shoppers So those households are Day searches is in the already Prime love brands perform for who new loyal definitely Amazon are really what Prime as maybe strongly, also Day we searches. rate our and word, replenishment products they brand. that a yet as algorithm balance up search decided find set want. But of in is and

on call today I And some that of these so greater trial aware to analysts ecosystem. the greater know are the used and I brand Amazon awareness brings categories the on run that at Amazon.

for Amazon. years I X Consumables of was at Vice President So categories the

do Amazon. with only to not love the those maintains very ability categories that the relationships of highly with how over together, sure the be leaders and investments gone. we're that team strong to right Our deploy we on them with of business unlock making has as our planning, pleased many we But we grow integrated growth

be And wipes to I'd like less sales, roughly which great. to are be right I that's there would sourcing. very of assessing to potential would believe exposure a topic now, from sourcing you any popular limited XX% but shift China than update to China,

issue is ourselves. Yes. monitoring a quite these actually Anna. we've That Sure, while days, been for topical and a it

in You're wipes right, portfolio China. our is sourced

working And has supplier tariffs cost actively team really so of and with for been our while on efficiencies. our quite the a topic

-- timing we down level may And reductions on plans that around of how on we've or the diversification, to tariffs think working set. cost China, so within knowing already within consider as come not product plans what the new working been about

bring level organization, us, for prepared what but not of heavily and play the we're so that with are timing that nimble we and the uncertainty it's else. world. might do in concentrated a have part going along anyone not the out And we sourcing Thankfully, to as to we're the clear

I portfolio So we've that. on us to sourcing domestically allow continue to gross the balances across expect that and and build to will that maintain our got margin think levels and we internationally a continue

we're prepared. So

our from next Champine question And comes Loop. with Laura

can been to that So lift if QX would substantial. as from getting XX%, How the sales And gains a price are percentage have mix the gross you much that obviously in lift quantify benefits that there be seeing? great. that margin of you're a you on

Yes. Sure, Laura.

high margin that's basis the quite all-time was in over terms and lift driving XXX XX.X% our that, up over don't factor the pricing right, last is you're tracks and notable for an as We there. of gross us quarter, the see year, we letting Within being see points. really really

price the entirely that fulfillment lapped in The made did us are cost on pricing savings chain ongoing. know we've of largely we we up savings product take all XXXX, in that both fact, increase. In and for place of that it's and that supply almost

attribute quarter what noted seeing did once booked we of call out, and Carla or product buying and the retailer year, the very of the is amount margin. And think terms you consumers product But a units this, too, higher in to I so and the are the pricing buying growth they're this of could in point third that and mix at on it it, gross a average. higher-priced small was by our price hands we're

improvements. structural most in it's But margin part, there. mix terms for of rate, savings cost all that's our out a and was, So factor it the gross

little then on given of it. question. highest categories the And one China, related? How increase in how quick you're out that you you your would quickly follow-up offset that that's prices you're And of be a hear wipe production? for side. But we're I worried a growth preparing cost it. sourcing to could tariff just about Got you comfortable tariff the any shift raising

material the Well, we in inventory don't take that expect and our some just I for on how lead be cost a times given place materialize to in into will tariffs there know structure, really any that going our flow time put implemented impact it's the But origin, and to would and do of in reductions other that that countries actively we something cost have at of supplier, locations we're sourcing we on other the is XXXX. on flexibility already our supply looking at itself. what wipes see is looking product with working well underway also

that's to So more topic. I'd this -- but on say, come, actively we're

expect to bit build we stock through there? build Should year-end you a inventory as safety

prudent, necessary of times lead guidance in world, today, position. get costs. we state build of very to of call any a to known. aren't the those that tariffs the I our mean appropriate make some take closer we'll also on necessary over-inventorying but not certain we've the and action be we'll parts at avoid got but if known implementing the to on But the Well, as we'll risk if

back remarks. turn I to would closing now Vernon the call Carla for like to

of look investor And some us our joining with third upcoming pleasure quarter. of for many was speaking you everyone, a with see speaking our you events. will It to you sharing next Thanks, the forward at of quarter results. rest and today. We you

does Thank today's conference you for This conclude participating. call.

disconnect. now may You