Honest : Q1 2026 Earnings Transcript

About this update from The Honest Company, Inc.

Q1 2026 Earnings Script Introduction Ladies and gentlemen, thank you for standing by - welcome to The Honest Company's first quarter 2026 Earnings Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Chris Mandeville, Interim Head of Investor Relations at the Honest Company. Please go ahead. Chris Mandeville Good afternoon and thank you for joining our first quarter 2026 conference call. With me today are Carla Vernón, our Chief Executive Officer and Curtiss Bruce, our Chief Financial Officer. Before we begin, I will remind you that our remarks today include forward-looking statements subject to risks and uncertainties. We do not undertake any obligation to update these statements, and actual results may differ materially. For a detailed discussion of these factors, please refer to our safe harbor statements in today's earnings materials and our recent SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and accompanying presentation, which are available at investors.honest.com. Finally, please note that all consumption data included in our discussion today, unless otherwise noted, will reflect Circana MULO+ measured channel data for the 13 weeks ended 22 March 29, 2026, as compared to the prior year. With that, I'll turn the call over to Carla. Carla Vernón Opening Remarks & Setting the Tone Thank you, Chris, and hello to everyone joining us. Today, I will provide a high-level look at our first quarter performance and offer insights into how we are successfully executing our strategy to profitably scale the Honest brand. Following my remarks, Curtiss will provide greater detail on our Q1 financial results and discuss our reaffirmed full-year outlook. We are pleased with our start to 2026 as our recent actions to optimize our portfolio are bearing fruit. Our Q1 results demonstrate that Powering Honest Growth is leading to an enterprise that is more strategically focused, growth-driven, and structurally profitable. Let me begin with our first quarter results. By bringing a sharpened focus to our right-to-win categories and channels, we delivered organic revenue growth of 3.9%. Delivering this growth on top of double-digit growth in the prior year underscores the momentum across our portfolio. As we continue to increase the availability of Honest products, we are also expanding our business across a broader set of households. Over the last three years, we've been disciplined in our focus on driving shareholder value through top-line scale and bottom-line expansion. And, in Q1, we did exactly that. In addition to delivering organic revenue growth, our adjusted gross margin of 43.5% was the strongest in our history. This year-over-year gross margin expansion of 480-basis points demonstrates the impact of our Powering Honest Growth initiative. By streamlining the focus to our right-to-win categories, we have ignited a virtuous cycle that allows our teams to successfully execute against our three strategic pillars of Brand Maximization, Margin Enhancement, and Operating Discipline. In Q1, our Brand Maximization strategy of growing revenue scale and consumer strength of the Honest brand was evident. We delivered 8.3% consumption growth, significantly ahead of our comparative category average growth of 2.6% and a notable acceleration from the 3.4% we delivered in Q4 2025. Best of all, our momentum continued to be volume-led, with unit consumption up 20%. As I shared last quarter, the Honest brand benefits from two powerful dynamics: The first, and most foundational, is the growing consumer interest in cleanly-formulated and effective products for people with sensitive skin. And the second dynamic is the unique competitive advantage of the Honest brand, which drives our commitment to upholding the highest standards in everything we do. This gives us the ability to build deep consumer trust and loyalty across a diverse range of households. This spans families with babies and toddlers to those with big kids and teenagers, and even households with no kids at all. In the United States, 89% of households do not have any children under the age of six, while 75% of households have no children at all. This is why we are purposeful in designing a growth strategy that provides a broad range of products developed with a wide range of ages in mind. And as a reminder, according to Numerator, over half of Honest's current buyers are from no- kid households. Across all household types, the love for our cleanly-formulated and sustainably designed personal care products continues to grow. At Honest, every product must meet our industry- leading Honest Standard, which is a set of guiding principles that includes a list of over 3,500 ingredients we do not use, and that shapes every step of product innovation and development to ensure our high expectations for safety, efficacy, and design. This appeal is evident in our growth. In Q1, our total household penetration reached a new all- time high of 8.1%, up fifty basis points from year end. We are proud to have welcomed 1.6 million new households over the past year. And as we look at the opportunity in household penetration, we still have significant runway ahead. For example, in baby personal care, key branded competitors hold household penetration anywhere from 2 to 6 times greater than ours. And in all-purpose wipes, larger brands have as much as 5 to 7 times the household penetration of Honest. This considerable market opportunity presents a clear line of sight to our next phase of growth, with a focus on transitioning existing category buyers to Honest and welcoming entirely new households into these categories. Now, allow me to share more on each of these portfolios beginning with wipes. In Q1, our total wipes portfolio delivered consumption growth of nearly 25%. With a wide and growing array of formats, Honest wipes are expanding throughout the store and across household types with products ranging from adult flushable wipes and hand sanitizing wipes to toddler flushable wipes and all-purpose baby wipes. The consumption of our all-purpose baby wipes grew by 14% this quarter, reflecting just how much our community loves having a stylish pop of design on their changing table, countertop, or in their bag for those everyday clean-up moments. This quarter was the national roll out of our updated, more shopper-friendly packaging for our all-purpose wipes. With this new bolder, more shoppable package design, it is much easier for people to discover these wipes on store shelves. And we introduced our largest packaging format to date, a mega pack that allows parents to maximize value and stay fully stocked on our wonderful sensitive skin safe wipes. And, our Honest adult flushable wipes are a clear standout in our portfolio, delivering Q1 consumption growth of more than 200% off of a still emerging base. These plush, moist, and plumbing-safe flushable wipes have now grown at more than 10 times the category rate for three consecutive quarters. As a result, we are now the #4 flushable wipes brand in the category, up from the #5 spot in Q4 2025. This momentum illustrates how our growing Honest community loves the unique combination of fashion, function, and flushability we bring to the category. And we are just getting started. A few weeks ago, we adopted a very stylish and thoroughly modern, new approach to our marketing of flushable wipes. We kicked things off with a high-profile social media campaign in March, partnering with mega-influencers specifically chosen to resonate across our target households. Whether you love an intimate conversation with Tia Mowry, a bestie moment with Kat Stickler, or a freestyle rap by Hannah Berner, we had something for you. The response from followers was immediate, and the algorithm did its thing. In fact, one post amassed 1.5 million views across Instagram and TikTok in just its first 12 hours. Building on that incredible digital engagement, we launched a national campaign in April across a broad media landscape of video, social, out-of-home, festivals and more. The ads, posts, and videos put the spotlight on the moments when even the most stylish and glamourous women get honest about why they love our flushable wipes. And we didn't stop there. This quarter, we also refreshed our collection of hand sanitizing wipes. In Q1, we relaunched our lavender and grapefruit scents in updated, counter-worthy packaging and rolled out pocket packs in those two fresh scents. For the quarter we saw a consumption increase of more than 60% on our hand sanitizing wipes, maintaining our position as the #2 brand in the category. Now, shifting to personal care. Our personal care collection delivered consumption growth of 16% in Q1. Our shampoo, body wash, bubble bath, and lotion have long been a trusted choice in the 11% of U.S. households with children under the age of six. In fact, with consumption growing seven times faster than the category, Honest has officially become the #2 brand across total baby personal care, jumping from the #4 position last year. And now, to build on that momentum, we are expanding our reach. We are pleased to have introduced our new Pixar Toy Story collection, bringing The Honest Standard to the 89% of U.S. households with big kids and kids at heart. Initially, we launched the collection both in-store and online at Walmart. And as of a few weeks ago, I am excited to announce that we added this collection to Amazon, which will meaningfully expand our reach just in time for the Toy Story 5 movie release next month. Speaking of going 'to infinity and beyond,' our brand literally reached new heights recently. During the live stream of the NASA Artemis II mission in April, Astronaut Christina Koch radioed Houston to ask mission control for help in tracking down the Honest lotion the crew had packed onboard. It was an incredible, organic moment that highlights just how essential our products are to our community, even in orbit. Not only was this an incredible affirmation that Honest products are for everyone. But, because my own mother was a NASA Hidden Figure, this was a full circle moment in more ways than one. And finally, let me share an update on our diaper portfolio where we have seen progress on our performance. Our consumption declines in diapers were nearly cut in half, moderating to negative 9.6% in Q1, from minus 18.3% in Q4 2025, as we lapped the distribution losses of gender specific prints at a key retailer late in the quarter. However, our outlook for the broader diaper category remains cautious. We are navigating a highly competitive and promotional environment that we expect will continue to pressure the category. While diapers remain an important option for families looking for the Honest standard of clean, we will prioritize our growth in households with babies and families with little kids through our higher growth, higher margin wipes and personal care platforms. Despite these localized category pressures, the broader strength of our portfolio is shining through. Our positive Q1 results show that we are financially stronger and on the right path, with great possibilities ahead. With that, I will now turn the call over to Curtiss to provide more detail on our Q1 financial results and walk through our reaffirmed full year 2026 outlook. Curtiss Bruce Thank you, Carla, and good afternoon, everyone. As Carla mentioned, our first quarter results are a clear indication that the structural improvements we made to our business last year through our Powering Honest Growth initiative are driving our growth and profitability today. We are pleased with our start to the year. Before diving into the financial results, I want to provide a brief update on this transformation. We are seeing the immediate, accelerated benefits of a highly favorable margin mix, driven by our sharpened focus on our right-to-win categories, alongside the positive impact of our right- sized SG&A. As we look to the balance of the year, we remain firmly on track to realize our expected supply chain efficiencies in the second half of 2026. As a reminder, we expect Powering Honest Growth to deliver between $10 to $15 million in annualized savings, serving as a powerful catalyst to further fortify our bottom-line health and generate the fuel needed to reinvest in our growth. Now, turning to our first quarter performance. Revenue was $78.1 million, compared to $97.3 million in the prior year period, primarily reflecting the impact of our strategic Powering Honest Growth category and channel exits. On an organic basis, revenue grew 3.9% to $78.1 million. This growth is particularly notable as it was achieved over a difficult prior-year comparison, which was bolstered by retailer inventory buildup ahead of the 2025 tariffs. Our performance this quarter reflects strong momentum behind our higher growth, higher margin wipes and personal care platforms, partially offset by moderating diaper sales declines. These diaper results were driven by the initial lapping of previously disclosed headwinds related to a key retailer's transition to gender- neutral prints. Q1 reported gross margin came in at 42.6%, a 390-basis point improvement compared to the prior year period. On an adjusted basis, our gross margin of 43.5% was historically strong, reflecting favorable freight costs, as well as mix from our higher growth, higher margin wipes and personal care platforms, which was accelerated by Powering Honest Growth. These items were partially offset by tariffs. Total operating expenses decreased by $1.2 million year-over-year, including a modest restructuring charge related to Powering Honest Growth. Excluding this transitional cost, our adjusted operating expenses declined by $1.8 million. This reduction was driven by our structural SG&A improvements, which more than offset our plan to drive a double-digit increase in marketing investments directed specifically toward our higher growth, higher margin wipes and personal care platforms. Coupling these structural cost savings with our meaningful adjusted gross margin expansion creates a powerful financial engine, underscoring our capacity to strategically reinvest in our brand while right sizing our SG&A at the same time. Looking at our bottom line, we reported a net loss of less than $0.1 million for the quarter. Q1 Adjusted EBITDA was $4 million, representing an Adjusted EBITDA margin of 5.1%, down from $6.9 million and a 7.1% margin in the prior year period, largely due to lower reported revenue. Regarding our balance sheet and cash flow, we continue to be in an exceptionally strong position. We ended the quarter with $90.4 million in cash and cash equivalents and zero debt, while Q1 free cash flow was $3.8 million, a substantial improvement compared to negative $3 million in the prior year period. This year-over-year increase was primarily driven by continued working capital improvements stemming from Powering Honest Growth and our rigorous focus on operating discipline. During the quarter, we utilized $3 million of our newly authorized $25 million share repurchase program, with an additional $8.3 million deployed subsequent to quarter end. In total, these repurchases were executed at an average price of $3.26 per share. These actions reflect our confidence in the structural improvements we have made to our business, the significant financial flexibility generated by our asset-light operating model, and our commitment to balancing aggressive reinvestment in our growth initiatives with returning meaningful value to our shareholders. Moving to our outlook, while we are encouraged by our start to 2026, we are also mindful that it is still early in the year, and we are navigating an environment where several macroeconomic uncertainties remain. That said, the actions we've taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where Honest has the clearest competitive advantage, and our 2026 framework reflects both the early returns of that discipline and our prudent approach to the balance of the year. With that context, we are reaffirming our full-year 2026 outlook. We continue to expect the following:  Reported revenue declines of 18% to 16% due to our strategic exits;  Organic revenue growth of 4% to 6%, in line with our long-term algorithm;  Adjusted gross margins in the low 40s; and  Adjusted EBITDA of $20 million to $23 million. As I wrap up, I want to emphasize how pleased we are with our start to the year. We believe our first quarter results clearly demonstrate that sharpening our focus on our right-to-win categories has built a highly resilient financial foundation. We are executing with strict operational discipline and maintaining a clear line of sight toward sustainable, profitable growth. With that, I will turn it back to Carla for final remarks. Carla Vernón Thank you, Curtiss. As we shared last quarter, Powering Honest Growth was about unlocking the full potential of our business model by serving as a force multiplier to our strategic pillars. We believe our Q1 results confirm that the heavy lifting we did in 2025 is paying off. I'd like to thank our team of Honest Butterflies for their commitment and diligence in building our shared vision for Honest. And now, more than ever, Honest is well-positioned to deliver strong value creation for investors, expand our Honest community, and build the enduring strength and meaning of the Honest brand. With that, I will now turn it over to the Operator to open the line for questions.

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