Q3 2025 Earnings Script
Operator
Ladies and gentlemen, thank you for standing by - welcome to The Honest Company's
third quarter 2025 Earnings Call. At this time, all participants are in a 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 Ms. Elizabeth Bouquard, Senior Director, Investor Relations at
the Honest Company. Please go ahead.
Elizabeth
Good afternoon, everyone. Thank you for joining our third quarter 2025 conference call.
Joining me today are Carla Vernón, our Chief Executive Officer and Curtiss Bruce, our
Chief Financial Officer.
Before we start, I would like to remind you that we will make certain statements today
that are forward-looking, within the meaning of the federal securities laws, including
statements about the outlook of our business and other matters referenced in our
earnings release issued today. These forward-looking statements involve a number of
risks and uncertainties that could cause actual results to differ materially. Please refer to
our earnings release issued today, as well as our SEC filings, for a more detailed
description of the risk factors that may affect our results.
Please also note that these forward-looking statements reflect our opinions only, as of
the date of this call, and we undertake no obligation to revise or publicly release the
results of any revision to these forward-looking statements, in light of new information
or future events, except as required by law.
Also, during this call, we will discuss non-GAAP financial measures, which adjust our
GAAP results to eliminate the impact of certain items. You will find additional
information regarding these non-GAAP financial measures and a reconciliation of these
non-GAAP to GAAP measures in the financial results section of today's earnings release.
A live broadcast of this call, along with presentation slides that we reference in our
prepared remarks, are available on the Investor Relations section of our website at
investors.honest.com.
And with that, I'll turn the call over to Carla.
Carla
Thanks Elizabeth…
Good afternoon, everyone, and thank you for joining us today.
- [Key Messages for Q3]
Let me begin my comments by sharing an update on our third quarter. Our Q3 results
faced a challenging consumer environment and market headwinds. Despite delivering
key profitability metrics as expected, our revenue in the quarter came in below
expectations. This revenue decline was due to the underperformance of our diapers and
apparel categories which are experiencing the downward pressure of a challenging
consumer macroeconomic environment. While we are disappointed with the revenue
results, we continue to grow and outpace the market in our wipes and personal care
categories. We also stayed committed to disciplined execution, which delivered positive
net income for the third consecutive quarter and adjusted EBITDA ahead of
expectations. Having evaluated the drivers of diaper softness in the quarter, our team
took actions quickly to strengthen our consumer value proposition through pricing,
merchandising and size. We have also focused investment and resources against our
stronghold areas of wipes and baby personal care. I will share more details on these
actions in a moment.
But, first, I want to introduce an additional strategic program we are taking to position
Honest for profitable growth in 2026 and beyond. Today, we launched Transformation
2.0, Powering Honest Growth. This is a new and important step which allows us to
sharpen our focus on growing the categories where we have a demonstrated right to win,
while also improving the profitability of Honest. "Powering Honest Growth" is a two
part Transformation program that allows us to direct our resources to our core
categories of Wipes, Personal Care and Diapers while exiting certain lower margin, non-
strategic categories and channels. This includes exiting Honest.com as a direct
fulfillment website, exiting our relationship with our current apparel provider and
exiting Canada. Because these categories are lower margin, exiting them has only a
modest profit impact in the short term. We are confident these changes will drive
greater focus on our core product categories and enable continued growth and improved
profit margins. As we make these changes, we will be implementing cost optimization
actions that lead to a simplified operating model, stronger financial foundation and
improved cost structure. Curtiss will cover more of the details later in his remarks.
[Bright Spots in Consumption Data and Key Loyalty Metrics]
Now allow me to share more specifics about our performance in the quarter. Let me
begin with an overview of our key consumer indicators. First, our overall consumption
for the quarter was up 2%, modestly trailing the overall category growth of 3%. When
we dig further into this data, we see some important bright spots. In fact, if we look at
our performance at Amazon, which is now our largest customer, Honest consumption
growth is up 16% year over year. Our Numerator Household panel data indicates that
more households are buying Honest products. Our household penetration of 7.4%,
increased 80 basis points year over year. And our consumer loyalty to our Honest
products is getting stronger. Our repeat rate of 32%, increased 30 basis points versus
the prior year. And when we look at our consumption momentum, it's important to
understand how our business is performing outside of our diaper declines. Ex-diapers,
the consumption on the remainder of the business was up a robust 13% in the quarter,
outpacing our comparative categories at 5%. To provide further insight on our
performance, let's take a look at the core product categories of wipes, personal care and
diapers that are the focus of Powering Honest Growth.
- [New Streamlined Focus on Core Product Categories - Wipes, Personal
- Care, Diapers]
[Core Product Category 1 - Wipes]
Our wipes and personal care categories performed strongly in the quarter. Combined,
wipes and personal care make up more than 50% of our revenue and are key drivers of
our growth for the last 9 months. In particular, both our wipes and baby personal care
categories delivered strong double-digit consumption growth this quarter, underscoring
the continued consumer demand for the high quality and cleanly designed formulas
across these product lines. Our wipes, which include items across All-purpose wipes,
Toddler and Adult flushable wipes, Hand Sanitizing Wipes, and Makeup remover wipes
are now the largest piece of our portfolio, representing more than one third of our sales
for the quarter. Consumption growth across our total wipes portfolio was up 24%
versus category growth of 3%. And, I'm proud to say our all purpose wipes remain the
leading natural baby wipes in the category.
This quarter, we took an important step in expanding our flushable wipes in physical
stores outside of the baby aisle. This expansion marks the launch of adult flushable
wipes in high traffic aisles at brick and mortar stores including Target, HEB and Harris
Teeter. Our adult flushable wipes distinguish themselves by providing elegantly
modern, counter-worthy packaging that can be proudly displayed anywhere you may
want a cleanly designed flushable wipe. This launch continues our strategy to expand
Honest into areas of the store that drive incremental foot traffic and household
penetration beyond baby households. Year to date, Honest flushable wipes
consumption grew over 160% vs. the category growth of 2%. And, at Amazon, Honest
adult flushable wipes are the fastest growing flushable wipes with subscriber growth up
more than 100% year to date and have quickly climbed into the top 10 items by market
share in the Personal Cleansing Wipes category. With the combined growth in e-
commerce and Brick and Mortar retailers, our flushable wipes business is a promising
addition to our wipes portfolio.
We have also expanded distribution of our sanitizing wipes into Walmart, adding more
than 700 points of distribution. Our teams are supporting this expanded wipes
distribution by elevating the role of these fast growing businesses in our advertising,
social media, and key retailer events.
[Core Product Category 2 - Personal Care]
Next, let me share more about baby personal care, which now makes up about 20% of
our revenue and is another area where we are performing well and believe we have the
right to win. Our baby personal care collection is the #1 natural baby personal care
brand in the United States with consumption growth up 10% in the quarter, outpacing
growth of the category, which was up 2%. Within our baby personal care portfolio, our
sensitive skin collection grew consumption 77% year to date. This strong growth is
continued evidence that consumers are seeking effective and trustworthy solutions to
meet the growing demand for sensitive skin care products. We know that sensitive skin
affects more than 70% of adults and that incidences of children with skin allergies has
more than doubled since 1997. With our dedication to The Honest Standard, which is a
commitment we make to formulate our products avoiding the use of [thirty-five
hundred] 3,500 ingredients of concern, we are pleased that we continue to be a valuable
solution to consumers with sensitive skin needs.
Recent innovations and distribution gains position us to continue capturing growth in
personal care. This quarter, we are excited to share the launch of our first product
collaboration with Disney across our baby personal care collection. Disney is the
leading revenue generating global licensor with their characters ranking as the most
recognized for families and children ages two through five. And, this collaboration
marks Honest's first use of licensed characters in baby personal care. Across our
shampoo bodywash, lotion, hair conditioner and bubble bath items, we have introduced
Mickey Mouse himself across two different fragrance collections. Mickey is on our Sweet
Cream items that are sold individually. And he is featured on our lavender gift set in
cozy settings perfect for bedtime. We are delighted with the strong performance of this
collaboration and the joy it has brought to our Honest community. For fans of
unscented items, we also have a collection featuring Disney's Winnie the Pooh and some
of Pooh's closest friends Eeyore, Piglet, and my personal favorite, Tigger. With charming
packaging, these Disney items make perfect gifts for baby showers and holiday
moments. In support of the Q4 holiday season, we have a dedicated marketing plan to
support these items across digital and retail.
[Core Product Category 3 -Diapers]
And, now that you know more about these strengths in our portfolio, I'd like to address
our performance in diapers, which continued to experience headwinds in the quarter.
While no longer our largest category, diapers represent about 30% of our revenue and
still plays an important strategic role in introducing new parents (and some
grandparents) to Honest each year. In Q3, diapers were the leading driver of our
revenue declines in the quarter. Let me walk you through some of the key drivers of our
diaper declines. For the quarter, our diaper consumption is down double digits. This is
largely driven by two key drivers. First, is the assortment simplification of our diaper
set at our largest brick and mortar retailer. As we shared previously, the SKU reduction
at this retailer resulted in the elimination of the gender-specific diaper prints to
streamline the set to focus on gender neutral designs. It is worth noting that the gender-
specific diapers remain available in e-commerce and across other brick and mortar
retailers. Second, is the lapping of two large customer-specific promotional events that
were not repeated in the quarter at our two largest brick and mortar retailers.
In addition to these two drivers, the pressures in the consumer macroeconomic
landscape are impacting consumer shopping behaviors. As consumers have become
more value and price conscious, we are seeing an impact in the diaper category which is
also down 2% for the year. Across the category, most major national brands are
declining as consumers are shifting their purchases to lower priced items. Because of
the increased importance of price and value, we are taking actions to improve our value
to diaper shoppers.
These actions include introducing a significantly improved diaper that is superior to our
previous designs, ensuring we continue to deliver product quality that meets consumer
expectations. As you recall, we launched these design improvements last quarter, which
included enhanced Comfort Dry technology for up to 100% leak protection, softer layers
and a better fit with comfort stretch across the waist tabs and legs. According to our in-
house quality team, our diaper consumer complaints are down 21% versus last year.
While this is promising, we are still in the early stages of assessing the new diaper's
marketplace performance.
Beyond improvements to our diaper's quality, we have increased investment in a variety
of pricing levers across merchandising, promotions, and everyday price. With these
investments in price value, we have seen positive early results in velocities with one of
our key national retailers. We're now applying these improved price value strategies
more broadly across the market. Additionally, we introduced a smaller pack size to offer
a lower entry price point for cost-conscious consumers. While the declines in our diaper
business have been significant at our brick and mortar retailers, our diaper business is
growing 3% year to date at our largest customer. The actions we have taken to improve
our diaper business demonstrate we are committed to having a very compelling diaper
offering to serve Honest families and welcome new households to the Honest brand.
[Revisiting Key Transformation 1.0 results]
Across the journey of improving and strengthening the Honest company, over the last
few years, we have demonstrated the ability to make marked progress on growing the
Honest brand and strengthening our financial foundation - and we're not finished. Our
first Transformation Initiative succeeded in changing the business's financial trajectory
by preserving cash, boosting profitability and embedding strong financial rigour across
the organization. In fact, over the last two and half years, I'm proud that our teams
have significantly improved key metrics, including:
● Improving Gross Margin by over 1,300 basis points.
● Improving our cash position from $9 million to $71 million
● And, achieving eight quarters in a row of positive Adjusted EBITDA
- [Closing - Carla]
Before I turn it over to Curtiss, I want to be clear that we are committed to making the
improvements needed to address the declines in our diaper business through swift
actions in the year and by streamlining our focus against our key categories of Wipes,
Personal Care and Diapers. As our teams continue to execute with excellence, I remain
confident in our ability to drive long-term value and growth for our shareholders, while
building the scale and power of the Honest brand. And now, I will turn it over to Curtiss
to share more details.
CURTISS:
Thank you, Carla, and welcome everyone. First, I will discuss our third quarter results.
- Second, I will share more details on our Transformation 2.0, Powering Honest Growth.
- Third, I will provide our outlook for the remainder of the year.
In the third quarter, we delivered revenue of $93 million, down 7% driven by a decline
in diapers, apparel and Honest.com. As a reminder of what Carla stated in her remarks
earlier, we were lapping the highest growth quarter from last year up 15%, which
included two large promotional events with our two largest brick and mortar retailers.
We also saw headwinds related to the simplification of our assortment at our largest
brick and mortar retailer. And finally, we also saw declines in apparel. In the quarter,
our revenue was also down due to declines on honest.com, which is about 10% of the
business, and down 23% vs last year. The de-emphasis on this business was a strategic
choice for us as we shifted away from lower margin channels. Revenue growth in wipes
was not enough to offset the previously mentioned declines.
- Gross margin in the third quarter was 37%, down 140 basis points versus last year. In
the quarter, the gross margin decline was primarily due to tariff costs and the impact of
deleverage from lower volume. These impacts were partially offset by lower trade
spend and favorable product mix.
And now, turning to Operating expenses. Operating expenses decreased $4 million
dollars compared to the prior year quarter and decreased 170 basis points as a
percentage of revenue. This decrease in operating expenses was largely attributed to a
decrease in SG&A expenses of nearly $6 million dollars compared to last year. This was
partially offset by an increase in marketing expenses of $1.6 million dollars to support
our new diaper launch. We also delivered positive Net Income of approximately $1
million dollars. Adjusted EBITDA for the third quarter was $4 million, down $3.5
million vs. last year due to lower year-over-year add-backs. Adjusted EBITDA margin
was 4% .
We maintained a healthy balance sheet ending the quarter with $71 million in cash
and no debt outstanding. Our cash position continues to benefit from a capital-light
business model giving us flexibility. Our free cash flow was down vs. last year largely
due to higher inventory. Our higher inventory is largely a result of our tariff mitigation
strategies and transition to our new diapers. In line with our focus on operating
discipline, we will continue to manage our inventory levels carefully.
- [More financial details on Transformation 2.0, Powering Honest Growth]
Next, I would like to provide more color on our Transformation 2.0, Powering Honest
Growth. This Transformation is aimed at improving simplicity, focus and profitability
of the enterprise. The Transformation will have two main components that are also
outlined in our investor presentation on slide 5.
- 1)Part One, To drive greater focus and growth on our fastest growing, more profitable,
and most important categories of wipes, personal care and diapers, we are making three
important changes:
● First, by the end of this year we will exit Honest.com as a direct-to-consumer
fulfillment channel, but will maintain the ability to direct purchases to leading
retailers and remain a resource for educating consumers. This change is a
reflection of shifts in consumer shopping behavior and a resource intensive and
low margin fulfillment model.
● Second, we will also be exiting our apparel partnership as a fully owned product
category, as this is a complex and profit-dilutive part of our business.
● And Third, we are exiting direct sales to Canadian retailers. This was a subscale,
low margin part of our business which added to the complexity of incremental
inventory.
- 2) And now Part Two of The Transformation, we will be optimizing our cost
structure by rightsizing SG&A and implementing supply chain efficiencies. As we
simplify our business, we are reducing our SG&A to align with a more streamlined
business model and increased focus on core product categories. Concurrently, we are
taking steps to optimize our supply chain footprint and inventory management along
with leveraging technology to improve systems to maximize efficiency across the entire
organization.
Collectively, these strategic actions will result in one-time costs related to
Transformation 2.0 of $25-35 million and return approximately $8-15 million of annual
cost savings. We believe that these changes will lay the foundation for a stronger, and
more efficient Honest.
264
- [Outlook]
Next, I will share the financial outlook which you can also find on slide 13 of our investor
presentation. For our 2025 outlook, I will provide a view in two ways. First, I will
provide a view of the full business on an as reported basis. Second, I will provide an
"organic revenue" outlook which excludes revenue from the categories and channels we
are exiting as part of Powering Honest Growth. We have provided a full reconciliation
of Revenue to Organic Revenue on slide 15 in our investor presentation. We are
lowering our full year guidance for revenue and adjusted EBITDA. Our Full Year
- 2025 Financial Outlook for Revenue and Adjusted EBITDA includes:
● Revenue outlook as reported ( inclusive of apparel,
- honest.com, Canada) is now in the range of [-3% to flat]. This is
driven by potential disruptions to revenue related to the wind down of
strategic exits and anticipated declines in diaper revenue
● Revenue outlook on an Organic basis ( excluding apparel,
- honest.com, Canada) is for growth in the range of 4% to 6% year over
year. To provide more context, organic revenue year to date grew 6%.
● And Adjusted EBITDA to be in the range of $21 million to $23
- million vs. the original range of $27 million to $30 million. Our Adjusted
EBITDA outlook is lower primarily due to lower revenue and volume
deleverage.
- [Curtiss Closing]
In closing, we are proud of the continued strength of the Honest brand in our core
categories that have clear bright spots - including double digit consumption growth in
wipes and baby personal care, underscored by strong year-over-year increases in key
consumer engagement metrics. We are committed to making improvements in our
diaper category in order to have a compelling diaper offering, critical to welcoming new
households to the Honest brand. With the launch of Transformation 2.0, Powering
Honest Growth, our teams remain focused and disciplined to execute our strategy.
Together, Carla, the Honest team and I are committed to driving sustainable growth and
building lasting value for our consumers and shareholders. Thank you to our Honest
team for their continued hard work and dedication this year. With that, thank you for
joining our call today. Now, I will turn the call back to the operator.
Attachments
- Original document
- Permalink
Disclaimer
The Honest Company Inc. published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on November 06, 2025 at 04:36 UTC.
