Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Honest Co Inc (HNST, Financial) achieved the highest quarterly revenue in its history with $93 million in sales, marking a 10% year-over-year increase.
- The company reported a gross margin of 38%, which represents an increase of over 1,100 basis points compared to the previous year.
- The Honest Co Inc (HNST) achieved positive adjusted EBITDA of $8 million, marking the third consecutive quarter of positive adjusted EBITDA.
- The company experienced its fifth consecutive quarter of positive cash flow, indicating strong financial health.
- The Honest brand is performing well in the baby personal care categories, with significant growth in the sensitive skin collection and expansion into major retailers like Target and Amazon.
Negative Points
- The diaper category is experiencing competitive pressures and overall softening trends, which could impact future growth.
- Operating expenses increased by $3 million compared to the previous year, although there was a slight improvement as a percentage of revenue.
- The company anticipates potential volatility in transportation and shipping costs, which could affect margins in the future.
- Despite strong growth, the company acknowledges macroeconomic pressures and trade-down dynamics in the consumer market.
- The gross margin of 38% achieved in Q2 is likely a high watermark, with expectations for a slight decrease in the second half of the year.
Q & A Highlights
Q: Can you provide additional commentary on your progress with Walmart, particularly regarding shelf space and SKUs?
A: Carla Vernon, CEO, explained that Walmart plays a crucial role in their growth, with consumption growth at Walmart reaching mid-teens year over year. They are executing a unique 12-week end cap for Hispanic Heritage Month and are in discussions to expand availability of items and new products at Walmart, such as toddler flushable wipes.
Q: The EBITDA guidance implies some softness in the back half of the year. Is this due to increased marketing spend or changes in gross margin?
A: David Loretta, CFO, noted that the gross margin of 38% in Q2 is likely a high watermark. They expect gross margins to be between 36% to 38% in the second half, with flexibility in trade promotion spending. Marketing expenses will increase, focusing on brand awareness and retail marketing.
Q: How is the tracked channel consumption outperforming the category, given macro pressures?
A: Carla Vernon, CEO, stated that their 10% revenue growth is broad-based across the portfolio, with strong performance in baby personal care and wipes. Diapers grew 2% in consumption, and they are holding share despite category dynamics.
Q: Can you discuss the role of subscriptions in your business, particularly beyond diapers and wipes?
A: Katherine Barton, Chief Growth Officer, highlighted that subscriptions remain a robust part of their business, especially on honest.com. They offer a diapers and wipes subscription and have their entire portfolio available for subscription, focusing on consumer needs.
Q: How are you addressing competitive pressures in the diaper category?
A: Katherine Barton, Chief Growth Officer, acknowledged the slower growth in the diaper category and competitive activity. Honest's diapers grew 2% in net revenue for the quarter, and they are cautious but confident in their strategy to hold and grow share.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
