Q1 2025 The Honest Company Inc Earnings Call

May 7, 2025

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand has been raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded.

Elizabeth Bukhari: I would now like to hand, the conference call over to MS. Elizabeth Bukhari Senior Director Investor Relations at the honest company. Please go ahead.

Speaker Change: Good afternoon, everyone. Thank you for joining our first quarter 2025 conference call. Joining me today are Carla Vernon, our Chief Executive Officer, and Dave Loretta, Our Chief Financial Officer before we start I would like to remind you that we will make certain statements today that are forward looking.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Also during this call, we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items.

Speaker Change: 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 our earnings release today.

Speaker Change: Live broadcast of this call is also available on our Investor Relations section of our website at investors got honest dotcom.

Carla Vernon: And with that I'll turn the call over to Carla.

Carla Vernon: Thanks, Elizabeth Good afternoon, everyone and thank you for joining us today.

Carla Vernon: I'll begin today's remarks, I'd like to take a moment to share some important updates to our recent announcement of Dave Loretta his planned retirement from his role as the Chief Financial Officer of the honest company.

Carla Vernon: Most importantly, I want to recognize Dave for his incredible partnership.

Carla Vernon: Thanks to David's leadership, we have an exceptional finance team in place a stronger financial foundation and are well positioned for the future. Dave. Thank you for playing such a critical role in the transformation of honest and congratulations on the considerable success you have had an honest and across your career.

Carla Vernon: Earlier today, we announced the appointment of Curtis Bruce as the honest company's next Chief Financial Officer.

Carla Vernon: Curtis is an accomplished financial leader with deep expertise across some of the most respected consumer brands, including Hain celestial Keurig, Dr. Pepper, the Kellogg company and Kraft Heinz across his career Curtis has led a blend of both emerging businesses as well as some of the food industries.

Carla Vernon: Most iconic billion dollar brands his passion for consumer loved brands combined with a track record of driving growth and transformation make him the right leader to help guide honest into the next chapter.

Carla Vernon: Curtis is June 2nd start date will include ample transition time with Dave to allow for a smooth handoff.

Carla Vernon: Again, I want to extend my sincere thanks, and congratulations to Dave for all he has done to drive our strong results.

Carla Vernon: For todays call. There are three messages I want to share with you first we delivered solid results for the first quarter of the year with double digit revenue growth gross margin expansion and positive operating income second our transformation pillars of brand maximization margin enhancements and operating discipline.

Speaker Change: Curtis is June 2nd start date will include ample transition time with Dave to allow for a smooth handoff.

Speaker Change: Again, I want to extend my sincere thanks, and congratulations to Dave for all he has done to drive our strong results.

Carla Vernon: Are enabling us to successfully navigate this dynamic environment.

Carla Vernon: With a healthy balance sheet and growing consumer demand for our cleanly formulated and sustainably designed products. We remain confident that our long term growth strategy leaves us well positioned to scale the honest brand.

Speaker Change: For todays call. There are three messages I want to share with you first we delivered solid results for the first quarter of the year with double digit revenue growth gross margin expansion and positive operating income second our transformation pillars of brand maximization margin enhancements and operating discipline.

Carla Vernon: And third as we continue to adapt to the evolving market conditions and manage the impact of economic headwinds, we are reaffirming our 2025 financial outlook.

Speaker Change: Are enabling us to successfully navigate this dynamic environment.

Speaker Change: With a healthy balance sheet and growing consumer demand for our cleanly formulated and sustainably designed products. We remain confident that our long term growth strategy leaves us well positioned to scale the honest brand.

Carla Vernon: For the first quarter, our teams continued to strengthen the business model and in market performance of the honest company, we delivered growth across our key financial measures, including revenue of $97 million, which was 13% growth year over year, our gross margin grew 170 basis points.

Speaker Change: And third as we continue to adapt to the ever evolving market conditions and manage the impact of economic headwinds, we are reaffirming our 2025 financial outlook.

Carla Vernon: To 39%. Additionally, we delivered positive net income of $3 million and adjusted EBITDA margin of 7%, representing our sixth consecutive quarter of positive adjusted EBITDA.

Speaker Change: For the first quarter, our teams continued to strengthen the business model and in market performance of the honest company, we delivered growth across our key financial measures, including revenue of $97 million, which was 13% growth year over year, our gross margin grew 170 basis points.

Carla Vernon: We are particularly proud of these results amid the dynamic environment of both cost and consumer demand uncertainty.

Carla Vernon: The strength of these results is grounded in our transformation pillars, which were designed for their enduring ability to guide us through both short and long term periods.

Speaker Change: Just 39%.

Speaker Change: Additionally, we delivered positive net income of $3 million and adjusted EBITDA margin of 7%, representing our sixth consecutive quarter of positive adjusted EBITDA.

Carla Vernon: Our first foundational pillar brand maximization is inspired by the growth vision, we have for the honest brand across our trusted portfolio of baby and personal care products.

Speaker Change: We're particularly proud of these results amid the dynamic environment of both cost and consumer demand uncertainty.

Carla Vernon: Our portfolio of cleanly formulated sustainably designed products continues to meet everyday essential consumer needs, especially for those with sensitive skin.

Speaker Change: The strength of these results is grounded in our transformation pillars, which were designed for their enduring ability to guide us through both short and long term periods.

Carla Vernon: With consumption growth of 8% in the quarter. The honest brand continues to deliver growth that outpaces the growth of our competitive categories, which declined 1% in the same period.

Speaker Change: Our first foundational pillar brand maximization is inspired by the growth vision, we have for the honest brand across our trusted portfolio of baby and personal care products.

Carla Vernon: Our growth underscores our focus on bringing new shoppers into the honest portfolio as demonstrated by the increases in our household penetration to seven 3% a growth of 55 basis points versus the prior year.

Speaker Change: Our portfolio of cleanly formulated sustainably designed products continues to meet everyday essential consumer needs, especially for those with sensitive skin.

Speaker Change: With consumption growth of 8% in the quarter. The honest brand continues to deliver growth that outpaces the growth of our competitive categories, which declined 1% in the same period.

Carla Vernon: Two bright spots in our brand maximization performance for the quarter are our wife's portfolio and our baby personal care collection. Both of these businesses benefit from the growing interest in products that are effective safe for a broad range of uses.

Speaker Change: Our growth underscores our focus on bringing new shoppers into the honest portfolio as demonstrated by the increases in our household penetration to seven 3% a growth of 55 basis points versus the prior year.

Carla Vernon: And gentle on sensitive skin.

Carla Vernon: For many consumers products that work well for sensitive skin arent just preferences they have become essential.

Carla Vernon: Because of our rigorous product standards, our community has come to trust our commitment to having products that meet their most sensitive skin needs.

Speaker Change: Two bright spots in our brand maximization performance for the quarter are our wife's portfolio and our baby personal care collection. Both of these businesses benefit from the growing interest in products that are effective safe for a broad range of uses.

Carla Vernon: Be honest standard is our set of guiding principles that contains our no list. The no list defines 3500 ingredients of concern that we choose not to use in our products.

Speaker Change: And gentle on sensitive skin.

Speaker Change: For many consumers products that work well for sensitive skin arent just preferences they have become essential.

Carla Vernon: As evidenced by increases in our household penetration, our buy rate, which grew 8% and our repeat usage, which grew more than 200 basis points, our honest products are more than essential their beloved by our community.

Speaker Change: Because of our rigorous product standards, our community has come to trust our commitment to having products that meet their most sensitive skin needs.

Speaker Change: Be honest standard is our set of guiding principles that contains our no list then.

Carla Vernon: We know that the sensitive skin segment is expected to double to $80 billion by 2030 and skin allergies. Among children have increased a 100% since 1997.

Speaker Change: No list defined 3500 ingredients of concern that we choose not to use in our products.

Speaker Change: Evidenced by increases in our household penetration, our buy rate, which grew 8% and our repeat usage, which grew more than 200 basis points, our honest products are more than essential their beloved by our community.

Carla Vernon: In fact, this quarter are sensitive skin portfolio grew 35% year over year benefiting from the launch of our larger sizes of sensitive skin shampoo and body wash and sensitive skin conditioning detangled.

Speaker Change: We know that the sensitive skin segment is expected to double to $80 billion by 2030 and skin allergies. Among children have increased a 100% since 1997 in.

Carla Vernon: In addition to our sensitive skin portfolio growth across our wipes portfolio, we delivered consumption growth of over 40% this quarter or.

Carla Vernon: Our successful growth in wipes is driven by distribution gains expanded size offerings in store merchandising and consumer driven design improvements.

Speaker Change: In fact, this quarter are sensitive skin portfolio grew 35% year over year benefiting from the launch of our larger sizes of sensitive skin shampoo and body wash and sensitive skin conditioning detangled.

Carla Vernon: We have seen increasing demand for our 288, count wipes package, which more than doubled in distribution over the past two years.

Speaker Change: In addition to our sensitive skin portfolio growth across our wipes portfolio, we delivered consumption growth of over 40% this quarter.

Carla Vernon: This size provides great value to our most loyal users and we see that the more wife's consumers having their homes the more ways they find to use them.

Speaker Change: Our successful growth in wipes is driven by distribution gains expanded size offerings in store merchandising and consumer driven design improvements.

Carla Vernon: As a digitally native brand with a strong omni channel strategy, we believe in the power and scale of being represented both in store and online in March our sanitizing wipes launched for the first time on Walmart Dot com and our pocket in Perth friendly sanitizing sprays have been added to the.

Speaker Change: We have seen increasing demand for our 288, count wipes package, which more than doubled in distribution over the past two years.

Speaker Change: This size provides great value to our most loyal users and we see that the more wipes consumers having their homes the more ways they find to use them.

Carla Vernon: On the go travel section at target stores nationally.

Carla Vernon: We also continue to expand the availability of honest wipes into new aisles of the store, including the potty training aisle.

Speaker Change: As a digitally native brand with a strong omni channel strategy, we believe in the power and scale of being represented both in store and online in March our sanitizing wipes launched for the first time on Walmart Dot com and our pocket and purse friendly sanitizing sprays have been added to.

Carla Vernon: Our toddler flexible wipes are the perfect solution for those moments when messes meet milestones.

Carla Vernon: With the addition of pop out displays called jumped shelves are toddler flexible wipes are conveniently placed for when parents are shopping for potty training essentials.

Speaker Change: The on the go travel section at target stores nationally.

Speaker Change: We also continue to expand the availability of honest wipes into new aisles of the store, including the potty training aisle.

Carla Vernon: For our honest community. It is also important that our products come to like beautifully in their homes.

Carla Vernon: Our recently launched adult flush about wipes now come in a new pattern, we call gold gilded wings and it's gorgeous they.

Speaker Change: Our toddler flexible wipes are the perfect solution for those moments when message meet milestones.

Speaker Change: With the addition of pop out displays called jumped shelves are toddler flexible wipes are conveniently placed for when parents are shopping for potty training essentials.

Carla Vernon: They make the perfect, finishing touch to give bathrooms and powder rooms and elevated style.

Carla Vernon: Our community has come to love the combination we bring of gentle products that work beautifully and have our style to match.

Speaker Change: For our honest community. It is also important that our products come to like beautifully in their homes.

Carla Vernon: As a result honest is now the leading natural wipes brand nationally surpassing the categories previous leader.

Speaker Change: Our recently launched adult flexible wipes now coming in new pattern, we call gold gilded wings and it's gorgeous.

Carla Vernon: As I mentioned as consumers seek out clean solutions for their essential needs. We continue to see our consumption outpaced our competitive categories.

Speaker Change: They make the perfect, finishing touch to give bathrooms and powder rooms and elevated style.

Carla Vernon: Over along with a modest slowdown in the categories in which we compete we observed some headwinds in our own momentum as we exited the quarter.

Speaker Change: Our community has come to love the combination we bring of gentle products that worked beautifully and how the style to match.

Speaker Change: As a result honest is now the leading natural wipes brand nationally surpassing the categories previous leader.

Carla Vernon: Most notably we saw these headwinds in our diaper portfolio. This is mainly attributable to an expected diaper distribution change that took place at a key retailer in Q1.

Speaker Change: As I mentioned as consumers seek out clean solutions for their essential needs. We continue to see our consumption outpaced our competitive categories How's.

Carla Vernon: We also recognize that a regular cadence of technology improvements is vital in the diaper category.

Speaker Change: However, along with a modest slow down in the categories in which we compete we observed some headwinds in our own momentum as we exited the quarter.

Carla Vernon: That's why we continuously monitor consumer feedback and understand the needs for innovation.

Carla Vernon: Our diaper research confirmed that while we performed well in key areas, including our cleanly formulated materials that are gentle on baby and our signature prints.

Speaker Change: Notably we saw these headwinds in our diaper portfolio. This is mainly attributable to unexpected diaper distribution change that took place at a key retailer in Q1.

There were key technical features identified for improvement.

Speaker Change: We also recognize that a regular cadence of technology improvements is vital in the diaper category.

Carla Vernon: After extensive development work and technical research I'm pleased to share that our team of diaper engineers have developed our best built diaper yet in fact, I recently had the chance to visit our diaper manufacturing headquarters and saw firsthand, how we were able to achieve such great results in our newest diaper I had.

Speaker Change: That's why we continuously monitor consumer feedback and understand the needs for innovation or.

Speaker Change: Our diaper research confirmed that while we performed well in key areas, including our cleanly formulated materials that are gentle on baby and our signature prints.

The pleasure of performing the absorbency tested myself.

Speaker Change: There were key technical features identified for improvement.

Carla Vernon: As I poured the blue liquid onto the new and improved core of our diaper. The liquid was absorbed within seconds, leaving a surface practically dry to the touch.

Speaker Change: After extensive development work and technical research I'm pleased to share that our team of diaper Engineers has developed our best built diaper yet in fact, I recently had the chance to visit our diaper manufacturing headquarters and saw firsthand, how we were able to achieve such great results in our newest diaper I had.

Carla Vernon: Our new and improved diaper, which has recently started shipping into stores and online guarantees up to 100% leak protection with comfort dry technology and was thoughtfully designed to protect delicate skin. It also features a plant based liner designed to be gentle on baby's skin, a breathable outer layer.

Speaker Change: The pleasure of performing the absorbency tested myself.

Speaker Change: As I poured the blue liquid onto the new and improved core of our diaper. The liquid was absorbed within seconds, leaving the surface practically dry to the touch.

Carla Vernon: And that helps reduce the risk of irritation fastener tab improvements for an irritation free fit and softer materials that make the diapers soft to a parent's touch.

Speaker Change: Our new and improved diaper, which has recently started shipping into stores and online guarantees up to 100% leak protection with comfort dry technology and was thoughtfully designed to protect delicate skin. It also features a plant based liner designed to be gentle on baby's skin a breathable outerwear.

Carla Vernon: With these improvements we are proud to bring our best diaper ever to the Littlest members of our honest community.

Speaker Change: The second pillar refocus on after brand maximization is margin enhancement in Q1 with a gross margin of 39% an expansion of 170 basis points. We continue to grow the bottom line faster than the top line through cost savings and changes to product mix.

Speaker Change: That helps reduce the risk of irritation fastener tab improvements for an irritation free fit and softer materials that make the diapers soft to a parent's touch.

Speaker Change: Just as we are closely watching the consumer environment. We are also watching and managing the cost environment, particularly related to tariffs.

Speaker Change: With these improvements we are proud to bring our best diaper ever to the Littlest members of our honest community.

Speaker Change: Just on currently announced tariffs our greatest exposure is related to our imports from China.

Speaker Change: However, even with the additional tariff related headwinds that were subsequent to our Q4 earnings call our disciplined execution and progress on our margin enhancement pillar enables us to reaffirm our financial outlook today.

Speaker Change: Just as we are closely watching the consumer environment. We are also watching and managing the cost environment, particularly related to tariffs.

Speaker Change: As we shared in Q4 earnings are honest teams are not new to managing the impact of tariffs on our global supply chain and on our financial model, we have been managing tariffs in portions of our portfolio across several administrations, we have a comprehensive approach in place and a strong experience.

Speaker Change: Based on currently announced tariffs our greatest exposure is related to our imports from China.

Speaker Change: <unk> cross functional team that we lovingly call the tariff tacklers.

Speaker Change: This team oversees a three pronged strategy to drive our tariff mitigation efforts. These prongs include first building an annual plan and as agile in the face of tariffs.

Speaker Change: Second implementing an inventory management strategy to delay tariff impact.

Speaker Change: And third working closely with our internal teams and external partners to drive additional cost savings and spending optimization.

Speaker Change: <unk> cross functional team that we lovingly call the terrorists tacklers.

Speaker Change: This team oversees a three pronged strategy to drive our tariff mitigation efforts. These problems include first building an annual plan and as agile in the face of tariffs.

Speaker Change: The high frequency cadence and collaborative approach of our tariff tackler team allows them to continuously evaluate and prepare a short and long term levers.

Speaker Change: Second implementing an inventory management strategy to delay tariff impact.

Speaker Change: Because of our three pronged strategy our team acted quickly to increase inventory on hand, allowing us to delay the impact of incremental tariffs to the back half of the year.

Speaker Change: And third working closely with our internal teams and external partners to drive additional cost savings and spending optimization.

Speaker Change: The addition of senior supply chain leadership to our management team coupled with our strong history of collaboration with our suppliers has enabled us to identify cost savings, we can address together and helped us accelerate the timing on some cost savings initiatives.

Speaker Change: The high frequency cadence and collaborative approach of our tariff tackler team allows them to continuously evaluate and prepare short and long term levers.

Speaker Change: Because of our three pronged strategy our team acted quickly to increase inventory on hand, allowing us to delay the impact of incremental tariffs to the back half of the year.

Speaker Change: And guided by the third prong, we optimized our investment spending to reduce waste drive higher returns and amplify our highest strategic priorities.

Speaker Change: Our operating discipline pillar is our third and final transformation pillar.

Speaker Change: Operating discipline underscores our focus on building a culture of execution excellence in the first quarter, we launched two improvements to our operating approach to better enable our teams to execute with excellence modeled after the practices of best in class consumer products companies our business teams are off.

Speaker Change: Guided by the third prong, we optimized our investment spending to reduce waste drive higher returns and amplify our highest strategic priorities.

Speaker Change: Operating with an improved cross functional model, which drives process rigor and ensures that we are aligned to deliver our priorities.

Speaker Change: Our operating discipline pillar is our third and final transformation pillar <unk>.

Speaker Change: Operating discipline underscores our focus on building a culture of execution excellence.

Speaker Change: We also implemented an integrated process that drives continuous improvement across forecast accuracy inventory management and customer service levels.

Speaker Change: In the first quarter, we launched two improvements to our operating approach to better enable our teams to execute with excellence.

Speaker Change: As a result, we are able to drive a more efficient cost structure and deliver orders reliably on time and in full for our retail partners.

Speaker Change: Modeled after the practices of best in class consumer products companies. Our business teams are operating with an improved cross functional model, which drives process rigor and ensures that we are aligned to deliver our priorities.

Speaker Change: We believe that this focus on forecast accuracy and supply reliability will be critical for our business, our retail partners and our honest community in this period of volatility.

Speaker Change: We also implemented an integrated process that drives continuous improvement across forecast accuracy inventory management and customer service levels.

Speaker Change: As I bring my remarks to a close I am pleased that our disciplined approach to transforming the honest brand has allowed us to continue to outperform our categories with revenue up 13% consumption up 8%, all while delivering increasingly profitable volume growth with net income of $3 million and.

Speaker Change: As a result, we are able to drive a more efficient cost structure and deliver orders reliably on time and in full for our retail partners.

Speaker Change: Our sixth consecutive quarter of positive adjusted EBITDA.

Speaker Change: We remain cautiously confident in our business as we navigate the evolving economic landscape and maintain a disciplined approach to managing the impact of tariffs.

Speaker Change: As I bring my remarks to a close I'm pleased that our disciplined approach to transforming the honest brand has allowed us to continue to outperform our categories with revenue up 13% consumption up 8%, all while delivering increasingly profitable volume growth with net income of $3 million and.

Speaker Change: My belief in this company, our extraordinary team and our trusted products is as strong today, if not stronger as it was the day I joined honest in times like these our resilience shines as does our belief and continuing to invest to build a strong and scaled honest.

Speaker Change: Our sixth consecutive quarter of positive adjusted EBITDA.

Speaker Change: We remain cautiously confident in our business as we navigate the evolving economic landscape and maintain a disciplined approach to managing the impact of tariffs.

Speaker Change: Brand.

Speaker Change: And now I will turn it over to Dave to share the financial results of our first quarter and more details on our 2025 financial outlook.

Speaker Change: Thank you Carla and welcome everyone.

Speaker Change: Our team's hard work to start the year has been instrumental in advancing our strategic objectives and building a stronger financial Foundation.

Speaker Change: The progress we've made across our transformation pillars has led to strong topline growth and improved profitability this quarter.

Speaker Change: Brand.

Speaker Change: And now I will turn it over to Dave to share the financial results of our first quarter and more details on our 2025 financial outlook.

Speaker Change: Now, let me dive deeper into the first quarter results.

Speaker Change: This quarter, we delivered revenue of $97 million up 13% driven by strong performance across our wipes and baby personal care portfolio.

Dave: Thank you Carla and welcome everyone.

Dave: Our team's hard work to start the year has been instrumental in advancing our strategic objectives and building a stronger financial Foundation.

Speaker Change: As a reminder, we shared during our fourth quarter earnings call that we expected our revenue growth in the first quarter would be higher than our full year revenue growth outlook due to the comparable period from last year.

Dave: The progress we've made across our transformation pillars has led to strong topline growth and improved profitability this quarter.

Dave: Now, let me dive deeper into the first quarter results.

Speaker Change: In addition in the first quarter, we saw a retailer inventory builds with shipments growing five percentage points faster than retail tracked channel consumption.

Dave: This quarter, we delivered revenue of $97 million up 13% driven by strong performance across our wipes and baby personal care portfolio.

We now expect this retailer inventory build to reverse in the second quarter.

Dave: As a reminder, we shared during our fourth quarter earnings call that we expected our revenue growth in the first quarter would be higher than our full year revenue growth outlook due to the comparable period from last year.

Speaker Change: We also expect to continue to face headwinds in our diaper business in Q2, as we execute the full rollout of our new and improved diaper across the remainder of the year.

Dave: In addition in the first quarter, we saw a retailer inventory builds with shipments growing five percentage points faster than retail tracked channel consumption.

Speaker Change: We expect that the combination of these factors will lead to a first half of the year growth rate within the range of our annual revenue outlook.

Carla Vernon: Our gross margin in the first quarter was 39% up 170 basis points versus last year, primarily driven by supply chain cost savings and our mix of higher margin products offset by a $3 million one time inventory adjustment related to the strategic type of renovation that Carla shared earlier.

Dave: We now expect this retailer inventory build to reverse in the second quarter.

Dave: We also expect to continue to face headwinds in our diaper business in Q2, as we execute the full rollout of our new and improved diaper across the remainder of the year.

Dave: We expect that the combination of these factors will lead to a first half of the year growth rate within the range of our annual revenue outlook.

Carla Vernon: The adjustment to existing diaper inventory will allow for an accelerated transition in the market to the new diaper renovation and support a stronger launch with full marketing investment behind it.

Dave: Our gross margin in the first quarter was 39% up 170 basis points versus last year, primarily driven by supply chain cost savings and a mix of higher margin products offset by a $3 million one time inventory adjustment related to the strategic diaper renovation that Carla shared earlier.

Carla Vernon: As the underlying gross margin performance suggests we continue to make progress on expanding our portfolio's profit potential through efficiencies and cost savings in the supply chain.

Carla Vernon: One notable cost savings example is the reorganization of our Las Vegas warehouse layout that reduces the time spent on inbound handling and staging high volume inventory for more efficient outbound fulfillment.

Dave: <unk>.

Dave: The adjustment to existing diaper inventory will allow for an accelerated transition in the market to the new diaper renovation and support a stronger launch with full marketing investment behind it.

Carla Vernon: The last time, our teams spend on Reconfiguring, the inventory for receiving the more efficient and cost effective our operations will be.

Dave: As the underlying gross margin performance suggests we continue to make progress on expanding our portfolio's profit potential through efficiencies and cost savings in the supply chain.

Carla Vernon: Next turning to operating expenses.

Carla Vernon: We increased operating expenses by $2 million versus last year.

Dave: One notable cost savings example is the reorganization of our Las Vegas warehouse layout that reduces the time spent on inbound handling and staging high volume inventory for more efficient outbound fulfillment.

Carla Vernon: However, on a rate basis operating expenses decreased 230 basis points as a percentage of revenue.

Carla Vernon: Within operating expenses. The drivers of change include first SG&A expenses that decreased $1 million compared to last year and decreased 440 basis points as a percentage of revenue.

Dave: The last time, our team spend on Reconfiguring, the inventory for receiving the more efficient and cost effective our operations will be.

Dave: Next turning to operating expenses.

Carla Vernon: And second marketing expenses that increased $3 million to 13% of revenue.

Dave: We increased operating expenses by $2 million versus last year.

Dave: However, on a rate basis operating expenses decreased 230 basis points as a percentage of revenue.

Carla Vernon: As we continue to focus on our overall cost structure, we remain committed to investing in brand building and driving growth partially funded by the SG&A expense savings.

Dave: Within operating expenses. The drivers of change include first SG&A expenses that decreased $1 million compared to last year and decreased 440 basis points as a percentage of revenue.

Carla Vernon: I am, particularly proud to share that we delivered positive net income this quarter the.

Carla Vernon: The combination of strong revenue growth gross margin expansion operating expense leverage and interest income earned on our cash led to positive net income of $3 million up $5 million from last year.

Dave: And second marketing expenses that increased $3 million to 13% of revenue.

Dave: As we continue to focus on our overall cost structure, we remain committed to investing in brand building and driving growth partially funded by the SG&A expense savings.

Carla Vernon: We remain committed to sustained net income growth over the long term and this quarter as it continued evidence of our progress against that commitment.

Dave: I am, particularly proud to share that we delivered positive net income this quarter the.

Carla Vernon: Adjusted EBITDA for the first quarter was $7 million compared to $3 million from the prior year first quarter.

Dave: The combination of strong revenue growth gross margin expansion operating expense leverage and interest income earned on our cash led to positive net income of $3 million.

Carla Vernon: Our adjusted EBITDA as a percentage of revenue improved from 3% in the prior year first quarter to 7% in this quarter.

Dave: Up $5 million from last year.

Dave: We remain committed to sustained net income growth over the long term and this quarter as it continued evidence of our progress against that commitment.

Carla Vernon: These results are in line with our long term algorithm of adjusted EBITDA margin expansion.

Carla Vernon: Turning to the balance sheet, we ended the quarter was $73 million in cash and no debt outstanding.

Dave: Adjusted EBITDA for the first quarter was $7 million compared to $3 million from the prior year first quarter.

Carla Vernon: Our cash position continues to benefit from our capital light business model and diligent management of working capital.

Dave: Our adjusted EBITDA as a percentage of revenue improved from 3% in the prior year first quarter to 7% in this quarter.

Carla Vernon: Our strong financial footing provides greater flexibility on our growth model and allows us to invest in the business in support of expanding availability of honest products and in navigating the current environment.

Dave: These results are in line with our long term algorithm of adjusted EBITDA margin expansion.

Dave: Turning to the balance sheet, we ended the quarter with $73 million in cash and no debt outstanding.

Our free cash flow for the first quarter was negative $3 million driven primarily by intentional inventory build as part of our tariff mitigation plan.

Dave: Our cash position continues to benefit from our capital light business model and diligent management of working capital.

Carla Vernon: Overall, our first quarter financial results and the ongoing commitment to our transformation pillars gives us continued confidence in our 2025 financial outlook.

Dave: Our strong financial footing provides greater flexibility on our growth model and allows us to invest in the business in support of expanding availability of honest products and in navigating the current environment.

Carla Vernon: Therefore, we are reaffirming our full year 2025 financial outlook that includes net revenue growth of 4% to 6% year over year.

Dave: Our free cash flow for the first quarter was negative $3 million driven primarily by intentional inventory build as part of our tariff mitigation plan.

Carla Vernon: And adjusted EBITDA to be in the range of 27 million to $30 million.

Dave: Overall, our first quarter financial results and the ongoing commitment to our transformation pillars gives us continued confidence in our 2025 financial outlook.

Carla Vernon: This outlook includes the impact of the tariffs announced this year.

As Karla detailed we have a comprehensive approach and strong experience in place to manage these tariffs both in the short and long term.

Dave: Therefore, we are reaffirming our full year 2025 financial outlook that includes net revenue growth of 4% to 6% year over year.

Carla Vernon: Our focus on managing tariffs include three pronged.

Carla Vernon: First we built our 2025 plans to be agile in anticipation of some degree of impact and we are adjusting our spend across the business to offset the expected impact.

Dave: And adjusted EBITDA to be in the range of 27 million to $30 million.

Dave: This outlook includes the impact of the tariffs announced this year.

Carla Vernon: Second our teams are leveraging inventory management actions to delay the impact in 2025 and accelerate supply chain cost savings.

Dave: As Karla detailed we have a comprehensive approach and strong experience in place to manage these tariffs both in the short and long term.

Carla Vernon: And third with a strong and long standing relationship with our suppliers, we are partnering to mitigate the remaining tariff exposure.

Dave: Our focus on managing tariffs include three pronged.

Dave: First we built our 2025 plans to be agile in anticipation of some degree of impact and we are adjusting our spend across the business to offset the expected impact.

Carla Vernon: Our exposure under the current slate of tariffs comes largely from our sourcing of wipes in China.

Dave: Second our teams are leveraging inventory management actions to delay the impact in 2025 and accelerate supply chain cost savings.

Carla Vernon: Our diapers are U S. MCA compliant goods from Mexico and are currently exempt from the latest tariffs.

Carla Vernon: Overall, the current tariff policies have a roughly one five percentage points net impact on gross margin in 2025, which we plan to offset with incremental cost savings and efficiencies.

Dave: And third with a strong and long standing relationship with our suppliers, we are partnering to mitigate the remaining tariff exposure.

Dave: Our exposure under the current slate of tariffs comes largely from our sourcing of wipes in China.

Carla Vernon: These tariffs are part of our dynamic macroeconomic environment.

Dave: Our diapers are U S. MCA compliant goods from Mexico and are currently exempt from the latest tariffs.

Carla Vernon: Outside of the specific impact of tariffs, we recognize there is uncertainty with broader consumer sentiment and potential changes in shopping behavior that our outlook does not include.

Dave: Overall, the current tariff policies have a roughly one five percentage points net impact on gross margin in 2025, which we plan to offset with incremental cost savings and efficiencies.

Carla Vernon: We continue to play the long game behind our transformation pillars, we remain.

Carla Vernon: Committed to investment in marketing and innovation through our brand maximization pillar as we also drive efficiencies to offset the cost headwinds through our margin enhancement pillar.

Dave: These tariffs are part of our dynamic macroeconomic environment.

Dave: Outside of the specific impact of tariffs, we recognize there is uncertainty with broader consumer sentiment and potential changes in shopping behavior that our outlook does not include.

Carla Vernon: I want to thank our team for the strong results in the first quarter and their continued execution against our transformation pillars, enabling us to successfully navigate this dynamic environment and reaffirm our 2025 financial outlook today.

Dave: We continue to play the long game behind our transformation pillars.

Dave: We remain committed to investment in marketing and innovation through our brand maximization pillar as we also drive efficiencies to offset the cost headwinds through our margin enhancement pillar.

Speaker Change: Before we open the call for questions I'd like to take a moment to express my sincere gratitude as this will be my final earnings call as CFO of the honest company.

Speaker Change: It's been an honor to be part of such an exceptional team guiding honest through a period of remarkable transformation.

Dave: I want to thank our team for the strong results in the first quarter and their continued execution against our transformation pillars, enabling us to successfully navigate this dynamic environment and reaffirm our 2025 financial outlook today.

Speaker Change: The progress we've made is a testament to the extraordinary talent relentless commitment and collaborative spirit of this incredible team.

Speaker Change: I believe the honest brand is still in the early stages of unlocking its full potential with so much more opportunity ahead, and I remain confident in the company's future and its ability to expand the honest brand.

Dave: Before we open the call for questions I'd like to take a moment to express my sincere gratitude as this will be my final earnings call as CFO of the honest company.

Dave: It's been an honor to be part of such an exceptional team guiding honest through a period of remarkable transformation.

Speaker Change: I look forward to working with Curtis to ensure a seamless transition and I leave this role deeply proud of what we've accomplished and grateful for Carlos leadership and support.

Dave: The progress we've made is a testament to the extraordinary talent relentless commitment and collaborative spirit of this incredible team.

Speaker Change: Thank you for joining our call today, and now I'll turn the call back to the operator.

Dave: I believe the honest brand is still in the early stages of unlocking its full potential with so much more opportunity ahead, and I remain confident in the company's future and its ability to expand the honest brand.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced towards draw. Your question. Please press star one again.

Dave: I look forward to working with Curtis to ensure a seamless transition and I leave this role deeply proud of what we've accomplished and grateful for Carlos leadership and support.

Speaker Change: One moment for our first question.

Speaker Change: Right.

Speaker Change: And our first question comes from the line of Aaron Grey with Alliance Global partners.

Dave: Thank you for joining our call today, and now I'll turn the call back to the operator.

Aaron Grey: Hi, good evening. Thank you very much for the questions Congrats on the quarter and Dave. Thanks for your time and best of luck in near future endeavors.

Aaron Grey: So first question for me just on the sales for the quarter.

Speaker Change: It came ahead of Orange and street expectations. There it sounded like there was some shipping impact that you called out there. So just if you could help to quantify that.

Dave: One moment for our first question.

Dave: Yeah.

Aaron Grey: And our first question comes from the line of Aaron Grey with Alliance Global partners.

Speaker Change: For the <unk> guidance you gave so you said, one which I think will be up 46 that implies <unk> will be flat to down 4% on my math. So just if you could help us maybe quantify the shipping timing impact that you had in <unk> and how much of that reverses as to Q versus the remainder of the year I think that'd be helpful.

Speaker Change: Hi, good evening. Thank you very much for the questions Congrats on the quarter and Dave. Thanks for your time and best of luck in your future endeavors.

Speaker Change: So first question for me just on the sales for the quarter came ahead of Orange and street expectations. There. It sounds like there was some shipping impact that you called out there. So just if you could help to quantify that for.

Carla Vernon: Hi, Aaron it's karla good to be here with you. So let me try to start framing it up Dave feel free to step in if there's anything else you want to add so we do appreciate that we mentioned that in the first quarter. We saw some pull forward of shipments.

Speaker Change: The <unk> guidance you gave so you said, one which I think will be up 46 that implies.

Speaker Change: <unk> will be flat to down 4% on my math. So just if you could help us maybe quantify the shipping timing impact that you had in <unk> and how much of that reverses as <unk> versus the remainder of the year I think that'd be helpful. Thank you.

Carla Vernon: And that we think is a really helpful part of mitigating our tariff strategy for the year those shipments that we saw the pull forward in largely attributable to Amazon and we do we did say that we expect that those pull forward shipments will actually bleed out as we get into the second half. So as we look at the first half of the year as a whole.

Speaker Change: Hi, Aaron it's karla good to be here with you. So let me try to start framing it up Dave feel free to step in if there's anything else you want to add so we do appreciate that we mentioned that in the first quarter. We saw some pull forward of shipments and that we think is a really helpful part of mitigating our tariff strategy for the year.

Carla Vernon: We feel that we're staying really on the guidance model as a result of that that blend.

Carla Vernon: Okay, Alright, great. Thank you.

Speaker Change: Those shipments that we saw the pull forward and largely attributable to Amazon and we do we did say that we expect that those pull forward shipments will actually bleed out as we get into the second half. So as we look at the first half of the year as a whole we feel that we're staying really on the guidance model as a result of that that blend.

Carla Vernon: Great color on the gross margin sorry go ahead Dave.

Speaker Change: And maybe if I could just tack onto that to a little bit.

Speaker Change: Because I think what what we want to make sure is clear on the first half 4% to 6%.

Speaker Change: We did in last year's second quarter.

Speaker Change: <unk>.

Speaker Change: Yeah.

Speaker Change: The benefit of the retailer events that drove some incremental volume and last year. If you recall was 10% growth rate in the second quarter. So.

Speaker Change: Okay, Alright, great. Thank you.

Dave: Gave great color on the gross margin sorry go ahead Dave.

Dave: And maybe if I could just tack on to that to a little bit.

Speaker Change: So that does provide a bit of a comp that were that.

Speaker Change: We're not going to have the ability to get over so to quantify it really the benefit of that pull forward.

Speaker Change: Because I think what what we want to make sure is clear on the first half 4% to 6%.

Speaker Change: Five percentage points, which is roughly the difference between our revenue of 13% and our consumption growth of 8% in the first quarter as that shifts between quarters, and then and then coming off that comp of last year's <unk>.

Dave: We did in last year's second quarter.

Dave: <unk>.

Dave: The benefit of the retailer events that drove some incremental volume and last year. If you recall was 10% growth rate in the second quarter. So.

Dave: So that does provide a bit of a comp that were.

Speaker Change: Special retailer event.

Dave: That we're not going to have the ability to get over so to quantify it really the benefit of that pull forward.

Speaker Change: Okay, Great. That's really helpful color there appreciate it.

Speaker Change: Second question for me just on the marketing side, maybe if you could speak to some of the plans you have for marketing for 2025, and how we should think about marketing.

It's five percentage points, which is roughly the difference between our revenue of 13% and our consumption growth.

Speaker Change: As a percentage of sales.

Dave: 8% in the first quarter as that shifts between quarters, and then and then coming off that comp of last year's.

Speaker Change: Last year, we did see an uptake in marketing, which translated to some nice accelerate sales growth. So curious to how you plan your spending for the year, what Youre seeing is the best ROI opportunities as you look at macro and micro marketing initiatives. Thank you.

Dave: A special retailer event.

Dave: Okay, Great. That's really helpful color there appreciate it.

Speaker Change: Thanks, Erin so we believe so strongly in our opportunity to build the honest brand the performance in the first quarter as it really even follows the strong performance last fiscal year is extremely encouraging and as one of the reasons why we try to make it clear that we intend to continue our investments.

Dave: Second question for me just on the marketing side, maybe if you could speak to some of the plans you have for marketing for 2025, and how we should think about marketing.

Speaker Change: As a percentage of sales.

Speaker Change: In both innovation marketing brand building, so with our revenue up 13% in the first quarter with 8% growth on consumption. What was so compelling about that consumption growth that we saw is that it was driven by units. This was not consumption growth driven by pricing in the quarter was driven by units and it's driven by.

Speaker Change: Thanks, Erin so we believe so strongly in our opportunity to build the honest brand the performance in the first quarter as it really even follows the strong performance last fiscal year is extremely encouraging and it's one of the reasons why we try to make it clear that we intend to continue our investments.

Speaker Change: Really strong consumer fundamentals that don't always come along together at the same time, so our ability to increase our household penetration to our highest level of seven 3% of basis point expansion of 55%.

Speaker Change: While dollars per transaction at the same time and growing consumer loyalty gives us a great indication that as we manage the business model and had been able to find efficiencies from our margin enhancement pillar. We are able to protect for continued strong investment behind marketing you saw that our <unk>.

Speaker Change: In the first quarter and marketing was very strong and represented an increase and an investment in the brands, while SG&A levels pulled down and so as we go into the remainder of the year one of the things I talked about in the remarks with the importance of this new and improved diaper we intended.

Speaker Change: To support that type of launch. Additionally, we are launching our wipes business into new retailers and into new aisles, and so we will continue to protect the investments to drive awareness of the new stores that we are in as well as to continue to drive trial and awareness.

Speaker Change: Great color, there really appreciate that Carlin and I'm going to jump back in the queue. Thank you.

Speaker Change: Thank you.

Speaker Change: To support that diaper launch. Additionally, we are launching our wipes business into new retailers and into new aisles, and so we will continue to protect the investments to drive awareness of the new stores that we are in as well as to continue to drive trial and awareness.

Speaker Change: And our next question comes from the line of Ana <unk> with B Riley Securities.

Good afternoon, Thanks for taking my question.

Speaker Change:

Speaker Change: Like to start with cracking the deceleration you noted exiting the quarter and into two two.

Speaker Change: I guess, what the data do you have is there anything to suggest that <unk> can comes and benefited from a pull forward of that.

Speaker Change: Great color there really appreciate that Carla now go and jump back in the queue. Thank you.

Speaker Change: Thank you.

Speaker Change: <unk> the <unk>.

Speaker Change: And our next question comes from the line of Ana <unk> with B Riley Securities.

Speaker Change: Categories are decelerating as well or is it more specific you guys and just unpacking maybe trends by category.

Ana: Good afternoon, and thanks for taking my question.

Ana: I think what I'd like to start with on parking, but the deceleration you noted exiting the quarter and into two.

Carla Vernon: Sure. Anna this is Carla nice to speak with you. So let me start by I, just got a chance to share the really strong consumption numbers that we saw in the first quarter and how that was driven by strong consumer fundamentals, it's important to help unpack as we talk.

Ana: Two.

Ana: I guess, what the data do you have is there anything to suggest that <unk> consumption benefited from a pull forward of that.

Ana: <unk> the categories are decelerating as well or is it more specific you guys and just unpacking maybe trends by category.

Carla Vernon: About the deceleration we're really in a tale of two cities and so if I really take a look at the sort of deconstructed consumption information for the first quarter in the target channel for us that is really where those deceleration we're fairly isolated and they were even more.

Ana: Sure. Anna this is Carla nice to speak with you. So let me start by I, just got a chance to share the really strong consumption numbers that we saw in the first quarter and how that was driven by strong consumer fundamentals. It's important to help unpack as we talk about the.

Carla Vernon: Specifically isolated to our diaper performance in target for the first quarter. So in target for the first quarter, our consumption was down 4%. When we look at our performance in rest of markets, you compare that down 4% and targets to strong double digit growth for our performance in the rest of the market almost.

Ana: Deceleration, we're really in a tale of two cities and so if I really take a look at the sort of deconstructed consumption information for the first quarter in the target channel for us that is really where those deceleration we're fairly isolated and they were even more specific.

Carla Vernon: That 20% consumption growth for our portfolio apps target, that's very compelling for us we know that as we look at the deceleration of the diaper business in target. We think that there are a couple of factors that are important to note one the category as a whole the diaper category remains to be under pressure.

Ana: Isolated to our diaper performance in target for the first quarter. So in target for the first quarter, our consumption was down 4%. When we look at our performance in rest of markets you can pair that down 4% and targets to strong double digit growth for our performance in the rest of the market almost at 20.

Carla Vernon: And this quarter, we saw that it was declining at a modest rate broadly for the diaper category. We also.

Ana: 8% consumption growth for our portfolio apps target, that's very compelling for us we know that as we look at the deceleration of the diaper business in target. We think that there are a couple of factors that are important to note one the category as a whole the diaper category remains to be under pressure.

Carla Vernon: Indicated in our remarks that there has been a change to our diaper selection at target and we have removed our gendered prince from that retailer and so we expect that as we continue to watch the distribution losses from the agenda prints flow through the year that we will continue to see some consumption losses.

Ana: This quarter, we saw that it was declining at a modest rate broadly for the diaper category. We also indicated in our remarks that there has been a change to our diaper selection at target and we have removed our gender prince from that retailer and so we expect that as we continue to watch that.

Carla Vernon: Associated with those distribution losses across the quarter, but we remain very confident that the natural product market. When you look at the performance of natural products versus the conventional again, it's that tale of two cities, we're seeing strong growth in natural products overall, which is really one of the reasons why we've seen our own.

Ana: Distribution losses from the gendered prints flow through the year that we will continue to see some consumption losses associated with those distribution losses across the quarter, but we remain very confident that the natural product market. When you look at the performance of natural products versus the conventional again.

Carla Vernon: Our own strength in the natural products category, whether that is now being the number one net natural wipes brand nationally.

Carla Vernon: Or our strength in our baby personal care business that we see both in broadly in the market being the number one natural baby personal care brands as well as being the number one baby personal care brand at target overall.

Ana: That tale of two cities, we're seeing strong growth in natural products overall, which is really one of the reasons why we've seen our own.

Carla Vernon: Lots of Green shoots and things that make us confident but we do have to work our way through some of these changes in distribution.

Ana: Our own <unk>.

Ana: Strength in the natural products category, whether that is now being the number one net natural wipes brand nationally.

Speaker Change: Great. Thanks, Thanks, Carla that that's super helpful.

Ana: Or our strength in our baby personal care business that we see both in broadly in the market being the number one natural baby personal care brands as well as being the number one baby personal care brand at target overall lots of green shoots and things that make us confident but we do have to work our way through some of these changes in distribution.

Carla Vernon: Yes.

Carla Vernon: The doubleclick.

Speaker Change: Double clicking on one of your comments you spoke to continued strength in natural now one question, we get from investors a lot is the willingness to continue to pay up for natural products in the face of.

Speaker Change: Continued macro uncertainty.

Speaker Change: But at this point you haven't seen meaningful trade down in your categories is not there.

Speaker Change: Great. Thanks, Thanks, Carla that that's super helpful.

Speaker Change: The way I'd like to frame. It is just keeping us focused on what we can see by our own performance relative to our categories. So for the quarter. We continued to perform and grow consumption ahead of our competitive categories. As a reminder, I did say in our remarks, our own consumption in the quarter was up 8% our competitive categories were.

Yes.

Ana: The doubleclick.

Speaker Change: Double clicking on one of your comments you spoke to continued strength in Nashville now one question, we get from investors a lot is the willingness to pay up for natural products in the face of continued macro uncertainty.

Speaker Change: Down 1% for the same period now we have seen a modest deceleration in our business when we exited.

Speaker Change: At this point you haven't seen meaningful trade down in your categories is out there.

Speaker Change: Look the way I'd like to frame. It is just keeping us focused on what we can see by our own performance relative to our categories. So for the quarter. We continued to perform and grow consumption ahead of our competitive categories. As a reminder, I did say in our remarks, our own consumption in the quarter was up 8% our competitive categories were.

Speaker Change: Q4, if we convert our data, which our data set has changed we used to be reporting to you in move low only now we are reporting to you in LOE, plus which does a better job of representing the Amazon growth in them.

Speaker Change: Whereas we know update how we communicate to you about the fourth quarter, our fourth quarter consumption was at about 11% growth compare that to 8% growth in the first quarter. That's about a change of 3% as we keep our eye on what the consumer what we expect the consumer to do certainly Ana there's so much uncertainty we.

Speaker Change: <unk>, 1% for the same period now we have seen a modest deceleration in our business when we exited.

Speaker Change: Q4 is.

Speaker Change: If we convert our data, which our data set has changed we used to be reporting to you in Marlow only now we are reporting to you in LOE, plus which does a better job of representing the Amazon growth in the number.

Speaker Change: We'll continue to watch our performance, but we know that our products serve a fundamental need and what we are seeing is that there are homes that don't think of sensitive skin products as something thats optional at this stage as they are supporting their family's needs.

Speaker Change: So, whereas we know update how we communicate to you about the fourth quarter, our fourth quarter consumption was at about 11% growth.

Speaker Change: Pair that two 8% growth in the first quarter, that's about a change of 3% as we keep our eye on what the consumer what we expect the consumer to do certainly Ana. There's so much uncertainty we will continue to watch our performance, but we know that our products serve a fundamental need and what we are seeing.

Speaker Change: We do though have that cautious confidence and so the modeling we have puts our consumption numbers at mid single digits for the rest of the year.

Speaker Change: Great. Thanks, so much Carla.

Speaker Change: Thank you.

Speaker Change: Is that there are homes that don't think of sensitive skin products as something thats optional at this stage as they are supporting their family's needs we.

Speaker Change: And our next question comes from the line of Andrea Teixeira with J P. Morgan.

Speaker Change: Thank you operator, and good afternoon, and congrats to both David and Carter's floor on the new job and Dave. Thank you for teaching us and turning around and collecting numbers and help the companies like numbers.

Speaker Change: We do though have that cautious confidence and so the modeling we have puts our consumption numbers at mid single digits for the rest of the year.

Speaker Change: I have a demand question for you karla and related to the distribution and also the product portfolio and then I have a follow up on the tariffs.

Speaker Change: Great. Thanks, so much Carla.

Carla: Thank you.

Speaker Change: And our next question comes from the line of Andrea Teixeira with Jpmorgan.

Speaker Change: On the distribution and product portfolio.

Speaker Change: Are the unit growth.

Speaker Change: And the units growing the way they are growing driven by mostly the last year or so distribution gains, but that's a combination of both.

Speaker Change: I have a demand question for you Carla and related to the distribution and also the product portfolio and then I have a follow up on the tariffs.

Speaker Change: And if you think I had do you when do you think you'll lap or used to have.

Speaker Change: On the plans a lot more I mean, it would be nice to update us with how the spring resets. That's played out for you and then if there is still more to come in the fall.

Speaker Change: On the distribution and product portfolio.

Speaker Change: Are the unit growth.

Speaker Change: I mean do units growing the way they are growing driven by mostly the last year or so distribution gains, but that's a combination of both.

Speaker Change: And as you think you're part of the portfolio I was hoping to see if you can.

Speaker Change: Elaborate more on the plans of course, you have a fairly wide product portfolio that gives her baby and broadly with mom and moment family.

Speaker Change: And if you think ahead.

Speaker Change: When do you think you'll lap or you still have on the plans a lot more I mean, it would be nice to update us with how the spring resets. That's played out for you and then if there is a still more to come in the fall.

Speaker Change: But he also had an increase or an expansion in other areas, including prenatal vitamins and other areas there and I was wondering given the deceleration in vitamins and BMS in general if you still think that this is a category that I want to play in and if you do how do you feel that do have the right to win.

Speaker Change: And as you think you are part of the portfolio I was hoping to see if you can.

Speaker Change: Kind of elaborate more on the plans of course, you have a fairly wide product.

Speaker Change: And then sorry for the long list of questions, but I'll come back with it they're actually if I can thank you.

Speaker Change: Portfolio that gives us baby and properly with mom and moment family.

Speaker Change: But he also had an increase or an expansion in other areas, including prenatal vitamins and other areas there and I was wondering given the deceleration in vitamins and BMS in general if you still think that because that category that they want to play in and if you have you feel that you have the right to win.

Speaker Change: Okay.

Speaker Change: Andrea first of all I'm stepping in but I I want to just echo your thanks to Dave and I know, Dave wants to get a chance to make sure that he thanks you for your continued partnership let me start with your question about distribution and give you an update there.

Speaker Change: And then sorry for the long list of questions, but I will come back with it they actually if I can thank you.

Speaker Change: So the unit growth that I mentioned, when you compare that to exactly how it happened it's extremely compelling.

Speaker Change: Yeah.

Andrea Teixeira: Andrea first of all I'm stepping in but I I want to just.

Speaker Change: For the quarter, while you will see that our total points of distribution actually declined in the quarter. If you remember the distribution strategy. We're executing is actually a hero distribution strategy.

Andrea Teixeira: Echo your thanks to Dave and I know, Dave wants to get a chance to make sure that he thanks you for your continued partnership let me start with your question about distribution and give you an update there. So the unit growth that I mentioned, when you compare that to exactly how it happened.

Speaker Change: And so that means that as we continue to remodel our business do some mix shifting we know that there might be some distribution points that go away, but all distribution points are not equal for us. So let me make sure that frame that a little bit more specifically, we think that there are about 90000 rail.

Andrea Teixeira: It's extremely compelling.

Andrea Teixeira: For the quarter, while you will see that our total points of distribution actually declined in the quarter. If you remember the distribution strategy. We're executing is actually a hero distribution strategy.

Speaker Change: Isn't doors, we could be in.

Speaker Change: Today, we are still in less than half of those doors. I know this has been a conversation we've been talking about for a long time, but I wanted to assure you that we're still at very early days on actually executing getting into the doors and then if you remember from our Investor presentation, We say that it is a door strategy.

Andrea Teixeira: And so that means that as we continue to remodel our business do some mix shifting we know that there might be some distribution points that go away, but all distribution points are not equal for us. So let me make sure that frame that a little bit more specifically, we think that there are about 90000 rail.

Speaker Change: <unk>, but that it's also a number of stores strategy. It is a breath of Iot strategy and then it is a breath of items strategy. So there's quite a lot of layers of depth in there.

Andrea Teixeira: Isn't doors, we could be in.

Andrea Teixeira: Today, we are still in less than half of those doors. I know this has been a conversation we've been talking about for a long time, but I wanted to assure you that we're still at very early days on actually executing getting into the doors and then if you remember from our Investor presentation, We say that it is a door strategy.

Speaker Change: So we are in less than half of the available stores today, but what was so important as we exited last fiscal year, although we brought SG&A numbers down we greatly shifted where our people are supporting our strategy and so we really ramped up on sales and distribution and customer facing support.

Andrea Teixeira: But that it's also a number of stores strategy. It is a breath of Io strategy and then it is a breath of items strategy. So there's quite a lot of layers of depth in there.

Speaker Change: And we're seeing the fruits of that in the quarter. So I wanted to just emphasize that we've seen some really strong distribution growth in the quarter in the grocery and drug channel in the grocery and drug channel, we've increased 12000 points of distribution in the quarter.

Andrea Teixeira: So we are in less than half of the available stores today, but what was so important as we exited last fiscal year, although we brought SG&A numbers down we greatly shifted where our people are supporting our strategy and so we really ramped up on sales and distribution and customer facing support.

Speaker Change: And some of that is by getting into Isles, we hadn't been at being denim I will give you just a couple of examples we are now the only diaper brand in sprouts stores nationwide. That's a first for us.

Andrea Teixeira: And we're seeing the fruits of that in the quarter. So I wanted to just emphasize that we've seen some really strong distribution growth in the quarter in the grocery and drug channel in the grocery and drug channel, we've increased 12000 points of distribution in the quarter.

Speaker Change: We got in at at whole foods in a broader way in the baby personal care set you can imagine how important whole foods is for us and making sure our baby personal care items are there and then lastly, I don't want to forget about the importance of online volume.

Andrea Teixeira: And some of that is by getting into Isles, we hadn't been at being done in I will give you just a couple of examples we are now the only diaper brand in sprouts stores nationwide. That's a first for us.

Speaker Change: Cuz online volume is not counted in points of distribution, but we can see by the strength of our performance at Amazon online volume is going to be an important place to make sure. We expand our set and we have all of our products available that's why gaining sensitive skin wipes excuse me by gaining the sanitizing wipes in.

Andrea Teixeira: We got in at.

Andrea Teixeira: At whole foods in a broader way in the baby personal care set you can imagine how important whole foods is for us and making sure our baby personal care items are there and then lastly, I don't want to forget about the importance of online volume.

Speaker Change: Walmart Dot com this quarter is such a big deal and such a Great example, there are many consumers who don't have access to shopping in a physical Walmart, but will order from Walmart Dot com online.

Andrea Teixeira: Because online volume is not counted in points of distribution, but we can see by the strength of our performance at Amazon online volume is going to be an important place to make sure. We expand our set and we have all of our products available that's why gaining sensitive skin wipes excuse me by gaining a sanitizing wipes.

Speaker Change: So feeling really good about where our distribution will go but that might mean that at times like at target. We are seeing some of our sort of less efficient distribution coming out while we focus on heroes. The other thing I wanted to say was that our velocities are up all the while so you asked about that growth.

Andrea Teixeira: In Walmart Dot Com this quarter is such a big deal and such a Great example, there are many consumers who don't have access to shopping in a physical Walmart, but will order from Walmart Dot com online.

Speaker Change: Remember I did say dollars per transaction are up for us. So the more that we continue to grow space.

Andrea Teixeira: So feeling really good about where our distribution will go but that might mean that at times like at target. We are seeing some of our sort of less efficient distribution coming out while we focus on heroes.

Speaker Change: And continue to sell people larger sizes more items in their basket, the better that will be for us in the long run.

Speaker Change: Like to just step over to the question about the vitamin really quickly and say that our vitamin portfolio is something that really we have narrowed down to specify the vitamins. We think that are the most aligned with our prenatal and our Mama care strategy. So we really have two our prenatal unopposed.

Andrea Teixeira: The other thing I wanted to say was that our velocities are up all the while so you asked about that growth remember I did say dollars per transaction are up for us. So the more that we continue to grow space and continue to sell people larger sizes more items.

Speaker Change: Needle vitamin they play most strongly in the online channel.

Andrea Teixeira: In their basket, the better that will be for us in the long run I would like to just step over to the question about the vitamin really quickly and say that our vitamin portfolio is.

Speaker Change: Very helpful. And then there's a super comprehensive thank you for giving US all this data.

Andrea Teixeira: Something that really we have narrowed down to specify the vitamins. We think that are the most aligned with our prenatal and our Mama care strategy. So we really have two our prenatal and postnatal vitamin they play most strongly in the online channel.

Speaker Change: And then on the tariffs side I understand that for the way you manage your inventory I was hoping to see if you can share a little bit of the impact, especially in China.

Speaker Change: And then obviously you're going to have to face is that the way to think is that you have this impact in the second half that you were able to mitigate because of your cost initiatives and all of the three pronged strategy that you mentioned and then the next next the following year.

Speaker Change: Okay very helpful. And then there's a super comprehensive thank you for giving US all this data.

Speaker Change: And then on the tariff side I understand that you manage your inventory I was hoping to see if you can share a little bit of the impact, especially in China.

Speaker Change: And youre going to have the impact of the first half I'm, assuming right because then you're going to lap the inventory.

Speaker Change: Ken can you explain I mean I am assuming you are in your accounting of the 90 day and you are assuming the 125 are you assuming you're assuming just the ones that were the 20 plus to China just too.

Speaker Change: Just to clarify a bit the.

Speaker Change: Then you're going to have the impact of the first half I'm, assuming right because then you're going to lap the inventory.

The impact.

Speaker Change: Yes, Hi, Andrea let me, let me handle the tariff.

Speaker Change: Questions there.

Ken: Ken can you explain I mean I'm, assuming you are in your accounting of the 90 day and you are assuming the 125 are you assuming.

Speaker Change: So to kind of reset and you did pickup on simple a salient points around our three pronged strategy and how we we got after this early at an early stage.

Ken: So maybe just the ones that were the 20 plus to China just to so far.

In fact, when we shared our outlook at the beginning of the year that factored in.

Ken: If I a bit.

Speaker Change: Tariffs based on what we knew and at that point, there was risk of tariffs on Mexico, where our diapers are manufactured in now that batch.

Ken: But the impact.

Andrea Teixeira: Yes, Hi, Andrea let me, let me handle the tariff.

Speaker Change: Questions there.

Speaker Change: So to kind of reset and you did pick up on civil the salient points around our three pronged strategy and how we we got after this at early at an early stage.

Speaker Change: Off the table, we focused on Willie where China is the primary.

Speaker Change: Area of exposure for us where our wipes are manufactured so we take the current.

Speaker Change: In fact, when we shared our outlook at the beginning of the year that factored in.

Speaker Change: Tariff rates that are in place today.

Speaker Change: With China, there's not the 90 day.

Speaker Change: Tariffs based on what we knew and at that point, there was risk of tariffs on Mexico, where our diapers are manufactured and now that that's all.

Speaker Change: Waiting period on that but getting ahead of the plans for building on our wipes inventory is what's giving us a lot of lead time a lot of.

Speaker Change: Off the table, we focused on Willie where China is the primary.

Speaker Change: Well time to.

Speaker Change: Area of exposure for us where our wipes are manufactured so we take the current.

Speaker Change: Worked through the existing inventory that doesn't have tariffs on it and that's getting us into our third quarter. So roughly mid third quarter is when we will start to see the impact of tariffs make its way into our cost of goods and then into the fourth quarter.

Speaker Change: Tariff rates that are in place today.

Speaker Change: With China, there's not the 90 day.

Speaker Change: Waiting period on that but getting ahead of the plans for building on our wipes inventory is what's giving us a lot of lead time, a lot of time too.

Speaker Change: But it might also be helpful too to reiterate and when we thought about our three pronged strategy of mitigation of working with our supplier.

Speaker Change: Worked through the existing inventory that doesn't have tariffs on it and that's getting us into our third quarter. So roughly mid third quarter is when we'll start to see the impact of tariffs make its way into our cost of goods and then into the fourth quarter.

Speaker Change: To help.

Speaker Change: As well offset some of that impact.

Speaker Change: Our starting point from a gross margin standpoint is is in a healthier place given the last two years of working on our enhancement margin enhancement pillar.

Speaker Change: But it might also be helpful too to reiterate.

Speaker Change: To illustrate that on our first quarter.

And when we thought about our three pronged strategy of.

Speaker Change: I referenced a a charge a adjustment to diaper inventory of almost $3 million if that were to be.

Speaker Change: Mitigation of working with our supplier.

Speaker Change: To help as.

Speaker Change: As well offset some of that impact.

Speaker Change: Removed in the first quarter, our base gross margin levels are clearly.

Speaker Change: Our starting point from a gross margin standpoint is is in a healthier place given the last two years of working on our enhancement margin enhancement pillar.

Speaker Change: Or a little over 41%.

Speaker Change: And so I think what we're seeing now and Thats just for one quarter, but we're seeing the ability for us to manage some of the tariff impact, which isn't new to us but manage it within this framework as we've been building our market our profit profile of the portfolio over this time, and that's giving us the confidence that as we.

Speaker Change: To illustrate that on our first quarter.

Speaker Change: I referenced a a charge a adjustment to diaper inventory of almost $3 million if that were to be.

Speaker Change: Removed in the first quarter, our base gross margin levels are clearly.

Speaker Change: Look into next year, if there's still an environment, where we're facing tariffs at whatever level they might be that we've got the flexibility and we've got the the business model to weather through that.

Speaker Change: Or a little over 41%.

Speaker Change: So I think what we're seeing now and that's just for one quarter, but we're seeing the ability for us to manage some of the tariff impact, which isn't new to us but manage it within this framework as we've been building our Mart our profit profile of the portfolio over this time, and that's giving us the confidence that as we.

Speaker Change: As a reminder, our sourcing is with partnerships. We are a capital light model and so we are operate with a variable cost model.

Speaker Change: And it gives us a lot of maneuverability and flexibility as we look forward.

Speaker Change: So if I interpreted that in the way like if it comes to fruition and you having to basically call. It like me mid third quarter.

Speaker Change: As a reminder, our sourcing is with partnerships. We are a capital light model and so we are operate with a variable cost model.

Speaker Change: The fall right. So if by then.

Speaker Change: Things are still in place.

Speaker Change: So I assume face are you able to negotiate with those suppliers to either have them moved their production elsewhere, Oh, well, let's say, Mexico, where you have you are you are that the production.

Speaker Change: And it gives us a lot of maneuverability and flexibility as we look forward.

Speaker Change: So if I interpreted that in the way like if it comes to fruition and you haven't to basically call. It like me mid third quarter.

Speaker Change: Third party or Youre going to say listen you're going to have to absorb part of it or you're thinking this to a much cheaper place to meet to make there the back because they don't have flexibility or you do have the flexibility or you have started to.

Speaker Change: The fall right. So if by then.

Speaker Change: Things are still in place the tariffs I assume face are you able to negotiate with those suppliers so either have them move their production elsewhere.

Speaker Change: Look around as possibilities in other places including.

Speaker Change: We've got suppliers in Mexico, or Canada, or other places, where you'll have reciprocity or our U S. MCA is.

Speaker Change: Yeah, Let's say, Mexico, where you have the RDR production, there's no third party or Youre going to say listen you're going to have to absorb part of it or you're thinking this to a much cheaper place to meet to make their the doctors. They don't have flexibility or you do have the flexibility or you have started to.

Speaker Change: Is that fair.

Speaker Change: I mean in other words, youre not going to you're not going to pass through.

Speaker Change: These cost increases if it comes to Tibet.

Speaker Change: I think what I, what I want to make sure that I establish is as we've modeled it out for the year with about a one 5% one percentage point tariff impact for the year, which we think begins again at around the mid point of Q3 and going into Q4.

Speaker Change: Look around as possibilities in other places including.

Speaker Change: We've got suppliers in Mexico, or in Canada, or other places, where you'll have some reciprocity or our U S and see.

Speaker Change: Is that fair.

Speaker Change: I mean in other words, you are not going to you're not going to pass through.

Speaker Change: Uh huh.

Speaker Change: Ability for us to stay on model for the year really still lives and the fact that we're actually not new at all to being prepared for this moment and how we deal with tariffs we've been dealing with tariffs and talking with our suppliers about ways to improve our supply chain and our partnership for several administrations.

Speaker Change: These cost increases if it comes to that.

Speaker Change: I think what I, what I want to make sure that I establish is as we've modeled it out for the year with about a 1.5% one percentage point tariff impact for the year, which we think begins again around the mid point of Q3 and going into Q4.

Speaker Change: Which means that our solutions such as having a reliable sourcing supply has already been an ongoing conversation and strategy. We were having as we entered this time as we look at what the solutions will be if as we go beyond this year I just like to say, it's grounded like we're hearing.

Speaker Change: Uh huh.

Speaker Change: Everybody say, we're going to look at a broad set of factors and opportunities and those are well covered both in our margin our ongoing margin enhancement pillar, which was so enduring it set us up to be always working on a strong balance sheet plenty of cash on hand, making sure that we were expecting.

Speaker Change: Which means that our solutions such as having a reliable sourcing supply has already been an ongoing conversation and strategy. We were having as we entered this time.

Speaker Change: As we look at what the solutions will be if as we go beyond this year I just let's just say it's grounded like we're hearing everybody say, we're going to look at a broad set of factors and opportunities and those are well covered both in our margin our ongoing margin enhancement pillar, which was.

Speaker Change: Landing Bottomline topper, that's faster than top so that work is really work that continues and then we will take our three pronged tariff mitigation strategy, we always build I almost like to think of it as an accordion type model on our investment spending in the plan. So that's one area. We look we look to try to get more.

Speaker Change: So enduring it set us up to be always working on a strong balance sheet plenty of cash on hand, making sure that we were expanding bottomline top of that faster than top. So that work is really work that continues and then we will take our three pronged tariff mitigation strategy, we always bill.

Speaker Change: More efficient we're learning as we go we've increased our supply chain, our knowledge by adding a supply chain executive to my team, which means we're having even stronger and more specific conversations with our supply partners about all the options and I look forward to making sure that we talk about what we need to.

Speaker Change: I almost like to think of it as an accordion type model on our investment spending in the plan. So that's one area. We look we look to try to get more efficient. We are learning as we go we've increased our supply chain knowledge by adding a supply chain executive to my team, which means we're having even stronger and more.

Speaker Change: To do when we come back with you guys in the next quarter, but.

Speaker Change: If we think we have to address things differently, we will be doing that based on a lot of the rigorous analysis of staying on our guidance.

Speaker Change: Very good thank you very much for peso.

Speaker Change: Specific conversations with our supply partners about all the options and I look forward to making sure that we talk about what we need to do when we come back with you guys in the next quarter, but.

Speaker Change: Thank you and our next question comes from the line of Dana Telsey with Telsey Advisory group.

Dana Telsey: Hi, good afternoon, everyone and Dave Best of luck locking Euronext in retirement I want to ask you a question on the near term and the long term when you think about the near term and you've talked about Carla I think the modest deceleration in the business currently is that happening across all types of customers as it has.

Speaker Change: If we think we have to address things differently, we will be doing that based on a lot of the rigorous analysis of staying on our guidance.

Speaker Change: Very good thank you very much pressure.

Dana Telsey: Thank you and our next question comes from the line of Dana Telsey with Telsey Advisory group.

Dana Telsey: Happening across all categories, what have you seen and what is the promotional environment look like.

Hi, Good afternoon, everyone and Dave Best of luck luck in your next in retirement I wanted to ask you a question on the near term and the long term. When you think about the near term and you talked about Carla I think the modest deceleration in the business currently is that happening across all types of customers is it.

Dana Telsey: And then on the long term with the supply chain mitigation strategies that you have in place. What do you see is is there margin opportunities coming out of this given the greater efficiencies that you see in the business over the long term even in the headwinds of what we have going on now thank you.

Dana Telsey: Happening across all categories, what have you seen and what is the promotional environment look like and then on the long term with the supply chain mitigation strategies that you have in place. What do you see is is there margin opportunities coming out of this given the greater efficiencies that you see in the busy.

Dana Telsey: Alright. Thank.

Speaker Change: Thank you for asking Dana it is so great to be with you today and when we look at the deceleration of the business as I've articulated that that we're really seeing it quite isolated to one one customer for the quarter when I look at our performance at the at target with consumption down 4%.

Dana Telsey: Over the long term even in the headwinds of what we have going on now thank you.

Speaker Change: As compared to our own performance in rest of markets with strong double digit consumption growth of nearly 20% that consumption growth as far as we've seen it in the recent period has remained fairly consistent to Dana.

Dana Telsey: Alright. Thank.

Speaker Change: Thank you for asking Dana is so great to be with you today and when we look at the deceleration of the business as I've articulated that that we're really seeing it quite isolated to one one customer for the quarter when I look at our performance at the at target with consumption down 4%.

Speaker Change: And so what we feel is important to be mindful of is that the diaper distribution losses in target will continue to affect us for the remainder of the year, we have to really work through those changes and that simplification of that set.

Speaker Change: No that that category also remains under a bit of pressure.

Speaker Change: There are also a couple of events uniquely that we performed last year that we are not duplicating. This year. So if you remember we had a target specific anniversary celebration performance that performed in the third quarter last year, but some of that revenue pull forward or the excuse me the getting ready to.

Speaker Change: Mind full of is that the diaper distribution losses in target will continue to affect us for the remainder of the year, we have to really work through those changes and that simplification of that set.

Speaker Change: Have the inventory on hand for shipping for our great shelf displays a lot of that revenue was reflected in the second quarter of last year, we won't be repeating that similarly, you might remember we had a Latino focused event for Walmart specifically last year. Another event, we're not repeating so those are some other changes.

Speaker Change: We know that that category also remains under a bit of pressure.

There are also a couple of events uniquely that we performed last year that we are not duplicating. This year. So if you remember we had a target specific anniversary celebration performance that performed in the third quarter last year, but some of that revenue pull forward or the excuse me the <unk> getting ready to.

Speaker Change: We expect to see reflected in the numbers we are doing that at the same time that we're growing distribution. We are continuing to do strong brand building and marketing we are launching our best diaper ever we have expanded larger sizes. We've expanded prints on the flexible wipes. So I like to think that without really smarter and very balanced efforts, but there are some things we have to.

Speaker Change: Have the inventory on hand for shipping for our great shelf displays a lot of that revenue was reflected in the second quarter last year, we won't be repeating that similarly, you might remember we had a Latino focused event for Walmart specifically last year. Another event, we're not repeating so those are some other changes.

Speaker Change: Work through.

Dana Telsey: Yes, Hi, Dana.

Dana Telsey: The question around the long term opportunities.

Speaker Change: We expect to see reflected in the numbers we are doing that at the same time that we're growing distribution. We are continuing to do strong brand building and marketing we are launching our best diaper ever we've expanded larger sizes. We've expanded prints on the flexible wipes. So I like to think that we've got really smarter and very balanced efforts, but there are some things we have to.

Dana Telsey: We don't think we're done.

Dana Telsey: Finding the opportunities to expand margin I mean that is a core tenant of our long term algorithm and and we do believe that supply chain is one of the areas that's going to materialize there.

Dana Telsey: The tariff environment and the current challenges is.

Speaker Change: Work through.

Speaker Change: Yes, Hi, Dana.

Dana Telsey: It is something that is giving us even further focus on this area of the business.

Speaker Change: The question around the long term opportunities.

Speaker Change: We don't think we're done.

Dana Telsey: But I'll also add when we look at.

Speaker Change: Finding the opportunities to expand margin I mean that is a core tenant of our long term algorithm in and we do believe that supply chain is one of the areas that's going to materialize there.

Speaker Change: Sure Murdy of the portfolio and how it's evolved.

Speaker Change: We are with the portfolio that's got a profit potential that's greater than we've had before the mix of our products at margin levels that are higher in the channels that we're selling through our higher margin will continue to evolve and allow us to see margin expansion over the long term.

Speaker Change: The tariff environment and the current challenges.

Speaker Change: It is something that is giving us even further focus on this area of the business.

Speaker Change: But I'll also add when we look at sure.

Speaker Change: Thank you.

Speaker Change: Murdy of the portfolio and how it's evolved we are.

Speaker Change: Thank you and our next question comes from the line of Owen Richard with Northland Capital markets.

Speaker Change: We are with the portfolio that Scott our profit potential.

Speaker Change: Greater than we've had before the mix of our products at margin levels that are higher in the channels that we're selling through our higher margin will continue to evolve and allow us to see margin expansion over the long term.

Owen Richard: Hi, Carla Hi, Dave. Thank you for taking my question.

Owen Richard: I'll try to keep it quick here, but how do you plan to balance promotional intensity in both the retail and digital channels. Just that you continue to push for margin expansion and then secondly, how far along are you in the process of pushing more of your digital consumers towards Amazon and other partners and away from the DTC.

Speaker Change: Thank you.

Speaker Change: Thank you <unk>.

Speaker Change: Next question comes from the line of Owen Richard with Northland Capital markets.

Owen Richard: Website.

Owen Richard: Hi, Carla Hi, Dave. Thank you for taking my question.

Carla Vernon: Hi, Owen Carla here hope you're well.

Owen Richard: I'll try to keep it quick here by it.

Carla Vernon: The way, we think about our channel strategy is.

Speaker Change: How do you plan balanced promotional intensity in both the retail and digital channels. Just as you continue to push for margin expansion and then secondly, how far along are you in the process of pushing more of your digital consumers towards Amazon and other partners in a way from about DTC website.

Carla Vernon: While we work to make sure we've got the right strategy to meet every consumer and we did great joint business planning with the retailers to make sure. We've got our investment approach right. We do not try to push a consumer it to any particular channel.

Carla: Hi, Owen Carla here hope you're well.

Carla Vernon: And we've learned that as we've been an omnichannel operators since our beginning and we've tried it a number of ways. We realized the best stopped investing for US is to make sure. We've got the right set selection and the maximum selection for whenever someone wants to be buying it honest product and Oh and what I can.

Speaker Change: The.

Speaker Change: The way, we think about our channel strategy is.

Speaker Change: While we work to make sure we've got the right strategy to meet every consumer and we did great joint business planning with the retailers to make sure. We've got our investment approach right. We do not try to push a consumer to any.

Speaker Change: Tell you that you can actually see evidenced in our results. This quarter is that distribution, whether it's online distribution, which doesn't get counted in points.

Speaker Change: Particular channel and we've learned that as we've been an omnichannel operators since our beginning and we've tried it enough Paraguay is we realized the best ops investing for US is to make sure. We've got the right selection and the maximum selection for whenever someone wants to be buying it on us.

Speaker Change: Or physical in store distribution is extremely incremental when you get into a new store into a new channel and into a new aisle you really have the opportunity to pull in a new consumer that's why in a quarter, where you actually saw us goes modestly backwards in distribution points you actually saw all.

Speaker Change: Product and Oh, and what I can tell you that you can actually see evidenced in our results. This quarter is that distribution, whether it's online distribution, which doesn't get counted in points.

Speaker Change: All of our growth drivers get stronger because we got our distribution more broad met we reached more homes. So that is something that we plan to continue and as we work our way towards shifting our our own honest dot com model I want to remind everyone.

Speaker Change: But the honest dotcom channel will remain available it will remain active for our consumers who lands there and want to execute a transaction and for our consumers. If they want to gain information. It's just that we're getting out of the fulfillment and shipping component of that business.

Speaker Change: So we don't really expect that to be a dramatically different experience.

Speaker Change: Okay.

Speaker Change: Got it thank you.

Speaker Change: But the honest dot com channel will remain available it will remain active for our consumers who lands there and want to execute a transaction and for our consumers. If they want to gain information. It's just that we're getting out of the fulfillment and shipping component of that business.

Speaker Change: Thank you.

Speaker Change: And I'm showing no further questions so with that I'll hand, the call back over to CEO Carlo Bernard <unk> for any closing remarks.

Speaker Change: Well this is a quarter, where the most important thing I can do is absolutely. Thank Dave for the impact. He has had in his tenure the results are still evident Dave we just absolutely commend. The role you played in driving our strategy of top line growth and bottom line margin expansion, while strengthening the team you are ever.

Speaker Change: So we don't really expect that to be a dramatically different experience.

Speaker Change: Okay.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Speaker Change: And I'm showing no further questions so with that I'll hand, the call back over to CEO Carlo Bernard <unk> for any closing remarks.

Speaker Change: <unk> of the transformation pillars in action. So thankful. We are excited for you all to meet Curtis when we are on our next call and look forward to joining you next quarter.

Speaker Change: Well this is a quarter, where the most important thing I can do is absolutely. Thank Dave for the impact. He has had in his tenure the results are so evident Dave we just absolutely commend their role you played in driving our strategy of topline growth and bottom line margin expansion, while strengthening the teams you are.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, this does conclude today's program and you may now disconnect.

Speaker Change: <unk> of the transformation pillars in action. So thankful. We are excited for you all to meet Curtis when we are on our next call and look forward to joining you next quarter.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, this does conclude today's program and you may now disconnect.

Speaker Change: Yeah.

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Speaker Change: Yeah.

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