Q2 2025 The Honest Co Inc Earnings Call
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 towards draw. Your question. Please press star one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference call over to MS. Elizabeth Blue card Senior Director Investor Relations at the honest company. Please go ahead.
Good afternoon, everyone. Thank you for joining our second quarter 2025 conference call. Joining me today are Carla Vern on our Chief Executive Officer, and Curtis Bruce <unk>, Our Chief Financial Officer.
Before we start I would like to remind you that we will make certain statements today that are forward looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today.
Ladies and gentlemen, thank you for standing by and welcome to the honors company's second quarter 2025 earnings call.
At this time, all participants are in a listen-only mode.
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 1 1 on your telephone.
These forward looking statements.
You will then hear an automated message. Advising your hand has been raised.
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.
To withdraw your question. Please press star 1 1 again.
Please be advised that today's conference is being recorded.
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.
I would now like to hand the conference, call over to Miss Elizabeth Bouchard, senior director, investor relations, at The Honest Company. Please go ahead.
Good afternoon, everyone. Thank you for joining our second quarter 2025 conference call. Joining me today are Carla Vernon. Our chief executive officer and Curtis Bruce our Chief Financial Officer.
Also during this call, we will discuss non-GAAP financial measures, which adjust our GAAP results to eliminate the impact of certain items.
You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in the financial results section of today's earnings release.
Before we start, I would like to remind you that we will make certain statements today that our forward-looking within the meaning of the federal Securities laws, including statements about the Outlook of our business and other matters referenced in our earnings release issued today.
These forward-looking statements.
Involve a number of risks and uncertainties that could cause actual results to differ materially.
A live broadcast of this call is also available on the Investor Relations section of our website at investors Dot honest dot com.
Please refer to our earnings release issued today as well as our FCC filings for a more detailed description of the risk factors, that may affect our results.
And with that I'll turn the call over to Carlos.
Thanks Elizabeth.
Good afternoon, everyone and thank you for joining us today.
Ill begin todays remarks, I'd like to take a moment to welcome our new Chief Financial Officer Curtis Bruce.
As he joins our executive team Curtis continues to advance our journey by incorporating a broad set of experiences and best practices from some of the most respected and beloved brands in the consumer product sector.
Of any revision to these forward-looking statements in light of new information or future events, except as required by law.
Also, during this call, we will discuss non-gaap Financial measures which adjust our Gap results, to eliminate the impact of certain items.
Prior to joining honest Curtis was the senior Vice President of <unk> and Investor Relations at Hain Celestial and spent time at the Kellogg company as the business unit CFO for specialty channel followed by our CFO role on the <unk> X bar team.
You will find additional information regarding these non-gaap Financial measures and a Reconciliation of these non-gaap to gaap measures in the financial results section of today's earnings release.
These experiences of running small purpose driven brands are complemented by his time at keurig, Dr Pepper and Kraft Heinz where he was in both financial leadership roles and general management roles.
A live broadcast of this call is also available on the investor relations section of our website at investors. Honest.com.
And with that, I'll turn the call over to Carla.
Thanks Elizabeth.
Good afternoon, everyone, and thank you for joining us today.
At honest Curtis has already gained a deep understanding of our culture and our growth strategy.
As I begin today's remarks, I'd like to take a moment to welcome our new Chief Financial Officer. Curtis Bruce
I am so pleased that he provides a strong insight and leadership discipline to drive the ongoing progress of our transformation and growth journey.
Welcome Curtis we're so delighted to have your leadership at honest.
As he joins our executive team Curtis continues to advance our journey by incorporating a broad, set of experiences and best practices from some of the most respected and beloved brands in the consumer products sector.
Along with welcoming Curtis I am pleased to share our results for the second quarter of 2025 for.
For todays call. There are three messages I want to share with you first we remain consistent in delivering solid results that were in line with our expectations.
Prior to joining honest, Curtis was the senior vice president of fpna and investor relations at Haynes Celestial, and spent time at the Kellogg Company as the business unit CFO for specialty channels followed by a CFO role on the rxbar team.
We delivered our second consecutive quarter of positive net income along with expanded gross margin, resulting in our highest gross margin as a public company.
These experiences of running small, purpose-driven brands are complemented by his time at Keurig Dr. Pepper, where he held both financial leadership roles and general management roles.
Second our path forward continues to be driven by our team's relentless focus on executing our transformation pillars of brand maximization margin enhancements and operating discipline.
At honest, Curtis has already gained a deep understanding of our culture and our growth strategy.
Along with our three pronged tariff mitigation strategy and third as we look towards the second half of the year, we are reaffirming our full year 2025 financial outlook.
And I am so pleased that he provides strong insight and Leadership discipline to drive the ongoing progress of our transformation and growth Journey. Welcome Curtis. We are so delighted to have your leadership at honest.
For the second quarter of 2025, we continued to strengthen our business model and in market performance, we delivered revenue of $93 million and our gross margin grew 210 basis points to 40%.
Along with welcoming Curtis. I am pleased to share our results for the second quarter of 2025.
For today's call, there are 3 messages. I want to share with you first. We remained consistent in delivering solid results that were in line with our expectations
Additionally, we delivered positive net income of $4 million.
An increase of $8 million year over year for our second consecutive quarter of positive net income.
We delivered our second consecutive quarter of positive, net income, along with expanded. Gross margin resulting in our highest gross margin as a public company.
With an adjusted EBITDA margin of 8%. This is now our seventh consecutive quarter of positive adjusted EBITDA.
As we look at our performance year to date, our revenue grew 6% and our net income increased by $13 million as compared to last year.
Despite the evolving macroeconomic landscape that has presented new challenges for consumers. According to <unk> plus tracked channel data honest consumption grew 6% for the quarter, which is down slightly from the first quarter consumption growth of 8%.
Second, our path forward continues, to be driven by our teams, Relentless, focus on executing our transformation pillars of brand, maximization, margin enhancement, and operating discipline along, with our 3-prong, tariff, mitigation strategy, and third, as we look toward the second half of the year, we are reaffirming our full year 2025 Financial Outlook.
For the second quarter of 2025, we continue to strengthen our business model. And in market performance, we delivered revenue of 93 million and our gross margin grew. 210 basis points to 40%
With this mid single digit consumption growth across our categories for the quarter. There are many indications that the honest portfolio of products remains strong relative to our comparative categories, which grew 2% in the same period.
Additionally, we delivered positive net, income of 4 million, and increase of 8 million year-over-year, for our second consecutive quarter of positive net income.
Our consumption growth was driven by unit growth of 8% along with increased velocities, which were up 21% in the quarter.
With an adjusted. Eva margin of 8%. This is now our seventh consecutive quarter of positive adjusted ebit dots.
These increased velocities provide a strong indication that our marketing and shelf expansion strategies are working.
As we look at our performance here today, our Revenue grew 6% and our net income increased by 13 million as compared to last year.
Further underscoring the strength of the honest brand is the consumption growth of 26% in the quarter at our largest digital retailer.
As online shopping continues to grow honest, which was born digital first and built for Omnichannel remains well positioned to meet consumers where they shop.
Despite the evolving macroeconomic landscape that has presented new challenges for consumers, according to Sirana, Mulo Plus tracked that channel data on honest consumption grew 6% for the quarter, which is down slightly from the first quarter consumption growth of 8%.
Another indication of the strength of the honest brand is the unique role our products play in leading the sensitive skin needs of our community with every item in our personal care and baby collection made to deliver on the promise of our rigorous honest standard of clean.
With this mid single digit consumption growth across our categories. For the quarter, there are many indications that the honest portfolio of products remains strong relative to our comparative categories, which grew 2% in the same period.
According to the National Institute of Health sensitive skin effect, 71% of adults.
Our consumption growth was driven by unit growth of 8% along with increased velocities, which were up 21% in the quarter.
And forecasts from K BV research show that sensitive skin care products are expected to be an $80 billion market by 2030.
These increased velocities provide a strong indication that our marketing and shelf expansion strategies are working.
Additionally, the presence of skin allergies in children has nearly doubled since 1997.
Further underscoring. The strength of the honest brand is the consumption growth of 26% in the quarter at our largest digital retailer.
These insights to support what we are seeing with the strength of our own line of sensitive skin and fragrance free products. For example, our collection of fragrance free baby personal care items grew consumption by 65% in the quarter.
And built for omni-channel remains well positioned to meet consumers where they shop.
This is why our honest standard remains a core guiding principle for our entire product portfolio.
Our guidelines exceed the regulatory requirements dictated by both the EU and the U S regulation.
Another indication of the strength of the honest brand is the unique role, our products play in leading the sensitive skin needs of our community with every item in our personal care and baby collection made to deliver on the promise of our rigorous honest, standard of clean.
Honest are no list is a list of more than 3500 ingredients and materials of concern that we do not formulate with or design into our products.
According to the National Institute of Health sensitive skin affects 71% of adults.
These high standards are also evidenced by the increased loyalty to be honest brand.
According to numerator household panel data, we are seeing growth on three key loyalty metrics.
Forecasts from KBV Research show that sensitive skin care products are expected to be an $80 billion market by 2030. Additionally, the presence of skin allergies in children has nearly doubled since 1997.
First our buy rate of $50 54.
Was up over 600 basis points versus the prior year, meaning our community is spending more dollars on honest products. This year.
These insights support what we are seeing with the strength of our own line of sensitive skin and fragrance-free products. For example, our collection of fragrance-free baby personal care items grew consumption by 65% in the quarter.
Our repeat rate of 32% increased 94 basis points versus the prior year. This indicates.
This is why our honest standard remains a core guiding principle for our entire product portfolio.
On average our communities by more honest items and coming back to the honest brand more often.
Our guidelines exceed, the regulatory requirements dictated by both the EU and the US regulation.
While this is happening we can also see that more households have become interested in our products as our honest helpful penetration of seven 2% increased 77 basis points year over year.
At honest are no list. Is a list of more than 3,500 ingredients and materials of concern that we do not, formulate, with or design into our products.
These high standards are also evidenced by The increased loyalty to the honest brand.
While these metrics are encouraging we also saw low double digit consumption declines on our diaper business as expected this quarter.
According to Numerator household panel data, we are seeing growth on three key loyalty metrics.
This was driven by an assortment simplification at our largest brick and mortar retailer, which we expect to continue until these distribution changes are lapped.
However, these declines have been more than offset by consumption growth across other key segments.
First our Buy rate of 50 dollars and 54 cents was up, over 600 basis, points versus the prior year. Meaning our community is spending more dollars, on honest products this year.
In particular distribution and velocity growth is driving strength in both our wipes business with consumption up 35% year over year versus the growth of the category, which is up 2%.
Second, our repeat rate of 32% increased 94 basis points versus the prior year.
This indicates.
On average, our communities are more honest, and customers are returning to the Honest brand more often.
And our baby personal care collection is the number one natural baby personal care brand in the U S with consumption growth up 10% in the quarter outpacing the modest growth of the category, which was up 1%.
While this is happening, we can also see that more households have become interested in our products as our honest household penetration of 7.2%. Increased 77 basis points year-over-year.
And now I'd like to spotlight two parts of our portfolio that exemplify the progress we've made on our brand maximization pillar, which is focused on driving scale loyalty and topline growth of the honest brand.
First is our new and improved line of clean conscious diapers, which launched this year with marketing support beginning in July and second I will share. The progress we've made on building broad based availability by diversifying our retail and channel presence, including our entry into higher productivity store.
While these metrics are encouraging. We also saw low double digit consumption declines on our diaper business as expected. This quarter, this was driven by an assortment simplification, at our largest brick and mortar retailer, which we expect to continue until these distribution changes are LED,
However, these declines have been more than offset by consumption growth across other key segments.
Yeah.
In particular distribution and velocity growth is driving strength in both. Our wipes business with consumption up 35% year-over-year versus the growth of the category which is up 2%.
Let's begin with our new and improved clean conscious diaper.
This greatly improved diaper began shipping in the second quarter of this year through extensive technical development our team of diaper engineers designed our best diaper ever.
And our baby Personal Care collection is the number 1 natural, baby Personal Care. Brand in the US with consumption growth up. 10% in the quarter outpacing, the modest growth of the category which was up 1%
Our new diapers are designed with an enhanced absorbent core and comfort drive technology for up to 100% leak protection to keep babies dry and comfortable with.
With stretch year softer fasteners.
And now, I'd like to Spotlight 2 parts of our portfolio. That exemplify the progress. We've made on our brand maximization pillar, which is focused on driving scale loyalty and Topline growth of the honest brand.
Baseliner and our most breathable outer layer, yet we are continuing our commitment to care for babies, most sensitive skin needs and according to a recent article in Forbes magazine, where they put more than 20 different diapers to the test honest diapers did their job at containing leaks, while being the cute.
First is our new and improved line of clean conscience diapers, which launched this year, with marketing support, beginning in July. And second, I will share the progress. We've made on building broad-based, availability by diversifying our, retail and channel presence, including our entry into higher productivity store aisles.
S diaper of all the diapers they tested.
The launch campaign, which went live in July features full surround marketing across digital streaming and traditional media and.
And because we are a digital and social media Arrow brand. This diaper campaign also includes strategic and engaging partnerships with trusted advocates and influential voices on social media.
Let's begin with our new and improved clean conscience diaper. This greatly improved diaper began. Shipping in the second quarter of this year. Through extensive technical development. Our team of diaper Engineers designed our best diaper ever.
Our new invest on a stay forever is now 100% of the honest diaper inventory shipping across all retail channels.
Our new diapers are designed with an enhanced absorbent core and comfort. Dry technology for up to 100% leak protection to keep babies, dry and comfortable.
With these improvements our honest babies have our best diaper, yet keeping them comfortable dry and stylish wherever they go.
Another bright spot in our brand maximization strategy is the expansion of the honest brand beyond the baby aisle, our flexible wipes found outside of the baby aisle are enabling us to expand honest with a broader set of shoppers. According to numerator the household products aisle where consumers.
With stretchier softer. Fasteners, a plant-based liner and our most breathable outer layer. Yet, we are continuing our commitment to care for babies most sensitive skin needs. And according to a recent article in Forbes Magazine where they put more than 20 different diapers to the test honest diapers, did their job at containing leaks while being the cutest diaper of all the diapers they tested
Streaming and traditional media.
Shop for a broad array of everyday essentials has twice as many purchasing households, as the baby aisle.
Beyond brick and mortar our community is used to discovering honest products through digital first experiences. So it was not unusual for us to launch our elegantly designed septic friendly flexible wipes online.
And because we are a digital and social media era. Brand this diaper campaign also includes strategic and engaging Partnerships with trusted Advocates and influential voices on social media.
Our new, and best honest, diaper ever is. Now, 100% of the honest, diaper inventory shipping across all retail channels,
The initial items performed well from the start with two of our offerings now among the top six fastest growing items in the flexible wipes category at our largest digital retailer.
With these improvements, our honest babies, have our best diaper yet, keeping them, comfortable dry and stylish wherever they go.
This early success is now being complemented with an expansion of our flexible wipes into brick and mortar retailers.
Another bright spot in our brand maximization strategy is the expansion of the Honest brand beyond the baby aisle.
That growth is also allowing us to expand honest across a broader set of leading regional and national grocery retailers specialty channels and drugstores.
With the launch of flexible wipes, we're now seeing an overall distribution growth up 11% in the quarter across these channels.
Our flushable wipes found outside of the baby aisle, are enabling us to expand honest with a broader set of Shoppers. According to numerator, the household products aisle, where consumers shop for a broad array of everyday essentials has twice as many purchasing households as the baby aisle.
In a moment I will turn it over to Curtis to share our additional transformation pillars and financial results, but first let me reiterate an important perspective, we shared at our last earnings call regarding tariffs.
Beyond brick and mortar. Our community is used to discovering honest, products through digital first experiences, so it was not unusual for us to launch our elegantly designed and septic friendly flushable wipes online.
Our honest team has been very thoughtful about our framework for managing tariffs.
As we shared last quarter, our process for managing tariffs has been honed over a number of years, we are guided by the three prongs of our tariff mitigation strategy.
The initial items performed. Well, from the start with 2 of our offerings. Now, among the top 6 fastest growing items in the flushable wipes category at our largest digital retailer,
First building an annual plan that is agile in the face of tariffs and that thoughtfully adjust our spending or pricing as necessary.
This early success is now being complemented with an expansion of our flushable wipes into brick and mortar retailers.
Second implementing and inventory management strategy to delay or minimize tariff impact.
That growth is also allowing us to expand honest across a broader set of leading Regional and National Grocery retailers specialty channels and drugstores.
Third working closely with our internal teams and external partners to drive additional cost savings. This discipline regarding tariffs is evident in our results to date.
With the launch of flushable wipes, we are now seeing honest overall distribution growth up 11% in the quarter across these channels.
To conclude my remarks, I am proud that our teams have navigated that dynamic economic landscape through disciplined execution of our transformation pillars.
In a moment. I will turn it over to Curtis to share our additional transformation pillars and financial results. But first, let me reiterate an important perspective. We shared at our last earnings call regarding tariffs
Our honest team has been very thoughtful about our framework for managing tariffs.
As a result for the second quarter of this year, we were able to deliver profitable revenue growth net income of $4 million and our seventh consecutive quarter of positive adjusted EBITDA with no debt outstanding.
As we shared last quarter, our process for managing tariffs has been honed over a number of years.
And as we look ahead, our teams will remain focused on driving shareholder value, while continuing to build the scale and power of the honest brands and.
We are Guided by the 3 prongs of our tariff, mitigation strategy. First building an annual plan that is agile in the face of tariffs and that thoughtfully adjusts our spending or pricing as necessary.
Second implementing an inventory management strategy to delay or minimize tariff impact.
And now I will turn it over to Curtis to share the financial results of our second quarter.
Thank you Carla and welcome everyone.
Let me start by saying how excited I am to be on the call with you today I joined US two months ago, because I strongly believe the honest company scope potential with significant opportunities to advance our transformation pillars and the ability to build upon the company's strength and financial Foundation.
And third working closely with our internal teams and external Partners to drive additional cost. Savings. This discipline regarding tariffs is evident in our results to date.
To conclude my remarks. I'm proud that our teams have navigated, the dynamic economic landscape through disciplined execution of our transformation pillars.
And now after two loans here.
We're convinced that the opportunities are substantial.
Im excited to leverage the best practices and skills I've learned from my past experience working across the emerging businesses as well as some of the most iconic brands in CPG.
As a result for the second quarter of this year, we were able to deliver profitable Revenue growth, net income of 4 million dollars. And our seventh consecutive quarter of positive, adjusted Eva with no debt outstanding.
As I worked with the team to execute the transformation pillars are will be intently focused on building the operating processes and disciplines that will improve efficiency in the short term. It creates these infrastructure to effectively scale.
And as we look ahead, our teams will remain focused on driving shareholder value while continuing to build the scale and power of the honest brand.
And now I will turn it over to Curtis to share the financial results of our second quarter.
Now, let me dive deeper into the second quarter results.
Thank you, Carla, and welcome, everyone.
In the quarter, we delivered revenue of $93 million.
Let me start by saying how excited I am to be on the call with you today.
<unk>, 4% driven by two key factors.
First in the quarter, we had an increase in retail revenue driven by strong performance in our wife's portfolio.
Partially offset by a decline in honest dot com revenue.
I joined honest 2 months ago because I strongly believed in the honest company's growth potential, the significant opportunity to advance our transformation pillars and the ability to build upon the company's strengths and financial Foundation.
As a reminder of what we shared on our last earnings call are relatively flat revenue growth versus last year was due to timing of shipments.
And now, after 2 months here, I'm even more convinced that the opportunities ahead are substantial.
In Q1 shipments pizza consumption by five percentage points and we saw that reverse in the second quarter, where our shipments piece behind consumption by roughly six percentage points.
I'm excited to leverage the best practices and skills I have learned from my past experience working across emerging businesses, as well as some of the most iconic brands in CPG.
On a June year to date basis consumption and shipments of our moving roughly in line together.
Our gross margin in the second quarter was 44% up 210 basis points versus last year.
As I work with the team to execute the transformation pillars, I will be intently focused on building the operating processes and discipline that will improve efficiency in the short term and create the infrastructure to effectively scale.
Now, let me dive deeper into the second quarter results.
This gross margin is a record reported on this company as a public company.
Flexion of the team's disciplined execution of our transformation pillar of margin enhancement.
In the quarter, we delivered revenue of 93 million of 0.4% driven by 2 key factors.
Our gross margin expansion was primarily driven by a change in inventory reserves and a mix of higher margin products and channels, including shifting away from our August dot com business, partially offset by the impact of tariffs.
First, in the quarter, we had an increase in retail Revenue driven by strong performance in our white portfolio.
Decline in honest.com Revenue.
Though we had an intentional inventory build as part of our mitigation plan to delay the impact of tariffs until the second half of the year.
Second as a reminder of what was shared on our last earnings call, our relatively flat Revenue growth versus last year was due to timing of shipments.
Quarter did have some tariff impacts as we sold through inventory on a few skus faster than our forecast.
In q1 shipments piece ahead of consumption by 5 percentage points. And we saw that reverse in the second quarter, where our shipments Pace behind consumption by roughly 6% is points.
And now turning to operating expenses operating expenses decreased $5 million compared to the prior year quarter and decreased 530 basis points as a percentage of revenue.
On a junior State basis. Consumption, and shipments are moving roughly in line together.
Our growth markets in the second quarter was 40.4% of 210 basis points versus last year.
This decrease in operating expenses was largely attributed to a decrease in SG&A expenses.
$6 million compared to last year, primarily driven by lower stock based compensation and reduced legal expenses.
This close margin is a record for the Honest Company as a public company and a reflection of the team's disciplined execution of our transformation, pillar of margin enhancement.
This was partially offset by an increase in marketing expenses of $1 million to support key events with our retail partners.
Our gross margin expansion was primarily driven by a change in inventory reserves and a mix of higher margin products and channels including shifting away from our honest.com business, partially offset by the impact of tariffs.
We also delivered our second consecutive quarter of positive net income.
The combination of gross margin expansion of 210 basis points and lower operating expenses of $5 million led to a positive net income of $4 million and.
Although we had an intentional inventory build as part of our mitigation plan to delay, the impact of tariffs into the second half of the year. The second quarter did have some tariff impacts as we sold through inventory on a few skus faster than our forecast.
$8 million year on year improvement.
We remain committed to the statement of income growth over the long term.
Adjusted EBITDA for the second quarter was $8 million flat to last year due to higher net income coupled with lower year on year FX.
And now turning to operating expenses, operating expenses decreased, 5 million compared to the prior year, quarter and decreased, 530 basis points as a percentage of Revenue.
Adjusted EBITDA margin was eight 2% represented our seventh consecutive quarter of positive adjusted EBITDA.
Through our transformation pillar of operating discipline, which underscores our focus on building a culture of operational execution excellence, we maintained a healthy balance sheet ending the quarter with $72 million in cash and no debt outstanding.
This decrease in operating expenses, was largely attributed to a decrease of sgna expenses of $6 million compared to last year, primarily driven by lower stock based compensation, and reduced legal expenses.
This was partially offset by an increase in marketing expenses of 1 million to support key events with our Retail Partners.
We also delivered our second consecutive quarter of positive net income.
Our cash position continues to benefit from a capital light business model and greater flexibility, which allows us to invest in the business.
Overall, our second quarter financial results and the execution of our transformation pillars gives us continued confidence in our 2025 financial outlook for.
The combination of gross margin expansion of 210 basis points and lower operating expenses of $5 million led to positive net income of $4 million.
8 million year-on-year Improvement.
We remain committed to the state. Net income growth over the long term.
For the first half of the year, we achieved revenue growth of 6%, while improving the profitability of our cost structure.
Adjusting even though for the second quarter was 8 million dollars flat to last year due to higher net income coupled with lower year-on-year, add backs.
We look to the second half of the year, we are reaffirming our full year 2025 financial outlook for revenue and adjusted EBITDA.
Adjust the even the margin was 8.2% and represents. Our seventh consecutive quarter of positive adjusted, evida
We expect the underlying momentum in our business to continue however, as Carlos stated earlier, the macroeconomic environment has presented new challenges for consumers.
For our second half revenue outlook, we will be lapping two large customer specific promotional EBIT with our two largest brick and mortar retailers that will not repeat this year.
You are a transformation pillar of operating discipline, which underscores our focus on building a culture of operational and executional Excellence, we maintain a healthy balance sheet, ending the quarter with 72 million in cash and no debt outstanding.
Also while the second half of the year, we will continue to be impacted by the diaper assortment simplification at our largest brick and mortar retailer we will be investing in the rollout of our new improved diaper.
Our cash position continues to benefit from a capital like business model and greater flexibility, which allows us to invest in the business.
And optimize the assortment in other channels. Additionally, new distribution coming in the second half of the year in both new and existing houses should help offset these impacts finally, the second half of the year is where our apparel portfolio becomes a larger part of our mix driven by increases related to our award winning.
Overall, our second quarter financial results and the execution of our transformation pillars give us continued confidence in our 2025 financial outlook.
For the first half of the year, we achieve Revenue, growth of 6%, while improving the profitability of our cost structure.
As we look to the second half of the year, we are reaffirming our full year 2025 Financial outlook for revenue and adjusted Ava.
Sam Jones.
Our second half adjusted EBITDA outlook reflects increased marketing spend primarily to support our new diaper launch Thats a continued building consumer loyalty to the honest brand of this dynamic macroeconomic environment.
We expect the underlying momentum in our business to continue. However, as Carla stated earlier, the macroeconomic environment has presented new challenges for consumers.
We have also updated our tariff outlook based on our policy information. We are currently aware of and recognizing that we realized tariff impacts sooner than originally anticipated as you know we have a comprehensive regrown tariff mitigation approach a strong experienced leaders in place to manage these tariffs both of the short and long term.
For our second half Revenue Outlook. We will be lacking 2, large customer specific, promotional events with our 2 largest brick and mortar retailers that will not repeat this.
Here.
We continue to be prudent and take necessary actions over time to continue to drive margin performance. We now expect roughly $8 million of gross tariff exposure in 2025.
Also, while the second half of the year will continue to be impacted by the diaper, assortment simplification, at our largest brick and mortar retailer, we will be investing in the roll out of our new and improved diaper and optimize assortment in other channels. Additionally, new distribution coming in a second half of the year in both new and existing, aisles should help offset these impacts.
In conclusion, our reaffirmed full year financial outlook includes net revenue growth of 4% to 6% year over year and adjusted EBITDA to be in the range of $27 million to.
Finally the second half of the year is where our apparel portfolio. Becomes a larger part of our mix driven, by increases related to our award-winning, Spam Jam jams,
our second half adjusted ibida, Outlook reflects, increased marketing, spend, primarily to support our new diaper launch and to continue building consumer loyalty to
To $30 billion.
We also recognize there is uncertainty with broader consumer sentiment and potential changes in shopping behavior that our outlook may not.
The honest brand and this Dynamic macroeconomic environment.
In closing thank you for joining our call today.
Energized by my first 60 days out on us and I have strictly belief in the opportunities to execute our transformation pillars and drive shareholder value.
We have also updated our tariff Outlook based on the policy information. We are currently aware of and recognizing that we realize tariff, impacts sooner than originally anticipated.
I look forward to working with our exceptional team and thank them for their work in delivering our Q2 results now I will turn the call back to the operator.
as you know, we have a comprehensive 3-prong, tariff, mitigation approach, and strong experienced leaders in place to manage these tariffs, both in the short and long term,
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Over time to continue to drive margin performance. We now expect roughly 8 million dollars of gross tariff, exposure in 2025,
And our first question comes from the line of Aaron Grey with Alliance Global partners.
net revenue growth of 4% to 6% year-over-year and adjust the ibida to be in the range of 27 million to 30 million
Hi, good evening and thank you very much for the questions.
First question for me is just regarding the guide right. So the EBIT guide implies two H.
We also recognize there's uncertainty with broader consumer sentiment and potential changes in shopping behavior. That are outlook may not include
We will be down versus one <unk> at the midpoint, despite sales being up in <unk> versus one national part of that's due to apparel you gave some good color commentary in terms of increased marketing tariff impact is going to come sooner than expected I think you said $8 million to now about a two point impact when you said $1 five impact.
In closing, thank you for joining our call today. I am energized by my first 60 days at honest. And I have strengthened belief in the opportunities to execute our transformation, fillers and drive shareholders.
I look forward to working with our exceptional team and thank them for their work in delivering our Q2 results. Now, I will turn the call back to the operator.
On the last call. So I certainly appreciate that color.
I guess my question would be embedded in that guide the increased Mark and you have with the new new diapers do you expect that to potentially accelerate some sales growth there in the diaper category is that potential upside are also embedded in the guide just want to.
Thank you as a reminder, to ask a question. Please press star, 1, 1 1 on your telephone and wait for your name, to be announced to withdraw your question. Please press star, 1 1 1 again.
Give some more color on whether that's embedded in the puts and takes thank you.
In our first question comes from the line of Aaron gray with Alliance Global Partners.
Yes. Thank you very much for the question this is Curtis.
Let me.
Take a few minutes here to unpack will provide just some more clarity on the guy here, let me start with the fact that number one we're very proud of the results that we have year to date, especially considering the economic environment that we're currently operating.
Let me start with the revenue our revenue in the second half is really going to be impacted by the Q3 lapping of the consumer events that I talked about in the prepared remarks and also from the diaper.
Hi, good evening, and, uh, thank you very much for the questions. So, first question for me, is just regarding the guide, right? So, so even a guide implies, you know, 2H, um, will be down verse 1. H at the midpoint, despite, you know, sales being up in 2, H versus 1 in all part of that, you know, due to apparel you gave some good color commentary in terms of you know, increased marketing, you know, tariff impact is going to come, you know, sooner than expected. I think he said 8 million. So now
From the loss distribution that we also talked about in the prepared remarks, so Q3.
The impact of those two things will.
About a 2-point impact and they said 1.5 impact, uh, on the last call. So certainly appreciate that color. I guess my question would be, you know, embedded in that guide, The increased marketing, you have, you know, with the new new diapers, uh do you expect that to potentially, you know, accelerate some sales growth there in the diaper category, is that potential upside or also embedded in the guide just want to
We'll have a.
The top line that will be similar to the growth rate that we had.
Get some more color whether or not that's embedded in the puts and takes. Thank you.
Yeah, thank you very much for the question. This is Curtis
Q2, we expect that our growth rate in Q4 will pick up as we gained new distribution that we talked about in the prepared remarks as well.
So let me answer the second part of your question about the tariffs. So tariffs again, it's a very dynamic environment as you are well aware.
So, let me, uh, take a few minutes here to unpack and provide just some more clarity on uh, the guide here. Let me start with the fact that number 1. We're very proud of the results that we have year to date especially considering the economic environment that we're currently operating.
The policy continues to change and we get new news.
Frequently.
We said back in Q1, one five points of net impact on a full year basis was incremental to our original plan that we expected most of that to occur in Q4.
So let me start with the uh Revenue our Revenue in the second half is really going to be impacted by the Q3 lapping of the consumer events that I talked about in the prepared remarks.
We now expect $8 million of gross impact.
So on the full year is included in the guide.
We saw impact of tariffs in Q2 and Q2 we.
So one to two percentage points of impact related to tariffs, we expect that to step up in Q3.
And also from the diaper. Uh, hit 1 from the Lost distribution that we also talked about in the prepared remarks. So, Q3 that, uh, the impact of those 2 things will, uh, will have a, uh, impact on the top line that will be similar to the growth rate that we had in in Q2.
Three to four percentage points of impact and then Q4 will moderate back down.
We expect that our growth rating Q4 will pick up as we gained a new distribution that we talked about in the prepared remarks as well.
Over those three quarters again, it will be $8 million of tariff impact that's embedded in the piano and embedded in the guide.
Finally, let me address EBITDA, so lower revenue outlook in Q3 with the higher tariffs just talked about in Q3.
So, let me answer the second part of your question about the tariffs. Again, tariffs are a very dynamic environment, as you are well aware. The policy continues to change, and we get new news very, very frequently.
The investment in the <unk>.
<unk>, which will largely be in Q3, we expect to have positive EBITDA in Q3, but below prior year.
We said back in q1, that 1 and a half points of net impact on a 4 year, basis was incremental to our original plan that we expected most of that to occur in Q4.
We are committed to our full year guidance.
We now expect 8 million dollars of gross impact on the 4 year is included in the guide.
We're excited about the new distribution coming in Q4, and we expect a strong finish and again I'll just reaffirm that our guide on EBITDA is 27 million to $30 million on the full year.
We saw impact of terrorism, Q2 and Q2, we saw 1 to 2, percentage points of impact related to terrorists.
We expect that to step up in Q3.
I hope that answers all your questions.
No that does that's really helpful. Chris I appreciate that.
To 3 to 4 percentage points of impact. And then Q4 will moderate back down.
Second question for me just regarding the diaper launch.
Maybe can you speak to some of the initiatives that you have in marketing and how you are trying to highlight some of the changes that you have there.
Over those 3 quarters. Again, it will be 8 million dollars of tariff impact. That's embedded in the p&l and embedded in the guide.
Sure Hi, Erinn, it's Carla lovely to talk to you today. Thank you for that question. So.
As I was able to share in the remarks the improvements to this diaper are very meaningful and we are really pleased that 100% of the diaper that is shipping now is all the new and improved diaper, we have been watching that diaper as it is made.
Finally, let me address ebita. The lower Revenue Outlook in Q3 with the higher terrorists, that I just talked about in Q3 and the investment in the, the diaper, which will largely be in Q3, we expect to have positive ebita in Q3, but below prior year.
We are committed to our 4 year guidance.
Its way onto retail shelves. Our teams in fact have a new practice anytime any of us or anywhere around the country. We do a store visit send back snapshots, we are really watching that change take place on the store shelves. That's important because as you know I feel strongly that the number one most important marketing effort, we can do against any of our Pratt.
We're excited about the new distribution coming in Q4 and we expect the Strong finish. And again, I'll just reaffirm that our guide on ibida is 27 million to 30 million on the 4-year
I hope that Nails answers all of your questions.
No that does that's that's really helpful because appreciate that. Um,
<unk> is to have excellent strong packaging that very clearly communicates the key product benefits. So as we rolled out this diaper, we rolled out new and improved packaging that we quantitatively and qualitatively tested on the physical store shelves at two of our largest brick and mortar retailers to know that it would be effective at this.
Steve that you have you know, in marketing and how you're trying to highlight some of the changes that you have there.
In telling consumers what they want to hear.
Sure. Hi Erin. It's Carla. It's lovely to talk to you today. Thank you for that question. So uh as I was able to share in the remarks, the improvements to this diaper are very meaningful and we are really pleased that 100% of the
So that packaging is out features the five point.
Protection the softer stretch your tabs the more absorbent core communicated there.
<unk>, we are surrounding this launch with marketing that largely began in the middle of July as you know it's important before we put our marketing efforts in the market to make sure that the product will be available both online and on store shelves. So that's why we wanted to sequence it in that way that proud of that product marketing includes a full.
Surround of both in store levers and direct levers with retailers as well as a very broad based upper funnel marketing campaign, we have a new TV spot that we debuted its also in streaming media that features the diaper and really sort of amplifies the technology. So people can be.
<unk> as you know we're also a strong social media company. So we have a lot of Influencer marketing partnerships. So we are working that sort of angle to make sure. We've got new media and classic media and then I think what are the last thing I would point out is we're still proud of these reviews, we have gotten in Forbes magazine that when they pull.
Our diaper to test with 20 more than 20 other diapers, we were among the top five diapers that they highlighted in that in that test, saying that not only does the paperwork, but it's the cutest diaper and babies.
So we're excited what we're going to be really watching this rollout as it goes Erin that support is going to continue to build and strengthen through the year.
Great I really appreciate the color there Carla and I will go and jump back in the queue.
Thank you and.
And our next question comes from the line of Anna Laskin with B Riley Securities.
Hi, good afternoon. Thanks for taking my question I want to.
Digging a little deeper on the gross margin getting to above 40% I think was a key positive in the quarter understand we're layering on incremental tariff headwinds in the back half so not pulling forward that 40%.
Would love to understand a little bit more the power of that channel shifts that we talked about in supporting that 210 basis points.
Improvement in the quarter as we look to understand the structural margin opportunity as we shift away from the dot com business.
Yes. Thank you for the question.
We are really excited about the gross margin performance in Q2, but especially as you noted and I noted in the prepared remarks that has the highest gross margin that we've had as a public company and so we're definitely excited about reaching that benchmark.
When you think about the drivers of the margin performance.
To highlight the impact of the tariffs.
Partially offsetting that tariff impact is really our.
Mixed benefit from both channels and products and so we continue to be focused on our transformation pillar of margin enhancement and as you know one of those key focus areas has been.
The channel mix shift.
Emphasizing honest dot com and so we saw some of that benefit in Q2, we expect to see that benefit continue as we continue to move forward and focus on margin improvement.
Thanks, and then shifting to the commentary you gave on apparel excel.
Exciting launch there I guess could you give some perspective on how big that business is today and longer term, where you think the contribution could be.
Yes.
I'll tell you is that we're excited about the contribution that business will make in the second half of the year as we talked about in the prepared remarks Sam.
<unk> is one of the.
Big highlights of that business.
Award winning is really the way we referred to here.
But we're excited about the second half as I alluded to in the original remarks, we're going to have a strong Q4, driven by distribution and.
Performance of apparel, and we're excited to be on our guidance for the year.
Okay. Thanks.
Thank you.
And our next question comes from the line of Owen Richard with Northland Capital markets.
Hi, <unk>. Thanks for taking my question are there any specific retail partners, where youre seeing some room for incremental shelf space improvement, our new category placement. It does sound like whites are making some progress on that front by any other product categories to call out as well yes.
Absolutely Hi, Owen good to hear from you.
First of all I would say that is we turned back and just always look back at our investor presentation.
Most important foundational.
Principals of our growth strategy is this notion that we have lots of room to grow across stores doors aisles shells and even our presence as we show up on the variety of types of shelves to date, we are still in what we think is less than 50% of all of the.
Relevant stores and doors that we could be in when we compare our business to our competitive peer group and the distribution that they have available.
As I noted, we did grow 11% in the quarter against what we call the.
The food specialty and drug channel I will use to make some examples to highlight that so that you all know a little bit more specifically, what we're talking about that's a mix of national retailers like your whole foods in your sprouts, where we've seen distribution gains even in the quarter and in the year. So.
At whole foods, we've launched nine new Skus, especially built in building out our baby personal care sat in whole foods stores with our 18 ounce larger size of our sensitive skin items. Some of our gable top refills that we've really shown strong increments Almaty and at sprouts we.
Now the only diaper brand carried at sprouts. So.
That is obviously an important channel for us and we know our consumers very much value, our sensitive skin and fragrance free benefits and channels like that but we're also seeing growth. Our brand has the ability to play in both those specialty channels and to a mass audience. So for example at HEB you are already seeing that are flush of wipes.
Gained distribution and are now on shelves at HEB retailers. So we gained although we already had 90 skus. It at HB HB added six new Skus for us this year, including building us out into these higher productivity aisles beyond the baby aisle, where theres greater foot traffic, we've seen gains at other.
Places like drug channel and Publix. So we feel that there is room to grow as we continue to build out our size strategy as we continue to deepen our portfolio of fragrance free insensitive skin items and really incrementally as we continue to build outside of the baby aisle.
Lastly, I think one other important notable place to talk about is target, which has as you know it's been our oldest and longest standing brick and mortar retail partner, they're a great partner to us and target is still finding places and ways to grow the honest brand, including the fact that we just got added to the travel and trial set in all targets.
Stores with our spray hand, standardization as well as with some of our portable pattern play wipes. So yes, you can see on we're just continuing to still knock it down and it's going to be a real building block strategy. One of the reasons I have great confidence in it is several quarters ago I told you that we restructured our organization.
Innovation to in fact also put more leadership talent against this distribution strategy. So we have the items, we have the team and we have the strategy against it and we know that our retail partners are very pleased at the fact that our items drive their category growth as you can see where as we outpace the.
Growth of our competitive categories.
Great Super helpful. Thank you Tom Carlile.
Thank you.
And our next question comes from the line of Dana Telsey with Telsey Advisory group.
Okay.
Pardon me.
Please check your mute button.
Yes.
Pardon me Dana please check your mute button.
Can you hear me okay.
Hi, Dana we got great Hi, nice to see the continued progress as you think about the property profitability improvements that you've seen in the face of this uncertainty of this tariff world by category, how do you think of pricing and especially in light of the new partnerships and distribute.
And that you have is there any differences and with that how do you think of the level of promotions out there in the marketplace now and what you're anticipating going forward. Thank you.
Hi, Dana I'm going to give that to start Curtis if I Miss anything do please let me know I really do appreciate that nuance Dana because the honest portfolio is so different in that way from so many other.
Of our peer companies in that we take one brand and we work in across different aisles in across different demographics, we love that because that gives us a very efficient way to say wherever you find it on his product. It is delivering against the honest standard of clean the honest no list and it is delivering these products that people know that they can trust.
But the products do play out differently across categories. What I can say is this you've seen that the loyalty measures for honest are up on all counts, we are having higher buy rates for our products. We are having higher household penetration and greater frequency. So that tells me that not only is our marketing strategy working.
<unk> and our expanded shelf visibility working but it is telling me that we've got products people want so that gives us confidence at the same time Dana thus far we have been watching the CPG categories that we compete in and we are not seeing any price advanced evidence of price advances yet in market, especially.
When we focus on the largest players in the in the category and that's a very important dynamic for us to keep our eye on very closely as Curtis and I. Both said pricing does remain one of the levers that we will consider as we execute our commitment to expand the bottom line profitability.
<unk> faster than the top line, but we do want to be really thoughtful about it and it does work differently in our different categories.
Got it and then when you think about your largest customer and order trends has there been a difference in order trends and how you're thinking about the back half of the calendar year.
In regards to holiday spending or how could how you're planning differently. This year from last year.
I guess I'll start out by saying I thought Curtis did an excellent job of saying that for the first half of the year, we really do see when we look at it collectively our shipments and our consumption numbers were in line for the first half of the year now that played out differently in the quarters and I think that we've explained that very well when.
I look customer by customer.
Important to say, we are actually seeing in somewhat of a tale of two cities. So there are some different dynamics, we've talked about the fact that these type of trends we're seeing at target. We will continue to play out for us until we lap. These distribution declines against these gendered prints remember that was a strategy that we knew.
That was going to be a change that target would execute as they got away from these gender specific prince so we're going to have to take those distribution declines across <unk>.
The year as we lap that but those are also already.
And then when we look at the remaining market Dana our volume or excuse me our consumption is up 21% in rest of market and I think thats really evidence of the strength of the other categories that we have to convince continuing to build and grow into for <unk>.
Sample witness up 35% nationally our baby personal care business up 10% nationally.
And our sensitive skin business up 65% and our sense is skin <unk> personal care business.
So we are feeling very confident about our ability to continue to drive that loyalty and that Consignors continued performance across our categories.
Thank you.
Thank you.
And as a reminder to ask a question. Please press star one one on your telephone.
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.
I want to thank everybody so much for joining us for our second quarter call fiscal 2025, I also want to really think and welcome Curtis to the team and we look forward to speaking with you next quarter. Thank you.
Ladies and gentlemen, thank you for participating this does conclude today's program and you may now disconnect.