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Honest Company, Inc. (HNST)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered double-digit top-line growth and profitability: revenue $97.25M (+12.8% YoY), gross margin 38.7% (+170 bps YoY), net income $3.25M and adjusted EBITDA $6.93M; the company reaffirmed FY2025 guidance (revenue +4–6%, adjusted EBITDA $27–$30M) .
  • Results beat S&P Global consensus: revenue beat by ~$4.8M and EPS beat by ~$0.026; GAAP EBITDA missed consensus modestly as management emphasizes adjusted EBITDA progress; shipment timing pulled forward to Q1 (retailer inventory build of ~5 pts vs consumption) and is expected to reverse in Q2* .
  • Management flagged near-term headwinds: Target-specific diaper distribution change, a ~$3M one-time diaper inventory adjustment, and tariffs on China-sourced wipes (net gross margin impact ~1.5 pts in 2025, mitigated by cost savings and inventory actions) .
  • Stock reaction catalysts: clear beat on revenue and EPS vs consensus, sixth straight quarter of positive adjusted EBITDA, sustained gross margin near 39%, plus tangible tariff mitigation and a new CFO appointment aimed at elevating FP&A/IR discipline and margin execution .
  • Long-term narrative: Honest continues to outpace category consumption (MULO+ +8% vs categories -1%) with wipes strength (Amazon consumption +28%) and rising household penetration (7.3%), while executing on brand maximization, margin enhancement, and operating discipline pillars .

What Went Well and What Went Wrong

What Went Well

  • Double-digit revenue growth (+13% YoY to $97M) with gross margin expansion (+170 bps to 38.7%) and sixth consecutive quarter of positive adjusted EBITDA; “solid start to 2025” and strategy execution highlighted by CEO .
  • Wipes and baby personal care strength, with company consumption +8% in tracked channels and Amazon consumption +28%; Honest now the leading natural wipes brand nationally per management commentary .
  • Reaffirmed FY2025 outlook despite tariff uncertainty; teams activated “tariff tacklers” playbook and expect to offset ~1.5 pts gross margin headwind with cost savings and efficiencies .

What Went Wrong

  • Diaper headwinds and Target-specific deceleration: Target channel consumption down ~4% in Q1, partially due to removal of gendered prints and broader category pressure; management expects impact to persist through 2025 .
  • Shipment timing vs consumption: shipments grew ~5 pts faster than consumption in Q1 (retailer inventory build), expected to reverse in Q2; implies near-term revenue cadence moderation .
  • One-time diaper inventory adjustment (~$3M) weighed on reported gross margin; excluding this, underlying Q1 gross margin would have been “a little over 41%,” underscoring structural margin progress .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$99.237 $99.836 $97.250
Net Income ($USD Millions)$0.165 $(0.811) $3.254
Diluted EPS ($USD)$0.00 $(0.01) $0.03
Gross Margin %38.7% 38.8% 38.7%
Adjusted EBITDA ($USD Millions)$7.079 $8.541 $6.929
Adjusted EBITDA Margin %7.1% 8.6% 7.1%
Cash and Cash Equivalents ($USD Millions)$53.441 $75.435 $72.818

KPIs

KPIQ3 2024Q4 2024Q1 2025
Tracked Channel Consumption Growth (%)9.3% 7% 8%
Amazon Consumption Growth (%)19% 35% 28%
Household Penetration (%)6.7% ~7.0% (year level) 7.3%

Q1 2025 vs S&P Global Consensus

MetricConsensusActual
Revenue ($USD Millions)$92.464*$97.250
Primary EPS ($USD)$0.0036*$0.03
EBITDA (GAAP) ($USD Millions)$4.941*$3.224*

Values marked with * retrieved from S&P Global.

Context and drivers:

  • Revenue beat driven by wipes and baby personal care; retailer inventory build (shipments +5 pts vs consumption) benefitted Q1 cadence .
  • EPS beat supported by gross margin expansion and interest income on cash; adjusted EBITDA remained positive for the sixth straight quarter .
  • GAAP EBITDA below consensus reflects non-operating items and the ~$3M diaper inventory adjustment; management emphasizes adjusted EBITDA trend and structural margin gains .

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2024)Current Guidance (Q1 2025)Change
Revenue Growth (%)FY 2025+4% to +6% +4% to +6% Maintained
Adjusted EBITDA ($USD Millions)FY 2025$27 to $30 $27 to $30 Maintained

Notes:

  • Company reiterated guidance despite tariff uncertainty; diapers USMCA-compliant and exempt from latest Mexico tariffs; wipes from China are main exposure .
  • No explicit guidance provided for OpEx, OI&E, tax rate, or dividends .

Earnings Call Themes & Trends

TopicQ3 2024 (prev-2)Q4 2024 (prev-1)Q1 2025 (current)Trend
Tariffs & Supply ChainMonitoring China wipes tariffs; mix of supply chain/product cost reductions; gross margin record 38.7% Structural savings; gross margin 38–39%; emphasis on fulfillment efficiencies and sourcing consolidation Tariff “tacklers” 3-prong plan; ~1.5 pts GM impact in 2025; inventory build delays impact to H2 Increasing mitigation detail; near-term headwind managed
Diaper Innovation & DistributionCalled out diaper category as competitive; innovation in pipeline Highlighted diaper innovation coming in 2025 Launching “best built diaper” with comfort dry tech; removal of gendered prints at Target; Target diaper headwinds Product upgrade underway; Target mix headwind persists
Channel Mix / DTCEvents drove shipments (Target/Walmart/Amazon); DTC de-emphasis signaled Strategy to shift away from honest.com fulfillment beyond 2025; leverage retail/digital partners Reinforced omnichannel approach; maintain honest.com for discovery; push selection with Amazon/Walmart.com Continued pivot to higher-margin channels
Marketing Investment & ROIIncreased spend to drive trial; household penetration up 23 bps Marketing ~11.3% of revenue; campaign/outreach scaling Marketing ~13% of revenue; protect spend behind new diaper and wipes distribution; unit-driven consumption Sustained brand building focus
Consumer/Category TrendsHonest consumption +9% vs categories -2%; wipes velocities up 17% Full-year consumption +8%; natural proposition resonating MULO+ consumption +8% vs categories -1%; sensitive skin portfolio +35% Honest outperformance continues

Management Commentary

  • “Our first quarter results demonstrate our solid start to 2025, with double-digit revenue growth, gross margin expansion, and positive net income…we remain confident that our long-term growth strategy positions us well to scale across our categories and grow the Honest Brand.” — Carla Vernón, CEO .
  • “Our gross margin in the first quarter was 39%, up 170 basis points…offset by a $3 million one-time inventory adjustment related to the strategic diaper renovation.” — Dave Loretta, CFO .
  • “Because of our 3-pronged [tariff] 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.” — Carla Vernón, CEO .
  • “Our exposure under the current slate of tariffs comes largely from our sourcing of wipes in China…overall…the current tariff policies have a roughly 1.5 percentage points net impact on gross margin in 2025, which we plan to offset.” — Dave Loretta, CFO .
  • “As a digitally native brand with a strong omnichannel strategy…our sanitizing wipes launched for the first time on walmart.com…Honest is now the leading natural wipes brand nationally.” — Carla Vernón, CEO .

Q&A Highlights

  • Shipment timing and cadence: Q1 shipments grew ~5 pts faster than consumption; management expects reversal in Q2, aligning 1H growth within FY outlook .
  • Target/diaper dynamics: Target channel consumption down ~4% in Q1 driven by diaper distribution changes and category softness; rest-of-market near +20% consumption .
  • Marketing spend: Company plans to maintain/increase brand investments (~13% of revenue in Q1) to support upgraded diapers and expanded wipes distribution; SG&A leverage funds spend .
  • Tariffs: Impact delayed to mid-Q3/Q4 via inventory actions; net gross margin impact ~1.5 pts in 2025 expected to be offset; main exposure is China-sourced wipes; diapers from Mexico are USMCA-compliant .
  • Channel strategy: Continued migration away from DTC fulfillment (honest.com) to retail/digital partners for scale and margin; honest.com remains as brand and commerce gateway .

Estimates Context

  • Q1 2025 beat on revenue and EPS vs S&P Global consensus; GAAP EBITDA trailed consensus while adjusted EBITDA trend remains positive. Guidance implies moderated growth cadence in Q2 as inventory normalization occurs and Target diaper changes flow through the P&L* .
  • Street models may raise revenue/EPS for Q1 actuals, but fine-tune H2 margin assumptions for tariff impact and monitor mix shifts; adjusted EBITDA trajectory remains aligned with the $27–$30M FY range* .

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Revenue/EPS beats with continued gross margin stability near 39% underscore structural improvement; shipment timing reversal and Target diaper headwinds should temper Q2 growth cadence .
  • Wipes and baby personal care are key growth/mix drivers; Amazon and tracked channel outperformance supports sustained category share gains .
  • Tariff risk quantified (~1.5 pts gross margin) and proactively mitigated; expect impact in H2 with offset from cost savings and inventory actions .
  • Adjusted EBITDA momentum intact (sixth consecutive positive quarter); company reaffirmed FY2025 EBITDA range despite macro/tariff uncertainty .
  • Household penetration rising (7.3%) and omnichannel expansion provide durable demand tailwinds; distribution growth in grocery/drug and online broadens addressable base .
  • Strategic shift away from DTC fulfillment should further improve unit economics; watch execution on diaper upgrade and Target mix to track margin and velocity improvements .
  • Near-term trading: Expect volatility around Q2 normalization and tariff news flow; medium-term thesis supported by mix improvement, cost discipline, and brand-led category outperformance .