Executive Summary

Q2 2025 delivered modest top-line growth with strong profitability: revenue $93.459M (+0.4% YoY), gross margin 40.4% (+210 bps YoY, company record), net income $3.870M (second consecutive positive quarter), and adjusted EBITDA $7.617M (seventh consecutive positive quarter) .
Against S&P Global consensus, Honest beat revenue ($93.459M vs $92.175M*) and Primary EPS ($0.044 vs $0.008*), while EBITDA (SPGI definition) missed ($3.629M vs $6.643M*); company-reported adjusted EBITDA was $7.617M .
Management reaffirmed FY2025 guidance: revenue growth 4–6% and adjusted EBITDA $27–$30M; CFO updated tariff gross exposure to ~$8M for 2025, with impact peaking in Q3 (3–4 pts) before moderating in Q4 .
Strategic catalysts: launch of redesigned Clean Conscious Diapers (100% of diaper inventory now updated), distribution expansion into higher-productivity aisles and flushable wipes rollout, and strong tracked consumption trends (+6% overall, +26% at largest digital customer) supporting brand momentum despite diaper headwinds at a key retailer .

What Went Well and What Went Wrong

What Went Well

Record gross margin of 40.4% (+210 bps YoY) driven by changes in inventory reserves and favorable mix (higher-margin channels/products, deemphasizing Honest.com) .
Positive net income ($3.870M) for the second straight quarter and seventh consecutive quarter of positive adjusted EBITDA ($7.617M), reflecting operating discipline and lower SG&A (stock comp, legal) .
Consumption outperformed categories: tracked channel +6% vs categories +2%; largest digital customer consumption +26%; velocities +21% and unit growth +8% indicate effective marketing and shelf expansion .

Quote: “This gross margin is a record for The Honest Company as a public company… primarily driven by a change in inventory reserves and a mix of higher margin products and channels” — CFO Curtis Bruce .

What Went Wrong

Shipments trailed consumption by ~6 pts in Q2, reversing Q1 (shipments ahead by ~5 pts), muting revenue growth vs consumption strength .
Diaper headwinds: low double-digit consumption declines tied to assortment simplification at the largest brick-and-mortar retailer; expected to persist until distribution changes are lapped .
Tariff costs began impacting earlier than planned; CFO now expects ~$8M gross tariff exposure in 2025 with Q3 impact of 3–4 pts, weighing on 2H EBITDA despite planned revenue growth .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$99.836	$97.250	$93.459
Gross Margin (%)	38.8%	38.7%	40.4%
Operating Expenses ($USD Millions)	$39.795	$35.163	$34.864
Net Income ($USD Millions)	$(0.811)	$3.254	$3.870
Diluted EPS ($USD)	$(0.01)	$0.03	$0.03
Adjusted EBITDA ($USD Millions)	$8.541	$6.929	$7.617
Net Income Margin (%)	(0.8)%	3.3%	4.1%
Adjusted EBITDA Margin (%)	8.6%	7.1%	8.2%

Actual vs S&P Global Consensus (Q2 2025):

Metric	Actual	Consensus	Beat/Miss
Revenue ($USD Millions)	$93.459	$92.175*	Beat
Primary EPS ($USD)	$0.0442*	$0.008*	Beat
EBITDA (SPGI) ($USD Millions)	$3.629*	$6.643*	Miss

Values retrieved from S&P Global.*

KPIs and Channel Metrics:

KPI	Q1 2025	Q2 2025
Tracked Channel Consumption YoY	+8%	+6%
Largest Digital Customer Consumption YoY	+28%	+26%
Velocities YoY	—	+21%
Unit Growth YoY	—	+8%
Wipes Consumption YoY	—	+35%
Baby Personal Care Consumption YoY	—	+10%
Diaper Consumption YoY	—	Low double-digit decline
Household Penetration	6.7% (Q3’24 reference)	7.2%
Repeat Rate	—	32%
Buy Rate	—	$50.54

Balance Sheet Highlights (Q2 2025):

Cash & cash equivalents $72.077M; no debt outstanding .
Net cash used in operating activities $(3.683)M for 1H25; Q2 operating cash flow $(4)M .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth	FY2025	4%–6%	4%–6%	Maintained
Adjusted EBITDA	FY2025	$27M–$30M	$27M–$30M	Maintained
Tariff Gross Exposure	FY2025	Prior commentary: ~1.5 pts net impact mostly in Q4 (Q1 call reference)	~$8M gross exposure in 2025; Q3 impact 3–4 pts, Q2 1–2 pts, Q4 moderates	Updated (higher, sooner)
2H Marketing Spend	FY2025	Increase to support brand growth (implied)	Increased to support new diaper launch and loyalty amid macro uncertainty	Raised emphasis

Earnings Call Themes & Trends

Topic	Q4 2024 (Previous-2)	Q1 2025 (Previous-1)	Q2 2025 (Current)	Trend
Gross Margin trajectory	38.8%; +530 bps YoY; driven by supply chain/product cost savings	38.7%; +170 bps YoY; product & supply chain savings	40.4%; record; inventory reserve change, mix; tariffs partially offset	Improving, with tariff headwinds
Tariffs/Macro	Monitoring, structural savings; planning for potential tariffs	Outlook incorporates known tariffs; diapers USMCA-compliant	~$8M gross exposure; Q3 peak impact; mitigation via planning/inventory/cost savings	Tariff impact escalating near term
Product performance	Baby apparel/wipes strength	Wipes & baby personal care drove revenue	Wipes +35%, baby personal care +10%; diapers declines from assortment changes	Mixed: strong wipes/personal care, diaper headwind
Digital performance	Amazon consumption +35% (Q4)	Amazon +28%	Largest digital +26%	Strong, sustained
Distribution expansion	+4% retail distribution; velocity +5%	—	Distribution +11% across food/specialty/drug; expansion into higher-productivity aisles; flushable wipes roll-out	Broadening channels
Pricing/Promotions	Marketing up; trade deeper; flexibility to dial	—	No broad price advances observed; pricing remains a lever; promo levels monitored	Balanced, cautious
New products/Diapers	—	—	New & improved diaper launched; 100% of inventory updated; full surround marketing	Launch underway
Operations/Working capital	Supply chain efficiencies and pallet optimization	—	Healthy cash ($72M), capital-light; inventory timing affected shipments vs consumption	Improved discipline, timing effects

Management Commentary

Strategy and margin: “Our gross margin in the second quarter was 40.4%, up 210 basis points… a reflection of the team's disciplined execution… margin enhancement… mix of higher margin products and channels” — CFO Curtis Bruce .
Brand momentum: “Tracked channel consumption… grew 6%… velocities… up 21%… Honest babies have our best diaper yet…” — CEO Carla Vernón .
Tariff plan: “We are guided by the three prongs of our tariff mitigation strategy… agile planning, inventory management to delay/minimize impact, and cost savings with partners” — CEO Carla Vernón .
2H setup: “We now expect roughly $8,000,000 of gross tariff exposure in 2025… positive EBITDA in Q3 but below prior year… committed to full-year guidance” — CFO Curtis Bruce .

Q&A Highlights

EBITDA cadence and tariff impact: Management expects Q3 EBITDA positive but below prior year given lower revenue (lapping promotions), higher tariffs (3–4 pts), and diaper marketing investment; reaffirmed $27–$30M FY EBITDA .
Diaper launch marketing: Sequenced with full availability; new packaging highlights five-point leak protection; TV/streaming plus influencer campaigns; Forbes review cited for performance and aesthetics .
Gross margin drivers: Mix shift away from Honest.com and toward higher-margin channels/products; structural margin enhancement to continue despite tariffs .
Distribution opportunities: Gains across Whole Foods, Sprouts (only diaper brand), HEB (flushable wipes), drug and Publix; added Target travel/trial set; still <50% of potential doors — runway remains significant .
Pricing/promotions: No evidence of category-wide price advances at largest players; pricing remains a lever but applied thoughtfully; promotions managed amid macro uncertainty .

Estimates Context

Q2 2025 vs S&P Global consensus: Revenue beat ($93.459M vs $92.175M*), Primary EPS beat ($0.0442 vs $0.008*), EBITDA (SPGI) missed ($3.629M vs $6.643M*); company-reported adjusted EBITDA was $7.617M .
Company EPS context: Reported diluted EPS was $0.03, reflecting GAAP presentation; S&P “Primary EPS” (normalized) differed, but both indicate a beat vs consensus .
Revisions implication: Near-term models likely raise gross margin trajectory, maintain revenue given shipment/consumption timing, and temper H2 EBITDA for tariff timing and diaper marketing. Values retrieved from S&P Global.*

Key Takeaways for Investors

Mix and margin resilience: The record 40.4% gross margin and repeated adjusted EBITDA underscore structural margin gains and operating discipline; tariff mitigation and mix shift should cushion volatility .
Top-line supported by consumption: Outperformance vs categories (+6% vs +2%), digital strength (+26%), and velocity gains (+21%) point to durable demand drivers even as shipment timing normalizes .
Diaper launch is a key H2 catalyst: Redesigned diapers (100% inventory updated) plus elevated marketing should help offset retailer-specific diaper headwinds over time; watch Q4 distribution benefits .
Tariff overhang manageable: ~$8M gross exposure with Q3 peak impact; mitigation plan active; expect EBITDA cadence weaker in Q3, stronger finish in Q4 as distribution ramps .
Distribution runway: Still <50% penetration of relevant doors; expansion into higher-productivity aisles and new channels (flushable wipes) supports multi-category scaling .
Cash and flexibility: $72M cash and no debt provide capacity to invest in marketing and distribution while navigating macro headwinds .
Trading lens: Near-term focus on Q3 tariff impact and diaper marketing spend; medium-term thesis hinges on mix-led margin expansion, distribution growth, and sustained consumption outperformance .

Appendix: Source Documents Reviewed

Q2 2025 8-K and earnings press release (full) .
Q2 2025 earnings call transcript (full) –.
Q1 2025 8-K and press release .
Q4 2024 8-K and press release –.
Related press releases: new Clean Conscious Diapers (July 15, 2025) ; Q2 reporting date (July 23, 2025) .

Honest Company, Inc. (HNST)·Q2 2025 Earnings Summary