Executive Summary

Q3 2025 revenue was $92.6M, down 6.7% YoY, with gross margin of 37.3%. Net income was $0.8M and Adjusted EBITDA was $3.5M (3.8% margin) .
Versus S&P Global consensus, EPS beat and revenue missed: Primary EPS was $0.007 vs -$0.013 consensus*, while revenue was $92.6M vs $99.4M consensus* .
Management launched Transformation 2.0: Powering Honest Growth—exiting honest.com fulfillment, apparel, and Canada; expected one-time costs of $25–$35M, annualized savings of $8–$15M, and exit wind-downs largely by year-end 2025 .
Full-year guidance was cut: revenue to -3% to flat (from +4% to +6%) and Adjusted EBITDA to $21–$23M (from $27–$30M); introduced Organic Revenue growth guidance of 4–6% excluding exits .
Near-term stock catalysts: guidance cut and structural exits (negative near term), paired with strong wipes and baby personal care consumption and clarity on cost savings trajectory (potential medium-term positive) .

What Went Well and What Went Wrong

What Went Well

Wipes strength: consumption up 24% vs category +3%; adult flushable wipes expanded into Target/H‑E‑B/Harris Teeter; YTD flushable wipes consumption +160% and fastest-growing on Amazon with >100% subscriber growth .
Baby Personal Care momentum: consumption +10% and Honest is #1 natural baby personal care brand; sensitive skin collection +77% YTD; Disney collaboration launched across baby personal care with positive reception .
Profitability proof points: third consecutive quarter of positive net income (Q3 net income $0.8M) and eighth consecutive quarter of positive Adjusted EBITDA (Q3 $3.5M) .
CEO tone: “our teams are acting decisively to strengthen performance… launching Transformation 2.0… drive sharper focus on our core product categories and strengthen our profitability” .

What Went Wrong

Revenue softness: Q3 revenue decreased 6.7% YoY, driven by declines in retail diapers/apparel and the transition away from honest.com fulfillment .
Diapers headwinds: double-digit consumption declines tied to Target SKU simplification, lapping large promos, and macro price sensitivity; Honest introduced price/value actions (rollback at Walmart, $19.99 entry pack) but still early days .
Margin pressure: gross margin fell 140 bps YoY to 37.3% due to tariffs and volume deleveraging (partly offset by lower trade spend and favorable mix) .
Guidance cut: revenue outlook lowered to -3% to flat and Adjusted EBITDA to $21–$23M on reduced volume and exit wind-down disruptions .

Financial Results

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Millions)	$97.250	$93.459	$92.571
Gross Margin (%)	38.7%	40.4%	37.3%
Net Income ($USD Millions)	$3.254	$3.870	$0.758
Diluted EPS ($USD)	$0.03	$0.03	$0.01
Adjusted EBITDA ($USD Millions)	$6.929	$7.617	$3.523
Adjusted EBITDA Margin (%)	7.1%	8.2%	3.8%

YoY comparison (Q3 2024 vs Q3 2025):

Metric	Q3 2024	Q3 2025
Revenue ($USD Millions)	$99.237	$92.571
Gross Margin (%)	38.7%	37.3%
Net Income ($USD Millions)	$0.165	$0.758
Adjusted EBITDA ($USD Millions)	$7.079	$3.523

Estimates vs Actuals (S&P Global; asterisks denote SPGI values):

Metric	Q2 2025 (Actual*)	Q3 2025 (Consensus*)	Q3 2025 (Actual*)	Q4 2025 (Consensus*)
Revenue ($USD Millions)	$93.459*	$99.430*	$92.571*	$87.606*
Primary EPS ($USD)	$0.0442*	-$0.0134*	$0.0070*	-$0.0447*
EBITDA ($USD Millions)	$3.629*	$1.742*	$1.035*	$3.861*

Values retrieved from S&P Global.

KPIs and operational metrics:

KPI	Q1 2025	Q2 2025	Q3 2025
Tracked Channel Consumption YoY (%)	+8%	+6%	+2%
Largest Digital Customer Consumption YoY (%)	+28%	+26%	+16%
Household Penetration (%)	N/A	N/A	7.4% (+80 bps YoY)
Repeat Rate (%)	N/A	N/A	32% (+30 bps YoY)
Cash & Equivalents ($USD Millions)	$72.818	$72.077	$71.453
Total Debt	$0	$0	$0

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue Growth (%)	FY 2025	+4% to +6%	-3% to flat	Lowered
Organic Revenue Growth (%)	FY 2025	N/A	+4% to +6%	New metric introduced
Adjusted EBITDA ($USD Millions)	FY 2025	$27 to $30	$21 to $23	Lowered

Additional transformation program disclosures:

One-time restructuring costs: $25–$35M through Q1 2027; benefits expected to begin in 2026 ($8–$15M annualized). Cash impact $15–$20M in FY 2026; restructuring substantially complete by 12/31/2026 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2025)	Previous Mentions (Q2 2025)	Current Period (Q3 2025)	Trend
Tariffs/Macro	Reaffirmed FY outlook; noted tariff uncertainty; diapers USMCA-compliant as of Mar 4, 2025	Tariff mitigation three-prong strategy; gross margin record 40.4%; ~$8M gross tariff exposure for 2025	Tariffs pressured Q3 gross margin; deleverage from lower volume	Elevated headwind vs Q2
Diapers Redesign	N/A	Launch of improved Clean Conscious Diapers with July campaign	Early results: complaints down 21%; pricing actions (rollback at Walmart, $19.99 pack); Target SKU simplification headwind; Amazon diapers up 3% YTD	Gradual improvement amid category pressure
Wipes Expansion	N/A	Distribution gains; channel mix aiding margins	Wipes consumption +24%; adult flushable expansion; YTD +160% flushable consumption; Amazon subscriber growth >100%	Strengthening
Baby Personal Care	N/A	Category outperformance; sensitive skin demand	#1 natural brand; consumption +10%; sensitive skin +77% YTD; Disney collaboration	Strengthening
Channel/Operating Model	N/A	Deemphasizing honest.com aiding mix	Exiting honest.com fulfillment, apparel, Canada; cost structure optimization	Strategic simplification
Pricing/Promotions	N/A	Increased marketing; second-half promo laps	Heightened promo environment, price sensitivity in diapers; rollbacks at Walmart	More promotional
Inventory/Supply Chain	N/A	Intentional inventory build for tariff mitigation	Elevated inventories tied to tariff mitigation and diaper transition; manage carefully	Controlled normalization expected

Management Commentary

CEO: “we are announcing the launch of Transformation 2.0: Powering Honest Growth… exiting certain lower margin, non-strategic categories and channels while also optimizing our cost structure… I remain confident in our ability to deliver beloved consumer products… and create long-term value for our shareholders” .
CFO: “one-time costs related to Transformation 2.0 of $25–$35 million and return approximately $8–$15 million of annual cost savings… lowering our full-year guidance… revenue -3% to flat; Adjusted EBITDA $21–$23 million” .
CEO on category focus: “direct our resources to our core categories of Wipes, Personal Care, and Diapers… exiting honest.com… apparel… Canada” .
CFO on margins: “gross margin… down 140 bps… due to tariff costs and… deleverage… partially offset by lower trade spend and favorable product mix” .

Q&A Highlights

Transformation timing: wind-downs for honest.com, Canada, and apparel expected by end of FY25; transformation expenses begin in Q4, savings in 2026 .
Diapers strategy: improved product (complaints down 21%), broadened pricing architecture including $19.99 entry pack, rollbacks at Walmart to boost velocities; Amazon diapers +3% YTD despite Target SKU simplification .
Promotional environment: heightened in diapers; broader categories (wipes/personal care) showing less price sensitivity currently .
2026 algorithm: exits represent ~20% of business and below-average gross margins; management sees potential for stronger margin structure but will provide specifics in February earnings call .

Estimates Context

Q3 2025 vs consensus: Primary EPS $0.007 vs -$0.013 consensus (beat); revenue $92.6M vs $99.4M consensus (miss); EBITDA ~$1.0M vs $1.74M consensus (miss). Counts: 6 revenue and 6 EPS estimates for Q3 .
Q2 2025 vs consensus: Primary EPS $0.044 vs $0.008 consensus (beat); revenue $93.5M vs $92.2M consensus (beat)*.
Q4 2025 consensus: revenue $87.6M; Primary EPS -$0.045; EBITDA ~$3.86M*.
Values retrieved from S&P Global.

Implication: Guidance cut and exits likely drive downward revisions to FY revenue and Adjusted EBITDA; consensus models may re-base margins for 2026 to reflect lower-mix exits and cost savings cadence .

Key Takeaways for Investors

Near-term reset: Expect continued diaper headwinds and exit-related revenue disruptions; Q4 to include initial transformation expenses while savings ramp in 2026 .
Category bifurcation: Wipes and Baby Personal Care show strong, durable consumption momentum; these core categories represent >50% of revenue and underpin medium-term growth .
Margin path: Gross margin compressed on tariffs/deleverage in Q3; medium-term margin expansion potential from channel/category mix and SG&A/supply chain optimization post exits .
EPS/resilience: Despite revenue miss, EPS beat on cost discipline and mix; watch continued pricing actions and promo normalization in diapers .
Cash/Balance sheet: $71.5M cash and no debt provide flexibility to execute transformation while absorbing tariff and exit costs .
Estimate revisions: Street likely to lower FY topline and EBITDA; monitor Q4 execution and early 2026 savings visibility for re-rating potential .
Trading setup: Mixed near-term (guidance cut, exits) versus improving narrative in core categories; catalysts include execution on exits, tariff moderation, and diaper recovery signals (velocity/complaints/price-pack impact) .

Honest Company, Inc. (HNST)·Q3 2025 Earnings Summary