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HC

Honest Company, Inc. (HNST)·Q4 2024 Earnings Summary

Executive Summary

  • Record Q4 revenue of $100.0M (+11% YoY) with gross margin expanding 530 bps to 38.8% (company highlights rounded to “39%”); adjusted EBITDA rose to $8.5M, but GAAP net loss was $0.8M as SG&A rose on legal costs .
  • 2025 outlook: revenue growth of 4%–6% and adjusted EBITDA of $27–$30M; management expects gross margin at sustainable levels similar to 2024 (38%–39%) and Q1 revenue growth above the full-year pace due to an easier comp .
  • Call catalysts: explicit plan to deemphasize DTC (honest.com) in favor of higher-margin retail/digital channels beyond 2025; diapers flagged as a near-term “soft spot” with planned innovation later in 2025; tariff exposure for wipes (China) and diapers (Mexico) acknowledged with mitigation levers .
  • Distribution breadth and depth expanding (e.g., Walmart points of distribution +33% and ACV ~84% overall), while category consumption outperformed peers; Amazon consumption +35% in Q4 .

What Went Well and What Went Wrong

What Went Well

  • Strong category momentum: Q4 revenue +11% YoY to $100.0M on wipes and baby apparel strength; Amazon consumption +35% in the quarter .
  • Margin execution: Q4 gross margin 38.8% (+530 bps YoY), driven by ~300 bps supply chain savings and ~230 bps product cost reductions; FY24 gross margin 38.2% (+900 bps) .
  • Operating discipline and brand maximization: five consecutive quarters of positive adjusted EBITDA; FY24 first full-year positive adjusted EBITDA; CEO: “we are an organization that does what we say we're going to do” .

What Went Wrong

  • GAAP profitability: Q4 GAAP net loss of $0.8M vs. net income of $1.1M in Q4 2023 as SG&A and retail marketing increased; SG&A as % of revenue rose >510 bps mainly on legal expenses .
  • Diapers softness: CFO cited diapers as “our most competitive category and…a soft spot,” with innovation forthcoming later in 2025 .
  • Legal cost overhang: management expects lingering legal costs of ~$1M–$2M in H1 2025 (add-backs in adjusted metrics), constraining near-term GAAP earnings visibility .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$90.264 $99.237 $99.836
Gross Margin (%)33.5% 38.7% 38.8%
Net Income ($USD Millions)$1.144 $0.165 $(0.811)
Net Income Margin (%)1.3% 0.2% (0.8%)
Adjusted EBITDA ($USD Millions)$4.250 $7.079 $8.541
Adjusted EBITDA Margin (%)4.7% 7.1% 8.6%
Diluted EPS ($USD)$0.01 $0.00 $(0.01)

KPIs and operational indicators:

KPIQ2 2024Q3 2024Q4 2024
Tracked channel consumption YoY (%)+7% +9.3% +7%
Amazon consumption YoY (%)—+19% +35%
Cash & Cash Equivalents ($USD Millions)$36.593 $53.441 $75.435
Wipes velocity YoY (%)——+17%
Wipes repeat rate YoY (%)——+26%

Notes:

  • Company highlights often round gross margin to “39%”; detailed tables show 38.8% for Q4 .
  • Adjusted EBITDA reconciliation shows sizable securities litigation add-backs ($6.681M in Q4) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue GrowthFY2025Long-term algorithm: +4%–6% (introduced last year and reiterated) +4%–6% vs FY2024 Maintained
Adjusted EBITDAFY2025N/A$27M–$30M Initial issuance
Gross MarginFY2025N/A“Similar to 2024” with comfort in 38%–39% range (commentary) Initial qualitative
Revenue cadenceQ1 2025N/AQ1 growth “higher than” full-year 4%–6% due to comps Initial qualitative

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
Supply chain and product cost efficienciesQ2: GM +1,120 bps YoY driven by supply chain/product costs and price/trade efficiency . Q3: GM +710 bps YoY on cost efficiencies and trade spend .Q4: GM +530 bps YoY; ~300 bps supply chain and ~230 bps product cost savings .Improving structurally
Tariffs/macroLimited explicit discussion in Q2/Q3 press releases .2025 outlook includes tariffs for wipes (China) and diapers (Mexico); mitigation playbook in place .Emerging risk under watch
Channel mix / DTC strategyNot highlighted in Q2/Q3 press releases .Gradual deemphasis of honest.com as a shipping/fulfillment channel beyond 2025; shift to higher-margin retail/digital partners .Shift underway, margin-accretive
Product performance (wipes, baby personal care)Q2/Q3 growth led by wipes and baby portfolios .Wipes leading; Sensitive Skin personal care consumption +96% YoY; top natural wipes brand; diapers soft spot with innovation coming .Wipes strength; diapers to improve
Legal/SG&A headwindQ2/Q3 adjusted EBITDA add-backs include securities litigation; Q3 noted legal costs .Q4 SG&A up >510 bps on legal; residual $1–$2M legal cost expected in H1’25 .Fading into H1’25
Retail distribution depth/breadthQ3: consumption up; distribution gains implied .Walmart points of distribution +33%; ACV ~84% overall; continued depth expansion on hero SKUs .Expanding

Management Commentary

  • CEO on execution: “Simply put, we are an organization that does what we say we're going to do…delivered revenue of $378 million…gross margins expanded 900 basis points to 38%…first full year of positive adjusted EBITDA” .
  • CFO on gross margin drivers: “39%…up 530 basis points…included 300 basis points from reduced supply chain costs and 230 basis points from reduced product costs” .
  • CFO on channel strategy: “We’ll gradually transition away from honest.com as a shipping and fulfillment channel…shifting focus and investments towards more efficient and scalable distribution models with our current retail and digital customers” .
  • CEO on brand momentum: “Clean Conscious wipes…Number 1 natural wipes brand across the country…wipes velocities were up 17% and repeat was up 26%” .
  • CFO on tariffs: “We currently manufacture our wipes in China and diapers in Mexico…prepared to navigate changes…various levers to pull to mitigate new tariffs” .

Q&A Highlights

  • Revenue cadence: Q1 2025 expected slightly above 4%–6% full-year growth due to easier comp; back half comps more challenging given 2024 retail events and strong Q4 apparel .
  • Distribution upside: Management sees opportunities across breadth and depth, including new channels (club, dollar) and expanded presence at top retailers; Walmart distribution up 33% points; item-level ACV remains low on key SKUs despite overall ACV ~84% .
  • Gross margin sustainability: Structural savings in supply chain and product costs plus mix of higher-margin channels and products support 38%–39% GM comfort range in 2025; no repeat of +900 bps expansion expected .
  • DTC deemphasis: Rationale includes inability to compete on speed/shipping costs vs. large platforms; shift improves fulfillment efficiency and profitability over time .
  • Legal costs: Residual $1–$2M expected in H1 2025; significant step-down vs. 2024 .

Guidance Changes

See table above; additional relevant news items:

  • New SVP of Supply Chain appointed (Etienne von Kunssberg), reinforcing operating discipline and supply chain optimizations .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 revenue and EPS was unavailable due to data access limits at the time of retrieval; therefore, a beat/miss analysis versus consensus cannot be provided at this time. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

  • Mix and margin: Expect gross margin to hold ~38%–39% in 2025 with continued expense leverage; the channel mix shift away from DTC should be margin-accretive .
  • Growth cadence: Near-term revenue growth likely strongest in Q1 vs. the full-year algorithm; back-half comps are tougher due to 2024 retail events—trade the cadence rather than the annual number .
  • Innovation watch: Diapers flagged as soft; monitor 2025 innovation rollout for category performance recovery and potential share gains .
  • Tariff overhang: Wipes (China) and diapers (Mexico) carry tariff exposure; management has mitigation levers, but policy changes could pressure margins—risk to watch .
  • Legal cost fade: GAAP EPS should benefit as legal expenses step down in H1’25; adjusted metrics already exclude these .
  • Distribution runway: Low item-level ACVs and recent gains at Walmart point to continued breadth/depth expansion potential across channels (including club/dollar), supporting the 4%–6% algorithm .
  • Cash strength and no debt: $75.4M cash, zero debt, and positive FCF trajectory provide flexibility to invest in growth initiatives and absorb macro/tariff volatility .