• Revenue: $99 million, highest quarterly revenue in company history, 15% increase year over year.
• Gross Margin: 38.7%, expanded by 710 basis points from the previous year.
• Adjusted EBITDA: $7 million, fourth consecutive quarter of positive adjusted EBITDA.
• Retail Track Channel Consumption Growth: 9% year over year, compared to a 2% decline in the personal care sector.
• Amazon Consumption Growth: 19% increase.
• Household Penetration: 6.7%, an increase of 23 basis points from last year.
• Operating Expense: Increased by $3 million compared to the previous year, with 220 basis points of leverage.
• SG&A as Percentage of Revenue: Decreased by 440 basis points compared to last year.
• Marketing Expense: $13 million, 13.3% of revenue, up from 10.6% last year.
• Cash Position: $53 million with no debt outstanding.
• Inventory: $75 million, a decrease of $5 million from the previous year.
• Cash Flow: Sequential increase of $17 million from the second quarter.
• Full Year Revenue Guidance: Raised to high single-digit percentage growth range year over year.
• Adjusted EBITDA Guidance: Increased to $20 to $22 million, an improvement of over $30 million from last year.
• Annual Gross Margin Guidance: Expected in the range of 37 to 38%.

• Warning! GuruFocus has detected 5 Warning Sign with HNST.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Honest Co Inc (NASDAQ:HNST) achieved its highest quarterly revenue in history with $99 million in sales, marking a 15% increase year over year.
• The company reported a gross margin of 39%, expanding by 710 basis points compared to the same period last year.
• Adjusted EBITDA reached $7 million, marking the fourth consecutive quarter of positive adjusted EBITDA.
• HNST's product consumption grew 9% year over year, outperforming the 2% decline in the comparable personal care sector.
• The company raised its full-year 2024 guidance for both revenue and adjusted EBITDA, reflecting strong performance and positive outlook.

Negative Points

• The company incurred non-recurring legal expenses of $4.1 million in the third quarter, with an additional $4 to $5 million expected in the fourth quarter.
• Despite strong performance, macroeconomic challenges and consumer spending pressures remain a concern.
• The company is exposed to potential risks from tariffs and commodity price increases, particularly concerning its sourcing from China.
• Marketing expenses increased by $4 million compared to the prior year, which could impact profitability if not managed effectively.
• The company has no current distribution in the dollar store channel, indicating a potential missed opportunity for market penetration.

Q & A Highlights

Q: Can you quantify the impact of shipment benefits on the quarter's results? A: Dave Loretta, CFO, explained that the consumption trend was strong, with retail up 9% and Amazon up 19%. Approximately 3 to 4 percentage points of the 15% revenue growth were attributed to shipments for retail events like Target and Walmart promotions and Amazon Prime Day.

Q: How confident are you in continuing to invest in growth versus letting more drop to the bottom line? A: Dave Loretta, CFO, stated they are comfortable with increasing marketing and trade promotion investments, which have shown positive results. They plan to continue this balanced approach to drive brand awareness and trial, with flexibility to adjust as needed.

Q: What is your view on the dollar store segment and its potential? A: Carla Vernon, CEO, noted that they currently have no distribution in the dollar channel but see it as a compelling opportunity. They aim to expand into channels that align with their brand and consumer needs, as young families shop in dollar stores and have similar sensitive skin needs.

Q: Can you provide more details on new marketing initiatives and their effectiveness? A: Carla Vernon, CEO, highlighted the success of campaigns like the "Skin to Skin" campaign, which focused on sensitive skin benefits. They balance retailer-specific promotions with broader consumer marketing to enhance brand awareness and drive growth.

Q: How sustainable are the current consumption trends and gross margins? A: Carla Vernon, CEO, expressed confidence in the sustainability of consumption trends, citing strong unit and price growth. Dave Loretta, CFO, added that gross margin improvements are structural and sustainable, driven by cost savings and product mix.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.