HNST - Earnings call transcript Q2 2021 | The Honest Company, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to The Honest Company's Second Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that that today's conference is being recorded. to conference like to now would hand over the Mr. I at VP Company. Finance Kim, The and Sung Strategy Honest Please go ahead, sir.

Sung Kim

year Thank you. for conference fiscal us for you call. XXXX Good morning, our everyone. second Thank joining quarter

Vlahos, Nick Officer. Financial are, today me Chief Officer; Kennedy, and Executive Chief Kelly Joining

we risk of of statements these may a revise date the opinions the our detailed release referenced our earnings our release that undertake matters I involve our forward-looking we that or to that to results reflect factors today. measures, more business note within a laws, statements actual publicly as release of federal adjust Please forward-looking any this uncertainties we well obligation forward-looking no future make refer financial results. to this differ and earnings that to call of Before the cause issued and also legal we our you as description including issued statements in as our for affect today These only discuss securities the SEC events. of eliminate to the materially. call, Please of light impact certain the results other items. our like non-GAAP number meaning information and would forward-looking of of could start, Also, certain filings, outlook results statements remind risks new statements to today of GAAP disclaimer revision during will our are the in will of about or that the which

of call at the of Relations today's call A turn non-GAAP Nick. the on additional of financial is to measures will that, You also financial investors.honest.com. measures section in this information broadcast available will I and these non-GAAP release. to website these earnings over live results our With reconciliation find GAAP regarding Investor a

Nick Vlahos

and effective to to Thanks, public products a our clean, you the around is providing company. earnings dedicated Honest Sung. consumers We're morning, on with world. everyone. call safe, Good speak excited second as to

living to work mission our love consciously. to everyone to continue We tirelessly drive of inspiring

growth of second in our of in consecutive quarter expansion, significant of solid you demand continued XXXX. seventh strategic topline despite saw that We in and COVID-XX XXXX a volume even second our of As in on release, revenue margin environment. our progress XXXX. year-over-year the in gross quarter initiatives top we XX% growth, light the quarter grew versus the challenging against quarter the of the earnings facing of had X% saw and we a with Revenue growth saw XXXX second quarter sequential

XX% we and solid product quarter headwinds offset initiatives gross Additionally, spend. trade inflation normalized improved evasion of of achieved margins as our levels mix in the and second cost

QX call, in XXXX. digital a we the XXXX million face the of we versus rate Even As growth of $X half inventory grew compared XX% mentioned of earnings our partner. by were to X% of revenue key first at the that's top in reduction on the our headwind, of half XXXX, first-half a in volume impacted first the and

control, our can initiatives to Our strategic we focus remain executing be continues to what against constant.

brands, ESG. to awareness our continuing to continue presence, retail introducing of focus on and innovation, and our broadening digital our commitment product We increasing breakthrough

Two amplification. their total, Length our These reach. on content increased including our influencer million pieces growth we XXXX, campaign products. launched that QX serum recent Extreme integrated our Lip and these use Your our our inspiring awareness sponsored to focus vitamin original strategic consumer and Sponsored expand Choice we content, XXXX. to featured our Throughout business over honest.com, acquired will continued of brand across touch-points invest in lead we XX initiatives product. total half including to paid and creating growth our and positioned new exemplify influencer I update Beauty each for more strategy. help progress around provide through products, Personal portfolio, packaging expand paid innovation, traffic placements, to the these our we to quarter Honest leveraging supporting Mascara and our whitelisting and engagement, Hero believe Community, most business and campaign quarter this media marketing XX% of Gloss-C content, consumers lasting an already XXXX. Beauty impressions Radiance of Jessica marketing win Eye Now, well mask, for extremely brand-handled award-winning are as were across C earned honest.com and content, with to our remain drove of and campaigns us See By quarter for on the sustainable in featured continued media and campaign the Care Readers' Skin of our dialog Starting XX% Skin XXX than continues roughly Commerce authentic media. strong first Award Beauty the consumer to campaigns XXX Hero full-funnel created Personal Care our as amplified XX% a marketing This our through support Gloss in generated We these Content, In Personal Alba earned which including and that XXXX. user-generated Skin and and for the of second Beauty context our coverage. World our campaigns business, in award campaigns Care third Lash media, and initiatives combined these Primer. campaigns and tactics connections, campaigns

marketing the expect and and Personal to in the Skin growth half into programs, pursue re-stage the Care. continue to in back support to Given continued success these of we lean

we performance, marketplace. breakthrough innovation. innovative of our quarter first delivered of the into product diaper In the XXXX, market quarter in on fully improvements consumption trends the in Second, support introduced continued second Conscious product a we that XXXX, sustainability, Clean This Diaper margin. to our driving and the phased in lift

diaper mid-single-digit growth on and COVID-XX stock-up saw the year-ago we despite quarter performing diaper the Diaper in is business for our yet. sustainable new performance these our Our period. and in sustainability, most improvements impact best Behind

outpaced quarter XX% compared our retail Diaper the total this consumption market grew growth as Our Diaper at Diaper Honest share market to the market. XX%. increased

Beyond the also and innovation, in the Wipes, introduced categories and skin such clean. new as and quarter and in our we Wellness, items benefit with which second breakthrough Beauty nourish as innovation Household at hydrate Diaper our wipes

Honestly wipes, sanitizing to around which Tint scented gel our our natural build Serum-Infused sanitizing product, our Hero helped Extreme Lash Mascara. our plant-based wipes Eye in Our our [ph] Beauty we've fragrances to Length introduced line and Healthy portfolio

our balanced mix of strong our to across led more integrated pleased were we in our growth a strategy to Third, deliver omnichannel revenue channel, channels. retail as

quarter Our in of this macro XXXX XX% quarter vaccinated. seen as willingness sheltered the accounted opposed trend, to back in have shifted our we to stores XX% regional channel have for into increased as only and consumer the total second to line in where consumers of place become online revenue get shopping. with people second In more

from As channel. have to within a revenue acceleration channel in an causing shift a we retail, digital result, retail seen growth our

Our to product opportunities partners. We and our presence consumer Significant on-shelf we're second to retail with our believe in our growth exist of strategy capture depth the whitespace XXXX. existing compared XXXX to retail quarter shop. chooses channel wherever omnichannel of well-positioned expand with offering the to new grew our XX% and

half with expansion diapers launch secured example, expansion physical diapers launch digital including with for the grocery Walmart of our and of and Personal our half the expectation of assortment include with line partners, and XX,XXX with brand Canada, of Hannaford, launch approximately in [indiscernible], our with a of Kroger, with of the new back distribution digital partnership Ahold, distribution total [ph]. the over on bjs.com, product category. distribution wipes Weifan coming key Skin XXXX strategic new Highlights we in and For points Care this

which reiterate Before wanted I to to since turn of has a commitment DNA to our moment over our Kelly, been founding. take part it our to ESG, I

have and to We designed do. to need, diversity, and in From all mission charity products on the of and we're diversity infused inclusion real meaningful our impact. to transparency, with safe, in those working that and serve sense create developing be values to deep embracing we ethical a sustainability, partners a of hand-in-hand inclusion, purpose

partner with built making families products to the Honest in to impact communities. we natural over foundation charitable our are help products, a to XXXX have course need. Honest and XX our an we and million has leading donated XX-year To and celebrate over committed of excited the XXXX further and partnership community donating to for million Since This official items renewed quarter, BabyXBaby grow essential brand. we clean wellness believe individuals to summary, inception, with we're as anniversary, to highlight continue In support distribute our XX BabyXBaby. BabyXBaby's underserved

platform we're to to commerce content, We to our We're and product solid capitalize on strong good continue with growth our well-positioned consumer to community, all across strategic and year touch-points. the to growth and plan. our believe advance pleased drive start continue categories

Now, Financial I to like to our our to the would Chief over Officer Kelly Kennedy, results. call second-quarter turn review

Kelly Kennedy

Thank everyone. you, welcome, Nick. And

of consecutive our the profitability de-stocking comparison a despite growth quarter gross topline digital inventory year-over-year the the of headwinds key seventh performance in quarter solid and reflects behavior significant COVID-XX by XXXX and to This with challenging margin stock-up partner.

key moment strategic our performance as with drivers. the our Honest priority. strong our of quarter's positive execution Starting brand, reflects and well against results This the team's as financial

QX XXXX. X% Second-quarter revenue totaled a $XX over million, increase

Personal second the we June we with Wipes, was quarter from innovation on the X% first was delivered in mid-single-digit the XX last Based growth key X%. volume XX, lapped for our highlighted, in in full Commerce stock-up by Diapers Wipes and the our demand business our grew of basis, QX weeks COVID-XX Nick data channel. quarter incremental that and quarter time the we X% Diapers partners. retail a XXXX, Skin of quarter grew our sales Skin with XXXX we XXXX. was driven market. Personal Starting Wipes on As quarter. XXXX within innovation for and during On syndicated of second in COVID-XX declined in June new by category further programs vaccinated category. up from levels consumption for XX% into retail during by second Personal increasing behind $X.X for consumer Diving data our compared as retail on Of driven retail of and we and XXXX Diaper weeks Wellness grew the and our the the growth with XXXX. saw and QX our stock-up continued revenue XXXX. revenue growth decreased and Diapers as as versus managed investment Omnichannel Based the market QX of grew Care in decreased Diaper share Skin diaper behavior was and the business estimated ending adjusting driven customers drivers customer product period. merchandising higher the products Personal XX% as our by as last XX%, people demand XX% million to XX% and Content, we share this of of inventory. Care had became Diapers in in XX and quarter second After and QX note, top consumption Care Diaper Care ending XXXX. products syndicated Wipes our in of strategy two-year Household grew XX, second Community, XX% standardization for the heavy market of

results to by turning Now, channel.

expected other XX% a consumers a strong XX% For shifted as rebound of XX% XXXX to on of many to a growth in revenue but declined basis. to stack vaccinated channel channel XX% to a the rebound XX% stronger million, into only retail $XX.X heavily when up shopping the we consumers shopping. second retail came XX% as than brands, in increased quarter up basis. the of channel a represented the Retail as increasingly online aided and the significant half a two-year was digital back quarter quarter two-year the $XX.X stack and second store retail of mix Outsized first million, in returned Like total balanced revenue of revenue their on revenue. accounted total place we by in of saw XXXX, In our in XXXX. saw traffic of stores consumers second in-person the more to XXXX revenue, business sheltered retail for behavior shift to compared quarter,

Care of this up distribution key benefited expanded to and Wipes categories. a was major partners products the free both our and merchandising Personal largely and Skin consumables in inventory the with Target like impacted quarter space cut decrease by second quarter by and We inventory who reduction in in on-hand in the revenue digital Diapers other our promotional channel digital for ahead and partner event. Costco events and incremental also The from

this Honest, to was penetration, our reduction more for due While digital was not higher specific to us. it inventory impactful

quarter second $X.X XXXX. consumers by million, and customer by as quarter of by partners XXXX, revenue to the the key During declined the for X%, consumption this compared of second increased each, while these

XXXX, to our quarter, gross points the which were continued of as improved points. in improved cost operating quarter of XXX Gross second on progress now for on quarter we a against margin. diversifying versus a delivering basis versus including margin transportation Turning XXX pandemic. margin Diaper higher the across benefited headwinds evasion, XXX on of margins Conscious points and achieved from sequential evasion trade part lower gross of our the over Clean and XXXX, the the pull QX portfolio by In cost the freight mix back basis points of XXXX, projects. QX. second by our approximately basis higher focus XX and which QX, quarter quarter of were has for during down margin innovation, full levels second in Gross improvement margin leverage, of Diaper QX XX% basis to retailers' versus reflecting over captured Overall, our input spend was QX up costs. business. costs events products offset Those higher-margin versus was XXXX our

projected Sustainability to by also that gross QX initiatives of margin basis in evasion is XXX a points. other our number Beauty cost and We Beauty, approximately throughout improve launching XXXX launched have by headlined re-stage

operating cost we relation input inflation plan focus area We the our in driven evasion XXXX. record continue current closely primarily versus levels XXXX, inflation, us for productivity that cost by of million to $XX.X there to of be Total increased will cost uncertainty Given to a plans in monitor level. items. recognize around three environment; QX expenses is

IPO transaction-related expenses. we and First, had $XX.X in million one-time

increase million expenses including included expense upon operating offering. the that a equity Second, recognized vested with compensation, in connection $X.X in IPO stock-based performance-based our

million strategy the Diaper. versus second Conscious over are on the Care our We Skin marketing and Adjusted $X.X of Clean growth sheet. incremental with short-term $X.X position supported our no an against business $XX million international accelerated QX million. well-positioned XXXX the as healthy We and launch we invested in with next innovation, in execute the a and in EBITDA of to we quarter years. as of few loss domestic quarter Personal flexibility Finally, a in marketing new cash balance we investments retain debt XXXX XXXX of our believe expansion and invest the financial was and ended we our for innovation, product and

mind, the Trends that in cost as share Looking towards remainder year. environment our on the behavior. of an volatile on the half With outlook for thoughts I XXXX. around the remain for the of dynamic, the remainder that back consumer uncertainty significant navigate we impact will input and continuing some is and of COVID-XX its the year now pandemic pressure,

expansion. year, disinfecting market and consumers growth share and relates double-digit Conscious Diapers line which to revenue, our Care total. strategy, believe return re-stage. will normalized Community, expect our to and on penetration Care and reflects and the market Content, period our more our in we people and more vaccinated decelerated become half As Skin for perform will Diaper trends, we Personal our a product at their our consumer to business Beauty wipes Personal categories and to and for rapid share back for drive Based macro routines. of is Diaper growth, pre-COVID sanitizing prime the our with expectations resonates In baby We as it than wellness comparison Skin and a has Wipes in household behind with expected year, returned the topline products to Commerce pace continued and Clean continue demand and

and sanitizer June products declined disinfecting at data household ending the for had roughly we and retail products of XXXX last the to consumption compared revenue to by total XX XXXX Household We the half during and market year, as year's revenue. XX by and expect XX% XX% period roughly cleaners consumption example, be hand For flat per declined Wellness weeks Wellness Household planned to be but time in now prior same XXXX. to

forward diversify As drive and our our allow future developing to Wellness this Household innovation of to category, we the category, growth. and look are including we to to product reinvigorate continue will us product portfolio plan that

cost to front margin, the product pleased initiatives year, are improved cost evasion evasion the Beauty of headwinds half year, We mix. re-stage. the with been the labor. driven including ongoing have freight, as cost in able in relates input gross transportation, As from pressures, and of we and continuing achieve it by to back the Sustainability see margin coming such half we initiatives our do But our we've

to half expect back we XXXX such, our margin As gross be line with results. of year-to-date in structure

year, we for XXXX six Skin in Personal performance the months first and to Care Wipes of topline reflect we and the proud our Diapers to in date, target against and deliver total. revenue were As on

a We despite and our a significant also headwinds event key overall the partner. at de-stocking of business exceeded gross expectations EBITDA adjusted digital for the margin

we growth algorithm. conviction and strong continue product in growth versus we in our execute our is a The Strategy have our As outpacing to conventional natural clean categories. XXXX, brands market

product our growing innovation. share our behind categories in we as marketing major our and market core invest are We products

We Digital omnichannel points strategy driving with of Partners. are our Retail our and and expanding distribution

will portion to of I to our operator Our value as the the and higher With CPG turn call. the over focus Q&A next-generation growth that, the position begin Honest's is over long solidifying driving the the while term, shareholder plan on on call company. executing modern

Operator

from Stanley. the Morgan Dara question of Mohsanion with you. [Operator [ph] coming Instructions] Thank line Now, first

open. is line Your

Unidentified Analyst

guys. Hey,

So, think not just start retail is one consumer as than more strong that does a as we retail the about quicker at to your sort of as a is with it timing coming e-commerce, inventory longer permanently key are back out comes is standpoint. or something from the seem of like mentioned then, e-commerce business The and drawdown we with seeing you expected, to wanted that customers, expected that's strategically And term you e-commerce. of return shift?

a impact change to wanted result that shift just might your that expectations your and might understand that as of long-term So, how growth we're seeing? strategy

Kelly Kennedy

Thanks, Yes. Dara.

of in reducing penetration, million think we we to supply of inventory digital this the at carry just out other high four about brand companies. -- certain high CPG XX because kind weeks X, that with I about free inventory. As is called this other large saw than than partner that QX saw to supply the weeks of of growth we categories, chose their we think impact to saw was historically, the kind what inventory of event. them promotional really that ahead weeks space quarter, was did kind Honest partner that in out about our We call Overall they called so decrease a more we roughly was -- of tended down to of up $X.X

them is offered were we will it. pleased pre-destocking about other part we DC participate lot we're to on excited have in look that this and have them We we do that with seen kind their there. that out of of so of seen planning to a ship companies, supply volume what return to large kind And of have to in with we're of consumption. are kind the program order we with seeing a take level, new this But over a line partner they at program weeks not that. and CPG a higher of allow return of not pretty our As small QX, so in

quarter, And think we kind going a we've structural between lot direct balance and really, on about just think of talked being you'd roughly quarter this really in year, digital we took we when to I As I And back noise because just our year, our kind in years couple more not between QX only do impacted and retail in is a of shift this seen it is to think as We of retail was roadshow. million direct. also about relates just shift. equal the kind equal back direct it's mix, stores. then given accelerated was that what retail and recall business, of of It's no, of event, people There expect see this it out you think the a the to just was because just of because retail that retail, XX-XX. it weren't our XX% impacted about accelerated. about de-stocking change strategy how last dollar. a to think And but this in $X

back you digital add that actually a So, quarter. been than kind would larger for little of if in, the retail have

Unidentified Analyst

are the have And pricing pricing? one just you of seeing, thinking Okay. then, with put increased incremental that seeing? you you any thought higher commodity in terms cost actions follow-up And relative that inputs the are Thanks. what to we're into taking

Kelly Kennedy

we year but we about table, pretty as give this thinking the pricing little We that back think well. the have some in, Yes. heard, year-to-date color you've on good in in taking a change half We're of And point. wait-and-see competition, feeling last not has share action this our we're line it with some gross as gaining we to will take Diapers of that and in pricing what at we our we we opportunity that some with those considering announced know margin. really, results gone guidance as is be on option of still from gave an quarter. coming kind is is as [ph] trial pricing particularly fall. No consumers taking -- to a the that any we disclosed It's did

-- transportation. small really good seeing, products parcel cost between like we're and offset evasion balance then BTC in inflation our shipping the have that feeling we're to cost we downtrend So, of is kind in our a which input predominantly

Nick Vlahos

your fact I add, hear Dara, continue right is market now. take the would we good to thing that only to share voice, the Well,

business the that's think to our take down the you a of share. initiative, Diaper I the consumption So, got drill business we're when look, growing behind Diaper is which underlying we've what Conscious and into,

You period time share. when XX% up XX. consumption the increase over the look you from overall Personal at and about were take consumption through overall then perspective a XX-week taking at when And that you the data, again, Care, a look June same XX% for look last consumption at XX%. period, up business

is making what like of key about we the the first look months there's at six top volume going when months the of out the look first is you look that, fluctuations six to you at year when you the So, the drive top here business, at at when and of again, this when yes, company, new talked size But X%, look be came that's the seeing the you sure line related. we line what we and is quarter. for

over sits industry and look a most the from volumetric of flattish where you know perspective, are mid-single last year guys six volume perspective. [ph] first you negative at the to a quarter, over the industry from XX% the flattish negative the to at digits If months

our of end year, well months said. first it day, around comes exceeding when talked, had adjusted margin that look of we of the margin six when we've we the the as gross of strategy piece kind conviction to as the what a EBITDA for as happy exceeded at our expectations we're gross at So, take the a you the lot

a this about, external partner around very perspective kind had we the here talked choice, anomaly on we're from the the of kind delivering. based a the when So, that what component strong of but is business, what you see of digital fundamentals made

Unidentified Analyst

Great, thanks.

Kelly Kennedy

Thanks, Dara.

Operator

JPMorgan. the from Teixeira coming question line next of with our And Andrea

is line Your open.

Andrea Teixeira

you. Hi. Good Thank everyone. morning,

two So, questions. I have

I wanted more to the me, for ask marketing investment. the and innovation First, on

QX lines. continue of elevated against we spending contributed should And second So, half sales to your marketing a then your products also new for much year. the expectations division in terms for see commentary? to how sequential And in being the product the probably have the of from an full double-digit in key appreciate for QX and And for Kelly. Wellness I each half the contribution? breakdown question

-- you we a thinking half So, be high more or -- that Wipes and thinking single company big into pretty for implies the a be for digits strong how Diapers second in double implies total we for year? should get should it to will the be rebound

Nick Vlahos

I'll Andrea. start morning, Good off. Yes.

we a we performing we're for strategic year Conscious within Diaper We're a As perspective. two and One was at us. innovations were referenced There executing to it big the Diaper When against from look excellence pertains Diaper now, sits you consumption with with right excited innovation, that's you business. the as of about started XX referenced this take the against weeks increase the business kind we've where mid-single-digit at so, it now over XX% QX growth last consumption And when share. how right look today. the very taking that.

second big consumption now just the the Skin about again that for XX-week was to was element and market. what time And period. year. innovation data And showing Care Beauty the our that for business, of overall within re-stage, our Personal started the component second seeing hit increase is XX% The we're

behind seeing that marketing investment. thing the other we're The

Personal really year consumers with coupled came roughly Relevant Skin This in we're last Care. is year, marketing far, investment, thus the the So, strategy and that and kind about the is investment new looking at so Care marketing community, into coming we're seeing in bringing about the our from XX% within we're that a datasets start One we've is our you our franchise. because Personal our to in talked that with see looking omnichannel. business, just brought commerce to about. consumers coming see into leveraging and we to through of XX% put the over as us we're perspective, in we to mix we're market, the and leaning and digital shift Skin our people business, honest.com the XXXX, at area innovation side of which piece starting to honest.com innovation new then drive advocacy, content, you that are are what

that. for that consumer So, we're is wherever interested shopping, positioned in

we the we versus that's consumer saw quarter, grew are more retail available why ago. XX% This Retail and there, year towards gravitate

look things different at year, fluctuate, be the Lambda able we half capture and Now about the start we're Delta, talking that of to talking as back positioned see about they're we people variants, as that. as to shift, but well might

innovation one, to marketing Personal our that increase seeing in we're it care market continue the driving on and plan share against Skin, again, into new working seeing innovation against spending consumers is start to overall to planned. and franchise we're Two, going So, we're and based because these we categories. spend we're coming strategy as as

Kelly Kennedy

Yes. -- for numbers. it just as the I'll some some to add clarification relates

we XX% a believe for we as be of big that from at end percentage such high communicated do of think sales right innovation marketing year. us because range. to level that We the is the this to and launches I XX% expect we have

clearly, the between we innovation, it driving Diaper and the is Clean As year think about this our Conscious Beauty predominantly re-stage. growth

innovation clarification take equation. about So, Household a as that percentage as of and a of growth about Wellness seeing, we think of And growth, when the finally, kind we as out total of growth. outlook really double-digit think really we're the our kind outpacing driving it's that you just

of $XX thing year, Care and total important COVID And double-digit Diapers highlighted, Wipes, is, we to in I in the we XXXX growth. to able this be So, and remember about acceleration million. called the deliver Skin for think out we're Personal going to as

thinking base out you Clearly, the of of and the robust kind as [ph] mid-teens XXX see kind of kind we of when for think what for business, way is which is the kind about So, you strong a about it. growth pull XXXX. are can that

Andrea Teixeira

both. you, Thank

Kelly Kennedy

you. Thank

Operator

question next our from Jefferies line coming Wissink is open. Stephanie line your of with And the

Stephanie Wissink

just morning, up categories to clarification should the want and Wipes, want double-digits? each grew just double-digit growth. to Andrea's and And Good sum is, Skin growth, isolation Diapers you. prior Personal I in not get maybe question everyone. Thank to to Kelly to with us the on together you respect and Care follow the

Kelly Kennedy

Correct.

in for deliver we Wipes, is we our I and that important think line first delivered kind with year. our Skin all most and expectations are that will communicating of are Care the coming indications and are, expectations thing on Personal the half. And and Diapers the into that

right what come Household about was though numbers and year pace that for shelf. Wellness last there Household year, anticipate, is especially -- think coming for there. won't pace we we've at and year QX that some flat. and in signs what half the of much the expanded. first of increased, really innovation small what Household huge rapid back see deceleration were and more in delivered for just than that some decrease, back is us, have we Kind our It as of about in Wellness significant cases the expectations saw and now, a you'll as Wellness did we kind the the So, even thinking from look be to than saw in declining just category What's we've you faster change potential half launching the our is are we a this a year-over-year changed COVID great and seen the on but no these into And driver anticipated at we that. that did we it's know half, actually as you of I

Stephanie Wissink

second in to Okay. you're think gross I And wanted margin because down then, half first to half. the I line saying with translate that

evasion secondarily first or maybe that the make reduction XX.X%, So, if there? on And was the have is of there Wellness the just effect margin with higher-margin, on the and Conscious in in Diaper Beauty Household the step-up just bit sure mix base in that a a being -- an the if and what we shift half. I Care of we're your a just wondering and why back cost profit? wanted Is around correct Clean revenue which I not burden Personal gross then, seeing was absorption to cut improvement the half think XX.X% towards

Kelly Kennedy

Yes.

our broken think when So, think Wellness, but Household in total. haven't we and Wellness much margins category the Household about by it. and down with pretty really is you we about line

like I gross [ph]. anticipated, seeing our shifts mix within costs in declines any much we of resin everyone small higher that and really that's we about in drive our When like of kind some margin are So, doesn't input Ocean mean of than material freight in product amount puts coming the freight. cost transportation a in and some category at input clearly, rates in, else takes, think way. we

about The our I events, but not other in we promotional just ours, call, to canceling retailers think thing this everyone's. remind, QX that talked our QX, want were I just

also that biggest were QX Clean impactful. that of the year. half for market but Conscious the have headwind back we in will normalized this we fully largest trend year, in The half incentives was -- the So, whole quarter is for QX. the back again, the positives, of be trades the of the Diaper for

full across as on have shelf. Diaper the the benefit, get we point improvement So, a but basis that Beauty still restage, don't we'll getting it's XXX year, the line

running early it very Beauty in get in it's QX. and come up So, restages,

will We positive the of benefit that our cost so within gross the biggest evasion get margin. being

benefiting also product are by We mix.

You'll year. XX% see XX% our of versus Personal business in Skin was Care last and overall QX

benefit are we mix. the So, that product of getting

anticipated Skin expectations as our not again, Care from declines. within Household operating of revenue Although, again, Wellness because much leverage that to and then, are with was we, Personal line and And in the benefiting numbers. extent

Stephanie Wissink

Thank very much. Okay. you

Kelly Kennedy

you. Thank

Operator

coming Our of Spillane question with America. of Bryan from next the Bank line

Your open. line is

Bryan Spillane

Good morning, everyone. Hey.

Kelly Kennedy

Good morning.

Nick Vlahos

Hey.

Bryan Spillane

Hi.

of couple a questions. So

be on for that maybe Kelly, and reset we what this using sanitizer. is one, First in was, just guess, now this of base kind the for Wellness, business hand we if going a I should forward projecting benefit COVID basically a Household

here? off what Is growth we sort do this forecast base of revenue normalized Just to new trying this of? to with use what we understand

Kelly Kennedy

there's I That's you of a uncertainty know COVID. mean we what Yes. lot are around doing. as

a we've has in up not sanitizing comeback While the might disinfecting from get to spray level. and in kind anticipating kind that QX, seen, lows some of prior pick that we we are this of

innovation. will We some have

a of more innovation as coming Wellness that I Household was a and some half COVID space. think XXXX we from talked get than on bit yes, in component into and million $XX impacting significant we it kind little But, and Wellness. XXXX, of of very large Household in

the driver. that's really So,

Bryan Spillane

And of comps gross the quarterly pretty then, the sense. makes The year. half in on half comps -- that Okay, the margin are commentary different. for back the the back

So, so do understand last margins smoothen we guess, the interpret in year, if to gross we third being of to lower I flat quarter Just I anything each or were contemplating, the as trying gross should should phasing quarter, margin be there out? the we fourth is the it terms guess, than quarter commentary?

Kelly Kennedy

Yes, great question.

quarter. So, the last year was an fourth in there anomaly

puts on We for expect it us. normalized, QX takes we and would call that or be QX to call-outs out margin between and no

would we half QX QX be with for you line in say consistent well. as what could first So and that expect,

Bryan Spillane

just Okay. And then, last one.

of last two, over Just on from that and, earnings know or in call. the are really just it relative course been, things some again, in Like the has thinking inflation seen But you year. the sounds like guess, maybe the month view about inflation the the last you've inflating I more.

get you coming just may but where in to an of the Because transitory some inputs? the inputs trying there? understanding much tied I kind how seeing it to increases separate it understand is or to if bottlenecks And much is trying just maybe of supply more in like just of of other, don't And the more be those from on certain cost areas differences the based So, market one can, pure, than economy? maybe we're of it commodity seems are? how know, chains

Kelly Kennedy

that kind freight, of which across breakdown some board. across highlighting a freight have but comes heard in we have is that. we piece just kind cost contributing. are and we the We board ocean, input are specific And around both where really the different year When was we kind labor our and not that seen you've market-based started did transportation this. the the of over anticipate ocean call-out than Yes. a the predominantly and don't hire because that It's bottlenecks, and between main but business transportation of think of we about just is the small where of

As the consistent distribution gone challenging we the and with board, it's have labor to think market. kind in stay been seeing our and have the we in we're there about up what center across of rates

for the are our our things impacts. fixed-price contracts one that's for other us were large of surgical again, are partially kind than smaller other commodity of that place. shield because rather There So, we impacts pricing. But and take packaging-related

talked it's labor about market. do offset particularly individual continue or broad-based we little reality the had trying that success being taking a lines at impacted, so. individual see to categories on certainly, a We're very just pricing as we'll we think bit we're try I product to focused offset And on to good really certain we time. this SKU have But but that. costs, to in these seeing, not

Bryan Spillane

Appreciate okay. Thanks, it, Kelly. Got it.

Kelly Kennedy

Thank you, Bryan.

Operator

from line Champine Capital. the question Laura with our next Loop coming And of

Your line is now open.

Laura Champine

difficulty this Wellness else or on sort the the Thanks shifts in and the business that's most radical reduced Household It's happening your for forecasting of driving my that's question. related all in recovery year? year-on-year. taking expectations channel the change something Is thought process because this is to there just COVID the

Nick Vlahos

that I'll Yes. take one.

period a kind that levels the same kind from the of have would one time hit I what mean no happened. perspective, of the during I kind at year last macro predicted it think, when of transpired COVID

in happened you that ago. it wipes, paper say things and toilet saw the sprays year You a and it disinfecting all in

But be of transpired. revenue it of seeing point to we're sanitizer been XX% took consumption that have and As start translated had will would what when year, consumption the are year XX% down when bit hand at look be kind that sprays, a macro a you into and consideration like that. more negative we things the type what's in last at looked currently from at we look perspective to about this that in thought the would you overall would happened see the plans, -- and XX-week, the you disinfecting at behavior places not to XX% sticky as XX% those this and we've market

at and business, see based anomaly based on forecasting is that's Diapers we that here visibility on that consumption today, on right the Skin look have. And Personal expectation we based that last event seeing this year. happened based that have, macro pacing from we're perspective we a not now our at you we're again, executing that's business The data Wipes the expected. information on look as Care, and So, you why, our

products, But well-positioned that's closely. transpires, were things Now, that capitalize again, on a well variant, capture with the things ago and our able the variant, potentially to -- retail as to monitoring we're as from ship, perspective omnichannel this Lambda Delta consumers changing. we're are we as like the And to what that well-positioned to we're of be start both that. digital with year importantly, brand, consumer. something as component

Laura Champine

Got you. Thank it.

Kelly Kennedy

Thank Laura. you,

Nick Vlahos

Laura. you, Thank

Operator

Grandet And question our Guggenheim. next from with Laurent line of the coming

Your line is open.

Laurent Grandet

question, I in morning like very back actually $X.X Good e-commerce. the do mean the to to had I'd first headwind Yes. everyone. the come in you million

if in say, was a e-commerce customer even impact million. let's growing that this $X X%, ballpark assume the you So was

If digital about you segment have $X the still X% to segment up being down million. that or you actually add

So, else e-commerce seeing is for that should going actually the is segment anything shift e-commerce forecast from digital Retail or we or forward? there it you are know to better -- to is

Kelly Kennedy

going about is Yes. that people we're stores. back event, one de-stocking seeing total everyone event, Outside behavior the are that they category, of is talking are customer in the digital the and vaccinated,

about huge expense digital in business. the retailers the many this many, not of their at seeing see surge traffic You'll talking are growth and and business they

to talk wherever a consumers want I we advantage. being, think that's the about real shop, a true as So omnichannel business,

or That's at. that grow really track seeing what shift, think digital are that the retail. look impact to you're us channel Nick where our mentioned, track category were share. picture you And people about it's was in third knows Digital that, between total up overall. regardless creates quarter the you to represents know, yes, example, kind shop outpacing future of looking excited at the that great channel, up it consumer whether XX% of of shift lays, diapers, whole our we're category a for for the about significant our buying I the market noise. who a of growth of in But people -- As we're and the the share is into Clearly, driving a more business. market What we're that that channel expansion when completely And is regardless what only Diaper data, XX%, XX% third Retail. a

Laurent Grandet

you? margin does is I than Thanks. impact shift. is to And fair I profitable assume it by a the as mean, digital on or P&L? than the how rest retail? And assume quick for that it And of e-commercial much more gross follow-up that

Nick Vlahos

Yes.

For of that take to across the this get-go margin look look part is, thesis those shopping. you businesses our a consumer where we at when from at digital, it's retail comes when Because profile the [ph]. and was agnostic we're us, is are it whether when they privileged

one in turn at about some little into this look digital shift to about, this a And that starts back where talking that lens now have around lot again time. omnichannel talk that you through when be it retail, there we're that's ability to a well-positioned these we than and of are we're of about the of piece traditional variants If So, maybe way. players different start around of now, folks that business against more positioned accessibility perspective, shifting into strategic consumers component. as there. We you a also. at that in And that certain again talk to see a consumer is from why deliver that's some point to

Laurent Grandet

on. Thanks. it Okay, pass thank I'll you.

Kelly Kennedy

Laurent. Thanks,

Nick Vlahos

Laurent. Thanks,

Operator

from coming Group. with Dana question of the line Telsey Telsey next our And Advisory

open. line Your is

Dana Telsey

Parsing and you business, apart Good retail it the everyone. distribution morning, the like points sounds digital also. got side new of

terms you I Thank do mentioned you of forward? XX,XXX distribution points Is over then in have see terms going of a points. I new follow-up. what distribution cadence retail you. the think And that and typical in

Nick Vlahos

able Strategy drive our and part introduced our partners. to omnichannel to of strategic our look with be plans place, we our business. we to continue we drive to in XXXX accessibility And this When put plan is Yes.

distribution when those look physical dot that the retail the at as as XX,XXX we side. on on well points they're So, you was the And both partners, com side, referenced planned.

that us in picked we stores the now. business that's we've We we've fact now, doing of the physical got like Canada business. So, business and folks now Coast, Care some another Walmart we Diaper for up that drive love Personal bjs.com kind up with Diaper East represents securing there the our footprint as had and with Canada, partnership a well

the of at well how on part we we drive of of partners. we retail that as the look forward, that able digital right be to physical as plans see to based going cadence consistent So, strategic both the look continue balance business as omnichannel And component. our cadence to long-range as a to you're is kind

Dana Telsey

it. the seems results And do with envision in like the uplift Got the an in normalization? the then, the you is the which about you margin as typically Do that How flat new in back think back that the in-line guided now see gross half -- go as, you to is get this year. It of year-to-date half margin. you forward? gross

Kelly Kennedy

Yes.

relates gross around hasn't Our unusual changed. cost to highly input thesis evasion, a great it cost had and year expansion some it inflation. We as margin was

we're be to to And able year. actually deliver kind so, the for quite of proud XX%

think to the As about evasion the continue driver continued expansion we we benefit -- again, business. in we Beauty have mix with biggest operating up evasion coming and really cost cost will re-stage come. lined the us product leverage do But years as grow to

thesis. overall has nothing our So, in changed

kind Some to input target the of some historic of of get it down we be cost to way. be will relates reliant highs in of on gross timing will as our margin these some able backing to when

so And that the timing. will impact

Dana Telsey

you. Thank

Kelly Kennedy

you, Thank Dana.

Operator

William the with from coming final Jon of Now, Blair. question Andersen line

open. line is Your

Jon Andersen

in second the growth year, give the half the more detail the Diapers double-digit year the Wipes, is Care, on of the the the the Wipes, half any ask Diapers assuming in about and the a for relative individually, if Wipes stronger Personal there comp the, Care? of Skin more the wanted Personal of re-stage to challenging and Yes. gets But Skin -- back you on the broadly the second be would in talk look just it in the then the looking Thanks comp actually in Skin third quarter. that looks more color question. Care, and challenging low-single speaking, much color let's there just bit than outlook. and quarter Beauty at to bit in us as low-double-digit I'm be more little the helpful. for Diapers a third about about like as range, on something more you'd I second In when quarter. and second and is can you And in comp Personal you little relative say, magnitude? But in quarter and something again

Kelly Kennedy

Yes. were double-digit, you each being out to just total And when guided Wellness. we Household in again, category take haven't and individually

expectations. So, clearly, our the Care. outpaced in in seen Beauty growth We restage continue line back our said, that you with -- we've for half, as Skin will and to Personal but anticipate the

we when seeing response seeing consumer at we in are share what look there also a continued as now think seeing to Clean the we market Diaper we're strong expansion Diapers, Conscious right well. I and are

year of comp are less So, for had we where as trajectory into quite Diapers. is go that pleased pretty first a Wipes comp, the challenging wipes. actually of with QX -- kind the back half we and the and half for does challenging gets the

fuel that then, that trajectory Skin of of about then, softer think in have the in And Wipes comp it's data in and we on and as total, the Personal retail consumption the Skin so, again, then strength And of half the the that what early but see in Personal off seeing, Care, will and Care can good of and right expectations coming trends. growth. now Diapers again, you Wipes. really back And tracks year we're the we're we the some seeing in Beauty re-stage, it's

Nick Vlahos

would Kelly John. -- I to just what add, just just And here. Yes. What just highlighted clear building on get crystal

market, this is initial COVID the that guys ago. driving you that half, really planned Wellness Wipes, bump incrementally year Care, consumption what at on from Household a Personal of a was year start and change had have consumers no change today Skin the not kind within around the macro And and we've expectations. our of communicated, and expectations. we our articulated expected perspective Diapers back As here back and in the happening seeing that based based been post on half, factor the no the we've that's marketplace

seen haven't within the component we're about as talking that's the that And change that. We the plan. being

Jon Andersen

helpful. you. Okay, that's Thank

what incremental business? of Beauty. coming as on your that that on you part marketing your driven deliberate against part a shared acquisition by in acquisition spend a and acquisitions acquire bit see of Diapers for Household the as to -- to around the or franchise? information some thing And like the a that or to you're consumer it's the you. little Just of you larger -- follow-up what better drive trying to that your you something that get Is portion customer it? Thank is to of being Just Wipes thinking through a that how Beauty franchise are into opposed doing new customer and and about sense

Nick Vlahos

Sure, we Skin, Care. this categories. honest.com into into XX% year you, Personal to making talked about folks. great through bring during A we question. And absolutely. about It's one, different through from we Honest sure seeing a to kind strategy strategy and each Personal at a the the brought of introduced we're Skin number talking this one, that we're XX% ago, year, Care of we that was coming of new new are Number looking when consumers those. roadshow And one was in time period perspective, and

here drive a to seeing we potentially what we around a in again, colored but then that continue them when perspective then product, over to do because, And as key item second a strategy at that. third Honest, that's And we're going cross-pollination seeing a in that for coming we're and shift to are consumer from deeper at penetration not strategy. a how then interested and So, only consumers buy with Skin also that that product. yes, driving driving us within is our from like you perspective, we we like strategy focus our look they

Kelly Kennedy

I'll add real John. -- what just And quickly,

QX. male in did Gen think we stats a within that And business in customer this -- the in As in of talked growth our it to about The XX% the just in the Z expansion for also away, broader QX. appeal. our it's consumer. diversification within jumping our about us, base past of consumer We've this we in QX from couple is of a DTC XX% revenue slightly kind in the we we've male saw appeal what our from overall of becoming to tick XX% take XX% of seen up continued QX, in kind really

So, progress. to we've great continued see

more of the and that overall and to And resonate appeal products consumers having really, so, wallet well in, it's a as new growing the having with more bringing combination of so, kind customers within brand really of share presence broader appeal really as the and Household. expanding

So, very part. our strategies two on intentional

Jon Andersen

Thank helpful. that's you. Great,

Kelly Kennedy

Thanks, John.

Nick Vlahos

Thanks, John.

Operator

management at I'm time. no further call turn any over this remarks. to to like I for showing now back questions would closing the

Nick Vlahos

of thanks I road this you modern map beginning appreciate just is, this continue to CPG look as forward year, our this when plans, and you Very next-generation would And for Friday as we have on introduced, kind we good. summarize of this think next the you. Well, off, way confidence at joining as we quarter. we this morning. talking to I in Strategy Thank confidence well-positioned we spending first to us in And the everyone time our have XXXX, remainder that we've our you today, the look at and look us is Honest we're that we and with build the the guys three-year company.

Kelly Kennedy

you. Thank

Operator

that participation. does conference our conclude for gentlemen, you and Ladies Thank today. for your

may disconnect. now You

The Honest Company, Inc. (HNST) 13 Aug 212021 Q2 Earnings call transcript