HNST - Earnings call transcript Q4 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 Fourth Quarter and Year-End 2021 Earnings 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 today's conference is being recorded. I would now like to hand the conference over to Mr. Relations Honest Investor VP, Austenfeld, at Company. The Steve go ahead, sir. Please

Steve Austenfeld

joining everyone. quarter Thank afternoon, our you call. Good conference for fourth XXXX and year-end

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

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

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

Nick Vlahos

Thanks, Steve. joining everyone. Thanks us afternoon, Good for today.

quarter core our our categories. in noted release, in our growth earnings product share market revenue gains reflected fourth continued As and

growth our core our grew Wipes, share revenue Personal Honest growth our Skin in by quarter saw Wellness and for and for behind and we categories growth with as X%, Restage core offset decline our lower in a Care, in of across and year. and category the and also disinfecting revenue Total XX%, of Importantly, Household these XX% Beauty Diaper household innovation. Diapers than categories. quarter demand Conscious was remained strong the products market the prior fourth sanitizing Clean core

that on the As investments in the new a and the we half will of second XXXX. have subcategory of in business result, we refocused innovation invested our parts launch the wellness core in

EBITDA disinfecting inventory adjusted our that the and in quarter in margin half starting were margin certain gross While actions challenged taking for products sanitizing on taken will and declines, demand we to to second profile of the the are response XXXX. fourth improve believe we reserves due

at our long-term distribution and product with XXXX dealing I multiple proud our macroeconomic strategies innovation, full-year against on Honest and am for head innovation, responsibility. to Looking execute results, team marketing continuing social omnichannel of challenges around growth our

is poised brand continue Clean we consumer As Conscious to movement. Honest this year, lead anniversary our to XX-year the celebrate the

on embark for illuminate team me we a modern creating that next our we As future. and consumer confidence decade, what conviction gives the our are let brand

and XX% strong Personal business. and our Honest volatile the our First, a revenue Diapers in in category reflected behind power Wipes, core in of brand Skin XXXX and resilient a of highly environment, remains growth Care

over X.X% household end brand an and XX% of new grow year growth Honest on by Community, diapers million increase focus able our ago in of to strategy the marketing the a from expand households we an unaided X.X on driving to penetration awareness last were XX% today, increase two years. Second, Commerce our our Content, with and XXXX, yielded to

Conscious Clean category our and behind pay innovation product in care December market growth in to and as of retail we personal as Beauty diapers, grew Diaper Restage XX and omnichannel retail share distribution of Honest off for XXXX, outpaced XX, XX,XXX overall as to continues XX% up the ending investment wipes we our to from ACV years end Third, ago. strategy the XXXX. two advance Honest locations go-to-market expanded is representing Fourth, for continuing our XX% brand, entire weeks

a Lastly, products we of expanded and our inclusion, environmental strong focus and sustainability governance on our ESG continued efforts with practices. diversity

number not the X,XXX choose to Our from has of ingredients use ingredients. worked R&D team to to increase X,XXX we

of make Also, over We our responsibility. progress and donated our products commitment is workforce to are leadership we team. million proud the continue our diverse. XX of female Honest date, XX% we with to to is social have of supporting our XX%

XXXX, towards by resonate awareness, increased like growth core increased evolved and with growth, on omnichannel anniversary, a an last in evidenced category look modern has and strategy initial our provide to public brand Honest long-term we update offering as As new The I'd distribution. our since share to brand year. household we market XX-year as celebrate what penetration, our continues consumer

outpace Personal and Our We to Skin a large core see brands in to Wipes, market and Care of and play clean and and across continue of core and to our are Care. Skin share. expected Personal Diapers continuing grow Wipes, drive are categories and Diapers natural and conventional categories topline and addressable growth brands market

challenged and not continues grew than and during their Personal December expectations. and Baby over to Household ending brands Diapers same The our natural sales Care and that grew brands XXXX. clean and conventional Wellness time XX, period. met category, XXx our natural for wipes has be faster XX Wipes and category faster counterparts category, conventional in diapers weeks both In Xx clean approximately the example, than For

stickiness we XXXX company seen demand have disinfecting total sales, we not portfolio Although only in of our representing and the launched from sanitizing XXXX. X% our in that

like shopping. supplements XXXX, investment In and in-store consumer channel. our the expected platform we omnichannel online channel, In vitamin specifically, launching deprioritizing rising growth seen and be to the new resources midyear will and distribution and reinvigorate in will leverage innovation subscription the partners. As are we products. Honest.com people traffic, in these digital increasing subcategory, shifted a we, digital into revitalize innovation others many and costs wellness and result, We've and our stronger to be product and experience our industry, return investment the in technology growth in improve response, acquisition to softening have consumer in than we our

a Our experience, for rewards our further and on main of our and subscription include program improving Honest.com personalization business consumers. streamlining experience focus the Honest.com, areas optimizing mobile building shopping our

we that in of the new partnerships digital, our the QX launch growth of will in our decline of XXXX As a prior expecting first headwinds and we result three to are retail that with of legacy are the to revenue on and quarter subsequent new along strategic sale inventory and in drive XXXX, quarters. wellness the household innovation seeing the beauty

strong three As to core innovation marketing, drivers against we look our we strategies, of and at see progress continue our growth distribution.

to commerce marketing brand our portfolio. strategy with across expanding side, we awareness and driving consumers the of On by focus our content, wallet cross-selling community continue on and share through our products our

on for continue that for packaging In remain both innovation and skin new innovation, breakthrough have household our On care We concealer Baby new on XXXX expanding strong brand to XXXX a focus mascara the our Care we we seen penetration, results include products, and have awareness Personal product beyond. and in a continues on to acne-focused Wipes categories. consumers our platform, across focus of deepening delivering exciting to expansion and lineup restage a and business. products line of coming our XXXX, new in

wellness a and revitalize to we household look and new stress sleep, hair, launching wellness, we supplements support. are focusing on As platform, immunity

of category pipeline coming a methodically play that have enter We the adjacencies plan win. to and to brand has long-term also years over where a the we Honest right

our in continued to innovation. XXXX and excited newness bring to We through drive categories to are continue growth

the time. Finally, to our capitalizing footprint retail. feel to are strength digital omnichannel continue XXXX, grow the seeing to we that strategy, we and distribution we capture our are of positioned to our over expand from we In ACV well shift on expect

announce are for key to partnerships our each We of excited categories.

be half Diapers in Care XXXX, the and back our in-store and complement launch Skin with XXXX. with In and For in XXXX. and our walmart.com of are to Wipes, set for an upon will we of Personal half Walmart Care, a late back building we Restage, business the the products Ulta business, Beauty with strength ulta.com Personal our slated Skin skincare in-store of of launching launching

Honest have partnered launching within clean relevant are than on supplement we growth. platform in XXXX. our new outpace that ever long-term market Consumer categories in growth Finally, GNC for core our products growth that with today wellness is more reflects before. natural our demand belief and household our we summary, strategy still will In and

the that Care Personal and has and and our We not and perform core Our household household recognize share. and of Diapers capture Wipes, subcategory met categories expectations. continue wellness market to of Skin

shifting are innovation our we with in the company, growth focus wellness new a subcategory. As

brand, as of and are we we As second well business starting omnichannel consistent more quarter consumers believe seek out in positioned the a growth deliver and XXXX to in growth beyond. XXXX XX-year-old our

Kelly. over Now to turn it will I

Kelly Kennedy

Thank Nick, everyone. and welcome, you,

growth. our reflects quarter quarter of This ninth consecutive topline year-over-year

with quarter performance household of XX% challenging categories drivers. disruptions core a significant We the totaled Starting financial growth over of QX key supply X% underlying category. million, quarter our cost revenue with this increase our wellness and quarter decline are chain the levels to in was inflation, a $XX This continued XXXX. including and and fourth environment pleased results our macro Fourth as of faced XXXX. compared we

by Our grew represented Personal key quarter. of drivers XX% Skin and total in Diapers and XX%. Diving product XX% Wipes, Wipes revenue core Care, and categories, category. the Diapers grew and and into collectively

our growth share strategy, and on significantly both with chain was we've vaccinated quarter. share driven become grew and our XXXX. on retail and additional Skin of both Content, was grew quarter, in channels. launched behind declined track with customer year-over-year, personal Care for business diaper consumption Wellness during diaper quarter, total declined to retail X% XX% fourth industry-wide driving XX%, of consumption penetration by in achieving Conscious of prior as Community, our consumption across supply adoption stock, Diaper driven an care consumption distribution, demand Consistent up due and routine. these data the track and trend, incremental unit seen revenue our Household market the have improved Based data Personal the out year-over-year, higher for marketing largely retail consumption decline pre-COVID by Commerce to Based up volume consumers QX assortment, of wipes driving and represented Our Clean continued retail innovation return products up retail the Wipes challenges. and market our XX% XX% digital for our was year. XX% XX% investment revenue consumption versus and volume expansion.

increasing in result reserves a inventory a course As resulted of including our products increase sanitizing in and outsized, inventory was demand, million year, the $X.X in declining over disinfecting QX. the which of

turning Now of XXXX, QX sanitizing in in to as results a had merchandising channel. revenue we retail partners saw number In programs of disinfecting by and products. retail a surge

$XX.X and XXXX. to X% versus Wellness This digital accounting our retail and Skin quarter, XX% declined year categories Notably, between Diapers and a million, QX split digital Household saw and $XX.X for million XX% XX% the XX%. retail revenue Care normalization core in of grew Personal due product the accounting increased of channel Wipes, to the and for retail, of channel while to revenue retail revenue prior with total spike category. in and we reflected Digital

faces advantage, we especially our is As shopping competitive and true previously unprecedented rapid have shifts highlighted, we industry omnichannel believe as in the model behavior. a

distribution digital we shop. to Given retail to balanced be we our are better upcoming positioned strive business as chooses expansion, consumer and our and wherever

basis the Gross for point was gross Turning XX% product a margin. disinfecting negative from inventory sanitizing margin XXX quarter, reserves. the impact now to and reflecting

have well versus up with as XXXX able impact, as and partially retailers quarter costovation XXXX Conscious of the Gross and our Restage gross during on offset Excluding this quarter the input Diaper these fourth back normalization would in quarter better the been pulled prior margin well costs for fourth of headwinds fourth leverage. projects product as XXXX. trade margin XX.X% operating to included from mix higher were the for year. Beauty Clean XX.X%, as spend costs trade as We promotions of

on our quarter talked pricing, went January round productivity Given long-term into record of levels as focusing We about effect which and of will levers and expansion. to cost inflation, XXXX. be margin costovation of first last profitability pricing, in drive we

total, from actions will pricing on XXXX Given a portfolio, continued at in taken on Total care, QX million our we million this expenses select household of we headwinds, expenses effect wipes, quarters cost IPO-related decreased the two-thirds increases items behind XXXX, our In the $X.X personal base. phase occurred second XX% price our have go and of of higher versus fourth into XXXX. of that beauty expect second of first end diapers XXXX. reflected driven impact additional which QX the operating Commerce by to in revenue focused that and drive quarter of in penetration. primarily We marketing $XX revenue Content, strategy approximately Community of invested our to and quarter,

Now well our in We and end and fourth continue our quarter are Adjusted BabyXBaby, international million We as on a of for of short-term coming and EBITDA these ended the and to demand flexibility of in execute balance strategy our to by facemasks million. $X.X years. heavily a year. impacted turning over was to the no disinfecting of the This line. cash investments, to for financial number and loss bottom sheet. product in million the year towards a with invest incremental charitable we was position products inventory innovation, donation marketing, to debt expansion $XXX,XXX reserve positioned XXXX the partner, against domestic $X.X retain and a believe waned long-term with sanitizing $XX healthy the

few fiscal of progress decline including by to input sanitizing XXXX. from a impacting believe offset We challenges, inflation, continued be in will our initiatives, digital and disinfecting lapping the costs a platform year the continued with programs strategic our XXXX. retail XXXX to turning demand, Now cost and marketing traffic increased a filled significant significant against

headwinds significant including in that to the quarter, products related beauty restage. the occurred XXXX sale ahead million first facing of We $X primarily the revenue in of legacy are QX of

driven digital The marketing includes business, cost the and first roughly of a increased quarter million also on $X consumer traffic. by declining headwind

As QX a decline XXXX revenue result, of XXXX. versus roughly to XX% we expect QX

we we XXXX, the partners new new retail the we $XX three in digital a subsequent improve and Honest.com. For expect to single-digit as adjusted introduce of QX total, drive innovation, loss mid launch million. quarters approximately EBITDA expect In growth on experience strategic

be we expect XXXX to such, flat As versus total for revenue XXXX.

expect diaper and to we some such and cost XXXX. relates total, mitigate inflation margins, we seeing headwinds by costs. conservation expect cases, To an to gross areas higher points pricing input these XXX basis it impact In around for and to mix, margins operating acceleration as As and our positively costs, XXX to in basis by product costs the similar points XXX basis industry, we continued margins fiscal in about have headwinds, resins, help expect of impact leverage improved transportation entire freight are input improve to to points projects also gross surfactants, margin.

adjusted million implementation roughly annual As standard. XX.X% of to for negatively will be accounting we lease flat result, a to Both will XXXX marketing which by per impacted be to XXXX previous standard. On of our million the approximately gross year operating $XX XX% expect margin of in to The $X a accounting roughly million gross XX% margin negatively gross new expenses, the to of revenue, for be margin XXXX. versus and adjusted the will from expect to decrease impact quarter. we margin the million full-year $XX impact EBITDA approximately our EBITDA, a of be $X gross

roughly SG&A XXXX full-year XX% $XX for million expect to to XX% revenue, per quarter. the to million of $XX We be

to XXXX full-year be X% of we revenue. R&D, the expect X% For to

of come in million the Finally, to $XX we the place. $XX over QX expect our reflecting to a loss sequential $X improvement as range adjusted strategic million, negative and into in EBITDA million be the full-year of year initiatives of remainder negative

the in which and we Diapers Skin Care, digits double and strength core Personal decade, our on represents of of embark we and with business have are our year-over-year. momentum XX% revenue Wipes, the and XXXX As collectively pleased next and grown

inflationary are in environment, facing time. profitability extremely to our margins remain an We challenging and and expand chain supply confident over but ability

The long-term is clean As in our conventional growth we our market outpacing algorithm. growth brands. long-term execute continue strategy, we conviction have versus and natural to

market to with in brand extend a lifestyle strategy will we the our natural points trend adjacent categories. omnichannel distribution, is power from a drive into the time. and this core leader of Honest As over share to our benefit our space, expand in categories grow

see and sequential strategic as initiatives of fiscal are our margin XXXX. We executed course adjusted improvement revenue, to EBITDA into over the expect in gross and XXXX

on turn over to are the We higher the to solidifying plans that, begin With focused executing our I'll and growth operator driving the on modern as long-term value its company. the while position shareholder call. next-generation Q&A CPG portion of call the

Nick Vlahos

just QX we a I the that business. have you today. to of for It's I are the shareholder expectations that take to And and think important afternoon, that's fundamental what long-term to it's Nick. address moment a Good value. with questions on all kind raise business our Q&A, started based a get we and and first, for on I evening, of shared focus And long-term before question But health expect on wanted everybody. does really a good we remember, with building

managing not our do we matter are the in visibility quarter, matters. by We and to recognize but the quarters future investors expectations business

and of our growth and at underlying the of at So And question is Skin in rates. have of the Personal And why. look business, categories. double-digit provide with to business? Care result, market into look want health the the do you to business, issue going to tell answer I'm don't as no. business, increased kind have We've a and a you Wipes, QX. fundamental Diapers witnessed XX% that insight an we We these last you issue first, share we on In answer the our

We've acknowledge wellness need business. products. scorecard, that it's and on Even awareness, increased met the of there our we business, not green the has are we address X% conventional though brand represents only challenge outpacing to Board. it. But across were of household we and increased with the Our X% we penetration, have our growth it Household happy is expectations. overall a and

going to it on. address are We head

So view business. It remains that we fundamental on doesn't are quite the QX our for outlook quite the change health of our strong. confident

I and specifically. some QX of So kind shed light guys want to give you on

outlook things: two, one-time and comes last digital; I items in to slowdown three, household and one, down XX% transition. wellness what of three year; from negative Our topline call

disinfecting is you to everybody helpful amount of kind some through if and areas. Number digital, So sanitizing it's sales one-time COVID-related and me Beauty within Restage Within back. the last CPG the take item this products. due elevated Two, at of million and kind down, and let shifted digital. the year you three walk to to step these when $X retail this of shut one, stores of a look COVID market, hit when we'll connected

XX-XX of all split and between are on is still retail retail. to have growing. sudden, you digital although people breadth and ACV our Now retail, going a softening and into digital more roughly brick see we into And blessed

the you that the as the Southeast at does limited in to as in look particularly shift So fact near-term, impact the we South, Southwest. the well when kind of retail the presence have us,

the us a what the about and So We we are helps being to only well build helps our as are with not us going we we distribution. going Walmart, with Walmart South to with as also strategy-led as in sticking we've do out dot-com, retail, in but secured strategy, partnership are Southeast. physical it? are the

been has successful. Restage Beauty Our

We are with we've Ulta.com. footprint our expanding had Historically, Ulta.

as physical the distribution the and disinfecting about, hit, as U.S., capitalized industry back are XXXX rest really when and it XXXX. demand. household of consumer ACV our not wellness. look talk COVID positions everything stores into across as is the consumer really Number well needs agile, which come are to and U.S. but nimble XXXX, opportunity three, half focused more see sanitization let for that to And struggled turn Ulta all consumer year, when of this only Consumers the to being the the us we as bodies and really the of significantly advantage meet starting know of and is always and well, wellness. long-term, on back also in to at we short-term, but their their organization, broad-based from And But kind to that beyond. and an not me of increase credibility we the we With half took we we being as going just going We in around additional the what home sanitizing gives of taking care business across part us to need then supplements are on GNC, now have move as in around changed. more not of This self-care more sticky. more away household and now being

be we on of So time, for today pivot. going But opportunity that we are are starting we focused And lifestyle going are mid-XXXX. the Honest is agile are the And introducing stress. are GNC been the leveraging consumer to this plan. Honest, innovation with be going a for where are us supplements our strategy we lineup going around brand in same with at to immunity, that by sleep, an part of partnership and needs that's starts and on at the to to stay where

And activity the this and mid and yield that of yes, the on had fiscal So year. expecting meaningful wellness, are with only household we growth going single-digit challenges are QX beginning year. we QX. results are digital to portion year-ago QX due in affects Thus, and some better a that rest taking being steps in we to revenue

you at is end, the retail split We've it the when it and in win and ways. wellness. that XX-XX around Number three a We call keep look unique omnichannel, living digital marketplace. the most whole XX in now One, believe have in for balanced really years, right to in is it's consciously. this we two, helpful the been around still focus to Honest So doing we mind in wellness.

less might future, are trips focused they digital. on as right escalate, now, continue in gravitate in they So more the interested consumers retail. and if and gas more to interested Tomorrow be more more in prices

to consumer. to capitalized self-care and advantage positioned on three, in to a big we digitization, space allows the more are got to year, And COVID. take digital, lastly, via are this we was year, Last then there evolve, that that a us are It we on to move shopping the opportunities. people to We sanitization need balance and right innovation agile. We to was sheet. of due that. capture well pivot based our and our going we've win supplement capabilities. This wellness, continues to strong more and And have

cash, have no We have we debt.

We are going to this continue to invest in as growing our business embark we in decade. the right on way next

I you open context So let's gives guys that, that important. to more And very additional That's hopefully, up and more hope visibility. with it questions.

Operator

first the line of Instructions] of Laurent Grandet [Operator question Guggenheim. Our comes from

is line Your open.

Laurent Grandet

I very Thank appreciate Okay. much. that. you

I wow, and XXXX first quarter to for on know the let's separating focus the maybe from the but So start, where don't topline rest.

I I if quarter digits. will understood mean and well, second, fourth be the third So mid-single about

is means would – million working, Skin and XX%, And yes? Beauty better it's do in do it's if how growth is the you So working? not that's mean, get even just It so my will Beauty plan is of I XX. half is to diapers challenge. Restage quarter, what Care, question cannot which that despite was really, mean and a my in and be assuming So $X It growing diapers assuming go is XXXX, kind of minus to your almost wellness a that why, you growing think – household Personal it growing Restage, the XXXX? question, that

Kelly Kennedy

around Generally, with Now, of beauty, it is which was received. your I'll pretty beauty. the part question, first start well first

real beauty these still the of of impact is distribution stages its in I restage think kind around wins. really the early

So over course rolling of ulta.com that's kind as we us XXXX, opportunity into – in of mid-XXXX. and get rollout the afforded out to the

a get won't we to that. So impact full-year

the of about kind the think are think topline, one and what's as of break it's what against actually innovation we beauty and us the seeing kind that number takes we've quite about your we inner benefit, revenue, of kind you successful. around we're in, the driver growth kind the of being question going XXXX When with around down about put As and going what's puts think think that we we'll been velocity.

in seen really lot particularly we've a the the data. As and track retail track the in of data, strength in

XXXX that to expect of largest for kind we be single driver of So growth. the

as both kind And so We they're there, of Laurent, half will distribution that's a XXXX. I in talked the the not out think that well thing being they're benefit we've also have back is the that early new innovation about smaller of rolling in as players. critical

of they're as The about pricing, thing, diapers XXXX. as is on before. we about never think has more So pricing we a benefit in taken think brand next a XXXX its than Honest

of we're portfolio, on approach roll pretty it, these the we're taking when we with a two-thirds on be pricing conservative hit out go While taking velocity on that shelf. thinking will and

pricing driving velocity. line. hit come We benefit than to the any in on seen what tend points that marketplace expecting see, hit on not it a – XXX back margin although talked basis hope us the in pricing, to we improvement – that the we do better that planning when we've lower You'll on are revenue about – velocity. gets we're we're that. back two-thirds of to over it We But to is and on certainly us benefit gross is of expecting line, out is providing time, today guidance not short-term significant regular the the and hit

that reflected guidance. think are we're about year-over-year the we XXXX seeing of in As the in headwinds kind that

down expect is First household, go third. versus and to by it XXXX a about we

landed the items we just going not with in So haven't A going mention a our couple of household to of pretty to an Again, mentioned other us into that kind a we XXXX. numbers. year approach want of we be is continue we're if for to going these headwind big some that program, is into it's onetime programs.

few So we a to lot Costco years. programs, we've such in – as XXXX the with programs about past as success had of think

hit kind XXXX. program haven't of rotational for and We a landed

the numbers in not is that And as and well. certainly Restage at that's along a this headwind, So point. year-over-year the household Beauty with

of on So negative. the buildup positive the that's the kind

in visibility a in QX based expecting forward, we're on the mid-single-digit are of top QX what on but We full-year the drag big growth seeing in line. kind

Nick Vlahos

only Restage, QX very bringing that Beauty into that to stores distribution customers expanded is going like take was the Walgreens in types us other pleased the flows there the at stores importantly, Beauty to a also you on But I – Target, we the with and in of subset items have as and would pipe Ulta [indiscernible] we're in that when are That's well performing. be where their we roughly like the stores. with with fact our The why QX QX. look how X,XXX as is came add places in of our into Restage

So for that as into quarter, is number those established. the at start as you there a XX% as component go of lag to you growth sets a get look QX

Kelly Kennedy

last I that being of challenges. And us the was not through we're baby with we the areas bit things is to as in that going immune relates of heard impact kind talk a hit supply QX A of chain. couple the one this to the it thing it we that as us was you to mention of largest went saw One it incrementally as chain some about wipes. XXXX, the of to little supply relates QX

that the with [indiscernible] although are beauty mention decline, beauty and challenges. chain our are we [indiscernible]. that some was – baby a supply out seeing are so restage, had but seeing We've we our in us strong in the some You great chasing data QX products certainly hit strong, heard also demand that a extremely we're you’re actually chasing success with being demand consumption we of also was some

Laurent Grandet

Thank plenty Thank will Bye-bye. you. coming. along. pass is I of questions There you. it other

Kelly Kennedy

Thank you, Laurent.

Operator

Thank you.

comes from of Bank next America. Our of Keypour question Jonathan

open. is line Your

Jonathan Keypour

questions. the you Thank for Hi taking guys.

So of gross basis reserves, inventory margin correct? okay. only it was XXX bps from XQ, is like impact seems it XX XXX points basis of the in that implies Which out the –

So was basis from then XX inflation in points XQ?

Kelly Kennedy

Yes.

XX.X%. $X.X XX% margin when breaking gross you our exclude reserve, take down about the inventory in margin, the So you increase if been think would million gross the and the have

So puts leverage. better our kind with mix costovation, takes input operating inflation and offweighted of basically where product we cost and the

costs, input cost inflation care higher levels but in saw in was XXXX, XXXX suppliers. that of in transportation of So the we seeing some in the and we kind from component is and kind QX that inflation accelerated beauty predominantly areas versus personal cost around – we're

Jonathan Keypour

Okay.

continuation in brunt basically of compression the the so And seeing? the is inflation there of be XQ? inventory we're impact full into any the margin all XQ, will of Or

Kelly Kennedy

Yes.

inventory inventory So sanitizing actually with kind kind increases in QX the current was taking align basically, our in we outstanding inventory demand disinfecting large position. demand. saw of we're with as to cleanup of completely that year were seeing our of But the reserves a that throughout and we

So…

Jonathan Keypour

I in if $X the follow-up. a that then retail, And was right? have The Restage predominantly Beauty impact, of correct? can million that Okay. Is

Kelly Kennedy

That was retail. Yes. completely in

Jonathan Keypour

about going be but only And about – that's – should driver X%, that's the think XQ of so that mean I as to weakness being we the right. in

Kelly Kennedy

demand. is Yes. About the in $X year Beauty kind million the that Restage well before sanitization impact of in got the of some disinfecting onetime terms as and as a we bump

Jonathan Keypour

Right.

going XQ? we are was in see to XQ or the in $X that million so And

Kelly Kennedy

XQ. That's

Jonathan Keypour

Okay.

pretty The going strength the the number to as distribution, about back balance it's just wondering XXXX. I'm and first think X% is sales is about retail especially, the all, – how $X at how XX,XXX about forward, move we why curious that part significantly. about but sales, million looking And we because be should softness distribution just what add of XQ into down retail, So – just in of in of hard – to and the just wondering we're square added guys consumers of out? in has I'm you've as year-over-year. drove X% XX%. X% of only should it's stores moved then the retail I'm around you like that's down up

Kelly Kennedy

Yes.

disinfecting that QX, I we – there sanitization had large and really in think products. is

If you take out kind COVID-driven household of of the demand. the actually out take grew of wellness retail that if kind you XX% and QX, in equation,

unusual seeing So fourth really of prior year. the there sales I think disinfecting quarter was and we what sanitization were what's were the in in that

and was it back unusual prior back the fourth in our retail kind is in to an saying of and the digital quarter. kind we're what half normalization year of to and half between again, So

Nick Vlahos

The for totality, I was is look retail it would other up thing XXXX, add you just XX%. when at in that

that's of in off you coming XX% think XXXX. growth about and as So –

So the has XX%. last two been years XX%,

consumers at you right what retail towards big-box mix, As look gravitating you the now. retail. distribution is more gravitating and But we're at to retail and the are you're look seeing more adding they're what towards specialty

being right for us the So what's in is important retail.

had So consumers space. as you That's see retail void second, Southeast gravitate And this we're player. area the start to the year, Ulta as Walmart from business. important significant in a of look out Personal we've we is of of the where at Beauty, the is specialty and as as a to play key the a country big-box fiscal And role that piece filling back excelling then half for Care that's the perspective the around an well going us is South. an importance in

have the skin right grow as personal between So we now of to continue our back be XXXX. go half to accelerate wipes, diapers, the business to and beauty, care, into able and partners we

Kelly Kennedy

to expect on And you'll retail to give you for as some relates channel expectations more digital. strength XXXX split, color versus it in

digital year be mid-single expect up for to digits XXXX be to digits the in for retail We and total. mid-single down

Jonathan Keypour

Okay, great. you guys. Thank

Kelly Kennedy

Thank you, Jon.

Nick Vlahos

Thanks.

Operator

Thank you.

question Teixeira Andrea next JPMorgan. of from comes Our

Your line open. is

Andrea Teixeira

Kelly. Thank questions a clarification two then have Nick you. for and I for

grow it's confidence overhead Beauty or what the to Kelly money can have of an made Nick, company EBITDA the EBITDA since adjacency some wrong gives first the created more for for that make QX. it's And new better What is six the your to VMS believe obsolete? as a to you in some is on for that help you economics guide or bridging be the the the would an a of give in new than the negative you If result relatively you? question prior And us level First, makes will embedded comfort. products from at will company dimensionalized just Restage Qs? you have was went results faster what learnings were that pace. right much And broader any months that level question

was just to e-commerce? quarter I the as a first for you now Restage that. bridge also Thank in I comps already to million Beauty it comping have some alluded the much. think that you're of $X impact remaining Jonathan have – ready inventory, the impact on from understood that you $X million that you very so had Is you beside negative tried digital. tough the

Kelly Kennedy

you. Thank Yes.

throughout the making If seeing two is really you is don't but as mind, not I'll because of making us. marketing Amazon, shifting traffic consumer We're answer exactly first increase not consumers kind seeing we're seeing question go the last across a we're $X drive digital to cost are also the of unprofitable, honest.com, on of declining site seeing digital as traffic considerable impacts. this just into kind are more around is it as store. to back more great We're and the that million expensive and to retail. What from in digital, board it well it the return just for

shift digital we're the to retail shift a our into invest of right kind what's way now So planning marketing to working support is marketing. – from we overall in which that

Nick Vlahos

us believe, couple the marketplace, we side for increase of things question, Andrea, within up that new a a little our is hear, the One brand, fact about around beauty hard X.X Honest the households. household there's confidence we've picked the overall we're to I of continue that business. but which guess And give million confidence. the to the I talking penetration roughly

penetration about now fact the is to our we good So feel X.X%. that up

XXXX. from now also Ulta in the the in double-digit second to piece the the continue The adding and added is levels our Number two, the the restage to is we the come to key consumption to at business, look and running when we're there. partners consumption is that progress expansion make a you data standpoint. mix, which we've that we So scheduled see half of the

a little Beauty a to there's pipe that pleased prepared around the to adding land. and bit to X.X very reviews million. were around transition the averaging little kind earlier And mix, then of remarks. we the we're bit and new they innovation Restate. going for also the But on when of referenced ratings as – the of the We're timing at health where we of X.X business overall a between is we're So us, look

that So have innovation. three talk we like new really marketing we do Two, next kind drive to have we behind innovation around. One, the areas year. support news this around over to business of really marketing the the about covered product

a dual incremental distribution driving the lineup that concealer we're perspective. the a have be hydration, of benefit a full offers from going three, we're to We And introducing productivity. that consumer also kind and then

it pertains give So beauty as those the are areas us business. that confidence to

Kelly Kennedy

Yes.

but I up talk quickly distribution for our what – you resourceful. think the of from household, when launch to right beauty think alley We new up that it's of – right I is lessons we in we household playbook in lined about kind very this were act to were space, partners. haven't we the able the

chasing be in successful. we've forward, launch first going lined weeks SKUs, we So it really And And we best we quarter of of the course our as kind signs. relates innovation to mentioned, as that seeing over to can that to as seen, that as our lined ensure we're Nick other some right think that exciting kind way he really early ever were concealer our XXXX. have great mascara, had we color. have about well methodically we'll including skin the one Again, that best-selling so expansion to some innovation indicators launching several the the an up weeks care up, we're of we mentioned we distribution the other going are of be as products

Andrea Teixeira

think apologize, that the the with XX, in what X of that I I the mean year this business an And you've minus you guiding is ethos can category. and a to because then the I the I right? – one VMS, that, level, hope better makes to Honest in you're and fact EBITDA helpful. you But me minus hear course, piece, making win minus understand the That's XX. now for learnings had with starting guiding on the this you're profitable you're right

– much headwind. the have you're I of you guide least against at to So in a the more mean, year. your up And obviously even bottom break the of reach remaining to

you time. So GNC lineup. the in you So believe of that get make VMS you some to the these of the at first pivot in already the that six out Costco you're months launches? the got you the even get But and what as SKUs, makes in going disinfecting, I money of wipes,

a So basis EBITDA you're now what you do makes believe be complete able going those given on to an you're headwinds? to able to be category money still to and going that make new

Nick Vlahos

I margin one, it's Yes. the structure the to I disinfecting perspective, compared things guess at. and category cleaning. the that from it's Number there – of is of the is I category think important really kind would really look two a

We're like of margin sits. where kind we structure not the novices. So

unique. looking category. vitamins have and here's postnatal with for just, not a a when in kind small of it, quite our really prenatal approaching we're and of that We business with at spaces familiar offering the look time, involved Three, how We're some we it's a vitamin. we've been we're so traditional that are at play

proprietary to as be we're does as formula product that herbs to well companies kind an melatonin. take we're to melatonin have against of We'll have like delight. sleep This Most that. perspective offering. So magnesium-based going base deliver the able consumer example, that natural be the not going from a a something on have

vitamins Two, sequential we've expectations. adjusted product to we point plan headwinds been able And as we've personal right strategic mix you QX, when three, wipes care, the – and highlighted yes, an the the my then that netting adjacency and evaluating. So we well be from got the deliver to from as to diapers, QX supplements perspective, of $XX as as million, pertains some innovation against around but from we and we've then EBITDA one, the look as here our skin, it have QX an at structure QX, attractive. that's in perspective a an got, at, is, margin perspective hey, number experience look the there's

Andrea Teixeira

you. Thank pass Okay. it I'll on.

Kelly Kennedy

Thank you.

Nick Vlahos

you. Thank

Operator

you. Thank

go question of Please next Our Blair. from comes Andersen William Jon ahead.

Jon Andersen

innovation, strong At the we there that you for these the – core and balance afternoon. looking you've calling of have lot And And talked are puts distribution first about. you're part by But kind start which quarter into growth. of Thanks past XXXX, your it for business. mid-single-digit takes, wanted to does me Good the to new in there just to consumption a the is cuing. and/or present, Thanks. partnerships Nick, kind point, with question. trends happened a some of of the your think I QX. do encouraging. to for kind of conservatism on is asking key a on kind way retailers certain to what's to growth the mid-single-digit new longer-term measure IPO you're But of in of run point this Is growth of about – – right calling subsequent mid-single-digit of are there to of a rate kind basis, at QX think of forecast basis? light or the kind the way the topline about seem growth algorithm in

Nick Vlahos

also a on start, Kelly the great it. It's take I'll back Yes. let question. I'll Jon. be

world we and a first the the the did as how look going well challenges, that consumer as more of supply as input behavior geopolitical at the have IPO, from the our err not think we to the it only and and you continues visibility that from sits perspective today conservative. when where side each are I super investors, clarity it's plans, around costs our foremost, headwinds shift, chains, on being you, important of to think we versus

think I prudent. it's

on day, great then growth with we're within team of addressing taking supplements; a our it's the categories that can wipes skin we think we two-thirds sure and the side I obviously got marketing control, and we care the the good can thesis from of our But around of thesis right long-term our conviction important. we make to But control, have an of we we're on going that investment want visibility omnichannel evolving, cautious of and can on And drive and giving on around we on accessibility the what keeps cost err Walmarts the we the in what and and with the we're diapers, around business perspective. side the focused at where Honest based portfolio the focusing we've that and that pricing; making see. because and control here can the an based the to perspective, you end announced. can sure what have we Ultas distribution from still that's being where world new partnerships we've

fiscal history. of you years XXXX, and accessibility great sheet But from a in an of celebrated we perspective XX-year as know, omnichannel this XX-year as we've partnerships what, our tribulations got but anniversary just et business an programs a have trials to and beyond as innovation seen XXXX We perspective strong us at one We from drive cetera. XX guess the and with balance we've way. along just look and well not another year, ahead

would you? So I don't know, Kelly,

Kelly Kennedy

about back past QX, growth win we to just thesis, Yes, headwinds but I I innovation just us say in between would XXXX. We are think that and that, in get our think don't need And you change as distribution. the marketing a as not innovation, the been add would to well that Jon, our hitting distribution if long-term the even they're half-focused. there's

a significant getting those XXXX. up XXXX not really we're and they're for impact of in doing for What beyond. a setting us strong So foundation is

recommitting think impacts near-term seeing I we to is there. some single-digit high of to onetime that think we once beyond a of about these We're that to So years. growth growth category kind we're still return kind of growth. that get way kind double-digit we XXXX outpacing past growth is Again, and the do We're will believe acceleration. is growth. think the And category category that getting think headwinds I long-term the

Jon Andersen

multi-parter digital have business. but a kind one the on your more, it's part I of Okay. of

maybe but mid-single say into is sites? and feel issue? harder I there's lot something can the improve just help to related the that to I a you costing getting a the need Honest some you performance? of us understand awareness that up? you and you traffic losing customer XXXX. share So little Is to, you down digital would level are driving building tapping bit more that investments And harder it, category in anything would do of Or to cost the industry-wide to digital you put it great? in know of or talk can you're about that's then think, there, kind of next kind going is digits Is or calling you I is guess, side the that And make for to an – marketing, be Thanks. related that that online? digital brand?

Nick Vlahos

Yes. Thanks, question. Jon. Good

when not with, where start. they're of digital that it follow me categories kind big retailer.com kind for Let we're we one, pure-play in retail retail have to of digital impacted perspective. consumer, of the And the being because play business, is We in consumer? format also side. they're and in comes consumer where retail, the the box with Number players we're the seeing of remember, in core that into What us these the in from the we is shift partnerships a today. seeing a the some pure that part captured digital

to digital side who on some the are facing Click partners to that see pertains as into we the our as as shift consumer and component are the see. around box more you and big well there with dot-com So start headwinds a that it is these retailer Collect more into as categories retail

the And not component. So to brick their the that's those we're kind we're component, positioned retail be with of able kind the of only first retail but there that news to well drive also piece seeing. good partners dot.com is

fact is For it experiences even better we're the to an and and is anticipating Honest to that we're comes to when honest.com. continue seeing consumer for us, from perspective, what going the what look more value

on, really So optimizing we're of kind focused areas one, there's which four is, that experience. key our honest.com we're

kind how Three of the really becoming like at a key we mobile improve today and you view enhanced we're going bigger to Because to kind going market investing so we of And the reduce programs be subscription loyalty an then things inflation, our with issues, a to look continue do connotation an around benefit site of dot.com and gravitates what one-click marketplace. kind type within the macroeconomic seeing experience rewards, we're benefit in. that we improving and well checkout, and again, these subscription around there. Two, additional area web expansion? and that's value value area to that our investing kind as consumer retail is that's in put space. shopability technology in speed, So continue deal expand of But be that and from churn, how lastly, a how there's in improve overall as perspective our to omnichannel, experience bit we're within the to the to as values program. the mobile experience that the stay continue a as ahead subscription in-store of a curve do

Kelly Kennedy

Yes.

to increases make so to the to Just this are connect declines that stay XX%. we're we investment relevant of for Jon, we that and that's our tag That's conversion We're see traffic industry-wide. The and cost not XX% to the that that can have us. we industry-wide. that, on we of to as digital honest.com completely the really is the coming, thinking kind consumer. traffic of in digital marketing experience and – can to impact seamless something just really Those

course of be the XXXX. So that's investment kind we'll the of making over that

Nick Vlahos

only organic drive a social to the the And with to we in piece being leverage the to out continue marketing. around but to is as able whole year. Chief programming social We've we fact Honest one forefront Obviously, at per seeing going have in XX%, capability we Google, the see accelerate. advantage influencer almost really marketing as back our built able half not at also of up Jessica is mega look as I our be cost think Creative click the that really we're even Alba,

as going XXXX we are not position continue go go technology those around also and with to we're we to into XXXX, investment of areas that half the invest as into coupled us So beyond. to kind just back the in, but digital

Jon Andersen

very much. you Thank

Nick Vlahos

Thank you, Jon.

Operator

you. Thank

of Our next Jefferies. from comes Wissink question Steph

open. is line Your

Stephanie Wissink

the understand and you I Good One, on more of a Kelly. how bit want to of the rate is category the of sense to cost And back of something Or is? a is as you're magnitude well. about it's point going to just competitive ad question up? for and seeing us Two mainly terms order Jon's a afternoon, everyone. of one seeing that you that nature Give driven? CAC clarification, questions acquisition your go sustained you're for just in Nick, saying are about it that acquire costs.

Kelly Kennedy

the paid of And because the space. more level the of the impact To competition, down. we are more online seeing people seeing search consumer is both. answer We're chasing predominantly digital the the to number kind of actually in is that and consumers same coming

more in that’s then but impacting up, bidding higher and our as cost we're And both more category, the costs so going competition category. as our up not and media whether specific be and understanding to it's well it

Stephanie Wissink

Okay.

wouldn't implied that, expense at anticipating your acquire the be net new past? step-up, marketing translating the to level you're still it customers you've So experienced but in

Kelly Kennedy

winning new in now, going spend the and more is investing right is we the of that the Not digital. shifting distribution, retail which actually know We're consumer retail where marketing. behind marketing our we're support, into areas in Really where that example, channel. for kind

Stephanie Wissink

bit you've the process all of to sharpened ability you then, ability And this we're for forecasting how philosophical, this just just that If helpful. walk forecast how I achieve? is us your has a or the That's but having understanding conviction a drag I you could here today, confidence question business to Okay. a to forecast? And of to little a your of is you. think, guidance little us Nick, improved? give what think just maybe changed through more, degree some bit expect

Nick Vlahos

Yes.

I think it's a fair question. very

gate, out right us now making it kind you which really one us each QX pertains have what for quarter that I this had for with is important we of joint the only made visibility, sure impacted really of visibility supply. what what's team past And example, and visibility refining, perspective but inventory able we business also to doing learned our as here that have year, working around customers from and of to is not process, as important we're we've as then was think think investments coming from I our create, QX. and to closer the a what's planning be a well process to ensure strategic we've that S&OP do

we've with. senior being to to But of able or I core And connected are we're to think our make got sure customer. but Those as level environmental not is developing just it pretty industry then lot be partnerships, a as the an it component dealing to we're between doing to is made macroeconomic this that headwinds the that So the excuse good in component me, dealing demand past a mix to well that is marketplace with signals. we've side job comes procurement mitigate S&OP when refinement the of and even leading improvements based work supply the to the really this this right on of grass and done being the lot we're the into that kind pertains risks in with roots, around year obviously, S&OP. year there how we've of a as it kind with able

you I that gives So context. hope

Kelly Kennedy

have I'll one add learned is think you'll I volatility from I there's see, Steph, that, business about a thing lot is our One quarter-to-quarter. of thing to

of So a things. couple

guidance, into unknown within lot as give to our each we lot well have especially COVID Like ensure quantitative quarter, what make that color. of level a as we understands we're individual off as individual qualitative of provide quarter. take of coming much quarter we a a in expectations giving it's not appropriate seeing consideration we that that there's everyone insight of sure packed into we're the some things that specific onetime I guidance into trends kind quarters have insights of and can to baseline think feel but and we and kind that our in to

of changed I as is and to we will insight that that do quarterly how the philosophy about provide our our in flow has see really give kind color we So more to think lot business. really of relates a expect it

Stephanie Wissink

Okay.

when magnitude? helpful Or mid-single slightly would And uses so the you QX Just guiding to you a give could clarification. company up just a have us to mid-single QX Are differently, model combined that like say Kelly. Every that digits? us translation, range? phrase mid-single-digit digits, you clarification, in you to then

Kelly Kennedy

Yes.

mid-single calling QX. are through of across kind QX We digits

so And QX be But into year. [indiscernible] to we're not is a deeper. flat you getting XX%, into when of able model negative kind you'll back

quarter And hopefully, growth, to a progressively, that an each X% and revenue will that will on on again, better you allow year-over-year X%. margin we EBITDA so get of to kind specifics basis, basis sequentially a – basis but you percentage a much roughly giving mentioned

Stephanie Wissink

Thank you very much.

Operator

Thank you.

of next Capital. comes Champine Laura Our from question Loop

Your line is open.

Laura Champine

the as do But inflation it my mass across Thanks issues necessities decline? expect and if to and share wipes brands, business. QX. the the going you I consumers for board? in not question. in the personal to the household impacting you just you're Are on losing that keep also diapers business QX, care share understand seems are facing taking given And to

Kelly Kennedy

Well, across based expecting of board the on decline a XX% decline, we categories. are of all kind our across

decline kind not strong consumers go think consumers us specifically consumers in from the of shelf have as the is in than have gone to market very way about they gone we when NAS. the penetration within finding XX% are into on think in ACV, digital especially share as back and have store, I having online our less where stores,

to a going that's so drag. And be

later impact. getting from more we great impact consumers, we have channel. absolutely, we dent. retail a a We've year, think share gained long-term down, But And a digital short-term distribution, we make in Walmart the lost As and declined We're traffic out we've start share of channel. roll really retail the in that's than in can seen not losing as some the it the channel. in

and up We and to are in able be retail. places enough between make to digital not one-for-one just

Nick Vlahos

diapers, Yes. this And diapers QX is, in had the last growth to confidence, quarter. then business we over XX% that, our our too, wipes last couple XX% of on on of seen also. quarters, give What top of it XX%. QX we've grew grew in

but on wipes based fluctuation as consumer component Kelly as seeing overall where diaper Because and of gravitating, a well there that's in we're interested timing business folks our a the are are the highlighted, why, is and well this So strength positioned. the the is footprint distribution why going based in we're kind be shopping. of product, proposition, Walmart with to drive that able the that's where now on is the the back half in and to the expand accelerate accessibility to and of we XXXX, consumer as as

Laura Champine

it. you give helpful? specifically more Got for disproportionately any for lastly, would program in your not you around was numbers mentioned situation impact Costco that, a us can And be then Does have color that think this year. because QX? don't some you reason, And that I

Kelly Kennedy

that program base bath have in addition in was XXXX, but past program program shampoo that and we body and actively in QX year, back a that's a us. very predominantly had continuing impacted And which a rotational rotational and QX. wash half, that successful, our years, in. a two trying to to come go, pretty business, for is was we're And that sell Yes, we talking a a large had program business. with in the programs base and This we in past Costco, XXXX. had We've and the bubble

have headwinds, tail of sanitizing were some that Costco given back of and QX QX being end was to We the innovation certainly, that we'll is retailers headwind onetime the that in pretty we of think the think in that tail the have But was nature. – sanitization Given distribution kind out that's in programs both about programs half, the of with as end big the kind XXXX way be programs. and the I rotational a not that onetime that other and disinfecting impactful. still those as disinfecting in rolling were

Laura Champine

you. Thank Okay.

Operator

for Sir? call this Vlahos Nick closing you. I'd over remarks. time, to Thank to At back like the turn

Nick Vlahos

time Very everybody spend good. and your evening afternoon appreciate making I to with us. the

us is in takeaway conviction I key think the our business. have for we

wipes, skin and early the personal business against on. at look expectations set actually delivering and it's You our that we diapers out care

call. then So Ulta We're quarterly have we good forward want spending in on with want from as news that growing space. our we expansion partnerships like with market to penetration. you. just you us, sharing with say driving appreciate horizon the an around We're increasing with to Walmart that in the I our household And And to and with distribution fact thank we as you, the team, of omnichannel our earnings Thank growth everyone and GNC. we're look well double-digit the next I time share. that we progress on standpoint our behalf

Operator

conference This concludes for Thank you participating. today's call.

disconnect. now may You

The Honest Company, Inc. (HNST) 25 Mar 222021 Q4 Earnings call transcript