HNST - Earnings call transcript Q1 2022 | The Honest Company, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by and welcome to The Honest Company’s first quarter 2022 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

Steve Austenfeld

everyone, you conference for Thank you. our thank afternoon, Good XXXX Great! joining and first call. quarter

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

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

financial to a and GAAP regarding today’s earnings non-GAAP release. find these additional results information reconciliation of measures, will financial You section non-GAAP measures in the of these

over the section Nick. this live call available also our at that, the I’ll investor a broadcast website call is addition, With investors.honest.com. In to relations turn of of on

Nick Vlahos

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

our outlook last we call. results line provided first today’s As were earnings release, quarter in our in noted in earnings with the

year-over-year revenue quarter quarter. sales that as for call, shifts as highlighted well channel we was in first consumer comparisons, a unfavorable the impacted As in decline in revenue by resulted that

category versus Over demand year, core solid our the last a four was over quarters, year-ago comp prior COVID-driven up in period. revenue the X%

of Costs and As unprecedented of potential labor we administrative P&L with on we’re year the affecting In we and impacting retail address for and volatility in part and any we environment Today, costs. full understand is of margin-accretive our were with footprint expanding that we’re the to industry new share continue and balance product excited strategic our gained facing, to as delivering retail to the invest we outlook year, capabilities. on track future every new to for our in like are solid partners and response, a the to the are growth pleased thoughts rising, innovation inflation. partners, product, macro Despite close to suppliers our growth. with challenges look challenges, start new cost distribution I’m our the foundation logistics, remain by able products, mid-single year with contact maintain outlook impacts. digital some financial the for reaffirming sharing launch warehousing, to we starting I’d remainder the digit macro over build currently year.

Additionally, on increases executed help product single-digit we’ve our to inflationary price mitigate high to mid pressures, portfolio.

an is in early, of run with initial of read expectations. our pricing While it our line is first still

volume, expect over decline We have to we seen velocities a rebound. modest but in time

consumers clean, from tracked sources, the As for higher solutions strong, data looking remains natural prices. indicated despite shelf demand by

in pricing If we the take supported savings we pricing actions, margins. further We and additional believe XXXX expect to can impact inflationary mix. cost mostly favorable preserve escalation, input current in the see later these we offset cost year by to through

note to of manufactured important it’s our North products chain; that supply in to are a America. majority Turning

diapers, Our limited seen half chain issues. have nearly of portfolio supply our which are

third manufactured have roughly personal represent and North of the which but portfolio, are predominantly in products, ingredients skin are America. and care Our a sourced packaging internationally, that

result, impacts and care chain in we’ve personal experienced some a As supply beauty.

exposure our supply global chain Our disruptions to revenue. of than baby main XX% less which points, with is our represent

and intermittent past on the shutdowns months, auto demand-driven Over six key due ocean factory we’ve and to experienced items stocks COVID-related delays. freight port

constraints future. in predominantly for quarter, of stock first by the supply of the expect continuation back wipes but are a in end foreseeable the We baby chain

we XX% mitigate QX, inventory core of increase delays. to the invested to levels roughly During by chain impact supply

on business. the of in impact We conflict our address also want Ukraine to

Some oil brands, is higher a conflict sunflower certain driven disrupted from [inaudible] in or prices supply region on key The producer. regions Ukraine from like we ingredients the of for has source most ingredients, seed specifically that oil. these impacted the market and ingredients other certain beauty for which Ukraine

we we risk, of meet a demand. represents alternate have supply supply believe this to While consumer assurance to continue of sources

Honest no that reinforce healthy with available to balance and cash like investments. position, sheet debt growth sufficient fund our to in a I’d remains Lastly,

environment. we a are interest the impacted by result, As not rising directly rate

core continue a and in level support high first Now, invest with retail of our to of sales in growth the drivers: quarter. spend Starting marketing, XX% with at turning innovation our at brands, distribution. to marketing, marketing we

a support dollar that clean, quarter. two brand we What’s ways. marketing year-ago launch, diaper ago, reflects While commitment were basis of important important a to high was conscious this recognize our our our year the supporting quarter it’s in in that our level significant supporting down more a on to versus is

last investment in of it will example consumers shopper noted as other reach is leading investment brand and marketing where digital most to First, growth, effectively. to vehicles This to a directing traditional cost marketing approach return-based good toward store. costs are our shift marketing drive rising quarter, us more to

marketing Second, conventional categories our is growth household increasing expansion Honest shifting partners we grew a of end retail demand-building penetration, dollars multiple with in-store the with share continued across high spans the brands degree gains and loyalty, that which X% strong of consumer brand with by distribution activity to and half lifestyle strong of a against year. XXXX. aligns the from In nearly the short, second supports see retail key in to market

Turning to innovation.

innovation We a have for Training half refresh to personal packaging year pipeline line a the Pants. of our second out coming in the in care in robust addition

line, new across of a We concealer clearing cleaning expanding new a skin on and / our extension is clean are the and third suite best-selling The mascara launching products, to our track supplement an line. of second quarters. ship innovation

year. in key expansion our front; out is track distribution partners the the the to in with strategic retail of on store second half roll On

diapers, significantly diapers benefit as strength but markets country the in of our regions quarter. underdeveloped, in Southeast their seller on across then is Not is Wal-Mart and Wal-Mart the in the stores the care South those We the of in will and Wal-Mart.com the Honest only U.S., lowest QX, and all personal regions. fourth launching wipes Honest in be in ACV U.S. launching largest early will

nationally to are expanding across launching Ulta, also will country. in-store We we which being the distribution solely at online pivot from

are In line will be and supplements stress, our honest.com. expanding at to and and immunity sleep, add available at hair GNC online addition, we in-store health. These

half beauty through we track brands premier our store a the XXXX announce a leading to signed pleased record for front, China. SuperOrdinary, partnership products international brand launch to have our back the global Tmall. proven accelerator flagship U.S. on into of that with launching we Asia SuperOrdinary On are in a in has

progress strategic partnership our the significantly over growth delivering strongly household last for share our and global be North grown term, despite by to we’re in While about our tough love new drive pleased near new We’ve consciously. Overall, excited brand foundation the into with that mission brand modern innovation retail a XXXX focused continues initiatives management brand, be years, in on we consumer. the will remainder XXXX. the two saying continues inspire our to future conviction that efforts while everyone living initiatives will to Honest awareness can We set the will CPG QX, increase. and Honest our driving I’ll expansion. and to delivering penetration close and distribution the growth market resonate that maintain of are with America the this that for marketing,

Now, to will over Kennedy. Kelly it I our turn CFO,

Kelly Kennedy

welcome are last and call. shared everyone. results our you, earnings I’ll by start quarter that outlook during first and with you with we our Thank what XXXX consistent Nick saying

Our QX expect we comparisons cost not as well margins. as that to year, reflect the of that do difficult elevated impacted results remainder continue year-over-year into pressures the

expanded over and with compared Looking strategic we on the growth innovation, partners ahead, continue as honest.com. to Honest deliver the to mid-single-digit of retail remaining quarters digital introduce we to experience the improved XXXX expect three year

to actions. are anticipate While elevated, impact the expected benefit margin remain be by cost will the of much we of pricing recent offset pressures

to drivers quarter XXXX in XXXX, tough points. reflects growth liquidation the inventory sanitizing for approximately to $XX impacted quarter of restage, disinfecting decrease our the sales Combined, as last for financial against quarter beauty into diving XXXX. quarter. year’s Starting the Now, quarter first with revenue Revenues quarter these two partially XX% first results for a legacy beauty period percentage comparison compared related of well key the the ahead the items in the for of decreased the and in as year-ago of X of elevated by and first to The products. revenue a financials. million

The from to the retail is the channel. shift digital other driver the consumer key

brands in-store has consumers our been Given shopping half to as lags ACV penetration, only conventional retail revenue our with U.S. Honest our the in products high shelves digital negatively roughly on of impacted leading as return

help later most restore notably the anticipate significant growth will which with our consumer retail Wal-Mart, the we to back ACV to of the and in distribution retail shift expansion, capture this As year. we year, launch expand our in

decreased by also digital category the product Household levels decreasing in XXXX, quarter business, in a by quarter with first challenges. represented due channel key first, impacted to Skin quarter of wellness: XX% from beauty purchases. to $X and Revenue stocks of to of stocks wipes of and a declining to by impacted several XXXX. revenue led period. base the revenue, by of personal supply and product was our on out revenue due in This supply represented overall diapers our category negatively quarter and due a personal key disruption, digital traffic revenue Skin resulting of to quarter decrease single-digit XX% wellness by category; representing and decreased to household XX-point higher due the impacted first XXXX the diapers of driven quarter care: of XXXX, out and first also items compared sale low care first our advance relative in declining XXXX. liquidation X% was and to sales sanitization in quarter impact of traffic revenue The category. of trade wipes reflected XXXX.The the compared consumer million disruptions in versus XX% in and chain chain total represented first first of was digital first to total the demand which of an This decrease first category. quarter on wipes. to promotion also the the on products revenue, lower first for the compared year-ago Diving Revenue key impact the Restage of on a and drivers approximate Finally, disinfecting into XX% lower total supply from was items and XXXX due out-of-stocks and like XX% Beauty to quarter and

evading comparison sales impact equally digital. elevated advertising, was beauty an is behind faced related cost from industry consumer as to further revenue results to to impacted, a and Also, traffic in channel. year-ago our year-over-year shift revenues XX%, cost percentage the retail to XX% digital tough declined between and reflecting paid due platforms Now, to first liquidation escalating of online by Retail inventory, XX of period and the effectively turning digital points shopping. to in-store drive sanitizing an split our Digital wide prior-year negatively products. revenue ability industry back revenue. disinfecting In approximate declined legacy against the quarter,

Excluding retail these up was revenue slightly. impacts,

omnichannel advantage, unprecedented our shifts is especially behavior. our rapid we’ve and earnings believe in as model on the faces highlighted a call, shopping As industry previous competitive we

our our digital distribution upcoming retail Given are balanced choose well-positioned expansion, wherever we to as and shop. we to be and consumers business strive

in in cost Gross now to fixed year-ago in in with XXXX line gross of basis of XX% to resulted deleverage. points revenue generally approximately quarter XX% Turning Lower sales first versus expectations. margin. compared our was quarter first XXXX, XXX the the quarter the margin of

offset support benefited first savings. quarter XX XXX These line basis points to of In accounting were XXX higher addition, from the which by in product of the the first has of warehouse margin well the up reflected generally Operating decrease quarter of roughly XXXX standard, transportation, approximate XXX expectations. first as compared an the as partially freight million cost the factors by impact and input, were which of gross labor approximately XX-basis-point and the to costs January of impact. XXXX; basis points, new gross basis of compared trade $X adoption and with higher price lease increases, the margin mix XXXX, points in quarter as in favorable expenses basis points,

Looking expense at the as Marketing higher the supporting a the Conscious from was including primary company, expense when stock-based cost was were prior launch operating and down we compensation year, our of Diaper. component, insurance prior SG&A versus higher Clean public of reflecting expense. year

to to sales nearly quarter, rest revenue launches the of base. costovation. at product in XX% as year spend and we on the continue expect R&D increased for to growth rate we still continued invest was a to in However, and advertising expense new growing support the mid-teens a of

Now cash, first turning XXXX delays. position the with quarter in and to first million investments equivalents and inventory longer increased of and We manage cash the for short-term lead balance the negative million. chain as bottom we quarter sheet. $XX ended was the Adjusted line $XX proactively to times supply our EBITDA

expect of $XX we year. between quarterly the Looking balance our forward, for $XX to million million cash range and the balance

Turning year XXXX fiscal to our outlook.

be versus flat which highlighted, the release. our XXXX digit full growing are at is versus rate. three to remaining Nick is our quarters Revenue with we expected year As a mid-single earnings last reaffirming unchanged guidance,

steady and core categories, the to we wipes, million personal for declining of demand be for $X million EBITDA disinfecting and are Our wellness care consumer as the continue in negative skin $XX and diapers negative slightly household progresses. as reduced to is face average, grow and the reflecting the ahead to expected and range year improvement of expected sanitization products. with Adjusted to company year,

margin of levels levers pricing, focusing record as are productivity cost profitability on expansion. and inflation, long-term savings drive we Given and cost to

we As XXXX. we of going last two first in highlighted into have on half price rounds effect the our call, of increases

Our of pricing went January. into in round effect first

partners first our into total, go we’ve XXX beauty of to QX. and a end of cost phase portfolio, retail additional two-thirds on of increases announced Given on revenue to care, and impact effect by price headwinds, wipes, continued quarters and in at retail second diapers second personal items In base, our pricing our our approximately the benefit and online that expect focused actions we margins from the future basis points. select

expect to prior We slightly margins versus XXXX be year. to down flat

outlook volatile high of levels of subject a the current environment remains cost reflects degree inflation, to margin Our and uncertainty. but

Meeting, half all positive further environment We and to Shareholder needed to our we we cost take Considering back closing, and I’ll Annual pricing will continue call to the virtual offset factors, additional to With the over turn for invite the if shareholders all the to forward look to unanticipated increases. operator, achieve EBITDA our questions. of in I scheduled expect year. answering of of In XX. any monitor attend that, to wanted these May the adjusted

Operator

Thank from instructions] you. Dana Telsey Group. line comes first [Operator Telsey the Our question of of

Your if line your you’re muted Dana, make in is lift handset. and speakerphone, your a open. line sure please isn’t

Dana Telsey

about Yes, sorry think Okay. I I that. muted, was

channels, are expanded how for increased is year, differently it channels, where being giving remainder category? increases ranging than distribution and you the impressive revenue anniversary the phase guidance about Wal-Mart, which you’re year when that the whether distribution more next this digits; think price you’re As think by Thank And what about year? uptick you into does for mid-single is the it as you or that of with the the in with the budgeting you. you are from an it’s in, of going terms in Ulta, taken,

Kelly Kennedy

by back start question, the taking I’ll then the and come we’ll question. pricing on distribution

of in So portfolio. – into January, effect of again, these pricing will both went increases the third cover our price about first that pricing a the

have digit to cover as at mid total, end, is second taken the well of two-thirds course We so basis the XXX of that so pricing single in by as the portfolio, high across points total do going will of in the we’ll So and QX, portfolio, of beauty about entire on increases end items diapers, by select pricing this pretty robust. well, the it kind care, margin as wipes, so to personal in XXXX. anticipate benefit in

be that our the Of pricing, we basis over points. XXX really year impact annualized full call course on of basis last on that going the in a to on impact the it’s the And about we’re elasticities on close eye course and we would of course when the mentioned in think closer the keeping a volume.

the on the for out pricing them and just much anticipated where and had we have We impact roughly be. days elasticities are right pretty volume market in XX to

certainly hopeful are later year. the We the you will know consumer, that over in time, rebalance that

so And predominantly pricing, built for revenue benefit it’s going our upside in to haven’t margin. we significant the

Nick Vlahos

store. on to real while in the again broad distribution now of against Ulta been They’ll our driving Ulta, – Ulta. we’re target I as personal business the at ulta.com as complement at well then Nick. on QX hit QX start it the retail to business, business. could on business call, national then a dot in I and diapers, also, portion as testament Dana to side We’ve pertains the a distribution And com it strength everything with to in footprint com and Concerning care Wal-Mart distribution going just distribution, dot the of as broad earlier the of skin is so add that our a hit nice stores in is with on pickup, for wipes, now our the stores referenced as QX.

distribution from perspective on target on the plan right much a side. pretty So

Dana Telsey

supply just inventory you think balance do with on year? the that you’re pacing about of chain? thinking supply about constraints the chain then And levels, on the through Right. how How

Kelly Kennedy

the have chain, to of Yes, we piece business, get haven’t of the certainly on we you been biggest stock, really out been by diaper regular on able know we supply our haven’t that. been business, impacted we’ve supply

have overall predominantly wipes, You’ll of XX%. business. of actually China, out and the lead to what was seeing had are the we our really shorter we about of noted our lead did That XX% impacted across kind board, that address by but where did in been longer by in coming inventory than position times expand previously had stocks and less into take want QX. wipes we’ve account out-of-stocks overall from times representing we’re to in QX, We

care We’re now and times chain back that the around components some the business. stock, really of The continuing coming in in supply see constraints to be only some that to lead China mentioned the we other we personal supply so longer of part and for of that out beauty was chain expect business. are issue

manufactured more of from Although those America, here Ukraine, sunflower are conflict by and And also, that impacted come components in the oil. in the some [inaudible] do China. of such North oils oil were as some

But be those especially good about been we built the product very to we intermittent little we of the don’t the the on year. chain, as the bit Those ingredients our think we’re anticipate, we for all change half to distribution back sources as anticipated supply to being component. time, for of schedule about the projections impacted, a into out and feeling to So first drag new get half, some as continue of deliver on and new alternate anticipating with are ability on and to we’ve as of continue feel some year, our supply many highlighted, we’re and innovation. are secure we a we that of beauties, able the of stocks overall in and

Dana Telsey

Thank you.

Kelly Kennedy

you, Dana. Thank

Operator

Thank you.

Champine Our next Capital. Laura from question of comes Loop

Your question, please.

Laura Champine

on you digital or you specifically next the was the Thanks I just expect much your drive for order few do that mentioned think spend growth taking up to digital in my you question. marketing, higher. you quarters? because digital expect anticipate It’s changing in CAC part to marketing about Do which was in the that weak

Kelly Kennedy

doing I’ll marketing under Now, then talk I’ll our about digital additional about talk we’re and first what initiatives.

things marketing two the changing really digital. the front doing, On there’s spending first against we’re way is the we’re

consumption were lower this sales able of our You items, deliver to and great know a on refocus those digital we top is on we spend data key really items actually to higher able partner on were spend. the example with sales,

our given So way changing utilizing much the and seen a spend analytics, like the that omni drive and things to we’ve in escalation there. in digital cost way, we’re structure really cost-effective more

they piece, partner serve in campaign TV shifting QX and those pretty marketing. second specifically customers example great that had we’re we pleased screening to We their up we retailer with retail The a a and to product. specifically their stores, into customers, through and were adds did drive, Honest really is partnered TV, really saw to into they our with we’re a see able major that Oscar extremely

the So working two to and utilizing going. spend what’s and efforts, really retail behind just being our much invest then where more tools our is and and in data supporting consumer thoughtful digital

loyalty design honest.com, for front, the in layout shopping year, thing personalization up the our to the and and really we allows are year, and And get the improve. various to the new with know that as and talked have we optimized things we call live mobile. desktop launch in content our of we and both our We’ll and for last we in just things other on digital. schedule know the cross-category that like for things On new in really will given dynamic of initiatives personalization Coming new more wanted QX, half rolling win. category. The shopping main doing half against which know you back from traffic the be us works headwinds across the in again, actually duration of is year subscription really the we way that comes that in bundles anticipate a gone XX% to of about then QX implemented some like experience. improvement mobile, in business digital a highlight, has drive in focus our changing improved features optimize farther biggest you It we digital like a It’s honest.com. back

not only who ones the We’re this. experienced

on really focused driving We’re conversion.

coming do site, of that ensuring in and know we it XXXX the customers, you back but course is is be say digital make talking our make our think we’ll those So here to really want and for traffic and seamless additional possible initiatives about as to that the investments as we to we future, coming for as well.

Laura Champine

Got it.

So a is more and that to reduced, it expected summarize your to coming of to to fair to efforts cost because because market acquire but drive necessarily be customer you? efficient not is own the be is conversion,

Kelly Kennedy

Correct.

Laura Champine

Got it.

Operator

you. Thank

J.P. Our of from Morgan. next Teixeira question comes Andrea

open. Your line is

Drew Levine

Hey there! to wanted on the on I taking Levine the you circle for listing Thank U.S. back Andrea. This for is Drew questions. conversation.

kind curious just category. if of or it’s by by differing channel So

the been April and gives just and if trading that elasticities confidence any guess your expectations? in about guess consumers of are down what modeling going of in, of progressing, you And to the for there’s of talked end seen like the the of to QX. or You second sort you’ve anything Are sort that you thus price I in levels I Are more just you’re then increase for in hold quarter-to-date changes elasticity at marketplace going shift seeing, that sort May, things elasticities? modeling sort you you’re the far? seeing more any are of historical I if think

Nick Vlahos

then I’ll kind Yes, I’ll of Kelly add. let start, and

kind the look there that’s marketplace, you take of in roughly at know and during gone has time is, has our the category the about out on XX.X%. Honest, for X% about during just or diapers, count results our MULO up time per based up about What Just and we’ve period. seen take about ROI that of data we’re data XX that up the like, kind period, were up price and weeks if pricing XX.X% the you the is quarter. roughly a same moved X%,

our based you at versus outperforming look example reflecting on know continue seeing we’re price. perspective, look current the Honest. numbers national when the for head-to-head on you plans that fibers that’s So of what we’re based and of we’re elasticity our to going from players kind marketplace, pick a also that that assumptions those When you kind consumption the category, with seeing, the are consumption in are again, consumer at

So Because have of second round conviction about. that from it again, as to the and those gives also already that some players talking that to of through us pertains passed standpoint, we’re individual that kind following able and pricing versus know, to don’t anything continue the we’re marketplace. of rest going be to you else? want kind do to maintain price Kelly, the add be relationships gap I our of and

Kelly Kennedy

we’ve second No, want seen to other thing as given the exception on shelf. one have what just of on what either of increase, the that do in these that ours, being also and we on short was kind consistency the not just built as wipes the wipe. price set I is expectations, the that we’ve but not highlight is but partially across our which unit much of did only with due kind to seen elasticies volumes, for easy not on historically impact from that We different we is products, but a coming see impact think of Honest,

might a close color and additional So it a we on bit think We’ll come that that noise. some to on be we’re provide eye next our back and happy be call. little more keeping

Drew Levine

want Thanks. ask to And from then retail I digital. about the Great! to shift just

you’re would digital so of to the shift down digit the and if relative quarter acceleration or have for digit still the year that to I an said in just retail, seeing mid-single you mid-single be have the well. in heading year I or are that you last your as may into helpful not. that be kind think right expecting But case anything expectations there is

compare a moved you from curious on perspective past think mix so the your channel, the thoughts there. I quite toughest maybe on

Kelly Kennedy

no you’re retail, digit Mid single-digit so for year, exactly the correct. mid right. change, that’s single Yeah, for high a and to to increase digital high decline in

Drew Levine

Thank you.

Kelly Kennedy

you. Thank

Operator

Thank you.

from of comes question next Grandet Guggenheim. Laurent Our

Your line is open

Laurent Grandet

see you a to meeting your good Hey! your quarter change. in reiterating that’s guide everyone, and and the the great Good morning, year, for expectation

questions. Okay, so two

but not size first probably better at The shoot Wal-Mart. Wal-Mart.com moon, really for about the to for is obvious frame upside of the try to

us more versus about mean lineup tell the a maybe SKUs planning you could So get, to bit I you number target. of the are

what upside you Ulta? frame on and to trying Wal-Mart the for would be So

Kelly Kennedy

for Well, of diapers, the the a potential Wal-Mart really it seller is clearly being largest big us.

We on well and in play so wipes, of this launching diapers, be XXXX personal the broad-based we the care. have end as it’s as year really at distribution, will will store, but is shelf, the and a in

We’ll across it So to in pretty and births new for such on creating launch particularly that what closer the in concluding know the geographic we’re Southeast. more more potential, South earlier, where be – again by as as underpenetrated. you our as we’ll date, diversity – by color and launch the highlighted product we’re be kind the excited the really of getting are But launch providing it’s U.S., Honest get of know we categories. support. XX% Nick into relates to them as Southeast, things we’re We

pretty know for get rents is Southeast a with not for that’s the roughly be nationally of Wal-Mart big we XX%, the a all Honest excited potential the time. so in all lowest at to we’re Wal-Mart. that the but distribution ACV Certainly, us stores, you Our fit regions certainly broad-based may expect that

Laurent Grandet

they data, to well doing were morning How understand this the And Honest it. for us, in launch what’s can initiatives? like assuming like Okay, GNC release this? to resource think brands, meaning – of were we probably supplement the those I’d that Asia size period range a about if to that thanks. at help the I And for expansion you mentioning the press understand so for also you are they potential and also allocate international SuperOrdinary. I mean willing as with should of this would

Nick Vlahos

acquisition Yeah. category think of a this this I’ll this better kind around with And are and sleep, purchase you play right way immunity, formulation brand and our market. you we’ve you for a It’s kind holistic space around we’ve and business. from got lifestyle perspective been now specifically perspective. we’ve right a is in as great a because blends in with to in prenatal tool I’d has we’ve vitamin dot-com traditional consumer identified area to not always digital a the from that of around color of Wellness, We one, space. around around of Number around credibility give really here know Health is some this the Laurent. number us believe the given vitamins in supplement, proprietary you really unique hair. one, stress, start a perspective, got the from it’s win, The

melatonin. about of you at example, look a talk there For out if sleep, lot blends

like product things different not blend. proprietary Our a It’s have melatonin. does got magnesium-based

like of point nice we we so com that major foray gives entry bet. this think this the consumers, huge new us So and that we benefits a believe a we of as business, think subscription into our though dot fact would that. us also I isn’t with space that as of a highlight

we’ve been before. space know in this You

space, the but with player We’re preeminent going drive to in the offering. GNC, be dot-com the to be able methodical within the getting it also our then about distribution, that’s the credibility

pertains going a these as So to to been introduce variety standpoint, two, a as you of the obviously in geography then our in then and significant of piece, very be going to driving partnered from as the the SuperOrdinary, because introductions are well and there got execution. West us again, want in they a around of that are what to front our kind can some we the it methodical be June the get kind that we’ve scale partners. them European supplement history brand a to that at, Tmall beauty a areas they’re that But a we’ve piece Honest North there partnered at with able is going the obviously team with business, premier when is as component, from then global the prioritizing they’ve that look perspective supplemental part brands have way. and other here it one, specifically sure obviously Honest make they takeaway. to partner player been kind China a of a with with which that to We so are to beauty prioritization that introduced from We’ve [ph] of pertains business of strategic be resource talked as in with Asia. of business beauty preeminent adjacencies, They’ve America, managing The look SuperOrdinary China. perspective, we about that’s brands

Laurent Grandet

guys. Thanks. Thank I that. appreciate you,

Kelly Kennedy

Thanks a lot.

Operator

Thank you.

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

Jon Andersen

Hey! Good afternoon! Thanks.

then First the the I household for of a launch, question, missed I timing about plans guess could about and and just it, you Laurent’s little broader but segment? question talk may wellness talk a could have follow bit the supplements. up your on you on

Nick Vlahos

from a around a element formulations obviously this specifically, as supplements think set also as an that your on beauty is say we within Yeah. skin, as we’ve the as talking obviously the and play can to when those and wellness about say I And talk around what in about going of up a second around to what around then from you the for within, but address innovation we the in also we And health, pertains sleep to piece, we then you evolution supplements kind this in your of you being some show like from you’re identified can perspective, the of that precursor of consumer dis-satisfiers And the is a to etc. is honest.com this address to these again the you immunity, see talk goes that. household to hair Jon, we’re not of that impact start growth, talk start us, the it your pertains from it would good component perspective, to future, inside in and in, areas a distress, key GNC think and it in as environment wellness market really out. about about innovation wellness as position food market start body, are perspective. key you, from solution because Honest put what always quarter

of forward. think kind we element that’s moving as another So of innovation and our cadence

that to well around going a on obviously we marketplace piece have, currently, to to that of innovation lineup second The we’re with we’re as in be side component have. sanitization work household product space. that we we household But continue our to that satisfied be household specifically, offering, the on the as cleaning and look currently our within differentiated offerings continues the at the

Jon Andersen

Thanks that’s helpful.

As products, of the to some you launches, – or mid-year which you have a rollout, needs a or I as these lot you any year to new of up the the have throughout the distribution Do new – order national spending happening proceeds. marketing the obviously developments Wal-Mart support either year plans heavy is have on lot in of in later guess year? you

Kelly Kennedy

and them, we will as growth you look more did those distribution overall focus as scale execution specific XXXX. the that – mid-teens. into to customers. the Yeah, we about with be spend, particularly that’s and of both you distribution, landing mention our expect know which new planned more know that know we the innovation as for support But of getting at needed, other launch historically all term, their be think Like those, have support content product able partners, marketing retail And up those we our commerce commerce, said to think level XX% right will would to in the that build in our be retail community than is probably will more product longer content XXXX distribution launches. be of we kind But will We both biggest the on our we course cooperatively we the you have time as we stores. for probably you marketing open supported. and launches, year, strategy we utilize to than to XX%, to

Jon Andersen

mentioned expected flattish questions. on you think you said you to couple to of to Kelly, A Were said Okay, you year are gross when the margins be down. margins that’s I slightly that? that housekeeping great. referring

Kelly Kennedy

margin, I is our what was. slightly different in speaking that’s to than was we I call. gross last This correct. communicated

that we said recall You’ll flat.

the like escalation based on driven just some predominantly some by other the some Ukraine. things Now, the components oils and in the of of conflict seen, we’ve

mention, did want higher we the seeing be are you to EBITDA. slightly think each gross come year, some to through last revenue, thing costs I spoke. we We we’ll as And as it over margin, one about as of just well the better as course adjusted the relates than quarter, progressively going time

end of round one So you that to quarter, want two our because is going be QX. the QX since progressively not pricing, highlight, the to over the it particularly for until

in margin hitting Some of is pressure that particular QX.

Jon Andersen

question That second understandable. EBITDA. to gets that’s my Yeah, on kind of

second EBITDA in half you positivity of mentioned the or second You QX? the the aggregate and year. mean in half in QX Do

Kelly Kennedy

aggregate. in said We

Jon Andersen

And as Okay, kind and/or broader I into dollars do ability and users usher new maybe if retail. see to then some your Thanks. households to of side franchise them in, to digital try business of the ability retail something acquire more a that do cross-sell lack shifting bring into the honest.com guess using tools you’ll well? you How you the the and more you you I emphasis just in question I use data, first-party you’re affecting guess it and do can this that perhaps about of the of or on new squeeze great acquire lose opportunity or one your marketing to as to terms in sounds – think consumers? of do like you

Nick Vlahos

Yeah, it’s Jon. great question, a

I recall, think perspective really you work a a we for of retail amount limited us we know is you partners have what’s that with. important and if from

them their is ability to on to So our invest where precursor work their dollars. we a loyalty card shopper data, marketing with programs our

category. incrementality done to trade-up to to able that with a well those side, So able to around marketing a drive specific category, those across be beyond there go digital partners drive in that’s being connection goes with as on partners as to support and the acquisition, has be the that the then be

care our personal also we how diaper So business, and the if wipes business. our it’s business connect

takes as about that as skin, talk item, as consumer or the business, around to we third color. well as really then well both as cross-category are driving, that baby beauty different for them awareness sets solution marketing that and second that and business shopper that number drive it’s around is a make shopper. So we two, doing to Honest And the one, our oriented being able

you kind that it’s us, performing as when I at our twofer look personal a seeing the data at weeks, us, and as look category for as of outpacing in business care. referenced in as it we’re can when and think So the we consumption the example, you benefit both, it and is well for wipes in over last XX in diapers how well earlier,

us incrementality. driving that only So gives we’re but up, driving also the definitely not that we’re confidence trade

Jon Andersen

Thanks. Great!

Operator

you. Thank

Our next of Wissink from question comes Steph Jefferies.

Your open. line is

Steph Wissink

my digits? response I mid-single so to I expect to back everyone! a question. Hi digits mid-single want to to quarter you guidance questions, or just aggregate a in The prior grow grow of is your technical each go apologies. couple Kelly, have to

Kelly Kennedy

It’s aggregate. in

Steph Wissink

Okay.

about So I would was use think that it would contribution million distribution I And digits, much that given help think as you if growth how upper or legacy $XX new base, like the as the us a in that distribution, of assumption mentioned just down. distribution. price, mid-single think we might then of conservatism imply maybe a be you’re building the mid your that about new of related to year-over-year. timing so to Maybe question, seem which

Thank of bit you. understand putting of little the the we given you’re distribution. the how into total legacy amount gaining, kind a pricing growth distribution place you’re of bridge to So performance that of to relative just trying the the

Kelly Kennedy

Thank you, Steph. a It’s good question.

well. couple you when our in the of points we laid innovation of about think also on think last call, as from a XXXX out growth distribution, new I

that traffic, think on of I seen seeing data that think headwinds know and the by and it the you new we XXXX. we’re really comping the decline about Where we are rotational is as really we’re side. call, in program distribution attract that kind not as the great last think being our we a legacy of we years innovation, in for we have I digital mentioned we’ve in in headwind growth the as XXXX distribution It growth is That know seeing you the the back the in single the a our landed seeing are kind offset decline that is good seeing past half we’ve total have. two actually retail kind we’ve year-over-year successful a we is in you largest – last certainly had we’re we and very partners it’s business, over base have with certainly was rotational in. of of know seeing program got program few a have that our headwind and that’s legacy the really But and success them and retail had business that growth really data. offsetting with great track the success getting programs years strong periodically so

Steph Wissink

very That’s helpful.

Kelly Kennedy

first I approach price thing increase of seen in We only The the especially assuming, did the on elasticity. have from wanted take a to we is kind us. conservative because Honest are mention this pricing is that ever consumers

velocities, a in far overall velocities strategy. So assume any not will pricing. was versus hopeful a that’s those back. margin revenue did time tracking that our expectations, That come unit we’re improvement We over of a step-up the result as while significant really in way

Steph Wissink

question, That Thanks Kelly. final Thanks it. so much. you got so my was

Kelly Kennedy

much. so you Thank

Operator

you. Thank

comes of America. Spillane from question Our Bank next Bryan of

Your line is open.

Bryan Spillane

I thanks at least. good Good should say, here morning afternoon Alright, everyone operator. or

couple a of questions. Just

kind realized? of I’m to SG&A? to where to as going where there what being think trade thinking in expenses that be of like captured will sort trying about recognize a of revenue in brick-and-mortar there line those there’s or mix demand is, more geography, the the in any I the of Kelly spend. any retail, versus the more of guess in be change is the sort spend shift we’d we Just spend if from that will supporting marketing the going digital above more P&L First, is be understand shift

Kelly Kennedy

There Yeah. be, reflected outlook. already it’s a not but there meaning shift. been our a shift, is in be will There will

Bryan Spillane

above includes some revenue So net the line. revenue the outlook spending

Kelly Kennedy

It correct. That’s does.

Bryan Spillane

– Any how terms can shifting you any how just okay. just the spend of is is? Okay, of material in give size, idea of or sort that much us

Kelly Kennedy

moving weighted from channel. kind kind toward a volume by down year break that in to don’t slightly say the which weighted we was toward highlight retail. is digital we So, shifting to being the slightly Overall, really of components of I toward think are

be in years there little You know scenario there’ll be a XX-XX where we’ve always will said this stronger retail.

be not expect therefore, what departure in seen some and big we material the the calling a really nature, the XX-XX, more as in out really but it’s you’ve from past. us retail You in we’re it’s not because not out And distribution, going a to strength roll can shift. from like it’s

Bryan Spillane

more And Q that’s just alright, in helpful. a co-manufacturers two triggered inflation then we might about us rates I I possibility same the position, be year? the how there’s a you. course we And should over that mention of that then that a Okay, is sense guess may co-manufacturers you there Thank of guess. give of impacted of your of your who Can the renegotiation maybe that – and inflation more in see the assumptions? be a

Kelly Kennedy

advance. Yeah, our XX% have cost about with product the so those and overall manufacturers of are we negotiated in three

are we input and that and within cost if have kind we seven talked two outlook know of escalation renegotiate, into to of triggered year. and ago. actually pricing XXXX to gets just in And was looks you the already sight quarters built our weeks when complete you escalation of structure above a the to the we typically what hurdles contract, So a their there like that so line have happened contracts are for do in it that row provided

don’t year, where toward by know who there have you of people so significant a end companies of – need and clear above escalation a other line pricing to it there And that and for those of out are these. sight would on trigger, period we pretty have prices would with XXXX are for out be maybe now of so extended perhaps there, agreed we getting versus well an manufacturers. we confidence the other time and kind the good surprised very trigger to We’ve for certainly,

have for I year. structure visibility a is to think cost the we good overall what pretty our

Bryan Spillane

Oh! That’s great.

you. thank Okay,

Kelly Kennedy

Thank you.

Operator

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

Nick Vlahos

you appreciate Great! the us thank you with today. I spending time so everyone. Well, much

earnings thank just our forward we for you call. You behalf sharing want really of participation, progress your in know look on this team, you our to I with and next quarterly to

everybody! you. a have weekend, great So Thank

Operator

for participating. conference today’s concludes call. you Thank this And

disconnect! now may You

The Honest Company, Inc. (HNST) 14 May 222022 Q1 Earnings call transcript