Earnings call transcript Q2 2023

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

Operator

Good day, and thank you for standing by. Welcome to The Honest Company Q2 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded.

to Austenfeld. conference like speaker to now Steve today, would hand over the your I ahead. go Please

Steve Austenfeld

Good afternoon, thank conference everyone. And call. quarter our XXXX second you for joining

Kennedy, Chief Joining Officer; Carla today Financial Vernon, me and are Kelly our Chief Officer. Executive

earnings forward-looking remind a may cause laws, like more release a certain that our the issued involve our affect to business materially. of number including statements release as uncertainties within statements Before of forward-looking we of for that earnings meaning and that today actual that referenced Please our to detailed about results. risks start, will you description could issued our other differ well filings in and These we the today of as are the I'd make results statements federal our the matters today. to securities SEC factors refer risk outlook

information reflect date undertake only to any that also opinions release results these eliminate as forward-looking of revision we and certain will measures, or discuss adjust financial events, results required by except our new call, of of to law. the statements forward-looking call, Also, of non-GAAP no light in or which GAAP this publicly our statements Please these we the as impact during to this revise note future items. obligation of

our financial the broadcast a reconciliation Relations is and live of Website to in call available these of measures release. measures section financial results the You also non-GAAP will of regarding @investors.Honest.com. Investor this additional find non-GAAP GAAP today's section of information on A these earnings

call over turn will Carla. to I the that, With

Carla Vernon

and to with and our to quarter share related strong today. revenue outlook thanks adjusted I'm drivers and Thanks, Steve. you EBITDA for everyone, year. Good for increased both the performance be results, for second pleased our joining afternoon, us

and digital in was quarter half channels pricing. strength and brand retail is both through year. balanced of for Growth the X% delivered and in of first volume growth XX% across evident the Our revenue the and

our revenue, highest our Looking data, growth And to increased seasonal in plant-based at Honest channel XX% this exclusive booties tracked wipes in assortment delivered which are that our and category prints portfolio community second babies be our through natural for wipes Diapers, brand, from of delight ranging are continue share approximately of quarter. quarter. consumers. share the our heartbeat designs uses beloved of the half the to total the consumption the by wiping kitchen cleaning of cooties. market growing expanded covers which They

pleased also this the being addition progress introduced we last we growth to top-line quarter, the quarter. are of with transformation In excited the about initiative

structure which brand was encompasses discipline, three of investment margins, cost support maximization, drive quarter. launched drove main further enhancement improvement and and to in transformation the Our these our earlier and to three margin and in second operating the portfolio in pillars Each growth year building. meaningful this advancements initiative, of brand pillars

on of marketing portfolio, also and Bestselling Our across focus eliminating able diapers, efficiencies By drove support focusing maximization return growth spend. to reducing our revenue we our our marketing performance top and Hero improved wipes and on brand marketing while lowest were deliver beauty our investments items. products our

and ingredients in enhancement structural premium pricing focused products. margin savings our the our with on cost pricing Our were initiatives that efforts structure actions realign

supply actions negotiated now pricing and reflected and we In the chain with completed across cost which first half significant of our on online. Baby are and Beauty, partners operating shelf improvements this year,

half into significantly complexity Asia Europe, exited margin XXXX. of and for and model. structure in our our which also We reduces actions will have second These business the improve the XXXX

for to of ability shareholder flow, discipline advance improved our Honest order. resulted improvement initiative, in operating levels achieve our cash transformation demand. believe that in combined position has the will inventory now and cash higher align driven positive and implementing Additionally, strength, drive discipline significant value. drive and benefits operating portfolio made as the This profitability capital with with our and We progress working reflected we improvements over time, flow cash to

review turn including I'll it Kelly, further Initiative. our to over Transformation you on the to financials, details

Kelly Kennedy

Thank you, everyone. welcome, Carla, and

execution top-line in this improved performance agent cash quarter results, all Our the gross trend demonstrating goals operating reflected flow, and quarter. strong margin an positive our strong against

for Carla higher our back in provides we to Transformation fuel in quarter, the sets the highlighted, on made meaningful Initiative progress half XXXX gross accelerate in also As and this which growth. margin invest and foundation

category million, channel and Clothing, channels, digital consumption over Honest was digital of key track at consumption a X% results growth revenue retail. and pricing ago, impact $XX with for quarter, trends, actions first versus This of strong reflecting the channel and year increased Starting including growth healthy Baby taken which course retailer both revenue in expansion, Walmart and the the year. the last our reflects

driver the low parts retail reflecting market. strong biggest by partially from international largest was results Imon margin supported across our the last customers, distribution and our the added portfolio, including by and new volume growth, channel revenue For reduced of of year, quarter, offset club,

Approximately the balance second with growth was pricing, quarter in our driven the higher from volume. of one-third by

Wipes. Turning First, to product key and by drivers category; Diapers

the Honest Our outpacing business with diapers was wipes and consumption significantly category. up X%,

X% quarter growth the increased second Looking channel of well in Honest growth. and at the diapers ahead consumption wipes category track in XX%, performance,

in reflects twelve margin five category. pace diapers This of channel. care growing of cat back declined pace and Honest the X% the eight skin times and last we Honest club growing the the the personal the as In weeks, low wipes category products times scaled

We digit beauty retailers. in growth with and continue key momentum double our skincare across to see

wellness and business XX%. increased household Our

of both clothing as baby year integration other the quite baby with as business we approach products co-marketing one benefits as pleased to the its continue our month. clothing gifting We remain anniversary the this of We growth scale baby and underlying the well with options.

between retail at retail XX%, revenue XX% increased revenue X%, almost QX similar turning QX. channel increased equally results with while digital of by at to in XX%. and Revenue Now, to channels, split digital channel was

performance key distribution digital our consumption, strong channel recent purchases wins, retail by omnichannel Our robust retailer. as reflected as track well

include quarter highlights Walmart Some Double-digit and our new as at Target, secured year. wipes versus diapers, at year half single-digit high which this saw beauty across and consumption growth as at items point-of-sales continued in the continued performance well strength growth launch ago. following XXXX, this Amazon strong of second distribution

categories, have Following the assortment personal the seeing to we primarily success end we care of of and from third primary being the it items an in-line, our being a indications is are positive destination shopping diapers, on quarter are as wipes year, our shelved caps now launch Walmart growth in which into last featured transitioned initial velocity result. and for

this indicates partnership, such been analysis expansion the our the also South revenue able incremental. geographic and Honest highly particularly underpenetrated. as and Our that reach been has in significantly introduce has expand consumer, products Southeast, been regions Walmart we've where from Honest to new into to a Through

the pricing points XXX chain XXX turning reflects Now was points cost versus benefit of This roughly trade cost a from Gross XX% savings offset to and gross cost, margin includes of year input efficiency. of cost. compared higher the transformation basis initiative and second promotion by margin approximately quarter quarter quarter second margin XXXX. in gross in supply of basis XXX XX% approximately to ago basis points

the as the back actions, to margin. benefiting of initiative, we move pricing of including impact favorable the transformation the into half expect accelerate gross year, We recent

$X compensation operating to increase spend to a $X operating Turning in quarter due in towards and higher also agreement. $X of XXXX, return legal profitability, roughly based half higher second to compared costs we by second shifted of XXXX litigation Operating accelerated expense prior of expenses increased marketing reduced brand expenses stock quarter to restructuring were by million securities building the million fees the offset as opportunities. and million related a million to related impacted dollars a a vesting expense reflecting separation

was Adjusted which the $X million, of costs related Initiative. EBITDA Transformation second for XXXX million in quarter to one the included negative

with was Turning increase million, positive investments, Company and the versus equivalents have sheet, short to the cash $X million last $X we quarter and the debt. cash, million to in quarter $XX cash-flow operating no term balance an of continues ended

Our We further reduction million. for by current balance, modest reduction inventory our we second in Transformation We've $XX goal cash the the year-to-date. initial quarter part in in consecutive quarter as believe position decreased by our our is in inventory our inventories level activities reducing opportunity of a million great with and aligned from exceeded second Initiative demand, improved which $XX significantly unproductive complete inventory with of half. meaningful through move

versus full full be our single expectation single low to and the progress outlook XXXX in increasing strong of a digits. our turning versus low are we We for now being following Year Now, single Initiative, expect consumption the to mid XXXX digit outlook. up trends to on half Transformation first our prior revenue year XXXX, up

and benefit of reflects actions The half. in Company's revenue XXXX midyear the Year second headwinds consumption continued revenue pricing offset the growth full track by outlook positive channel

the in to EBITDA including adjusted expected the EBITDA in related XXXX. significant is margin be that As now distribution we the to lap line negative eight and to million in impact of will costs and low of million impact $XX product exiting million, and charges XXXX $XX range priority new low initiative to negative shipped Transformation in adjusted $XX

cash. the prior earnings line costs, now to year. we estimate, million total versus the our see to and reduction the $XX to being item release impact on incur details the date a $X Please non million Transformation for $XX Transformation of Year-to-date, for we total, of million Initiative recognize project Initiative anticipate In our in majority with the balance slight cost. PNL

Initiative million operating and to late benefits XXXX generate we in monetize will expenses. in Transformation reduce anticipate continue drive $XX $XX savings an annualized cost pricing, starting million We as the estimated to

our second of the in to team positioning focused date our pricing As brand we the on improving. with look the and the leadership premiums remain which realizing historical benefit to of restore our year, actions line half Company taken

contracts vendors will These growth higher low including a XXXX actions for strong finalizing our structure, of from costs beyond. across brand of Our of and driving support to foundation and and suppliers investments the input and cost efficiencies lines set returns product building and improvement exit margin margin in and higher margin key renegotiation businesses.

me let turn that, before With questions. Carla up to for we open it back it

Carla Vernon

Thanks, Kelly.

enhancement Initiative and second Margin on fundamentals focused remain improved relentlessly the through of half to Brand we pivot XXXX, we of Transformation delivering operating As the discipline. maximization, three pillars business

far brand for The we've half revenue runway on has wrong conviction growth. reinforces Transformation that the first a and Initiative my the so progress made our great long Honest

clean commitment approach First, consumers choose our standard ingredients we chemicals Honest with not XXXX formulation and continue and our to value use. to to product the over to

segment confident are points that clean we And Second, we on in that distribution. have third, significant is of and outpacing for and natural growing, brand trend have a additional we a conventional offerings. runway differentiated

from increased grow of still XX% a has distribution the portfolio reinforcing the end our of selling or year best ago the XX% of QX, to XX% our While levels and to for assortment. ACV opportunity many ACV overall the Honest at less, items have

with you and driving leave will Initiative. more Transformation could realize to one foundation thing, brand expand These benefits I shareholder to today. brand continue than we widely will the we it's and our If become we value upon as improvements it Honest margins establish a which larger, remain that vibrant from to is expanding available the committed more

we I answering that, to over call the your the questions. look With forward and operator to turn

Operator

our of question Champine Loop. first from will Certainly. And [Operator Laura come instructions]

open. is line Your

Laura Champine

often. of Good Is there my result which It's really positive afternoon else it? taking revenues, and impact about I that on thank or the question. is something in restructuring's increases don't just this price the you see for

Kelly Kennedy

is when the you That's premiums. about historical as thank we question. we've for to the our around is we're It back transformation about pricing positive be Yeah, your Kelly, talking really pricing revenue of Laura, impacts what talk to this realigned initiative.

our of I leaning mention the in items. efficiency transformation of supporting best would some marketing piece that initiative is certainly just and selling Other and

around both those have a focus. support so our bestsellers. in skew did best ensuring do we of to some sellers the We it's and marketing rationalization, distribution content really it's So just leaning that with supporting and

Laura Champine

might in a this the raise know I now prices where that it. Are you point? to that happening brands be or Honest competing position lower raising slower prices. prices when was not Got little is you at

Kelly Kennedy

QX. There XXXX There sanitization in. the Now, few that input the be re-priced in of increases that sufficient of last the in into going pricing and in month. different SKUs and pricing is in couple saw in vendors have is XXXX went year. the a market to the But that waves, pricing in some will but as done offset planned small XXXX, costs the from a we out our inflation was we in but that is experienced. that in inflation also later we market is is Predominantly, were XX% in

So now, we've that it'll mid cover those that to we be we know sufficient that in inflation. realized, which went is pricing once feel year, taken fully XXXX,

Laura Champine

you. Thank Great.

Operator

One question Morgan. Texiera moment for coming Andrea our of will next question. And our be next from

is line open. Your

Andrea Texiera

Thank you. Good afternoon.

the of on So, some things was recently, And particular, I the month, price your international well exiting is on margin, have as obviously three third that. the still the implemented shipment gross in can how One out as you I I Sanitation, comment question of in and terms including Carla, and rationalization. of parted you you around wondering as secondly, your comment elasticity of been, business on improve the said, on against there. increases as have or some then SKU called the top questions. portions if that. And seeing of of ACV. path like last trends, you my I'm selling can part couple sorry. is Most is XX% a to products consumption you're below

So guide, of I if or if also reduction the new guide was includes you on the businesses of that XXX out? if that? year, basis how of much the year exit can over was wondering And to related points comment adjusted that's those that

Carla Vernon

to you. hear Thank you, Andrea. Nice from

the off. that, our it conversation yes, opportunity Carla Hero the about of kick items. our call increase them me in This distribution Let existing we with is portfolio items to

items that most strongly are excited So they importantly, our we're where and are. about first so performing what Hero is

and increase by visibility grew we of where where of by strongly facings is all That so data Hero led important items. across doors aisles partner to track opportunity we are. talk about expanding because Honest and to items. channel or are as assortment either is in retailers the XX% That Our our our we the even with the the expanding

expanding about to top the good our sets up have existing items. Our opens strong distribution really those growth shelf performance can by opportunity on we conversations the drive of

your is course, that's of in that a and to and available in categories beauty items. key selling it's as if kind turn, CPG distribution is items, supply top velocities ensure most With of the demand the enough work. Of that that way household actually best the items those

So we conversations are about in that strategy. retailers with

the This Additionally, doors process. learn been in as a our on enough, of some though, bit interestingly retailers, key our top yet items. a go for we're not has all of we

So, strategy. as times, really you think entry about Walmart, a been we've led talked as lot and into for our you example, a know, entry baby our of has into Walmart by

and have at relevance So sure as opportunity doors there's to make already introduced see success are say with we we're even aisles now categories the not there of brand, yet consumer, Walmart and we in. we the where the the

care you that separately that different or aisle a in and of think, I is be two the both sometimes variation personal relevant So through biggest those are way might product the product adult places ways, aisle, the relevant in as retailers are, certain store. know of third two but baby that the would products some the walk same

So as hero drive on our consumers demand call of sort more even against in availability of roads I which of Rome, the that items, we it, our lots love. products the are ways most and in just to

we is I that say In very exciting. what that, addition would to will layer on just

marketing that shoulder in more also marketing the it hero much layer category that improve the on distribution a more grows, it's with broad you on as items. but billboard store, As a on not ensures distribution, marketing, bigger has only driven when brand those that does the top return of the focused

ahead second question. take and third go your I'll and

we the on impact pricing as elasticity. on drinks, in take around question second the consumption and Your

of impacts the just in XX went last XX to some days. the pricing And

on new continued be to this have both impact So reflects to initial the in we little the trends been price that Thinking a with really the a approach data could we've still to pretty in and shelf. out only morning, on same that take see growth consumption reads. recent around elasticity. which slight back We've we're and even data, tracks the it's pricing. But but the see pleased early, volume channel, continuing most what half, the cautious about came tended acceleration a

far months we read a more good better a so have after get So, so under belt. we'll couple and our

with in saw closed our gross gross and finally, partners of margin question ti margin impact And as also we operations the products. both did, those did exiting around terms our and Then quarter. the We of down you the in some your highlighted exited call, we were Asia low in agreements the second on we for reflected and Europe. the kind the margin as finalize

highlighted, impact So basis on we gross point there was approximately that XXX margin.

there kind some of impacts the finalize of we the to areas other rationalization some As be we are in our portions SKU of initiatives in we will that QX in QX. additional of as highlighted, other expecting some come still predominantly of exiting outside

absorb for of we So the relates it move into QX biggest and of that can we quarter and gross as as kind think a cleaner margin. of about then third remainder impact as the back half, expect little the margin into to will the XXXX to bulk Ti-on you be in

Andrea Texiera

land I A lot then margin you putting, point be you as where an the would go. emphasis to well, just But just us we transformation, that go the and made, Kyle I when I forward. we what margin? struggle this And all think the And in give target back the of you terms you going Kelly, to appreciate of that if been as have idea in can discipline this see margin can will that's. finish

Kelly Kennedy

XXXX. Yeah.

between going back to some sequential the of highlighted costs, have term they time as have improvement, even flow were we come just short both transportation some impact to transformation the on initiative half. into some in But down, cost headwinds and what some the continue will We which, takes through. margin

margin, basically benefit see costs So the adjusted to those in we've QX. points the some did we both half XX% see When we to you lower gross taken. and We'll two highlighted transportation a that in pricing adjust of as that the And benefit impacts, to half, margin started those for kind in QX of related is benefit. gross XX%. back the we get and

the to slight inflation, has initiated back will then there costs we'll get we would that be benefits transportation full we've cost and be be going due a of that until normalized the which all forward, more half pricing some really improvement So pricing XXXX. impactful move to offset return won't the of and those additional that some as impacts, savings into That XXXX. move we in into

but sequential, XXXX. So again, predominantly. Hitting

step marginal. the up So will improvement be XXXX

Andrea Texiera

you Thank Great. on. it I'll very pass much.

Operator

Thank like questions. to no And to remarks. would conference I'm turn I you. the closing for now showing back management further

Carla Vernon

you Okay, this joining again quarter. well, look Company. a your pleasure with you here back for and Thank interest support and be it quarter. with speaking for you be to We was work for to Honest next us forward the

Operator

gentlemen, participating. for Thank you Ladies this and today's conference. concludes

may disconnect. now You

Steve Austenfeld	IR
Carla Vernon	CEO
Kelly Kennedy	CFO
Laura Champine	Loop Capital
Andrea Teixeira	JP Morgan

The Honest Company, Inc. (HNST) 8 Aug 232023 Q2 Earnings call transcript