Honest Company, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Honest Company's First Quarter 2026 Earnings Conference Call. Operator provided instructions were given. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Chris Mandeville, Interim Head of Investor Relations at the Honest Company. Please go ahead.

Good afternoon, and thank you for joining our first quarter 2026 conference call. With me today are Carla Vernon, our Chief Executive Officer; and Curtiss Bruce, our Chief Financial Officer. Before we begin, I will remind you that our remarks today include forward-looking statements subject to risks and uncertainties. We do not undertake any obligation to update these statements, and actual results may differ materially. For a detailed discussion of these factors, please refer to our safe harbor statements in today's earnings materials and our recent SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and accompanying presentation, which are available at investors.honest.com. Finally, please note that all consumption data included in our discussion today, unless otherwise noted, will reflect Circana MULO+ measured channel data for the 13 weeks ended March 29, 2026, as compared to the prior year. With that, I'll turn it over to Carla.

Thank you, Chris, and hello to everyone joining us. Today, I will provide a high-level look at our first quarter performance and offer insights into how we are successfully executing our strategy to profitably scale the Honest brand. Following my remarks, Curtiss will provide greater detail on our Q1 financial results and discuss our reaffirmed full-year outlook. We are pleased with our start to 2026 as our recent actions to optimize our portfolio are bearing fruit. Our Q1 results demonstrate that Powering Honest Growth is leading to an enterprise that is more strategically focused, growth-driven and structurally profitable. Let me begin with our first quarter results. By bringing a sharpened focus to our right to win categories and channels, we delivered organic revenue growth of 3.9 percent. Delivering this growth on top of double-digit growth in the prior year underscores the momentum across our portfolio. As we continue to increase the availability of Honest products, we are also expanding our business across a broader set of households. Over the last three years, we've been disciplined in our focus on driving shareholder value through top line scale and bottom line expansion, and in Q1, we did exactly that. In addition to delivering organic revenue growth, our adjusted gross margin of 43.5 percent was the strongest in our history. This year-over-year gross margin expansion of 480 basis points demonstrates the impact of our Powering Honest Growth initiative. By streamlining the focus to our right to win categories, we have ignited a virtuous cycle that allows our teams to successfully execute against our three strategic pillars of brand maximization, margin enhancement and operating discipline. In Q1, our brand maximization strategy of growing revenue scale and consumer strength of the Honest brand was evident. We delivered 8.3 percent consumption growth, significantly ahead of our comparative category average growth of 2.6 percent and a notable acceleration from the 3.4 percent we delivered in Q4 2025. Best of all, our momentum continued to be volume-led with unit consumption up 20 percent. As I shared last quarter, the Honest brand benefits from two powerful dynamics. The first and most foundational is the growing consumer interest in cleanly formulated and effective products for people with sensitive skin. The second dynamic is the unique competitive advantage of the Honest brand, which drives our commitment to upholding the highest standards in everything we do. This gives us the ability to build deep consumer trust and loyalty across a diverse range of households. This spans families with babies and toddlers to those with big kids and teenagers and even households with no kids at all. In the United States, 89 percent of U.S. households do not have any children under the age of six, while 75 percent of U.S. households have no children at all. This is why we are purposeful in designing a growth strategy that provides a broad range of products developed with a wide range of ages in mind. As a reminder, according to Numerator, over half of Honest's current buyers are from no-kid households. Across all household types, the love for our cleanly formulated and sustainably designed personal care products continues to grow. At Honest, every product must meet our industry-leading Honest standard, which is a set of guiding principles that includes a list of over 3,500 ingredients we do not use and that shapes every step of product innovation and development to ensure our high expectations for safety, efficacy and design. This appeal is evident in our growth. In Q1, our total household penetration reached a new all-time high of 8.1 percent, up 50 basis points from year-end. We're proud to have welcomed 1.6 million new households over the past year. As we look at the opportunity in household penetration, we still have significant runway ahead. For example, in baby personal care, key branded competitors hold household penetration anywhere from two times to six times greater than ours. In all-purpose wipes, larger brands have as much as five to seven times the household penetration of Honest. This considerable market opportunity presents a clear line of sight to our next phase of growth with a focus on transitioning existing category buyers to Honest and welcoming entirely new households into these categories. Now allow me to share more on each of these portfolios, beginning with wipes. In Q1, our total wipes portfolio delivered consumption growth of nearly 25 percent. With a wide and growing array of formats, Honest wipes are expanding throughout the store and across household types with products ranging from adult flushable wipes and hand sanitizing wipes to toddler flushable wipes and all-purpose baby wipes. The consumption of our all-purpose baby wipes grew 14 percent this quarter, reflecting just how much our community loves having a stylish pop of design on their changing table, countertop or in their bag for those everyday cleanup moments. This quarter was the national rollout of our updated more shopper-friendly packaging for our all-purpose wipes. With this new bolder, more shoppable package design, it is much easier for people to discover these wipes on store shelves. We introduced our largest packaging format to date, a mega pack that allows parents to maximize value and stay fully stocked on our sensitive skin safe wipes. Our Honest flushable wipes are a clear standout in our portfolio, delivering Q1 consumption growth of more than 200 percent off of a still emerging base. These plush, moist and plumbing-safe flushable wipes have now grown at more than ten times the category rate for three consecutive quarters. As a result, we are now the number four flushable wipe brand in the category, up from the number five spot in Q4 2025. This momentum illustrates how our growing Honest community loves the unique combination of fashion, function and flushability we bring to the category, and we're just getting started. A few weeks ago, we adopted a very stylish and thoroughly modern new approach to our marketing of flushable wipes. We kicked things off with a high-profile social media campaign in March, partnering with mega influencers specifically chosen to resonate across our target households. Whether you love an intimate conversation with Tia Mowry, a bestie moment with Kat Stickler or a freestyle wrap by Hannah Berner, we had something for you. The response from followers was immediate and the algorithm did its work. In fact, one post amassed 1.5 million views across Instagram and TikTok in just its first 12 hours. Building on that digital engagement, we launched a national campaign in April across a broad media landscape of video, social, out-of-home, festivals and more. The ads, posts and videos put the spotlight on the moments when even the most stylish and glamorous women get honest about why they love our flushable wipes. We didn't stop there. This quarter, we also refreshed our collection of hand sanitizing wipes. In Q1, we relaunched our Lavender and Grapefruit scent in updated counterworthy packaging and rolled out our pocket packs in those two fresh scents. For the quarter, we saw a consumption increase of more than 60 percent on our hand sanitizing wipes, maintaining our position as the number two brand in the category. Now shifting to personal care. Our personal care collection delivered consumption growth of 16 percent in Q1. Our shampoo, body wash, bubble bath and lotion have long been a trusted choice in the 11 percent of U.S. households with children under the age of six. In fact, with consumption growing seven times faster than the category, Honest has officially become the number two brand across total baby personal care, jumping from the number four position last year. Now to build on that momentum, we are expanding our reach. We are pleased to have introduced our new Pixar Toy Story collection, bringing the Honest standard to the 89 percent of U.S. households with big kids and kids at heart. Initially, we launched the collection both in-store and online at Walmart. As of a few weeks ago, I'm excited to announce that we added the collection to Amazon, which will meaningfully expand our reach just in time for the Toy Story 5 movie release next month. Speaking of going to infinity and beyond, our brand literally reached new heights recently. During the live stream of the NASA Artemis II mission in April, astronaut Christina Koch radioed Houston to ask Mission Control for help in tracking down the Honest lotion the crew had packed on board. It was incredible. It was an organic moment that highlights just how essential our products are to our community even in orbit. Not only was this an incredible affirmation that Honest products are for everyone, but because my own mother was a NASA hidden figure, this was a full circle moment in more ways than one. Finally, let me share an update on our diaper portfolio, where we have seen progress on our performance. Our consumption declines in diapers were nearly cut in half, moderating to negative 9.6 percent in Q1 from negative 18.3 percent in Q4 2025 as we lapped the distribution losses of gender-specific prints at a key retailer late in the quarter. However, our outlook for the broader diaper category remains cautious. We are navigating a highly competitive and promotional environment that we expect will continue to pressure the category. While diapers remain an important option for families looking for the Honest standard of clean, we will prioritize our growth in households with babies and families with little kids through our higher growth, higher-margin wipes and personal care platforms. Despite these localized category pressures, the broad strength of our portfolio is shining through. Our positive Q1 results show that we are financially stronger and on the right path with great possibilities ahead. With that, I will now turn the call over to Curtiss to provide more detail on our Q1 financial results and walk through our reaffirmed full-year 2026 outlook.

Thank you, Carla, and good afternoon, everyone. As Carla mentioned, our first quarter results are a clear indication that the structural improvements we made to our business last year through the Powering Honest Growth initiative are driving our growth and profitability today. We are pleased with our start to the year. Before diving into the financial results, I want to provide a brief update on this transformation. We are seeing the immediate accelerated benefits of a highly favorable margin mix, driven by our sharpened focus on our right to win categories alongside the positive impact of our rightsized SG&A. As we look to the balance of the year, we remain firmly on track to realize our expected supply chain efficiencies in the second half of 2026. As a reminder, we expect Powering Honest Growth to deliver between $10 million to $15 million in annualized savings, serving as a powerful catalyst to further fortify our bottom line health and generate the fuel needed to reinvest in our growth. Now turning to our first quarter performance. Revenue was $78.1 million compared to $97.3 million in the prior year period, primarily reflecting the impact of our strategic Powering Honest Growth category and channel exits. On an organic basis, revenue grew 3.9 percent to $78.1 million. This growth is particularly notable as it was achieved over a difficult prior year comparison, which was bolstered by retailer inventory buildup ahead of the 2025 tariffs. Our performance this quarter reflects strong momentum behind our higher growth, higher-margin wipes and personal care platforms, partially offset by moderating diaper sales declines. These diaper results were driven by the initial lapping of previously disclosed headwinds related to a key retailer's transition to gender-neutral prints. Q1 reported gross margin came in at 42.6 percent, a 390 basis point improvement compared to the prior year period. On an adjusted basis, our gross margin of 43.5 percent was historically strong, reflecting favorable freight costs as well as mix from our higher growth, higher-margin wipes and personal care platforms, which was accelerated by Powering Honest Growth. These items were partially offset by tariffs. Total operating expenses decreased $1.2 million year-over-year, including a modest restructuring charge related to Powering Honest Growth. Excluding this transitional cost, our adjusted operating expenses declined by $1.8 million. This reduction was driven by our structural SG&A improvements, which more than offset our plan to drive double-digit increases in marketing investments directed specifically toward our higher growth, higher-margin wipes and personal care platforms. Coupling these structural cost savings with our meaningful adjusted gross margin expansion creates a powerful financial engine, underscoring our capacity to strategically reinvest in our brand while rightsizing our SG&A at the same time. Looking at our bottom line, we reported a net loss of less than $0.1 million for the quarter. Q1 adjusted EBITDA was $4 million, representing an adjusted EBITDA margin of 5.1 percent, down from $6.9 million and a 7.1 percent margin in the prior year period, largely due to lower reported revenue. Regarding our balance sheet and cash flow, we continue to be in an exceptionally strong position. We ended the quarter with $90.4 million in cash and cash equivalents and zero debt, while Q1 free cash flow was $3.8 million, a substantial improvement compared to the negative $3 million in the prior year period. This year-over-year increase was primarily driven by continued working capital improvements stemming from Powering Honest Growth and our rigorous focus on operating discipline. During the quarter, we utilized $3 million of our newly authorized $25 million share repurchase program with an additional $8.3 million deployed subsequent to quarter end. In total, these repurchases were executed at an average price of $3.26 per share. These actions reflect our confidence in the structural improvements we have made to our business, the significant financial flexibility generated by our asset-light operating model and our commitment to balancing aggressive reinvestment in our growth initiatives with returning meaningful value to our shareholders. Moving to our outlook. While we are encouraged by our start to 2026, we are also mindful that it is still early in the year, and we are navigating an environment where several macroeconomic uncertainties remain. That said, the actions we've taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where Honest has the clearest competitive advantage, and our 2026 framework reflects both the early returns of that discipline and our prudent approach to the balance of the year. With that context, we are reaffirming our full-year 2026 outlook. We continue to expect the following: reported revenue declines of 18 percent to 16 percent due to our strategic exits, organic revenue growth of 4 percent to 6 percent, in line with our long-term algorithm, adjusted gross margins in the low 40s and adjusted EBITDA of $20 million to $23 million. As I wrap up, I want to emphasize how pleased we are with our start to the year. We believe our first quarter results clearly demonstrate that sharpening our focus on our right to win categories has built a resilient financial foundation. We are executing with strict operational discipline and maintaining a clear line of sight towards sustainable, profitable growth. With that, I will turn it back to Carla for final remarks.

Thank you, Curtiss. As we shared last quarter, Powering Honest Growth was about unlocking the full potential of our business model by serving as a force multiplier to our strategic pillars. We believe that our Q1 results confirm that the heavy lifting we did in 2025 is paying off. I'd like to thank our team of Honest Butterfly for their commitment and diligence in building our shared vision for Honest. Now more than ever, Honest is well positioned to deliver strong value creation for investors, expand our Honest community and build the enduring strength and meaning of the Honest brand. With that, I will now turn it over to the operator to open the line for questions.

Operator provided instructions were given. Your first question comes from the line of Aaron Grey with AGP.

First question for me: I just want to talk a little bit about the reiterated guidance. I can understand the commentary in terms of wanting to take a prudent approach for the remainder of the year. Given that if you take the run rate for Q1, that kind of takes you to the high end of your guide now. Curious if there's any shipment timing that hadn't impacted the quarter or any type of seasonality we should be thinking about ahead, given some of the other top line initiatives you discussed earlier on the call that should lead to some nice sales trajectory.

Aaron, this is Curtiss. We are certainly pleased with the revenue growth in Q1. It represents a very good start to the year and is in line with our expectation. We are equally pleased with the consumption of 8 percent growth as well, and that was on our higher growth, higher-margin portfolios in wipes and personal care. As you think about the full year, we're reiterating our guidance. We are still expecting to be able to deliver the 4 percent to 6 percent organic growth. We don't have any concerns coming out of the quarter that there was any dislocation in revenue performance or in consumption performance.

Second question: There was some uptick in marketing spend sequentially to about $14 million. Maybe talk about some of the strategy that you have. Carla, you talked about it a little bit in your prepared remarks. I'd love to hear in terms of some of the initiatives you have to help support the growth for some of the brand launches and expansion.

Sure. Aaron, we really believe that marketing is a force multiplier here at Honest, and it has always been an important piece of the fabric of building this powerful brand. We think we've got a strategic advantage because ever since our beginning, we've been very brand forward and consumer focused. We know that this investment we're making in marketing is going to be a powerful driver of the improved awareness that's key to our growth strategy. Our success on household penetration gains has been balanced across our products and consumer types, and that's because we've been intentional as we allowed ourselves to be more focused coming out of Powering Honest Growth. That degree of focus is allowing us to point our marketing dollars and strategies strongly toward our key categories. In this quarter, you've seen we kicked off a fantastic marketing campaign against our flushable wipes business. We are now the fourth largest brand in flushable wipes, and we delivered more than 200 percent consumption growth in the quarter. About four weeks ago, we started a very high-impact campaign. You can see some images from that campaign in our investor slide presentation and our social media feed. This campaign takes a different approach than other flushable brands. We have glamorous, well-known women talking about the role that flushable wipes play in their life and why they love our particularly soft, plush and cleanly formulated wipes. We've got that campaign off to a very strong start. It includes a social media lens where we've engaged mega influencers across different demographics. Also, as I mentioned, our Toy Story launch behind our new portfolio of kid personal care kicked off as Pixar began driving buzz for the movie that launches in June. We're just getting into the window where our own awareness driving for that portfolio is heating up as Disney's does as well. We've got other strong initiatives planned for later in the year that I look forward to discussing in the future.

Yes. Aaron, let me reiterate and add to Carla's comments. We definitely believe that brand building is a strategic advantage for us. We're going to continue to invest in marketing as we look to strengthen the business and create a sustainable growth platform. This is why it was so important for us to execute Powering Honest Growth. The gross margin acceleration and expansion is really the fuel that we need in order to continue to invest in marketing to have a long-term sustainable business.

Our next question comes from the line of Anna Glaessgen with B. Riley Securities.

In the past, the classical brand discovery was talked about through diapers and then expanding through the broader categories that you offer. Now while we've seen diapers declining, we're also seeing continued gains in household penetration. Can you speak to how consumer discovery of the brand has shifted and how your go-to-market has shifted in response?

Wonderful. You are right, Anna. We are at our all-time highest household penetration, which is an affirmation that we have picked categories where consumers love what we offer and where our portfolios are expandable across demographics and types. A few things drive that. The largest percent of households in America are not the smallest baby households; they are both bigger-kid households and households like mine where children may have grown and left home, as well as households that never had children. What we found is that the Honest benefit—the clean formulation and sensitive-skin safe profile—is relevant well beyond babies. Research suggests a high percentage of adults describe themselves as having sensitive skin, and Honest products meet that need. We already sell to more than half of our consumers in these households. What we're doing now is aligning product innovation and our roadmap with that consumer base and making sure we communicate to them. The flushable wipes campaign is a great example: we are talking to adults about why they will love Honest products. This is a new form of expanded investment, and it's working because those businesses are outpacing pressures in the diaper category. We feel very good about what that shift in mix and focus has done for our business model.

Then one follow-up on marketing. Nice to see the investment in wipes and the activation there in the first quarter. Should we take that level of spend and assume it continues? Or was it elevated given the launch cadence that hit that quarter?

Yes. As we think about marketing, you're correct we had an increased level of investment in Q1 behind the activity Carla mentioned. We will continue to invest in marketing. We're not guiding expressly to that line item, but the investment in marketing is being fueled by Powering Honest Growth, and our revenue and EBITDA guidance reflect that increased investment.

Our next question comes from the line of Andrea Teixeira with JPMorgan.

Amazing story about your mom, Carla. Curtiss, could you talk about the competitive environment in general? I know you're above and beyond that in terms of your premium positioning. But on the diaper segment, there has definitely been a more competitive stance from a lot of players. If you can comment on that. Conversely, you've been getting a lot of new products in and distribution, and you clearly accelerated delivery this quarter. I was hoping you could comment on learnings and what you're seeing toward the back end of the year. Aaron mentioned a potential to raise guidance; I understand it's early, but how should we be thinking about what's happened in the quarter and what it informs through the rest of the year?

Great to hear from you, Andrea. Let me begin with the diaper portion and then move to new product and distribution learnings. The diaper category is under an enormous amount of pressure. That pressure is multifaceted, including macroeconomic pressures facing consumers and a more heated competitive landscape than we've seen in previous years. For us, we modeled our diaper business knowing it was important to get past these distribution losses. Now that we are lapping those distribution losses and saw our declines cut in half, it told us we are seeing the outcomes we expected in our model. Baby households are important, and we believe we show up differently than many other brands in the baby aisle because of the power of a single Honest brand that applies broadly. People trust our products to do what they say; they value clean formulations and thoughtful design. That trust and design matter, and that is part of why we're seeing growth offsetting declines in diapers. Regarding new products and distribution, the Honest brand was built broadly from the beginning. As we bring the brand into kid personal care, adult flushable wipes, hand sanitizing wipes, makeup remover wipes, trial and travel formats, we find the brand is a fit. Expanding into new spaces in the store and new rooms in the household and talking to new consumers requires investment in each category. The team has built a financial model that allows us to pursue higher-margin categories while reinvesting.

Let me add: we're pleased with the start to Q1, particularly around innovation. Our 2026 plan and guidance on organic revenue were balanced across innovation, velocity and distribution, so the plan was not driven by a single factor. We are still confident in our ability to deliver given the success we had with innovation and the distribution that went into the market in Q1.

If I can squeeze one about e-commerce and how you are potentially outperforming. I know it was always the case, but I wanted to check in regarding channel performance against big e-commerce platforms.

I think you're referring to broad national e-commerce. We are continuing to be very pleased. We're seeing strength across the board, whether it's traditional brick-and-mortar retailers building out their e-commerce capabilities and AI-driven shopping behavior, or pure-play e-commerce players. Everyday essentials and consumables do very well in e-commerce, and Honest was born digital. We were one of the original direct-to-consumer brands and were built by the digital generation. Our products perform very well in e-commerce channels, and the algorithm plays out strongly; e-commerce is one of the fastest places where we deliver growth.

Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

Two questions. One, as you think of the tracked channel consumption, which is up about 8.3 percent and a real acceleration from the fourth quarter, how do you see levels of demand going forward? Is it new product drivers or category drivers? How are you planning going forward? Then on the margin side, with changes in energy prices, how is that impacting your pricing and your customers? Any shifts you've been seeing and how has it adjusted by channel?

Dana, on the consumption acceleration: in Q4 we reported consumption growth of 3 percent, and in this quarter we reported 8 percent. That growth is encouraging given the macro complexities. One component is the lapping of distribution declines in diapers, which provides tailwind on a consumption basis. We should still see that in the year, but the diaper category carries pressures, which we have considered in our guidance. Curtiss mentioned our growth drivers are innovation, velocity and distribution. Innovation includes items launched last year, like flushable wipes entering brick-and-mortar for the first time; those launches take time to catch on and drive awareness. We intentionally launched many innovations early in the year to allow them to drive results throughout the year. New items are a piece of our growth, along with velocity—when consumers try our products they often repeat—and distribution increases, which can come from entering new sets within retailers where we already have presence. For example, expanding into the flushable or lifestyle sets in a retailer where we existed primarily in the baby set can drive meaningful distribution growth.

I'll take the inflation and fuel question. We continue to monitor and evaluate the impact of macroeconomic volatility on our business. Our asset-light model, inventory position and cost mechanisms with suppliers enable us to manage short-term risk. As we think about 2026, we are confident in our ability to deliver against our expectations.

Our next question comes from the line of Owen Rickert with Northland Capital Markets.

Just quickly for modeling purposes, last quarter you mentioned guiding to organic growth improving sequentially throughout the year. Is that still the right way to think about guidance right now?

Yes. Owen, it's a good question. We are pleased with our start, both on net revenue and consumption. That sequential improvement is in line with our expectations. We remain confident in our ability to deliver the annual guidance, but we're not offering any updates on the cadence.

Then secondly, what early reads are you seeing from some of those newer product launches like the Sensitive Rich cream, send wipes and Hydro Rich cream just in terms of potential velocity and repeat?

A lot of those items launched in Q1, and often it is still early to have a true velocity run rate on new items. It's important to make sure shelf sets are settled so we have a clean read on the data and to drive awareness. In almost any category where you look at Honest, our household penetration is low, so each new product gives us an opportunity to reach new households and introduce the brand. For example, some baby items like Sensitive Rich Cream are in our personal care portfolio, which still only has about 2 percent household penetration. Many established brands in the category have five to seven times as much penetration as we do. As we continue to expand into these categories and drive familiarity and awareness, we believe there is significant runway for growth.

I'm showing no further questions. With that, I'll hand the call back over to CEO Carla Vernon for closing remarks.

Well, thank you, everybody, for joining us this quarter as we continue to go to infinity and beyond. We look forward to talking to you next quarter.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.