Honest Q3 Earnings Call Highlights

Key Points

• Organic growth and margins improved despite lower reported sales: Q3 revenue fell 8.6% to $84.6 million due to strategic business exits and weaker diaper sales, while organic revenue rose 9.2%. Adjusted gross margin increased 850 basis points to 45.8%, and underlying adjusted EBITDA margin rose 300 basis points to 7.9%.
• Honest raised its 2026 outlook, including organic revenue growth of 6% to 7% and adjusted EBITDA of $25 million to $26 million. The board also authorized a new share repurchase program of up to $30 million.
• Wipes and personal care are driving the product shift: Their consumption grew 13% combined, while diaper consumption declined 27%. The categories now account for more than 75% of organic revenue as Honest focuses on higher-growth, higher-margin products.

Honest NASDAQ: HNST raised its full-year 2026 outlook and authorized a new share repurchase program of up to $30 million after third-quarter organic revenue growth and higher margins offset a decline in reported sales.

Third-quarter reported revenue fell 8.6% to $84.6 million from a year earlier, reflecting strategic business exits and lower diaper revenue. Organic revenue rose 9.2% to $79.3 million, led by wipes and personal care, Chief Financial and Operating Officer Curtiss Bruce said on the earnings call.

Chief Executive Officer Carla Vernón said the two categories now account for more than 75% of organic revenue. Consumption across wipes and personal care grew 13% in the quarter, while diaper consumption declined 27%.

Margins Rise as Product Mix Shifts

Reported gross margin was 45%, while adjusted gross margin improved by 850 basis points to 45.8%. Excluding dilution from apparel inventory liquidation, underlying adjusted gross margin reached a company-record 48.9%, up 1,160 basis points from the prior-year period.

Bruce attributed the improvement to supply chain efficiencies, lower fulfillment costs and a favorable product mix. He said the structural improvements in supply chain and mix were “here to stay,” but the company would provide more detail on future gross margin expectations in early 2027.

Adjusted operating expenses rose $2.3 million to $36.5 million. Marketing spending increased $2.9 million, or 20%, to support wipes and personal care, partly offset by lower selling, general and administrative costs.

Net income increased to $91.3 million from $0.8 million a year earlier. The latest result included an $89.4 million income tax benefit from the release of substantially all of the valuation allowance against deferred tax assets. Adjusted net income was $3.1 million, compared with $0.8 million a year earlier.

Adjusted earnings before interest, taxes, depreciation and amortization were $6.3 million, or 7.4% of sales. Excluding apparel liquidation revenue, the underlying adjusted EBITDA margin was 7.9%, up 300 basis points year over year.

Raised Outlook and Share Repurchases

Honest increased the lower ends of its revenue and organic growth forecasts and raised its adjusted EBITDA outlook. Its updated 2026 guidance calls for:

• Reported revenue of $322 million to $325 million, up from $319 million to $325 million.
• Organic revenue growth of 6% to 7%, compared with its prior forecast of 5% to 7%.
• Adjusted gross margin of 45.5% to 46.5%, compared with a previous forecast in the mid-40s.
• Adjusted EBITDA of $25 million to $26 million, up from $23 million to $25 million.

Bruce said the company plans to increase investment in selling, general and administrative expenses and marketing in the fourth quarter. The spending is intended to support the capabilities needed to scale and to build brand awareness and household penetration.

Honest ended the third quarter with $103 million in cash and cash equivalents and no debt. Year-to-date free cash flow was $30.5 million. The company completed its initial $25 million share repurchase program during the quarter, and its board authorized the new program effective immediately.

Bruce said reinvesting in the business remains the company’s first capital allocation priority, with returning value to shareholders a secondary priority.

Wipes and Personal Care Outpace Diapers

Vernón said total wipes consumption grew 15% in the quarter. Flushable wipes consumption rose nearly 170%, while sanitizing wipes grew 41% and baby wipes increased 4%. Personal care consumption rose 11%, compared with 4% growth for the comparative category.

By contrast, Vernón said the decline in diaper consumption was expected and reflected in the company’s plan. Honest is focusing on higher-growth, higher-margin wipes and personal care as it expands beyond households with babies.

Overall consumption growth moderated to 1% in the quarter. Vernón attributed the vast majority of the change in the quarterly trend to the shift of Amazon Prime Day from the third quarter last year to the second quarter this year. Year to date, organic revenue increased nearly 7% and consumption rose 6%.

Honest’s household penetration was nearly 8% in the third quarter, Vernón said, with households without children accounting for more than half of its customer households. She said wipes are the most common entry point for households without children.

About Honest (NASDAQ:HNST)

The Honest Company, Inc is a consumer products company that develops and sells personal care, beauty, baby, and household products. Its offerings include diapers, wipes, baby care items, skin care, hair care, personal care products, and household cleaning solutions, with an emphasis on ingredient transparency and products positioned as safer and more sustainable alternatives.

Founded in 2011 by actress and entrepreneur Jessica Alba, Honest sells its products through its website and retail partners.

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