Ladies and gentlemen, thank you for standing by. And welcome to The Honest Company’s First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference call over to Ms. Elizabeth Bouquard, Senior Director, Investor Relations at The Honest Company. Please go ahead.

Good afternoon, everyone. Thank you for joining our first quarter 2025 conference call. Joining me today are Carla Vernon, our Chief Executive Officer; and Dave Loretta, our Chief Financial Officer. Before we start, I would like to remind you that we will make certain statements today that are forward-looking within the meaning of the federal securities laws, including statements about the outlook of our business and other matters referenced in our earnings release issued today. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please refer to our earnings release issued today, as well as our SEC filings for a more detailed description of the risk factors that may affect our results. Please also note that these forward-looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events, except as required by law. Also, during this call, we will discuss non-GAAP financial measures which adjust our GAAP results to eliminate the impact of certain items. You will find additional information regarding these non-GAAP financial measures and a reconciliation of these non-GAAP to GAAP measures in the financial results section of our earnings release today. A live broadcast of this call is also available on our Investor Relations section of our website at investors.honest.com. And with that, I’ll turn the call over to Carla.

Thanks, Elizabeth. Good afternoon, everyone, and thank you for joining us today. As I begin today’s remarks, I’d like to take a moment to share some important updates to our recent announcement of Dave Loretta’s planned retirement from his role as the Chief Financial Officer of The Honest Company. Most importantly, I want to recognize Dave for his incredible partnership. Thanks to Dave’s leadership, we have an exceptional finance team in place, a stronger financial foundation, and are well-positioned for the future. Dave, thank you for playing such a critical role in the transformation of Honest, and congratulations on the considerable success you have had at Honest and across your career. Earlier today, we announced the appointment of Curtiss Bruce as The Honest Company’s next Chief Financial Officer. Curtiss is an accomplished financial leader with deep expertise across some of the most respected consumer brands, including Hain Celestial, Keurig Dr. Pepper, The Kellogg Company, and Kraft Heinz. Across his career, Curtiss has led a blend of both emerging businesses, as well as some of the food industry’s most iconic $1 billion brands. His passion for consumer-loved brands, combined with a track record of driving growth and transformation, make him the right leader to help guide Honest into the next chapter. Curtiss’ June 2nd start date will include ample transition time with Dave to allow for a smooth handoff. Again, I want to extend my sincere thanks and congratulations to Dave for all he has done to drive our strong results. For today’s call, there are three messages I want to share with you. First, we delivered solid results for the first quarter of the year with double-digit revenue growth, gross margin expansion and positive operating income. Second, our transformation pillars of brand maximization, margin enhancement and operating discipline are enabling…

Thank you, Carla, and welcome everyone. Our team’s hard work to start the year has been instrumental in advancing our strategic objectives and building a stronger financial foundation. The progress we’ve made across our transformation pillars has led to strong topline growth and improved profitability this quarter. Now let me dive deeper into the first quarter results. This quarter, we delivered revenue of $97 million, up 13%, driven by strong performance across our wipes and baby personal care portfolio. As a reminder, we shared during our fourth quarter earnings call that we expected our revenue growth in the first quarter would be higher than our full year revenue growth outlook due to the comparable period from last year. In addition, in the first quarter, we saw retailer inventory builds, with shipments growing 5 percentage points faster than retail track channel consumption. We now expect this retailer inventory build to reverse in the second quarter. We also expect to continue to face headwinds in our diaper business in Q2 as we execute the full rollout of our new and improved diaper across the remainder of the year. We expect that the combination of these factors will lead to a first half of the year growth rate within the range of our annual revenue outlook. Our gross margin in the first quarter was 39%, up 170 basis points versus last year, primarily driven by supply chain cost savings and a mix of higher margin products, offset by a $3 million one-time inventory adjustment related to the strategic diaper renovation that Carla shared earlier. The adjustment to existing diaper inventory will allow for an accelerated transition in the market to the new diaper renovation and support a stronger launch with full marketing investment behind it. As the underlying gross margin performance suggests, we…

Thank you. [Operator Instructions] One moment for our first question. And our first question comes from the line of Aaron Grey with Alliance Global Partners.

Hi. Good evening. Thank you very much for the questions. Congrats on the quarter, and Dave, thanks for your time and best of luck in your future endeavors. So, first question for me, just on the sales for the quarter, came ahead of our expectations there. It sounds like there was some shipping impact that you called out there, so just if you could help to quantify that. For the 1H guidance you gave, so you said 1H, I think, will be up 4% to 6%. That implies 2Q will be flat to down 4% on my math, so just if you could help us to maybe quantify the shipping timing impact that you had in 1Q and how much of that reverses is 2Q versus the remainder of the year. I think that’d be helpful. Thank you.

Hi, Aaron. It’s Carla. Good to be here with you. So, let me try to start framing it up. Dave, feel free to step in if there’s anything else you want to add. So, we do appreciate that. We mentioned that in the first quarter we saw some pull-forward of shipments and that we think is a really helpful part of mitigating our tariff strategy for the year. Those shipments that we saw the pull-forward in, largely attributable to Amazon, and we do -- we did say that we expect that those pull-forward shipments will actually bleed out as we get into the second half. So, as we look at the first half of the year as a whole, we feel that we’re staying really on the guidance model as a result of that blend.

Okay. All right. Great. Thank you for that. You gave great color on the gross margin.

Aaron.

Sorry. Go ahead, Dave.

Sorry, Aaron. Maybe I could just tack on to that, too, a little bit, because I think what we want to make sure is clear on the first half, 4% to 6%. We did, in last year’s second quarter, have the benefit of the retailer events that drove some incremental volume. And last year, if you recall, it was 10% growth rate in the second quarter. So, that does provide a bit of a comp that we’re not going to have the ability to get over. So, to quantify, really, the benefit of that pull-forward, it’s 5 percentage points, which is roughly the difference between our revenue of 13% and our consumption growth of 8% in the first quarter, as that shifts between quarters and then coming off that comp of last year’s special retailer event.

Okay. Great. That’s really helpful, there. Appreciate it. Second question for me, just on the marketing side. Maybe if you could speak to some of the plans you have for marketing for 2025 and how we should think about marketing as a percentage of sales. Last year, we did see an uptake in marketing, which translated to some nice accelerated sales growth. So, curious to how you plan your spending for the year, what you’re seeing as the best ROI opportunities as you look at macro and micro marketing initiatives? Thank you.

Thanks, Aaron. So, we believe so strongly in our opportunity to build The Honest brand. The performance in the first quarter, as it really even follows the strong performance last fiscal year, is extremely encouraging and is one of the reasons why we try to make it clear that we intend to continue our investment in both innovation, marketing, brand building. So, with our revenue up 13% in the first quarter, with 8% growth on consumption, what was so compelling about that consumption growth that we saw is that it was driven by units. This was not consumption growth driven by pricing in the quarters, driven by units. And it’s driven by really strong consumer fundamentals that don’t always come along together at the same time. So, our ability to increase our household penetration to our highest level of 7.3%, a basis point expansion of 55%, while dollars per transaction at the same time and growing consumer loyalty gives us a great indication that as we manage the business model and have been able to find efficiencies from our margin enhancement pillar, we are able to protect for continued strong investment behind marketing. You saw that our investment in the first quarter in marketing was very strong and represented an increase in an investment in the brand while SG&A levels pulled down. And so, as we go into the remainder of the year, one of the things I talked about in the remarks was the importance of this new and improved diaper. We intended to support that diaper launch. Additionally, we are launching our wipes business into new retailers and into new aisles. And so, we will continue to protect the investment to drive awareness of the new stores that we are in, as well as to continue to drive trial and awareness.

Great color there. Really appreciate that, Carla. And I’ll go ahead and jump back into the queue. Thank you.

Thank you. And our next question comes from the line of Anna with B. Riley Securities.

Good afternoon. Thanks for taking my question. I guess I’d like to start with unpacking the deceleration you noted exiting the quarter and into 2Q. I guess what data do you have? Is there anything to suggest that, 1Q consumption benefited from a pull-forward and that, in 2Q the categories are decelerating as well or is it more specific to you guys? I’m just unpacking maybe trends by category.

Sure. Anna, this is Carla. Nice to speak with you. So, let me start by, I just got a chance to share the really strong consumption numbers that we saw in the first quarter and how that was driven by strong consumer fundamentals. It’s important to help unpack as we talk about the deceleration, we’re really in a tale of two cities. And so, if I really take a look at the sort of deconstructed consumption information for the first quarter, in the Target channel for us, that is really where those decelerations were fairly isolated and they were even more specifically isolated to our diaper performance in Target for the first quarter. So, in Target for the first quarter, our consumption was down 4%. When we look at our performance in rest of market, you compare that down 4% in Target to strong double-digit growth for our performance in the market, almost at 20% consumption growth for our portfolio at ex Target. That’s very compelling for us. We know that as we look at the deceleration of the diaper business in Target, we think that there are a couple of factors that are important to note. One, the category as a whole, the diaper category remains to be under pressure, and this quarter, we saw that it was declining at a modest rate broadly for the diaper category. We also indicated in our remarks that there has been a change to our diaper selection at Target, and we have removed our gendered prints from that retailer. And so, we expect that as we continue to watch the distribution losses from the gendered prints flow through the year, that we will continue to see some consumption losses associated with those distribution losses across the quarter. But we remain very confident that the natural product market, when you look at the performance of natural products versus conventional, again, it’s that tale of two cities. We’re seeing strong growth in natural products overall, which is really one of the reasons why we’ve seen our own strength in the natural product category, whether that is now being the number one natural wipes brand nationally or our strength in our baby personal care business that we see both in broadly in the market, being the number one natural baby personal care brand, as well as being the number one baby personal care brand at Target overall. Lots of green shoots and things that make us confident, but we do have to work our way through some of these changes in distribution.

Great. Thanks, Carla. That’s super helpful. I guess, double-clicking on one of your comments, you spoke to continued strength in natural. Now, one question we get from investors a lot is the willingness to continue to pay up for natural products in the face of continued macro uncertainties. It seems that at this point, you haven’t seen meaningful trade down in your categories. Is that fair?

The way I like to frame it is just keeping us focused on what we can see by our own performance relative to our categories. So, for the quarter, we continued to perform and grow consumption ahead of our competitive categories. As a reminder, I did say in the remarks, our own consumption in the quarter was up 8%. Our competitive categories were down 1% for the same period. Now, we have seen a modest deceleration in our business. When we’ve exited Q4, if we convert our data, which our data set has changed, we used to be reporting to you in MULO only. Now, we are reporting to you in MULO+, which does a better job of representing the Amazon growth in the number. So as we now update how we communicate to you about the fourth quarter, our fourth quarter consumption was at about 11% growth. Compare that to 8% growth in the first quarter. That’s about a change of 3%. As we keep our eye on what the consumer -- what we expect the consumer to do, certainly, Anna, there’s so much uncertainty. We will continue to watch our performance, but we know that our products serve a fundamental need. And what we are seeing is that there are homes that don’t think of sensitive skin products as something that’s optional at this stage as they are supporting their family’s needs. We do, though, have that cautious confidence. And so the modeling we have puts our consumption numbers at mid-single digits for the rest of the year.

Great. Thanks so much, Carla.

Thank you. Our next question comes from the line of Andrea Lisher with JPMorgan.

Thank you, Operator, and good afternoon. And congrats to both Dave and Curtis for the new job. Dave, thank you for teaching us and turning around and selecting numbers and help the company select numbers. I have a demand question for you, Carla, and related to the distribution and also the product portfolio. Then I have a follow-up on the tariffs. On the distribution and product portfolio, are the unit growth, I mean, the units growing the way they’re growing driven by mostly velocity or still distribution gains or that’s a combination of both? And if you think ahead, do you -- when do you think you’ll lap or you still have on the plans a lot more? I mean, it would be nice to update us with how the spring resets have played out for you and if there is still more to come in the fall. And as you think you’re part of the portfolio, I was hoping to see if you can kind of elaborate more on the plans. Of course, you have a very wide product portfolio that uses baby and broadly with mom and mom and family. But you also had an increase or an expansion in other areas, including prenatal vitamins and other areas there. I was wondering, given the deceleration in vitamins and VMS in general, if you still think that is a category that I want to play in and if you feel that you have the right to win there. And then, sorry for the long list of questions, but I will come back with the tariffs if I can. Thank you.

Andrea, first of all, I’m stepping in, but I want to just echo your thanks to Dave. I know Dave wants to get a chance to make sure that he thanks you for your continued partnership. Let me start with your question about distribution and give you an update there. So the unit growth that I mentioned, when you compare that to exactly how it happened, it’s extremely compelling. For the quarter, while you will see that our total points of distribution actually declined in the quarter, if you remember, the distribution strategy we’re executing is actually a hero distribution strategy. That means that as we continue to remodel our business, do some mixed shifting, we know that there might be some distribution points that go away, but all distribution points are not equal for us. So let me make sure that I frame that a little bit more specifically. We think that there are about 90,000 relevant doors we could be in. Today, we are still in less than half of those doors. I know this has been a conversation we’ve been talking about for a long time, but I want to assure you that we’re still at very early days on actually executing getting into the doors. And then if you remember from our investor presentation, we say that it is a door strategy, but that it’s also a number of stores strategy, it is a breadth of aisle strategy and then it is a breadth of item strategy. So there’s quite a lot of layers of depth in there. We are in less than half of the available stores today. But what was so important as we exited last fiscal year, although we brought SG&A numbers down, we greatly shifted where our people are supporting our strategy.…

Very helpful. And then -- this is super comprehensive. Thank you for giving us all this data. And then on the tariff side, I understand that you manage your inventory. I was hoping to see if you can share a little bit of the impact, especially in China. And then obviously you’re going to have to face, is that the way to think, is that you have this impact in the second half that you’re able to mitigate because of your cost initiatives and all the three-pronged strategies that you mentioned. And then in the next -- the following year, then you’re going to have the impact of the first half, I’m assuming, right? Because then you’re going to lap the inventory. Can you explain, I mean, I’m assuming you are, and you’re counting on the 90-day, and you are assuming the 125, or you’re assuming just the ones that were the 20 plus the 20, just to clarify a bit the impact?

Yes. Hi, Andrea. Let me handle the tariff questions there. So to kind of reset, and you did pick up on some of the salient points around our three-pronged strategy and how we got after this at an early stage. In fact, when we shared our outlook at the beginning of the year, that factored in tariffs based on what we knew. And at that point there was risk of tariffs on Mexico, where our diapers are manufactured. And now that that’s off the table, we focused on really where China is the primary area of exposure for us, where our wipes are manufactured. So we take the current tariff rates that are in place today, with China, there’s not the 90-day waiting period on that. But getting ahead of the plans for building a wipes inventory is what’s giving us a lot of lead time, a lot of time to work through the existing inventory that doesn’t have tariffs on it. And that’s getting us into our third quarter. So roughly mid third quarter is when we’ll start to see the impact of tariffs make its way into our cost of goods and then into the fourth quarter. But it might also be helpful to reiterate, and when we thought about our three-pronged strategy of mitigation, of working with our supplier to help as well offset some of that impact, our starting point from a gross margin standpoint is in a healthier place, given the last two years of working on enhancement -- our margin enhancement pillar. To illustrate that in our first quarter, I referenced a charge, an adjustment to diaper inventory of almost $3 million. If that were to be removed in the first quarter, our base gross margin levels are clearly a little over 41%. And so I think what we’re seeing now, and that’s just for one quarter, but we’re seeing the ability for us to manage some of the tariff impact, which isn’t new to us, but manage it within this framework as we’ve been building our profit profile of the portfolio over this time. And that’s giving us the confidence that as we look into next year, if there’s still an environment where we’re facing tariffs at whatever level they might be, that we’ve got the flexibility and we’ve got the business model to weather through that. As a reminder, our sourcing is with partnerships. We are a capital-light model. And so we operate with a variable cost model in that, and it gives us a lot of maneuverability and flexibility as we look forward.

So if I interpreted that in the way, like if it comes to fruition and you have until basically call it like mid third quarter, the fall, right? So if by then things are still in place, the tariffs are still in place, are you able to negotiate with those suppliers to either have them move their production elsewhere, where let’s say, Mexico, where you have your adopted production with a third-party or you’re going to say, listen, you’re going to have to absorb part of it or you’re thinking there’s still a much cheaper place to make the diapers, they don’t have flexibility or you do have the flexibility, or you have started to look around as possibilities in other places, including with your suppliers in Mexico or in Canada or other places where you have reciprocity or USMCA. Is that the way to think? I mean, in other words, you’re not going to pass through these cost increases if it comes to that.

Andrea, I think what I want to make sure that I establish is, as we’ve modeled it out for the year with about a 1.5%, 1-percentage-point tariff impact for the year, which we think begins again at around the mid-point of Q3 and going into Q4. The ability for us to stay on model for the year really still lives in the fact that we’re actually not new at all to being prepared for this moment and how we deal with tariffs. We’ve been dealing with tariffs and talking with our suppliers about ways to improve our supply chain and our partnership for several administrations, which means that our solution set of having a reliable sourcing supply has already been an ongoing conversation and strategy we were having as we entered this time. As we look at what the solutions will be if -- as we go beyond this year, I just like to say it’s grounded like we’re hearing everybody say. We’re going to look at the broad set of factors and opportunities. Those are well covered both in our margin -- our ongoing margin enhancement pillar, which was so enduring, it set us up to be always working on a strong balance sheet, plenty of cash on hand, making sure that we were expanding bottomline toppers faster than top. So that work is really work that continues. And then we will take our three-pronged tariff mitigation strategy. We always build, I almost like to think of it as an accordion type model on our investment spending in the plan. So that’s one area we look. We look to try to get more efficient. We’re learning as we go. We’ve increased our supply chain knowledge by adding a supply chain executive to my team, which means we’re having even stronger and more specific conversations with our supply partners about all the options. And I look forward to making sure that we talk about what we need to do when we come back with you guys in the next quarter. But if we think we have to address things differently, we will be doing that based on a lot of the rigorous analysis of staying on our guidance.

Very good. Thank you very much. I’ll pass it on.

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

Hi. Good afternoon, everyone. And Dave, best of luck in your next in retirement. I want to ask you a question on the…

Thank you.

… near-term and the long-term. When you think about the near-term, you talked about, Carla, I think the modest deceleration in the business currently. Is that happening across all types of customers? Is it happening across all categories? What have you seen and what does the promotional environment look like? And then on the long-term, with the supply chain mitigation strategies that you have in place, what do you see as -- is there margin opportunities coming out of this given the greater efficiencies that you see in the business over the long-term, even in the headwinds of what we have going on now? Thank you.

All right. Thank you for asking, Dana. It is so great to be with you today. When we look at the deceleration of the business, as I have articulated, we are really seeing it quite isolated to one customer for the quarter. When I look at our performance at Target, with consumption down 4% as compared to our own performance in the rest of the market, with strong double-digit consumption growth of nearly 20%, that consumption growth, as far as we have seen it in the recent period, has remained fairly consistent, Dana. And so it -- what we feel is important to be mindful of is that the diaper distribution losses in Target will continue to affect us for the remainder of the year. We have to really work through those changes and that simplification of that set. We know that that category also remains under a bit of pressure. There are also a couple of events uniquely that we performed last year that we are not duplicating this year. So if you remember, we had a Target-specific anniversary celebration performance. That performed in the third quarter last year, but some of that revenue pull-forward or the, excuse me, the getting ready to have the inventory on hand for shipping for our great shelf displays, a lot of that revenue was reflected in the second quarter last year. We won’t be repeating that. Similarly, you might remember we had a Latino-focused event for Walmart specifically last year, another event we’re not repeating. So those are some other changes that we expect to see reflected in the numbers. We are doing that at the same time that we are growing distribution. We are continuing to do strong brand building and marketing. We are launching our best diaper ever. We have expanded larger sizes. We’ve expanded prints on the flushable wipes. So I like to think that we’ve got really smarter and very balanced efforts, but there are some things we have to work through.

Yeah. Hi, Dana. I’d say the question around the long-term opportunities, we don’t think we’re done finding the opportunities to expand margin. I mean, that is a core tenet of our long-term algorithm and we do believe that supply chain is one of the areas that’s going to materialize there. The tariff environment and the current challenges is something that is giving us even further focus on this area of the business. But I’ll also add, when we look at the beauty of the portfolio and how it’s evolved, we are with a portfolio that’s got a profit potential that’s greater than we’ve had before. The mix of our products at margin levels that are higher in the channels that we’re selling through of a higher margin will continue to evolve and allow us to see margin expansion over the long-term.

Thank you.

Thank you. And our next question comes from the line of Owen Richard with Northland Capital Markets.

Hi, Carla. Hi, Dave. Thank you for taking my question. I’ll try to keep it quick here, but how do you plan balance promotional intensity in both the retail and digital channels, just as you continue to push for margin expansion? And then secondly, how far along are you in the process of pushing more of your digital consumers towards Amazon and other partners and away from the DTC website?

Hi, Owen. Carla here. Hope you’re well. The way we think about our channel strategy is, while we work to make sure we’ve got the right strategy to meet every consumer and we do great joint business planning with the retailers to make sure we’ve got our investment approach right. We do not try to push a consumer to any particular channel. And we’ve learned that as we’ve been omnichannel operators since our beginning, and we’ve tried it a number of ways, we realize the best thing for us is to make sure we’ve got the right selection and the maximum selection for whenever someone wants to be buying an Honest product. And Owen, what I can tell you that you can actually see evidenced in our results this quarter is that, distribution, whether it’s online distribution, which doesn’t get counted in points or physical in-store distribution is extremely incremental. When you get into a new store, into a new channel, and into a new aisle, you really have the opportunity to pull in a new consumer. That’s why in a quarter where you actually saw us go modestly backwards in distribution points, you actually saw all of our growth drivers get stronger because we got our distribution more broad meant we reached more homes. So that is something that we plan to continue. And as we work our way towards shifting our own honest.com model, I want to remind everyone that the honest.com channel will remain available, it will remain active for our consumers who land there and want to execute a transaction, and for our consumers if they want to gain information. It’s just that we’re getting out of the fulfillment and shipping component of that business. So we don’t really expect that to be a dramatically different experience.

Got it. Thank you.

Thank you. Now I’m showing no further questions. So, with that, I’ll hand the call back over to CEO, Carla Vernon for any closing remarks.

Well, this is a quarter where the most important thing I can do is absolutely thank Dave for the impact he’s had in his tenure. The results are so evident, Dave. We just absolutely commend the role you’ve played in driving our strategy of topline growth and bottomline margin expansion while strengthening the team. You are evidence of the transformation pillars in action. So thankful. We are excited for you all to meet Curtiss when we are on our next call and look forward to joining you next quarter. Thank you.

Thank you. Ladies and gentlemen, this does conclude today’s program and you may now disconnect.