The Honest Company, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Good afternoon, thank you for joining our second quarter 2026 conference call.

With me today are Carla Vernon, our Chief Executive Officer, and Curtiss Bruce, our Chief Financial and Operating 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 June 28th, 2026, as compared to the prior year. With that, I'll turn the call over to Carla.

Thank you, Chris. Before I share our results for the second quarter of 2026, I want to welcome Chris in his new role as Vice President of Investor Relations. While Chris has already been with us for the last two earnings calls, we are thrilled that he has officially joined Honest. Now I'm pleased to share our results for the second quarter of 2026, which reflect the continued strength and momentum of our business. We achieved strong organic revenue growth of nearly 7% and our highest profit margins in the history of The Honest Company, with underlying adjusted gross margins of 43.8% and underlying adjusted EBITDA margins of 9.8%. Given our sound first half execution and confidence in the path ahead, we are raising our full year outlook.

These Q2 results are a product of the ongoing structural improvements to our business and the team's continued commitment to operational excellence. Importantly, this strengthened financial foundation provides us with additional horsepower to accelerate investments in support of all three of our strategic pillars of brand maximization, margin enhancement, and operating discipline. Looking specifically at our first pillar, brand maximization, this quarter clearly showcased the power of our strategy. We are encouraged by our momentum as we scale our broad collection of cleanly formulated and sustainably designed Honest products. In addition to our top-line results, our overall consumption growth was up nearly 8%. This growth continued to be volume led and significantly outpaced the 2% growth in our comparative categories. Our vision to scale Honest is grounded in two important consumer truths. The first key consumer truth is the resonance of our Honest standard.

Our portfolio is formulated without 3,500 ingredients of concern that we choose not to use in our products. These high standards mean our products meet the high expectation of modern consumers who want clean formulation, excellent product performance, and joyful design in their personal care. The second key consumer truth is the broad appeal of Honest across households of all ages and stages. While we're often recognized for our wonderful portfolio of baby products, today, over half of our households have no kids at all. Our strength across household types is an important driver of scaling the Honest brand through our brand maximization strategy. Today, 89% of households in the U.S. do not have any children under the age of seven, and 75% of all U.S. households have no children at all. We continue to see progress in scaling Honest across a broad range of households.

This quarter, our household penetration of 8.1% improved 100 basis points with nearly two-thirds of that growth coming from no-kid households. This growth gives us material evidence that more households are embracing Honest each year. In addition to this excellent progress, we are encouraged by the significant runway we see across our growth platforms. To put that opportunity into perspective, in baby personal care, key branded competitors hold household penetration anywhere from two to six times greater than we do. In all-purpose wipes, larger brands have as much as five to seven times our household penetration. Let me share a closer look at how this momentum is being driven across our businesses, beginning with our wipes portfolio. Our total wipes portfolio delivered consumption growth of 26% versus comparative category growth of 2%. Our extensive wipes platform crosses several categories and uses.

With such wide-ranging collections of wipes, Honest offers a variety of benefits that appeal to a broad range of household types. Our collections include our Clean Conscious Wipes, which are the number 1 natural baby wipe brand and grew 16% this quarter. Our flushable wipes, which grew more than 200% in Q2, making us the fastest-growing branded player in the segment. Our sanitizing wipes, which grew 55% in Q2 and are the second-largest hand sanitizing wipes brand in the category. These wipes businesses are all significantly outpacing the growth of their respective categories, and each delivers on the Honest standard of clean formulation, strong product performance, and joyful design. This year, our flushable wipes entered the spotlight with a new campaign that speaks to the category in an elegant yet irreverent style that is candid in a way that only Honest can be.

In fact, our groundbreaking campaign, called It's Time to Get Honest, drove significant viral engagement, delivering well over 3 billion media impressions and increasing awareness of The Honest Brand across a new, broader community. In addition to meeting the high standard for product quality, our flushable wipes packaging is designed to be a room accessory that is both elegant and unapologetic. The collection is gaining strong traction online and across brick-and-mortar retailers, including our recent addition into the feminine care aisle at CVS. Building on this momentum, we see greater things ahead in expanding distribution, increasing product offerings, and driving greater brand awareness for our flushable wipes. The strong Q2 performance of our wipes business also benefited from our three-pronged strategy to maximize tentpole merchandising events such as Amazon Prime Day.

While strong consumer deal events can be treated as a one-time boost to sales, our team partners closely with retailers to ensure that we leverage these events to introduce our full Honest assortment to new shoppers, build recurring subscriptions, and increase brand discovery. We saw this working to great success across Prime Day, with 58% of the visitors to our Honest storefront being entirely new to The Honest Brand. Our team has great plans to build on these early relationships to earn lasting loyalty across our full collection of Honest products. Turning to personal care. In Q2, our personal care portfolio grew 19%, outpacing the category's 5% growth rate. We design our personal care products to bring genuine joy and happiness to everyday routines.

For some members of our Honest community, that means utilizing rich, beautifully authentic touches like the naturally derived soothing lavender in our signature baby personal care collection. For the members of our community with the most sensitive skin, it means providing products that are gentle, yet effective and often fragrance-free. By delivering on both preferences seamlessly, we maintained our position as the number two brand in total baby personal care. Earlier this year, The Honest Brand made its debut into the big kid aisle, welcoming us into a new set of homes. The launch of our kid-friendly personal care lineup was timed in coordination with the "Toy Story 5" movie premiere and in partnership with Pixar's media campaign. The film, which debuted 30 years after the original movie, delivered the number one biggest global opening weekend in Pixar history.

The magic of brands like Pixar and Honest is that they unlock the power of multi-generational appeal. Our Toy Story collection, which launched earlier this year at Walmart and Amazon, is getting ready to greet new families in the food channel, starting with retailers including H-E-B and select Ahold Delhaize banners. More than ever, Honest is expanding to meet consumers with products they love wherever they shop. Before concluding my remarks, it's important to acknowledge that the strong results in the quarter include a dampening effect from our diaper business. Current headwinds and shifting consumer dynamics appear to be structural for the diaper category, with most national brands experiencing declines. While our diaper business is navigating these same pressures, we remain committed to providing families with a diaper offering that meets the expectations of the Honest standard for quality, performance, and joy.

Because of the importance of families with babies, we are pleased to announce a new strategic partnership allowing The Honest Brand to maintain its important place in baby and family-friendly apparel. Through a new licensing agreement with an industry-leading apparel manufacturer, Honest will transition back to an outbound licensing approach for this category. We are glad that families will have the Honest standard available to them when choosing bedding and baby apparel for their newest little ones. As you can see, we are energized about the strength of The Honest Brand across all the segments we serve. Three and a half years ago, we began what was a necessary transformation to build a more powerful, Honest brand and Honest Company. We are now a fundamentally stronger enterprise, built on a durable foundation. The evidence of our progress is clear across an array of metrics. First, we're more strategically focused.