With Household Cleaning Sales Slumping, The Honest Company Reports Disappointing Results

The share price of Honest Co. plunged more than 20% in early trading after the consumer-goods company issued a disappointing forecast for revenue, triggering the first ratings downgrades for the stock since its IPO in May 2021. Yesterday, the company reported a loss of 10 cents a share in its fiscal fourth quarter on revenue of $80.4 million, an increase of 3% from a year earlier. Analysts were expecting a loss of 7 cents a share on sales of nearly $85 million.

Honest, founded by actress Jessica Alba, said sales of its household and wellness products, which represented 6% of total fourth-quarter revenue, fell 68% “due to reduced Covid-19 related consumer demand for sanitizing and disinfecting products.”

Honest was down 20.2% to $4.81 in early trading. The shares had already tumbled more than 25% year to date through Thursday’s close, and are worth a fraction of the price commanded at their initial public offering.

The company said it expects first-quarter sales to fall about 15% from a year earlier. It forecast negative adjusted earnings before interest, taxes, depreciation, and amortization of $10 million for the quarter of $10 million. For the full year, management forecast sales to be flat year over year; 2021 sales totaled $318.6 million.

Jefferies analyst Stephanie Wissink is concerned about more than a lackluster top-line forecast. She worries that the company’s lead in “clean” products is shrinking as other brands come out with similar options, while costs to acquire new customers are rising. Wissink said that Honest’s total addressable market is well above its business size, and its products are distinct enough that she hoped it could deliver sustainable long-term growth. Instead, its cleaning and sanitizing business has understandably fallen along with concerns about Covid-19, but other areas she had higher hopes for, like skincare, haven’t yet grown fast enough to offset this decline.

“We find ourselves once again cutting estimates, at increasing magnitudes,” she wrote.

She noted that the company could still be a takeover target—a development that would boost the stock. Yet otherwise, she said, it is likely to struggle in the absence of a “clear pattern of performance” that supports its position as a growth story.

To take a more upbeat view, Wissink said, she needs to see the company achieve the improved performance management has forecast for the second quarter and beyond. “We favor the content, community and commerce attributes, and the high profile of the founder, but lack confidence having taken estimates lower every quarter post-IPO,” she wrote.