Honest Company (HNST) Q2 2026 Earnings Call Transcript

DATE

Wednesday, Aug. 5, 2026 at 4:45 p.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Chris Mandeville
• Chief Executive Officer - Carla Vernon
• Chief Financial and Operating Officer - Curtiss Bruce

TAKEAWAYS

• Revenue -- $83.3 million, representing a 10.9% decrease reflecting the impact of strategic exits and structural declines in the diaper category.
• Organic Revenue -- $80.2 million, growing 6.7% year over year driven by momentum in wipes and personal care products.
• Underlying Adjusted Gross Margin -- 43.8%, an improvement of 340 basis points due to favorable product mix and supply chain efficiencies.
• Underlying Adjusted EBITDA Margin -- 9.8%, a record for the company reflecting progress in operating discipline and cost management.
• Household Penetration -- 8.1%, an increase of 100 basis points driven by expanded reach in households without children.
• Total Wipes Consumption -- 26.0% growth, significantly outpacing the comparative category growth of 2%.
• Flushable Wipes Revenue -- Growth of more than 200% following a national marketing campaign aimed at a broader consumer base.
• Personal Care Consumption -- 19.0% growth, outperforming the category growth of 5%.
• Diaper Consumption -- Represents less than 25% of total consumption, as management intentionally shifts the mix toward higher-margin categories.
• Marketing Investment -- Increased nearly 20% year over year, focusing on household penetration for wipes and personal care.
• Operating Expenses -- $30.8 million, a decrease of $4.1 million highlighting progress in rightsizing general and administrative costs.
• Cash and Cash Equivalents -- $105.9 million at quarter end, with the company maintaining zero debt.
• Free Cash Flow -- $35.3 million for the first six months of the year, driven by increased earnings and working capital improvements.
• Share Repurchases -- 5.6 million shares repurchased for $18.7 million at an average price of $3.35 per share.
• Full Year Revenue Guidance -- $319 million to $325 million, including a $10 million benefit from apparel inventory liquidation.
• Organic Revenue Growth Guidance -- Raised to a range of 5% to 7%, up from the previous outlook of 4% to 6%.
• Adjusted EBITDA Guidance -- Raised to $23 million to $25 million, reflecting strong first half performance.
• Clean Conscious Wipes Consumption -- 16.0% growth, maintaining the product's position as the top natural baby wipe brand.
• Sanitizing Wipes Consumption -- 55.0% growth, positioning the brand as the second largest in the hand sanitizing wipes category.
• Customer Acquisition -- 58% of Amazon Prime Day storefront visitors were new to the brand, reflecting successful brand discovery initiatives.
• Apparel Strategy -- Transitioned to an outbound licensing agreement with an industry partner to maintain an asset-light operating model.
• Tariff Refunds -- $6.6 million recognized as a reduction in cost of revenue during the second quarter.
• Baby Personal Care Penetration -- Under 3%, with management estimating every percentage point gained is worth $25 million to $30 million in annual sales.
• Flushable Wipes Market Position -- Fourth largest brand in the segment despite holding less than 1% of U.S. household penetration.

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RISKS

• Vernon stated, "current headwinds and shifting consumer dynamics appear to be structural for the diaper category with most national brands experiencing declines," noting the segment is acting as a dampening effect on total consumption growth.
• Bruce warned that while inventory timing provided a benefit in the first half, the company expects "a timing benefit regarding inventory, to partially reverse in the second half of the year."

SUMMARY

Management at The Honest Company, Inc. (NASDAQ:HNST) reported a shift in revenue composition toward higher-margin wipes and personal care products, which now represent more than 70% of total revenue. The company raised its full year 2026 outlook for organic growth and profitability following a quarter of record underlying margins and expanded household penetration. Strategic initiatives include transitioning the apparel business to a licensing model and leveraging retail partnerships to enter the "big kid" aisle. Management stated that reinvestment of tariff refunds will focus on marketing and operational capabilities to support long-term scaling.

• CEO Vernon noted that 75% of U.S. households have no children, stating, "Our strength across household types is an important driver of scaling the Honest brand through our brand maximization strategy."
• Management reported that no-kid households drove nearly two-thirds of the 100 basis point improvement in total brand household penetration.
• CFO Bruce stated, "We will be investing in capabilities to help us scale the business more effectively and efficiently as we move forward," with focus on supply chain and technology systems.
• The company launched a kid-friendly personal care line at Walmart and Amazon in coordination with the Toy Story 5 movie premiere.
• The "It is Time to Get Honest" campaign for flushable wipes delivered over 3 billion media impressions, driving growth in the adult consumer segment.
• Management confirmed the "Powering Honest Growth" restructuring program is largely complete, with warehouse consolidations already yielding supply chain savings.

INDUSTRY GLOSSARY

• MULO+: Multi-outlet plus convenience stores, a retail tracking standard that includes grocery, drug, mass merchandisers, club, and dollar stores.
• Circana: A market research firm that provides retail consumption and consumer behavior data for the consumer goods industry.
• Adjusted EBITDA: A non-GAAP financial measure that excludes interest, taxes, depreciation, amortization, and specific one-time costs like restructuring or executive transitions.
• Household Penetration: A metric representing the percentage of total households in a market that purchased a specific brand at least once during a given period.
• Asset-Light Model: A business strategy that focuses on minimizing capital-intensive assets, often through licensing or outsourcing production and logistics.
• Underlying Adjusted Gross Margin: A non-GAAP metric that removes the impact of one-time items such as tariff refunds and inventory liquidations to show core operational profitability.

Full Conference Call Transcript

Operator: Ladies and gentlemen, thank you for standing by, and welcome to The Honest Company's Second Quarter 26 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Chris Mandeville, vice president of investor relations at The Honest Company. Please go ahead.

Chris Mandeville: Good afternoon. And thank you for joining our second quarter 26 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 measure 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 today, unless otherwise noted, will reflect CercanaMULo plus measured channel data for the 13 weeks ended 06/28/2026, as compared to the prior year. And with that, I will turn the call over to Carla.

Carla Vernon: Thank you, Chris. Before I share our results for the second quarter of 26, I want to welcome Chris in his new role as Vice President of Investor Relations.

Chris Mandeville: While Chris has already been with us for the last 2 earnings calls, we are thrilled that he has officially joined Honest.

Carla Vernon: And now I am pleased to share our results for the second quarter of 26, which reflects 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 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 3 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 2 important consumer truths.

The first key consumer truth is the resonance of our honest standard. Our portfolio is formulated without 3.5 thousand ingredients of concern that we choose not to use in our products. These high standards mean our products meet the high expectations 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 are 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 United States do not have any children under the age of 7. And 75% of all US 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 2 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 2 to 6x greater than we do. And in all purpose wipes, larger brands have as much as 5 to 7x our household penetration. Let me share a closer look at how this momentum is being driven across our businesses, beginning with our Wipe 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 #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. And 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 is 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 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 3 pronged strategy to maximize tentpole merchandising events such as Amazon Prime Day. While strong consumer deal events can be treated as a onetime 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.

And our team has great plans to build on these early relationships to earn lasting loyalty across our full collection of Honest products, Now 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. And for the members of our community with the most sensitive skin, it means providing products that are gently yet effective and often fragrance free.

By delivering on both preferences seamlessly, we maintained our position as the #2 brand in total baby personal care. And 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 #1 biggest global opening weekend in Pixar history. The magic of brands like Pixar and Honest is that they unlock the power of multigenerational 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 each 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 is 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. 3.5 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 are more strategically focused. We have intentionally shifted our revenue mix towards our higher growth and higher margin wipes and personal care platforms which now represent over 70% of our revenue. Second, we are more growth driven. Since 2022, we have delivered an 11% consumption growth CAGR. And third, we are more structurally profitable.

Our second quarter underlying adjusted gross margin of 44% is 1.5 thousand basis points higher than we were in 2022. These gains have allowed us to make considerable progress towards operating a virtuous cycle for profitable growth. But our convictions are not simply based on metrics. Honest was founded to be more than a disruptor brand. We were built to bring the world a modern personal care company that delivers on a standard built for the modern era. Transformation alone is not the finish line. Our ongoing goal is to achieve true scale. With great intention and clarity, we have identified right-to-win categories where we are leading and delivering exactly what today's modern households need.

And we have executed this year in and year out with strict financial discipline. As we scale operationally, many of the important things about The Honest Company have not changed. Our team of Honest butterflies is an intense team of builders that pairs passion and vision with a focused approach to execution. Every product we create upholds our rigorous guiding principles. it is this joy, commitment, and uncompromising quality that makes Honest unique and meaningful to households of all types. And this is the true heartbeat giving the Honest brand both relevance and power.

With that, I will now turn the call over to Curtiss to provide more details on our Q2 financial results and walk through our raised full year outlook.

Curtiss Bruce: Thank you, Carla, and good afternoon, everyone. As you just heard, Q2 was a significant milestone that clearly validates our trajectory and highlights the robust results generated when our strategic focus meets disciplined execution. Let's dive into how that performance materialized across our metrics starting with the top line. Second quarter reported revenue was $83.3 million, a decrease of 10.9% compared to the prior year period. This reflects the impact of strategic powering Honest growth and our diaper revenue declines. Which were partially offset by our continued strength in wipes and personal care. On an organic basis, revenue increased 6.7%, reflecting the momentum we continue to see in our higher growth higher margin wipes and personal care platforms.

Our Q2 reported gross margin came in at 48.4%, On an adjusted basis, gross margin was 50.1%, an improvement of 970 basis points. This expansion includes a $6.6 million tariff refund and dilution from our apparel liquidation. Excluding these 2 items, our underlying margin was 43.8%. An improvement of approximately 340 basis points. This was driven by favorable product mix and operational improvements including earlier than expected realization of supply chain savings. Total operating expenses decreased by $4.1 million to $30.8 million highlighting progress made to rightsize our SG&A. Within this, we strategically increased marketing by nearly 20%.

This step up in spend focused heavily on our wipes and personal care platforms was designed to capitalize on our momentum heading into the second half of the year. This targeted allocation of capital supports our ongoing focus on driving household penetration which remains our primary catalyst for sustaining long term growth. Net income for the quarter was $10.7 million compared to $3.9 million in the prior year period. Adjusted EBITDA was $14.5 million, yielding an adjusted EBITDA margin of 17.3%. To understand our true underlying profitability, it is important to exclude the onetime tariff refund and apparel liquidation.

When doing so, our underlying adjusted EBITDA margins of 9.8% expanded by approximately 160 basis points and marked an all time high for the company. Our asset light operating model continues to provide exceptional financial flexibility We ended the quarter with $105.9 million in cash and cash equivalents and 0 debt. Free cash flow was $35.3 million for the first 6 months of the year, a substantial improvement compared to negative free cash flow of $3.8 million the prior year period. This was primarily driven by increased earnings continued working capital improvements, and our asset light operating model.

While we do expect a timing benefit regarding inventory, to partially reverse in the second half of the year, we maintain a distinct line of sight to further long term working capital. Year to date, we have repurchased 5.6 million shares for $18.7 million at an average price of $3.35 per share. At the end of the quarter, $6.3 million remained under our existing share repurchase authorization. These actions underscore our commitment to balancing aggressive reinvestment in our growth initiatives with returning value to our shareholders. Our strong execution in the first half of the year which drove our top line momentum and structural margin enhancements, gives us the confidence to raise our outlook.

The tariff refunds provide additional flexibility and fuel for our strategic initiatives. We plan to aggressively reinvest these dollars now to accelerate household penetration and build a stronger Honest foundation for 2027 and beyond. With that context, our raised full-year 2026 outlook is as follows. Reported revenue in the range of $319 million to $325 million. Which now includes an approximate $10 million benefit from apparel inventory liquidation revenue. Organic revenue growth of 5% to 7% up from 4% to 6%, reflecting accelerated momentum in second half versus first half of the year.

Adjusted gross margin to land in the mid forties up from the low forties as we expect a continuation of robust year over year expansion driven by favorable mix and supply chain efficiencies. And adjusted EBITDA of $23 million to $25 million up from $20 million to $23 million Lastly, please assume our new apparel licensing agreement will be immaterial to our 2026 results. As I wrap up, I want to reiterate how pleased we are with our strong execution through the first half of the year. Our record underlying profitability and robust free cash flow generation prove that our financial model is fundamentally stronger today than ever before.

With our pristine balance sheet, structural margin improvement, and strategic reinvestment of our tariff refund, we have the fuel needed to confidently fund our next phase of profitable growth. With that, I will turn it back to Carla for final remarks.

Carla Vernon: Thank you, Curtiss. Before we move to Q&A, I want to express my deep gratitude to our incredible team of Honest Butterflies. Their passion and dedication are the true driving force behind the business performance results we shared today. As we look ahead, we will continue to deliver on our evergreen strategic pillars of brand maximization, margin enhancement, and operating discipline. By combining disciplined execution, with our unwavering commitment to the Honest standard, we are unlocking the true vision of a modern personal care company. We enter the second half of the year well positioned to build on our momentum, deliver on our raised 2026 outlook, and continue creating long term shareholder value.

With that, I now turn it over to the operator to open the line for questions.

Operator: Certainly. As a reminder, to ask a question, please press 11 on your telephone. Wait for your name to be announced. To withdraw your question, please press 11 again. And we ask that you please limit yourself to 1 question and 1 follow-up. Question. 1 moment, please. And our question comes from the line of Aaron Grey with Alliance Global Partners.

Aaron Grey: Hi. Good evening, and thank you very much for the questions. First question for me, just on the guidance. Just quick clarification on the profit guidance. You know, assuming that the tariff is not included in that full year guide because I know I see the 2 adjusted EBITDA numbers, 1 including tariff, 1 not including for the quarter. And then secondly, in line with that for the profits, just for the back half, if we take some assumptions on profitability versus what we saw, you know, in 2Q, it does seem like it is coming down with some assumed either marketing or SG&A spend based off the gross margin guide.

So I would love to get some color in terms of what you are expecting for marketing in the back half, and if you are seeing the ROI that you would have expected with the increased marketing that we have seen in the first half of the year. Thanks.

Curtiss Bruce: Good evening, Aaron. Let me clarify the adjusted gross margin guide. So our adjusted gross margin does include both the favorable impact of the tariffs and also the depressing impact of the liquidation of the apparel on the full year. So that adjusted gross margin includes both. I think what is important to remember is the underlying performance. Again, as we think about Q2, underlying gross margin year to date, 44%. And now we have a expectation or we continue to have the expectation that our underlying gross margin performance will be stronger in the second half than in the front half. The definition for adjusted has not changed. From 1 quarter to the next.

And it remains the same as you reflect on what the guidance is. Let me now get part of the question you asked about marketing. We will be investing, as the remarks said, we started off with, marketing investment against both wipes and personal care. We will continue to focus on those 2 categories, to drive additional household penetration in the second half. It will be a step up both in dollars and a percent basis. What I want to also highlight is the investment that we will be making in the second half are broader than marketing. We will be investing in capabilities to help us scale the business more effectively and efficiently as we move forward as well.

You will see those investments come through the SG&A line.

Carla Vernon: And then let me just hop in and tell you how our spending is working. Well, I am feeling pretty great. You know, we see that for the quarter, consumption was up 8%. And we also reflected on just overall the trajectory of our business performance has been strong over the course of the 3 years. 1 of the things that is unique about this year is that for the first time, we were doing some marketing in different ways and on different things than we have done before. You remember that in the first half of the year, we supported this big launch into the big kid aisle.

With the Toy Story Pixar launch, which we were beneficiaries of being included in some of Disney's own marketing for the movie and as well as our marketing for the movie, feeling really good about how those businesses have kick started off to the first half of the year. We also launched that flushable wipes campaign that I talked about in the script. And there are some images you will find in some of our investor presentations And just supporting flushable wipes is a really new kind of marketing spending for us.

Because you remember that I have been talking about the strength of the Honest brand across 3 different types of households, baby households, these big kid households, that is squarely where the Toy Story stuff is aimed. And then the households with no kids at all. And so our flushable wipes allows us to cascade across all those households. This campaign was the first time that Honest on a national basis on a big broad campaign did marketing directly to adult consumers for themselves for this brand, at such a level. And you can see that it is working when you see our household penetration gains.

More than half of our households are households with no kids at all, and the larger part of the 100 basis points of household penetration increase we saw in the quarter came from no kid households. This was really the first time we did national big national campaign spending against those kinds of households. And then lastly, we also launched a really broad portfolio covering campaign that we call the mother of all standards. And this is a strong new campaign that we can reach even more households now that we are in a position to drive some greater upper funnel marketing in the back half.

Aaron Grey: Thank you both, Curtiss and Carla. that is helpful. Second quick question for me just on the licensing apparel and switching to the to licensing versus direct. I understand that it is going to be immaterial for 2020. Maybe just talk bigger picture about why you feel like, that is going to be the right structure and setup for you guys and how you expect that, segment will look like for you guys maybe in 2027 and beyond.

Curtiss Bruce: Yeah, Aaron. Let me take that. Our strategy of this enterprise being asset light and so the licensing model really lives into our asset light DNA.

Carla Vernon: So, we are excited to be able to be in the apparel business, for consumers who love the Honest brand, for babies, both clothes and bedding and such. And so this is an opportunity for us to do 2 things. Participate in the category and do it in a asset light low capital intensive way.

Curtiss Bruce: And as you know, licensing is a margin accretive proposition. And so we are excited on all fronts. About this new agreement.

Carla Vernon: We are not going to speculate about the sort of impact longer term. We are excited about the agreement. We have got a great new partner. and it is on the strategy of maintaining the strategy of being asset light.

Aaron Grey: Thank you.

Operator: And our next question comes from the line of Dara Mohsenian with Morgan Stanley.

Patty: Hi, good afternoon. it is actually Patty Kanata on for Dara. I just had a couple of questions. 1, just to follow-up on the reinvestment piece. Stepping up reinvestment. You spoke about marketing but could you say a bit more about how you are thinking or where the incremental dollars are going in terms of how you are prioritizing across not just marketing, but also innovation and distribution. Thank you.

Carla Vernon: Alright. it is nice to see you, or it is nice to hear from you. The way to think about this is that we have got strategic investments designed to map to the growth levers we have talked about in our strategy. As a reminder, we have talked about the growth levers in our strategy by the platforms that are our highest growth, highest margin platforms. We are showing that we are gaining share. We are winning. Consumers clearly, households are embracing the products we bring, and that is wipes and personal care. Those are really broad platforms. When we talk about wipes and personal care, as a reminder, we are in the wipes segment in a number of ways.

We have got the baby aisle where we have our all purpose wipes. We have got the general adult aisle where we have got our flushable wipes and our sanitizing hand sanitizing wipes. We have got makeup remover wipes. So we are very broad based, and our wipes are winning. So we have a lot of opportunities to tell more households. In many cases, our wipes businesses are at less than 2% household penetration. and our competitive categories are significantly from anywhere from 2 to 6x more households buy those brands, know those brands. We have got a lot of people that we get to talk to across many different Wipes platforms.

So there is brand awareness that we need to do as well as just telling people about the honest standard. And this really differentiated benefit that our products bring. Similarly, with personal care, our personal care is a business. We are the number 2 baby personal care business in that aisle and category, and we are up 19% in the Personal Care business. We want to continue fueling that leadership and talking to consumers, bringing new households in, as baby households, that is a set of households that you have to constantly be recruiting against because new families come in and then families migrate over. So we will be we will be investing in those 2 platforms.

Both to make sure that we make consumers aware of all that we have to offer as well as continuing to always recruit new households. Then as a reminder, we also have a strategy to be speaking broadly across households that is very new for us in terms of our marketing investment structure, making sure that across whether that is streaming or social or retail marketing, that we are showing up with the right creative messages and showing up in the right channels and media spends to talk to these very compelling 75% of households that have no kids at all and the other 14% that have big kids.

So that is how we are gonna be using a lot of our marketing as well as starting to take the Honest brand and, you know, just bigger, broader ways that upper funnel marketing can do. To make sure more people understand this brand was built for the modern age. it is different than the other brands in the aisles, and we have got a lot of people we need to tell about that. Now all of our added investment spending in the back half is not marketing. And it is important to talk about that because you remember our third pillar of our strategy is operating discipline. We have been a founder built, startup, early stage brand.

We have got many, many systems that are getting more sophisticated and efficient as we continue to grow. As a company. And so we are investing in making sure we are bringing online technologies that make us efficient, investing in this new and improved supply chain approach, that we can be working with our retail partners in a more integrated way. So our spending is across both marketing and how we operate. that is really helpful.

Patty: And just maybe a quick 1 on diapers. The category is still obviously very competitive, but anything you could share with us in terms of promotion and pricing dynamics that you are seeing and just how you are thinking about the environment from here. Thank you.

Carla Vernon: Great. I want to take kind of a 2 part approach to this. I want to start with diapers, and then I wanna zoom farther out and talk about baby. First of all, it is-- listen, it is not easy to say it, but the diaper category is very challenged right now. We are seeing it. We are hearing the other brands see it. We believe that what we are seeing, and Curtiss and I spent a lot of time in CPG. We have been in a lot of categories. We have seen a lot of eras and dynamics.

And what we are seeing in the diaper category is something that looks structural, and looks like it will be the dynamic for the foreseeable future. it is very honest and important to think of it that way so that we make sure we manage that business wisely against this strategy we have committed to of growing the top line faster than our categories, and expanding profit faster than we grow the top line. So when we look at that for diapers, we see all the major national branded players are losing share. They are losing unit growth, and that is really challenging.

For us, as we see it, we have been investing in our diaper business in a couple of ways. We want to make sure, first of all, we bring a great diaper forward that delivers the honest standard. So you may remember we recently improved our actual diaper technology, and we wanted to make sure that people have that both product performance and that clean commitment that we bring to the aisle along with that style, you know, the joy that we always bring in our diapers. That makes our diapers unique, and that is important because our diapers need to be worth it.

We have also been investing in value, making sure that we show up with retailers to at least bring our diaper forward in the value we believe fits the Honest brand. But what I would say about our approach to baby, if you remember, we are actually winning in baby. We are doing very well. Our all purpose baby wipes are the #1 natural baby wipe in the category, up 16%. We have got this beautiful extended portfolio of baby personal care products up almost 20% in the quarter.

And with this addition of the licensing strategy we told you about, in today's message, making sure that our soft, organic baby onesies, baby bedding is available to those babies' families so that we have a full surround. What we are most glad for is that our baby portfolio is allowing us to offset the dampening effect that we see structurally in diapers. And our business has evolved such that diapers are now actually less than 25% of our overall consumption. So between our wipes and our personal care business, that is now 70% of Honest consumption.

So the way we are balancing it allows us to deliver raised guidance and the continued commitment of top line that grows faster than our categories and bottom line that outpaces the top. Thank you.

Operator: And our next question comes from the line of Anna Glaessgen B. Riley Securities.

Anna: Hi. Good afternoon. Thanks for taking my questions. I would like to touch on distribution. In the past, you sort of disclose ACV and talk about the number of doors you were in, but it got a little complicated. Between categories. Could you maybe just update us in terms of you are investing in marketing to expand household penetration in the higher growth categories like wipes and personal care. Could you maybe remind us where you sit today in terms of distribution and how much expanded door growth could support growth ahead? Thanks.

Carla Vernon: Yes. I am so glad you said that, Anna. it is started to get very complicated to talk about distribution because each of our categories is so dramatically different, and they play in aisles with really, really different structural approaches to distribution. I am gonna just give you a contrast and an example. What it means to have great distribution of flushable, lifestyle, really different than trial and travel, really different than baby.

So what we have tried to do to make it a little bit more uniform is still talk about the great runway ahead that we have and make it in a way that is easier to monitor every time we are together with less of the noise and confusion by focusing it on the household penetration, a little bit more of a uniform fact Although I will note, it does not really allow us to tell you about the great growth we are doing online when we talk about distribution. So it is helpful to be focused on household penetration.

Because it is really a better, more holistic picture When you are looking at household penetration, you are accounting now for what the collective business looks like as we become even more effective on our ecommerce channels then it is important to have that unified language that works across both. And as I told you, household penetration for the whole brand, while at 8.1%, and up a 100 basis points year over year.

If you now break that apart and look at any 1 given piece of our business, how much household penetration do you have in personal care, How much household penetration do you have in flushable wipes? that is where the picture changes dramatically for a business like ours that crosses about 10 categories. Kind of accumulate them to get to the 8, but you look at them separately, that is where the magic is. I mean, we are doing phenomenally. Number 2, baby personal care brand, and we have less than 3% household penetration in that aisle. Some of the brands in baby personal care have 6x the household we do, and we are still number 2.

So imagine what happens with every point that we add on to household penetration. I will just, like, 1 of the back of the envelope numbers for me, every point that we gain in baby personal care is worth anywhere $25 million to $30 million in annual sales. So this journey we have of going through less than 3% penetration, and it is something like flushable wipes. We do not even have 1% of The US households. it is wild. it is wild. We are so new. We only launched that category 3 years ago. Some of our competitors have been out for twice as long as we have.

So we are very encouraged to already be the 4th largest flushable wipes brand with less than 1% of US households. So we, again, we know that those households are worth anywhere $20 million to $30 million every time we gain a point. So that is how we are focusing on the growth, and that is why we wanna talk to you about that when we are whenever we are with you. Got it. Thanks. that is that is super helpful, Carla. And then I just want to follow-up on SG&A.

Anna: Pretty big step down year over year And then sequentially, and then given the investments in the back half, it seems like that is stepping back up. Was there anything that potentially shifted from Q2 to Q3 or anything to keep in mind there? Thanks.

Curtiss Bruce: Yeah. I think for the question, Anna. The performance that you saw on 02/2002, first, I would just want to recognize the execution of powering Honest growth that was behind that in the front half. And you were thinking about it the right way as you look at the second half of the year. We are talking about the investments in marketing and SG&A capabilities, you know, to set us up for sustained long term scaling. So we will see the SG&A step up from the, call it, low watermark that we had in Q2. Thank you.

Operator: And our next question comes from the line of Owen Rickert with Northland Capital Markets.

Owen Rickert: Hi, Carla. Hi, Curtiss. Thanks for taking my questions. First for me, how much is the second quarter organic growth acceleration driven by distribution gains versus velocity improvement? Is that mix shifting any 1 way or the other And how durable of a signal is that?

Curtiss Bruce: What I would tell you is that first of all, we came into this year expecting that we were gonna have sequential improvement in organic revenue from first quarter to second quarter. And the way to think about that was we were gaining distribution in Q1, and then we were expecting that would take hold and begin to accelerate Q2 and balance of year. And I think that is what we have seen happen in Q2. Right? And so, it is the growth behind our personal care and wipes portfolios that continue to have momentum and win in the marketplace. Yeah.

Carla Vernon: And remember, Owen, I think 1 of the things we have talked about on some of our conversations with you is what we wanna do now is make sure that we sync our innovation schedule with the reset schedules that retailers have, especially at brick and mortar, and that we do that in a way that makes sure we get great returns on the investment across the year as we continue to build those. So in general, you will tend to see that the innovation punch happens earlier in the year then we begin focusing on just really planting, as Curtiss said so well.

Planting those roots really deep, making sure we invest in velocities, awareness, trial, and things like those tent pole merchandising events like your Target Circle Weeks and your Amazon Prime Day, really give us an opportunity. We try to make sure the innovation is out. it is ready. It is locked and loaded so that we get the chance from the rooftops about it in those periods where you have got a lot of eyeballs on the channel and on our site. So in general, what you are seeing is great performance in foundational durable momentum. And I think that the consistency of the consumption numbers is another indicator for you.

That this is not some kind of, high heat, you know, and then cool down period. it is very consistent. Growth.

Owen Rickert: Got it. Got it. that is super helpful, guys. And then lastly for me, the powering Honest growth its growth costs are winding down, and you actually had a much smaller restructuring credit this quarter than I expected. Are we essentially through all of the P and L noise related to powering Honest Growth?

Curtiss Bruce: First, let me just take an opportunity to recognize the team here that has been executing against Powering Honest Growth. We are going to deliver more savings and less cost than even the previous guidance that we had given. And so we are certainly excited about the opportunity to do that. From a completion standpoint, we are now live in our warehouse. So we have executed against the, warehouse consolidation. We are against seeing some of those savings in Q2, and we are largely through, but not completely through the cost related to the program. But very pleased with the result and the impact that it is had on structural profitability within the business.

Owen Rickert: Thank you.

Operator: I am showing no further questions. So with that, I will now turn the call back over to CEO, Carla Vernon, for any closing remarks.

Carla Vernon: I just wanna take this opportunity once again to echo what Curtiss said. We thank our teams. This has been incredible, powerful work. I also feel like if you have any interest in more answers, there is a great presentation on our investors.honest.com web site, and we look forward to talking to you all next quarter.

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

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