Honesty Isn’t Enough: Weak Sales Forecast Sends Investors Fleeing From Honest Co

The steady 10-month slump of Jessica Alba’s Honest Company continued Friday (March 25), after the Los Angeles-based seller of diapers and personal care products said first-quarter sales would be down 15% and full-year revenue flat.

The sluggish forecast sent shares of Honest below $5 for the first time, marking a 70% drop from its much-touted $16 IPO price last May while leaving it with a market value of just $450 million.

Although management told investors that much of the near-term decline was due to reduced demand for COVID-related disinfecting and sanitizing products, and that sales would likely rebound later in the year, those assurances did nothing to stem the fall of Honest’s stock, which is at an all-time low.

“Before we get started with Q&A, I wanted to take a moment and just address a question that I expect you all have based on what we shared today and our expectations for Q1,” Honest CEO Nick Vlahos said on the company’s Q4 earnings call Thursday (March 24) afternoon. “Do we have a fundamental issue with the business? The answer is no. We don’t have an issue on the underlying health of the business,” he said.

Confident and Calm

Despite the unavoidable carnage inflicted on the stock, Vlahos reminded investors that the 10-year-old company was being built for the long term rather than run on a quarter-to-quarter basis, while acknowledging the importance of managing investor expectations and offering visibility into the future as a publicly traded company.

“95% of the business, if you look at Diapers and Wipes, and our Skin and Personal Care business, witnessed double-digit growth rates,” Vlahos said, in explaining his “confidence and conviction that we are creating a modern consumer brand for the future.”

Specifically, those two categories grew 19% last quarter, while the company’s total sales inched up just 3%, Vlahos said, while pointing to increased brand awareness, growth in household penetration, increased market share and expanded omnichannel distribution via 43,000 retail locations.

That said, the reality of the top- and bottom-line disappointment loomed large in the minds of analysts and investors wondering how much lower the stock can go before it is either bought out, taken private or simply folds.

“We are facing significant headwinds in the first quarter,” CFO Kelly Kennedy said on the call, including a $5 million hit from the sale of Honest’s legacy beauty products and a $7 million drag on digital driven by increased cost of marketing and declining consumer traffic.

“As a result, we expect Q1 2022 revenue to decline roughly 15% versus Q1 of 2021,” she added, “and we expect total revenue for 2022 to be flat versus 2021.”

Where’s Jessica?

Although company founder Jessica Alba is still a large shareholder, the chief creative officer and the face of the brand, the model-actress was not present on the earnings call and her name was only referenced once in an hour-long presentation.

“Obviously, we have Jessica Alba at the forefront, not only as our Chief Creative but also a mega influencer being able to really drive organic [growth] as we look at our programming in the back half of the year,” Vlahos said, stressing the advantage of having her celebrity status at a time “cost per click” has gone up almost 40%.

“We’re seeing the whole marketing piece continue to accelerate and we’ve really built our capability around social to be able to leverage social marketing,” he said, stressing a combined investment in technology would leave Honest well-positioned in the back half of 2022, into 2023 and beyond.