The Honest Company Inc. (NASDAQ: HNST) provides safe, eco-friendly, sustainable, hypo-allergenic and natural baby, beauty and household products. Actress Jessica Alba founded the consumer discretionary sector company. After her first child, Alba was concerned about conventional baby products after experiencing skin irritation. Due to the limited choices in the market for natural and safe products for babies with very sensitive skin, she created and launched the Honest Company brand.
The company has since expanded its portfolio beyond baby products to include skincare, beauty and household products. The company reported a solid Q4 2023 and upbeat 2024 forecasts, sending shares surging over 30%.
The Competitive Advantage of Honest Productsup
The mission to provide transparency and operate an ethical company based on values of trust, sustainability and transparency hits home with its target millennial and Gen-Z consumer audience. This is a growing consumer segment that prioritizes health-conscious and eco-friendly choices. The star power of actress Jessica Alba helped spark brand awareness early on to establish a foothold and differentiate itself in the market.
A Rocky IPO and Turnaround
The company has stood the test of time, having originally launched in 2012 and not going public until after the pandemic in 2021. Mounting losses and falling stock prices, collapsing from a $16 IPO price to a low of $1.07 by October 2023, didn't inspire confidence in investors. However, the company has executed an impressive turnaround with its Transformation Initiative spearheaded by CEO Carla Vernon, focusing on margins and profitability while still fostering double-digit sales growth.
The Company Competes in DTC and Wholesale Channels
The company prioritizes a direct-to-consumer (DTC) model, fostering higher margins and generating recurring revenues through its subscription services. Its wholesale distribution channel includes many major retailers, including Target Co. (NYSE: TGT), Amazon.com Inc (NASDAQ: AMZN), Walmart Inc. (NYSE: WMT), Nordstrom Inc. (NYSE: JWN) and CVS Health Co. (NYSE: CVS).
An "Honestly" Solid Quarter
Honest Company reported Q4 2023 EPS of a penny, beating consensus analyst estimates of a loss of 8 cents by 9 cents. Revenues rose 10.3% YoY to $90.26 million, beating consensus estimates for $84.07 million.
An Upbeat 2024 Outlook
Honest Company forecasts 2024 revenue growth of low-to-mid single-digit percentages compared to 2% consensus analyst estimates. The first half of 2024 is expected to be softer as growth accelerates in the second half of 2024. Positive adjusted EBITDA is expected in the low-single-digit to mid-single-digit million range.
Insights From the CEO
Honest Company CEO Carla Vernon completed her first year as chief executive officer (CEO). Vernon underscored the turnaround efforts, which resulted in expanding gross margins by 930 bps since Q1 and doubling its cash position YoY. The company achieved a major milestone, ending its fourth quarter of 2023 with a positive adjusted EBITDA driven by unit growth, dollar sales, stronger marketing efficiency and a healthier balance sheet.
Honest Company CFO Dave Loretta attributed the turnaround to its Transformation Initiative over the past year, "As a result, we achieved double-digit revenue growth for the fourth quarter while also improving gross margin and reducing operating expenses. At the same time, we improved our balance sheet, more than doubling our year-end cash position. Our 2024 outlook emphasizes profitable growth and showcases the confidence we have in the long-term strategy and financial future of Honest."
Honest Company analyst ratings and price targets are at MarketBeat. Honest Company peers and competitor stocks can be found with the MarketBeat stock screener.
Daily Ascending Triangle Breakout
The daily candlestick chart on HNST illustrates an ascending triangle breakout pattern. The ascending (rising) trendline commenced at the $2.83 swing low on January 16, 2024, marking higher highs on pullbacks. HNST broke out through its flat-top upper trendline resistance at $3.55 on the strong Q4 2023 earnings results, initially surging shares to a high of $4.89. The daily relative strength index (RSI) surged through to the 78-band and has since slipped back under the 70-band on the retracement back down to the $4.30s range. Pullback support levels are at $3.75, $3.55, $3.24 and $3.05.
