What Happened?

Shares of personal care company The Honest Company (NASDAQ: HNST) jumped 2% in the morning session after the stock's positive momentum continued as the company announced a major shift in its sales strategy, planning to halt direct sales from its website and mobile app to improve profitability. 

This change was part of a new plan called “Transformation 2.0: Powering Honest Growth.” The strategy also involved exiting its website fulfillment and apparel operations, as well as closing its stores in Canada. The company’s stated goal was to streamline its supply chain and reduce expenses. Despite the end of direct selling, customers could still find Honest Company products at major retailers such as Walmart, Target, and Amazon.

After the initial pop the shares cooled down to $2.81, up 0.5% from previous close.

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What Is The Market Telling Us

The Honest Company’s shares are extremely volatile and have had 31 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was about 2 months ago when the stock dropped 24% on the news that the company reported weak third-quarter results that missed revenue expectations and lowered its full-year forecast for sales and earnings. 

For the quarter, revenue fell 6.7% from the previous year to about $93 million, falling short of analyst expectations. The bigger concern for investors was the updated outlook. The Honest Company cut its full-year revenue projection from a prior estimate of 4% to 6% growth to a new range of a 3% decline to flat. In addition, the company revised its adjusted earnings (EBITDA) forecast downward to a range of $21 million to $23 million, a drop from the previous guidance of $27 million to $30 million. These results came as the company announced a new plan, called “Transformation 2.0,” aimed at simplifying its business by getting rid of less profitable products.

The Honest Company is down 58.7% since the beginning of the year, and at $2.81 per share, it is trading 60.2% below its 52-week high of $7.05 from December 2024. Investors who bought $1,000 worth of The Honest Company’s shares at the IPO in May 2021 would now be looking at an investment worth $121.96.

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