The Honest Company’s third quarter was marked by a significant market reaction to weaker-than-expected revenue, reflecting a 6.7% year-on-year decline and a miss relative to analyst forecasts. Management attributed this shortfall mainly to ongoing softness in the diapers and apparel segments, emphasizing that a challenging consumer environment and reduced promotional activity at major retail partners weighed on results. CEO Carla Vernon noted, “Our revenue decline was due to the underperformance of our diapers and apparel categories, which are experiencing the downward pressure of a challenging consumer macroeconomic environment.” However, the company highlighted continued strength in wipes and personal care, which partially offset these declines.
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The Honest Company (HNST) Q3 CY2025 Highlights:
- Revenue: $92.57 million vs analyst estimates of $99.53 million (6.7% year-on-year decline, 7% miss)
- Adjusted EPS: $0.01 vs analyst estimates of $0 (in line)
- Adjusted EBITDA: $3.52 million vs analyst estimates of $1.74 million (3.8% margin, significant beat)
- EBITDA guidance for the full year is $22 million at the midpoint, below analyst estimates of $28.65 million
- Operating Margin: 0.3%, in line with the same quarter last year
- Market Capitalization: $281.7 million
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From The Honest Company’s Q3 Earnings Call
- Aaron Grey (AGP) asked why Honest Company initiated Transformation 2.0 now, given a stronger balance sheet. CEO Carla Vernon emphasized that simplifying the business and focusing on wipes, personal care, and diapers will unlock further profitability and growth.
- Aaron Grey (AGP) followed up on diaper redesign and pricing changes. Vernon highlighted early positive signs in consumer response, including reduced complaints and improved velocities at key retailers.
- Anna Glaessgen (B. Riley Securities) questioned how Honest will compete in diapers given price sensitivity and limited impact of innovation. Vernon explained that outside of major retailer Target, diaper consumption is up, and improvements are still being assessed.
- Owen Rickert (Northland Capital Markets) asked about the timeline for business exits. CFO Curtiss Bruce said exits are targeted for completion by year-end, with cost savings impacting 2026 results.
- Shivhana Choudhry (JPMorgan) inquired about promotional activity and pricing levers. Vernon detailed increased promotional efforts in diapers, particularly at Walmart, and noted that price sensitivity is mostly isolated to diapers, not wipes or personal care.
Catalysts in Upcoming Quarters
In upcoming quarters, the StockStory team will be watching (1) execution of the Transformation 2.0 program and the successful wind-down of non-core channels, (2) continued growth in wipes and personal care, especially in expanded retail and e-commerce distribution, and (3) stabilization of the diaper segment following recent product and pricing changes. Consistent progress in cost optimization and the impact of new product collaborations will also be key indicators of future performance.
The Honest Company currently trades at $2.56, down from $3.31 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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