Honest (HNST) Q4 2025 Earnings Call Transcript

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DATE

Wednesday, February 25, 2026 at 4:45 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Carla Vernon
• Chief Financial Officer — Curtiss Bruce

TAKEAWAYS

• Organic Revenue -- $294,000,000 for the year, representing 5.3% growth, driven by wipes and personal care portfolios, which outpaced category growth.
• Consumption Growth -- 5%, fueled by double-digit unit sales growth and household penetration reaching an all-time high of 7.6%.
• Wipes Portfolio Performance -- 30% consumption growth, six times faster than the comparative category, with all-purpose baby wipes growing 25% and capturing the largest dollar share gain among competitors.
• Personal Care Performance -- 12% consumption growth; new product innovation and expanded retailer partnerships highlighted for 2026.
• Diaper Category -- Experienced double-digit consumption declines, attributed to retail assortment shifts, promotional event lapses, and price sensitivity; diapers are no longer the largest category.
• Adjusted Gross Margin (FY) -- 38.7%, up 50 basis points year over year, reflecting favorable product mix and excluding discrete exit-related inventory impacts.
• Reported Revenue (FY) -- $371,300,000, down 1.9%, with the decrease attributable to deliberate strategic exits.
• Net Loss (FY) -- $15,700,000, compared to a $6,100,000 loss in 2024, with “the variance almost entirely attributable to the discrete costs associated with our transformation.”
• Adjusted EBITDA (FY) -- $22,000,000, compared to $25,900,000 in 2024, within guidance range.
• Free Cash Flow -- $13,600,000 generated, a $12,600,000 improvement over the prior year, driven by working capital improvements.
• Cash & Balance Sheet -- $89,600,000 in cash and cash equivalents with zero debt at year end; liquidity enables both investment and share repurchases.
• Share Repurchase Authorization -- $25,000,000 program announced, reflecting the Board’s confidence in strategy and capital structure.
• Powering Honest Growth Program -- Expected to deliver $10,000,000 to $15,000,000 in annualized savings, with structural SG&A and supply chain efficiencies projected.
• Q4 Organic Revenue -- $71,300,000, up 0.7%, which marked a positive inflection from Q3’s decline as promotional headwinds lapped.
• Q4 Adjusted Gross Margin -- 38.3%, in line with the prior year; reported Q4 gross margin of 15.7% due to an apparel inventory write-down from strategic exits.
• Household Mix -- 54% of buyers are in no-kid households, supporting ongoing expansion beyond the baby segment.
• 2026 Guidance -- Expected reported revenue decline of 18%-16% due to strategic exits; organic revenue growth targeted at 4%-6%; adjusted EBITDA expected between $20,000,000 and $23,000,000; adjusted gross margins projected in the low 40s.
• Major Distribution Gains & Innovation -- Expanded retail launches, including entry into the big-kid aisle via Disney/Pixar partnerships, and a new mega pack baby wipes configuration.
• Operational Consolidation -- Fulfillment center consolidation to a single Las Vegas location in 2026, expected to unlock further supply chain efficiencies in the second half of the year.

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RISKS

• Diaper category expected to remain challenging in 2026 with continued “portfolio simplification” and “aggressive moves from value competitors,” potentially offsetting growth in core product lines.
• GAAP gross margin contracted to 33.3% from 38.2% due to “discrete inventory write-down on apparel and a headwind from increased tariff costs.”
• Reported revenue forecast for 2026 is down 18%-16% from 2025, reflecting the impact of strategic exits and creating difficult period-over-period comparisons, especially in Q1.
• Tariffs remain a year-over-year headwind until they are lapped beginning in Q2, potentially affecting margin attainment in early 2026.

SUMMARY

Management executed substantial portfolio simplifications in 2025, including exiting direct fulfillment, the apparel category, and the Canadian business, resulting in a narrowed focus on core categories. Margin improvement was achieved through favorable mix shifts and organizational streamlining, but reported topline contracted due to strategic exits and discrete restructuring charges. The Board authorized a $25,000,000 share repurchase program, reflecting confidence in the transformation and reinforced by a debt-free balance sheet and increased cash generation. For 2026, internal guidance anticipates low double-digit percentage reported revenue declines due to a smaller revenue base, but organic growth and margin expansion are targeted through innovation, distribution wins, and operational efficiencies.

• Multi-pronged growth strategy for 2026 includes expanding into both traditional baby categories and broader no-kid or big-kid households, with 54% of buyers now in households without children.
• Innovation pipeline highlights include new Disney/Pixar licensed products, a mega pack baby wipes SKU, and sustainable packaging launches.
• “Powering Honest Growth” is projected to deliver $10,000,000-$15,000,000 in annual savings, materially shifting the cost structure and funding reinvestment.
• Fulfillment consolidation and supply chain initiatives are expected to deliver incremental margin gains in the second half of 2026 as implementation advances.
• Adjusted EBITDA is expected to remain stable in 2026 compared to 2025, despite a much smaller revenue base, reflecting deeper operating leverage.

INDUSTRY GLOSSARY

• ACV (All Commodity Volume): A measure of product availability weighted by total market sales volume across a retail channel, used to assess distribution breadth and depth.
• Household Penetration: The percentage of total potential households purchasing a brand within a given period, often used in CPG and retail analysis.
• Adjusted EBITDA: Non-GAAP earnings before interest, taxes, depreciation, amortization, and certain restructuring or transformation-related adjustments, used to gauge recurring operational profitability.
• SG&A: Selling, general, and administrative expenses, representing operating costs outside direct product manufacturing and delivery.

Full Conference Call Transcript

Carla Vernon: Thank you, Chris, and hello to everyone joining the call. The Honest Company, Inc. enters 2026 as a more focused and agile organization. Over the last several months, we have moved assertively to execute the Powering Honest Growth transformation we laid out last November. By exiting honest.com as a direct fulfillment website, the apparel category, and our Canadian business, we have successfully narrowed our focus to our right-to-win core of wipes, personal care, and diapers. With these exits, we have also right-sized SG&A in line with this more focused revenue base. Later in the year, we expect additional financial efficiency as we consolidate our warehouse footprint.

As a result of these actions, we begin 2026 with a leaner, higher-margin operating model poised for growth.

Today, my discussion will be focused on the organic view of the product and channel mix that defines the resulting businesses after the strategic actions from Powering Honest Growth. As a reminder, organic excludes the impact of the exits of apparel, Canada, and honest.com fulfillment. Our execution in Q4 enabled The Honest Company, Inc. to deliver on our revised guidance for the year. In 2025, The Honest Company, Inc. delivered organic revenue of $294,000,000, up 5.3% versus last year and squarely in line with our long-term algorithm. Consumption growth of 5% driven by double-digit growth in unit sales was in line with organic revenue growth and materially outpaced our comparative category growth of 2%.

In 2025, our wipes and personal care portfolios delivered strong performance with consumption growth of 30% and 12%, respectively, which drove market share gains for both. This strength and momentum offset the softness in diaper performance. In 2026, we expect the growth on wipes and personal care to continue offsetting weakness in diapers. I will share more on our diaper performance in a few moments.

Despite the volatile tariff environment, adjusted gross margins were 38.7%, an improvement of 50 basis points year over year, largely due to favorable product mix. Our 2025 adjusted EBITDA of $21,800,000 was in line with our most recent guidance. We also closed out 2025 with a strengthened balance sheet, ending with $90,000,000 cash on hand and no debt. I am confident in the strength of our business, the discipline of our asset-light model, and our anticipated future cash generation. Based on that foundation, our Board of Directors has authorized a $25,000,000 share repurchase program. This authorization reflects deep confidence in our strategy and our commitment to delivering long-term value for our shareholders.

Looking back on 2025 performance in more detail, we are particularly encouraged that momentum improved across the second half of the year, with Q4 organic revenue improving by six percentage points over the Q3 decline and returning the business to top-line growth of 1% in Q4. This inflection in revenue quarter over quarter was largely because we lapped two retailer-specific activations in 2024 that were mostly contained to Q3. Additionally, our total consumption improved by nearly 200 basis points quarter over quarter, driven by our higher-margin wipes and personal care portfolios. Taken together, these drivers allowed our underlying strength to resurface in the fourth quarter.

We are proud that this momentum is also reflected in our all-time highest household penetration of 7.6% at year end. This penetration growth represents an increase of 1,700,000 households versus the prior year, proving that The Honest Company, Inc. brand continues to resonate with a widening audience.

And now turning to 2026. For the full year 2026, we expect to deliver organic revenue growth in the range of 4% to 6%, while also driving margin expansion due to our more efficient operating model. This dual focus on top-line leadership and bottom-line health is central to our value creation thesis. As a reminder, we continue to drive our strategy through the three strategic pillars that guide every piece of our work: brand maximization, margin enhancement, and operating discipline. This will be evident in our three growth drivers for 2026. Our first two drivers support our goal of brand maximization, which is how we scale The Honest Company, Inc. brand. Driver number one is our continued growth in the baby category. Driver number two is our plan to accelerate our growth in households beyond those with babies. In addition to being a top baby brand, The Honest Company, Inc. also performs quite well in households beyond baby. And in the U.S., 89% of households do not have any children under the age of six. This includes the 75% of households that have no children at all.

To complement our strategy of broadening The Honest Company, Inc. brand, our third driver of 2026 is grounded in our margin enhancement and operating discipline pillars, which allow us to make continued progress on strengthening our financial profile and operational excellence.

Let me begin with our brand maximization drivers. The Honest Company, Inc. brand is unique in its ability to travel seamlessly across categories, aisles, and demographics. This was evident in our household penetration growth in 2025, which was balanced across households with no kids and households with kids. Even as we embrace this expanded approach to growth, our story always begins with babies. We believe there is no higher bar than the standard of care a parent gives to their precious babies. According to the National Institutes of Health, 42% of all parents, and 49% of all first-time parents, are concerned that their children have sensitive skin.

This is why our Honest Standard, our rigorous set guiding principles that help shape every step of product development, including our commitment to formulating without the use of more than 3,500 ingredients of concern, resonates so strongly with our community. The Honest Company, Inc. is trusted by parents who demand a high standard of clean and refuse to compromise on safety or performance.

Let me spend a moment addressing our diaper performance in 2025. The double-digit consumption declines on our diaper business had a dampening effect on the otherwise strong growth of our wipes and personal care collections. And while diapers are no longer our largest category, they are an important way to introduce the brand to the 11% of U.S. households with kids ages six or under. Our diaper declines were largely driven by retail assortment shifts at select brick-and-mortar retailers, the lapping of two large promotional events, which I discussed earlier, and macroeconomic pressures driving consumers towards lower-priced items.

Because today’s parents expect a value equation that balances price with performance and safety, we are strengthening that equation for our diaper business through thoughtful investment in pricing and improvements to price-pack architecture while continuing to deliver the quality materials, fit, and style that we are known for.

Now turning to baby wipes and personal care. We are confident that our 2026 baby growth plan will deliver the ongoing strong momentum of our core products along with a robust lineup of baby-focused innovation, much of which is rolling out this quarter. In 2025, our total The Honest Company, Inc. wipes portfolio delivered remarkable growth with consumption up more than 30%, which is six times faster than the comparative categories. A standout performer was our all-purpose baby wipes collection, which grew consumption by 25%, materially outpaced the category, and delivered the largest dollar share growth of any all-purpose baby wipes brand. One of the key drivers in this growth was trade-up to larger sizes.

In response to the demand for value and convenience, we are launching our largest baby wipes configuration to date with 16 of our full-size packages for what we call our mega pack.

Our baby personal care success is driven by the same demand for clean, safe ingredients we see across The Honest Company, Inc. portfolio. With 12% consumption growth in 2025, we are building on this momentum with a strong innovation lineup in 2026. On the heels of the successful launch of our first partnership with Disney, we are expanding our Mickey and Friends bath time and bedtime items into additional retailers this year. Our baby personal care portfolio also focuses on bringing the sustainability and value that today’s parents are seeking. This quarter, we are adding a new item to our collection of milk-carton-style 32-ounce refills with the addition of our fragrance-free shampoo and body wash.

This gable-top packaging, which is our largest size offering, uses 89% less plastic than our standard 10-ounce bottle. And earlier this month, we launched our fragrance-free Sensitive Rich Cream Moisturizer with a beautifully light and creamy texture that is clinically proven to deliver 48-hour moisturization for baby’s delicate skin.

As I shared earlier, in addition to growing with baby households in 2026, we will bring intention and focus to our growth of The Honest Company, Inc. in households with bigger kids and no kids at all. This leverages momentum that has been quietly building. According to Numerator data, 54% of current The Honest Company, Inc. buyers are in no-kid households, and we have a history of appealing to those households in several ways. Many families who trusted The Honest Company, Inc. for their babies stick with us even after the kids grow up.

Some of our most popular items from the baby aisle, like our shampoo and body wash, body lotion, or our conditioners and detanglers, are favorites among households that do not have babies anymore. These are also households that discover The Honest Company, Inc. through products like our sanitizing wipes or our adult flushable wipes. Regardless of the reason, we have big plans to unlock more growth in households where the kids are older, or where there may be no kids at all.

The next natural step in this journey is our expansion into the section of the store dedicated to products for big kids. We know that as kids grow, they want things that show they are growing up, but that does not mean they lose the need for the gentle and clean formulations we bring. So we are practically cartwheeling with glee at our first launch into the big-kid aisle in partnership with Disney, Pixar’s Toy Story. We are now taking bath time to infinity and beyond with a lineup of six items that add Woody, Buzz, Jessie, and more Toy Story friends to The Honest Company, Inc. family.

The collection launched this month online and in stores at Walmart and will roll out at additional retailers ahead of the Toy Story 5 release this summer.

In 2026, we are also poised to continue our growth in the 75% of U.S. households that do not have any babies or little kids. We have a two-pronged approach for growing with these no-kid households. In many instances, we have seen that our existing items are already a great solution for these households. So in 2025, we began evolving our marketing messages to introduce these older households to our personal care items and wipes. We are also designing new items specifically with this broader set of households in mind.

A great example of this success is our beautiful countertop-friendly adult flushable wipes collection, which grew consumption by 175% in 2025 and has ascended to the top five in Amazon’s personal cleansing wipes set. Following our 2025 launch into brick-and-mortar retailers, including H-E-B and Target, we are striking while the iron is hot as we rolled out our flushable wipes into Walmart stores earlier this month. Also, in addition to our successful fragrance-free offering, we expanded the range of our sanitizing wipes by adding full-size packs in two new scents, grapefruit and lavender, alongside convenient pocket packs for on-the-go occasions. These are rolling into market as we speak. This strategy to grow across demographics is not a pivot.

It is an advancement of what is working. Our community has spoken. The Honest Company, Inc. brand and the Honest Standard are for everyone from babies and kids to kids at heart.

And finally, we are also driving value creation through our focus on margin enhancement and operating discipline. Now that we have exited our lower-margin and less strategically aligned categories and channels, we will be able to deliver end-to-end efficiencies in our supply chain, along with improvements to inventory management and reductions in SG&A. And with these Powering Honest Growth actions in place, we expect to deliver gross margins in the low 40s in 2026. We have strengthened our balance sheet, lowered our cost structure, and have clear momentum in our right-to-win categories. And today, we believe The Honest Company, Inc. is better positioned than ever to deliver long-term value to our shareholders while building a stronger, bigger Honest.

With that, I will now turn things over to Curtiss to provide more detail on our Q4 and full year 2025 performance as well as our 2026 outlook.

Curtiss Bruce: Thank you, Carla. And good afternoon, everyone. The financial results we are sharing today represent the conclusion of a necessary and decisive chapter for The Honest Company, Inc. While our headline numbers for 2025 reflect the deliberate streamlining of our portfolio, the underlying metrics build a business that is fundamentally stronger than it was a year ago. Through Powering Honest Growth, we have built a stronger financial foundation specifically designed to power our future expansion. This program is expected to deliver between $10,000,000 and $15,000,000 annualized savings, serving as a direct catalyst for margin expansion, while at the same time providing us with the fuel to reinvest and drive growth in our highest-margin portfolios.

To that end, our execution is moving at pace. Since our announcement in November, we have seamlessly exited non-strategic channels and categories, taken actions to right-size our SG&A, and initiated plans to consolidate our footprint that will deliver structural improvements and efficiencies in 2026 that will endure well beyond this year. The performance and guidance I will detail today provide evidence of this continued scale for The Honest Company, Inc.

Beginning with our fourth quarter results, revenue was $88,000,000, down 11.8% year over year. This decline primarily reflects the deliberate impact of our strategic exits. These headwinds were partially offset by the continued momentum Carla detailed in our total wipes and baby personal care collections. On an organic basis, revenue grew 0.7% to $71,300,000, reflecting continued momentum in our total wipes and personal care categories, largely offset by ongoing diaper sales declines. Importantly, this was a significant inflection from our third quarter performance as we lapped select merchandising headwinds, observed continued strength in our wipes and personal care portfolios, and executed on targeted investments.

Gross margin was 15.7% compared to 38.8% in the prior-year period. This was primarily related to a discrete inventory write-down on apparel as we finalized our exit of this lower-margin portfolio. Additionally, an increase in tariff cost was also a slight headwind compared to the prior-year period. These pressures were partially mitigated by favorable product mix as we shift toward our higher-margin wipes and personal care portfolios and a decrease in fulfillment costs. On an adjusted basis, our gross margin was 38.3% and generally in line with the prior-year period.

Operating expenses increased $2,000,000 year over year. This reflected $4,200,000 of the total restructuring cost we expect to realize from Powering Honest Growth. This was partially mitigated by lower year-over-year SG&A primarily reflecting a reduction in legal expenses. Q4 marketing expenses were consistent with the prior-year period. In the quarter, the company reported a net loss of $23,600,000, primarily related to the one-time costs associated with Powering Honest Growth. Adjusted EBITDA for the fourth quarter was $3,800,000, down $4,800,000 versus last year largely due to lower revenue. Adjusted EBITDA margin was 4.3%.

Turning to our full year 2025 results. Revenue was $371,300,000, representing a 1.9% decrease compared to the prior year. This top-line performance primarily reflects the intentional impact of our strategic exits under Powering Honest Growth. On an organic basis, full year revenue increased 5.3%, landing squarely within our long-term algorithm and highlighting the underlying strength in our core wipes and personal care portfolios. Our GAAP gross margin for the year was 33.3% compared to 38.2% in 2024. This contraction was driven largely by a discrete inventory write-down on apparel and a headwind from increased tariff costs. These factors were partially offset by more favorable product mix.

On an adjusted basis, gross margin was 38.7%, an increase of 50 basis points over the prior year, highlighting the underlying health of our core business.

Total operating expenses decreased by $9,000,000, or 5.8%, primarily driven by a reduction in SG&A related to lower legal and stock-based compensation expense compared to the prior year. This was partially offset by the aforementioned discrete restructuring costs and a strategic increase in marketing to support our growth. For the full year, we reported a net loss of $15,700,000 compared to a loss of $6,100,000 in 2024, with the variance almost entirely attributable to the discrete costs associated with our transformation. On an adjusted basis, net income was $8,300,000. Finally, adjusted EBITDA was $22,000,000, which landed within our updated outlook range and compared to $25,900,000 in 2024.

Now turning to our cash flow and balance sheet for the year. We generated free cash flow of $13,600,000, a substantial improvement compared to the $1,000,000 in the prior year. This strength was driven by significant working capital improvements stemming from our focus on operating discipline. Our balance sheet ended the year in an exceptionally strong position with $89,600,000 in cash and cash equivalents and zero debt. This capital position, coupled with our asset-light operating model, provides us with significant financial flexibility. As Carla shared earlier, with this strength as the backdrop, our Board of Directors has authorized our inaugural share repurchase program of up to $25,000,000, effective immediately.

This decision is a direct reflection of our confidence in Powering Honest Growth and the substantial near- and long-term benefits we expect this transformation to deliver. We believe our current valuation does not fully reflect the structural improvements we are making to our operating model, and this program underscores our commitment to a disciplined capital allocation strategy, one that balances reinvestment in our growth initiatives with a clear focus on returning value to our shareholders.

As we look ahead, the decisive actions we have taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where The Honest Company, Inc. has the clearest competitive advantage, and our 2026 framework reflects the early returns of that discipline. For 2026, we expect the following. Reported revenue declines of 18% to 16% due to our strategic exits. Organic revenue growth of 4% to 6%, in line with our long-term algorithm. Adjusted gross margins in the low 40s and adjusted EBITDA of $20,000,000 to $23,000,000.

To provide greater color on these figures, we anticipate sequential improvement in our organic growth throughout the year. While we face difficult comparisons in 2026, particularly in Q1 due to last year's retailer inventory buildup ahead of tariffs, our momentum will be driven by a robust pipeline of innovation and significant distribution gains established early in the year that will build throughout the remainder of 2026. For modeling purposes, it is also important to account for a high-teens percentage hit to reported sales resulting from the strategic business exits we finalized in 2025. While this impacts the reported top line, it effectively concentrates our resources on our most profitable categories.

Our adjusted gross margin expectations reflect the continued success and ongoing shift in our revenue base toward our higher-growth, higher-margin wipes and personal care portfolios. As these categories represent an increasing share of our total business, we expect a consistent mix benefit to our consolidated margin profile. However, tariffs will remain a year-over-year headwind until they enter the base period beginning in Q2.

Regarding supply chain efficiencies realization under Powering Honest Growth, we expect these savings to materialize in the second half of the year as we move past the implementation phase of our footprint optimization. Specifically, we are consolidating from two fulfillment centers into our state-of-the-art facility in Las Vegas, with a focus on automated large-scale retail fulfillment. We are executing against a comprehensive project plan designed to ensure the continuity and stability of our operations. By applying our core principle of operating discipline to this move, we are focused on maintaining strong service levels for our retail partners and consumers throughout the process.

Finally, our adjusted EBITDA expectations reflect the operational leverage inherent in our leaner business model. To fully appreciate the significance of our profitability outlook, it is important to look beyond the absolute dollars. While we expect our adjusted EBITDA performance to be consistent with the prior year, it is being generated off a materially lower reported sales base. The fact that we are maintaining our profit levels while intentionally shedding nearly a fifth of our top line is a testament to the fundamental improvement in our business model. In terms of shape of the year for adjusted EBITDA, we expect performance to strengthen as the year progresses, mirroring the cadence of our organic growth and gross margin profile.

When we look at the long-term earnings power of The Honest Company, Inc., we see a business that has moved past the era of structural complexity and into a phase of structural leverage. Regarding our top-line potential, our 4% to 6% organic growth algorithm remains the appropriate yardstick for our long-term framework, anchored in our focus on driving sustained market share gains. Just as brand maximization is a catalyst for revenue growth, we see a similarly long runway for continued margin enhancement. As our higher-margin, higher-velocity products continue to outpace the broader portfolio, we are establishing a new elevated baseline for gross margin.

Additionally, the supply chain efficiencies and SG&A right-sizing we expect to realize are not one-time wins; we believe they are structural enhancements to our earnings power. As I close, I want to express my confidence about 2026 and the great future ahead for The Honest Company, Inc. We are moving forward with a more productive portfolio, a stronger financial foundation, and clear line of sight towards sustainable, profitable growth. We are committed to ensuring that The Honest Company, Inc. brand thrives in the modern household for years to come. With that, I turn it over to Carla for final remarks.

Carla Vernon: Thank you, Curtiss. Powering Honest Growth was never just about restructuring. It was about unlocking the full potential of The Honest Company, Inc. business model and brand. In 2025, we did the heavy lifting to streamline our portfolio and establish a stronger financial foundation. And now in 2026, we build on the great momentum of our core products, our strong brand-building, and our great innovation lineup. This year, as always, our progress is due to the incredible execution by our team. Curtiss and I offer our sincere thanks to our employees, proudly known as our Honest Butterflies, across our LA, Las Vegas, and Minneapolis locations. Their resilience and commitment as a community continues to power our success.

We enter 2026 with a high degree of confidence in our ability to deliver sustainable, profitable growth. Thank you for your support as we build a stronger, more focused, and enduring Honest. And now I turn over to the operator to open the line for questions.

Operator: Thank you. To ask a question, you will need to press 1-1 on your telephone. And we ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. One moment please. And our first question comes from the line of Owen Rickert with Northland Capital Markets.

Owen Rickert: Hey, guys. Thanks for taking my question. It is great to see the underlying strength of the organic business with that returning to positive territory. With the $25,000,000 share repurchase announcement signaling confidence from the Board here, how should we think more about the cadence of organic growth building throughout 2026?

Carla Vernon: Hi, Owen. Carla here. As we exit 2025, we really tried to express and indicate our confidence in the momentum we see as we are exiting the year. We leave Q4 with consumption of north of 3% to 3.5%, and that really sets us up well for the strength that you heard about on our wipes and personal care businesses where we expect to see really continued strong performance in the year. We have such a lineup of innovation against what we know works on those businesses.

In the wipes portfolio, I talked about a bunch of the new products that are already shipping in the quarter, and in personal care we are entering that kid personal care set for the first time. So we are expecting the complement of new product innovation along with momentum on the core. But we really want to undergird all of that with the strength of our business model through supply chain improvements that we are also going to see across the year. Curtiss shared in his remarks that we are going to be optimizing our fulfillment center footprint. Some of those benefits will happen as the year runs.

And our SG&A, really bringing that in line with our new smaller revenue base, was an important piece of progress we wanted to achieve in our transformation, and we will be doing that over the course of the year. I think Chris can dive into more of the specifics quarter over quarter, but overall, we are really looking forward to seeing that continued strengthening over the course of the year.

Curtiss Bruce: Yes. Let me just add the momentum that Carla is talking about that we are actually ending the year with gives us a lot of confidence to be able to deliver our guidance of 4% to 6% organic revenue growth for the year. It is worth noting that organic growth will, however, represent down 18% to down 16% on a reported basis. In order to help with the modeling, we have provided the 2025 quarterly organic base that is in the press release. You can also find it on the website in the IR section on our Q4.

In terms of the phasing from an organic growth perspective by quarter, we do expect to see sequential improvement in our growth rate as we lap the tariff inventory build in 2025. We are absolutely confident in our ability to deliver our guidance on both the top and bottom line.

Owen Rickert: Got it. Super helpful, guys. Secondly, for me, with nearly $90,000,000 of cash and no debt, how do you balance buybacks with reinvestment in maybe marketing and innovation going forward? Especially with the stated goal of accelerating growth in those core categories?

Curtiss Bruce: Yes. So let me start by just saying what a milestone this is for The Honest Company, Inc. as a public entity to have our inaugural buyback authorization. I think it is quite an achievement, quite a milestone for us. And as we said in the remarks, it is a reflection of our ability to execute Powering Honest Growth. It is a reflection of, as you just stated, the $90,000,000 we have in cash and zero debt. And that $90,000,000 was a significant increase from our balance at the end of Q3. So I think that is representative of our ability to execute Powering Honest Growth as we close the year.

It also marks our confidence in our ability to execute the transformation program, continued ability to generate cash, and the confidence we have in our ability to deliver on our 2026 guidance. We also believe our valuation does not reflect the potential of this business nor our ability to execute the transformation. What we will continue to do is prioritize investment in growth. We will maintain liquidity to weather any macroeconomic headwinds that could be in front of us. We will balance that with returning value to shareholders. That is our capital allocation plan.

Operator: Thank you. Our next 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. I just wanted to dive a bit deeper in terms of some of the growth opportunities. In the past, we have talked about ACV opportunities both in terms of breadth and depth. You alluded to some of the innovation earlier on the call. Curtiss, you also talked about some distribution in terms of the sequencing of the growth. So just want to get some further color in terms of maybe you can size out how much of the growth you are expecting now is from breadth versus depth for the year 2026 when we think about some of the growth opportunities? Thank you.

Carla Vernon: Hi, Aaron. Nice to talk to you. As we look at how we built 2026, with a top-line growth algorithm in the 4% to 6% range, that growth is driven by a really nice balance of things. The growth is driven in a very well-balanced way by innovation of new product items and gaining distribution through the launch of those new product items, like we just talked about entering an entirely new aisle. The kid personal care aisle is a different part of the store than where we are, where you find a lot of bubble baths and such, and we have an entire new lineup entering that aisle with six new items at the launch.

Those already rolled out in the year. That is a great example when we say growth driven by distribution of new items. We are also seeing growth and distribution gains on our core items as well. I love talking about our flushable wipes: over the last two years we entered brick and mortar for the first time in 2025, and this quarter we are seeing our first brick-and-mortar launch at Walmart of the flushable wipes. So we have a lot of strength and engine behind core items that still have more distribution upside. We have distribution of the core, innovation of new items, and the momentum and velocity of the core.

For example, our all-purpose baby wipes are doing very well. As Curtiss talked about, we really want to fuel the growth of our core by making sure we have marketing investment across that as well. So it is really a three-part growth balance as you see our growth. The other way to think about that, which I talked about today, is by household types. Our business is across kid and no-kid households. Today already, 54% of our revenue is from households with no kids. And our household penetration growth was also very balanced in 2025 with growth coming from no-kid households and growth coming from households with little kids.

As we look at driving that growth, we drive it with items created for those different kinds of households, as well as marketing designed to talk to those households and give them the awareness of the product.

Aaron Grey: Okay, great. Thank you for that color there. Second question for me is just on the cost savings. So moved up again. It was $8 to $15, I believe, last quarter, now $10 to $15. Good to see the lower end of that raised a bit. But I want to talk about maybe the sequencing of those savings and when we can expect it to flow through the P&L. And then maybe some color in terms of what would move that towards the lower and higher end of the range and the key factors there. Thank you.

Curtiss Bruce: Yes, thanks for the question. I will reiterate that we guided to adjusted gross margin in the low 40s for 2026. Back in Q2, when we crossed the 40% gross margin threshold for the first time, there was quite a bit of excitement for us on that achievement. As we look at 2026 and talk about the guidance, those savings and that performance are connected to a couple of things. Number one, as we think about the high-margin categories that are driving growth in wipes and personal care, we will have a mix benefit throughout all four quarters.

The second big driver will be the transition from two warehouses down to one, and that execution is planned to start having benefit in the second half of the year. The range of outcomes really comes down to the magnitude of the impact from a mix perspective—whether there is more upside on the higher-margin pieces of the business that will drive a higher mix benefit—and the timing and absolute volume of the savings related to the warehouse transition.

Operator: Your next question comes from the line of Shivhana Choudhry.

Shivhana Choudhry: I wanted to delve a little bit further into diapers. If diapers are roughly 30% of sales, the category saw declines, and you had some portfolio simplification, including the loss of gender prints at one of your largest retailers. How should we think about the outlook for diapers in 2026 and the balance between value, pricing, and margins?

Carla Vernon: Hi, Shivhana. Let me start by stepping back and saying that 2025 was a very volatile year for the diaper category overall. The category has seen consumers switch to lower-priced diapers, and overall category dollars have come under pressure. We also experienced portfolio simplification over the course of the year, including, as you mentioned, the loss of our gender prints at one of our largest retailers. Looking ahead, we believe 2026 is likely to be another challenging year for The Honest Company, Inc. in diapers, driven by similar macro dynamics and aggressive moves from value competitors. We will keep a close eye on that. We do expect our portfolio simplification to continue.

Our focus is on ensuring the right price-value equation—thoughtful investments in pricing and price-pack architecture—while maintaining the quality materials, fit, and style that define our brand. That said, this is exactly why we are maintaining a balanced baby portfolio overall. Strength in wipes and personal care continues to offset diaper softness, supporting both growth and margin expansion at the enterprise level.

Operator: Your next question comes from the line of Anna Glaessgen with B. Riley Securities.

Anna Glaessgen: Hi. Good afternoon. Thanks for taking my questions. I would like to follow up on diapers and also on the quarterly cadence. Can you talk about consumption trends you are seeing into early 2026, and then how we should think about organic growth in Q1 and any impact from exiting direct fulfillment on honest.com and the flow-back to retailer.com?

Carla Vernon: Thanks, Anna. On consumption, for Q1 we do expect organic growth and then sequential improvement thereafter through the year. We are comping last year’s retailer inventory build ahead of tariffs in Q1, which is the toughest lap, and then we see momentum building, led by wipes and personal care and supported by innovation and distribution gains.

Curtiss Bruce: And on the channel shift, we took a conservative assumption on the flow-back to retailers as we exited direct fulfillment on honest.com. Early days, the performance we are seeing via retailer.com has exceeded our original expectations. It is still early, but the quantitative signals so far are better than we modeled.

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

Dara Mohsenian: Just a couple of follow-ups. First, on diapers, what are the most important priorities to stabilize the business near term? And then on the share repurchase, you mentioned you see greater value than the market implies—should we expect you to repurchase aggressively or take a more measured approach?

Curtiss Bruce: I will start with the repurchase. Given our strong cash position—nearly $90,000,000 of cash and zero debt—and the structural improvements underway, the authorization gives us flexibility to be opportunistic. We will balance buybacks with reinvestment behind our highest-return growth initiatives and maintain appropriate liquidity. We do believe the market does not fully reflect our transformation or earnings power, so we will use the authorization with discipline to drive shareholder value.

Carla Vernon: And on diapers, our near-term priorities are clear: sharpen the value equation through pricing and price-pack architecture, protect what differentiates The Honest Company, Inc.—quality materials, fit, and style—and focus our assortment where we win. We will stay disciplined while leveraging the strength in wipes and personal care to support overall growth and margin expansion.

Operator: There are no further questions at this time. I would now like to turn the call back to management for any closing remarks.

Carla Vernon: Thank you all for joining today and for your continued support of The Honest Company, Inc. We look forward to updating you on our progress throughout 2026. Have a great evening.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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