The Honest Company, Inc. (NASDAQ:HNST) Q4 2022 Earnings Call Transcript

Jon Andersen: Quick question, one kind of housekeeping and then a little bit more detailed question. With respect to the margin improvement roadmap that you are working through right now, could you talk a little bit about perhaps your anticipated timeline for kind of laying that out in more detail and perhaps when that will affect kind of the outlook. Is this something that could happen in 2023 and modify the initial kind of guidance that you have provided? And then second question is, wondering if you could talk a little bit about some of the initial results that you are seeing in market, for example, with the diapers and wipes rollout at Walmart, the incremental stores and some of the other kind of assortment enhancements you have experienced, say, with Target, etcetera? Thank you.

Kelly Kennedy: Thanks Jon. I will start out talking real quickly about the margin improvement roadmap. There is a couple of components to that, some of which will benefit us in 2023, but predominantly the impact of the margin improvement roadmap is going to be a benefit to 2024. On the actions that we are already starting, for example, the pricing actions are already embedded in the color that we have given €“ provided on 2023. The items that will take more time to really roll in on our projects around the cost savings, which will include looking at transportation, fulfillment as well as ingredients and packaging. So, those €“ because of inventory levels and the timing it takes to implement those projects with third-party manufacturers, those will come in late in 2023.

So, those would be beneficial in 2024. We are also working with our suppliers on some productivity improvements that we can pass lower costs through. And as I think we spoke a little bit about €“ what Carla spoke about just enhancing and leaning in between our higher-margin hero items, that’s also something that we are going to begin working on in 2023 will come back. So, I would say high level margin improvement roadmap predominantly benefit to 2022. The second question around Walmart, we mentioned that as we moved in, it represented around 4% of our revenue in 2023. But really, we are just early in our days with Walmart. We are seeing some really great results and momentum in areas such as wipes, where we are doing a special program with Walmart.

We also participated in €“ started mid-February, it goes to the end of March, the Walmart baby days and Honest is selected as a product to be featured in some of their store events. And so far, we feel that’s going well. More to come as we kind of see what the momentum is going into 2023 and having more time within the consumption data to talk more about those trends. The last question on Target, Jon, I am not sure I caught what your question on Target was. I know that we have highlighted that that has certainly been one of the strength areas for us as we had 20 consecutive quarters of year-over-year growth and things such as beauty, where in the fourth quarter, we grew 20%. So, we are seeing some good momentum with our business overall with Target.

Jon Andersen: Great. One quick follow-up maybe for Carla. I get a lot of questions just around the brand and the ability to kind of travel, as you kind of referred to earlier, Carla, can the brand succeed in multiple categories. What gives you kind of confidence that that is the case? And as you think about the portfolio longer term, and I know it’s early days for you still, do you see more addition or more kind of subtraction in terms of the reach of the brand across categories, at least to the best that you can kind of speak to that today? Thank you.