Riding Honest Co. Back to $1B

🧠 The Takeaways

Today, we’re loading up on Honest Co to ensure they stick to their clean, eco-conscious roots on the path to $1B.

1. Sell/spin off the Women’s Beauty/Skincare biz.

2. Create the Toddler + Kid version of the catalog.

3. Launch the Spring Cleaning campaign to scare new customers into buying their products.

+ Happy Father’s Day!

LBAB! Community - Happy Father’s Day!

To everyone celebrating, Happy Father's Day!

Spent the morning at Smorgasbord in Brooklyn with the family - one of those awesome mini food festivals where you can sample everything from Korean BBQ to artisanal donuts.

Of all the things, this is what my dad picked.

It’s always a great day outside. We get to bring the dog and have a fun day in the park.

And I got to touch grass (finally nice enough in NYC to be outside for a while).

It’s a quick unplug before we move into the summer spike.

Let’s Examine This Biz

Note: As always, none of what follows is legal, tax, investing, financial, or any other sort of advice. And I was never here.

Honest Company, Jessica Alba’s clean Baby care + Beauty biz, went through the full COVID Consumer Coaster: IPO’d @ $15 in 2021, bottomed out @ $1.15 in 2023, and rebounded to $5.03 today.

• Share price: $5.03

• Market Cap: $555m

• L5 Performance: -73%

• P/E Ratio: N/A

This biz is finally focusing on the right moves (babycare) and getting fit, but there’s still a lot of focus (Growth + Profits) we can bring into this biz.

Financial Summary

TLDR Analysis: Turning a Curve

• Gross Profits +44% YoY (from Rev ⬆️ COGS ⬇️)

• Marketing +24% when Rev only +10% 😬

• Allllllmost profitable. 🤏

Killer balance sheet with $75m in Cash & Equivalents vs. $59m in short-term liabilities. They’re getting focused and lean, + growing again. This is the biz we should have bought when it was trading at $1/share.

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Let’s Fix This Biz

Here are our 3 moves to force Honest back to $1B.

1) Spin off or Sell the Makeup/Skincare biz

I’ve beaten this horse to death, but Honest finally started focusing on baby care again, so I’m going to make 1 more plea.

Dump the skincare-for-mom brand, or break it off into a separate biz. 

Honest is all about baby care. 

Diapers, wipes, baby skincare. End of story.

If Jessica Alba wants to start a skincare brand, that’s completely fine. But that will always be a separate biz.

Takeaway: Focus on what you own in the customer’s mind. That’s your brand.

2) Grow with your children

Honest naturally fits into 1 of life’s most important + expensive moments. And their clean eco-friendly branding naturally attracts a high-income, high-spending consumer.

Instead of selling products for moms, they need to focus on developing + selling products into every early life moment.

What are the Toddler & Kid versions of their hit products: Diapers, wipes, shampoos, soaps?

As babies age out of Honest’s catalog, parents will want high-quality, clean products that start around the bathroom (shampoos, conditioners, lotions, trainers). Like Honest Soap with Marvel characters on the bottle. Same product with some licensed packaging.

Honest is really selling parents’ peace of mind—that they aren’t harming their kids with toxic chemicals (starting with diapers). 

New Babies will always be born. If they own parents with babies and offer products for older kids. They’ll milk a much bigger LTV. 

Takeaway: Continue to grow with your customers. Especially if you own a major life event.

3) The Spring Cleaning Campaign

Honest has an incredible opportunity to launch a full-scale PR fear campaign that will generate enough buzz to change their biz.

The problem with every great natural skincare/cleaning product that gets bought by a conglomerate (e.g., Unilever / P&G) is 1 of the first moves they make is to add in a bunch of chemicals to make the products easier to produce + more shelf-stable.

All the old favorite “Clean” brands like Dove and Aveeno are now filled with chemicals that Honest is on the war path against.

Every March/April, Honest should run a massive Spring Cleaning Campaign where they show all the awful chemicals with terrible side effects on your kids in everyday competitors’ items.

If a customer recycles those products with Honest (bring in partners to execute the recycling), those customers receive store credit from Honest for what they recycle.

It’s essentially a scare/shaming campaign against all of their competitors that’s the exact type of content News organizations (TV + Social) will love to cover because of the natural virality.

“Huggies have cancer-causing chemicals that are killing your baby! Find out more at 10pm after Chicago Cops.” 

Time it right, and you can also play into Earth day.

Any parent who cares about the chemicals around their baby + is eco-conscious + has the money will enter Honest’s funnel.

Takeaway: When your brand stands for something, you can paint the most compelling narratives.

Final Thought

This is what it looks like to survive the tough times. Honest got gut punched for the last 4 years.

I still think they were overvalued at IPO but were a strong, compelling consumer biz. 

Don’t get me wrong. They lost their way and haven’t fully come back yet, but they are making the right moves.

This is another great ex where 10% growth might not sound that sexy, and they’re still unprofitable.

But they’re also at the scale where if they can keep costs in check and print 10% growth again next year, they will be. 

Then, it’s about letting compounding take over from there.

I’m really glad Honest ditched the Marketplace idea, stuck it out with their brands, and focused on getting into Retail.

For a brand as early as Honest (founded in 2012) the line between “we’re a digital company that sells baby-related products” and “we’re a baby care brand that started online” is hard to cleanly separate. 

But they eventually made the right choice in the latter.

The next 3 years probably won’t be particularly fun or sexy, but it’s what’s required to build a generational consumer brand.

The greatest question I still have:  

Can they hold out and continue to have truly clean ingredients or will they fall into the same trap as all other clean products at scale (pumping chemicals into products to deal with a complex supply chain)?