The Honest’s 2026 Q2 Call: SG&A Timing, Diapers’ Role, and Growth Drivers Clash

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $83.3 million, a decrease of 10.9% YOY (organic revenue increased 6.7%)
• Gross Margin: Reported gross margin 48.4%, adjusted gross margin 50.1% (improved 970 basis points YOY; underlying adjusted gross margin 43.8%, up 340 basis points YOY)

Guidance:

• Reported revenue range of $319 to $325 million (includes ~$10M apparel liquidation benefit).
• Organic revenue growth of 5% to 7% (up from 4% to 6%).
• Adjusted gross margins expected in the mid-40s (up from low 40s).
• Adjusted EBITDA of $23 to $25 million (up from $20 to $23 million).
• New apparel licensing agreement immaterial to 2026 results.

Business Commentary:

Strong Revenue Growth and Profit Margins:

• The Honest Company achieved strong organic revenue growth of nearly 7% in Q2 2026, with underlying adjusted gross margins of 43.8% and underlying adjusted EBITDA margins of 9.8%.
• This growth was driven by ongoing structural improvements to the business and a commitment to operational excellence, leading to the raising of their full-year outlook.

Wipes and Personal Care Performance:

• The total WIPES portfolio delivered consumption growth of 26% versus a comparative category growth of 2%, while the personal care portfolio grew 19%, outpacing the category's 5% growth rate.
• The growth was attributed to the broad appeal of Honest products across different household types and effective marketing strategies, including campaigns targeting adult consumers.

Household Penetration and Consumer Appeal:

• The company's household penetration improved 100 basis points to 8.1%, with nearly two-thirds of that growth coming from households with no kids.
• This growth is driven by the resonance of the Honest standard and the broad appeal of the brand across various household types, supported by strategic marketing efforts.

Operational Efficiency and Cost Management:

• Total operating expenses decreased by $4.1 million to $30.8 million, reflecting progress in rightsizing SG&A, while marketing spend was strategically increased by nearly 20%.
• This was done to capitalize on momentum in wipes and personal care and to drive household penetration, alongside investments in operational capabilities for scaling.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "strong organic revenue growth of nearly 7%" and "highest profit margins in the history of the Honest Company." They are "raising our full year outlook" due to "sound first half execution" and are "energized about the strength of the Honest brand." The tone is optimistic about momentum and strategic positioning.

Q&A:

• Question from Aaron Gray (Alliance Global Partners): Just on the guidance, quick clarification on the profit guidance assuming the tariff is not included, and color on marketing spend and ROI in the back half.
  Response: Adjusted gross margin includes tariff refund and apparel liquidation impacts; underlying performance is stronger in H2. Marketing will step up for wipes/personal care to drive household penetration, with broader investments in scaling capabilities.

• Question from Aaron Gray (Alliance Global Partners): Second question on licensing apparel and switching to licensing versus direct, and how the segment will evolve.
  Response: Licensing aligns with asset-light DNA, allowing participation in apparel category with low capital intensity; no long-term impact speculation, but excited about new partnership.

• Question from Patty Kanata (Morgan Stanley): Follow-up on reinvestment piece, where incremental dollars are going across marketing, innovation, and distribution.
  Response: Strategic investments target wipes and personal care platforms for household penetration, plus upper-funnel marketing to broader households; also investing in operating capabilities for efficiency and supply chain integration.

• Question from Patty Kanata (Morgan Stanley): Quick one on diapers, promotion and pricing dynamics and the environment.
  Response: Diaper category is structurally challenged with major brands declining; Honest’s diapers are less than 25% of consumption, offset by strong wipes/personal care, which are 70% of consumption.

• Question from Anna Glaskin (B Reilly Securities): Touch on distribution, update on distribution and how expanded door growth could support ahead.
  Response: Focus has shifted to household penetration as a more uniform metric; individual categories have low penetration (e.g., <3% in baby personal care) with significant runway, each point worth $25-30M in sales.

• Question from Anna Glaskin (B Reilly Securities): Follow-up on SG&A, big step down YOY and sequentially, and shift to back half.
  Response: SG&A was low in Q2 due to Power Wing execution; will step up in H2 for marketing and scaling capabilities investments.

• Question from Owen Rickard (Northland Capital Market): How much of Q2 organic growth was driven by distribution vs. velocity, and is mix shifting?
  Response: Q2 acceleration due to distribution gains from Q1 taking hold, with focus on foundational momentum and velocity; innovation aligned with retailer reset schedules for durable growth.

• Question from Owen Rickard (Northland Capital Market): Are we essentially through all P&L noise related to Powering Honest growth?
  Response: Powering Honest growth delivered more savings than guidance; largely through but not completely through related costs, with warehouse consolidation live and structural profitability improved.

Contradiction Point 1

SG&A Investment Timing and Magnitude

Contradictory statements on SG&A step-up and its relation to cost savings.

Aaron Gray (Alliance Global Partners) - Aaron Gray (Alliance Global Partners)

2026Q2: SG&A will also increase due to investments in scaling capabilities. - Curtis Bruce(CFO)

Okay, let's tackle this. The user wants me to rewrite the input into one concise earnings-call question. The input is "Clarification on profit guidance (tariff inclusion) and expectations for marketing/SG&A spend in the back half, given the gross margin guide." First, I need to identify the key elements. The main topics here are profit guidance with a mention of tariffs, and expectations for marketing/SG&A spend in the second half of the year, considering the gross margin guidance.The user specified that the output must be exactly one line, end with a question mark, and avoid any extra text. So I need to combine both parts into a single question. Let me check if both parts can be merged logically. The first part is about profit guidance including tariffs. The second part is about marketing and SG&A spends in the back half, given the gross margin guide. Since gross margin is related to both profit and SG&A expenses, it's possible to link them. So, the question could ask for clarification on how the profit guidance (including tariffs) affects expectations for marketing/SG&A spending in the second half, considering the gross margin guidance. I need to make sure it's concise. Maybe rephrase to: "Could you clarify how the profit guidance, including tariff impacts, influences expectations for marketing/SG&A spending in the back half, given the gross margin guidance?" Check the rules again: one line, ends with ?, no extra text. That seems to fit. Let me verify if the original input is a valid question. The input is a request for clarification, so it's implied as a question. Since the user says to output as-is if it's not a question, but here it's a request phrased as a statement. However, the task is to rephrase it into a question. The original input is a statement, so according to the rules, if it's not a question, output as-is. Wait, but the user says to rewrite into a question. Hmm. Wait, the input is not a question but a statement. The rules state: "If the input is NOT a question, is too vague, or lacks enough information to form a clear earnings-call question, output the input EXACTLY as-is, with no modification." So the input here is a statement, not a question. Therefore, according to the rules, I should output it as-is. But wait, maybe the input is intended to be a question phrased as a statement. The user's example input might be a request for clarification, which is typically a question. But according to the strict rules, since it's not phrased as a question (doesn't end with a ?), it's not a question. Therefore, I must output it as-is. But the user's instruction says to rewrite into a question. There's a contradiction here. Wait, the user says: "Rewrite the input into ONE concise earnings-call question." So the instruction is to rewrite it into a question, regardless of the input's original form. But the rules say if it's not a question, output as-is. Wait, the rules are part of the task. Let me recheck: - If the input is NOT a question, is too vague, or lacks enough information to form a clear earnings-call question, output the input EXACTLY as-is, with no modification.So if the input isn't a question, output as-is. The input here is a statement, so according to the rules, output as-is. However, the user's instruction says to rewrite into a question. This is conflicting. But according to the rules, since the input isn't a question, we must output as-is. Therefore, the correct action is to output the input exactly as it is. But maybe the input is a request for clarification, which is a question phrased as a statement. In that case, we should convert it into a proper question. But according to the rules, if it's not a question, output as-is. So the answer should be the original input. However, the user might expect us to form a question from the statement. This is a bit confusing. Let me think again. The input is a statement asking for clarification on two points. The user wants to turn that into a question. The rules say if the input is not a question, output as-is. Therefore, the correct answer is the original input. But perhaps the user wants us to rephrase it into a question even if the input isn't one. But according to the rules, we have to check. Since the input isn't a question, the answer is to output as-is. However, the user's instruction says to rewrite into a question. So there's a conflict between the instruction and the rules. Wait, the user says: "If the input is NOT a question... output as-is." So if the input is not a question, we output as-is. - Anna Glaskin (B. Reilly Securities)

2026Q2: The back-half increase is planned and represents strategic investments in marketing and scaling capabilities to support sustained long-term growth. - Curtis Bruce(CFO)

Contradiction Point 2

Strategic Reinvestment Focus and Balance

Shift in emphasis from broad operational scaling to a more marketing-centric focus.

Patty Kanata (Morgan Stanley) - Patty Kanata (Morgan Stanley)

2026Q2: Reinvestment maps to strategic growth levers for the high-margin, high-growth wipes and personal care platforms. Focus areas include: 1) Brand Awareness & Household Recruitment... 2) Upper-Funnel Marketing... 3) Operational Scaling: Investments in technology and supply chain capabilities... - Carla Vernon(CEO)

Where are incremental reinvestment dollars being prioritized across marketing, innovation, and distribution? - Aaron Grey (Alliance Global Partners)

2026Q2: Strategic reinvestment includes scaling capabilities beyond just marketing. - Curtiss Bruce(CFO)

Contradiction Point 3

Diapers Category Contribution and Strategic Importance

Contradiction on the category's role in growth and consumer focus.

Patty Kanata (Morgan Stanley) - Patty Kanata (Morgan Stanley)

2026Q2: Diapers now represent less than 25% of total consumption, with wipes and personal care driving 70% and powering the raised guidance. - Carla Vernon(CEO)

Can you provide an update on promotion and pricing dynamics in the challenged diaper category and the broader baby segment? - Anna Glaessgen (B. Riley Securities)

2026Q1: The brand's focus has expanded beyond diapers to appeal to a broader range of households... The marketing strategy is shifting to directly engage these adult demographics... - Carla Vernon(CEO)

Contradiction Point 4

Primary Driver of Organic Growth Acceleration

Contradiction on whether growth is driven by distribution gains or velocity.

Owen Rickard (Northland Capital Markets) - Owen Rickard (Northland Capital Markets)

2026Q2: The acceleration was as expected, with distribution gains from Q1 now taking hold and accelerating in Q2 and beyond, driven by momentum in wipes and personal care. - Curtis Bruce(CFO)

What were the drivers of Q2 organic growth acceleration (distribution vs. velocity), and how durable is this growth? - Dana Telsey (Telsey Advisory Group)

2026Q1: The consumption acceleration was driven by lapping previous diaper distribution declines, the ongoing pay-out from past innovation... and a balanced plan focused on innovation, velocity/distribution, and marketing. - Carla Vernon(CEO) & Curtis Bruce(CFO)

Contradiction Point 5

Diaper Category Outlook and Strategic Focus

Contradictory statements on diaper category challenges and the company's strategic emphasis.

Patty Kanata (Morgan Stanley) - Patty Kanata (Morgan Stanley)

2026Q2: The diaper category is facing structural challenges with major national brands losing share and unit growth... Diapers now represent less than 25% of total consumption, with wipes and personal care driving 70% and powering the raised guidance. - Carla Vernon(CEO)

Can you provide an update on promotion and pricing dynamics in the challenged diaper category and the broader baby segment? - Shovana Chowdhury (JPMorgan)

20260226-2025 Q4: 2026 is expected to be challenging for diapers due to similar factors and competitive pressures. - Carla Vernon(CEO)