Personal care company The Honest Company (NASDAQ: HNST) announced better-than-expected revenue in Q2 CY2025, but sales were flat year on year at $93.46 million. Its GAAP profit of $0.03 per share was $0.02 above analysts’ consensus estimates.
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The Honest Company (HNST) Q2 CY2025 Highlights:
- Revenue: $93.46 million vs analyst estimates of $92.12 million (flat year on year, 1.5% beat)
- EPS (GAAP): $0.03 vs analyst estimates of $0.01 ($0.02 beat)
- Adjusted EBITDA: $7.62 million vs analyst estimates of $6.64 million (8.2% margin, 14.7% beat)
- EBITDA guidance for the full year is $28.5 million at the midpoint, below analyst estimates of $28.83 million
- Operating Margin: 3.1%, up from -4.3% in the same quarter last year
- Free Cash Flow was -$826,000, down from $2.93 million in the same quarter last year
- Market Capitalization: $498.3 million
“For our second quarter 2025, we were able to drive profitability improvement, gross margin expansion and revenue growth, resulting in positive net income for the second consecutive quarter,” said Chief Executive Officer, Carla Vernón.
Company Overview
Co-founded by actress Jessica Alba, The Honest Company (NASDAQ: HNST) sells diapers and wipes, skin care products, and household cleaning products.
Revenue Growth
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
With $389.8 million in revenue over the past 12 months, The Honest Company is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.
As you can see below, The Honest Company’s 7.9% annualized revenue growth over the last three years was decent. This shows its offerings generated slightly more demand than the average consumer staples company, a useful starting point for our analysis.
This quarter, The Honest Company’s $93.46 million of revenue was flat year on year but beat Wall Street’s estimates by 1.5%.
Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates its products will see some demand headwinds.
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Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
The Honest Company has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.6%, subpar for a consumer staples business.
Taking a step back, we can see that The Honest Company’s margin dropped by 6.6 percentage points over the last year. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.
The Honest Company broke even from a free cash flow perspective in Q2. The company’s cash profitability regressed as it was 4 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.
Key Takeaways from The Honest Company’s Q2 Results
We were impressed by how significantly The Honest Company blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year EBITDA guidance slightly missed, and this is weighing on shares. The stock traded down 8.9% to $4.13 immediately following the results.
So do we think The Honest Company is an attractive buy at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
