What Happened?

Shares of personal care company The Honest Company (NASDAQ: HNST) fell 24% in the morning session after the company reported weak third-quarter results that missed revenue expectations and lowered its full-year forecast for sales and earnings. For the quarter, revenue fell 6.7% from the previous year to about $93 million, falling short of analyst expectations. The bigger concern for investors was the updated outlook. The Honest Company cut its full-year revenue projection from a prior estimate of 4% to 6% growth to a new range of a 3% decline to flat. In addition, the company revised its adjusted earnings (EBITDA) forecast downward to a range of $21 million to $23 million, a drop from the previous guidance of $27 million to $30 million. These results came as the company announced a new plan, called “Transformation 2.0,” aimed at simplifying its business by getting rid of less profitable products.

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What Is The Market Telling Us

The Honest Company’s shares are extremely volatile and have had 34 moves greater than 5% over the last year. But moves this big are rare even for The Honest Company and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 12 months ago when the stock gained 32.3% on the news that the company reported strong third-quarter results that blew past analysts' revenue, EBITDA, and EPS expectations. The improved sales and profitability were mostly driven by strong performance in baby and personal care products and successful sales events like Amazon Prime Day and limited-edition retail promotions at Walmart and Target​. Looking ahead, full-year EBITDA guidance also outperformed Wall Street's estimates. However, the company is keeping a close watch on potential risks like the impact of tariffs on its Chinese-sourced wipes.​ Zooming out, this was a strong quarter for the company, showing that the business is staying on track.

The Honest Company is down 63% since the beginning of the year, and at $2.52 per share, it is trading 70.7% below its 52-week high of $8.57 from November 2024. Investors who bought $1,000 worth of The Honest Company’s shares at the IPO in May 2021 would now be looking at an investment worth $109.35.

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