Honest Co. CEO ready to face big-name competition like P&G and Revlon with ‘clean’ brand strength
Honest Co. shares soared in their Nasdaq debut, even as the company acknowledged it will face challenges while competing with some of the biggest consumer products companies in the world.
Shares opened for trading Wednesday at $21.22, blowing past the $16 IPO pricing, then extended gains to close its first day up 44% at $23.00.
On Thursday, the stock pulled back 8.9% in midday trading.
At the $16 price, Honest Co. HNST,
“There’s always going to be competition, but what’s always important is the brand,” Nick Vlahos, chief executive of Honest Co., told MarketWatch.
Honest Co. sells products across three categories: diapers and wipes, which represented 63% of 2020 revenue; skin and personal care, which rang up 26% of revenue in 2020; and household and wellness, with 11% of 2020 revenue.
In total, revenue in 2020 was $300.5 million, according to the company’s prospectus.
Items in the Honest Co. lineup include diapers, lotion, skincare items like cleansers and serums, and laundry detergent and other cleaners and sanitizers.
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The company’s brand is rooted in health and wellness and “clean” products that are free from harsh chemicals and other ingredients, always a big concern for consumers but even more so in a pandemic year.
Sustainability and diversity are also core to the company’s ethos.
This authenticity is what Vlahos says sets Honest Co. apart from the big names in the consumer product category.
“Not only can we formulate from a clean perspective, but from an efficacy and performance perspective that consumers are looking for,” he said.
Competitors in these categories include Kimberly-Clark Corp. KMB, which makes the Huggies diaper brand; Procter & Gamble Co. PG, with the Tide and Gain brands of laundry detergent; Clorox Co. CLX,
And: Clorox is still selling many more cleaning products than it was pre-pandemic
Vlahos is undeterred.
“We’re well-positioned because we have big-company capabilities that we’ve built, and this amazing brand that we’ve built,” he said.
Honest Co. also has a big name of its own: actress, activist and founder Jessica Alba.
Alba now serves as the company’s chief creative officer, and is on the company’s board. She’s also, according to Vlahos, a “global influencer.”
Alba is a 6.1% stakeholder in Honest Co. now that it is publicly traded, according to the prospectus. At current stock prices, her stake is worth more than $118 million.
Data and research company New Constructs says Honest Co. is “overvalued,” writing in a recent report that “the stock is worth no more than $7 per share.”
“A valuation at $15 per share implies the company’s profits will be three times greater than Revlon, and we think the chances of that happening are very low because the incumbent consumer companies that compete with The Honest Company already own all the shelf space and dominate the industry,” the group wrote.
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Honest Co. is tapping into a new customer base, according to Vlahos: millions of millennial moms who are searching for a “better-for-you product.” Moreover, Honest Co., a digitally-native company, is engaging with these customers through online content, like social media posts and clips.
This creates an omnichannel ecosystem that Vlahos says reaches customers in the ways they’re shopping now.
Honest Co. is also available on store shelves at major retailers.
“It’s ripe, from an opportunity perspective, to connect with a brand like ours,” he says. “What’s positive for us is we have a diversified brand that plays in multiple categories.”
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