BofA Downgrades Honest Company On Q4 Miss, Guidance

Zinger Key Points
  • BofA analyst says HNST fourth-quarter sales were impacted by “COVID-driven consumer behavior.”
  • BofA is now forecasting HNST1Q22 sales to decline by 16% year-over-year.

Honest Company Inc’s HNST fourth-quarter earnings significantly missed the consensus estimates and management guided to a 15% decline in sales for the first quarter of 2022 and to flat sales and gross margins for fiscal 2022, according to BofA Securities.

The Honest Company Analyst: Bryan Spillane downgraded the rating for Honest Company from Neutral to Underperform, while reducing the price target from $10 to $5.

The Honest Company Thesis: The company’s fourth-quarter sales were impacted by “COVID-driven consumer behavior,” while its gross margins contracted, and it reported an adjusted EBITDA loss of $3.9 million, “due in part to a $3.2mm impact from increased disinfecting inventory reserves,” Spillane said in the downgrade note.

“Additionally, HNST results were impacted by a faster shift from consumers out of e-commerce without the ability to recoup customers in physical retail given only 49% ACV, without adequate distribution in the southern and southwestern US,” the analyst wrote.

“We are now forecasting 1Q22 sales to decline -16% YoY with another quarter of -500bps YoY gross margin contraction leading to adjusted EBITDA of ($10.5mil), slightly below guidance,” he added.

HNST Price Action: Per Benzinga Pro, shares of Honest Company had declined by 2.76% to $4.55 at the time of publication Monday.

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Posted In: Analyst ColorPenny StocksDowngradesPrice TargetSmall CapAnalyst RatingsBofA SecuritiesBryan Spillane
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