Why The Honest Company Stock Got Crushed Today

What happened

Shares of The Honest Company (NASDAQ:HNST) got destroyed Friday after the recently IPO’d maker of environmentally conscious personal care, beauty, baby, and household products missed earnings in its Q2 2021 financial report this morning.

Analysts had forecast that The Honest Company would lose $0.14 per share on sales of $79.5 million, which sounds bad enough already. In fact, however, The Honest Company lost $0.17 per share on sales of only $74.6 million — and the stock is down 25% in 10:35 a.m. EDT trading because of it.  

Red down arrow on a black backdrop of tickertape prices

Image source: Getty Images.

So what

The Honest Company’s sales grew only 3% year over year in Q2, whether compared to either 2019 or 2020 figures, underperforming expectations. Gross profit margins contracted by 1 full percentage point, while marketing costs jumped 32% and selling, general, and administrative spending more than doubled.

That didn’t mean anything good for operating profit margins, and The Honest Company’s operating loss exploded higher as a result, with operating losses totaling $19.5 million and net losses $20 million. And yet, despite the awful numbers, The Honest Company CEO Nick Vlahos termed the quarter a “success” and promised to continue “executing with excellence.”

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Now what

That might be exactly what investors are afraid of. With The Honest Company declining to give specific guidance in its earnings report — but apparently promising more of the same underperformance — investors are selling the stock in droves today, and I can’t say I blame them.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/08/13/why-the-honest-company-stock-got-crushed-today/

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