Honest Lifts 2026 Outlook, Adds $30 Million Buyback After Q3 Margin Surge

The Honest Company (NASDAQ:HNST) raised its full-year 2026 outlook and authorized a new share repurchase program of up to $30 million after third-quarter organic revenue growth and sharply higher margins offset a decline in reported sales.

Reported revenue fell 8.6% to $84.6 million from a year earlier, reflecting strategic business exits and lower diaper revenue. Organic revenue rose 9.2% to $79.3 million, led by wipes and personal care, Chief Financial and Operating Officer Curtiss Bruce said on the earnings call.

Chief Executive Officer Carla Vernón said the two categories now account for more than 75% of organic revenue. Consumption across wipes and personal care grew 13% in the quarter, while diaper consumption declined 27%.

What drove the margin expansion?

The quarter's standout number sat below the revenue line. Adjusted gross margin improved by 850 basis points to 45.8%; reported gross margin was 45%. Excluding dilution from apparel inventory liquidation, underlying adjusted gross margin reached a company-record 48.9%, up 1,160 basis points from the prior-year period.

Bruce attributed the improvement to supply chain efficiencies, lower fulfillment costs and a favorable product mix. He said the structural improvements in supply chain and mix were "here to stay," but the company would provide more detail on future gross margin expectations in early 2027.

Spending rose alongside margins. Adjusted operating expenses increased $2.3 million to $36.5 million. Marketing spend climbed $2.9 million, or 20%, to support wipes and personal care, partly offset by lower selling, general and administrative costs.

The bottom line swung hard. Net income jumped to $91.3 million from $0.8 million a year earlier, boosted by an $89.4 million income tax benefit from releasing substantially all of the valuation allowance against deferred tax assets. Adjusted net income was $3.1 million, against $0.8 million a year earlier. Adjusted EBITDA came in at $6.3 million, or 7.4% of sales; excluding apparel liquidation revenue, the underlying adjusted EBITDA margin was 7.9%, up 300 basis points year over year.

Takeaway: mix, not volume, carried the quarter's profitability.

What does the new guidance say?

Honest increased the lower ends of its revenue and organic growth forecasts and raised its adjusted EBITDA outlook. Updated 2026 guidance calls for:

• Reported revenue of $322 million to $325 million, up from $319 million to $325 million.
• Organic revenue growth of 6% to 7%, versus 5% to 7% previously.
• Adjusted gross margin of 45.5% to 46.5%, versus a prior forecast in the mid-40s.
• Adjusted EBITDA of $25 million to $26 million, up from $23 million to $25 million.

Bruce said the company plans to increase investment in selling, general and administrative expenses and marketing in the fourth quarter. The spending is intended to support the capabilities needed to scale and to build brand awareness and household penetration.

The balance sheet backs the plan. Honest ended the quarter with $103 million in cash and cash equivalents and no debt. Year-to-date free cash flow was $30.5 million. The company completed its initial $25 million repurchase program during the quarter, and the board authorized the new program effective immediately. Bruce said reinvesting in the business remains the first capital allocation priority, with returning value to shareholders second.

Why are wipes outpacing diapers?

The consumption picture split cleanly. Vernón said total wipes consumption grew 15% in the quarter: flushable wipes consumption rose nearly 170%, sanitizing wipes grew 41%, and baby wipes increased 4%. Personal care consumption rose 11%, against 4% growth for the comparative category.

The diaper decline was expected and reflected in the plan, she said. Honest is focusing on higher-growth, higher-margin wipes and personal care as it expands beyond households with babies.

Overall consumption growth moderated to 1% in the quarter. Vernón attributed the vast majority of that shift to Amazon Prime Day moving from the third quarter last year to the second quarter this year. Year to date, organic revenue increased nearly 7% and consumption rose 6%.

Household penetration reached nearly 8%, and households without children now account for more than half of Honest's customer households. Wipes, she said, are the most common entry point for those households.

The takeaway: Honest is deliberately trading diaper share for margin and a wider customer base.

The Honest Company, founded in 2011 by actress and entrepreneur Jessica Alba, develops and sells personal care, beauty, baby and household products — from diapers and wipes to skin care and cleaning solutions — through its website and retail partners, with an emphasis on ingredient transparency and safer, more sustainable positioning.