Jessica Alba’s The Honest Co. exposed it all, raising the curtain on the inner workings of the clean beauty company when it registered for an initial public offering.
The unveiling was not unexpected.
WWD reported in February that the company brought in Morgan Stanley, JP Morgan and Jefferies to work on the IPO and that it had already filed a confidential offer. The company reportedly considered an offer in 2016, but remained private during its reorganization and in 2018 took $ 200 million from consumer private equity giant L Catterton.
Honest, which now has 191 employees, has long been under the microscope as one of the few celebrity-run companies to truly evolve and be a prime mover of clean beauty. The brand has also faced a series of high-profile lawsuits claiming that some of its products, including its sunscreen, are ineffective and unnatural. These lawsuits were settled with a fund of $ 7.4 million and labeling changes.
Now the case has publicly revealed details of the company’s finances, structure, and plan for the future.
There are still questions, including how many shares the company plans to sell if it actually takes the plunge and catches the Nasdaq symbol “HNST”. But the contours of the company are much clearer today.
Here, five points to remember from the deposit.
Alba – founder, creative director and chairman of Honest – is clearly an asset to the company, described in the file as “a Latina business leader, entrepreneur, advocate, actress and bestselling New York author. World-renowned York Times ”with 39 million social media followers. She is a key voice for the company and appears in its marketing.
But the business also runs the risk of being so closely tied to a person, especially since they may drift away.
“We believe that the success of our brand depends in part on our continued affiliation with Jessica Alba,” said Honest, who has a “look-alike agreement” with Alba that she can leave at any time with written notice.
“Upon termination of the look-alike agreement, we could, among other things, be required to pay damages to Ms. Alba, lose our ability to associate the mark with Ms. Alba and suffer damage to reputation,” said the society. “We depend on Ms. Alba’s reach and influence on social media to connect with consumers and provide insight into current trends. If Ms. Alba objects to a proposed use of the licensed property, we may not be able to implement our business plan in a timely manner, or at all, outside of previously approved uses or in accordance with certain pre-approved product guidelines. “
2. Honest finances
With the filing of its IPO, Honest was forced to give up the financial secrecy enjoyed by private companies.
Last year, Honest’s revenue grew 27.6% to $ 300.5 million, with 35.5% coming from skin care and personal care products. Fifty-five percent of the company’s sales came from e-commerce, while the remainder came from the approximately 32,000 stores that carry the brand.
Net losses narrowed to $ 14.5 million from $ 31.1 million in 2019, as gross margins increased 370 basis points to 35.9% of sales. Adjusted earnings before interest, taxes, depreciation and amortization increased 4% to $ 11.2 million.
3. Who owns what
Alba still owns 6.7% of the company, but L Catterton’s THC Shared Abacus is the major shareholder with a 37.5% stake. The other major shareholders are: Institutional Venture Partners (with a 13.9% stake), Lightspeed Venture Partners (12.3%), Fidelity (9.3%) and General Catalyst (5.1%). CEO Nikolaos Vlahos has a 4.1% stake.
It’s unclear exactly how many shares the company might sell as part of the offering, raising money to fuel the business, and how many shares it sells would come from cashing investors.
The offer, or a sale if the company decides to go a different route, would determine how much those stakes are worth, converting paper money into real-world dollars.
4. Growth plans
The company plans to drive its growth by engaging its customers, connecting with them wherever they buy and selling them new products.
Among the finer points, the company detailed in the file:
• “Our spontaneous awareness of 25% among diaper buyers illustrates an opportunity to expand our consumer base and drive future growth.”
• “We intend to leverage our internal innovation capabilities to launch new products that disrupt adjacent product categories. Our direct relationship with our consumer community provides insight into the categories in which latent demand exists. Last year, 22% of the company’s revenue came from new products.
• “We plan to grow Honest.com by leveraging our deep connection with existing consumers and attracting new consumers by increasing brand awareness and investing in performance marketing.
• “In 2020, international sales represented 2% of our revenue, while a significant number of Jessica Alba’s social media followers were outside of the United States. We plan to accelerate our growth outside of the United States by leveraging the Honest brand and the global reach of Jessica Alba. “
5. Lead by example
In her letter to shareholders – a standard feature in IPO registration statements – Alba describes the company’s journey, detailing her own childhood struggles with asthma and allergies, her concerns as as a new mom, then her David-and-Goliath rise in the consumer products business.
She details what she described as an “honest moment” as the business grew.
“Our rapid growth was compromising key business functions and we were becoming too numerous for our infrastructure,” she said. “In order to fulfill our mission, we needed the expertise and experience of a world-class business leader. Finding Nick Vlahos has fulfilled what seemed impossible at the time, a partner who cares about our mission as much as I do and believes that you can build a strong business around what Honest values most. With Nick as CEO, we have solidified our foundations and developed our organizational capabilities and processes, including research and development, sourcing, supply chain and operations to deliver on our promise and chart the course for the ‘to come up.
Alba also underlined her commitment to diversity: “As a founder and a woman of color, I know how important it is to create a work environment with an inclusive approach to personal support and professional opportunities. We did not hesitate to get involved, to put our stake in the ground and to push to build a kind of company which reflects the true scope of our communities and our values. With the support of our CEO and Director of Human Resources, we have created a forward-looking culture. We prioritize diversity and inclusion in our recruitment, hiring and development processes. “
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