Honest Co, the consumer goods company founded by actress Jessica Alba, filed an initial public offering on Friday.
The company, founded in 2012, manufactures baby, beauty and household products, and markets itself as a “better for you” own brand. In the S-1 document that announced its official IPO status, Honest Co. said its revenue jumped about 28% to $ 300 million for the fiscal year ended Dec.31, 2020. It is seeking to raise $ 100 million in stock (although this dollar amount may be a placeholder used to calculate filing fees). Its skin and personal care category grew by around 36%, in particular. The company’s products are sold online and at 32,000 outlets, including Walgreens, Amazon and Nordstrom, and Boots in the UK.
“As we continue our mission to inspire everyone to love living consciously, we regularly explore all of the different financial strategies and options – including our decision to file an IPO,” a spokesperson said. by Honest Co ..
As the first ‘best for you’ brand in the consumer products and beauty industry to debut via an IPO, Honest Co. will likely set expectations and a manual for other companies to follow. If it fails to perform well and impress stock investors, it could also serve as a harbinger of waning support for clean acquisitions or public offerings in the beauty industry.
“Investors will want to know how the Honest company compares to some of the other competitors in the clean products or clean beauty arena,” said Lise Buyer, director and founder of consulting firm IPO Class V Group. “But in a way, every IPO is evaluated by at least institutional investors on its own merits.”
The Honest Co. has already set a precedent for high expectations and a bumpy result. In 2016, Honest was valued at $ 1.7 billion, according to data from PitchBook. Since then, a series of public backlashes, product recalls and class actions against products and ingredients have resulted in a decline in the company’s valuation and stagnation in growth.
In 2016, Honest Co. was rumored to be planning an IPO, but did not go through with it. Brian Lee, former CEO of Honest and co-founder, has also reportedly discussed the company’s IPO since 2014. Nick Vlahos, the current CEO, joined the company in March 2017. Vlahos previously served as COO at The Clorox Company and vice president and vice president. Managing Director of Burt’s Bees. To date, Honest Co. has raised $ 497 million in funding, according to Pitchbook. In 2018, L Catterton, the private equity firm, invested $ 200 million for a minority stake. L Catterton executives did not respond to a request for comment.
Since the appointment of Vlahos, Honest Co. has worked hard to improve its brand image and underlying business strategies. Vlahos has been credited with shifting the business from a DTC e-commerce strategy to an omnichannel one. In S-1, Honest Co. touted its product innovation and new product development pipeline, citing that 22% of its revenue was generated by products introduced in 2020. According to Vogue Business, Vlahos has expanded the internal laboratories and the brand’s R&D team. It also opened an order fulfillment center, helping the company to better control its production and ingredient standards, execute shipments faster, and move quickly to rising trends like wellness and consumer goods. personal care.
The company’s beauty category, first launched in 2015, was revamped in 2018 to have fewer products, new formulations and packaging, simpler names, and lower prices. WWD noted at the time that the company’s primary display for beauty was mothers between the ages of 25 and 35. At the same time, Alba has retired from day-to-day operations, but she remains the Creative Director.
Despite these improvements, there are still many risks for Honest Co. when entering public markets. The S-1 notes that Honest Co. has suffered net losses every year since its inception and may not be able to achieve or maintain profitability in the future. Honest Co. also points out that it may fail to compete successfully in its highly competitive market. According to the Wall Street Journal, the percentage of unprofitable companies going public has increased.
“Investors will want to understand the long-term operating model. They won’t care if the business is profitable now; they’ll care if the business thinks it can be profitable over time, ”the buyer said.
Honest Co. outlined its growth strategy following the IPO, indicating that it has a spending growth strategy. This includes plans to increase customer engagement and brand awareness, improve existing products and launch new categories, and expand international distribution – international sales currently represent only 2% of its total sales. According to S-1, the plan is “to accelerate our growth outside the United States by leveraging the Honest brand and global reach of Jessica Alba,” who has 39 million subscribers on her media accounts. social. However, S-1 states that competition may intensify with this course of growth, and terms like “clean”, “natural” and “organic” have different labels or designations in different markets.
The S-1 indicates that the company’s customer relationships are the primary competitive advantage over traditional CPG companies. Its product innovation is informed by consumer feedback gathered through customer service, social media and product reviews. Between its Facebook, Instagram, Twitter and YouTube accounts, Honest Co. has approximately 3.3 million subscribers.
“As a potential investor, these people will want to know how much they are going to spend, where they are going to spend and how they are going to know if [those strategies are] actually works, ”the buyer said.