(Bloomberg)—The Honest Co., No. 350 in the 2021 Digital Commerce 360 Top 1000, made its trading debut Wednesday in a further test of co-founder Jessica Alba’s pitch to would-be wellness investors.
The personal-care products brand and its venture capital backers raised $413 million in an initial public offering Tuesday, selling 25.8 million shares for $16 each after marketing them for $14 to $17.
An actress turned entrepreneur, Alba included a letter to potential investors in the company’s filings touting Honest Co.’s commitment to healthy products. In addition to baby products like shampoos, the company also sells cosmetics as well as cleaning supplies, a collection that was launched during the coronavirus pandemic. That pandemic launch, along with all other 2020 product launches, accounted for 22% of total revenue for Honest Co.
Alba, who has starred in movies such as “Fantastic Four,” traced her interest in healthy products to her own childhood ailments.
“I suffered from chronic illnesses, severe asthma and allergies, leading to long, lonely weeks in the hospital,” she said. “There were no lasting solutions for my health issues and by the time I was 10, I became aware of how wellness can define your whole life. That’s never left me.”
Alba, now the company’s chief creative officer, owns 5.65 million shares. She didn’t plan to sell her shares in the offering, according to the filings with the U.S. Securities and Exchange Commission. At the IPO price, her stake is worth about $90 million.
The company has a market value at the IPO price of about $1.45 billion based on the outstanding shares listed in its filings. Fully diluted to include employee stock options and restricted stock units, that value rises to more than $1.7 billion.
Honest offered 6.5 million shares in the IPO with the rest sold by existing investors. Those selling some of their shares included private equity firm L Catterton, Institutional Venture Partners, Lightspeed Venture Partners and General Catalyst, the filings show.
Founded in 2011, Honest has grown into a national brand and has partnerships with retail giants including Target Corp. and Amazon.com Inc.
Alba has said she became particularly concerned about ingredients in baby products and that she tried to appeal to lawmakers for chemical legislation reform.
Honest’s business touches on several trends that have become more prominent during the coronavirus pandemic, including a focus on wellness and elevated demand for cleaning products. Those have buoyed top-line results for household-goods companies such as Procter & Gamble Co., the maker of Pampers diapers and Tide laundry detergent.
Los Angeles-based Honest generated sales last year of about $301 million, a 28% increase over 2019. It lost $14.5 million in 2020. Diapers and wipes accounted for 63% of last year’s sales. Honest Co. generated 33% of its sales from its Honest.com ecommerce site or $99.2 million, according to a regulatory filing. Another 22% came from wholesale purchases by Amazon.com Inc. (No. 1), rounding out Honest’s 55% digital revenue penetration with negligible additions from online-only players like FreshDirect LLC (No. 40) and Thrive Market (No. 174).
However, Target Corp. (No. 6) was the company’s largest customer, accounting for 23% of sales, continuing a relationship started in 2014 as the digital native Honest started branching out from direct-to-consumer sales. The blend of direct sales and wholesale revenue is part of Honest’s growth strategy, according to the filing. A study commissioned by the company found that 79% of Honest.com diaper shoppers also purchased Honest Co. diapers at brick and mortar stores.
Already, though, the pandemic boom for consumer-products makers is starting to fade. P&G has acknowledged that rising costs are pressuring results, toilet paper maker Kimberly-Clark Corp. recently cut its earnings forecast and Clorox Co. last week missed Wall Street’s estimates for quarterly sales. In addition to shifting demand, manufacturers are grappling with higher commodity and freight costs.
Honest said in the filing that it’s working to manage disruptions to its supply chain, but it anticipates “sustained market turmoil” as a result of the pandemic and its economic impact. “If the disruptions caused by the Covid-19 pandemic continue for an extended period of time, our ability to meet the demands of our consumers may be materially impacted.”
The offering is being led by Morgan Stanley, JPMorgan Chase & Co. and Jefferies Financial Group Inc. The shares are set to trade on the Nasdaq Global Select Market under the symbol HNST.Favorite