The Honest Company IPO is “well oversubscribed” ahead of an anticipated pricing on Tuesday and debut for Wednesday, according to IPO Boutique.
The baby and beauty products company founded by actress Jessica Alba has followed a tumultuous path to going public, including class-action lawsuits and product recalls.
Honest, in a filing last month, said it expected to price its IPO at between $14 and $17, and raise as much as $504.5 million. Based on its outstanding share count following the offering, the company could have a valuation of between $1.3 billion and $1.5 billion.
The company plans to sell offer 25.8 million shares — a combination of around 6.5 million shares from the company and around 19.3 million shares from selling stockholders. The IPO’s underwriters also have the option to buy around 3.9 million extra shares.
Honest would trade on the Nasdaq Global Select Market under the ticker HNST. Lead underwriters for the Honest Company IPO included Morgan Stanley, JPMorgan and Jefferies.
Shares of personal care products giant Procter & Gamble (PG) dipped 0.3% on the stock market today. Herbalife (HLF) fell 2.4%, Nu Skin (NUS) lost 1.7%, while Estee Lauder (EL) gained 4.6% after reporting earnings.
Honest Company IPO: Losses To Continue
In going public, Honest hopes to more deeply engage a population more focused on health — one that was accelerated by the coronavirus pandemic.
“When the COVID-19 pandemic hit and we went into lockdown, people became more aware of their health and what they bring into their homes,” Alba said in a letter included in the filing. “Honest never wavered in being there for them.”
The company, founded roughly a decade ago, grew sales by 28% to $300.5 million last year. It reported a net loss of $14.5 million over that time.
In the Honest Company IPO paperwork, the company said it expected those losses to continue into this year. Its preliminary estimates call for a loss of $4.5 million and $5.5 million for the three months ending on March 31. For the period a year ago, it reported net income of $559,000.
Honest said it expected sales for the period ending March 31 to come in at between $78 million and $80 million. That would be up from $72.4 million a year ago.
The company runs three business segments: Diapers and Wipes — its largest segment — Skin and Personal Care and Household and Wellness. Those segments comprised 63%, 26% and 11% of Honest’s sales last year.
Health And Safety Incidents
Alba founded Honest in an effort to make wellness products more transparent after she gave birth to her first child.
“When I used a laundry detergent marketed for babies on items from my baby shower, I was shocked when it triggered an allergic reaction,” she said in the letter.
The expected trading debut for company comes after its valuation reached $1.7 billion in 2015. But it later tumbled after consumer complaints and lawsuits raised questions about the claims in some of its products.
The company was hit multiple class action lawsuits filed against it in 2015 and 2016. Those lawsuits — as the Honest Company IPO filing notes — concerned allegations that some of its products were not natural, and that the company mislead customers about ingredients in its laundry detergent, dish soap and surface cleaner.
The company in 2017 recalled baby wipes due to mold. It also recalled a bubble bath production January due to concerns about “potential contamination,” according to the filing.
The Honest Company IPO filing also cites “health and safety incidents or advertising inaccuracies or product mislabeling” as risks to the company.
“Our rapid growth was compromising key business functions and we were outgrowing our infrastructure,” Alba said in the letter.
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