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Honest Co. Jumps in Debut, Alba to Keep Raising ‘Fourth Kid’

(Bloomberg) — The personal-care products brand Honest Co. jumped 44% in its trading debut, delivering what co-founder Jessica Alba called a “pinch me moment” and elevating her platform for pitching wholesome products.The actress turned entrepreneur, whose stake in her decade-old venture could be worth up to about $130 million, said she has no plans to step back now that Honest has gone public.“I have three kids, I would say Honest is my fourth kid,” Alba said in an interview. “You should have products that you can trust and across the board we hit on all of those things that are very important to not just the millennials, but the younger generation that are driving really the consumer’s behavior to a more conscious life.”The company’s shares, which sold for $16 in its initial public offering, closed at $23 in New York trading Wednesday, giving the company a market value of about $2.1 billion. Fully diluted to include employee stock options and restricted stock units, the company is valued at about $2.5 billion.Honest and its existing stockholders raised $413 million in Tuesday’s share sale. The company offered 6.5 million shares, with more than 19 million shares sold by investors including private equity firm L Catterton, Institutional Venture Partners, Lightspeed Venture Partners and General Catalyst.“The vision and the mission of the company 100% came from Jessica,” said Eric Liaw, a general partner at IVP and board member at Honest. “We wouldn’t be here without her.”Honest received merger interest from special purpose acquisition companies, or SPACs, but “just decided it probably wasn’t the right thing for us,” Liaw said. The long-discussed IPO was made possible in part because the company had become profitable, he said.Alba’s StakeAlba, though she has stepped down as board chair, remains a director and is also the company’s chief creative officer. She owns 5.65 million shares including options, and didn’t plan to sell her shares in the offering, according to the filings with the U.S. Securities and Exchange Commission.In a letter to potential investors in the company’s filings, Alba touted Honest’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.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.”Target, AmazonFounded in 2011, Honest has grown into a national brand and has partnerships with retail giants including Target Corp. and 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.Sales GainLos 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 is focused on growing its brands rather than acquiring new ones, Chief Executive Officer Nick Vlahos said in the interview with Alba.“If there is an opportunity from a capability standpoint to look at something, that’s something that we would consider,” Vlahos said. “But to turn around and look at bringing in multiple brands under a portfolio, that’s not something that we’re focused strategically on.”Vlahos said he sees potential growth despites declining birth rates in the U.S. Honest appeals to the 3.7 million to 4 million millennial and Generation Z that become mothers every year, he said.“They care about sustainability as well as social responsibility,” he said. “And we’re kind of right at that sweet spot when it comes to that consumer segment.”More than 34% of new customers on the company’s website came through the skin and personal care space, making those categories promising growth areas, Vlahos said.Post-Pandemic SlipThe pandemic boom for consumer-products makers is starting to fade, though. 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 company’s offering was led by Morgan Stanley, JPMorgan Chase & Co. and Jefferies Financial Group Inc. The shares are trading on the Nasdaq Global Select Market under the symbol HNST.Alba compared the IPO and future plans for Honest to becoming a mother.“You put so much into your birth plan and essentially when you’re a mom and you have the kids then you understand, especially me after having three, that the real work is raising those kids,” she said in the interview. “That’s when you really getting started and that’s kind of how I feel today.”(Updates with closing share price in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.