Karat Packaging Q2 Earnings Call Highlights

Record sales: Karat Packaging’s second-quarter net sales rose 9.9% year over year to $136.3 million, driven by 23.6% online-sales growth and stronger channel-account demand. The company added four chain accounts and expects to begin shipments in the fourth quarter. Tariff refunds boosted results: A $25.8 million IEEPA tariff refund lifted gross margin to 56.6% and contributed roughly $1.00 to diluted earnings per share. Net income rose 168.3% to $29.6 million, but gross margin excluding the refund was 37.7%. Positive outlook and expansion: Karat expects low-double-digit sales growth in the third quarter and for the full year, while opening a 47,000-square-foot Orlando distribution center to improve Southeast delivery times. The company also raised its quarterly dividend to $0.47 per share and has about $10 million remaining under its share-repurchase authorization. Karat Packaging NASDAQ: KRT reported record second-quarter net sales of $136.3 million, up 9.9% from $124.0 million a year earlier, as growth in its online business and customer demand helped offset higher product and import costs. Chief Executive Officer Alan Yu said the company added four new chain accounts during the quarter, expanding its sales pipeline and creating potential revenue opportunities. He said Karat expects to begin shipping products to those accounts in the fourth quarter after building inventory over the next two to three months. Online sales increased 23.6% year over year in the second quarter. Yu said the company remains on track toward its $100 million online-revenue target for 2026, adding that July online sales grew more than 37% from the prior-year month and Amazon sales rose about 49%. Tariff Refunds Lift Margins and Earnings Second-quarter profitability was significantly affected by $25.8 million in refunds related to IEEPA tariffs, which reflected higher tariff costs the company had absorbed in prior periods. Gross profit increased to $77.2 million from $49.1 million a year earlier, while gross margin rose to 56.6% from 39.6%. The tariff refunds contributed 1,890 basis points to gross margin, according to Chief Financial Officer Jian Guo. Excluding the refund contribution, Guo said gross margin would have been 37.7%. Cost of goods sold declined 21% to $59.1 million despite higher product costs and import expenses. Product costs increased by $6.9 million, while import costs rose $3.5 million, including an 8.9% increase in average container rates and a 4.3% increase in imported containers. Operating income climbed 127.2% to $37.6 million. Net income increased 168.3% to $29.6 million, and net income attributable to Karat was $29.3 million, or $1.46 per diluted share, compared with $10.9 million, or $0.54 per diluted share, in the prior-year quarter. The company said tariff refunds accounted for approximately $1 per diluted share. Adjusted EBITDA rose to $41.6 million from $17.7 million, while adjusted EBITDA margin reached 30.5%, including the tariff-refund benefit. Adjusted diluted earnings per share were $1.48, compared with $0.57 a year earlier. Sales Mix and Sourcing Strategy Sales growth was driven primarily by $13.1 million in volume growth and product mix, plus a $0.4 million favorable pricing impact. Those gains were partly offset by a $1.1 million decrease in shipping and logistics revenue. Sales to channel accounts and distributors increased 9.0%. Online sales increased 23.6%. Retail-channel sales declined 23.4%, primarily because of lower shipping and logistics revenue. Eco-friendly products represented 33.8% o...