Karat Packaging Reports Record Q2 Sales of More Than $136 Million

Karat Packaging (NASDAQ: KRT ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

6% increase in online sales. 6 million. The company is finalizing a lease for a new 47,000 square foot distribution center in Orlando, Florida, to enhance service in the Southeast and improve e-commerce fulfillment. 6 million, while operating expenses rose due to higher shipping, transportation, and personnel costs.

Karat Packaging expects continued net sales growth in the low double-digit range for the remainder of 2026 and anticipates gross margins in the high 30% range without significant tariff refunds. The company added four new chain accounts, expanding its sales pipeline, with contributions expected in the fourth quarter. Management noted positive momentum in the business and emphasized a focus on operational efficiency and cost management, particularly in shipping and logistics. Full Transcript OPERATOR Good day and welcome to the Karat Packaging Second Quarter 2026 Financial Results Conference Call.

All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone.

To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Roger Pondell. Please go ahead.

Roger Pondell, Investor Relations Good afternoon everyone and welcome to Karat Packaging's 2026 second quarter conference call. I'm Roger Pondell with Pondell Wilkinson, Karat Packaging's investor relations firm. It will be my pleasure momentarily to introduce the Company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Jan Gough. Before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to numerous conditions, many of which are beyond the Company's control, including those set forth in the Risk Factors section of the Company's most recent Form 10-K as filed with the Securities and Exchange Commission and copies of which are available on the SEC's website at along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements and Karat Packaging undertakes no obligation to update any forward-looking statements except as required by law.

Please also note that during this call we will be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, and free cash flow, which are non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release, which is now posted on the Company's website. And with that I will turn the call over to CEO Alan Yu. Alan Yu, CEO Alan, thank you, Roger.

Good afternoon everyone. Welcome. We delivered record quarterly net sales of more than $136 million, reflecting the strength of our customers' demand and accelerated momentum in our online business growth. During the quarter, our sales pipeline expanded, adding four new chain accounts, which further broadened our market reach and created additional opportunities for future revenue growth.

6% year over year. Our eco-friendly product portfolio also continued to gain traction, benefiting from the continued expansion of SKUs and growth in the paper bag categories. 8% in the prior year period. Our results also benefited from tariff refunds, which reverse higher tariff costs absorbed in prior periods and further contributed to the strong reported profitability.

While we were pleased to capture this benefit in the quarter, our focus remains on the fundamental drivers of the business and sustaining strong long-term financial performance. To support our long-term growth strategy, we are currently finalizing a lease for a 47,000 square foot warehouse for a new distribution center in Orlando, Florida, which we expect to be operational by the third quarter of this year. The new facility is expected to enhance Karat's ability to better service customers throughout the Southeast, improve fulfillment capability for our growing e-commerce business, reduce delivery time, and provide additional infrastructure to support future growth.

At the same time, we remain focused on driving operational excellence. We are continuing to execute initiatives designed to enhance efficiency across the organization while carefully managing costs, aiming to support sustainable profitability and position the company for continued success. 6%, including the benefit from the tariff refund of 1,890 basis points. Despite higher product costs and ocean freight rates, the performance underscores the strength of our sourcing capabilities.

Our sourcing diversification initiatives continue to deliver tangible benefits, strengthening Karat's competitive advantage through reliable product availability and cost competitiveness. In the second quarter, domestic purchases increased to nearly 20% of total sourcing, while importing from Taiwan represented 46%. China represented 11%, and sourcing from Indonesia, Singapore, and South America represented an aggregate of 12%. Overall, we are pleased with the progress we are making with the expanding sales pipeline, new customer wins, strong e-commerce growth, and a continued focus on operational discipline.

We believe Karat is well positioned to advance profitability and long-term growth. I will now turn the call over to Janet Woh, our Chief Financial Officer, to discuss the company financial results in greater detail. Jan Gough, CFO Jan, thank you, Alan. I'll begin with a summary of our second quarter performance followed by an update on our guidance.

0 million in the prior year quarter. 1 million in shipping and logistics revenue. 0% in the 2026 second quarter. 4% from the 2025 second quarter, primarily from the decrease in shipping and logistics revenue.

9 million in the prior year quarter. 3% increase in the number of containers imported versus the prior year quarter. 1 million in the prior year quarter. 6% a year ago, reflecting that 1,890 basis point contribution from tariff refunds.

5% primarily due to freight and import-related expenses. 6 million last year. 5 million. 4 million, respectively.

3 million gain recognized in the prior year quarter from routine asset disposals. 6 million in the prior year quarter. 0 million in the prior year quarter. 9 million in the same period last year.

4 million decline in interest income earned on investments in certificates of deposit. 1 million for the prior year quarter. 9% last year. 54 per diluted share, in the prior year quarter.

7 million for the prior year quarter. 3% for the 2025 second quarter. 57 per share in the comparable prior year period. 7 million in short-term investments.

2 million during the second quarter of 2026. 45 per share to shareholders on May 28, 2026. During the second quarter, we repurchased 73,510 shares of our common stock for a total of $2 million under our share repurchase program. As of June 30, approximately $10 million remained available under the program.

47 per share, payable on August 28, 2026 to stockholders of record as of August 21, 2026. Now let me provide an update to our guidance. For the 2026 third quarter, we expect net sales to grow in a low double-digit range from the prior year quarter. We expect gross margin for the 2026 third quarter to be within 35% to 37% and adjusted EBITDA margin to be within 9% to 11%, both including insignificant tariff refunds anticipated during the quarter.

For full year 2026, we expect net sales to grow in the low double-digit range over the prior year. With more clarity around the tariff refunds process, we now expect gross margin for the full year 2026 to be in the low 40% and adjusted EBITDA margin to be approximately mid-teens, both including tariff refunds recorded during the first half of 2026. As Alan mentioned earlier, we are experiencing what we believe is accelerated growth in our sales pipeline, reflecting Karat's strong market position and ongoing initiatives to gain market share.

Looking ahead, we expect to continue driving topline growth, sustaining healthy growth momentum through our diverse strategy and reduced tariffs. We're also confident that the actions we're taking to manage operating costs will further improve operating leverage and drive sustainable profitability. Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator. OPERATOR We will now begin the question and answer session.

To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster.

The first question today comes from Michael Francis with William Blair. Please go ahead. Michael Francis, Analyst at William Blair Hi Alan, Jan, good quarter. This is Mike on for Ryan here.

I want to start on the SG&A—that seemed to be the big surprise for us in the quarter to the downside. You mentioned you have some actions that you're taking to improve that. Can you talk a bit more about (a) what surprised you there, and then (b) what you're doing to offset some of the higher costs? Jan Gough, CFO Yeah, sure, let me start, and then Alan, please feel free to add some additional color.

So in terms of the SG&A—I know you mentioned some surprises—I think really the way that we think about it is just consistent with the trend that we are observing with the micro environment. The biggest item that we are focusing on for the third quarter, as far as cost management, is really the shipping cost. A lot of the orders that we ship out to customers, we utilize third-party carriers; we partner with our third-party carriers. So that's an area that we're focusing on in the third quarter to try to manage the cost.

1 million. 4 million increase. So that's one area that in the third quarter we're really focusing on—utilizing our internal fleet to try to minimize, to get more efficiency out of the offline shipping cost to the customers by, as I mentioned, utilizing the internal fleet. We're delivering local orders to our local customers with our own employees, and we're also performing inter-warehouse inventory transfers with some of our internal fleet as well.

So that's the biggest area. Another area is we are continuing to try to get savings on the online orders as well. Online order delivery costs—the shipping cost—is one area that we talked about previously on the call. We have a service agreement with one of the carriers, so that's one area that we're continuing to focus on in terms of realizing cost savings there.

So that's the biggest—kind of in terms of the offline and online shipping costs—really I think it's probably fairly consistent with some of the other companies as we think about the overall higher oil, the gas price. One other area that we're focusing on in the third quarter is our salary and benefit expenses. That's really to utilize our labor force more efficiently. So those are the two biggest areas I would call out.

Alan Yu, CEO I want to add a little bit of color to what Jan just mentioned. Give you an example: second quarter was the highest fuel cost that we have seen in the past year due to the crisis in the Middle East. And in the third quarter we are actually seeing the cost coming down already. 40 per gallon of diesel.

In the third quarter we're looking at around four-something, a 25% discount on the diesel alone. On the carrier fuel surcharge, we're also seeing a declining rate from second quarter to third quarter. So this is where we're seeing more of a decline not only on the ocean freight but also in shipping—all because of oil prices. Everyone knows that the second quarter oil price was the highest ever, but it started to drop in July.

So we'll see if it continues to drop, or even at this point it is still lower than the second quarter. Michael Francis, Analyst at William Blair Okay. Yeah, and that's not surprising—I figured that was the case. And then to the pace of your online sales, which are continuing to trend quite well, what drove the strength there, and then across the category should we expect a similar growth trajectory in the second half that we saw in the first?

Alan Yu, CEO Well, let me add to this online growth. During our last quarter earnings call, I mentioned that our target for this year's online revenue is $100 million. As we see July's number, we were looking at the second quarter—we're looking at 24%, 25% I think—the online growth year over year. Just in July we're seeing Amazon growth around 49% year-over-year growth just in Amazon.

Our overall online sales growth in July—in the month of July, we just finished the numbers—we're at 37% plus in online sales growth. So right now I can confidently say that $100 million is on track for this year's revenue just for online.