Karat Packaging Inc.

Second-quarter net sales were $136.3 million, up 9.9% from $124.0 million a year ago. Gross profit rose to $77.2 million from $49.1 million, with gross margin at 56.6% versus 39.6% last year; management said the margin included a 1,890-basis-point benefit from IEEPA tariff refunds. Operating income increased 127.2% to $37.6 million, net income rose 168.3% to $29.6 million, and net income attributable to Karat was $29.3 million, or $1.46 per diluted share, versus $0.54 a year ago. Adjusted EBITDA was $41.6 million and adjusted diluted EPS was $1.48. Cash flow remained strong, with operating cash flow of $33.2 million and free cash flow of $31.8 million, both benefiting from $25.2 million of tariff refunds received in the quarter. For Q3 2026, the company expects net sales growth in the low double-digit range, gross margin of 35% to 37%, and adjusted EBITDA margin of 9% to 11%, with insignificant tariff refunds anticipated. For full-year 2026, management expects net sales growth in the low double-digit range, gross margin in the low 40% range, and adjusted EBITDA margin around the mid-teens, including tariff refunds recorded in the first half.

Alan Yu emphasized record sales, accelerated online momentum, and broader customer wins as signs that the business is gaining traction. He pointed to eco-friendly products reaching 33.8% of total sales, the addition of four chain accounts, and a planned Orlando distribution center as strategic steps to improve service, shorten delivery times, and support future growth. His tone was constructive and optimistic, while noting the company is focused on operational discipline and long-term fundamentals rather than relying on the tariff refund benefit.

Jian Guo walked through the quarter’s numbers and noted that the tariff refunds were a major driver of profitability: $25.8 million of refunds lowered COGS, lifted gross margin to 56.6%, and contributed to adjusted EBITDA of $41.6 million. He also highlighted working capital of $110.8 million, financial liquidity of $42 million, and another $15.7 million in short-term investments, plus $33.2 million of operating cash flow and $31.8 million of free cash flow. On capital allocation, he noted a $0.45 quarterly dividend paid in May, $2 million of share repurchases in the quarter, about $10 million remaining on the buyback authorization, and a board-approved increase in the quarterly dividend to $0.47.

Analysts focused on SG&A pressure, the sustainability of online sales growth, and the impact of new distribution capacity. Management said higher shipping and fuel costs were a key SG&A driver, but they expect improvement from lower fuel costs, greater use of the internal fleet, and tighter labor management. On online sales, Alan Yu said July online sales were up 37%+ and Amazon was up about 49%, and he said the $100 million online revenue target for the year is on track. Regarding the Orlando warehouse and other coverage gaps, management said Orlando should improve next-day or two-day service in a key Southeast market, while Colorado and parts of North America remain possible areas for future logistics expansion.