Karat Packaging (KRT) Q2 2025 earnings summary

Executive summary

• Achieved record Q2 2025 net sales of $124 million, up 10.1% year-over-year, and net income of $11.1 million, up 19.8%, with gross margin improving to 39.6% despite significant foreign currency headwinds and tariff pressures.

• Diversified global sourcing reduced China exposure to 10% and expanded into other Asian and Latin American countries, enhancing supply chain resilience.

• New Chino distribution center fully operational, improving logistics and supporting inventory buildup for anticipated growth.

• Implemented selective and broad price increases in Q2 to offset higher tariffs and continue to monitor cost management.

• Double-digit sales growth continues across major markets, especially California, with new business wins from large national chains scheduled for H2 2025.

Financial highlights

• Q2 2025 net sales were $124 million, up 10.1% year-over-year; gross profit increased 13.1% to $49.1 million; net income margin was 8.9%; adjusted EBITDA was $17.7 million (14.3% margin); adjusted diluted EPS was $0.57, up from $0.49 year-over-year.

• For the first half of 2025, net sales grew 9.3% to $227.6 million, and net income increased 13.8% to $17.9 million.

• Operating cash flow was $9.8 million in Q2; free cash flow for the first half of 2025 was $16.2 million; working capital at June 30, 2025 was $116.8 million.

• Cash and cash equivalents at June 30, 2025: $30.5 million; short-term investments: $26.4 million; inventories: $88.8 million.

• No borrowings outstanding under $20 million line of credit as of June 30, 2025; $14.2 million available.

Outlook and guidance

• Q3 2025 net sales expected to increase 9%-10% year-over-year, with gross margin projected in the low to mid-30s and adjusted EBITDA margin expected at 10%-12% due to elevated tariff-related costs.

• Full-year 2025 guidance for net sales, gross margin, and adjusted EBITDA margin maintained, pending further tariff impacts.

• Pricing expected to be close to break even in H2 2025, compared to -3% in Q2.

• Gross margin expected to dip in Q3 due to higher tariff costs, with recovery anticipated in Q4 as new sourcing strategies take effect.

• Management expects continued positive impact from the shift toward food delivery, take-out, and demand for eco-friendly products.