Karat Packaging Inc. Q1 FY2026 earnings call

We began 2026 with a robust first quarter. Year-over-year sales increased almost 13% with momentum building throughout the quarter. Online sales returned to robust growth. Growth margin remained resilient at 35.5%. We are implementing price increases on select plastic items. Innovation and sustainability: paperback product category expands, eco-friendly product sales up 16.9% in first quarter, successfully closed another national chain account. Sourcing diversification initiative: rebalanced import volumes, increased domestic purchase, sourcing from Malaysia and Vietnam, reduced from Taiwan and China, added new supplier in South America. Better operating cost leverage, decreased to 28.3% in first quarter of 2026 from 31.8% in the prior year quarter

Net sales for the 2026 first quarter increased to $116.9 million, up 12.9% from $103.6 million in the prior year quarter. The increase mainly reflected $12.1 million in volume and mix and a $2.0 million favorable impact from pricing. Sales to channel accounts and distributors, the biggest sales channel, were up by 15.1% in the 2026 first quarter. Online sales rose almost 10% over the prior year quarter, and sales to the retail channel declined 12% from the 2025 first quarter. Cost of goods sold for the 2026 first quarter increased 20% to $75.4 million from $62.9 million in the prior year quarter. Gross profit for the 2026 first quarter increased to $41.5 million from $40.8 million in the prior year quarter. Gross margin for the 2026 first quarter was 35.5% compared with 39.3% a year ago. Operating expenses in the 2026 first quarter increased to $33.1 million from $32.9 million last year. Operating income in the 2026 first quarter increased 8.2% to $8.5 million from $7.8 million in the prior year quarter. Net income for the 2026 first quarter increased 4.8% to $7.1 million from $6.8 million for the prior year quarter. Adjusted EBITDA for the 2026 first quarter rose to $12.5 million from $11.9 million for the prior year quarter. For the 2026 second quarter, net sales are expected to increase by approximately 8 to 10% from the prior year quarter. For the full year 2026, net sales are expected to grow in a low double-digit range over the prior year. Gross margin for the full year 2026 is expected to be within 34% to 36% and adjusted EBITDA margin to be within 11% to 13%, excluding potential tariff refund impact under the current trade policy

2026 second quarter: expect net sales to increase by approximately 8 to 10% from the prior year quarter. Full year 2026: expect net sales to grow in a low double-digit range over the prior year. Full year 2026: gross margin expected to be within 34% to 36% and adjusted EBITDA margin to be within 11% to 13%, excluding potential tariff refund impact under the current trade policy

Sharp increase in oil prices pressuring costs across source products and plastics. Uncertainty of trade policies like tariffs. Ongoing supply challenges

Q: You noted the sharp increase in oil prices is pressuring costs across source products and plastics. Within both your 2Q and 2026 projects, margin guidance ranges, what oil price assumptions are embedded and at what point would the mid - May plastic price increases no longer be sufficient to protect the 34% margin floor for the year?

A: Oil prices have gone up but majority of our partner vendors overseas have absorbed majority of the increases. We do not see at this point that the raw material prices will go up even higher from this point.

Q: Your guidance points to 8% to 10% sales growth for 2Q. How much of this is driven by the expansion of new national accounts versus organic volume growth from your existing customer base?

A: Majority of the growth is from online sales revenues. We do see some of the national chain pipeline converting to revenues.

Q: Is there any way to size the pull forward impact in March? It sounds like April might have been down, so just find a point there would be great.

A: I would think that about $2 million would pull forward from April to March.

Q: Any other updates on the pipeline of potential wins you guys discussed last quarter?

A: We are working with a - very large chains, actually a few large chains, that might be converting in this quarter or at least next quarter. But this quarter, we are converting some of the existing customers, adding additional SKU to the existing customers, such as there's eco - friendly product line and paperbacks