Analyst inquired about potential future DC locations after the Orlando facility, specifically asking about remaining coverage gaps.

Alan Yu explained that the Orlando DC will significantly improve service in the Southeast, their fourth-largest online customer base. He mentioned Colorado (supporting Utah) as another potential area for support, currently served from Texas. He also highlighted North America (Vancouver, Toronto) as a wide-open market with logistics challenges they are exploring. “Now the other area that we're seeing that we might need some support, definitely it would be in the Colorado area, which can support the Utah area. But we're still We're still looking at that because Colorado is, the shipping, anything shipping to Colorado is actually more into Texas. That's what we see. So currently we're shipping to Colorado from Texas into Colorado, which is two to three days for online. And, of course, we have been looking to the North America area, the Vancouver, Toronto. These are the areas we have been trying to figure out how we can get the logistic part of the issues resolved because we do see a very wide open market in that part of the segment.”

Analyst asked for clarification on the underlying gross margin performance, excluding the impact of tariff refunds.

Jian Guo stated that without the tariff refunds, the gross margin would have been 37.7%, which she characterized as strong and close to 40%. She attributed this to sourcing diversification and capabilities, and noted that Q3 guidance for gross margin is 35-37%. Alan Yu added that a stronger U.S. dollar against Asian currencies and potential ocean freight reductions are tailwinds for Q3 gross margin. “So as we reported our gross margin is 56.6% for the quarter. If you do the math, if you include the contribution, our gross margin without the refund, the tariff refund would have been 37.7%, which I think is still really strong. We're talking about high, close to 40% growth margin.”

KRT

Karat Packaging (KRT) Q2 FY26 earnings call: guidance and Q&A

Q: Analyst asked about the drivers of online sales strength and if similar growth is expected in the second half of the year.

Alan Yu confirmed strong online growth, citing July figures of 49% year-over-year for Amazon and 37% for overall online sales. He expressed confidence in achieving the $100 million online revenue target for FY26, suggesting it might even be higher. “I think the online growth year-over-year just in July we're seeing Amazon growth around 49 percent year-over-year growth just in Amazon our old growth in July in the month of July we just finished a number we're at 37% plus just the online sales growth so right now I can confidently say that a hundred million dollars is on track for this year's revenue goal just for online it may be higher but I'm not sure how much higher so we're still pushing even more online sales right now that's where we are.”

Earnings call· Jun 2026 (Q2 FY26)· Consumer Discretionary· Aug 6, 2026

Source: earnings call transcript

Executive summary

Karat Packaging Q2 FY26 — Record Sales Driven by Online Growth and Tariff Refunds

Karat Packaging delivered record net sales in Q2 FY26, propelled by robust online channel growth and the significant impact of IEPA tariff refunds. The company is expanding its distribution network with a new Orlando facility to enhance service in the Southeast, while actively managing operating costs, particularly shipping expenses, to sustain profitability. Management expressed confidence in continued top-line growth and operational efficiency.

Highlights

Record quarterly net sales of $136.3 million, up 9.9% year-over-year.
Online channel net sales increased 23.6% year-over-year, with July growth at 37% for online sales and 49% for Amazon sales.
Gross margin increased to 56.6% (37.7% excluding tariff refunds), up from 39.6% in prior year.
Adjusted EBITDA rose to $41.6 million, with adjusted EBITDA margin at 30.5% (11.6% excluding tariff refunds).
Operating cash flow of $33.2 million and free cash flow of $31.8 million generated in the quarter.

Concerns

Operating expenses increased to $39.6 million from $32.6 million last year, driven by higher shipping and transportation costs of $3.1 million.
Product costs represented 49.2% of net sales, up from 48.5% in the prior year.
Import costs increased to 11.1% of net sales, from 9.5%, primarily due to higher freight and import-related expenses.

Guidance & targets

Category	Target	Timeline	Confidence
Net sales growth	low double-digit range medium materiality	Q3 · FY26	High
Gross margin	35% to 37% medium materiality	Q3 · FY26	High
Adjusted EBITDA margin	9% to 11% medium materiality	Q3 · FY26	High
Net sales growth	low double-digit range high materiality	Full Year 2026 · FY26	High
Gross margin	low 40% high materiality	Full Year 2026 · FY26	High
Adjusted EBITDA margin	approximately mid-teens high materiality	Full Year 2026 · FY26	High
Online revenue	$100 million medium materiality	Full Year 2026 · FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Online Channel Experienced accelerated momentum, with strong year-over-year growth in Q2 and further acceleration into July, driven by customer demand. July online sales growth: 37% YoYJuly Amazon sales growth: 49% YoY	—	23.6%	—	—
Chain Accounts and Distributors This is the company's biggest sales channel, showing solid growth. Four new chain accounts were added, with shipments expected to begin in Q4 FY26. New chain accounts added: 4	—	9.0%	—	—
Retail Channel Sales declined primarily due to a decrease in shipping and logistics revenue.	—	-23.4%	—	—

Capital programs

Orlando, Florida Distribution Center underway

Benefit:47,000 square feet warehouse

Finalizing a lease for a new distribution center to enhance service in the Southeast, improve e-commerce fulfillment, and reduce delivery times.

Risks & headwinds

High fuel costs Q2 FY26

Diesel gas price at $5.40/gallon in Q2 FY26 (highest in past year)

Mitigation:Utilizing internal fleet for local deliveries and inter-warehouse transfers; expecting Q3 prices around $4.00/gallon (25% discount).

Increased shipping and transportation costs Q2 FY26, ongoing

$3.1 million increase in Q2 FY26 operating expenses; offline shipping cost of $6.1 million in Q2 FY26, up $1.4 million sequentially.

Mitigation:Focusing on utilizing internal fleet, optimizing routes, and negotiating with third-party carriers for online order delivery cost savings.

Higher product costs Q2 FY26, ongoing

Product costs represented 49.2% of net sales in Q2 FY26, up from 48.5% in prior year.

Mitigation:Sourcing diversification initiatives to strengthen competitive advantage and cost competitiveness.

Increased import costs Q2 FY26, ongoing

Import costs increased to 11.1% of net sales in Q2 FY26 from 9.5% prior year, driven by 8.9% increase in average container rates and 4.3% increase in number of containers imported.

Mitigation:Sourcing diversification and cost management efforts.

Currency devaluation of U.S. dollar (prior period) Q2 FY25

$2.9 million currency loss in Q2 FY25 due to U.S. dollar devaluation against Taiwan dollars.

Mitigation:Currently seeing a stronger U.S. dollar in Q3 FY26, providing a tailwind.

What to watch in Q3 FY26

Online sales growth

next quarter

Current 37% YoY (July)

Target Continued strong growth, on track for $100M FY26 target

Why it matters

Sustained online growth is a key driver for overall revenue and market share expansion, especially with new DC capacity coming online.

I think the online growth year-over-year just in July we're seeing Amazon growth around 49 percent year-over-year growth just in Amazon our old growth in July in the month of July we just finished a number we're at 37% plus just the online sales growth so right now I can confidently say that a hundred million dollars is on track for this year's revenue goal just for online it may be higher but I'm not sure how much higher so we're still pushing even more online sales right now that's where we are.

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Q&A highlights

Analyst inquired about the unexpected increase in SG&A in Q2 and the company's plans to mitigate higher costs, particularly shipping.

Management attributed the SG&A increase to macro environment trends, specifically higher shipping costs from third-party carriers and increased salary/benefits. They are focusing on optimizing shipping by utilizing internal fleets for local deliveries and inter-warehouse transfers, and seeking savings on online delivery costs. They also noted a decrease in fuel costs in Q3 compared to Q2.

“So the second quarter in in terms of the offline shipping cost. In total, we incurred about $6.1 million on the year-over-year basis that's a 1.4 uh a sequent I'm sorry sequential that's a 1.4 million dollars increase right there so that's that's one area that in this in the third quarter really we're 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.”

asked by Unknown Speaker · answered by Jian Guo

2 min read 5 chapters

Detailed narrative

Strong Online Channel Performance

Karat Packaging experienced significant momentum in its online business, with net sales increasing 23.6% year-over-year in Q2 FY26. This growth accelerated into July, with Amazon sales up 49% and overall online sales up 37% year-over-year. The company is confident in achieving its $100 million online revenue target for FY26, potentially exceeding it, driven by strong customer demand and expanded fulfillment capabilities.

Impact of IEPA Tariff Refunds

The company's Q2 FY26 results significantly benefited from IEPA tariff refunds, which contributed 1,890 basis points to gross margin and $25.8 million to adjusted EBITDA. These refunds also added $1 per diluted share to adjusted EPS and $25.2 million to operating and free cash flow. While pleased with the benefit, management emphasized focus on fundamental business drivers for long-term financial performance.

Strategic Distribution Network Expansion

To support its long-term growth strategy and enhance customer service, Karat Packaging is finalizing a lease for a 47,000 square foot warehouse for a new distribution center in Orlando, Florida. This facility, expected to be operational by Q3 FY26, will improve fulfillment for the growing e-commerce business in the Southeast, reducing delivery times for customers in the company's fourth-largest online customer base.

Cost Management and Operational Efficiency

The company is actively executing initiatives to enhance efficiency and manage costs, particularly focusing on shipping and transportation expenses. Efforts include utilizing internal fleets for local deliveries and inter-warehouse transfers, and seeking cost savings on online order deliveries. Management noted a decline in fuel costs in Q3 compared to Q2, which saw the highest fuel costs in the past year.

Sourcing Diversification and Gross Margin Drivers

Karat Packaging's sourcing diversification initiative continues to yield benefits, strengthening its competitive advantage through reliable product availability and cost competitiveness. Domestic purchases increased to nearly 20% of total sourcing, while imports from Taiwan represented 46%, China 11%, and Indonesia, Singapore, and South America an aggregate of 12%.

This strategy, combined with a stronger U.S. dollar against Asian currencies, is expected to support gross margin in Q3.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.