Karat Packaging (NASDAQ:KRT) executives said the company delivered “profitable growth” in the fourth quarter of 2025 despite what CEO Alan Yu described as ongoing trade volatility, highlighting double-digit volume growth across major markets and an improvement in pricing for the first time since early 2023.
Fourth-quarter sales rose 13.7% on volume and pricing
Chief Financial Officer Jian Guo reported fourth-quarter net sales of $115.6 million, up 13.7% from $101.6 million a year earlier. Guo attributed the increase primarily to $8.2 million of volume growth and a $6.3 million favorable impact from pricing and product mix.
Management said it continued to adjust its online approach to improve profitability, shifting away from online sales fulfilled by Amazon and toward driving traffic through the company’s own Lollicup store and fulfilling its own orders on third-party platforms. Guo said the company achieved “significantly higher contribution margin” in online sales due to reduced platform fees and marketing costs.
Tariffs pressured gross margin, but operating income increased
Guo said cost of goods sold rose 23.4% to $76.3 million, driven by sales growth and higher import costs. Within import costs, duty and tariff costs increased $8.4 million due to higher tariff rates, plus a $0.4 million adjustment to a duty reserve on certain imports.
Gross profit was $39.3 million, compared with $39.8 million a year earlier. Gross margin declined to 34.0% from 39.2%, as import costs rose to 14.5% of net sales from 8.3% in the prior-year quarter. Management said it partially offset the headwind with more favorable vendor pricing and product mix and lower logistics expenses as a percentage of net sales.
Operating expenses fell to $30.9 million from $32.5 million. Guo cited a $1.6 million reduction in online platform fees, a $0.5 million decrease in marketing expense, and a $0.4 million reduction in professional services expense. Rent expense rose $0.5 million, primarily due to the opening of a new Chino distribution center in 2025.
Operating income increased 16.0% to $8.5 million, while net income rose 22.8% to $7.2 million, with net income margin improving to 6.2% from 5.8%. Net income attributable to Karat increased 21.3% to $6.8 million, or $0.34 per diluted share, compared with $5.6 million, or $0.28 per diluted share, in the prior-year quarter.
Adjusted EBITDA increased to $12.5 million from $11.3 million, and adjusted EBITDA margin was 10.8% versus 11.1% a year earlier. Adjusted diluted earnings per common share were $0.34, up from $0.29.
Sourcing mix and margin outlook
Yu said Karat’s efforts to diversify sourcing continued to show results, with the company adjusting import volumes across countries in response to tariff and foreign currency developments. He said that during the fourth quarter, the import mix consisted of 46% from Taiwan, 14% from China, 13% from the United States, and 11% each from Vietnam and Malaysia.
Despite higher tariff and duty costs, Yu said Karat maintained a “solid” 34% gross margin in the quarter. He added that following “favorable global tariff developments” and stabilization in the U.S. dollar and New Taiwan dollar exchange rates, the company expects margin tailwinds beginning in the second quarter.
In response to a question about energy and transportation costs, Yu said the company does not foresee ocean freight costs rising to levels seen in 2022, but its guidance assumes roughly a 10% to 15% year-over-year increase in ocean freight shipping costs. He added that domestic diesel prices have moved up and down and have been accounted for in the outlook.
Paper bags and eco-friendly products highlighted as growth drivers
Yu said the company’s paper bag category continued to gain momentum and was expanding steadily, contributing to meaningful revenue growth. He noted that Karat supplies paper bags to one of its largest national chain accounts and is pursuing additional opportunities, some in the “final confirmation stage.” Yu also said Karat is expanding supply of generic paper bags for smaller accounts, alongside custom paper bags, and expects to gain share in the category over time.
Eco-friendly product sales represented 37.3% of total revenue in the fourth quarter of 2025, up from 34.5% in the same period of 2024, helped in part by paper bags, according to Yu.
On the question-and-answer portion of the call, Yu said demand for eco products “has never dropped,” pointing to molded fiber products and paper bags driven by regulation, as well as growth in compostable PLA items as prices have declined. He added that newly opened restaurants are adopting eco-friendly products to align with consumer environmental preferences.
Discussing the California market, Yu said he is seeing a slowdown and a more competitive environment, with restaurant closures. However, he said Karat has recently seen double-digit growth, adding that tariff pressures have led some importers to stop importing or go out of business, shifting business to Karat and other larger companies with more inventory.
Cash flow, capital returns, and 2026 guidance
Guo said the company generated operating cash flow of $15.4 million and free cash flow of $14.6 million in the fourth quarter, despite “continued hefty duties and tariff payments.” During the quarter, Karat made an early $8.0 million loan repayment related to its consolidated variable interest entities term loan.
Karat paid a regular quarterly dividend of $0.45 per share on Nov. 28, 2025. Guo also said the company repurchased 137,374 shares at an average price of $21.74 per share for a total of $3.0 million. As of March 11, 2026, approximately $12.0 million remained available under the repurchase authorization.
The company ended 2025 with $91.0 million in working capital and financial liquidity of $45.6 million, according to Guo. The board approved another regular quarterly dividend of $0.45 per share, payable Feb. 27, 2026, to shareholders of record as of Feb. 20, 2026.
For the first quarter of 2026, management guided to net sales growth of approximately 8% to 10% year over year, noting that first-quarter results are typically subject to weather. Guo said the company experienced facility shutdowns due to inclement weather in January and February, including about a week of shutdowns in Texas, but said momentum was returning as weather improved in March.
For the first quarter, Karat expects gross margin of 34% to 36% and adjusted EBITDA margin of 9% to 11%.
For full-year 2026, management expects net sales growth in the low double-digit range and anticipated improvements in both gross margin and adjusted EBITDA margin compared with the prior year “under the current global tariff import environment.” In Q&A, Yu said the outlook assumes continued market share gains, particularly from expanding the paper bag and SOS bag lineup, including additional SKUs and more custom printing capabilities. He also said the company’s guidance includes some contribution from opportunities in the pipeline but remains conservative due to customer testing phases that can extend six to nine months.
About Karat Packaging (NASDAQ:KRT)
Karat Packaging Technologies, Inc (NASDAQ: KRT) is a U.S.-based provider of premium packaging solutions for consumer goods and industrial products. The company specializes in the design, manufacture and delivery of high-quality litho-laminated folding cartons, tubes and flexible packaging. Karat Packaging operates an integrated production model that combines prepress, printing, converting and finishing capabilities to support the branding and shelf-appeal needs of its customers.
The company serves a diverse range of end markets, including food and beverage, confectionery, health and beauty, pharmaceuticals, specialty chemicals and promotional packaging.
