KRT · Karat Packaging Inc.

Performance Summary

Karat Packaging Inc. delivered solid financial results for the fiscal year ended December 31, 2025. Net sales reached $467.7 million, a 10.7% increase from $422.6 million in 2024. Gross profit was $172.1 million, up 4.7% from $164.3 million, though gross margin declined to 36.8% from 38.9%. Operating income grew 9.7% to $41.4 million, while net income attributable to the company increased 5.0% to $31.5 million. Basic earnings per share rose to $1.57 from $1.50. The company generated strong operating cash flow of $33.8 million and ended the year with $37.9 million in cash and cash equivalents, up from $31.6 million at the end of 2024.

Revenue Analysis

Revenue growth was primarily driven by the chains and distributors segment, which increased 12.5% to $370.6 million, accounting for 79.2% of total sales. The online segment grew 7.4% to $75.3 million, while the retail segment declined 5.0% to $21.9 million. A key strategic initiative was the expansion of the paper bag business, with sales surging 73.4% to $13.7 million, supported by a new contract with a major national chain account. The company also saw growth in eco-friendly products, which represented 34.1% of total sales, up from 33.6% in 2024. Manufacturing accounted for approximately 9% of net sales, down from 11% in the prior year as the company shifted toward a more asset-light model.

Margins & Profitability

Gross margin decreased to 36.8% from 38.9% year-over-year, reflecting changes in product mix and cost pressures. Operating margin improved slightly to 8.9% from 8.9% (calculated as operating income divided by revenue). Selling expenses were $53.8 million, up 3.0% from $52.3 million, while general and administrative expenses increased 8.2% to $77.4 million. The company recorded a net gain of $493,000 on disposal of machinery and impairment expense, compared to a loss of $2.8 million in 2024. Total operating expenses were $130.7 million, up 3.3% from $126.6 million. Other income, net, was $1.6 million, down from $2.9 million in 2024, primarily due to a foreign currency transaction loss of $1.5 million.

Cash Flow & Balance Sheet

The company generated $33.8 million in net cash from operating activities, a decrease from $48.0 million in 2024, largely due to changes in working capital, including an increase in accounts receivable and inventories. Investing activities provided $25.4 million in cash, mainly from redemptions of short-term investments. Financing activities used $52.9 million, primarily for dividend payments of $36.1 million, share repurchases of $3.0 million, and debt repayments. Total assets were $287.7 million, with current assets of $161.2 million, including $81.7 million in inventories. Total liabilities were $130.8 million, including $35.9 million in long-term debt. Stockholders' equity stood at $156.9 million.

Outlook

Management's growth strategy focuses on scaling the paper bag business, which is expected to be a significant growth driver over the next two to three years. The company plans to continue expanding its distribution network, having added over 230,000 square feet of space in the past 24 months, and to enhance its eco-friendly product offerings under the Karat Earth® line. Strategic priorities also include growing the e-commerce channel, increasing wallet share with existing customers, and pursuing potential acquisitions. Key risks include supply chain disruptions, raw material inflation, competitive pressures, and changes in trade policies and tariffs. The company declared a quarterly cash dividend of $0.45 per share in February 2026 and had approximately $12.0 million remaining under its share repurchase authorization as of December 31, 2025.