0001600033-26-000007
SEC filingNet sales grew 38% in Q3 driven by rhode acquisition; gross margin flat at 71%; operating margin expanded to 14%.
For the three months ended December 31, 2025, net sales increased 38% to $489.5 million from $355.3 million in the prior-year quarter, driven by the August 2025 acquisition of rhode, which contributed $128.2 million. The remaining $6.0 million growth came from the existing business, with strong performance in both retailer (+23%) and e-commerce (+101%) channels. Gross profit rose 37% to $347.5 million, and gross margin remained flat at 71% as pricing and mix benefits fully offset tariff headwinds. Selling, general and administrative (SG&A) expenses grew 28% to $280.0 million but declined as a percentage of sales from 61% to 57%, reflecting operating leverage. Consequently, operating income surged 93% to $67.5 million, and operating margin expanded from 10% to 14%. Interest expense increased to $12.4 million from $3.5 million due to debt incurred for the rhode acquisition. Net income more than doubled to $39.4 million from $17.3 million.
The company operates as a single reportable segment. However, channel-level analysis reveals robust growth: retailer channels contributed $66.8 million (23% growth) and e-commerce channels added $67.5 million (101% growth) in the quarter. The rhode acquisition alone added $128.2 million in sales, indicating a significant shift in revenue mix toward the newly acquired brand. Existing business growth was modest at $6.0 million, suggesting organic momentum is stable but heavily supplemented by M&A.
Management expects ongoing tariff uncertainty to persist, given that most products are sourced from China and already subject to 25% tariffs. To mitigate risk, the company raised prices globally effective August 1, 2025, and is exploring production diversification outside China. No specific numerical guidance for future periods was provided. The company believes its operating cash flow, $196.8 million cash balance, and $243.3 million undrawn revolving credit facility are sufficient to meet near-term obligations. The rhode acquisition is expected to continue contributing to growth, though integration costs and higher debt service will pressure margins. The next catalyst is the full fiscal year 2026 results.