Karat Packaging's Q2 2025: Pricing Strategies and Online Sales Growth Face Contradictions

Strong Quarterly Performance Amidst Foreign Currency Headwinds:
- Karat Packaging achieved a record second quarter performance with a 13% increase in sales volume, 10% growth in net sales, and 20% growth in net income year-over-year.
- Despite a significant foreign currency headwind due to a substantial weakening in the U.S. dollar against the New Taiwan dollar, the company's nimble business model and resilient global supply chain allowed it to navigate supply chain disruptions and trade uncertainties, contributing to this growth.

Global Sourcing Diversification and Expansion:
- The company reduced its reliance on China to just 10% in the second quarter and is expanding sourcing across other Asian countries and Latin America.
- This strategic diversification and expansion are aimed at enhancing supply chain resilience and flexibility, which has helped Karat secure new business and position the company for sustained growth in a challenging external environment.

Impact of Tariffs and Price Adjustments:
- The company implemented price increases for select products on April 1 and broader price adjustments across most of its product lines in late May, with the impacts of these changes being assessed.
- Pricing was negative on the quarter, but the company anticipates pricing to be at breakeven in the second half of the year due to mitigating cost impacts through strategic sourcing and new vendor relationships.

Operational Efficiency and Cost Management:
- The company saved $1 million in online shipping and marketing costs by switching providers, even as shipping volume increased.
- It also shifted its online sales focus to its own e-commerce storefront, lowering online selling costs and more effectively utilizing online marketing dollars, reflecting its ongoing focus on balancing growth with profitability and building long-term operational resilience.

Sales Trends and New Business Wins:
- Business trends remained strong heading into the third quarter, with Karat Packaging expecting double-digit sales growth across its major markets, including California.
- Recent new business wins from several large national chains are scheduled to begin shipping in the third and fourth quarters, which will further contribute to the company's growth trajectory.