Karat Packaging Reports Fourth Quarter and Full Year 2024 Financial Results

-- Robust Growth, Including Record Full Year Gross Margin, as Business Continues to Expand --

CHINO, Calif., March 13, 2025 (GLOBE NEWSWIRE) -- Karat Packaging Inc. (Nasdaq: KRT) ("Karat" or the "Company"), a specialty distributor and manufacturer of environmentally friendly, disposable foodservice products and related items, today announced financial results for its fourth quarter and full year ended December 31, 2024.

Fourth Quarter 2024 Highlights

   -- Net sales of $101.6 million, up 6.3 percent, from $95.6 million in the 
      prior-year quarter. 
 
   -- Gross profit of $39.8 million, up 16.8 percent, from $34.1 million in 
      prior-year quarter. 
 
   -- Gross margin of 39.2 percent versus 35.7 percent in the prior-year 
      quarter. 
 
   -- Net income of $5.9 million, up 40.3 percent, from $4.2 million in the 
      prior-year quarter. 
 
   -- Net income margin of 5.8 percent versus 4.4 percent in the prior-year 
      quarter. 
 
   -- Adjusted EBITDA of $11.3 million versus $8.6 million in the prior-year 
      quarter. 
 
   -- Adjusted EBITDA margin of 11.1 percent versus 9.0 percent in the 
      prior-year quarter. 

Guidance

   -- Net sales for the 2025 first quarter expected to increase by 6 to 8 
      percent from the prior-year quarter. 
 
   -- Gross margin for the 2025 first quarter expected to be between 37 to 39 
      percent. 
 
   -- Adjusted EBITDA margin for the 2025 first quarter expected to be between 
      9 to 11 percent. 
 
   -- Net sales for full year 2025 expected to increase by 9 to 11 percent from 
      the prior year. 
 
   -- Gross margin for full year 2025 expected to be between 36 to 38 percent. 
 
   -- Adjusted EBITDA margin for full year 2025 expected to be in the low to 
      mid double-digits. 

"We finished 2024 with a strong fourth quarter, as sales volume grew 14 percent and net sales increased 6 percent, despite the out-of-period benefit of $4.8 million included in the prior-year quarter from online platform fees for the first nine months of 2023," said Alan Yu, Chief Executive Officer.

"As positive momentum continues in 2025, we are making it a priority to strengthen our supply chain resilience ahead of the tariff uncertainty. We have reduced our dependence on China for imported goods to approximately 20 percent and diversified our sourcing to countries with more favorable trade conditions and minimal tariffs, such as Taiwan, which accounted for more than 50 percent of our global sourcing for the year ended December 31, 2024. We are actively working on further reducing dependence on China and negotiating additional vendor discounts to mitigate potential negative pricing and margin impact. While we try to protect pricing, we are evaluating product pricing holistically, and have implemented pricing increases in certain categories to be effective in March and April. Combined with a strong U.S. dollar and stable ocean freight rates this year, we anticipate the recently imposed tariff should have a minimal long-term effect on margin.

"Sales of our eco-friendly products in the fourth quarter increased 11 percent year-over-year and represented 35 percent of total sales. In view of more state and local government legislation requiring recyclable or compostable foodservice products, we expect demand for eco-friendly product lines will continue to accelerate. We are further developing new and innovative products to enhance our competitive position.

"As previously announced, our newly-signed 187,000 square-foot second distribution center in Chino, California will provide the capacity needed, ahead of our summer peak season, to continue to grow our top-line," Yu said.

Fourth Quarter 2024 Financial Results

Net sales for the 2024 fourth quarter increased 6.3 percent to $101.6 million, from $95.6 million in the prior-year quarter. The 2023 fourth quarter included a favorable impact from the adjustment of $4.8 million of online sales platform fees for the first nine months in 2023. The increase for the 2024 fourth quarter was primarily driven by volume growth and change in product mix of $14.6 million, partially offset by a decrease of $3.4 million in online sales platform fees reflecting the impact from the favorable impact in the prior-year quarter, as well as a decrease of $5.4 million from unfavorable year-over-year pricing comparison.

Cost of goods sold for the 2024 fourth quarter increased to $61.8 million, which included an additional import duty charge of $0.6 million on paper shopping bags, from $61.5 million in the prior-year quarter, which included an additional import duty reserve of $2.3 million and the adjustment of $3.4 million of certain production expenses for the first nine months in 2023. Product costs increased $4.2 million year-over-year, primarily as a result of volume growth, partially offset by a favorable impact from reduced vendor pricing, a stronger United States dollar against New Taiwan Dollar, and an increase in imports as a percentage of total product mix, in keeping with our asset-light strategy. The remaining year-over-year increase was primarily related to ocean freight costs, due to an increase in import volume coupled with higher freight container rates.

Gross profit for the 2024 fourth quarter increased 16.8 percent to $39.8 million, from $34.1 million in the prior-year quarter. Gross margin expanded 350 basis points to 39.2 percent in the 2024 fourth quarter, from 35.7 percent in the prior-year quarter, which included a net unfavorable impact of 290 basis points from the adjustments related to online sales platform fees, additional import duty reserve, and production expenses. Gross margin benefited from lower product costs as a percentage of net sales in the 2024 fourth quarter, compared with the prior year quarter, primarily due to more favorable vendor pricing, foreign currency impact and product mix. At the same time, gross margin for the 2024 fourth quarter was negatively impacted by higher freight and duty costs as a percentage of net sales, compared with the prior-year quarter.

Operating expenses for the 2024 fourth quarter increased 10.4 percent to $32.5 million, from $29.5 million in the prior-year quarter. Selling expenses for the 2024 fourth quarter were $13.9 million, compared with $16.0 million in the prior-year quarter, which included the impact from an adjustment of $4.8 million of online sales platform fees and $1.5 million of labor costs for our sales team for the first nine months in 2023. Within selling expenses, marketing and shipping expenses both grew year-over-year due to increased marketing efforts primarily to support online sales growth and increased shipping volume. Online sales platform fee was $3.1 million in the 2024 fourth quarter, compared to $6.4 million in the prior-year quarter, which included the out-of-period adjustment discussed earlier. General and administrative expenses were $18.4 million, compared with $13.2 million from the prior-year quarter, which included a favorable impact from the adjustment of $3.4 million of certain production expenses for the first nine months in 2023 into cost of goods sold, and an unfavorable impact of $1.1 million in write-off of a vendor prepayment upon the resolution of a legal contingency. Additionally, the year-over-year increase in general and administrative expenses was driven by increases in labor costs and rent expense from workforce expansion and additional leased warehouses, as well as higher stock-based compensation costs.

Net income for the 2024 fourth quarter increased 40.3 percent to $5.9 million, from $4.2 million in the prior-year quarter. Net income margin was 5.8 percent in the 2024 fourth quarter, compared with 4.4 percent in the prior-year quarter.

Net income attributable to Karat for the 2024 fourth quarter increased 44.0 percent to $5.6 million, or $0.28 per diluted share, from $3.9 million in prior-year quarter, or $0.19 per diluted share.

Adjusted EBITDA, a non-GAAP measure defined below, increased to $11.3 million for the 2024 fourth quarter, from $8.6 million for the prior-year quarter. Adjusted EBITDA margin, a non-GAAP measure defined below, was 11.1 percent of net sales for the 2024 fourth quarter, compared with 9.0 percent for the prior-year quarter.

Adjusted diluted earnings per common share, a non-GAAP measure defined below, rose to $0.29 per share for the 2024 fourth quarter, from $0.24 per share for the same quarter last year.

2024 Full Year Results

Net sales for the year ended December 31, 2024 increased 4.2 percent to $422.6 million, from $405.7 million in the prior year. The year-over-year increase was primarily driven by an increase of $36.7 million in volume growth and change in product mix, an increase of $4.6 million in online sales platform fees due to higher sales within the e-commerce channel in the current year, and an increase of $0.8 million in logistics and shipping revenue. Such increases were partially offset by $25.2 million of unfavorable year-over-year pricing comparison, as the overall pricing environment remained competitive especially in the distributor channel.

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March 13, 2025 16:05 ET (20:05 GMT)