Karat Packaging’s second quarter results were met with a negative market reaction as non-GAAP earnings missed Wall Street’s consensus despite revenue aligning with expectations. Management attributed the quarter’s growth to robust sales volumes, notably from large national chain customers and sustained double-digit gains in key markets like California. CEO Alan Yu emphasized that operational efficiency, including domestic manufacturing ramp-up and a shift to first-party e-commerce fulfillment, supported both margin expansion and cost savings. However, Yu noted that foreign currency headwinds and increased import duties, primarily from new tariffs, weighed on profitability.

Is now the time to buy KRT? Find out in our full research report (it’s free).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Karat Packaging’s Q2 Earnings Call

• Michael Edward Francis (William Blair) asked why pricing was negative despite tariff increases and how this would affect the second half. CEO Alan Yu explained that category-specific increases and sourcing cost reductions should bring price impact closer to neutral going forward.
• Michael Edward Francis (William Blair) questioned the sequential decline in gross margin guidance, asking if tariffs or sourcing shifts were the main contributors. Yu indicated third-quarter margin pressure is due to higher-tariff inventory, with improvement expected as new sourcing initiatives take effect.
• Michael Edward Francis (William Blair) inquired about July sales trends and potential pre-buy activity ahead of tariffs. Yu reported strong July demand, particularly from national chain accounts, and noted some competitors reduced inventory, benefiting Karat’s volumes.
• Joshua R. Axel (UBS) asked about the outlook for online sales growth following the transition away from Amazon FBA. Yu responded that new platforms and expanded SKUs should restore double-digit online growth, especially by the fourth quarter.
• Joshua R. Axel (UBS) sought insight on M&A strategy. Yu said the company remains opportunistic but is focused on targets offering new geographies, products, or customer bases, rather than simply expanding existing lines.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) the pace and effectiveness of Karat Packaging’s sourcing diversification efforts, (2) the trajectory of gross margin recovery as lower-tariff inventory is sold, and (3) the ramp-up of new business from national chain accounts. The evolution of online sales channels and the impact of additional tariffs or currency movements will also be important markers for tracking execution against the company’s strategy.

Karat Packaging currently trades at $26.40, in line with $26.65 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

High-Quality Stocks for All Market Conditions

Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.

Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.

StockStory is growing and hiring equity analyst and marketing roles. Are you a 0 to 1 builder passionate about the markets and AI? See the open roles here.