Hamilton Beach Brands Holding Co. Class A Stock

Thank you. Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. Thank you. So without further ado, I would like to turn the call over to Avanti Chiruvelith, Vice President with ICR.

Avanti, you have the floor.

Thanks, Jillian. Good afternoon, everyone, and welcome to the second quarter of 2026 Earnings Conference Call and Webcast for Hamilton Beach Grants. Earlier today, after the stock market closed, we issued our second quarter 2026 earnings release, which is available on our corporate website. Our speakers today are Scott Tidy, President and CEO, and Sally Cunningham, Senior Vice President, Chief Financial Officer, and Treasurer. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A. additional information regarding these risks and uncertainties is available in our 10Q, our earnings release, and our annual report on Form 10K for the year ended December 31st, 2025. The company disclaims any obligation to update these forward looking statements, which may not be updated until our quarterly conference call, our next conference call, if at all. The company also discusses certain non-GAAP measures.

Reconciliation for Regulation G purposes can be found in our earnings release. And now I'll turn the call over to Scott. Scott?.

Thank you, Avanti, and good afternoon, everyone. Thank you for joining us today. We were pleased to report a solid second quarter, highlighted by meaningful improvement in our underlying operating performance, even before considering a significant one-time tariff refund we received during the quarter. Net sales increased low double digits driven primarily by the recovery of U.S. consumer volumes that we lost in the second quarter of last year. As you will recall, several retailers paused purchasing to reevaluate their inventory levels in response to the tariff environment at that time. We also experienced a nice improvement in gross margin. In Q2, we again benefited from our foreign trade zone, selling inventory that wasn't subject to additional tariff charges, in addition to other tariff mitigation actions, including diversifying our sourcing strategy and selectively raising prices. margin expansion more than offset increased investments in marketing and some non-operational expenses that Sally will detail shortly to deliver higher operating profit than a year ago.

As you saw from our earnings release, our reported results benefited from refunds following the U.S. Supreme Court's February ruling on IEPA tariffs. very pleased to have received these funds, especially after the amount of work and cost we incurred after they were implemented in April of 2025. Our current plan is to reinvest a portion of these proceeds back into the business to help drive long-term growth. Turning now to our five strategic growth pillars, I want to update you on the progress we made in each of them during the second quarter. Starting with driving growth of our core business. Our new product pipeline continues to progress well. We remain on track to launch two new single serve coffee platforms in the second half of the year, which will bring much needed innovation to that category.

We're also pleased with the initial results from our recent placements at a leading mass market retailer, and we've added shelf space at two of the top wholesale membership clubs, both of which we mentioned last quarter. We're also ramping up with our new advertising agency, which will help oversee and drive our digital marketing strategy, providing significant awareness of the Hamilton Beach brand starting in the second half of the year. Moving to gaining a larger share in the premium market, we launched Lotus Professional to the broader market during the second quarter, building on strong results we saw from last year's initial rollout. We remain on track to launch Lotus Signature in the fourth quarter of this year and early next year, and we continue to believe the premium category represents a significant long-term growth opportunity given our still small share of that market. At the same time, our CHI business is also building momentum. A leading mass market retailer continues to support three CHI steam irons and three CHI garment steamers in stores and online. And we've expanded the online assortment with the new CHI collapsible steamer and CHI deluxe retractable cord steamer.

Another national retailer added the CHI Travel Steamer in the second quarter, while a leading warehouse club added the CHI Lava 360 Precision Iron online earlier this year. Also, based on strong results from a recent test at a top department store, we're expanding the CHI 360 precision iron to all of their doors in the third quarter. Turning to leading in the global commercial market, we are on track to add our Clips Blender at a leading national coffee chain, while at the same time we picked up a spindle mixer placement at a leading US fast food company's Central America locations. And as we anniversary the launch of our Sunkist commercial juicers and sectionizers, that business continues to exceed our expectations. In new product news, we are launching our high-performance Titan food processor in the fourth quarter, targeting the roughly 90 million global food processor market. We believe our features and pricing will be highly competitive, and interest from several regional food chains soon testing the product has been higher than any new product launch we've seen. in years. In hospitality, we've recently added our irons and hair dryers to a national hotel chain across approximately 770 US locations and now we're pursuing the same program with six to seven additional flagship chains.

Moving to accelerating our digital transformation. We are advancing three coordinated initiatives to make sure Hamilton Beach stays discoverable and preferred as consumers' shopping shifts to AI-driven search. First, we're scaling AI optimized content across our catalog with a 500 SKU content build underway to structure our products for discovery on leading AI platforms. Second, we're piloting paid AI advertising as a new growth channel, running a controlled three-month test on ChatGPT's newly launched ad platform to inform a scale decision ahead of the fourth quarter. And third, we're building the measurement infrastructure to give us product level visibility into how AI platforms recommend us versus our competitors so we can turn this investment into a measurable driver of revenue. Finally, on accelerating growth of Hamilton Beach Health. The second quarter marked the fourth consecutive quarter of profitable growth for this business, and we are on track to increase sales by 50% this year.

We've now managed more than 1.2 million injections and that number is projected to keep growing as we continue to make excellent progress expanding our reach by adding more specialty pharmacy and pharmaceutical company partnerships. And as announced last quarter, we are broadening our connected medical device platform beyond our core injectable medication management with the third quarter pilot launch of our pill management platform, which is designed to improve medication adherence and provide valuable patient feedback. We are initially targeting dermatology and rheumatology treatment areas with plans to expand to other therapeutic areas as we validate the platform's effectiveness. This expansion represents a significant opportunity to address additional patient pain points and grow our distribution network with large specialty pharmacies. In closing, we are pleased with the underlying momentum in the business. With the investment we are making in promotions and marketing, we believe we are still well positioned to continue driving top-line growth in the back half of the year and beyond. I want to thank our teams for their continued hard work and execution this quarter.

Their efforts to navigate a still evolving tariff environment while improving our margins and profitability reflect the resilience and commitment that defines our organization.

With that, I'll turn it over to Sally. Good afternoon, everyone. Echoing Scott's comments, we are pleased with our start to the year, especially our gross margin and operating profit performances. For the second quarter, revenue was $142.6 million, up 11.6% compared to $127.8 million a year ago. The increase was driven primarily by the recovery of our U.S. consumer business as retailers paused buying in the year-ago period as they assessed inventory levels and price increases following the implementation of higher tariffs by the U.S. in April of last year. Turning to gross profit and margin, gross profit was $77.5 million in the second quarter, compared to $35.1 million in the year-ago period. and gross profit margin was 54.3% compared to 27.5% in last year's second quarter. Significant improvement in gross profit margin was driven by the $36.5 million IEPA Tariff Refund. While approximately 260 basis points of the increase year over year was from sell-through of inventory that was priced in anticipation of IEFA tariffs that were eliminated following the Supreme Court's ruling in February.

Excluding these benefits, gross margins in Q2 this year were 26.1% in line with our expectations. Selling, general, and administrative expenses increased to $34.3 million compared to $29.2 million in the second quarter of 2025. Increase was primarily driven by higher performance-based incentive expense as last year was lower than normal due to our projected performance at that time. along with $1.4 million in accelerated depreciation of our legacy ERP system, which we are in the process of replacing. Our operating profit increased $37.3 million to $43.2 million compared to $5.9 million in the second quarter of 2025, driven by the tariff refund. Income tax expense was $10.9 million compared to $1.6 million in the second quarter of 2025. And our tax rate was 24.5% this year compared to 25.9% last year. Net income in the second quarter was $33.7 million or $2.49 per diluted share compared to net income of $4.5 million or $0.33 per diluted share a year ago.

Now, turning to our balance sheet and cash flows. For the six months ended June 30, 2026, net cash provided by operating activities was $61.5 million compared to net cash used for operating activities of $23.8 million for the six months ended June 30, 2025. The The increase was primarily driven by IEPA tariff refunds and lower working capital due to lower inventory levels. Inventory on June 30, 2026 was $115.1 million, down 28.2% from $160.4 million on June 30, During the second quarter of 2026, we allocated our cash flow to repurchase approximately 98,000 shares totaling $2 million. and paid $1.7 million in dividends. At the end of the second quarter, our net cash position was $51.5 million, compared to a net debt of $38.7 million on June 30, 2025. Turning now to our outlook for the remainder of 2026. As a reminder, our initial outlook for this year didn't include any potential tariff refunds.

Therefore, to provide a clear view of our projected operating performance, we are excluding the refund from our forward-looking comments. Year to date, the business on an operating basis has performed in line with our expectations, and we continue to expect 2026 revenue growth to approach the mid-single digit range. With respect to gross margins, as we said in our Q1 call, we are reinvesting the upside from the sell-through of inventory in our free trade zone that was priced in anticipation of IEBA tariffs into additional promotional programs to drive demand. While in the second quarter, gross margins also benefited from the sale of free inventory. This upside is largely offset in the second half of the year by higher commodity costs and higher freight rates. Based on our results thus far, and based on the current tariff rates, we are now expecting our 2026 gross margins to improve modestly over 2025's level. from our prior outlook for gross margins to be similar to slightly better. Operating profit is now expected to be down high single digits, inclusive of incremental $6 million in planned advertising spend in 2026 to support our growth initiative, and approximately $6 million in accelerated depreciation associated with our legacy ERP system compared to our prior guidance for a low teens percentage decline.

Cash flow from operating activities, thus cash used for investing activities for 2026, is still expected to be in the range of $35 to $45 million, reflecting an outsized increase due to the normalization of tariff-related impacts on networking capital. With respect to the refund, we plan to reinvest a portion of the proceeds over the second half of 2026 into an additional brand building and marketing programs aimed at driving awareness and demand next year and beyond. Also, regarding next year, we believe we have opportunities to further improve our gross margins, excluding any impact from future changes in tariff rates, thanks to the action we've taken around pricing and sourcing over the last 12 months combined with the continued growth of our higher margin commercial and health businesses. To close, we are pleased with our performance year to date, and we continue to be optimistic about our prospects in the second half. diversified business model, strong brand portfolio, and the work we've done strengthening our foundation positions the company to capitalize on improving market conditions this year and create a platform to deliver sustainable growth and shareholder value over the long term. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Adam Bradley with AJB Capital. Adam, your line is open. Please go ahead.

Hi, Scott and Sally. Lots of cash in the bank. generated this quarter, but what appears to be a significant slowdown in share repurchases. even less so than share buybacks have added cash. Can you tell us a little bit about that?.

Hey Adam, it's Sally. Good to hear from you again. Hey, you know our capital allocation philosophy hasn't really changed. Our share repurchases continue to be based on a number of factors including our outlook, what we plan to do with the cash, and other strategic as well as honestly the float that's out there and it's available for repurchase. So I think we haven't made any deviations from our philosophy and we're continuing to buy shares accordingly.

Okay. And just kind of bigger picture than over the last couple of years, there's been this allocation of a little less than half of net income to dividends and repurchases, you know, net of stock-based comp. And the rest has been to cash. So help investors, help me help investors. How does leadership, how does the board think about capital allocation and its impact on investor value, investor returns? given that, yes, given kind of what we've seen over the last few years.

I mean, I'll start and if Scott wants to add to something, that would be great. But you know, the philosophy hasn't really changed. I mean, the board of directors, you know, and management are continuing to be very invested in long-term shareholder value. whether that's returning that value through dividends and share repurchases, or whether that's future investments into the company to help drive growth and higher EPS. So we take it very seriously and we're looking at it on a very frequent basis, but that hasn't really changed. Scott, I don't know if you wanna add anything to that. I think Adam, again, we look at,.

we think we've got great momentum across the strategic initiatives and we think there's there's areas to be investing in those to drive additional growth and and so we're going to continue to look at those opportunities and and invest appropriately.

Okay, thanks. Thank you. There are no further questions in the queue. We have reached the end of the Q&A session. That concludes our call for today. Thank you all for joining. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good afternoon, everyone, and welcome to the First Quarter 2026 Earnings Conference Call and Webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our first quarter 2026 earnings release, which is available on our corporate website. Our speakers today are Scott Tidey, President and CEO; and Sally Cunningham, Senior Vice President, Chief Financial Officer and Treasurer.

Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A.

Additional information regarding these risks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31, 2025. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our quarterly conference call, our next quarterly conference call, if at all. The company will also discuss certain non-GAAP measures. Reconciliation for Regulation G purposes can be found in our earnings release.

And I'll now turn the call over to Scott. Scott?

Thank you, Brendan, and good afternoon, everyone. Thank you for joining us today. We are pleased to report first quarter profitability that exceeded our expectations. First quarter revenue was expected to be down year-over-year as we are up against a challenging comparison. And while it declined slightly more than planned, we delivered exceptional gross margin expansion of 510 basis points, which drove operating profit growth of 115% to $5 million.

Sales were modestly below our expectations, primarily because March was softer than planned. Consumers remained under pressure and discretionary spending weakened in parts of our business. The impact was most pronounced in our U.S. consumer business, where shoppers in our price segments appear to be especially affected by elevated fuel costs. At the same time, our gross margin performance was slightly -- was significantly stronger than planned.

Thanks to the implementation of foreign trade zone last year in our distribution center, we were able to quickly capitalize on the Supreme Court's ruling on IEEPA tariffs in late February, shipping certain products in March that had no additional tariff charges. First quarter gross margins also benefited from other tariff mitigation actions, including diversifying our sourcing strategy and selectively raising prices, the latter of which will continue to be a tailwind in the second quarter due to the delta in the timing between the price increases and higher costs hitting our P&L. This margin expansion more than offset modest sales shortfalls and resulted in profitability that exceeded our expectations.

Besides the recent global uncertainties, we continue to make meaningful progress on our five strategic initiatives, and I wanted to update you on each of these. Starting with driving growth of our core business. We are executing well on our product innovation pipeline. Our three new innovative blender kitchen systems are gaining traction in the market, bringing fresh innovation to one of our strongest categories. The redesigned Durathon iron platform launched during the quarter with exceptional reception, building success on an established Durathon technology. We are particularly excited about our expansion into the garment steamers with new models and believe we are well positioned to capture share in this large and growing segment.

Looking ahead, our two new single-serve coffee platforms launching in the second half of the year will bring needed innovation to another important category. Additionally, we recently picked up placements for multiple product categories. This includes expanding several programs with a leading department store in the fall, adding shelf space at two top wholesale membership clubs and increasing penetration with a leading mass market retailer. These wins are being supported by our significantly increased investment in digital, social media and influencer marketing, which is helping us connect with consumers in new and more efficient ways. Moving to accelerating our digital transformation.

The consumer shopping journey continues to evolve rapidly, and we're adapting our approach to meet them where they are. We're leveraging our strong foundation of e-commerce capabilities and our consistently higher consumer reviews and ratings, which average above four stars across our brands to drive discoverability and conversion. Our increased advertising investment is focused on ensuring we are present and relevant when consumers are making purchase decisions. We've added resources specifically focused on improving our discoverability across platforms and sharpening our AI shopping tactics to stay ahead of the curve as generative AI increasingly influences shopping behavior. And we are excited to announce that we recently selected a new advertising agency that will help oversee and drive our digital marketing strategy starting in the second half of the year.

Gaining a larger share in the premium market is our next strategic initiative. The premium market represents approximately half of the $9 billion U.S. appliance market, and we currently hold only about a 1% share in this segment, providing us with tremendous runway for growth. Our Lotus brand expansion continues to exceed expectations. Following the strong double-digit sell-through results we achieved with the Lotus Professional launch in 2025, we're preparing for the fall launch of Lotus Signature. Our key retail partner has committed to expanding shelf space based on the brand's performance, which validates our strategy and provides a platform for accelerated growth. Turning to leading in the global commercial market.

Our commercial business continues to gain traction and represents a significant growth opportunity. The Summit Edge high-performance blender remains a cornerstone of our commercial strategy. We're deepening our relationships with large food service and hospitality chains with particular emphasis on regional and global penetration.

To that end, another of our commercial blenders, the Eclipse, will soon be added to a leading national coffee chain. Meanwhile, we recently picked up a spindle maker placement for a leading U.S.-based fast foods chain for their Central America locations.

Lastly, our Sunkist commercial juicers and sectionizers, which we launched in the second quarter of last year, continue to exceed expectations with accelerating demand from leading restaurants, hospitality chains and schools. Finally, accelerating growth of Hamilton Beach Health. The first quarter marked the third consecutive quarter of profitable growth for this business, and we are on track to increase sales by 50% this year. We're making excellent progress expanding our injectable reach by adding more specialty pharmacy and pharmaceutical company partnerships.

We recently signed on a new injectable drug that will be available on our Smart Sharps Bin platform starting this quarter. At the same time, we are broadening our connected medical device platform beyond our core injectable medication management. In the third quarter, we will launch the pilot of our pill management platform, which is designed to improve medication adherence and provide valuable patient feedback. We are initially targeting oncology and mental health treatments with plans to expand other therapeutic areas as we validate the platform's effectiveness. This expansion represents a significant opportunity to address additional patient pain points and grow our distribution network with large specialty pharmacies.

As Sally will discuss shortly, we remain confident in delivering our 2026 financial goals despite the recent downturn in consumer sentiment. In addition to comparisons beginning to ease starting in April, which has helped our recent trend line, we plan to reinvest the margin upside from the first quarter into additional promotional programs to help drive demand in the current environment. Looking past the current headwinds, we believe our diversified business model across consumer, commercial and health, combined with our strong brand portfolio and the strategic initiatives we're executing provides multiple avenues for growth and positions us well to capitalize on opportunities as market conditions continue to stabilize.

I want to thank our teams for their continued dedication and execution. Their agility in navigating the March consumer headwinds while delivering exceptional margin performance exemplifies the resilience and commitment that defines our organization. With that, I'll turn it over to Sally.

Good afternoon, everyone. Echoing Scott's comments, we are pleased with our start to the year, especially our gross margin and operating profit performances. For the first quarter, revenue was $122 million compared to $103.4 million a year ago, a decline of 8.6%. The revenue decline was primarily driven by lower volumes in our U.S. consumer business as we lapped our highest growth rate from last year.

The lower volumes in our U.S. consumer business were partially offset by higher prices, and our overall results include another quarter of robust sales growth from our healthcare division. Turning to gross profit and margin. Gross profit was $36.2 million in the first quarter, up 10.4% compared to $32.8 million in the year ago period. Gross profit margin was 29.7% compared to 24.6% of total revenue in last year's first quarter. The 510-basis point improvement in gross profit margin was due to favorable pricing and customer mix, partially offset by higher product costs.

I want to highlight that the margin improvement included a one-time benefit of 190 basis points related to the sell-through of inventory that was priced in anticipation of IEEPA tariffs that were eliminated following the Supreme Court ruling. This benefit is nonrecurring and will not persist beyond the sell-through of affected inventory. The other 320 basis points of improvement was driven by the timing of our price increases that Scott touched on earlier that will normalize as we get into the second half of the year and increased penetration of our higher-margin commercial and health care business.

Selling, general and administrative expenses increased $31.2 million compared to $30.5 million in the first quarter of 2025. The increase was primarily driven by $1.4 million in accelerated depreciation of our legacy ERP system, which we are in the process of replacing, partially offset by the benefit of restructuring actions we took during the second quarter of last year.

Our strong gross margin gain allowed us to more than double our operating profit to $5 million compared to $2.3 million in the first quarter of 2025. Income tax expense was $1.4 million in the first quarter compared to $700,000 a year ago. And net income in the first quarter was $3.5 million or $0.26 per diluted share compared to net income of $1.8 million or $0.13 per diluted share a year ago.

Now turning to our balance sheet and cash flows. For the three months ended March 31, 2026, net cash provided by operating activities was $3.3 million compared to $6.6 million for the three months ended March 31, 2025. The decrease was primarily driven by higher net working capital, including a planned increase in accounts receivable following our decision to exit the arrangement with a financial institution to sell certain U.S. trade receivables of a single customer, which shifted the timing of cash receipts. This was partially offset by lower incentive payout compared to 2025.

During the first quarter of 2026, we allocated our cash flow to repurchase approximately 55,000 shares totaling $900,000 and paid $1.6 million in dividends. At the end of the first quarter, net debt was $2.6 million compared to net debt of $1.7 million on March 31, 2025. Turning now to our outlook for 2026.

We are reiterating our previously issued guidance. We continue to expect revenue growth to approach the mid-single-digit range. Gross margins are still projected to be similar to slightly better than 2025 level as we reinvest the upside from Q1 into additional promotional programs to drive demand, while operating profit on a reported basis is expected to decline low teens on a percentage basis, inclusive of an incremental $6 million in planned advertising spend in 2026 to support our strategic growth initiatives and approximately $6 million in accelerated depreciation associated with our legacy ERP system.

Cash flow from operating activities less cash used for investing activities for 2026 is expected to be in the $35 million to $45 million range. Our current earnings and cash flow outlook excludes any potential impact from IEEPA-related refunds, which total approximately $41 million of tariffs paid in 2025 and early 2026 that the company is actively pursuing. However, the timing and ultimate recovery remain uncertain.

In closing, we entered 2026 with building momentum and renewed confidence in our ability to deliver sustainable growth and shareholder value. Our diversified business model, strong brand portfolio, and the work we've done strengthening our foundation position the company to capitalize on improving market conditions this year and create a platform for long-term growth. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A.

[Operator Instructions] Your first question comes from the line of Adam Bradley from AJB Capital.

Question about Lotus. The investment behind them, and just how things are going, and if we should expect additional investment behind Lotus beyond 2026.

Adam, this is Scott. So yes, as we indicated, we had a great launch with our initial exclusive national chain in the back half of 2025. That exclusivity with that chain ended in the first quarter of 2026. So we are now rolling that out, Lotus Professional, out to other retail customers as we speak. And as mentioned, we're super excited about launching Lotus Signature later in the year, which will be closer to the holiday time period. And we did support the business of several million dollars last year, and we expect to do so with more this year. And that would continue through into 2027 as well and beyond.

All right. So is there -- will there be a time -- given the level of investment, what are your kind of long-term expectations for Lotus?

I don't think we have a dollar revenue amount that we're going to put out there and project. I think that we believe that we can go in and grab multiple share points in this very large segment of the small kitchen appliances. And we've got what we believe is very targeted retailers to be able to do that. Those are both brick-and-mortar and online customers that we feel like are more in the premium position. And the revenue will come. Again, we're willing to commit. We know this is building our own brands, so we're willing to commit to the advertising investment behind it to build that brand awareness.

[Operator Instructions] There are no further questions in the queue. That concludes our question-and-answer session. That also concludes our call for today. Thank you all for joining, and you may now disconnect.

Thank you for standing by. At this time, I would like to welcome everyone to Hamilton Beach Brands 2025 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] So without further ado, I would like to turn the call over to Brendon Frey, you have the floor.

Thanks, Krista. Good afternoon, everyone, and welcome to the Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our fourth quarter and full year 2025 earnings release, which is available on our corporate website. Our speakers today are Scott Tidey, President and CEO; and Sally Cunningham, Senior Vice President, Chief Financial Officer and Treasurer. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31, 2024.

The company disclaims any obligation to update these forward-looking statements, which may not be updated until our quarterly conference call, our next quarterly conference call, if at all. The company will also discuss certain non-GAAP measures. Reconciliation for Regulation G purposes can be found in our earnings release.

And now I'll turn the call over to Scott. Scott?

Thank you, Brendon and good afternoon, everyone. Thank you for joining us today. We are pleased with our fourth quarter results, which meaningfully exceeded our expectations and represent an important step forward and our recovery from the tariff-related disruptions we faced throughout 2025. Fourth quarter revenue was nearly flat with the year-ago period with gains in commercial and health, offset by a modest decline in our core consumer business. Our top line performance represents a significant sequential improvement from the double-digit declines we experienced in the second and third quarters and demonstrates both the resilience of our business model and the effectiveness of the strategic actions we implemented throughout the year.

At the same time, we grew fourth quarter operating profit by 8%, driven by a 220 basis point year-over-year increase in gross margins to 28.3%, which was more than 700 basis points higher than the third quarter. This improvement reflects the successful implementation of our pricing strategies, improved customer and product mix and continued ramp-up of our commercial and health divisions.

We are very encouraged with our overall results to close out what was a tumultuous year. Looking back on 2025, it was undoubtedly a challenging period marked with unprecedented tariff increases that created a significant industry-wide disruption. That said, full year revenue was only down approximately 7% and with the decline coming from lower volumes in our U.S. consumer business as retailers adjusted their buying patterns in response to higher tariffs, including suspending purchasing for a 6-week period in April and May at the height of the tariff uncertainty.

And if you exclude the $5.3 million in onetime incremental tariffs we incurred in 2025 and the $1.6 million from the accelerated depreciation and write-off associated with our legacy ERP system, our full year operating profit was $0.3 million above 2024 levels.

I'm incredibly proud of how our team responded with agility and decisive action. We successfully navigated through the most difficult period in the second quarter when sales declined high teens, and we've seen sequential improvement each quarter since then, culminating with near parity in Q4's year-over-year comparison. The strategic actions we implemented, including manufacturing diversification away from China, selective pricing adjustments, comprehensive cost management measures and proactive inventory management have positioned us well for a return to growth in 2026.

Despite the challenging environment, we continue to execute against our strategic initiatives, and I'm particularly excited about the progress we've made in several key areas. Our premium business delivered a major step forward with the successful launch of our Lotus brand. The initial sell-through results have exceeded our expectations by strong double digits, which is remarkable for a new premium line. Based on this early success, our key retailer has committed to increased shelf space as we position Lotus for broader market reach.

Our commercial business delivered very good results throughout 2025, representing about 10% of total revenue with significant room for growth. Our commercial business grew over 15% for the year, driven by our Summit Edge blender with advanced blending and mixing technologies which can be found globally in major restaurant and convenience stores.

Another major highlight from the past year was our agreement with Sunkist to develop and market Sunkist branded commercial users and sectionizers. Launched in Q2, results continue to exceed expectations as demand from leading restaurants, hospitality chains and schools for these innovative products has accelerated faster than we anticipated.

Hamilton Beach Health reached a significant milestone, achieving positive operating profit in the third quarter of 2025, just 18 months after the Health Beacon acquisition and again in the fourth quarter, this performance was driven by expanding our specialty pharmacy partnerships with new agreements, including Center well and Lumacera, successfully launching our Healthpeak and Harmony software products with Novartis and achieving our goal of increasing our patient subscription base by 50% this year.

Before moving to our view of this coming year, I wanted to emphasize the significant progress we've made in reducing our tariff exposure and strengthening our supply chain resilience. Tariffs currently at parity across the APAC countries we source from. We built a core competency that allows us to shift manufacturing between countries based on economic benefits. In some cases, it's more economically beneficial to manufacture in China, while in others, it's more cost-effective to source production from Vietnam, Thailand or Indonesia.

This flexibility allows us to react quicker should tariff rates for 1 or more of these countries change or the administration tariff policies change like they did following the Supreme Court's decision last Friday.

Looking ahead to 2026, we're particularly excited about several growth drivers. Starting with driving growth of our core business. Our robust pipeline of new products in high-growth categories like blender kitchen systems, Garnet Care and single-serve coffee position us well for further market share gains. In the coming quarters, we will be bringing to market 3 new blender systems; a redesign of our successful Durathon iron platform; new Durathon and sheet garment steamers; a large segment, we believe, can grow significantly and 2 new single-serve coffee platforms, bringing much-needed innovation to the space.

In support of these initiatives, we are making incremental investments and innovation to drive growth while significantly increasing our investment in digital, social media and influencer marketing. This also ties into our initiative to accelerate our digital transformation. The way the consumer is exposed to our brands and products has changed dramatically over the last 5 years. add generative AI assisted shopping, and this will only accelerate changing shopping habits in the years to come. We start with a strong foundation with our e-commerce capabilities. We enforce that foundation with consistent, strong consumer reviews and ratings averaging above 4 stars across our brands.

However, we are having to pivot quickly to better connect with the consumer. We must be relevant when the consumer decides to buy their appliance, and we must be present and featured across a variety of platforms to influence their purchase decision. To do this, in 2026, we've increased our advertising investment to more than the past 4 years combined and invested in resources to improve discoverability with consumers and sharpen our AI shopping tactics.

Moving to our third initiative, gaining a larger share in the premium market. A big part of this strategy revolves around the LOTUS brand expansion. Lotus is more than just a brand of chef-inspired tools. It is a promise of culinary confidence, a philosophy focused on savoring and sharing passionate preparation and its delicious results. Both lines, LOTUS Professional, which launched in 2025 and Lotus Signature scheduled to launch this fall, play in the biggest premium categories at premium price points. This validates our strategy to capture share in the premium market, which represents approximately half of the U.S. appliance market totaling over $4 billion, where we currently hold only about 1% market share providing significant growth runway.

We're supporting these launches with $6 million in marketing investment over the 15-month window, including $2 million spent in 2025. Our fourth initiative is to lead in the global commercial market. We're focused on new channel penetration and expanding relationships with large food service and hospitality chains with particular emphasis on regional and global chain penetration. The Summit Edge high-performance blender continues to be a big success, carefully engineered and built to last for years of reliable performance the Summit Edge continues to be placed in chains across the world. The team is also partnering with several large teams to launch multiple automated beverage products that deliver high-quality outcomes for their new menu items.

Our final initiative is to accelerate growth of Hamilton Beach Health. Our primary product is currently the Smart Sharps Bin for injectable medication management. Our plan going forward is to broaden our offering, including products that combine hardware and software to solve in-home patient pain points and expand our distribution network with other large specialty pharmacies.

To date, we've been focused on expanding our injectable reach by adding more specialty pharmacies and pharmaceutical companies to the platform. In the second quarter, we will be in trial with the pill management platform aimed at improving adherence and providing patient feedback. We are targeting the areas of oncologic and mental health with plans to expand in other areas of treatment in the near future.

As you just heard, we have several exciting initiatives in the works and are better than -- as you have just heard, we have several exciting initiatives in the works and our better-than-expected fourth quarter performance has added to our optimism about our growth prospects in the coming year. Sally will provide more specific details about our outlook shortly but we do expect revenue to return to our historical rate of growth in the mid-single-digit range in 2026, even as we face a roughly $22 million sales headwind from the expiration of our license agreement with Bartesian at the end of 2025.

In closing, while 2025 tested our organization in unprecedented ways, we emerge stronger and more resilient. The decisive actions we took have positioned Hamilton Beach Brands to return to growth while maintaining our market leadership, which includes our position as the #2 small kitchen appliance brand in the U.S. by units sold, and #4 in terms of dollars; a position we intend to strengthen even further. We believe that our diversified business model, strong brand portfolio and the strategic investments we've made in premium, commercial and health divisions multiple avenues for growth. The foundation we built through manufacturing diversification, pricing optimization and strategic cost management position us to capitalize on improving market conditions while continuing to invest in the segments that represent our greatest growth opportunities.

We entered 2026 with renewed confidence in our ability to deliver sustainable, long-term growth and shareholder value. I want to thank our global team for their exceptional dedication and execution throughout this fiscal year, their resilience and commitment to our customers and shareholders have been instrumental in positioning us for the recovery ahead.

With that, I'll turn it over to Sally.

Great. Thank you, Scott. Good afternoon, everyone. We closed out 2025 with fourth quarter results that exceeded our expectations across the board, providing us with good momentum to continue our recovery in 2026 from the tariff-related pressure that negatively impacted our performance this past year.

Starting with the fourth quarter. Revenue was $212.9 million compared to $213.5 million a year ago, a decline of just 30 basis points. After growing sales by 4% in Q1, sales were down 18% and 15% in Q2 and Q3, respectively, as we absorb the impact from higher tariffs and their effects on demand. Therefore, we are very pleased with the sharp sequential acceleration in our top line trend we witnessed in Q4 as sales weren't nearly level with the same period of 2024. This performance was driven primarily by growth from our commercial and health businesses, offset by lower sales volumes in our U.S. consumer business.

While down year-over-year, demand for our consumer products improved significantly on a sequential basis as that business further recovers and returns to normalization.

Turning to gross profit and margin. Gross profit was $60.2 million in the fourth quarter, up 8% compared to $55.8 million in the year ago period. Gross profit margin was 28.3% compared to 26.1% of total revenue in last year's fourth quarter. The 220 basis point improvement in gross profit margin due to favorable product and customer mix from the growth in our commercial and health businesses as well as labor and logistics efficiencies and a product margin benefit from the timing of price increases.

Selling, general and administrative expenses increased to $34.7 million, compared to $32.1 million in the fourth quarter of 2024. The increase was primarily driven by higher performance-based compensation expense as we needed to catch up our accrual in the fourth quarter as a result came in higher relative to our projections earlier in the year. This year's SG&A also included $1.5 million in additional advertising spend and $1.6 million from the accelerated depreciation and write-off associated with our legacy ERP system, which we are in the process of replacing partially offset by the restructuring actions we took during the second quarter.

Our strong gross margins -- our strong gross margin gains allowed us to increase operating profit by 8% to $25.4 million compared to $23.6 million in the fourth quarter of 2024, while operating margin expanded by 90 basis points to 11.9% in the fourth quarter of 2025. Net interest expense in the fourth quarter was $430,000 compared to $283,000 a year ago due to higher debt levels partially offset by lower interest rates compared to the year ago period.

Income tax expense was $6.5 million in the fourth quarter compared with a $1 million benefit in the fourth quarter a year ago. This $7.5 million change in our tax is primarily due to a $4.3 million foreign tax benefit and a change in U.S. tax accounting method that benefited the year-ago period. Net income in the fourth quarter was $18.5 million or $1.38 per diluted share compared to net income was $24 million or $1.75 per diluted share a year ago.

In terms of the full year, revenue was $606.9 million, down 7.3% from $654.7 million in 2024. From where things stood midway through the year with respect to tariffs, we are pleased with our ability to navigate these headwinds and in 2025 with sales down less than $50 million. Similarly, we are pleased that full year gross margins were down only 30 basis points to 25.7%, considering we incurred $5.3 million of onetime incremental tariffs in 2025.

On a reported basis, 2025 operating profit was $36.6 million or 6% of sales compared to $43.2 million or 6.6% of sales in 2024. That said, if you exclude the onetime incremental tariff expense and the accelerated depreciation and write-off related to our enterprise software transition, 2025 operating profit actually increased to $43.5 million or 7.2% of sales.

Our full year net income was $26.5 million or $1.95 per share compared to $30.8 million or $2.20 per share in 2024, with effective tax rate of 25.8% and 7.8% in 2025 and 2024, respectively, reflecting the aforementioned nonrecurring foreign tax benefit and change in U.S. tax accounting method in 2024.

Now turning to our balance sheet and cash flows. For the year ended December 31, 2025, net cash provided by operating activities was $13.8 million compared to $65.4 million for the year ended December 31, 2024. The decrease in net cash from operating activities is primarily due to an increase in net working capital, including lower accounts payable as we anniversary the inventory builds of late 2024. In addition, income taxes payable was lower in 2025 due to the impact of the One Big Beautiful Bill, while lower incentive payables decreased other liabilities.

During the 12 months ended December 31, 2025, we allocated our cash flow to repurchase approximately 507,000 shares totaling $9 million and paid $6.4 million in dividends. At the end of 2025, net debt was $2.7 million compared to a net cash of $600,000 on December 31, 2024. I want to highlight that we returned more than 58% of our 2025 net income to shareholders through a combination of share repurchases and dividends.

Now turning to our outlook for 2026. As Scott mentioned, we expect to return to growth in 2026 as our consumer business further stabilizes and we drive further gains in our commercial and health business. Based on the assumption of a more stable operating environment in the U.S. partially offset by the expiration of our licensing agreement with Bartesian at the end of 2025, we currently expect revenue growth to approach the mid-single-digit range in 2026. For modeling purposes, we expect growth to be weighted towards the second and the third quarters. With respect to gross margins, we expect 2026 gross margins to be similar to slightly better than 2025.

Operating profit on a reported basis is expected to decline low teens on a percentage basis, inclusive of approximately $6 million in accelerated depreciation associated with our legacy ERP system and an incremental $6 million in planned advertising spend, particularly in the second half of 2026 to support our strategic growth initiatives.

Cash flow from operating activities less cash used for investing activities for 2026 is expected to be in the range of $35 million to $45 million, reflecting an outsized increase due to the normalization of tariff-related impacts on our net working capital.

In closing, we are pleased to close out 2025 on a high note and believe our strategic initiatives have us well positioned to fuel growth and increase shareholder value in 2026 and beyond. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A.

[Operator Instructions] Your first question comes from the line of Goji Sri with Singular Research.

After -- can you hear me? .

Yes.

Thank you. As you look at early '26, how are your big box partners behaving now that price increases have fully flowed through? Are you seeing any signs of trade down category contraction or promotion pressure that feels different to 2025? .

No. I think our big box retailers are kind of back to business as normal. I mean I think there's a lot of still uncertainty around where the tariff rates will go in the future. But right now, we're running our normal promotions. They're doing their normal promotions. It seems like their inventory and weeks on hand seem to be similar. And I would say things are getting back to a more normalized period.

Okay. And just my follow-up, with the Lotus performing kind of ahead of expectations, how confident are you that the premium growth is net incremental versus cannibalization into your existing good or better offering? Are you seeing any evidence that the premium consumer is distinct in terms of retailer price point usage? Or is there some trade-up from the legacy range? .

Yes. No, I would say Lotus is really completely incremental from where it's positioned and the retailers that have sold in and the price points. I mean, so we're such in different price points from where our core brands are positioned. Lotus is really up in that premium segment at the middle and higher end. And so we see that as all being incremental.

Awesome. I'll just read you.

Your next question comes from the line of Adam Bradley with AJB Capital.

Scott and Sally. Good to see a sales resumption. Can you tell us how much of the sales resumption was restocking in mass versus actual end consumption?

I mean I think the POS, right, was pretty consistent with what we saw.

And then a quick follow-up then. Is the -- can you take us through a little bit more of the $12 million that you highlight in the -- in your release, you got $6 million of the accelerated depreciation plus $6 million of incremental advertising spend? Can you give a little more detail on the parts and the strategy on both of those, for example, where will the advertising be targeted? You mentioned it a little in your comments, but how much is Lotus versus because you mentioned Lotus in the past, how much is Lotus versus all other categories? And then separately, what's leading to the accelerated depreciation of the ERP system? Is it going away? Or what's happening there?

I'll start on the advertising and let Sally take over on the accelerated depreciation. So on the advertising front, it's about a 40-60 split between premium and core with about 40% of it being in the premium and 60% being in the core. And both of them are significant increases from where we've been doing in the past. And both of them will have different strategies because the customer base is very different from those brand positionings.

But at the end of the day, we feel like -- we've got to be much more relevant with our brands and then the consumers looking to shop. And so we got to reach them on a number of different social platforms, and we feel like be growing, like we want to be growing that there's going to be an investment. We're going to continue to try to ramp up.

And then I'll speak to the accelerated depreciation. We -- as part of our strategic initiatives, we're also investing in technology. And so we are upgrading our ERP platform which is causing us to accelerate the depreciation on the existing one. And we're doing that really just to be able to unlock benefits from emerging technologies once we move to the new platform.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] So with further ado, I will turn the call over to Brendon Frey, partner with ICR. Brendon, you have the floor.

Thank you, Tamika. Good afternoon, everyone, and welcome to the Third Quarter 2025 Earnings Conference Call and Webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our third quarter 2025 earnings release, which is available on our corporate website. Our speakers today are Scott Tidey, President and CEO; and Sally Cunningham, Senior Vice President, Chief Financial Officer and Treasurer. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A.

Additional information regarding these remarks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31, 2024. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our quarterly conference call -- our next quarterly conference call, if at all. The company will also discuss certain non-GAAP measures. Reconciliation for Regulation G purposes can be found in our earnings release.

With that, I'll now turn the call over to Scott. Scott?

Thank you, Brendon, and good afternoon, everyone. Thank you for joining us today. Our third quarter performance represents a step in the right direction towards normalization following the significant disruption our industry faced after higher tariffs were implemented in April. As the third quarter progressed, retailers started to resume more typical buying patterns after destocking inventory purchases purchased evident in the sequential improvement in our year-over-year sales trend compared with the second quarter. While profitability declined more meaningful than revenue in Q3, this was driven primarily by onetime incremental tariff costs of $5 million and to a lesser extent, a timing mismatch between ongoing tariff rate increases and our pricing adjustments.

This significant headwind was partially offset by a favorable mix shift led by increased penetration of our higher-margin commercial and health businesses. Importantly, we have fully absorbed the impact on gross margins from the peak tariff rate and have moved forward with a more balanced inventory position and a clear line of sight on returning gross margins more in line with historical levels. This will be achieved over the coming quarters through the strategic actions we've taken in response to higher tariffs. To review, we meaningfully accelerated our margin -- our manufacturing diversification efforts away from China to other APAC countries and remain nimble as multiple trade negotiations played out and agreements are finalized.

With a more diversified geographical sourcing structure, we have the ability to quickly shift our procurement to markets that are in the best economic interest of the business. We took decisive actions, implementing increases at the end of June and August that align with the current tariff rate increases. Our retail partners have been understanding and acceptance of necessary price adjustments, which were carefully balanced to maintain our competitive market position while protecting margins. Our strong brand equity and market leadership have enabled us to take these necessary steps while maintaining our value proposition to consumers.

And we have been implementing comprehensive cost management measures across the organization that generated $10 million in annualized savings with the benefit of these actions starting to materialize in the third quarter. Looking at the performance highlights by business division, our core business continued to expand its reach as we shipped our kitchen collections by Hamilton Beach line to a leading mass market retailer nationwide. This commercial -- this broader rollout increases our already significant retail presence and reinforces our market-leading position across the small appliance space. Looking ahead, our robust pipeline of new products in high-growth categories like blender kitchen systems, specialty coffee and air fryer should position us for further market share gains.

Our premium business continues to perform well, highlighted by the successful launch of our high-end Lotus brand. Initial sell-through results have exceeded expectations by strong double digits, which is remarkable for a new premium line, especially as the majority of our initial advertising support for Lotus is planned for November and December. Based on this performance, we are actively negotiating to increase shelf space, positioning Lotus for even broader market reach. Beyond Lotus, we also have new innovative launches planned across our CHI and Clorox brand partnerships in the coming quarters that should help fuel further growth.

Our commercial business delivered outstanding results in the third quarter. In fact, we believe inventory constraints limited our performance, which speaks to the strong and growing underlying demand for our innovative commercial solutions. Our recent Sunkist brand launch continues to be a resounding success with branded commercial juicers and sectionizers continue to deliver outsized results. Looking ahead, we are focused on accelerating our commercial business expansion through new channel penetration and expansion of our relationships with large food and hospitality chains. Furthermore, we are diversifying our manufacturing base for our commercial line to make sure we are positioned to fully capture the growing market opportunity ahead.

Our newest division, Hamilton Beach Health achieved a major milestone by reaching positive operating profit for the first time this quarter. We're seeing new partnership deals develop, including a new specialty pharmacy partnership with CenterWell and Lumisir, both of which are top 15 specialty pharmacies in the U.S. Additionally, we saw the successful launch of a new HealthBeacon Harmony software product with Novartis Ireland with strong interest for expansion into other markets. Beyond these product advancements, the team has also recently implemented several digital improvements, resulting in a smoother patient experience, lower patient acquisition cost and higher conversion rates.

These new developments, along with expanding our patient subscription base by 50% this year and the conditions treated using our SmartSharp system leave us very excited about HealthBeacon's future. Finally, our digital initiatives continue to gain traction this quarter. We exceeded our point-of-sale expectations during one of the largest digital retail events of the year. Looking ahead, we're placing a large emphasis on digital growth in Q4 to capitalize on the important holiday shopping season.

In closing, we have greater clarity into our cost and pricing architecture now that tariff rates on certain Chinese imports have moderated significantly from the peaks reached in the second quarter and trade relations have improved. While uncertainty in the marketplace remains, we expect the strength of our brand portfolio, recent sourcing diversification efforts and pricing actions will lead to further top line and margin recovery in the fourth quarter. With that, I'll turn it over to Sally.

Great. Thank you, Scott. Good afternoon, everyone. As Scott detailed, our third quarter sales trend improved compared with the second quarter. And while gross margins were down year-over-year, the pressure was largely temporary and the impact from the peak tariff rate on China is now fully behind us. Turning to our results, starting with revenue. Total revenue in the third quarter was $132.8 million, down 15.2% from last year's third quarter, but up 300 basis points compared with the second quarter's year-over-year performance. The revenue decline was primarily driven by lower volumes in our U.S. consumer business, reflecting overall softness in consumer demand as well as timing of retailer purchases, specifically one large retailer that delayed orders for most of the third quarter.

As a reminder, some retailers paused buying in the second quarter to assess inventory levels and price increases flowing from the new tariffs implemented by the United States in April 2025. While most retailers resumed buying in the second quarter, the [indiscernible] negatively affected volumes during the early part of the third quarter. Turning to gross profit and margin. Gross profit was $28 million or 21.1% of total revenue in the third quarter compared to $43.9 million or 28% in the year ago period. The decline in gross profit margin was primarily due to the flow of onetime incremental tariff costs of $5 million, the majority of which are related to the temporary 125% China tariff costs that were in effect for a period of time earlier this year.

Additionally, gross margin was impacted by a delay between tariff-related rising costs and the effective date of pricing adjustments. This created a temporary compression of gross profit margin that we expect to normalize in future periods. It is important to note that excluding the $5 million of 125% onetime tariff costs, gross margin would have been $33 million or 24.8% of total revenue. Selling, general and administrative expenses decreased $8.2 million to $25.1 million or 18.9% of total revenue compared to $33.3 million or 21.2% of total revenue in the third quarter of 2024.

The decrease was primarily driven by $6.8 million of lower personnel costs, including reduced stock-based compensation expense due to changes in our stock price year-over-year as well as benefits associated with the restructuring actions we took in the second quarter. Operating profit was $2.9 million or 2.2% of total revenue compared to $10.6 million or 6.8% of total revenue in the third quarter of 2024 as the temporary impact on gross margins from the peak tariff rate more than offset the expense leverage we delivered in the third quarter. Excluding the $5 million, 125% onetime tariff costs, operating profit would have been $7.9 million or 5.9%. Income before taxes was $2 million compared to $2.7 million.

The prior year period included a onetime noncash charge of $7.6 million related to the termination of the company's overfunded pension plan. Income tax expense was $0.4 million in the third quarter compared to income tax expense of $0.7 million a year ago. Net income was $1.7 million or $0.12 per diluted share compared to net income of $1.9 million or $0.14 per diluted share a year ago. Now turning to our balance sheet and cash flows. For the 9 months ended September 30, 2025, net cash used for operating activities was $14.6 million compared to net cash provided of $35.2 million for the 9 months ended September 30, 2024. The decrease was primarily due to a $27.5 million change in accounts payable due to lower purchasing activity from decreased sales volume and inventory turnover as well as shorter payment terms with new suppliers under the company's China diversification initiatives.

During the 3 months ended September 30, 2025, the company repurchased approximately 39,000 shares totaling $0.6 million and paid $1.6 million in dividends. On September 30, 2025, our net debt position or total debt minus cash and cash equivalents and highly liquid short-term investments was $32.8 million compared to a net debt position of $22.5 million at the end of the prior year period. In closing, we are encouraged with how we have navigated the dynamic trade environment this year. With greater clarity around the go-forward tariff rates for most all of the U.S.'s trade partners, the situation continues to stabilize. We anticipate that our fourth quarter results will show further progress towards improving our sales trend and gross margins.

And while our continued recovery won't be linear in 2026, we expect our annual performance to benefit nicely from the actions we've taken this year, diversifying our sourcing structure and lowering our fixed cost base. This concludes our prepared remarks. We will now turn the line back to the operator for Q&A.

[Operator Instructions] Your first question is from the line of Adam Bradley with AJB Capital.

Thank you for the color around the gross margins. Can you please clarify the 370 basis point or $5 million tariff cost, was that a charge? Or how should we think about that? In the past, I believe you used FIFO accounting, and it's taken time for costs to flow through the P&L. And this seems different. What we hear you saying is that the $5 million charge was recognized in the quarter that those purchases were made. Just some clarity around that to help us understand that better.

Okay. Sure. Adam, so the costs relate to the 125% tariff that was temporarily put in place in the April time frame earlier this year. So you are right. These are costs that were incurred in April of this year that did flow through our P&L in the third quarter. And what it really represents is some containers that we had on the water when this spike in tariff occurred that we are not able to -- or we made the decision to not pass on to the consumer. And so for us to absorb as a onetime cost, and that flowed through in its entirety in the third quarter.

And I think that's a little bit different from kind of the more go-forward increased tariffs that we're seeing from IEPPA in from China and other Asian countries. which we do consider part of our go-forward kind of cost structure and that we have taken actions to cover those additional expenses.

Okay. So the $5 million that you paid, you didn't -- it's not a charge on the P&L separately. It just flowed through in your cost of goods?

Correct.

[Operator Instructions] We do have a follow-up from Adam Bradley.

And can you expand a little bit on a more normalized rate from your largest retailer. Can you give us a little bit more color around that? The second quarter earnings report, you shared that they had pretty -- I may be paraphrasing here, but paused orders. And then it sounds like from what you are stating in this Q3 report that they continue to pause orders. Did they -- did you lose shelf space? Did -- are you back to normal ordering patterns? Are you almost back? What kind of color can you give us on that to help us understand sales trends?

Yes, Adam, this is Scott. So yes, on that customer and specifically, they -- you're right, they did pause placing orders. Their inventories got lower throughout that time period. But if you look now, we've been shipping them now for several months, and we feel like the business is back on track. As we indicated, we had a very robust promotional event in October, and that customer was included, and we exceeded our expectations with that customer. And we really, now looking into the fourth quarter, we feel like we're going to be having a record number of promotional activities this fourth quarter. And that customer, along with many of our other retailers will be part of that.

Are you experiencing any catch-up of inventory to replace what was lost? Or is it more of a normal flow?

I think we're kind of in the normal flow right now. I mean we had a little bit of a catch-up. The market has been a little bit different depending on the category of lower in units, but up in dollars because of price increases. But I think we're kind of back into a normalized pattern with this customer.

Okay. Great. Are you seeing a different behavior from other large customers? Or is it consistent with some of the larger ones?

No. I think for the most part, we feel like we're in a normal cadence with a lot of our -- a lot of -- I mean, actually probably with all of our retail partners. There was definitely that time period where they stalled in the second quarter, took a hard look. Some people were sitting on higher cost inventory that due to these surprising 125% tariffs and everybody is trying to figure that out. But I think really for the last -- most of the third quarter, with the exception of this one retailer, we were shipping as normal and promoting.

At this time, there are no further audio questions. I will now hand the call back over to our speakers for any closing remarks.

Thank you, Tamika. I think that's it from the Hamilton Beach brands. Appreciate everybody's time.

This concludes today's call. Thank you for joining. You may now disconnect your lines.