[Management View]
Key metrics, strategic priorities: Management reported a gross margin decline to 21.1% due to a one-time $5 million tariff cost. Total revenue fell 15.2% YoY, driven by softer U.S. consumer demand and delayed orders from a key retailer. Strategic priorities include manufacturing diversification away from China, new product launches, and cost management initiatives.

[Outlook]
Performance guidance, future plans: Management anticipates margin recovery and top-line improvement in the upcoming quarter due to completed actions and retailer inventory normalization. A broad product rollout and a focus on premium segments and digital initiatives are expected to capture market share as demand recovers.

[Financial Performance]
YoY/QoQ trends compared to expectations/estimates: Total revenue was $132.8 million, down 15.2% YoY. Gross profit was $28 million, representing 21.1% of revenue, down from $43.9 million and 28% in Q3 2024. Adjusted gross margin (ex-tariffs) would have been $33 million or 24.8% of revenue. Operating profit was $2.9 million, or 2.2% margin, with adjusted operating profit (ex-tariffs) at $7.9 million or 5.9% of revenue. Net income was $1.7 million, or $0.12 per diluted share, compared with $1.9 million, or $0.14 per diluted share, a year ago.

[Q&A Highlights]
Question 1: Can you please clarify the 370 basis point or $5 million tariff cost? Was that a charge or how should we think about that? (Line breaks here)
Answer: The cost relates to the 125% tariff temporarily put in place in April. These costs incurred in April flowed through the P&L in Q3, representing containers on the water during the tariff spike. This was a one-time cost absorbed in Q3, different from ongoing tariffs covered by pricing actions.

Question 2: Can you expand on a more normalized rate from your largest retailer? Did you lose shelf space? Are you back to normal ordering? (Line breaks here)
Answer: The retailer paused orders, but inventories got lower. We have been shipping for several months, and business is back on track. We had a robust promotional event in October, exceeding expectations. We expect a record number of promotional activities in Q4, with normal flow resuming.

Question 3: Are you experiencing any catch-up of inventory to replace what was lost? Or is it more of a normal flow? (Line breaks here)
Answer: We are in a normal flow now, with a little catch-up. The market has been different, with lower units but higher dollars due to price increases. We are back to a normalized pattern with this customer.

Question 4: Are you seeing different behavior from other large customers? Or is it consistent with some of the larger ones? (Line breaks here)
Answer: We feel like we are in a normal cadence with all retail partners. There was a period of stalling in Q2 due to high-cost inventory from tariffs, but shipping and promoting resumed as normal in Q3.

[Sentiment Analysis]
Tone of analysts/management: Management's tone was cautiously optimistic, emphasizing strategic actions taken to mitigate tariff impacts and improve margins. Analysts focused on understanding the tariff cost implications and retailer order normalization.

[Quarterly Comparison]
| Key Metrics | Q3 2025 | Q3 2024 |
|----------------------------|---------------|---------------|
| Total Revenue | $132.8 million| $156.6 million|
| Gross Profit | $28 million | $43.9 million |
| Gross Margin | 21.1% | 28% |
| Operating Profit | $2.9 million | $10.6 million |
| Net Income | $1.7 million | $1.9 million |
| Net Income per Diluted Share| $0.12 | $0.14 |

[Risks and Concerns]
Risks and concerns content: Gross margin compression due to tariffs, lower sales volume, and increased net debt are key concerns. The temporary nature of tariff costs and the impact of supply chain adjustments pose risks to profitability.

[Final Takeaway]
Hamilton Beach faced significant challenges in Q3 2025 due to a one-time $5 million tariff cost and softer U.S. consumer demand. However, strategic actions such as manufacturing diversification, new product launches, and cost management initiatives are expected to drive margin recovery and top-line improvement in the upcoming quarters. Management remains cautiously optimistic about the future, with a focus on capturing market share through premium segments and digital initiatives.