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Koss Stock Rises 6% Despite Incurring Q2 Loss Due to Tariff Headwinds
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Shares of Koss Corporation (KOSS - Free Report) have gained 6.1% since the company reported its earnings for the quarter ended Dec. 31, 2025. This compares favorably to the S&P 500 index’s 0.1% growth over the same period. Over the past month, the stock has gained 3%, outperforming the S&P 500’s 1.5% increase.
Koss incurred a net loss of 6 cents per share for the second quarter of fiscal 2026 against a net income of 1 cent per share in the year-ago period.
Net sales of $2.9 million marked a 19.6% decline from $3.6 million in the same quarter a year earlier. The decrease was attributed primarily to a nonrecurring surge in new product shipments to Europe in the prior-year period that did not recur at the same scale.
The company incurred a net loss of $0.6 million against a net income of $0.1 million in the year-ago period. The swing to a quarterly loss was driven by lower revenue, a sharp decline in gross margin, and an increase in operating costs.
Koss Corporation Price, Consensus and EPS Surprise
Gross profit for the quarter fell to $0.8 million from $1.4 million in the prior-year quarter, reflecting a 10.5 percentage point decline in gross margin, which dropped to 29% from 39.5%. The erosion in profitability was primarily the result of elevated import tariffs, with certain inventories subject to duties as high as 145%. A more favorable customer mix, driven by higher-margin domestic distributor and direct-to-consumer sales, mitigated some of the pressure.
Selling, general and administrative (SG&A) expenses increased to $1.9 million in the quarter from $1.6 million a year ago, a rise of 19.3%. The main contributor to the increase was $0.3 million in legal fees associated with the resolution of a patent litigation case, which was offset by an equivalent $0.3 million in licensing proceeds recorded as other income. In addition, deferred compensation expenses rose due to both declining discount rates and the accrual of additional service time under the company’s executive plan.
Management Commentary
Management acknowledged that the sharp decline in second-quarter revenue was driven almost entirely by the absence of repeat sales of new products to European distributors, which had significantly boosted revenue in the prior-year period. However, domestic sales rose 3.1% year over year in the quarter, supported by a 31% increase in clear color headphone sales and a 5.3% improvement in direct-to-consumer activity. Export sales, by contrast, fell sharply — down 55.5% in the quarter — due to lower shipments to Europe. Still, sales to Asian distributors rose 115% and helped to soften the overall decline in international sales.
Koss noted that shipping costs rose modestly in the second quarter due to seasonal surcharges, though base rates remained low amid soft demand and sufficient capacity. The company plans to exit its bonded warehouse arrangement due to the stabilization of tariff rates at 20%, opting instead to absorb additional handling costs in exchange for deferred customs payments.
Factors Influencing Headline Numbers
Multiple factors impacted the quarter’s financial results. The most significant was the tariff environment, which saw some inventory taxed at rates as high as 145% during the quarter. Though temporary pauses and reductions were implemented through late 2025, volatility remains, and the company continues to monitor evolving U.S.-China trade policies. Management also cited macroeconomic concerns, including inflationary pressures, a weakening labor market, and declining consumer confidence, as additional headwinds.
On the legal front, the company resolved litigation with PEAG, LLC (doing business as JLab Audio), resulting in $0.3 million in licensing proceeds. These were fully offset by contingent legal fees recorded in SG&A. The company remains engaged in ongoing litigation with Skullcandy, Inc. regarding patent infringement related to wireless audio technology.
Other Developments
The company had no outstanding borrowings under its $5 million credit facility and reported liquidity of $2.5 million in cash and $13 million in short-term investments at quarter-end. Koss reaffirmed that it believes its financial position is sufficient to support working capital and capital expenditure needs over the next 12 months.
The company resolved a separate complaint from One-E-Way, Inc. regarding potential patent infringement at a cost of $0.02 million, which had already been accrued prior to the current quarter.
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Koss Stock Rises 6% Despite Incurring Q2 Loss Due to Tariff Headwinds
Shares of Koss Corporation (KOSS - Free Report) have gained 6.1% since the company reported its earnings for the quarter ended Dec. 31, 2025. This compares favorably to the S&P 500 index’s 0.1% growth over the same period. Over the past month, the stock has gained 3%, outperforming the S&P 500’s 1.5% increase.
Koss incurred a net loss of 6 cents per share for the second quarter of fiscal 2026 against a net income of 1 cent per share in the year-ago period.
Net sales of $2.9 million marked a 19.6% decline from $3.6 million in the same quarter a year earlier. The decrease was attributed primarily to a nonrecurring surge in new product shipments to Europe in the prior-year period that did not recur at the same scale.
The company incurred a net loss of $0.6 million against a net income of $0.1 million in the year-ago period. The swing to a quarterly loss was driven by lower revenue, a sharp decline in gross margin, and an increase in operating costs.
Koss Corporation Price, Consensus and EPS Surprise
Koss Corporation price-consensus-eps-surprise-chart | Koss Corporation Quote
Other Key Business Metrics
Gross profit for the quarter fell to $0.8 million from $1.4 million in the prior-year quarter, reflecting a 10.5 percentage point decline in gross margin, which dropped to 29% from 39.5%. The erosion in profitability was primarily the result of elevated import tariffs, with certain inventories subject to duties as high as 145%. A more favorable customer mix, driven by higher-margin domestic distributor and direct-to-consumer sales, mitigated some of the pressure.
Selling, general and administrative (SG&A) expenses increased to $1.9 million in the quarter from $1.6 million a year ago, a rise of 19.3%. The main contributor to the increase was $0.3 million in legal fees associated with the resolution of a patent litigation case, which was offset by an equivalent $0.3 million in licensing proceeds recorded as other income. In addition, deferred compensation expenses rose due to both declining discount rates and the accrual of additional service time under the company’s executive plan.
Management Commentary
Management acknowledged that the sharp decline in second-quarter revenue was driven almost entirely by the absence of repeat sales of new products to European distributors, which had significantly boosted revenue in the prior-year period. However, domestic sales rose 3.1% year over year in the quarter, supported by a 31% increase in clear color headphone sales and a 5.3% improvement in direct-to-consumer activity. Export sales, by contrast, fell sharply — down 55.5% in the quarter — due to lower shipments to Europe. Still, sales to Asian distributors rose 115% and helped to soften the overall decline in international sales.
Koss noted that shipping costs rose modestly in the second quarter due to seasonal surcharges, though base rates remained low amid soft demand and sufficient capacity. The company plans to exit its bonded warehouse arrangement due to the stabilization of tariff rates at 20%, opting instead to absorb additional handling costs in exchange for deferred customs payments.
Factors Influencing Headline Numbers
Multiple factors impacted the quarter’s financial results. The most significant was the tariff environment, which saw some inventory taxed at rates as high as 145% during the quarter. Though temporary pauses and reductions were implemented through late 2025, volatility remains, and the company continues to monitor evolving U.S.-China trade policies. Management also cited macroeconomic concerns, including inflationary pressures, a weakening labor market, and declining consumer confidence, as additional headwinds.
On the legal front, the company resolved litigation with PEAG, LLC (doing business as JLab Audio), resulting in $0.3 million in licensing proceeds. These were fully offset by contingent legal fees recorded in SG&A. The company remains engaged in ongoing litigation with Skullcandy, Inc. regarding patent infringement related to wireless audio technology.
Other Developments
The company had no outstanding borrowings under its $5 million credit facility and reported liquidity of $2.5 million in cash and $13 million in short-term investments at quarter-end. Koss reaffirmed that it believes its financial position is sufficient to support working capital and capital expenditure needs over the next 12 months.
The company resolved a separate complaint from One-E-Way, Inc. regarding potential patent infringement at a cost of $0.02 million, which had already been accrued prior to the current quarter.