Executive Summary

Q1 FY2026 delivered a clean top-line and bottom-line inflection: net sales rose 27.1% year over year to $4.07M and net income improved to $0.24M ($0.03 basic/diluted EPS) from a $(0.42)M loss; gross margin expanded 340 bps to 40.0% on stronger DTC mix .
Drivers: a large Education market sale and 22.5% DTC growth, while Europe declined on distributor reorder timing; Asia partially offset export softness .
Tariffs remain a material headwind; sale of China-sourced inventory landed at the highest 145% tariff pressured margins, partially offset by fixed-cost absorption and lower reserves for excess/obsolete inventory .
No formal guidance or call transcript was filed; estimates coverage appears limited (S&P Global EPS/revenue consensus unavailable), so revisions will hinge on margin sustainability and DTC growth cadence (values retrieved from S&P Global).

What Went Well and What Went Wrong

What Went Well

DTC momentum: “22.5% growth in sales in our direct-to-consumer (DTC) business” and “DTC sales benefitted from new product launches” aiding overall sales success .
Margin mix: Gross margin up 340 bps YoY to 40.0% on favorable mix and higher-margin DTC .
Education win: “A considerable sale to our largest Education market customer” drove the quarter’s topline beat .

What Went Wrong

Tariff drag: “adverse impact on gross margins related to the sale of product brought in at the highest 145% tariff on China-produced goods,” with ongoing monitoring required due to China reliance .
Europe timing: Sales to Europe declined YoY as “two largest distributors pushing re-orders to next quarter” .
Operating loss from core operations persisted despite margin gains: loss from operations of $(46,040) in Q1 FY2026, offset by interest income to reach positive net income .

Financial Results

Quarterly financials (oldest → newest)

Metric	Q3 FY2025 (Mar 31, 2025)	Q4 FY2025 (Jun 30, 2025)	Q1 FY2026 (Sep 30, 2025)
Net Sales ($USD)	$2,781,006	$3,084,210	$4,070,778
Gross Profit ($USD)	$1,084,672	$1,111,044	$1,628,692
Gross Margin (%)	39.0% (calc from $1,084,672/$2,781,006)	36.0% (calc from $1,111,044/$3,084,210)	40.0%
SG&A ($USD)	$1,603,678	$1,550,243	$1,674,732
Operating Income ($USD)	$(519,006)	$(439,199)	$(46,040)
Interest Income ($USD)	$208,175	$212,555	$293,128
Net Income ($USD)	$(316,742)	$(232,696)	$243,729
EPS Basic ($USD)	$(0.03)	$(0.02)	$0.03
EPS Diluted ($USD)	$(0.03)	$(0.02)	$0.03
Diluted Shares	9,375,795	9,390,855	9,537,817

Year-over-year and quarter-over-quarter comparisons (Q1 FY2026)

Comparison	Net Sales	Gross Margin	Net Income	EPS (Diluted)
YoY vs Q1 FY2025	+27.1% (to $4.07M)	+340 bps to 40.0%	Improved to $0.24M from $(0.42)M	Improved to $0.03 from $(0.05)
QoQ vs Q4 FY2025	+32.0% (calc: $4.07M vs $3.08M)	+400 bps (40.0% vs ~36.0%)	From $(0.23)M to $0.24M	From $(0.02) to $0.03

Estimates vs Actuals (Q1 FY2026)

Metric	Actual	Consensus Mean	# of Estimates	Surprise
Revenue ($USD)	$4,070,778	N/A (unavailable)*	N/A*	N/A*
EPS (Primary/Diluted) ($USD)	$0.03	N/A (unavailable)*	N/A*	N/A*

*Values retrieved from S&P Global.

Segment/Geography breakdown (qualitative; no formal segments)

Category	Q1 FY2026 Commentary
DTC	+22.5% YoY growth; benefited from new products and colorways
Education	“Considerable sale” to largest customer; key driver of quarter
Europe	Declined YoY due to distributors pushing re-orders to next quarter
Asia	Strong sales, offsetting some export shortfall

KPIs and operating metrics (Q1 FY2026)

KPI	Value
SG&A ($USD)	$1,674,732
Operating Loss ($USD)	$(46,040)
Interest Income ($USD)	$293,128
Diluted Shares	9,537,817

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY2026/Q2 onward	Not provided	Not provided	Maintained (no formal guidance)
Gross Margin	FY2026	Not provided	Monitoring tariff impact; margin mix favorable via DTC	Maintained (qualitative only)
OpEx (SG&A)	FY2026	Not provided	Not provided	Maintained (no formal guidance)
Tariff/Costs	FY2026	Headwind flagged in FY2025	145% tariff adverse impact persisted; mitigation via absorption/reserves	Reiterated headwind

Earnings Call Themes & Trends

No earnings call transcript was found for Q1 FY2026, so themes are based on consecutive press releases.

Topic	Previous Mentions (Q3 FY2025)	Previous Mentions (Q4 FY2025)	Current Period (Q1 FY2026)	Trend
DTC growth/new products	DTC contributing; new products drive export growth	DTC +18% YoY; nearly a quarter of sales	DTC +22.5% YoY; aided by launches/colorways	Improving momentum
Europe distributors	Strong export growth; Europe/Asia driven by new products	Two largest European distributors up >100% in Q4	Europe declined YoY due to reorder timing	Volatile; timing-driven
Tariffs on China-sourced goods	Recent tariff announcements will significantly impact costs	Headwinds expected from newly imposed tariffs	Adverse margin impact from 145% tariff; mitigation actions	Persisting headwind
Freight/logistics	Monitoring supply chain/tariff impacts	Freight costs expected to stabilize next quarter	Sourcing/logistics oversight expanded via EVP promotion	Stabilization efforts
Margin evolution	+600 bps 9M FY2025 vs prior year (transit cost normalization)	Favorable mix/New product margins in FY2025	+340 bps YoY to 40.0% on DTC mix; tariff drag persists	Structural improvement with mix

Management Commentary

“A considerable sale to our largest Education market customer, together with a 22.5% growth in sales in our direct-to-consumer (DTC) business, led the way to the overall first quarter sales success.” — Michael J. Koss, Chairman & CEO .
“Gross margins improved by 340 basis points… moving from 36.6% to 40.0%, primarily due to a favorable customer and market mix, namely a higher volume of higher margin DTC sales.” .
“Adverse impact on gross margins related to the sale of product brought in at the highest 145% tariff on China-produced goods… higher absorption of fixed manufacturing costs and a reduction in the amount of reserve added for excess and obsolete inventory… provided some offset.” .
Promotion: Michael J. Koss, Jr. to EVP, adding sourcing and logistics oversight, recognizing contributions to DTC growth and IP enforcement .

Q&A Highlights

No Q1 FY2026 earnings call transcript was available; therefore, no Q&A themes or clarifications can be reported for this quarter [ListDocuments returned none for earnings-call-transcript].

Estimates Context

S&P Global consensus estimates for Q1 FY2026 appear unavailable for EPS and revenue; the company’s reported revenue ($4.07M) and EPS ($0.03) cannot be benchmarked against Wall Street consensus this quarter due to limited coverage. Values retrieved from S&P Global.
Given the magnitude of margin improvement and DTC momentum, where coverage initiates/expands, we would expect models to reflect higher gross margin profile but incorporate tariff-related COGS risk and timing variability in Europe .

Key Takeaways for Investors

Mix-led margin expansion: 40.0% gross margin (+340 bps YoY) on stronger DTC underscores improving unit economics; sustainability hinges on product cadence and DTC marketing ROI .
Tariff risk is real and quantifiable: 145% tariff on China-sourced goods pressured margins; mitigation via fixed-cost absorption and inventory reserve management helped this quarter—watch sourcing diversification and pricing power .
Timing matters in Europe: distributor reorder shifts created YoY declines despite broader product traction; quarterly volatility likely persists—focus on sequential orders and backlog signals .
Interest income supports net profitability: despite operating loss, higher interest income ($293k) pushed to positive net income; balance-sheet yield is a non-operating tailwind to earnings quality .
Execution in Education/DTC is a near-term catalyst: large Education sale and DTC +22.5% YoY drove the print; track repeatability of Education orders and DTC growth consistency through holiday season .
No formal guidance/call: absent guidance and call Q&A, disclosures center on tariffs/mix; position sizing should reflect data-light forward visibility and higher exogenous risk (tariffs, distributor timing) .
Medium-term thesis: If DTC momentum and new product pipeline persist, mix could structurally lift margins; tariff/sourcing actions and European distributor cadence will determine variability—monitor margin trajectory and working capital discipline quarter to quarter .

KOSS CORP (KOSS)·Q1 2026 Earnings Summary