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, partner with ICR. Brendon, 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…

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 absorbed 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 were 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…

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

Can you hear me?

Yes.

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 of 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 in the retailers that it's 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 ends. And so we see that as all being incremental.

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

Scott and Sally, it's good to see the sales resumption. Can you tell us how much of the sales resumption was restocking in mass versus actual end consumption?

I mean I think 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 -- if 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 consumers looking to shop. And so we got to reach them on a number of different social platforms, and we feel like [Technical Difficulty] 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.