Business context and reporting period
Jerash Holdings (US), Inc. manufactures and exports customized apparel, primarily outerwear, from Jordan. It also reported personal protective equipment sales. This unaudited Form 10-Q covers the fiscal third quarter and nine months ended December 31, 2020; comparisons are with the periods ended December 31, 2019.
Financial performance and position
| Metric | Three months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $20.66 million | $66.46 million |
| Gross profit / margin | $2.41 million / 11.7% | $11.35 million / 17.1% |
| Operating income | $48,252 | $4.24 million |
| Net income | $94,336 | $3.47 million |
| Basic and diluted EPS | $0.01 / $0.01 | $0.31 / $0.31 |
For the nine-month period, operating cash flow was $3.71 million, investing cash outflow $519,000, and financing cash outflow $892,000. Cash and restricted cash totaled $29.23 million at period end, including $25.59 million cash and $3.64 million restricted cash. Cash alone was down from $26.13 million at March 31, 2020. Current assets were $64.46 million versus current liabilities of $14.21 million; working capital was $50.3 million and the current ratio 4.5:1. Total liabilities were $15.83 million and equity $56.58 million. Credit-facility borrowings were $807,298; no amount was outstanding under the separate factoring or Standard Chartered facilities.
Changes versus prior comparable periods
- Quarterly revenue fell 19% and net income fell 95% from $2.07 million. Nine-month revenue declined 15% and net income declined 52% from $7.21 million.
- Gross margin declined from 19.3% to 11.7% for the quarter and from 21.3% to 17.1% for nine months. Management attributed the pressure to a lower share of higher-margin U.S. sales and more sales to Jordan and other destinations.
- Quarterly U.S. sales fell 38%; nine-month U.S. sales fell 26%. VF Corporation represented 31% of quarterly revenue and 62% of nine-month revenue, compared with 66% and 83%, respectively, in the prior-year periods.
- Nine-month operating cash flow decreased from $5.98 million to $3.71 million. Capital expenditures were lower: $553,000 compared with $3.75 million in the prior-year period.
- Cash dividends remained $0.05 per share quarterly; $1.70 million was paid in the nine months. A further $0.05-per-share dividend was approved February 5, 2021, payable February 23.
Outlook, commentary, and risks
Management said COVID-19 disruption and customer demand could leave fiscal 2021 revenue and operating cash flow below expectations; the filing gives no clear numeric revenue or earnings forecast. Management cited improving customer orders, new customers, ongoing order and shipment-schedule confirmations, and plans to resume dormitory preparation work. It expects the dormitory to be ready in fiscal 2022; construction of planned production facilities remains under review. The filing gives differing capital-spending statements, including approximately $6 million for the dormitory and approximately $4 million of aggregate capital expenditures across fiscal 2021 and 2022.
- Management believes available resources will support operations for the next 12 months and stated it expects to remain a going concern in fiscal 2021. This depends on operating cash generation and customer collections.
- At December 31, receivables were $10.3 million; $1.6 million had been collected by February 8, 2021, and none were overdue at period end. Inventory was $19.2 million, substantially for orders scheduled to ship within fiscal 2021.
- Customer concentration, COVID-related order and shipment disruption, Jordan political/economic and regulatory conditions, currency exposure, and un insured bank deposits in Jordan and China are notable risks. Two customers represented 81% of period-end receivables.
- The Jordan sales-tax exemption was extended through February 5, 2021; the company was applying for another extension, with no assurance it would be granted. Jordan’s corporate tax rate increased to 14% plus a 1% social contribution in 2020.
- Related-party consulting fees were $150,000 in the quarter and $410,000 for nine months, paid under agreements with entities connected to significant stockholders. No material legal proceedings were reported; management said disclosure controls were effective and there were no material changes in internal control.
Important facts for investors to verify
- Whether customer orders and receivable collections support management’s fiscal 2021 liquidity and shipment expectations, particularly given VF Corporation concentration.
- Whether lower-margin geographic mix and reduced U.S. shipments persist, and their effect on gross margin and profitability.
- The intended capital-expenditure budget and timing: the filing cites both approximately $6 million for the dormitory and approximately $4 million of aggregate spending across fiscal 2021 and 2022.
- Renewal of the Jordan sales-tax exemption and any consequences for costs or earnings if it is not extended.
- Available versus drawn credit capacity, the terms and renewal status of HSBC facilities, and restricted-cash requirements.