Jerash Holdings (US), Inc. annual report, FY2024

Jerash Holdings (US), Inc. — FY2024 Form 10-K

Reporting period: Fiscal year ended March 31, 2024. This is an annual report, not a report for calendar-year 2023 Q4. The company manufactures and exports sportswear and outerwear primarily from Jordan; it reported approximately 14 million pieces of annual capacity and about 5,600 employees.

Financial results and liquidity

• Revenue declined 15%, chiefly as shipments to two major U.S. customers fell. Gross margin contracted two percentage points as product mix shifted toward lower-margin items and new-customer business.
• Interest expense rose to $1.2 million from $0.8 million, largely reflecting customer supply-chain financing charges of $1.12 million. Income tax expense was $0.7 million; the reported effective tax rate was negative 49.1%.
• Current assets were $50.9 million and current liabilities $14.8 million, for a 3.4:1 current ratio and $36.1 million of working capital. Cash plus restricted cash totaled $14.0 million. Management believes available cash and operating cash generation will cover working-capital needs for 12 months.
• The company reported no balance outstanding under its $5 million DBS facility at year-end. Total operating lease liabilities were $1.0 million. The filing does not identify material conventional bank borrowings outstanding; a proposed $10 million Jordan credit facility was not effective as of the report date.
• Cash used in investing was $5.1 million, principally for equipment and construction; cash used in financing was $2.4 million, mainly dividends. The company paid approximately $2.46 million in dividends and reported a $0.20 annual dividend per share.

Material changes and business developments

• VF Corporation generated $78.9 million, or 67.3% of FY2024 sales, up from 59.9% in FY2023; New Balance contributed 11.9%, down from 17.5%. The company has no long-term customer contracts or minimum purchase commitments.
• U.S. sales fell 16%. Management cited reduced shipments, inflation and uncertain retail sentiment, and Red Sea logistics disruptions. Sales outside the U.S. also declined overall.
• Operating cash flow dropped from $10.8 million to $2.5 million, reflecting the net loss, a $3.0 million increase in receivables, lower tax payables and higher supplier advances; inventory reduction partly offset these uses.
• Fiscal 2024 capital expenditures were approximately $5.1 million. Management projected approximately $12.6 million for FY2025 and $14.9 million for FY2026, conditional on business development and customer demand. A dormitory was expected to be completed in FY2025.
• The company formed two 51%-owned joint ventures: J&B for garment trading/manufacturing and Jerash Newtech for a proposed Jordan fabric facility. The company said it plans to invest approximately $29.9 million in the facility; funding and execution depend on the venture arrangements and business progress.

Outlook, risks and unusual items

• No specific revenue or earnings guidance was provided. Management described seasonality, with a significant portion of revenue in the first half of the fiscal year, and aims to broaden its customer base to reduce reliance on VF Corporation.
• Key risks include customer concentration, order volatility, apparel-market cyclicality, lower-margin product mix, competition, and reliance on Jordan for substantially all manufacturing. Jordanian political and regional tensions, including the Israel-Hamas conflict, could disrupt operations or trade. Management reported production continuing normally and use of Jebel Ali as an alternative import route; a contingency plan for temporary relocation was approved by major customers.
• Jordan’s corporate income tax rate increased to 20% plus a 1% social contribution effective January 1, 2024. A Jordan sales-tax exemption was extended through February 5, 2025.
• FY2024 SG&A included approximately $180,000 in penalties in two legal cases involving facility procedures and movement of raw materials. The company reported no material legal proceedings currently.
• Management concluded internal control over financial reporting and disclosure controls were ineffective at March 31, 2024, citing material weaknesses involving period-end reporting, income taxes and account reconciliations. The auditor issued an unqualified opinion on the financial statements but did not attest to ICFR; it identified no critical audit matters.
• The board declared a further $0.05-per-share dividend on May 21, 2024, payable June 7, 2024. Management expects comparable quarterly dividends subject to board discretion and applicable law.

Important facts for investors to verify

• Whether VF Corporation and other customers sustain order volumes, and whether new customers can offset concentration risk at acceptable margins.
• Receivables collection, inventory levels, supplier advances and the sustainability of operating cash flow while sales are lower.
• Funding, timing, partner contributions and expected returns for the proposed fabric facility and projected FY2025–FY2026 capital expenditures.
• Progress and effectiveness of remediation for the disclosed internal-control weaknesses, particularly tax accounting and account reconciliations.
• Exposure to regional shipping disruption and the practical availability and cost of alternative routes or production arrangements.
• The basis for continuing dividends and planned investment given the FY2024 loss and lower cash balance.