Jerash Holdings (US), Inc. — Q3 FY2023 Form 10-Q
Reporting period: Quarter and nine months ended December 31, 2022; financial statements are unaudited. Jerash manufactures and exports customized apparel, principally outerwear, and PPE, with production primarily in Jordan.
Financial performance
| Metric | Three months ended Dec. 31 | Nine months ended Dec. 31 |
|---|---|---|
| Revenue | $43.0 million; up 17% year over year | $114.3 million; up 2% |
| Gross profit / margin | $5.8 million / 13%, versus $6.9 million / 19% | $19.3 million / 17%, versus $22.6 million / 20% |
| Operating income | $1.3 million, versus $2.4 million | $6.2 million, versus $10.4 million |
| Net income | $0.9 million, down 47%; EPS $0.07 basic and diluted | $4.4 million, down 45%; EPS $0.35 basic and diluted |
For the nine-month period, operating cash flow was $9.9 million, down from $14.6 million. Investing cash outflow was $11.4 million, mainly for property, equipment, and construction; financing cash inflow was $1.5 million. Cash and restricted cash totaled $26.2 million at period-end, including $24.6 million in cash and $1.6 million in non-current restricted cash.
At December 31, 2022, current assets were $66.0 million and current liabilities $18.9 million, a current ratio of approximately 3.5, versus 4.9 at March 31, 2022. Working capital was $47.1 million, down from $55.7 million. Total liabilities were $20.1 million. Credit-facility borrowings were $4.4 million, compared with none at March 31, 2022; operating lease liabilities totaled approximately $1.1 million. Total equity was $71.1 million.
Material changes and management commentary
- Quarterly sales growth reflected higher Hong Kong and Jordan sales, which more than offset modest declines from two major U.S. customers. For the nine months, U.S. sales fell 7%, while Hong Kong sales rose 177% and Jordan sales rose 673%.
- Lower-margin domestic and non-U.S. orders increased cost of goods sold as a share of revenue and reduced gross margin. Management attributed lower net income primarily to reduced sales to major U.S. export customers; it cited higher inflation and customers’ inventory levels as factors.
- Two customers represented 75% of nine-month revenue: VF Corporation 57% and New Balance 18%. Outerwear generated about 94% of nine-month revenue. Management reported a workforce of approximately 5,600 and attributed higher operating expenses partly to added headcount and foreign-worker travel costs.
- Property, plant, and equipment rose to $21.2 million from $10.9 million at March 31, 2022. The company completed asset acquisitions of Ever Winland, which holds Hong Kong office premises, and Kawkab Venus, which holds Jordan land and factory premises. These were accounted for as asset acquisitions.
Outlook, risks, and unusual items
- Management said cash on hand and expected operating cash flow should support working-capital needs for the next 12 months. It projected approximately $14 million of capital expenditures in fiscal 2023 and $3 million in fiscal 2024, primarily for capacity expansion and facilities. The employee dormitory project was expected to cost $8.2 million, with completion anticipated in fiscal 2024; factory expansion was expected to be ready in fiscal 2023.
- No specific revenue or earnings guidance was provided. Management expected no significant fiscal 2023 impact from COVID-19, while cautioning that renewed restrictions could negatively affect operations.
- Credit-facility use increased: a DBS Hong Kong facility of up to $5 million had $4.4 million outstanding and was guaranteed by the parent. Customer-invoice early-payment charges were $0.45 million for the nine months and were recorded as interest expense.
- Risks include substantial customer concentration, dependence on Jordan operations and the U.S. market, supplier concentration, foreign-currency exposure, and cash deposits in jurisdictions with differing deposit-insurance coverage. Jordan’s combined corporate tax rate increased in 2022; the nine-month effective tax rate was 26.6%, versus 20.8% a year earlier.
- The company repurchased 156,593 shares for $0.77 million under a $3 million authorization, with $2.23 million remaining at December 31. It paid three quarterly dividends of $0.05 per share during the nine months and declared a further $0.05 dividend in February 2023. Management reported no material pending legal proceedings and no material impact from ordinary-course claims expected.
Key facts for investors to verify
- Whether major U.S. customers’ order levels recover and whether the shift toward lower-margin non-U.S. sales persists.
- Execution, total cost, and timing of the dormitory and factory expansion plans, and the funding required for projected capital expenditures.
- Availability and terms of the DBS facility, interest costs, and the effect of early-payment financing on cash generation.
- Collection of customer receivables and supplier advances, inventory tied to unfulfilled orders, and customer and supplier concentration.
- Dividend and share-repurchase spending relative to operating cash flow, alongside liquidity and working-capital needs.