Business context and reporting period
Jerash Holdings (US), Inc. filed this Form 10-K for the fiscal year ended March 31, 2022—not a calendar 2021 fourth-quarter report. The company manufactures and exports sportswear and outerwear, primarily at facilities in Jordan. It reported six factories, four warehouses, approximately 5,600 employees as of year-end, and annual apparel capacity of about 14 million pieces, excluding PPE.
Financial results and key metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $143.4 million | $90.2 million |
| Gross profit / margin | $27.3 million / 19% | $16.0 million / 18% |
| Operating income | $10.5 million | $5.4 million |
| Net income | $7.9 million | $4.1 million |
| Basic and diluted EPS | $0.67 | $0.37 |
| Net cash from (used in) operating activities | $9.0 million | $(1.5) million |
| Net cash used in investing activities | $(8.7) million | $(0.9) million |
At March 31, 2022, cash was $25.2 million, restricted cash was $1.4 million, and current assets and liabilities were $69.9 million and $14.1 million, respectively, for a 4.9:1 current ratio. Total liabilities were $16.0 million; there were no credit-facility borrowings outstanding. Operating lease liabilities totaled $1.6 million, and $0.3 million was due to a related party. Inventory was $28.3 million, including $17.7 million of raw materials. Income tax expense was $2.5 million; the effective tax rate was 24.2%. Cash dividends were $0.20 per share for the year.
Material changes versus the prior year
- Revenue rose 59%, mainly on increased U.S. export orders from two major customers; net income increased 91%. Cost of goods sold grew 56%, while gross margin improved about one percentage point to 19%, aided by a higher share of export orders and resumed production.
- SG&A increased 59% to $16.8 million, reflecting additional labor and export costs, the MK Garments acquisition, and $0.9 million of stock-based compensation.
- Operating cash flow improved from a $1.5 million use to $9.0 million provided. Investing outflows included $3.0 million for property, plant and equipment, $2.1 million for construction, and $2.7 million for MK Garments.
- The company issued one million new shares in October 2021 and received net proceeds of approximately $6.3 million. Year-end shares outstanding increased to 12.3 million from 11.3 million.
- VF Corporation represented 67.3% of revenue, up from 62.1%; New Balance represented 24.1%, up from 12.3%. Together, they accounted for over 91% of FY2022 revenue.
Outlook, risks, contingencies and unusual items
- Management stated that cash on hand and operating cash flow should support working-capital needs for the next 12 months and that the company expected to remain a going concern in FY2023. It reported factories fully booked through December 2022. These are expectations, not guaranteed results.
- Planned capital expenditures were approximately $16 million in FY2023 and $0.5 million in FY2024, primarily to expand capacity. A workforce dormitory was expected to be completed in FY2023. The expected second-quarter FY2023 closing of a separate $2.7 million factory-land and building acquisition remained pending; $0.5 million had been paid by year-end.
- Customer concentration is a key exposure: there are no long-term customer contracts or minimum purchase commitments, and one customer accounted for 89% of year-end receivables. Two customers offered early-payment programs; related FY2022 charges were $0.21 million.
- Other material risks include Jordan political and operating conditions, reliance on Jordan-based production and trade-agreement benefits, supplier concentration, currency and inflation pressures, possible recession and geopolitical disruption, and changes in customer orders. Management said COVID-19 had not significantly disrupted FY2022 production but noted possible future effects.
- Jordan’s corporate income-tax rate increased effective January 1, 2022; the company also reported an extension of its Jordan sales-tax exemption through February 5, 2023. Subsequent events included authorization of a share-repurchase program of up to $3 million through March 31, 2023, and a June 2022 agreement to acquire a Hong Kong company for HKD39.6 million, expected to close in FY2023 Q2.
- The company corrected a prior-year consolidation error involving an inactive related party; it said the correction did not affect previously reported net income or cash flows. The auditor issued an unqualified opinion on the financial statements. Management judged disclosure controls and internal control over financial reporting effective; auditor attestation on internal controls was not included.
Important facts for investors to verify
- Whether the concentrated customer orders, particularly from VF Corporation and New Balance, continue at comparable volumes, pricing and margins, given the absence of long-term commitments.
- Whether receivables are collected and inventory is shipped as planned; confirm the reported $10.4 million of year-end receivables collected by June 23, 2022 and the disposition of inventory scheduled for FY2023 shipments.
- Actual FY2023–FY2024 capital spending, project completion and funding needs, including the dormitory and pending factory-property acquisition.
- Progress and final terms of the Hong Kong acquisition and the authorized share-repurchase program, including effects on liquidity and share count.
- Effects of Jordan tax changes, inflation, supply-chain costs, foreign-exchange movements and geopolitical or trade-policy developments on margins and cash flow.