Jerash Holdings (US), Inc. — Form 10-Q summary
Reporting period: Quarter and six months ended September 30, 2023, the second quarter and first half of fiscal 2024. Unaudited results are compared with the corresponding fiscal 2023 periods. Jerash manufactures and exports customized apparel, primarily outerwear, at facilities in Jordan.
Financial performance
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue | $33.36 million, down 12% year over year | $68.09 million, down 4% |
| Gross profit / margin | $5.37 million / approximately 16%, versus $6.92 million / 18% | $10.94 million / approximately 16%, versus $13.54 million / 19% |
| Operating income | $888,000, versus $2.61 million | $1.98 million, versus $4.92 million |
| Net income | $369,000; $366,000 attributable to Jerash common stockholders, versus $1.79 million | $864,000; $862,000 attributable to Jerash common stockholders, versus $3.51 million |
| Basic and diluted EPS | $0.03, versus $0.14 | $0.07, versus $0.28 |
| Operating cash flow | Not separately provided for the quarter | $8.18 million, versus $9.64 million |
For the six months, cash used in investing was $3.46 million and cash used in financing was $1.20 million. Cash and restricted cash rose by $3.40 million to $22.81 million; unrestricted cash was $21.20 million. The filing attributes the cash increase largely to inventory reduction.
Balance sheet and liquidity
- At September 30, cash was $21.20 million, current assets $50.69 million, current liabilities $10.21 million, and working capital $40.48 million. The current ratio was approximately 5.0, compared with 4.0 at March 31, 2023.
- Inventory declined to $18.71 million from $32.66 million; accounts receivable rose to $5.20 million from $2.24 million. Accounts payable fell to $4.25 million from $5.78 million.
- Total liabilities were $10.88 million and equity was $68.23 million. No borrowings were outstanding under the disclosed DBSHK facility or the former SCBHK facility. Short-term loan proceeds and repayments were each $3.12 million during the half year, with no net cash effect. The filing does not provide a clear period-end balance for other short-term debt.
- Interest expense was $748,000 for the six months, including $697,000 in early-payment charges under customer supply-chain financing programs. Jerash suspended participation in one program amid higher interest rates.
Material changes and management commentary
- Management attributed lower revenue mainly to fewer shipments to U.S. customers amid high inflation. U.S. sales fell 17% in the quarter and 7% in the half year, while sales to Hong Kong, Germany, and other locations increased. Cost of goods sold as a share of revenue rose, which management linked to customer and product mix, including lower-margin orders.
- Customer concentration remains significant: VF Corporation represented 73% of quarterly sales and 69% of six-month sales. One customer accounted for 73% of quarterly revenue.
- The effective tax rate was 48.8% for the quarter and 42.9% for the half year, with management citing geographic profit mix, GILTI and Jordanian tax-rate changes. Half-year stock-based compensation was $484,000.
- Management said cash on hand and operating cash flow should support working capital needs for the next 12 months. It projected capital expenditures of approximately $3.7 million in fiscal 2024 and $12.6 million in fiscal 2025; these are projections, not earnings guidance.
- A dormitory project was expected to be ready for use by the end of 2023. A factory expansion was completed and began use in July 2023. Separately, a newly formed 51%-owned joint venture is planning a fabric facility in Jordan, with approximately $29.9 million of capital expenditures forecast; investment is to be contributed in phases.
Risks, contingencies, and unusual items
- Jerash identified exposure to political, economic, regulatory, and currency conditions in Jordan, as well as the Israel-Hamas conflict. It reported production and port operations continuing normally and said it has a contingency plan, approved by major customers, to relocate production temporarily if needed.
- Disclosure controls and procedures were deemed ineffective as of September 30, 2023. The company cited previously identified material weaknesses involving period-end financial reporting, including income taxes and account reconciliations, and IT access controls. Remediation is ongoing and requires sustained testing.
- The filing reports no material legal proceedings and says management does not expect ordinary-course claims to have a material adverse effect. A capital facility of up to $10 million from Capital Bank of Jordan was in execution and was not yet effective as of the report date.
- Jordanian subsidiaries’ sales-tax exemption was extended through February 5, 2024. A $0.05-per-share dividend was approved after quarter-end, payable November 28, 2023.
Important facts for investors to verify
- Whether U.S. customer shipments recover and whether geographic diversification can offset persistent customer concentration.
- Whether the lower gross margin and earnings persist, and how much of interest expense remains tied to supply-chain financing.
- Progress, funding, and expected returns for the dormitory, capacity investments, and the proposed fabric facility, including the $29.9 million forecast.
- Whether the Capital Bank facility becomes effective and whether any borrowing is subsequently drawn.
- Remediation and validation of the reported material weaknesses in financial reporting and IT controls.
- Operational developments affecting Jordan, ports, customer orders, or the contingency plan.