Q2 2022 Jerash Holdings (US) Inc Earnings Call
Good morning, and welcome to the <unk> Holdings fiscal 2022 second quarter financial results.
This time, all participants are in a listen only mode and the floor will be open for your questions and comments following the presentation.
It is now my pleasure to turn the floor over to your host Roger upon down Investor Relations for Jewish Holdings, Sir the floor is yours.
Thank you Catherine and good morning, everyone and welcome to Drash Holdings.
Fiscal 2022 second quarter.
Earnings call I'm, Roger PON dealt with Pinedale Wilkinson Dresch Holdings Investor relations firm be my pleasure momentarily to.
To introduce you to the company's Chief Financial Officer.
Gilbert Lee and Eric Chang, who leads the company's operations in Jordan.
<unk> Choi the company's CEO, Unfortunately, he's not able to join us today because of the prior.
Business commitment.
Before I turn the call over to Gilbert I want to remind our listeners that <unk>.
Today's call May include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Such forward looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factors section of the company's most recent Form 10-K and Form 10-Q as filed with the Securities and Exchange Commission.
Copies of which are available on the SEC's website at Www SEC.
Dot Gov, along with other company filings made with the SEC from time to time.
Actual results could differ materially from these forward looking statements and <unk> holdings undertakes no obligation to update any forward looking statements, except as required by law and with that it is my pleasure to turn the call over to Gilberto <unk> Gillmor.
Thank you Roger and Hello, everyone.
Our fiscal 2022 second quarter results demonstrated continued strong progress.
Revenue was at a record level for the second quarter, reflecting robust shipments to our largest customers as a result of strong demand and expanded capacity.
Gross profit also represented a record for the second quarter, primarily due to higher revenue and gross margin performance.
Our gross margin expanded to 22%, reflecting increased shipping volumes and then improved product mix in the second quarter.
The robust momentum is continuing further into fiscal 2022 with orders for the year to date that we believe will lead to a revenue run rate for the year that will exceed our prior record.
As a result, we have increased our revenue outlook for the full year.
We continue to advance plans to increase capacity in our existing facilities and secure additional capacity to meet our customers' needs.
By building, new facilities and through leases and acquisitions.
We recently completed the acquisition of a operator of a 71000 square foot manufacturing facility in Amman Jordan.
Our agreement to acquire the rewrite their physical premises.
<unk> to close by early next year.
Eric will provide more details in a moment.
I will now turn the call over to Eric Tang.
It's based in Jordan and after I will cover the financial results in further detail Eric.
Eric.
Thank you, Phil and Hello to everyone.
Our factories and Jordan are extremely busy.
And they continue to add capacity as quickly as we can.
Oh, the warriors are up substantially and our product mix improved in the second quarter.
This led to orders with higher average selling prices and margins than what we saw in the last fiscal year.
Capacity is completely booked through the end of May 2022, based on orders from our largest global brand customers.
As Hubert mentioned, we recently completed the acquisition of a new manufacturing facility in Jordan.
Under the terms of the agreement.
<unk> assumed the manufacturing licenses and existing physical operation.
Including all machinery equipment 500 workers in a dormitory.
We took over production of the new facility in August and we are now manufacturing products for one customer.
Our agreement to acquire the land and building that how was the apparel manufacturing operations is expected to close in the next month or two.
The new facility is expected to enable us to produce approximately two 5 million to a free parking 5 million additional garments per year.
That is approximately 20% to our current annual capacity is increased.
In addition, the facilities give us the ability to scale up even further.
Construction of a new dollar tree for all multinational no work force is progressing well.
Which is expected to be completed by the third quarter of calendar year 2022.
The high quality of living space will come forth designs and the highest ace the measures will help position us for growth and further our ESG goals.
With that I will turn the call back to Gail, but to discuss our financial results and Cisco 222 outlook Gilbert please.
Thank you Eric.
2022 second quarter revenue rose substantially to $46 million from $27 million in the same period last year, an increase of nearly 70%.
The increase was primarily due to higher shipments to our largest customers in the quarter.
The highest sales volume reflects stronger demand as well as increased capacity.
Gross margin expanded 40 basis points to 22, 1% in the physical 2022 second quarter compared with 21, 7% in the same period last year.
Gross margin expansion in the quarter reflects a higher proportion of export orders, which typically carry higher gross margin as well as increased production and sales volume.
Operating expenses totaled $4 $5 million in the fiscal 2022 second quarter compared with $2 9 million in the same period last year.
The increase primarily reflects the head count additions to support our growth higher shipping costs that were in proportion with increased sales volumes and expenses related to COVID-19, precautions and recoupment of new migrant workers.
Operating income rose to $5 $6 million in the fiscal 2022 second quarter from 3.0 million in the same period last year.
Comprehensive income attributable to geron com.
Common stockholders increased to $4 4 million or <unk> 39 per share in the second quarter from $2 6 million or <unk> 23 cents per share in the same period last year.
Our balance sheet remains strong with cash of $26 million and net working capital of $54 million at September 30 of 2021 inventory was $21 million in accounts receivable was $13 million.
Net cash provided by operating activities was $22 million into physical 2022 second quarter compared with $9 million in the same period last year.
That change was primarily due to working capital activity.
Inventories and accounts receivables.
Decrease to normal levels in the second quarter following strong increases in the first quarter.
We expect the business to generate cash from operating activities on an annualized basis. We continue to have access to supply chain financing programs with our major customers and an untapped $3 million nine of credit available.
As you know we also recently completed a public offering of one 4 million shares at a price of $7 per share. The total number of price a total number of shares including 1 million shares issued and sold by the company and 400000 shares sold by Sterling.
Shareholder.
The company received net proceeds of $6 to $5 million from the offering which we expect to use for working capital and expansion plans.
In terms of our fiscal 2022 outlook, we're increasing revenue guidance to be in the range of $125 million to $130 million as strong demand continues and all capacity expense.
We also anticipate revenue in the fiscal 2022 third quarter to be in the range of 31 million to $33 million.
Orders continue to reflect high margin jackets, and other outerwear products, which I expect it to support gross margins in the high teens for the full fiscal 2022 years.
I would also like to remind you that operating expenses are expected to be higher in fiscal 2022 weeks, but I think our growth independencia impact on last year's first half.
We also anticipate stock based compensation to be at a higher level for the rest of fiscal 2022 compared with the same period last year.
While customer orders remain strong it is important to note that potential risk from supply chain issues that some of our customers are facing could affect the timing of shipments in the near term.
We will continue to monitor developments over the next few months and give you an update on the next quarter's earnings call.
In addition, our board of directors approved a regular quarterly dividend of five cents per share to our common stockholders on November 2nd payable on November 29, 2021 two.
Stockholders of record as of November 22.
2021, and with that we will now open the call for questions.
Operator may we have the first question. Please.
Ladies and gentlemen, the floor is now open for questions.
Have any questions or comments. Please press star one on your phone now we ask that will pose. Your question you. Please pickup your handset. It tells me on speaker phone to provide optimal sound quality.
Your first question is coming from Michael Baker with D. A Davidson your line is live.
Hi, Thanks, just a couple from me one so very strong results and we appreciate the increase in guidance the guidance for the third quarter, though a $32 million at the midpoint are you now.
Strong 55% year over year, but it is a little bit of a slowdown from the first half and even if you look at it on a two year basis, it's a little bit of a slowdown and then again if we now have the full year guidance in the first half in the third quarter guidance, we can back into the fourth quarter and that's a further slowdown in fact down year over year and a slowdown in the second quarter. So my guess is.
It's just the uncertainty of the environment and you know don't read too much into it but you know the numbers do suggests a slowdown. So I just was wondering if there's anything more that we should think about as to why that business might slow.
Uh-huh Hey, Thank you Michael.
Yes, you are right, we're expecting a slowdown in the second half comparing to the first half the first half was definitely a robust half comparing to.
The pandemic impacted the first half of fiscal 2021, but the physical 2021 second half came back pretty strongly so on a comparison basis between the <unk>.
Half of fiscal 2022 versus the second half of fiscal 2021.
The growth is not going to be as high as the.
After the first half.
So and we are.
We are still a little bit cautious.
Seeing the global.
Supply chain issues that are basically a heating every body.
Which caused.
Shortages on almost every product and long lead time.
So we just don't know what it's going to happen whether this situation, it's going to improve or whether it's going to linger. So we just don't want to to put too much.
Hope onto Q3, and Q4 and Q3, we're pretty confident.
Confident that we will hit the guidance number.
Looking at all the.
All the orders that we have on hand however.
Something might still happened just like last year and last quarter at the end of the.
Towards the end of December there was some delay in shipments.
So we were just kind of.
Being a little conservative in Q3 in Q4.
So.
There's still some uncertainties out there.
Yeah that makes sense and I appreciate that conservatism one more I guess, maybe along the same type of lives and maybe the answer will be similar but you're a year to date gross margin is 28% you said full year expect high teens. So again that that implies you know lower margins.
At least sequentially in the back half of the year I know, there's some seasonality.
And there again any reason why the gross margins wouldn't be quite as strong in the second half of the year.
Well it is entirely because of seasonality usually are strong.
First half would have a stronger margins.
In the second half will be much lower.
Because in the second half we are producing for the for the summer or Walmart type clothing.
In the first half was mostly for our winter is winter.
Winter jacket as outerwear products and and then the second half we also expect to have some.
Higher volume, but lower S. P sales to some of the mass merchandisers and more trading sales to to new balance in the second half so that will pull down the margin somewhat.
Okay.
That makes sense I'll turn it over to someone else. Thanks, Okay. Thanks, Michael.
Your next question is coming from Mark Argento with Lake Street.
Your line is live.
Hey, Gilbert making harder and.
I do know I mean part of our commentary in terms of the second half from a growth rate as you guys on the comps get pretty more more aggressive in Q4, I think you guys were up 60 plus percent.
Uh huh.
Q4 of last year.
Kind of law of larger numbers, there, but in terms of capacity utilization.
We're at Max capacity right now it sounds like you are booked through.
Through Mary.
Yes, what are you.
What's the prospects for finding additional capacity to be able to supply that demand, but you guys see out there.
Well, we are actively looking.
We absolutely we're constantly looking for additional capacity, but at the same time I think we still have some room to grow.
First of all at the at.
The newly acquired M. K fats readers do rooms to to increase number of people increase the number of machineries. So those are probably are ongoing.
And as soon as we as soon as we see the need.
That will be immediately we will be able to immediately increase some capacity maybe Eric you can asked something about the capacity growth.
Yes. Currently okay are we have 500 workers are in our newly acquired factory.
But the total I mean kept capacity M K can be able to accommodate it.
Around 900 workers.
So we still are if the business is growing and we still have the ability to bring in another 400 to walk us.
To expand M K.
Factory capacity.
At the same time apart from acquiring a new factory. We are also doing it in either house renovation.
We have you know we have a free factory a protein thing garments are okay. In the industrial zone. So we are not making internal valuation trying to grow some of these departments together and all that that we have some more spaces to I mean to make more protection life in this way.
We will spend less money, but we can still be able to.
I mean to have increased our in house capacity. So this.
It's already carry out and will be finished maybe in the first quarter of next year.
Yeah at the same time, we are still studying.
We should be able to start construction.
In the next three to six months on the hour.
On a larger piece of land that we plan to build a new factory.
So we're currently still doing our.
Internal studies and looking over all the engineering designs and constructions.
Contract cause beat.
Or you haven't seen it out for bid yet, but but as soon as we finished our internal study.
I think we will get.
Get that going so but that is a much more longer term capacity increase.
Hum along or like where do you think you bring up a facility like that online is that a two year build or how quickly can you turn something there.
No actually we're trying to get it down to within one year is that right Eric.
Between one year and one yeah hopper.
Great.
And then just one quick question in terms of customers I know you had mentioned in your prepared remarks that.
You saw an uptick and I think you called it export order. So just wanted to understand what that was and then any.
Any new kind of in our brands, our customers and I'm actually I know, it's hard to go sell you know additional manufacturing capacity. When you guys are capacity constrained.
<unk> currently but.
Any new brands or any new customers that you brought on the platform. Thanks.
Well, we try to run the trial order by ideas.
But because of capacity constraints, we may not be able to bring them on.
Uh huh.
In the near future.
S M S. One of our major customers, but.
I don't know maybe there are some other potential customers.
Talking to us.
But at this point I don't think we have any solid.
Big customer increase.
Is that right.
Yes, we have are being approached by our data last year.
Oh, Okay, sorry, I'm in the middle of this year, Okay to see if he has the capacity, but Fortunately we have Oprah book So a in order to do the I mean to pre production arrangement, so adidas and the team to all get to Raj factory and we got our approval already so we are not letting the proof went there of I D.
So I did this oh are you, saying that one.
One trial order around 10000 pieces, Okay. We are going to produce next year factory.
So after this trial all of that if the quality is acceptable to them. So they will proceed to discuss will follow that.
Capacity, we can provide that to them each month. So this is the latest situation of another big brand Adidas.
Great. Thanks, guys.
Thank you Youre welcome.
Your next question is coming from Robin Rommel Dionisio with a G capital.
Your line is yes.
Yes. Good morning. Thanks for taking my question you know in the past you guys have you know in addition to talking about expanding production capacity in Jordan, you've also talked about.
You know looking at perhaps some additional capacity in China, just given all the supply chain issues going on there have you have you sort of changed your view on that.
And they're looking at.
Just to increase your focus on Jordan or how do you. How do you guys think about that thanks.
Well you're.
Youre right Rommel.
The current supply chain issues are actually forming a trend that everybody is trying to shorten their supply chain.
So.
Getting a getting a factory or getting capacity in China, and supplying the North America or European markets, It's just not going to be competitive.
And.
Maybe we maybe we misstated or misrepresent it but we have never.
Even consider having a having a factory in China, we do have.
We do have orders going into China.
By new balance, but we supply those orders by outsourcing our Oh.
<unk> two.
Two factories in southeast Asia.
So those are the so called trading orders and apart from the exporting order that we have in Jordan, which we produce in Jordan and export too.
North America or to Europe that was out of the export in order that we actually produce ourselves now of course, we also outsource or a contract some of the production when we when we run out of capacity too low code your Dania and manufacturers who are also.
Quantified by hour.
Our customers in the southeast Asian factories. They are also qualified by our customers first before we can outsource to them.
So maybe that's some misunderstanding yeah. When you were looking for a building or acquiring factories in China, but as you said.
In the current situation that may not be that may not be such a.
Wonderful strategy.
Okay. Thanks, very much comfort.
Thanks Randall.
Okay.
Your next question is coming from Michael Wow.
Your line is live.
Oh, Hi, I have a question about.
Could you give me some update on the new brands.
Do we need going forward.
Yeah.
Eric do you want me to take this one.
On new balance are we talking about the new balance.
Oh, yes, yes.
Yes, we started new pilots I think a wrong, one and half years ago, Okay, and a new part of the spending actually okay to a cost sharing.
More order to Jordan before okay. They are mainly they are producing in China and also some southeast Asia countries. Okay, now because okay, because they understand that Jordan, it's a having a free trade agreement with the U S and also Europe.
From last year, they already stopped transferring most of the order stages by stages, Okay from a from the southeast Asia, China to Jordan to our facility.
Okay and in Jordan, Okay. We are the only factory in the Perot, who was supposed to using a new balance a garment okay.
So.
My question is like Oh, I know exactly where were on that last quarter. You do that anyway. You do you have any numbers for this corner.
Walmart business.
This is often to acquire a new <unk>.
No.
I think currently we are doing around 23%.
For the Hope island, so common in view of our overall production.
But this year, okay, and we are already talking we'll still balance about increasing capacity and providing to them. So we will file our newly acquired MK factory, we can be able to offer more I mean, the capacity for them, okay and they they already told us they think they need to do it. So we are although it.
Not yet confirmed we are expecting the new balance business will be okay. In the next year will be increased from 23% and currently maybe up maybe at least two of 30%.
Okay great.
I answered your question, Michael most specifically last quarter, we did about $9.2 million with new balance and this quarter. We did about 6.3 $6 4 million.
Isn't enough to decrease this quarter with new balance is because this quarter its prime mail you'd be at the north face. This is a very strong quarter for the north face but.
But next quarter, we project new balance to be back in the 10 million.
Well, you 11 million level.
So new balances growing very fast very strong.
In terms of our sales to them.
That's great that's great to hear about.
North Sea lice.
I guess he is really strongly in the corner I mean, the first half and then you did exceed the 2019 level are yeah.
You have a number for that.
I think the first half.
So javier.
Well the entire first half, we did a $57 million for the north face.
Oh, Okay, great. Thanks, Kevin that's already that's already higher than the last fiscal year.
Yeah.
Great great. Thank you congratulations thank you.
Got it.
You have a follow up question coming from Michael Baker.
Your line is live.
Hi, Thank you.
Can you remind us last year with some of my model I'm. The December 20th, Florida, <unk> 21, gross margins were down about.
Close to 800 basis points.
What happened there and as we think about the third quarter of this year.
B two years, where the margin was $19 three last year 11, seven well, what's the right expectation going forward.
For the third quarter.
I don't quite remember what caused it.
The significant decrease in the gross margin sales was not that bad I mean, obviously you it was worse than the previous year because of the pandemic. So part of it would be due to not fully utilizing the capacity.
And the third quarter.
Uh huh.
Usually we have more local orders local meaning Jordanian order is that the.
The margin really low or maybe sometimes even less than 10%.
And we also had a.
I'm trying to look back what the mix is for that.
That physical calling Q3, but but I can I guess, how should we think about it for this year that that's really the board well for this year.
It's going to be lower than the first two quarters for sure, but it will be better than last year.
We are projecting about 16.52.
217% gross margin for this third quarter.
Understood that makes sense okay.
Yeah I appreciate that thank you.
Sure.
We have no further questions from the lines at this time I would now like to turn the floor back to Gilbert Lee for closing remarks.
Yeah.
Thank you Catherine and thanks, again to everyone for joining us today and for your support and interest in our company.
We look forward to speaking with you again on our fiscal 2022 third quarter earnings call.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day. Thank you for your participation.
Thank you.
Thank you.
Yeah.