Q4 2023 Jerash Holdings (US) Inc Earnings Call
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Greetings and welcome to the <unk> Holdings fiscal 2023 fourths quarter and full year financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero.
On your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Roger Palmdale Investor Relations for to Rash Holdings you may begin.
Thank you Holly and good morning, everyone welcome to address Holdings' fiscal 2023 fourth quarter and year end conference call.
Roger Pinedale with Pinedale Wilkinson Duress holdings Investor Relations firm.
It will be my pleasure momentarily to introduce the company's chairman and CEO Sam Joy.
As Chief Financial Officer Gilbert Lee.
Good thing is at least the company's operations in Jordan and today, well is calling in from Indonesia before I turn the call over to Sam I wanted to remind our listeners that today's call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.
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 and copies of which are available on the SEC's website at Www Dot FCC that goes along with other company filings made with the SEC from time to time.
Actual results could differ materially from these forward looking statements and Jurassic Holdings undertakes no obligation to update any forward looking statements except of course as required by law and with that it is my pleasure to turn the call over to Sam Choy Sam.
Yes.
Alright, Thank you Roger and Hello, everyone.
In retail sector are facing challenging times following the pedantic persistently rising interest rates.
Facing the really impact and other factors or having an impact on consumer spending.
Our favorite brands have not been immune to todays environment, which puts your rash translates to smaller orders and the product mix shift to lower margin goods.
And the impact on our fourth quarter results.
Fourth quarter revenue also was negatively impacted by approximately three millions of orders.
Food by customers to the current first fiscal quarters.
Nevertheless, during this period.
Continuing to focus on our in this shape too.
Diversified customer base, both through our own marketing activities and through our recently signed a joint venture with <unk>.
On the apparel world.
In March we had.
Now is the passage of the agreement to form a joint venture, which is progressing well and this for me chip States.
We have received positive feedback from Pousadas ripple customers.
Russians of keen interest in true wherever you go to diversify the production from Asia to Jordan.
Advantages of do degree agreements with the U S and other countries. In fact, this customer has already begun for costing and pricing of a number of styles with three potential joint venture customers.
We anticipate initial orders for the joint venture to stop.
Early as the second half of the current fiscal year.
Also on the positive from our fiscal 'twenty, three and you see people diversifying for Russ just the basic pay evolved heaven.
<unk> been getting additional an additional new rebel brand.
We are making good progress ramping up production for timberland.
And moving into our new fiscal year, we are continuing to produce high margin products.
Neil European based apparel brand.
I will now turn the call over to Eric Chang to talk about our operations and then to Gilbert will then discuss financials.
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Yes.
Thank you Sam.
Hello, everyone.
The fiscal year in spite of what both BC and challenging.
And we do our.
And we wanted to change Jamie and challenging market conditions.
And at the same time, Chad boardwalks PPD, we'd be.
Got it.
P J.
Although that is still coming from our large robo brand customer.
The product mix has changed from the higher margin with that.
Jack.
The lower margin items.
In part the mix shifts reflect the inflation that we at Baldwin and changes he is bad things happen.
So my life.
We were able to keep our facilities running at full capacity.
Also by adding the badgley production for either customer.
Many of which are local.
As I mentioned on our last call, we are maintaining active communication and outstanding relationships with all our customers.
Who appreciate the Ross responsive, that's it and working closely with Dan.
Dissipate that need.
Going forward.
In fact <unk> got.
But one of our global.
Global brands to test them, all kidney blood, which is the part of the <unk>.
Operation right.
Has now grown to be meaningful.
So definitely the mod.
Another long term G suite and also be deep sleep.
Which further diversify our customer and product mix.
Well all the time.
External market condition.
We believe we will be in an excellent position.
In that regard we are cautiously moving forward with plans to develop the leg.
We currently own to add more capacity.
In par to accommodate anticipated new business for Marvell would then John mentioned.
Bulky disease people GTO to reach 15, five eight odd zigbee or thread.
Rowboats and remained with identified supply chain.
We felt Asia, especially China.
We are absolutely aware that in addition to adding new customers.
Customers in the bank.
Existing customer it is.
Critical to maintain tight cost control.
Although operating doing appropriate well identify deal and call you back developing a bottleneck.
Other material from new partners in the Middle East and North Africa.
You bet, Thank you Ross and festivals.
I will now turn the call over to Bill, but did you get all five days or weeks out at a fiscal 'twenty titanfall.
Okay.
Thank you Eric.
Revenue for our fiscal 2023 fourth quarter amounted to $23.8 million, which was down about 23%.
From $30 9 million for the same period last year.
The decrease primarily reflected lower sales from two major U S customers based on the changed.
Economic environment and risk consumer spending versus last year.
Revenue also was negatively impacted by shipments of approximately $3 million of contracted orders being deferred by customers should occur in the first physical quarter.
Gross profit was $2 5 million in the physical 2023 fourth quarter compared with $4 7 million in the same period last year.
The gross margin was 10, 3%.
Paired with 15.1% a year ago.
And then principally by a lower proportion of U S orders.
And the broader thought it makes sense.
Operating expenses for the fiscal 2023 fourth quarter totaled $4 $3 million slightly decreased from last year.
Merrily because of smaller stock based compensation expenses.
SG&A expenses were slightly lower due to sales decline and partially offset by increased travel cost for migrant workers.
Operating loss for the most recent fourth quarter was $1.8 million compared with operating income of $126000 for the same period last year.
Total other expenses.
We're 86000 end of fiscal 2023 fourth quarter compared with total other income of $148000 in the last years.
Fourth quarter and interest expenses were 268000 versus 63000, a year ago.
Giraffes sustained aid in that north of $2 million or 16 cents per share for the fiscal 2023 fourth quarter compared with a loss of 131000 or one cents per share in the same period last year.
The company's balance sheet and cash position remains strong with $19 $4 million of cash.
And net working capital of $42 $8 million as of March 31, 2023.
Inventory at fiscal 2023 year end was $32 7 million and.
And we had about $2 $2 million in accounts receivable.
Net cash provided by operating activities was $10.8 million for the fiscal year end March 31st 2023, compared with $9 million in the prior year.
Based on the Vegas these.
Well, if the external environment, we're taking a conservative approach to guidance.
And not projecting revenue for fiscal 2020, full first quarter and the full year to be maintained at a similar level as in fiscal 2020 three.
With gross margin goal for the full year for the full fiscal 'twenty 'twenty four to be around 15% to 16%.
Our outlook is subject.
Two final product makes up shipments as well as order flow from the new customers introduced through a joint venture with <unk>.
As of the end of our fiscal fourth quarter.
239500 shares has been we purchased at market rates at a total price of $1.2 million excluding broker commissions.
Under the share repurchase program authorized by the board in June 2022.
The program expired on March 31, 2023.
Lastly on May 22.
2023.
Our board of directors approved a quarterly dividend of five cents per share payable.
Payable on June nine 2023 to stockholders of record as of June 2nd 2023.
Despite the current retail environment, we are still receiving inquiries from new customers.
We are hopeful will turn into new business and.
And we look forward to an influx of new customers through our joint venture.
At the same time as Eric mentioned, we are closely monitoring and balancing our cost with the long term growth planning for the not too distant future.
With that we will now open up the call for questions.
Operator may we have the first question. Please.
Certainly at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question. Kim You May Press Star two if you would like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Your first question for today is coming from Mike Baker at D. A Davidson.
Okay.
Thanks, guys. A couple of questions first I'm just curious why why the deferral of $3 million is that a I mean, it doesn't sound like that's an economic issue if they're if they're taking the product, but why did your customer decided to push it out in three months.
Well I believe it was just a timing thing a lot of the times at the end of the month or at the end of the quarter a lot of things can change even though the the orders maybe scheduled to ship out by the end of the month, but sometimes because of.
The freight forwarders scheduling somewhat containers may not make the cut off.
So it happens a lot of a lot of the times, we just need to do a better job and and forecasting.
Okay do you have anything to add Eric.
Okay.
Because of the tough now Oh, my God, and that's and it's already good at that meaning Onishi Oh, okay.
So the question was well how.
There was a $3 million the squirrel.
Of shipment at the end of last quarter, and I said is mostly because of the timing and.
In the freight forwarders scheduling of the after shipment.
Yeah, actually I would like to explain because when we are doing our forecast even okay not that early.
So I mean to rapidly so we still include.
One order of 400000 Pizza Costco, Okay. So it will generate a couple of million rough on deal by the end of the last quarter.
But at the last moment, which is our last quarter first week. Okay. We were told by a Costco that the incident at the infantry level was too high they will liked with deep for the shipment with the next quarter or two months later, so that's why okay. We are keeping this ready goblin.
In a way how we forecast call. This is the main reason.
Okay.
Okay. Thanks, Eric.
That makes sense and see.
If I could ask another couple of.
Bigger picture questions one.
You know it sounds like there's a lot of promising things going on in terms of new customers new customers that you already have signed up at a rapping or potential E or potentially new customers that are showing interest costs, what's going on with the JV. So all that sounds good yeah. The.
The revenues are declining so I guess can you just is that just a timing thing can you sort of square that with the idea that like you know you have all this new demand yet it's not translating into sales yet and how long you know what what can we expect that that to occur all that.
Potential to sharpen actual revenues on the P&L.
Well, Mike I think very early on this fiscal year, we were talking about this year is going to be tough the economy global economy. It is a kind of everybody is the fear of inflation and inflation.
And inflation as well as the fear of recession coming now we don't know, whether we are actually in a recession or not but.
Everybody thinks it's coming so people are stopped have stopped buying especially buying the the more high priced products. So people are still buying but they're buying the less expensive products and that was basically what V F.
<unk> has been telling us all have been telling the world that there is the sales in the higher.
Premium products, such as the TNF, the north face is going to be either flat or declining, but the lower priced products are on timberland and vans. They are growing so.
That happens Oh that translates to our business too.
We knew what we knew this year, what's difficult so, but we also knew that a we are on boarding quite a few new customers such as Hugo boss such as timberland at Timberland was already on board, but we were growing timberlands tremendously.
The volume gets into millions of pieces and.
And the other.
Skechers is it's actually not as as much as we anticipated but.
Well what was the other.
Oh G suite G G III actually double their volume with us. So we see a lot of positive things, but a lot of the the dominant manufacturers in Jordan or anywhere else that obvious Asia or whatever they are seeing 30% to 40% decline in our in the.
Volume.
But we have always.
Take the strategy as we knew more business coming the growth is coming especially with signing this joint venture with Lucentis, but it takes time.
It takes time for us to get the new customers on board it takes at least.
A year.
Based on our experience with Timberland and then Hugo boss.
It takes a long time to get them to approve the samples the chat all the calls and do the factories certification and all of that so a lot of good things are happening a lot of new customers that are coming we're doing pricing exercise for the boys in our customers.
Those are huge customers, but we know is going to take us at least six.
Six months to a year to get new impact, but we don't want to reduce our capacity.
But on the contrary, we want to expand our capacity.
<unk>, which we spend quite a few million dollars in fiscal 'twenty 'twenty four to expand our our real estate our factories.
To allow more lives to be added and we don't want to send a lot of all our workers home to the home country, which a lot of the other factories are doing.
Because we know it will be difficult to get them back when the business when the business and return.
No.
That's why the timing.
What we're looking at is still.
Now that we are we are done with 2023, but looking at 2024.
We we know we can.
Get those sales.
To be at the similar level.
But the growth is not going to come until later on in 2024.
It will not be realized with the new <unk> JV business as well as some of the new customers that we are on boarding.
Does it make sense.
Yeah, I think all of that.
I would like to ex some new information to explain to the investor about our 2000 and in fact try to default business.
It feels like this thing is absolutely very accurate because we have we are doing maybe a lot of business with them before for the north face.
We have already told us that are in either 2000 and plentiful there also.
China is also they are reducing some of the north face business.
Two all apparel because of the spending pattern.
Of the people you can do that the states.
So I asked me yeah, do we still need to keep good thing capacity right before he says certainly well actually it's a very good factory I don't like lost or lost capacity, but it is for the future.
You're saying, they're all adult.
North face business is reduced I'm going to give you a scuba mentioned more timberland business.
In 2000, and try and keep three fiscal year all of it yet because it's the first year. We are doing timber that we have around 600000 piece of for the year.
But to confirm order and projection timberland already gave Joe Russell 2000, and tried default. It's over one 3 billion, which is two to three times more than before.
At the same time, okay. One of the repeal of the bolt back in Germany, Okay, which <unk> just mentioned the thing also has tripled that business for high end objective okay.
Got to check that works to rush.
And the business for all of them. Okay from 2020 free which is $2 5 million, maybe go up to seven to 8 million.
And also a very important thing is we'll send a girl.
I'm here in Indonesia, because what was that number up it's one of the biggest apparel in the.
They know his yeah, yeah, that's very very strong marketing team.
They are doing that.
Brent over the well for more than 15.
So we have signed a joint venture agreement the purpose if.
At least 50 per se I don't think that's them Ah. Okay was who then moved.
It moved the business to Jordan, which is the duty free country heading to.
Save the day before or the production is in China also even though this year.
We got the opportunity, which was that night doing the marketing for the rush them venture to do more business in fiscal 'twenty 'twenty four.
In the past week I have listened to more than 10 factories also in the board meeting with the brands they are coming from the U S.
I can never calls, but then that's where you will have good business with both end up cut.
Currently they have more of that 11 brand who are very interested to give business to a garage joint venture with with that though is a metals con and already within this level set them off we had already doing costing exercise for them well over 170 style.
And from this one time they tried to stop their free by a couple of days before already but I've got to move out the final price and expected order that you'd be like you mentioned.
I don't know whether it will happen in the second quarter, but I'm confident that FERC chocolate definitely it will happen.
But what we found also thinking of a high business smaller I mean, Jordan together with the joint venture into rush. So for me, Okay I'm confident in for July 2024.
Thank you that's great great great color on trends so with all that one more question where are you with capacity utilization I think you said, you're still running at full capacity and so do need to build more capacity and do you do you need to invest capex or.
Or Oh, you know any additional cost to build the capacity for.
For all that demand is coming.
Well, we have to remember the door off do we increased our capex.
It's what we said nothing because according to Booz Allen.
Investigation.
So 40% after a rush order in 2000, and so it'd be free that's mentioned in the earnings script.
The wingstop contract and some of them are from local.
We are learning some funding to break the line, even if we are going to deliver at least 40% capacity. We do at fault Beep order book together with both center each will be huge number of fitness.
Zander locked at this Paul.
And that's because they understand that the joint venture and may not be but leads to increased so much on the capex and then stop using the 40% subcontract capacity to do F&B order.
Right, but we are also we have.
Always been preparing and planning.
Expand our capacity this past fiscal year, we already did that internally by expanding one building too.
Allow more to allow for more production lines.
So if we need additional capacity, we we have that and then we also have another piece of land that we are preparing to build as soon as the business with was there and it comes in.
And it may take a year or maybe a year and a half to get that done and definitely by that time, we will need additional capital to finance it and we have been looking at a bank Oh with auto financing our possibilities and.
If we do it with them they would definitely also contribute calling to the to the joint venture agreement.
So yeah to answer your question, we definitely are looking at our capacity expansion.
But it is all.
It is all dependent on the timing.
Excellent. Thank you I appreciate I appreciate the color.
Sure. Thank you for calling.
Your next question for today is coming from Mark Argento at Lake Street.
Yes.
A lot of my questions have already been asked or covered.
Commentary, but I just wanted to better understand the.
Ah I know that the $3 million worth of revenue that got pushed out was there was that higher margin revenue that got pushed out.
Last quarter, you guys were talking you thought you'd be.
Yeah kind of that mid teens range on a gross margin basis, just wanted to reconcile that a little bit.
Oh well.
Like Eric said the $3 million.
Order in.
That was pushed out with the Costco orders and we do that Costco business with a with them.
With an importer so the margin on that order is not great.
And like Eric said.
Oh the <unk>.
Probably the latter half of fiscal 2023, we've been taking on a lot of this kind of sub contract in a lower margin orders just so that we have.
Fully utilize our capacity.
And also about is the $3 million, where you would you see more 400000 pieces okay.
In the last moment called Watsco assets to put out okay for one or two months.
Well before these earnings calls are you also a merchandize they also contact them through.
Try to get some pretty a picture or how they're going to do with this 400000 pieces. They sat next months, they're going to I've been saying to Fido inspection team for first hundred thousand pizza.
They may not be shipping downhole quantity and munching button, but definitely they will meet the government they will speak the shipment.
Great and then just just quickly in terms of Bousada whatnot when that business comes online targeted gross margins for.
Those types of products, so those higher end type products, or where where can we expect to see those coming up.
Oh, Oh, Oh, Okay also okay.
A lot of different kind of products.
Last night, you Rajeev, we are doing maiden before the objective and the polo.
Okay. So you are doing would be more than 20, but the kind of style and who the different types of jacket.
Different kind of a ship and also different in times of polo and even they have they are doing with maisie break number of our ladies dress Lady dry which.
There will be prizes.
Sure.
So Meanwhile, so they're also studying the opportunity itself, but she is shifting some of these older or new kind of down to two Josh and recently our factory vantage have already stopped producing samples of the style jerash did not do before and who is that and I was going to spend.
To that end bias, where they drove all she has to qualify.
Just lie Hubert mentioned, our our pretty comfortable badly Germany. We are also doing the same it'll be dealing they give us more number to see if the rush is qualified what these guys all plus emphatic jets.
Jackups. So after a couple of months that things feel comfortable with that garage it.
If I now they are expanding the number for 2000 and then tried before this will be the thing that's either new customer coming from with that though.
Yeah.
But I think my question was more about what kind of margin are we expecting some the new business that comes through.
With placenta.
Is that right Mark.
Yeah, I was just curious what kind of.
Is it going to be kind of mid teens and I know typically obviously when you do the Vms are there the north face product.
Fireplace by product you guys are able to get a little better margin than say when youre doing T shirts for Costco. So I was just curious what your expectations were for you.
The gross margin profile of the revenue the business that you might book worth Risotto.
Well I think there's still are up in the air because we're still doing the pricing exercise with them and those are the those are the products like Eric said.
Maybe some of them some of them we haven't done before so we don't really know or we don't have a good grasp of what the what the cost is going to be.
So at this point it is really difficult to say, what we expect that the gross margin is going to be.
However, I believe the strategy for presenting the business is that they will place the higher our higher priced higher value kind of products.
Because they wanted to take the full advantage or the customers wanted to take the full advantage of the duty free or free trade agreement shipping Oh, Jordan to U S and Europe in order to save as much as the terrorists as possible.
Oh, yes, actually boost and also told me that this is their buy up the intention.
You also have the duty papering, they're not going to transfer all the like cotton order, which they took a bias can enjoy 9% duty saving.
Instead, they're going to spend I mean orders worth less in fact at fire Creek, which buyer.
Buyer can earn more than 33% of the donkey safety and they will also get the joint venture I best apply when they move the order to Jordan.
Exactly.
Great. That's helpful. Thank you.
Thank you very much for your call.
Once again, if there are any questions. Please press star one.
Your next question for today is coming from Aaron Grey at Alliance Global partners.
Hi, good morning, a lot covering a lot of Michael Martin's already answered, but just one quick one for me higher level a lot of trouble is not for you guys, but for the.
A lot of your competitors I'm sure. So would appreciate any color you might have in terms of the competitive environment and how it's changed the past few months since we last spoke about it with nursing any shakeout closures or more so just operators long stock levels that you had mentioned previously thank you.
You mean in the and.
Jordan in terms of E houses right.
Jordan, I, China and otherwise.
Okay.
Yeah, you want to answer this question about how are the business environment in Jordan, what our competitors are facing.
Saving or maybe even in the in China or southeast Asia area.
Yes.
Nowadays, it's a couple of reasons why most of the buyers are launching because Jordan and makes it takes it from South East Asia countries, particularly China.
For the China machine operators all of them are earning I think at least $1000 a month already.
Because I need Vietnam, Okay, they're earning $500. Okay. So in Jordan, because 70% of our walk to split fourth alpha migrants from Bangladesh from India, The Orlando multi nationality.
So they're earning around.
Around $300.
The basic salary including overtime.
Yeah of course, we are providing them with a couple of days and ethic and everything.
Okay, but in general it is our cost is still competitive.
And bear in mind that when customer is transferring older from other countries non duty countries to Jordan. Okay. They are okay that they can earn at much at 33% of the duty savings.
For example, one Recoupable Jetta brand.
Cried at $50.
33% moving from China, each year with Jordan.
Yeah, I can save 15.
Now for the duty safely.
Monday, because otherwise the buyer has to pay for deals in China, or Vietnam or other Asia country.
So.
The bottleneck is pushing with vanguard, who are diversified pool to transfer the order to Jordan, so that not only it will benefit the joint venture will also benefit.
The buyer also.
But what about what about the situation a mile. The Oh competitors in Jordan. So obviously there are playing.
A comparable or similar.
Wages to their workers.
And.
Because of the economic downturn because of losing customers losing orders.
I heard that classic.
Is laying off about 10000 workers. So these are the kind of the comparative environment, even within Jordan that our competitors are.
Our competitors are facing a garage is already doing a much better because our business didn't really go down while sales with Oh, only down nine 2% and 3% from last year.
We maintained the same business, even though we couldn't ship the high margin business, but we are substitute a high margin business.
By taking in a lot more a lower margin, but high volume business to kiblah workers busy but competitors some of them even close the shops some of them lay off a lot of people. So that's really what is going on in the are in the world garment.
Right.
So I guess, maybe Eric you can talk a little bit more about that.
As well as what you see in Southeast Asia.
In China, what all the other garment factories are doing because what I see here in the U S is that a lot of those garment factories, they're going all out to to try to find business.
Yes.
Actually all the barrels in the world No matter if it's in China.
<unk> Asia Central MACRA, Jordan, because if the market is very weak.
In Europe that this is the reason why they'd be deal with a lot of orders. So why by reading a lot of orders broke example, equal effect. Okay. Their production capacity if they don't have orders they have to I mean, the asphalt if they are not going to reduce the workforce. They are going to absorb a lot of cost.
For example, one of the biggest factory in Jordan, So called classic apparel before they have 30000 workers.
And they are close to entry on Wal Mart at Jcpenney, but because Walmart and JC Penney already closed some many of their retail shop.
Among the Florida has been reduced to a.
Five click that so this because this is a very suddenly cause like and number two this spectrum. So this factory everybody in Jordan understand they already ascending 90000 look good going back to the country, even though the contract is not finished so this is what they are doing correct.
But what's the rush.
Turning now to do so because I'm still we are still confident that the market.
Okay, even though it will pick up slowly.
Another one here I mean, two phase two critical situations, but who's been a joint venture coming I'm sure that they tend to fill up our most of our content all of that capacity. So this is the reason like Iraq.
And to reduce significantly I'll, let folks.
I appreciate that I really do you kept calling me environment I'll go and jump back into queue.
Thank God.
We have reached the end of the question and answer session and I will now turn the call over to Sam Julie CEO for closing remarks.
Thank you operator, and thanks to all of you for joining us today and for your continuous support.
The restaurant has a solid foundation for the company's leading industry position is quality loyal customer relationships and strong balance sheet.
Attributes gave us great confidence in the company's future.
And that we will get through the current.
In a position of strength.
We look forward to speaking with you again soon and reporting on now to Chris. Thank you.
Okay.
Yeah.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Thank you. Thank you very much thank you.
Yeah.