Q1 2024 Jerash Holdings (US) Inc Earnings Call

Okay.

Okay.

Welcome to the <unk> holdings fiscal 'twenty 'twenty, four first quarter 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 Upon Dell Investor Relations for <unk> Holdings, you may begin.

Thank you Holly and good morning, everyone welcome to Jewish Holdings fiscal 2024 first quarter conference call.

Roger Palmdale with Ponder Wilkinson garage holdings Investor Relations firm.

That would be my pleasure momentarily to introduce the company's chairman and Chief Executive officers and Joy.

Its chief Financial Officer Gilbert Lee.

King who leads the company's operations in Jordan.

Before I turn the call over to Sam I want to remind our listeners.

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 would be on the company's control, including those set forth in the risk factors section.

The company's most recently recent Form 10-K.

File with the Securities and Exchange Commission 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.

In the rash holdings undertakes no obligation to update any forward looking statements, except as required by law.

With that it's my pleasure to turn the call over to Sam Joy Sam.

Okay.

Thanks, Roger and Hello, everyone.

Our first quarter demonstrates a dress resilience in a challenging retail environment.

Revenue was up slightly although as expected profitability was impacted principally by a product mix shift to lower margin items.

Although inflationary pressures and rising interest rates.

Having an impact on consumer spending.

So market trends are showing signs of improvement.

We're starting to receive inquiries from global brands, including test runs and sample orders.

On the new customer front timberland has grown to be a significant group of brands for direct.

Besides timberland.

Not working on confirming the first batch of orders for words branded apparel.

Also a pothole V F Corporation Springs.

And if those orders are scheduled to be received in mid August with finished garments to be shipped it in the third quarter.

Although the European based high end apparel brand continues to progress well.

Orders received thus far this fiscal year has significantly increased.

We are optimistic that over time this new local brands will grow in importance for direction.

Yeah.

Also on the post it from.

In these two marketing by our joint venture partner.

Send the payroll group, who is global brands customers is being well received.

Torres has begun working on pricing and simple development for more than 10 additional brands.

We anticipate meaningful orders for the joint venture to begin during the fourth quarter of the current fiscal year.

One of our corporate newspapers.

That's been good to explore vertical integration.

And I'm happy to report some good news on these fronts.

We have been in discussion with and T X.

One of the global leaders in sustainable textile dyeing solutions to form a joint venture that will provide <unk> with vertical integration manufacturing capability.

Hello, Greg.

You bring up a new era as well.

Being nimble and innovative textile dyeing process.

Jordan.

Without pulp directory.

No lot technology that according to the presentation and the information from MTX could result in more than two.

Per se and what have you changed your production and 15%.

Carbon footprint reduction.

From traditional textile dyeing process.

The proposed joint venture is expected to benefit our customers through Stockton the fabric sourcing the times and further reduce our dependency on suppliers in southeast and Eastern Asia.

The joint venture further demonstrate <unk> commitment to sustainability and social responsibility.

I'll now turn the call over to Eric Tang and talk about our operations and also to fill but will then discuss financial results.

Okay.

Thank you Sam Hello, everyone.

It was a busy first quarter.

We continue to plan for what we believe.

We are positive and productive filter and respond to evolving market conditions.

But I don't think questions at the customer level.

Tier two what lower margin items.

How bad luck at Sam Nation retail trends it seems to be in clothing, and some of our global brand customers.

Hearing about additional stout well feature all of it.

We corporation continues to be our major customers.

That's all the audience from north face.

It's increasing.

And also another brand from V. F Corporation Timberlands includes multiple.

And we will be very still producing four words.

Right.

So there shouldn't be much from heat treat sketches has also been increasing.

Although European based high end apparel, Brad it's pleasing board vote.

Third the tablets could find out customer and product mix.

We are excited about starting production for all of the joint venture cut timber.

Test runs are underway for every potential global brand customers, which.

In turn aid.

Fulfilling our corporate initiatives, expanding our customer base and diversify our product mix.

<unk> is in a good position to attract premium brands.

Our leadership position in Jordan, all flicks unique meaningful benefits to customers.

And our plans for vertical integration in sustaining the bow textile solution. We believe will provide you Raj.

Just kidding Patrick vantage.

I will now turn the call over to Gilbert to discuss our financial results and our fiscal <unk> outlook.

Thank you Eric.

Revenue for fiscal 'twenty, 'twenty, four first quarter amounted to $34.7 million up 3.9% from $33 4 million for the same period last year.

Reflecting an increase in shipments to some of the companies major U S customers.

Gross profit was $5 $6 million for the fiscal 2020 for first quarter.

Compare that with $6 6 million in the same quarter last year.

Gross margin was 16 points zero percent.

Compared with 19.8% a year ago.

I'm, not really expecting a shift in product mix.

Operating expenses for the fiscal 2020 for first quarter increased slightly to $4 $5 million from $4 3 million last year.

Operating income totaled $1 $1 million in the most reasons first quarter.

Or is this $2 3 million a year ago.

Total other expenses were $299000 for the most recent first quarter compared with 28000 in the same quarter last year.

The increase was primarily due to higher interest expenses.

Occurred from participating in supply chain financing programs.

Certain customers.

Interest expenses were 389000 in the physical 24.

First quarter.

Paired with 88000 a year ago.

The effective tax rate amounted to 38% for the fiscal 2024 first quarter compared with 25% last year.

The increase primarily resulted from a higher corporate income tax rate in Jordan.

Along with higher proportion of.

The operating losses of a Hong Kong subsidiary.

Our U S holding company.

In the fiscal 2024 first quarter net income was $495000 or four cents per share.

With $1.7 million or <unk> 14 per share in the same period last year.

So, whereas its balance sheet and cash position remains strong.

With $21 million of cash and restricted cash.

And net working capital of $41 5 billion as of June 30 of 2023.

Inventory was $23 8 million.

And accounts receivable was $6 4 million.

Net cash provided by operating activities.

It was approximately $25000 for the quarter ended June 30th.

The net cash used in operating activities of 473000 for the same period last year.

Yeah.

Even though we are starting to see some indications of it.

Improvement.

In retail market trails, we are taking a conservative approach to guidance and projecting revenues for fiscal 2020 for full year two being maintained at a similar level as in fiscal 'twenty to 'twenty three.

With gross margin goals for the full fiscal 2024 to be around 15% to 16%.

Our outlook is subject to final product makes up shipments as well as order flow from the new customers introduced through our joint venture with Hussein.

Lastly on August four 2023, our board of directors approved a quarterly dividend of five cents per share.

Payable on August 23rd.

To stockholders of record as of August 16.

Our new joint venture development, it's off to a great start.

We look forward to working with a new and diverse range of global customers and products.

We consciously moving forward with plains.

Additional capacity on our property to accommodate future growth.

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, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

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.

Yeah.

Okay.

Your first question for today is coming from Mark Argento with Lake Street capital.

Okay.

Hi, guys.

Thanks for taking the questions.

On a few specific ones one regarding the.

Potential JV with the vertical integration partner could you talk a little bit more about you.

You know what specifically that capability gives you what competitive advantage and how quickly. If you guys decided to move forward could you actually implement something like that.

Sam do you want to take that question or do you want me to answer it.

Okay, Yeah, maybe I tried to talk about that.

<unk> integration joint venture.

In fact, Oh, I'm, so I'm in couponing, and clicks, which has been in the industry for almost 20 years.

And they have been in separate joint venture in China.

In our retina in Cambodia and Thailand.

Yes, he is mainly.

In the.

Dying of waterless dying of separate which is quite innovative.

What are they buying process.

Save up to the AQR, 90% water usage.

That's a traditional.

Dyeing process.

And also the carbon footprint, Michigan will be in a much much lesser.

So it was yes she.

Project.

And so the rest I mean, I'm really set up a factory up.

Our joint venture manufacture aseptic manufacturing meals in Jordan.

Liberal mainly supply the fabric, mainly polyester fabric to terrestrial yours.

And so we believe.

Hum.

He was certainly time.

It will be a sustained or both.

T. A project that the costs, we were at we estimate will be quite similar to the traditional collier polyester fabric.

So I mean, we have that vertical integration.

We believe.

Under the consolidator talking loss Commvault duress.

I mean, the gross margin and hence because that really going through the gross margin of fabric.

And we'd also.

Anticipate that EBITDA.

We also much enhance them.

And we will keep.

Because it would be we just signed the Mou and then we will have a loss share with the joint venture agreement very soon.

By that time, we will give some indication on the financial impact on direct.

Yeah that is the basic idea on this vertical integration joint venture.

Yeah, I think it's a I think I would like to add that the business.

And ESG initiative and everybody is very excited about this including the Dania and government.

This is probably one of the first fabric mills there.

It is going to be a build and establish in Jordan because as we know Jordan.

Yes, very little supply of water and all along water has been the major issues for having a fabric mills.

And.

So the Jordanian government they are going to be very supportive.

With.

All kinds of in Asia are insane.

Incentives and.

The participation of.

You know it.

In terms of land.

In terms of.

Checks.

Our basement.

And.

Financing.

Financing entities, such as the World Bank.

It's also very interested about this project and want to support us.

So I think this is going to.

Also besides.

Providing us a better.

Earnings and better.

Profitability.

Growth in sales is also will project duress.

And having an image.

Being socially responsible.

And the focus on sustainability.

It is a new IND.

The wages.

And proven technology.

So everybody is very excited about it and we believe that with with this joint venture and with this.

Where are they close that up we will be able to attract.

More.

Global customers Global brands, who are also focus on ESG.

Okay.

Well very exciting just one one just quick follow up in terms of timing and how quickly you know if you move to a JV you go on.

Assuming you have to build out a facility as this calendar year 'twenty eight 'twenty Bahar 2026.

How quickly could you see something like this come online.

Oh, it is going to be very quickly actually we are already drafting the JV.

<unk> agreements as we speak.

Uh huh.

And both sides want to sign the JV.

As soon as possible.

And we have been also talking with our financing people.

It's just a matter of who we want to work with to get the financing.

And of course.

T X is going to contribute.

Up to their.

Up to their proportion of the joint venture.

And the rest is going to have the majority of the.

Off the holding of the joint venture company.

So it will be consolidated with our with our company.

And we have already Bagdad, we've already looked at sites.

The government is on board.

So.

Once we signed the joint venture is going to move quite quickly.

Can we expect.

The production of the effect of the separate deal.

B G.

June 'twenty 'twenty four.

The first production.

That'd be among 10 months later.

The aggressive timeline, but a very exciting just one follow or just one quick one in terms of the operating business.

You know obviously you guys just reported here.

I guess what was your Q4 back in May So we got an update there.

It seems like just the tone of the call.

It seems like maybe things are improving a little bit in terms of the AD market with.

With customers and yeah. It just looks like orders are kicking back in a little bit from some of the big guys could you just characterize you know.

What's changed in the last couple of months if anything.

Eric maybe you can answer this what you are seeing in terms of the market are turning around or.

Order flows.

Key customers and then also.

Potential new customers.

Yes, hopefully we can see we had a mid teens hoopla casual brands, while the major customer was therefore to rush of them okay.

The market is.

Although still a week, but it's still in its already improving.

And they are also okay. I mean, the infantry level are already down to a certain level debt.

Very soon they're going to trade.

Additionally, the older So oh we.

That paint a somewhat by a major customer.

Well August two to rush, Okay, and actually according to our forecast we got from the first two customer which is we have a new balance okay. The oh, there a projection for the whole year, okay. It already.

Alright is likely more of that last year. So they took a they told us that it will be improving okay, maybe I'll try another one or two quarters.

Yeah, I think we were seeing some positive signs in the in the global retail market.

And customers are.

Starting to feel less.

Cautious, but I think they're still cautious because if you remember right after the pandemic.

Every customer every body.

<unk> order.

Unload of of products and that's why they got stuck last year with a lot of inventory.

And had to reduce their orders they don't want to make the same mistake again.

And besides <unk>.

We are we're already past depend damage and logistics issues, it's way past us so they're not afraid of not getting sufficient products order of retail.

For the retail stores. So so they are being optimistic.

The mistake, but cautiously optimistic with the.

With the with the future.

So I think we're seeing signs of improvement.

But again, we're still going to be cautious.

Cautious about the next 12 months, we believe that.

Starting from the fourth quarter of our fiscal year, which is a the.

Q1 of the calendar year of 2024.

And and by that time, we should also see some orders.

We will be producing for our joint venture with Booz Allen.

Great. Thanks.

To me.

That's in effect a base on them.

Both developments.

For the fiscal 2025.

We do believe I mean, the 'twenty 'twenty four physical I thing.

You used to worse.

But for.

For the fiscal 2025 based on the customer inquiries and product development for them and also some new customer and also the joint venture with per se in them.

We do believe I mean 2025 physical.

We'll be.

A good yeah compared with deposits.

Great. Thank you very much appreciate it good luck guys.

Thank you Mark. Thank you. Thank you. Thank you Mark.

Your next question for today is coming from Matthew Hayes at D. A Davidson.

Hi, This is Matthew haze on for Michael Baker D. A Davidson there was an article on the Wall Street Journal out a couple of days ago, citing the difficulty of apparel manufacturers region young workers in countries, like China, India, and Vietnam, causing upward.

Wage pressures on labor I was wondering if you're seeing a similar development happened in Jordan.

You still see the $4 2 million dollar level as a sort of quarterly run rate and on the SG&A line.

Yeah, maybe are you.

They're still Oh of course, there are inflations.

In in Jordan as well.

But I guess really we're not seeing as much.

Impact.

In our operating expenses.

There will be some increases I believe but I think the $4 2 million.

Quarterly.

Yeah.

Operating expenses is still it's still a pretty good gauge Eric what what do you think whether you're seeing in Jordan.

Yeah, I agree with you ought to use that because okay. A large coffee they'll fall operating expense does it fall into will be steadily off the migrating that local walk test because we have 5200 workforce because like so the basic salary. Okay. The government already announced we will remain the same in rubles.

The increase okay until I mean and that the fiscal year. So oh, it will be that's federally and equally overtime. Okay.

All of this I think it will be remain stable that's before so I'm pretty sure I'm very confident that our operating expense will be will not be much different in the future our comments, Nick coming last fiscal year.

Okay.

Okay. That's helpful and then.

One other question has to do with your tax rate. It came in at 38% this quarter end.

I believe on a listening I think I caught that it was it had to do with a loss of one of your Hong Kong subsidiaries.

Is there any way you could kind of unpack that for us.

Kind of help us think how to think about the tax rate going forward at 38% is kind of the new normal. If this was a one time thing.

Any color you could provide there would be.

David.

Well I think the just to kind of explain it very in simple term.

We pay more.

Most about Texas.

Two the Jordanian government because our operating our operations are in Jordan So.

The income.

Mostly in Georgia, and our Hong Kong subsidiary, which is trying to assess is primarily a sales and marketing are administrative.

<unk> and all at taking so we have a stop in Hong Kong and.

We don't really have much income even though there are some income in terms of developing samples.

You know subsidiary, but we don't really pay much Texas, but we have a significant amount of overhead and losses didn't in Hong Kong as well as in the U S. Our Oh corporate headquarters and our.

Our holding company in the U S. So we don't we cannot offset the Jordanian taxes that we pay without losses in Hong Kong and in U S.

So when the.

When the propulsion when when the income.

Comparing to the losses the vote.

Portland shift and we have <unk>.

Higher proportionate of losses, whereas there's a smaller proportion of our income in in Jordan then your effective tax rate just went up.

Now as we can.

So we have globally or consolidated.

Net income or income before tax to go back to the normal level.

Which means we will make more money in Jordan than the average or the effective tax rate for the.

For the consolidated company will come back down now we also were looking at ways, but we will have to talk with our tax consultants in the U S. First to see if there are some ways of shifting some of the.

Some of the income too.

Two our subsidiary, which we can do some buildings from our Hong Kong subsidiary and offset some of the losses over there.

Which we are going to look into that with our textiles out in and look at ways to.

Load are in fact, the past week.

Yeah.

Okay, and do you anticipate making more money.

Money and Jordan in proportion to the the corporate losses incurred in Hong Kong and in the U S over the next.

Re <unk> four quarters or how do you see that proportion playing out.

Well I think in the in fiscal 'twenty 'twenty four.

We are not going to we're not going to see much improvement and this is in this situation.

But we will try to.

We will try to look at them, how we could.

We do use our operating expenses and make more money in Jordan.

As well as controlling our expenses in the other subsidiaries.

Such as the U S and Hong Kong.

So.

It may come down.

Lately, but.

I think until we can ink.

We increased our revenue increase our.

Increase the bottom line the operating expense our income.

For the consolidated company.

This.

Its proportion of income and losses will continue.

Okay.

That's helpful. Thank you.

Yeah.

Yeah.

Once again, if there are any questions or comments. Please press star one.

We have reached the end of the question and answer session and I will now turn the call over to Sam Chile for closing remarks.

Thank you Cody.

Thanks.

All of you for joining us today and for your continuous support to dress. We look forward to speaking with you next quarter and reporting on now because Congress. Thank you.

Okay.

Thank you everyone.

Thank you bye bye.

Bye bye.

Thank you. This does conclude todays event you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.