Q2 2024 Jerash Holdings (US) Inc Earnings Call

Greetings and welcome to the Jerash Holdings' fiscal 'twenty 'twenty four second quarter financial results.

At this time all participants are in a listen only mode and the floor will be open for questions.

Hey.

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 Mr. Roger <unk> Investor Relations you may begin.

Thanks, so much operator, and good morning, again, everyone and welcome to Duress holdings.

24 second quarter conference call I'm, Roger upon Dell with Pinedale Wilkinson's dress holdings Investor Relations firm, who will be my pleasure momentarily to introduce the company's chairman and Chief Executive Officer, Sam Troy, Its Chief Financial Officer of Gilbert Lee and Eric Stang.

Who leads the company's operations in Jordan.

Before I turn the call over to Sam.

I want to remind our listeners that 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 as filed with the Securities and Exchange Commission.

Copies of which are available on the Sec's website at Www Dot FCC 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 your rash holdings undertakes no obligation to update any forward looking statements, except as required by law and with that it's my pleasure to turn this call over to Sam Choy Sam.

Thank you Roger and Hello, everyone.

Our second quarter of them is the former just again demonstrates our.

Ability.

New customers.

Chilean sea, yeah challenging apparel environment.

With Tel market conditions, a group of brands in the U S and Europe.

It's been slow to recover.

Yes.

In return.

Impacting our business.

Compared with the prior year.

Customers' orders have generally stayed.

Lower priced items, which carry lower margins.

Yes.

Our revenue and gross margin remained essentially stable.

Consequent.

On a sequential basis.

During the quarter.

Chris was made with all up to withstand the joint venture partner.

Thus far.

Hi, Don went to a premium brand customers have.

Have committed to placing orders.

Marketing two additional prospective customers.

Continuing and feedback is encouraging.

Current projections from the Jarden chip or the next 12 months coal.

We're all about.

Eight to 9 million in new orders.

Starting in a meaningful way in a physical full courses.

Entourage customer from Timberland has increased its order significantly.

It just became the second largest group of brands to duress.

We are also producing a boost crowd all those four win a payroll.

Payroll.

And then there'll be a corporate brand.

And our confident or the blow from wins increased liquidity.

Next fiscal year.

It's well.

Visits from our first European based high end apparel brand continues to expand.

Yeah.

Projecting.

Suffering.

All of this.

Hobbled Cisco 'twenty 'twenty four.

Furthermore.

We are excited about the opportunity created by our recently established joint venture.

With new Tech textile.

Our innovation and solution company.

When she is expected to enable.

Cash who employ the latest technology to offer customers either new array all sustainable and in the way the textile products.

The pulp registry textile dyeing clauses.

G is expected to reduce water usage by across the 90%.

Any key consuming by approximately 65% and carbon footprint.

By over 50% in comparison with traditional processes.

To achieve this we plan to build a state of art redbrick facility in Jordan.

With construction could begin in 2024.

And the mood through rash.

As a leader in yes, G textile manufacture already.

In keeping with our long standing commitment to sustainability and responsible growth.

Yeah.

Lastly, I want to keep it an update regarding the middle East.

Which is on everyone's mind.

Furthermore, it became.

We have been closely monitoring the situation and keeping our customers informed.

Thirdly.

So that's an ongoing Oslo.

There have been no changes.

With customers or the or commitment.

And both Paul.

That garage uses for important and they spoke a functionally normally.

I will now turn the call over to Eric to talk.

About our operations and Gilbert with <unk>.

It's because it's been installed soaps.

Thank you Sam.

Hello, everyone.

At this point is in Jordan continued to progress at pace.

We are expected.

Both of our joint ventures.

Our booth and our partnership is well underway and bearing fruit.

Marketing ethos continue do a sad rate and we believe the partnership is forcing had loyal position for growth ahead.

No. We are very busy forming trends will file deal with tech textile joint venture partner.

At this juncture, we are actively identifying potential sites in the nearby industrial zone on which to build out new textile complex.

Jorashi conferring with the Jordanian double button, Paul possible support and collaboration on this project, which will foster a new employment in high tech related jobs.

The spending patterns at the consumer level are still tier two what lower margin items.

Which in turn has impacted all of them they throw.

Well that's bought it from our customers.

However, we are maintaining and growing our strong relationship with existing customers and moving forward with Suraj initiative to diversify and add to our customer base.

Garage is a trusted manufacturing partner, but we culp, which owns multiple global brands.

We have been producing jackets and other apparel for the north face brand for more than eight years.

Starting last fiscal year, we began producing apparel for timberland.

Whether we are bread and the order volume has increased.

Totally.

Becoming our second largest brand out.

We look forward to working closely with other with brands such as words.

Our first European based high end apparel, Brian is also progressing very well.

And order volume is anticipated to double for the second half of fiscal 'twenty tried before.

Additionally, we are receiving inquiries from other high profile global brands, both from the U S and Europe with new common sampling and costing underweight.

To amplify on Sam's come back regarding the middle East situation.

We use both the alcohol and hydro pole for import and export.

Thankfully so far both parts are operating with business as usual.

That said in the you went up and the potential impact on the ports. We have a contingency plan, which is in trade that has been approved by our major customers, but temporary relocating production.

And that's necessary to alternate regions.

Our leadership position in Jordan provides unique and tangible benefits to customers around the group.

The initiatives and trends we have been craze.

Including vertical integration sustained the boat textile solution.

And focus on their involvement physician suraj with a distinct competitive advantage and E. P D and attractive pod the fault premium apparel brands.

I will now turn the call over to Gilberto to discuss our financial results and the fiscal 'twenty 'twenty four outlook Gilbert trades.

Thank you Eric.

Revenue for fiscal 'twenty, 'twenty, four second quarter amounted to $33.4 million.

Apparel with $37 8 million for the same period last year.

The decrease was primarily due to fewer shipments being delivered to some of the major customers in the U S, partially offset by shipments to order, new geographical locations, including Hong Kong and Germany.

Gross profit was $5 $4 million for the fiscal 2024 second quarter compared with $6 9 million in the same quarter last year.

The gross margin was 16.1% compare that with 18.3% a year ago, principally driven by a shift in customer mix with lower profit margin orders.

Operating expenses for the fiscal 'twenty 'twenty, four second quarter increased slightly to $4 $5 million from $4 3 million last year.

Operating income totaled $888000 in the most reason second quarter versus $2 6 million in the same period last year.

Total other expenses were $167000 in this fiscal year 'twenty 'twenty four second quarter compared with 106000 in the same quarter last year. The increase was primarily due to higher interest expenses arisen from participating.

In our supply chain financing programs of certain customers.

Partially offset by incomes from fixed deposits in banks.

Net income was $369000 or three cents per share in the fiscal year of 2024 second quarter, compared with 1.8 million or 14 cents per diluted share in the same period last year.

Jurassic <unk> balance sheet and cash position remained strong with $22.8 million of cash and restricted cash.

And net working capital of $40 5 million as of September 30 of 2023.

Inventory was $18 7 million and accounts receivable was $5 2 million.

Net cash provided by operating activities was approximately $8 $2 million for the six months ended September 30 of 2023.

Compared with $9 6 million for the same period last year.

As Dan mentioned earlier retail market conditions.

Not yet fully recovered.

Therefore, we are taking a conservative approach to guide our revenue for fiscal 2024 to be down about 325% from last fiscal year.

Our gross margin goals for the current fiscal year is expected to be approximately 15% to 16%.

Our outlook is subject to final product mix of shipments as well as order flow from the new customers through our joint venture with Zander.

Lastly on November 3rd 2023.

Our board of directors approved a quarterly dividend of five cents per share payable on November 28.

Stockholders of record as of November 14th.

With that we will now open up the call for questions.

Operator may we have the first question. Please.

Thank you very much at this time, we are opening the floor for questions. If you would like to ask a question. Please press star one on your phone keep had now a confirmation tone will indicate that your line is Nicky you May press star two if he would like to remove your question from Nicky So anyone using speaker equipment, it may be necessary to pick up.

Your handset before pressing Keith please hold them and while C pulse for the questions.

Thank you. Your first question is coming from Mike Baker of D. A Davidson Mike Your line is life Ah. Okay. Thanks, just just Oh I'm going to ask two questions. First you know maybe it's obvious but what are you hearing from your big cost serves customers in the U S.

As it relates to consumer spending holiday outlook those kinds of things are at.

Is that what is really causing a you know that the results to come in a little bit less than expected as it is it weakness in U S consumer spending or is there something else to consider.

Well thanks, Mike.

Yeah, I think and that's mainly because of the slowly recovering.

The consumer markets that are the spending is still not back to the same level as before so our existing customers orders.

Shifting more towards the lower margin products instead.

Instead of the high dollar value high margin.

Products such as the.

The north face jackets.

Eric do you have any thing to.

To say about this.

<unk> bin.

Yeah, you can talk a great.

Yeah, I told you agreed to what you have mentioned I talked to many many brands. Okay. Your rights because the spending power Rudi that you were at in the U S is still did not recover so much and still very weak. So people on trying not to spend too much on the luxurious brands on luxury.

Product like our northeast checked it or other kinds of highway Jacobs.

So the all the pay thing to us is slightly less than before but we have a very big demand for low cost a T shirts low cost checklist Oh from some other brands, which is also very popular in the U S. So that's why we can still be able to.

Occupy all our current capacity and running or the food full time basis.

Is the situation.

Okay that makes sense. Thanks, one one other question as it relates to the new joint venture for the textile.

Situation can you just talk about it.

So you said I think construction begins in 'twenty 'twenty four I assume you meant calendar 'twenty 'twenty, four and and what the cost of that might be hot what what are your expected waves to fund that are just some of the capex and involved in that joint venture coupons that you guys are your partners et cetera.

Well the joint venture is the 50 149, a joint venture and giraffes owns.

51%, so any funding will be in that proportion to.

To the joint venture it clinically and yes, youre right. The 2020 for this calendar year.

We have almost finalized the.

At the site of where we're going to build and and we have been discussing funding opportunities with a number of.

Financing parties and at this point, we we cannot disclose who they are yet because nothing has been finalized but there will be a.

Financing.

Parties from China problem.

Teacher, if I'm Hong Kong and also.

Possibly from the Middle East.

Yeah part of the part of the funding could be finance.

Our own.

Cash flow from our operating cash flow, but that would definitely not be enough because if I'm correct I think the.

I think the.

The overall.

Projection for the Capex.

Is about $20 million to $30 million.

Am I correct Eric.

Yes, you are absolutely correct is between $25 million to $30 million. Okay. They are already very interested the financial institution. Okay. They are very interested in this project we are okay.

We are discussing with them so it's not appropriate to disclose the identity of each one but the off they are all very positive about our the funding of these projects.

And in that 25 to 30 million.

The total cost not not not your 51%.

Oh, that's the total cost.

Not the 51% overall mhm got it.

And I would say from a China will point. This is a one belt one road project.

So China will definitely support this project can initially.

So this will be.

I know these are not only a one belt one road project, but also a one belt one road, yes G project.

So will attract.

Some interest policy for this project.

Jonathan Thank you.

Right.

Because of the ESG E.

S G.

Part of it both China and both.

The middle East they are the governments they are very interested in and supporting us.

Understood. Thank you.

Yeah.

Thank you very much. Your next question is coming from Mark Argento of Lake Street Capital. Your line is life.

Good morning, guys.

A quick question. So in terms of Bousada, you said, you anticipate seeing revenue from that partnership in Q4.

And I think you mentioned.

Eight to 9 million.

And for the next 12 months, maybe just help us think through like what does that mean for Q4 is a couple million in Q4.

Bedroom from their seats and 9 million in Q4.

Or clarity around that would be helpful.

Eric do you want to take this one.

Alright.

Oh.

Maybe it might be Sam I answered this one yes.

According to the person protection that thing a few media in the fourth quarter of fiscal 2024.

The orders are something percent.

But I think our order we'd be growing at it that way.

You saw the station orders from at least five customers.

Derived therefrom, we send them.

And I think that will be ready to publish it.

So I guess, maybe just ask another question so or another way.

But eight to 9 million, what what and revenue was that for Q4 or are you now in the next 12 months.

I was that was the real injection molding.

That was the projection for the next 12 months starting from Q4 of a physical 2024, so basically in the in the next 12 months or in the calendar year of 'twenty 'twenty four.

We are projecting about $8 million to $9 million in additional incremental revenues.

From the JV.

Jamie.

Okay. So it's about.

Incremental revenue in calendar 'twenty.

Right.

Got it.

So.

And then more of a housekeeping question for you.

Yogurt I saw the tax rate was up a little bit I know it was up in Q1 for the first time and then in the third quarter items like 40, some percent what's out what's going on in the tax rate there.

Well the tax rate.

Most of all most of our income.

This.

It's really from from Jordan, That's where we that's where we book most of our income and Oh of U S and operation and also the Hong Kong operations are mainly just.

Just expenses.

So.

The expenses kind of remain the same and slightly increasing because of the growing in size.

But but income has dropped significantly so when you combine all of those.

As a as to earnings at the consolidated earnings decline.

So in our propulsion after tax comparing to then to the.

Operating income.

<unk> is at a higher proportion.

Now when when income goes back up this effective pass rate will come back down.

Right.

I'll follow up with you offline on that when you walk me through that a little bit more just just lastly for me.

Hum.

Don't tell me just total capacity and then with prosodic coming online.

They'll be incremental capacity to support the bizarre JV or are you using some of your existing capacity at this point and then you know you guys booked up through the end of the year or maybe just talk about your your order book right now.

I think right now we're pretty much fully booked through the end of their fiscal year may.

May be there.

Depending on the order flow that maybe there are a couple of hundred thousand pieces in one of those months that we still have capacity.

That is also filling up very quickly, we're afraid to be double booked and not able to deliver but we're also looking at ways to to be able to take the order and get a complete fully booked.

On and our capacity and if we if we really didn't need additional capacity, we could outsource some of the productions and this is all approved by our customers now with boost and their business coming in.

And are you you know we have always been very conservative.

Uh huh.

And last year, we have increased internally, we have expanded our capacity internally.

And we believe we will be able to handle at least for the next fiscal year.

The increase in business, but overall I think.

There'll be it will be.

Reverse of how this situation when.

When was that in the business come in it will be also for premium brands.

For department stores that are in the U S.

That will be for the products that are off hire a S P and higher gross margin.

This year, we were able to backfill some of the reduced orders.

From the higher end products. So all of their higher end brands by lower gross margin products.

Uh huh.

Some see EM orders with high volume below low gross margin low gross profit, but next year when it goes out of the business comes in.

We will be able to shake the higher margin orders.

Forego some of the low margin orders, we have already told some of the.

Some of the new customers that we that we are doing business with that next year, we may not be able to handle all their orders.

So if they want our business.

They might have to increase the surprise or increase the margin does it give us.

So I think.

The.

The situation next year when new business won was that it comes in it will give us the opportunity to improve our E. S P and improve our gross margin.

That's helpful and to this point you guys have been able to hold onto your production style using some of the lower margin.

Orders are that was the objective right to be able to keep everything a taxi service book.

Customer when the when the order books return for the higher priced exactly that that has been our strategy.

If you compare.

Giraffes with ardor manufacturing facility.

Royalties on a company's in Jordan.

Companies their business down.

Almost 50% in some 60 70 per cent and they have a significant layoffs up there off their workers giraffes, we are keeping a very conservative approach.

We would rather filled up our capacity than letting go of our workers because it will be very difficult to find and to backfill our capacity when business turn comes back. So our strategy has been to even do.

So you take on lower margin and no profit orders and customers then to shut down the factory or two to lead our all workers go because we know the business will come back very soon.

Yes.

Great. Thanks, guys and good luck the rest of the way this year.

Thank you. Thank you.

Thank you very much.

<unk> reached the end of our question answer session I will now turn the call back over to Sam Chile for closing remarks.

Okay. Thank you Jamie and thanks to all of you for joining us today.

And for your continuous support.

We look forward to speaking with you next quarter and reporting on as soon as Pope Chris. Thank you very much.

Thank you. Thank you. Thank you everybody that does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

You too thank you.

Thank you. Thank you.