Jerash Holdings (US) Q4 2024 Earnings Call Transcript

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June 27, 2024

Key Takeaways

  • The Red Sea crisis of cargo attacks disrupted Q4 production and raised ocean freight costs, prompting Jerash to source raw materials from Turkey and Egypt to bypass risky routes.
  • Despite logistic challenges, Jerash reports tangible increases in orders from long‐term customers and a pipeline of new high‐profile brands both directly and via its joint venture with Pozena.
  • In Q4 FY24, revenue fell to $21.6 million with gross margin declining to 7.0%, resulting in a $3.1 million net loss ($0.25/share); cash and restricted cash stood at $14 million with net working capital of $36.1 million.
  • For FY25, Jerash expects Q1 revenue to rise by 14%–15% and full-year revenue by 15%–18%, targeting a gross margin of approximately 13%–15%.
  • To manage costs and inflation, the company has delayed its joint venture fabric mill, is deploying solar energy and automation, and is leveraging new dorm facilities to improve operational efficiency.
AI Generated. May Contain Errors.
Earnings Conference Call
Jerash Holdings (US) Q4 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good morning, everyone, and welcome to the Jerash Holdings Fiscal 2024 4th Quarter and Full Year Financial Results Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host, Roger Pondell, Investor Relations at Jerash Holdings. Roger, the floor is yours.

Speaker 1

Thanks so much, Jenny. Good morning, everyone. Welcome to Durash Holdings fiscal 2024 Q4 and full year conference call. I'm Roger Pondell with Pondell Wilkinson, Durash Holdings' Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chairman and Chief Executive Officer, Sam Choi Chief Financial Officer, Gilbert Lee and Eric Tang, who leads the company's operations in Jordan.

Speaker 1

Both Sam and Eric are 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 ks as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website atwww.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from those forward looking statements and Jirash Holdings undertakes no obligation to update any forward looking statements, of course, except as required by law. And with that, I will turn the call over to Sam Choi.

Speaker 2

Sam? Thank you, Roger.

Speaker 3

Since October of last year, the Red Sea crisis triggered by multiple attacks on cargo ships by healthy rebels has continued to cause supply chain disruption throughout the Middle East region. Even though an alternative shipping route has been established to receive raw materials, bottleneck and vessel bunching caused delays, impacting production for our group of customers and in turn the company's financial performance for the quarter and fiscal 2024. Gross margin likewise was down due to the significantly higher ocean freight and transportation costs from Asia to Jordan. Despite the shipping situation, we have identified and now to aggressively increasing our source of raw materials from Turkey and Egypt. This is allowing us to bypass the treacherous shipping routes and mitigate related logistic costs.

Speaker 3

Also on a positive note, we are experiencing a tangible increase in purchase orders from long term customers. Additionally, we are receiving a fresh pipeline of business from new high profile robo brands, both directly and through our joint venture with Pozena. We are now increasing orders from 4 group of brands through Pozana. Our joint marketing efforts are continuing and believe there will be a solid new business opportunities ahead as more companies look to reduce costs by shifting their production to tariff free countries such as Jordan. In view of the current geopolitical situation, we have decided to delay our plans to build a state of the art fabric mill in Jordan with another joint venture partner, Newtek, TexStar.

Speaker 3

For long term, our objective remains being a trusted manufacturer partner, providing sustainable solutions as an environmentally cautious leader in the apparel industry. I will now turn the call over to Eric Tang, who is in charge of our operations in Jordan.

Speaker 4

Thank you, Sam. Hello, everyone. The supply chain disruptions have delayed our production during the fiscal Q4. Since we were not able to receive an adequate supply of materials from Asia to produce orders to our major customers. Approximately 16% to 18% of orders were delayed and shipped in the fiscal 2025 Q1.

Speaker 4

As Sam mentioned earlier, we are now increasing our sourcing of materials locally in the Middle East and we have plans in place that are allowing us to produce and ship orders on a more normalized basis as we move forward. Despite the unsettled external environment, we were able to capture local orders during the fiscal Q4 to keep our factories running and maintain our staff in part in anticipation of growth in the new fiscal year. Today, our manufacturing facilities are fully active, with orders bode well into the fiscal Q2. Currently, we are experiencing steady order patterns from our major customers after a protracted 2 year period of economic restraint at the retail level. We also are realizing the benefits of our strategic plan to diversify our customer base as we are now producing garments for a number of new branded customers.

Speaker 4

DuraS has been a trusted Tier 1 manufacturer and assembly partner for VF Corporation for more than 6 years. In addition to producing apparel for VF North Face and Timberland brands, we are now receiving purchase orders from WEN following the initial trial orders placed during the second half of last fiscal year. Order from our 1st European based high end apparel brand are steadily increasing and our 2nd European based apparel brand is starting to place order for fiscal 2025, following several successful trial orders. We are excited to grow the European market and look forward to rolling our production for new apparel items in the new fiscal year. Proceeding into our new fiscal year, we are feeling better and breathing easier.

Speaker 4

I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please.

Speaker 5

Thank you, Eric. Revenue for our fiscal 2024 Q4 was $21,600,000 compared with $23,800,000 for the same period last year. The decrease was primarily caused by inadequate materials for production due to logistical disruptions and extended supply chain lead times in the Middle East. Revenue was negatively impacted by approximately $3,000,000 to $4,000,000 of orders that were delayed to the Q1 in fiscal 2025. Gross profit was $1,500,000 for the fiscal 2024 Q4 compared with $2,500,000 in the same quarter last year.

Speaker 5

Gross margin decreased to 7.0% from 10.3% in the same period last year. The decrease in gross margin reflected higher ocean freight and transportation costs as well as manufacturing lower margin orders from local customers to offset production delays for U. S. Customers. Operating expenses for the fiscal 2024 Q4 were $4,500,000 compared with $4,300,000 for the same quarter last year.

Speaker 5

SG and A expenses were higher at $4,300,000 in the fiscal year 2024 Q4 compared with $4,200,000 in the same quarter last year. Stock based compensation expenses were $258,000 compared with $119,000 in the same quarter of last year. Operating loss was $3,000,000 for the fiscal 2024 Q4 compared with operating loss of $1,800,000 for the same quarter last year. Total audit expenses were $134,000 in the fiscal 2024 Q4 compared with $86,000 in the same quarter last year. Net loss was $3,100,000 or $0.25 per share for the fiscal 2024 Q4 compared with net loss of $2,000,000 or $0.16 per share in the same period last year.

Speaker 5

As of March 31, 2024, Jirav's had cash and restricted cash of $14,000,000 and net working capital of $36,100,000 Inventory was $27,200,000 dollars and accounts receivable was $5,400,000 Net cash provided by operating activities was approximately $2,500,000 for the fiscal year ended March 31, 2024, compared with $10,800,000 in fiscal 2023. As Sam and Eric mentioned earlier, we're seeing better order patterns into fiscal 2025. Our revenue for the fiscal first quarter is expected to increase by 14% to 15% from the prior year quarter, and full year revenue is anticipated to be up by 15% to 18%. Our gross margin goal for the fiscal 2025 year is expected to be approximately 13% to 15%. The outlook is, of course, subject to final product mix of shipments as well as order flow from the new customers through our joint venture with Busana.

Speaker 5

On May 21, 2024, Jiraj approved a regular quarterly dividend of $0.05 per share on its common stock. The dividend was paid on June 7, 2024 to stockholders of record as of May 31, 2024. With that, we will now open up the call for questions. Operator?

Operator

Thank you very much. We will now be conducting our question and answer session. Thank you. Your first question is coming from Mike Baker of D. A.

Operator

Davidson. Mike, your line is live.

Speaker 6

Great. Thanks. Hi, guys. So how much of the sales ramp that you're seeing is some of it is delayed from the first quarter, but it sounds like new customers, but also some of your legacy customers ramping back up. So I wonder if you can parse that out a little bit how much from each and what I'm getting at is, is this a sign that your Timberland or VF Corp in particular, is feeling a little bit better, starting to restock some shelves due to better demand after, as you said, what's been a couple of years of really weak ordering?

Speaker 6

Just trying to understand the underlying sort of apparel demand that you're seeing.

Speaker 3

Thanks.

Speaker 5

First of all, the Buzena joint venture, we believe or the projection for this coming year is about, I would say, dollars 6,000,000 to $8,000,000 Is that correct, Eric?

Speaker 3

Yes. Yes, correct. Yes.

Speaker 5

Okay. So that part, I think we are still trying to figure out how to improve, but we are taking purchase orders from 4 new customers from that is bringing that is brought by Pozena. HUGO BOSS, which we have been doing business with them, actually even before presented and us joined the formed the joint venture. And then there is Macy's, dealers and Brooks Brothers. So all these four, we will be taking orders from them in this fiscal 2025.

Speaker 5

Now our legacy customers such as VF, which North Face and Timberland and Vans, Vans is going to start in this fiscal year. But VF, I'm looking at their increase is actually they're looking to increase by about 8% comparing to 2025. Of course, VF is the most the is our number one customer. And then new balance is also let me see. I think new balance is about the same comparing to 2024, but Hugo Boss has a significant increase, about 17%.

Speaker 5

But we have a bunch of other customers that are going to have significant growth other than these 3. So that's why we're projecting double digit growth in 2025, especially in the 1st two quarters. Anything to add, Eric?

Speaker 4

Yes. I think more or less the same. Also, our projection, apart from we have additional growth in the coming year, new balance, we also have additional growth also. So this is the reason why our projection for the new fiscal year is a bit higher than before, a 2 digit higher.

Speaker 6

Yes, makes sense. One more if I could. The gross margin outlook for next year, I guess it is about flat on a year over year basis, but obviously much lower than what you've done in the past. Now I guess I understand the reasons that the Red Sea disruption higher freight costs, etcetera. I guess the question is how much of that gross margin degradation versus past years you think is permanent because you have to find different routes and the like?

Speaker 6

Or how much you think is just due to the temporary disruption and can eventually come back to where it once was?

Speaker 5

We're anticipating the freight cost is definitely going to be higher because the crisis is still going on and we don't know when it's going to end. Even though we now find a route that can kind of pretty consistently getting the containers into Jordan, but we're going to have to pay a higher cost. I mean, even during the past 4 to 6 months, some of the containers were stuck and we spend like 3 to 4 times as much as normal to get those containers in. And that's part of the reason why the margin was so low in the Q4. So but going forward, at least in the foreseeable future, we anticipate the shipping cost to be higher.

Speaker 5

And the other reason is that now we're seeing some pretty competitive situation in the market. So we're getting pricing pressure from our customers, and we're pricing our products very competitively. So even though and also with some new customers that we're bringing in, those customers, at least at the beginning, the overall margin is not going to be great. It's not going to be as great as our legacy customers because we have to spend extra money on developing the products and developing the process of doing those new orders. So we're trying to be more conservative in terms of projecting the margin.

Speaker 6

Okay. Makes sense. Thank you.

Speaker 4

Sure.

Speaker 3

Thank you.

Operator

Thank you very much. Your next question is coming from Mark Argento of Lake Street. Mark, your line is live.

Speaker 7

Yes. Hi, guys. Just a couple of additional questions for you. Gilbert, you had just mentioned kind of costs and my question was around inflation. Obviously, inflation worldwide is obviously running rampant right now.

Speaker 7

I think you just touched a little bit on kind of pricing. What are you seeing? Obviously, your customers are being more aggressive in terms of pricing. But are you guys able to take some price and keep up and maintain that margin? What are you seeing from the impact of kind of just broad based inflation on the business?

Speaker 5

Well, the inflation is definitely there, but it is affecting our costs besides the shipping costs, but everything else is increasing. I think our inflation, at least on the operating side, the labor costs in Jordan and also other operating costs, those are increasing too. Now we're looking at very diligently trying to cut costs in our operations, Like the new dorm is now we're occupying the new dorm. So I think in fiscal 2025, we will be able to save some of the rent or leasing costs for the old homes when we vacate the old homes and start paying rent. So in that area, we could save some money and hopefully help the margin.

Speaker 5

However, the retail market is, like I said before, is getting quite competitive. In order to attract new customers and to increase our volume with existing customers, we're going to have to price very competitively. So to answer your question, I don't see that we will be able to raise our prices to our existing customer and improve our margin at least in the next year or so.

Speaker 7

All right. So if the vendors at retail taking prices up 10% on a garment, I mean, kind of your price delivered, are you able to maintain that? Are you taking a lot of that hit right now, I. E, are you able to raise prices at least to stay kind of Yes.

Speaker 5

Yes. It's I think overall it's the latter, but in certain customers, the margins are increasing. So it is it all depends on the brand. It all depends on the customer. Like customers such as Hugo Boss, the margins are very good.

Speaker 5

But VF, I think we're improving margin on Timberland, especially right now, we're trying to source our fabrics from Egypt and from Turkey. So in that sense, we should be able to improve our margin with Timberland. For TNF or North Face, their margin is actually holding, but it is going to be very difficult to get their margins up. Is that pretty accurate, Eric? You have anything to add?

Speaker 4

Yes, very accurate. Yes, but in addition, in order to increase more revenue, we are also implementing several saving plans for cost reductions such as we are going to install more solar energy system in order to reduce the cost of the electricity here because here, the cost of the utility is pretty much expensive. Also, we are trying to use for the boiler, okay, we are trying to do some water and diesel savings, okay. This is already reinstalled in one of our factory, and we are also this is also one of the cost saving measure. And for the production line, we are trying to bring in more automatic machines in order to save, okay, the number of production people.

Speaker 4

Or all the cost saving plan we are currently, okay, carry out.

Speaker 7

Thanks guys. Appreciate it. Good luck.

Speaker 5

Thank you.

Operator

Thank you very much. Our next question is coming from Mike Disler of AMNX. Mike, your line is live.

Speaker 2

Yes. Good afternoon over there, gentlemen and Gilbert here in the U. S. Yes. Just two quick questions.

Speaker 2

First, well, actually just one question. Really, just I'm glad tabled the new mill, the joint venture for at least short term, intermediate term. That sounds like a smart capital outlay. And I just want to make sure that you have available, you said $14,000,000 approximately in cash available plus $36,000,000 accessible. Is your available capital no issue going forward just for the next 6 to 9 months kind of thing?

Speaker 2

You're good to go?

Speaker 5

No. We believe we will be able to generate sufficient operating cash. And I mean, if we look at in last fiscal well, the prior fiscal year, 2023, we generated almost $11,000,000 in operating cash. Of course, this year, it's down to $2,500,000 But also last prior fiscal year, we spent a lot of money finishing up the dormitory and also doing some internal expansion, upgrading and also expanding our capacity in fiscal 2023. And some of them flow over to fiscal 2024.

Speaker 5

So in 2024, we spent about $5,100,000 in that area. So that's primarily why our cash flow decreased by $5,300,000 $5,400,000 in fiscal 2024. So and we don't have any debt. We don't have to pay back anything. So we believe with the improved profitability in 2025, sales growing at 15% or whatever up to 20%.

Speaker 5

It will bring a lot of cash flow into our account. And we're right now not looking at having any significant amount of capital expenditure in this fiscal year, the delay of the fabric mill. And on that, we still have the option of raising capital or borrowing money. So we don't believe that this cash is going to be a problem for us.

Speaker 2

Okay. That's terrific. And thank you. Thanks, Gilbert. Sam, Eric, keep up the good work.

Speaker 2

Thank you very much all.

Speaker 3

Have a good day. Thank you. Thank you. Thank you. Bye bye.

Operator

Thank you very much. Well, we have reached the end of our question and answer session. I will now hand back over to Sam for some closing comments.

Speaker 3

Yes. Thank you very much, operator. And thanks to all of you for joining us today and for our continuous support and for your continuous support. We look forward to speaking with you next quarter. Thank you.

Speaker 5

Thank you.

Operator

Thank you very much, everyone. This does conclude today's conference. You may now disconnect your phone lines and have a wonderful day. Thank you for your participation.

Speaker 4

Thank you very much. Have a wonderful day.

Operator

Thank you.

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