Jerash Holdings (US) Q4 2023 Earnings Call Transcript

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Provided by Quartr
June 27, 2023

There are 8 speakers on the call.

Operator

Greetings. Welcome to the Jerash Holdings Fiscal 2023 4th 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. Please note this conference is being recorded.

Operator

Will now turn the conference over to your host, Roger Pondell, Investor Relations for Durash Holdings. You may begin.

Speaker 1

Thank you, Holly, and good morning, everyone. Welcome to Jirash Holdings fiscal 2023 4th quarter and Year End Conference Call. I'm Roger Pondell with Pondell Wilkinson, Jerash Holdings' Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chairman and CEO, Sam Choi his Chief Financial Officer, Gilbert Lee and Eric Tang, who leads the company's operations in Jordan and today is calling in from Indonesia. 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.

Speaker 1

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 is filed with the Securities and Exchange Commission and copies of which are available on the SEC's website at www.sec.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 Jiraj 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 Choi. Sam?

Speaker 2

Hi. Thank you, Roger, and hello, everyone. The retail sector is facing challenging times following the pandemic. Persisting the rising interest rates, the inflationary impact and other factors all are having an impact on consumer spending. Apparel brands have not been immune to today's environment, which for Jirash translates to smaller orders 4th quarter revenue also was negatively impacted by approximately 3,000,000 of orders that were deferred by customers to the current 1st fiscal quarter.

Speaker 2

Nevertheless, during this period, We are continuing to focus on our initiatives to diversify Jiraiya's customer base, both through our own marketing activities and through our recently signed joint venture with PUSANA Apparel Group. In March, we announced the PERSANA agreement to form a joint venture, which is progressing well in this formative stage. We have received positive feedback from POSANA's group of customers with expressions of keen interest in geographically diversifying their production from Asia to Jordan to take advantages of duty free agreements with the U. S. In other countries.

Speaker 2

In fact, discussion already has begun for costing and pricing of a number of styles with 3 potential joint venture customers, and we anticipate initial orders for joint venture to start as early as the second half of the current fiscal year. Also, on the positive front, Our fiscal 2023 initiative of diversifying Tourette's customer base is paying off, having gained Additional new global brand customers. 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 for our new European based at Perilbrand. I will now turn the call over to Eric Chang to talk about our operations And then to Gilbert, who will then discuss financial results.

Speaker 3

Thank you, Sam. Hello, everyone. The fiscal year and final quarter were both busy and challenging As we endure and responded to changing and challenging market conditions And at the same time, trend for what we believe will be a productive future. Orders are still coming from our large global brand customer, but the product mix has changed from the higher margin group such as Objected to lower margin items. In part, the mix shift reflects the inflationary environment and changes in spending capacity at the consumer level.

Speaker 3

We were able to keep our facility running at full capacity Also by adding supplementary production for other customers, many of which are local. As I mentioned on our last call, we are maintaining active communication and outstanding relationship To all our customers who appreciate the ROTH's responsive service and are working closely with them to anticipate the need going forward. In fact, production for 1 of our newly Global brand customer, Timberland, which is a part of the VL Corporation brand, has now grown to be meaningful. Production demand from another long term customer G III has also been in fleet, which further diversifies our customer and product mix. Longer term, as external market conditions improve, We believe we will be in an excellent position for growth.

Speaker 3

In that regard, we are cautiously moving forward With plans to develop the land we currently own to add more capacity, in part to accommodate anticipated new business from our Balsanar joint venture. Fortunately, we continue to receive inquiries from other premium brands As global trends remain the diversified supply chain away from Asia, especially China, We are actively aware that in addition to adding new customers and expanding our growth of existing customer, It is critical to maintain tight cost control. We also are continuing our program of identifying new and cost effective sourcing of fiber and other materials from new partners in the Middle East and North Africa, which will benefit Giraj and our customers. I will now turn the call over to Gilbert to discuss our financial results at the fiscal 2024 outlook. Peter, please.

Speaker 4

Thank you, Eric. Revenue for our fiscal 2023 4th quarter amounted to $23,800,000 which was down about 23% from $30,900,000 for the same period last year. The decrease primarily reflected lower sales from 2 major U. S. Customers based on the changed Economic environment and brisk consumer spending versus last year.

Speaker 4

Revenue also was negatively impacted by shipments of approximately $3,000,000 of contracted orders being deferred by customers to the current 1st fiscal quarter. Gross profit was $2,500,000 in the fiscal 2023 4th quarter compared with $4,700,000 in the same period last year. The gross margin was 10.3% compared with 15.1 percent a year ago, driven principally by a lower proportion of U. S. Orders and the broader product mix shift.

Speaker 4

Operating expenses for the fiscal 2023 4th quarter totaled $4,300,000 slightly decreased from last year, primarily because of smaller stock based compensation expenses. SG and A expenses were slightly lower due to sales decline and partially offset by increased travel costs for migrant workers. Operating loss for the most recent 4th quarter was $1,800,000 compared with operating income of $126,000 for the same period last year. Total audit expenses were $86,000 in the fiscal 2023 4th quarter Compared with total audit income of $148,000 in the last year's 4th quarter and interest expenses were $268,000 versus $63,000 a year ago. Jirash sustained a net loss of $2,000,000 or $0.16 per share for the fiscal 2023 Q4 compared with a net loss of $131,000 or $0.01 per share in the same period last year.

Speaker 4

The company's balance sheet and cash position remains strong with $19,400,000 of cash and net working capital of $42,800,000 as of March 31, 2023. Inventory at fiscal 2023 year end was $32,700,000 and we had about $2,200,000 Net cash provided by operating activities was $10,800,000 for the fiscal year end March 31, 2023, compared with $9,000,000 in the prior year. Based on the vagacies of the external environment, we are taking a conservative approach to guidance and are projecting revenue for fiscal 2024 Q1 and the full year to be maintained At a similar level as in fiscal 2023, with gross margin goal for the full year For the full fiscal 2024 to be around 15% to 16%. Our outlook is subject to final product mix of shipments as well as order flow from the new customers introduced through our joint venture with Pozena. As of the end of our fiscal 4th quarter, 239,500 shares have been repurchased at market rates at a total price of $1,200,000 excluding broker commissions under the share repurchase program authorized by the Board in June 2022.

Speaker 4

The program expired on March 31, 2023. Lastly, on May 23, 2023, our Board of Directors approved a quarterly dividend of $0.05 per share, payable on June 9, 2023 to stockholders of record as of June 2, 2023. Despite the current retail environment, we are still receiving inquiries from new customers, which we are hopeful will turn into new business. 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 costs With the long term growth planning for the not too distant future.

Speaker 4

With that, we will now open up the call for questions. Operator, may we have the first question, please? Certainly.

Operator

At this time, we will be conducting a question and answer session. Your first question for today is coming from Mike Baker at D. A. Davidson.

Speaker 5

Okay. Thanks guys. A couple of questions. First, I'm just curious Why the deferral of $3,000,000 Is that I mean, it doesn't sound like that's an economic issue if they're taking the product, but why Did your customer decide to push it out 3 months?

Speaker 4

Well, I believe it was just a timing A lot of times at the end of the month or at the end of the quarter, a lot of things Can change even though the orders may be scheduled to ship out by the end of the month, But sometimes because of the freight forwarders scheduling, some of the containers may not make the cutoff. So, it happens a lot of times. We just need to do a better job And forecasting.

Speaker 5

Okay.

Speaker 4

Do you have anything to add, Eric?

Speaker 3

Because just now, my connection is not very good as I'm in Indonesia.

Speaker 4

Okay. So the question was, how come there was a $3,000,000 deferral of Shipment at the end of last quarter. And I said it is mostly because of the timing and the freight forwarder scheduling The of the shipments.

Speaker 3

Yes. Actually, I would like to explain because When we are doing our forecast, even okay, not as early as, I mean, the February, so we still include One order of 400,000 pieces, Costco. Okay, so it will generate a couple of million revenue by the end of the last quarter. But at the last moment, which is our last quarter 1st week, okay, we were told by Costco that The inventory level is still high. They would like to defer this shipment to the next quarter or 2 months later.

Speaker 3

So that's why, okay, we are keeping this ready garments in our warehouse for Costco. This is the main reason. Okay.

Speaker 5

Okay.

Speaker 4

Thanks, Eric.

Speaker 5

That makes sense.

Speaker 3

Thank you.

Speaker 5

If I could ask another couple of bigger picture questions. 1, 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 that are ramping or potentially Potentially new customers that are showing interest, plus what's going on with the JV. So all that sounds good, yet 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 have all this new demand, Yet it's not translating into sales yet.

Speaker 5

How long when can we expect that to occur, all that Potential to show up in actual revenues on the P and L.

Speaker 4

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 is Kind of everybody's fear of inflation as well as the fear of recession coming. Now We don't know whether we are actually in the recession or not, but everybody thinks it's coming. So People have stopped buying, especially buying the more high priced products. So people are still buying, but they are buying the less expensive products.

Speaker 4

And that was basically what VF Has been telling us or has been telling the world that the sales in the higher premium products such as TNF, The North Face is going to be either flat or declining, but the lower priced products on Timberland and Benz, they are growing. So that happens or that translates to our business too. We knew this year was difficult. So but we also knew that we are on boarding quite a few new customers such as Hugo Boss, Such as Timberland Timberland was already on board, but we're growing Timberlands tremendously. The volume gets into millions of pieces.

Speaker 4

And the other, scatter is actually not As much as we anticipated, but what was the other G3 actually doubled their volume with us. So we see a lot of positive things, But a lot of the garment manufacturers in Jordan or in anywhere else, Southeast Asia or whatever, They are seeing 30% to 40% decline in the volume. But we have always take the Strategy as we knew more business is coming, the growth is coming, especially we're signing this joint venture with Bozena, 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 HUGO BOSS, it takes a long time to get them To approve the samples, check all the costs and do the factory certification and all that.

Speaker 4

So a lot of good things are happening. A lot of new customers are coming. We're doing pricing exercise For the Bruzena customers and those are huge customers, but we know it's going to take us at least 6 months to a year to get real impact, but we don't want to reduce our capacity But on the contrary, we want to expand our capacity, which we spend Quite a few $1,000,000 in fiscal 2024 to expand our real estate, our factories to allow more lines to be added. And we don't want to send a lot of 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 return. So that's why the timing what we're looking at is still Now that we are done with 2023, we're looking at 2024, we know we can Get the sales to be at the similar level, but the growth is not going to come until later on in 2024.

Speaker 4

It will not be realized with the new Pozena JV business

Speaker 2

As

Speaker 4

well as some of the new customers that we are onboarding. Does it make sense?

Speaker 3

Yes. Thanks for all that. I would like to add some new information to explain to the investor about our 2024 business. What Gilbert is saying 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 in 2024, they are also the trend is also they are reducing some of North Face business to all apparel because of the spending pattern of the people in United States.

Speaker 3

So I asked B. F, do we still need to keep the same capacity like before? He said, certainly. Geras is a very good factory. I don't like to lost Geras capacity.

Speaker 3

It is for the future. So do you think that although North Face business is reduced. I'm going to give you, as Gilbert mentioned, more Timberland business. In 2023 fiscal year, all the year because it's the 1st year we are doing timberland, we have Around 600,000 pieces for the year. For the confirm order and projection Timberland already gave to Geras for 2024 is Over $1,300,000 which is 2x to 3x more than before.

Speaker 3

And at the same time, okay, 1 of the reputable banks in Germany, okay, which Gilbert just mentioned, also has tripled their business For high end jacket, okay, and synthetic jacket with Gilash. And the business volume, Okay. From 2023, which is $2,500,000 maybe go up to $7,000,000 to $8,000,000 And also very important thing is Usenal growth. I'm here in Indonesia because Wusena Group is one of the biggest apparel in Indonesia, they have a very, very strong marketing team. They are doing brands all over the world for more than 50.

Speaker 3

So we have signed a joint venture agreement. The purpose is at least 50% of the customer, Okay. Once Rosanna remove the business to the order, which is a duty free country and to Save the duty before all the production is in China, also in Indonesia. So we got the opportunity, which Hosanna is doing a marketing for Jerash joint venture to do more business in fiscal 2024. In the past week, I have visited more than 10 factories also and go meeting with the brands that are coming from U.

Speaker 3

S. I am very confident that we will have good business with Pozena. Currently, there are more than 11 brands who are very interested to give Business to Jiraj's joint venture with Pzena is a matter of time. And already within this eleven We are already doing costing exercise for them for over 120 styles. And from this 120 styles, there are 3 buyers, couple of days before, already bargained without The final price.

Speaker 3

An expected order maybe like Gilbert mentioned, I don't know whether it will happen in the second quarter, Well, I'm confident that 1st quarter, definitely, it will happen. So Busan are also thinking of high business volume in Jordan together With the joint venture in Jiraj. So for me, okay, I'm confident for Jiraj for 2024.

Speaker 5

Thank you, Linda. That's 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.

Speaker 5

And so Do you need to build more capacity? And do you need to invest CapEx or any additional cost to Build the capacity for all that demand that's coming.

Speaker 4

Well, we have never We don't

Speaker 3

have to increase our CapEx. This is what Boussainta thinks because According to Busanda's investigation, so 40% Of Gerard's order in 2023, as mentioned in the earnings script, are doing subcontracts, And some of them are from local. Just we are earning some money to break the line even. If we are going to deliver this 40% capacity, To do FOB order, work together with Fosana, each will be huge number of business. Fosana look at this point So and then because they understand that the joint venture may not be may not need to increase so much on the CapEx and then can start Using 40% of contract capacity to do FOB order,

Speaker 4

Right. But we are also we have always been preparing and planning to expand our capacity. This past fiscal year, we already did that internally by expanding one building To allow for more production lines. So if we need additional capacity, We have that. And then, we also have another piece of land that we are preparing to build as soon as The business with Pozano comes in and it may take a year or maybe a year and a half to get that done.

Speaker 4

And definitely by that time, we will need additional capital to finance it. And we have been looking at bank With other financing possibilities and Wazana, if we do it with them, they would definitely also Contribute according to the joint venture agreement. So yes, to answer your question, we definitely are capacity expansion, but it is all dependent on the timing.

Speaker 5

Excellent. Thank you. I appreciate the color.

Speaker 3

Thank you. Sure. Thank you for your calling.

Operator

Your next question for today is coming from Mark Argento at Lake Street.

Speaker 6

A lot of my questions have already been asked or covered in your commentary, but I just wanted to better understand the I know that the $3,000,000 worth of revenue that got pushed out, was there was that higher margin revenue that got Pushed out some last quarter you guys were talking you thought you'd be kind of in that mid teens range on a gross margin basis. Just wanted to reconcile that a little bit.

Speaker 4

Well, like Eric said, the $3,000,000 order That was pushed out with Costco orders. And we do that Costco business With an importer, so the margin on that order is not great. And like Derek said, Throughout the probably the latter half of fiscal twenty twenty three, we've been taking on a lot of this subcontract and lower margin orders just so that we have fully utilized our capacity.

Speaker 3

And also about this $3,000,000 value, which is in more 400,000 pieces. Okay. In the last moment, Costco asked us to put down, okay, to 1 or 2 months. So before this earnings call, We also our merchandiser also contact them to try to get some clear picture of how they are going to do with this 400,000 pieces. They said next month, they are going to, I mean, send the final inspection team for first 100,000 pieces.

Speaker 3

They may not be shipping the whole quantity in month shipment, but definitely they will need the government, they will split the shipment.

Speaker 6

Great. And then just quickly in terms of Boussano, when that business comes online, Targeted gross margins for those types of products, are those higher end type products or Where can we expect to see those coming at?

Speaker 3

Susana, okay, also okay, is We're doing a lot of different kind of products. A lot like garage, we are doing mainly for the JAKKS and Apollo. Okay. They are doing maybe more than 20, 30 kind of style, including different kinds of jacket, Different kinds of shirts and also different kinds of Polo and even They are doing with Macy big number of ladies dress, which it will be priced. So meanwhile, So they are also studying the opportunities of shifting some of this order or new kind of style to Gerard.

Speaker 3

And recently, our factory manager already started producing samples of the style Gerard did not do before, And Puzana is going to send to the end buyers whether Gerash is qualified. Just like Gilbert mentioned, Our preprintable bank in Germany, we are also doing the same. In the beginning, they gave us more number to see if Gerash is qualified for this kind of So after a couple of months, they feel comfortable that Gerash is Qualified. Now they are standing big number for 2024. This will be the same as other new customer coming from Pozena.

Speaker 4

I think Mark's question was more about What kind of margin are we expecting from the new business that come through with Pozena? Is that right, Mark?

Speaker 6

Yes. I was just curious what kind of is it going to Kind of mid teens. I know typically, obviously, when you do the VF, The North Face product, Higher Poise Point product, you guys are able to get a little better margin than, say, when you're doing T shirts for Costco. So I was just Curious what your expectations were for the gross margin profile, the revenue, the business that you might book with PUSANA?

Speaker 4

Well, I think it is still up in the air because we're still doing the pricing exercise with them. And those are the products, like Eric said, maybe some of them we haven't done before. So we don't really know We don't have a good grasp of 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 Pozena business Is that they will place the higher price, higher value kind of products Because they want to take the full advantage or the customers wanted to take the full advantage of the duty free Free trade agreement, shipping out of Jordan to U.

Speaker 4

S. And Europe in order to Save as much as the tariffs as possible.

Speaker 3

Yes. Actually, Bhusena also told me that this is their buyer's intention. Because of the duty saving, they are not going to transfer order like cotton order, Which makes the buyers can enjoy 9% duty saving. Instead, they are going to send, I mean, orders with synthetic fiber, Which the buyer can earn more than 33% of the duty savings, and they will also give the joint venture a better price when they move The order to join.

Speaker 4

Exactly.

Speaker 6

Great. That's helpful. Thank you.

Speaker 3

Thank you very much for your call.

Operator

Your next question for today is coming from Aaron Grey at Alliance Global Partners.

Speaker 7

Hi, good morning.

Speaker 5

A lot of

Speaker 7

co operating and a lot of my questions are already answered, but just one quick one for me, Higher level, a lot of troubles, not just 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 How it's changed the past few months since we last spoke about it, but now you're seeing any shakeout closures or more so just operators lowering staff levels that you had mentioned previously? Thank you.

Speaker 4

You mean in the in Jordan in terms of our competitive?

Speaker 7

Jordan, China and otherwise.

Speaker 4

Okay. Eric, you want to answer this question about our the business environment in Jordan, what our competitors Phasing or maybe even in China or Southeast Asia area?

Speaker 3

Yes. Nowadays, there are a couple of reasons why most of the buyers are launching to Jordan And next, it's exit from Southeast Asia, particularly China. First of all, the China machine operators, All of them are earning, I think, at least $1,000 a month already. So even in Vietnam, Okay. They are earning $500 Okay.

Speaker 3

So in Jordan, because 70% of our workers' workforce are from migrants From Bangladesh from India for Sri Lanka, multi nationalities. So they are earning around $300 That's the basic salary, including overtime. Yes, of course, we are providing them with accommodation, access and food, everything. Okay. But in general, it is our cost is still competitive.

Speaker 3

And bear in mind that when customer is Transferring order from other countries, non duty countries to Jordan. Okay. They are okay. They can earn As much as 33 percent of the duty savings. For example, one reputable jacket brand, the FOB price is $50 So 33% moving from China, Indonesia to Jordan, a buyer can save 15 Solar for the duty saving.

Speaker 3

So it doesn't take Monday because otherwise the buyer has to pay if it's produced in China For Vietnam or other Asia countries, so the bank is pushing Luciana to transfer the order To Jordan, so that not only it will benefit the joint venture, it will also benefit the buyer also.

Speaker 4

What about the situation among the our competitors in Jordan? So obviously, they're paying 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 10,000 workers. So these are the kind of Competitive environment, even within Jordan that our competitors are facing. Jiraz is already doing much better because our business didn't really go down.

Speaker 4

Our sales was only down like 2%, 3% from last year. We maintained the same business even though we couldn't keep the high margin business, But we substitute a high margin business by taking in a lot more lower margin, but high volume Business to keep our workers busy. But our competitors, some of them even close their shop, some of them lay off a lot of people. So that's really what is going on in the world of garment manufacturing. So I guess maybe Eric you can talk a little bit more about that, as well as what you see in Southeast Asia And China, what all the other garment factories are doing?

Speaker 4

Because what I see here in the U. S. Is that A lot of those garment factories, they are going all out to try to find business.

Speaker 3

Yes. Actually, all the barrels in the world, no matter it is in China, Southeast Asia, Central America, Jordan, because of the market is very weak in U. S. And Europe. This is the reason why they reduced a lot of orders.

Speaker 3

So by reducing a lot of orders, for example, It will affect, okay, their production capacity. If they don't have orders, they have to, I mean, absorb. If they are not going to reduce the workforce, they are going to For example, one of the biggest factories in Jordan is called Classic Apparel before they have 30,000 workers And they are concentrated on Walmart and JCPenney. But because Walmart and JCPenney already closed some many of their retail shops And the amount of order has been reduced to 35%. So this because so this is a very significant number To this factory.

Speaker 3

So this factory, everybody in Jordan understands, they're already sending 9,000 workers Going back to the country, even though the contract is not finished. So this is what they are doing correct. Mr. Raj, we are we tend not to do so because I'm still we are still confident that the market, Okay. Even though it will pick up slowly, we need another 1 year, I mean, to face the critical situation.

Speaker 3

But with Fusen, our joint venture company, I'm sure that they can fill up our most of our subcontract order capacity. So this is the reason why Geras does not intend to reduce significantly our workforce.

Operator

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

Speaker 2

Thank you, operator, and thanks to all of you for joining us today and for your continued support. Verage has a solid foundation for the company's leading industry position with quality, loyal customer relationships and strong balance sheet. Those attributes give us great confidence in the company's future and that we will get through the current We are in a position of strength. We look forward to speaking with you again soon and reporting on our progress. Thank you.

Operator

This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.

Speaker 3

Thank you. Thank you very much. Thank you.

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