Jerash Holdings (US) Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 7 speakers on the call.

Operator

Greetings. Welcome to the Durash Holdings Fiscal 20 24 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. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Roger Pondell, Investor Relations for Jerash Holdings. You may begin.

Speaker 1

Thank you, Holly, and good morning, everyone. Welcome to Jirash Holdings' fiscal 2024 First Quarter 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 Chief Executive Officer, Sam Choi Mr. Chief Financial Officer, Gilbert Lee and Eric Tang, who leads the company's operations in Jordan.

Speaker 1

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 The company's most recently recent Form 10 ks is filed with the Securities and Exchange Commission, 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 as required by law. And with that, it is my pleasure to turn the call over to Sam Choi. Sam?

Speaker 2

Thank you, Roger, and hello, everyone. Our Q1 demonstrated Duraish Resiliency 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 are still having an impact on consumer spending, Retail market trends are showing signs of improvement. We are starting to receive new inquiries from global brands, including test runs and sample orders.

Speaker 2

On the new customer front, Timberland has grown to be a significant Blue brand for Jiresh. Besides Timberland, we are now working on confirming the first batch of orders for Vans branded apparel, also a part of VF Corporation's brands. Initial orders are scheduled to be received in mid August with finished garments to be shipped in the 3rd quarter. Our newly added European based high end apparel brand continues to progress well. Orders received thus far this fiscal year have significantly increased.

Speaker 2

We are optimistic that over time, these new global brands will grow in importance for Jurex. Also on the positive front, initial marketing by our joint venture partner, Busenda Apparel Group to its global brand customers is being well received. Juraish has begun Meaningful orders for the joint venture to begin during the Q4 of the current fiscal year. One of our corporate initiatives has been to explore vertical integration, and I'm happy to report Some good news on this front. We have been in discussion with NtX, One of the global leaders in sustainable textile dyeing solutions to form a joint venture that will provide Jurez with vertical integration manufacturing capability.

Speaker 2

Our plan is to bring about A new era of sustainable and innovative textile lining process in Jordan With our proprietary technology that according to the presentation and information from NTX could result in more than 80% water usage reduction and 50% Carbon footprint reduction from traditional textile dyeing process. The proposed joint venture is on suppliers in Southeast and Eastern Asia. The joint venture further demonstrates Jirair's commitment to sustainability and social responsibility. I'll now turn the call over to Eric Tang

Speaker 3

Thank you, Sam. Hello, everyone. It was a busy first quarter As we continue to plan for what we believe will be a positive and productive future and response to evolving market conditions. The spending patterns at the customer level are still geared toward lower margin items. However, as Sam mentioned, retail trends seems to be improving and some of our global brand customers Are inquiring about additional styles for future orders.

Speaker 3

We as Corporation continues To be our major customers, as order volume from North Face is increasing And also another brand from VF Corporation Timberland increased multiple, and We will be very soon producing for WENZ, which is another VF brand. Production demand from G3 and SKECHERS have also been increasing. Our European based high end apparel brand is placing more orders as well which 3rdly, diversify our customer and product mix. We are excited about starting production for our joint venture customer. Test runs are underway for an array of potential global brand customers, which in turn It's fulfilling our corporate initiatives of expanding our customer base and diversifying our product mix.

Speaker 3

Jiraj is in a good position to attract premium brands. Our leadership position in Jordan offers unique Meaningful benefits to customers and our plans for vertical integration in sustainable textile solution, We believe we'll provide Giraj with a distinct competitive advantage. I will now turn the call over to Gilbert to discuss our financial results and the fiscal 2024 outlook. Gilbert, please.

Speaker 4

Thank you, Eric. Revenue for our fiscal 2024 Q1 amounted to $34,700,000 Up 3.9 percent from $33,400,000 for the same period last year, reflecting an increase in shipments to some of the company's major U. S. Customers. Gross profit was $5,600,000 for the fiscal 2024 Q1 compared with $6,600,000 in the same quarter last year.

Speaker 4

The gross margin was 16.0% compared with 19.8% a year ago, primarily reflecting a shift in product mix. Operating expenses for the fiscal 2024 Q1 increased slightly to $4,500,000 from $4,300,000 last year. Operating income totaled $1,100,000 in the most recent Q1 versus $2,300,000 a year ago. Total auto expenses were $299,000 for the most recent Q1 compared with 28,000 in the same quarter last year. The increase was primarily due to higher interest expenses occurred from participating in supply chain financing programs of certain customers.

Speaker 4

Interest expenses were $389,000 in the fiscal 2024 Q1 compared with $88,000 a year ago. The effective tax rate amounted to 38% for the fiscal 2024 Q1 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 and our U. S. Holding company.

Speaker 4

In the fiscal 2024 Q1, net income was $495,000 or $0.04 per share compared with $1,700,000 or $0.14 per share in the same period last year. Jarex's balance sheet and cash position remained strong with $20,100,000 of cash and restricted cash and net working capital of $41,500,000 as of June 30, 2023. Inventory was $23,800,000 and accounts receivable was $6,400,000 Net cash provided by operating activities was approximately $25,000 for the quarter ended June 30 compared with net cash used in operating activities of $473,000 for the same period last year. Even though we are starting to see some indications of improvement In retail market trends, we are taking a conservative approach to guidance and projecting revenue for fiscal 2020 With gross margin goal 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 Bruce Anna.

Speaker 4

Lastly, on August 4, 2023, Our Board of Directors approved a quarterly dividend of $0.05 per share payable on August 23 To stockholders of record as of August 16, our new joint venture development is off to a great start as we look forward to working with a new and diverse range of global customers and products. We're cautiously moving forward with plans to add 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?

Operator

Certainly, at this time, we will be conducting a question and answer Your first question for today is coming from Mark Argento with Lake Street Capital.

Speaker 5

Hi, guys. Thanks for taking the questions. Just I had a few specific ones. One regarding the potential JV with the vertical integration partner. Talk a little bit more about 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?

Speaker 4

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

Speaker 2

Okay. Yes, maybe I'll try to talk about the Backward Integration joint venture. In fact, Min, our joint venture partner is NTX, which has been in the industry for almost 20 years, And they have been in several joint venture in China, in Vietnam, in Cambodia and also Thailand. The expertise is mainly in the dyeing or waterless dyeing of fabric, which is quite innovative. The waterless dyeing process can save up to 80% or 90% of water usage Compared with the traditional dyeing process and also the carbon footprint emission We'll be much, much less.

Speaker 2

So it is a ESG project. And to Juresh, I mean, we will set up a factory, a Joint Venture Manufacturing Asepig Manufacturing Mills in Jordan, we will mainly supply the fabric and mainly polyester fabric To rest own use. And so we believe, I mean, It will soften the time. It will be a sustainable sustainability project that The cost we estimate will be quite similar to the traditional polyester fabrics. So I mean, with net vertical integration, we believe Under the consolidated profit and loss account of Juraish, I mean the gross margin will much enhance Because that will include the gross margin of the fabric, and we also anticipate the EBITDA We will be all so much enhanced.

Speaker 2

And we will keep Because we just started MOU and then we will have a joint venture agreement very soon. By that time, we will give some indication on the financial impact on Jarex. Yes. That is the basic idea on this vertical integration John mentioned.

Speaker 4

Yes. Thank you, Sam. I think I would like to add that this is an ESG initiative And everybody is very excited about this, including the Jordanian government. This is probably one of the first fabric mills that is going to be built and established in Jordan Because as we know, Jordan has very good supply of water and all along Water has been the major issues for having a fabric mill. And So the Jordanian government, they are going to be very supportive with all kinds of Incentives and the participation of In terms of land, in terms of Financing entities such as the World Bank is also very interested about this project and want to support us.

Speaker 4

So I think this is going to also besides providing us A better earnings and better profitability Growth in sales, it also will project Jiraz as in having an image of being socially responsible and focused on sustainability. It is a new, Innovative and proven technology. So everybody is very excited about it. And we believe that With this joint venture and with this vertical setup, we will be able to attract More global customers, global brands who are also focused on ESG.

Speaker 5

Sounds very exciting. And just one just quick follow-up. In terms of timing, how quickly if you move to a JV, get Alan, assuming you have to build out a facility, is this a calendar year 2025, 2026? How quickly can you see something like this come online?

Speaker 4

It is going to be very quickly. Actually, we are already drafting the JV Agreement as we speak. And both sides want to sign the JV As soon as possible. And we have been also talking with financing people. It's just a matter of who we want to work with to get the financing.

Speaker 4

And of course, NTX is going to contribute Up to the proportion of the joint venture and Jiras is going to have the majority of the holding of the joint venture company. So it will be consolidated with our company. And we have already looked at sites. Governments are on board. So once we sign the joint venture, it's going to move quite quickly.

Speaker 2

Tentatively, we expect the production of The effect of the fabric mill will be June 2024, The first production. That means, among 10 months later. It's

Speaker 5

an aggressive timeline, but very exciting. Just one follow or just one quick one in terms of the operating business. Obviously, you guys just reported your I guess it was your Q4 back in May, so we got an update It seems like just the tone of the call, it seems like maybe things are improving a little bit in terms of the end market With customers and just looks like orders are kicking back in a little bit from some of the big guys. Can you just characterize What's changed in the last couple of months, if anything?

Speaker 4

Eric, maybe you can answer this. What you're seeing in terms of the market turning around or order flows coming from Key customers and also potential new customers?

Speaker 3

Yes. Actually, recently, we have a meeting with several brands who are the major customers of Garage. All of them, Okay. Tell us that the market is okay, although still weak, but it's still it's already improving. And they are also okay, I mean, the inventory level are already down to a certain level that Very soon they are going to place additional orders.

Speaker 3

So we are expecting Some of our major customer will place more orders due to Roche. Okay. And actually, according to our The forecast we got from the first two customer, which is Free App and New Balance, okay, the order projection for the whole year, okay, is Already slightly more than last year. So they told us that it will be improving, okay, maybe after another 1 or 2

Speaker 4

quarters. Yes. I think we are seeing some positive signs In the global retail market and customers are Starting to feel less cautious, but I think they are still cautious Because if you remember, right after the pandemic, every customer, everybody Just order a ton load of products. And that's why they got stuck last year There's a lot of inventory and had to reduce their orders. They don't want to make the same mistake again.

Speaker 4

And besides, We were already past the pandemic and logistics issues It's way past us. So they're not afraid of not getting sufficient products for the retail stores. So they are being optimistic, but cautiously optimistic With the future. So I think we're seeing signs of improvement. But again, we're still going to be Cautious about the next 12 months.

Speaker 4

We believe that starting from the Q4 of our fiscal year, which is the Q1 of the calendar year of 2024. And by that time, We should also see some orders that we will be producing for our joint venture with Buzena.

Speaker 5

Great. Thank you.

Speaker 2

Yes. You said based on Simple developments for the fiscal 2025, We do believe, I mean, 2024 fiscal, I think, is the worst. But For the fiscal 2025, based on the customer inquiries and the product development for them and also some new customer And also the joint venture with Pzena. We do believe, I mean, 2025 fiscal will be A good year compared with the past.

Speaker 5

Great. Thank you very much. Appreciate it. Good luck, guys.

Speaker 4

Thank you, Mark. Thank you. Thank

Speaker 2

you. Thank you, Mark.

Operator

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

Speaker 2

Hi. This is Matthew Hayes

Speaker 6

on for Michael Baker at D. A. Davidson. There was an article on the Wall Street Journal out a couple of days ago Citing the difficulty of apparel manufacturers retaining 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 happen in Jordan.

Speaker 6

You still see the $4,200,000 level as a sort of quarterly run rate on the SG and A line?

Speaker 2

Yes, maybe there are still

Speaker 4

of course, there are inflations In Jordan as well. But I guess we're not seeing as much Impact in our operating expenses, there will be some increases, I believe. But I think the $4,200,000 quarterly Operating expenses is still a pretty good gauge. Eric, what do you think? What are you seeing in Jordan?

Speaker 3

Yes. I agree with what you said because, Okay. A large portion of our operating expenses fall into the salary of the migrant and local workers because we have 5,200 plus 4 currently. So the basic salary, okay, the government already announced will remain the same and we will not be increased, Okay. Until I mean another fiscal year.

Speaker 3

So the salary and including overtime, okay, Of our workers, I think it will be remain stable as before. So I'm pretty sure, I'm very confident that our operating expense We will not be have much difference compared in the future in the coming fiscal year.

Speaker 6

Okay, that's helpful. And then my one other question Has to do with your tax rate. It came in at 38% this quarter. And I believe on Listening, I think I caught that it had to do with the loss of one of your Hong Kong subsidiaries. Is there any way you could kind of unpack that for us to kind of help us think how to think about the tax Going forward, if 38% is kind of the new normal, if this was a one time thing, any color you could provide there would be appreciated.

Speaker 4

Well, I think the just to kind of explain it very in a very simple term, we pay Most of our taxes to the Jordanian government because our operations are in Jordan. So the income are mostly in Jordan. And our Hong Kong subsidiary, which is Treasure Success, It's primarily a sales and marketing, administrative, shipping and All are ticking. So we have a stop in Hong Kong and we don't really have much Income, even though there is some income in terms of developing samples in our subsidiary. But We don't really pay much taxes, but we have a significant amount of overhead and losses in Hong Kong as well as In the U.

Speaker 4

S, our corporate headquarters and our Holding company in the U. S. So we don't we cannot offset the Jordanian taxes that we pay With our losses in Hong Kong and in U. S. So When the proportion when the income comparing to the losses, the proportion shift and we have Higher proportion of losses versus a smaller proportion of income in Jordan, Then your effective tax rate just went up.

Speaker 4

Now as we have Globally, our consolidated net income or income before tax to go back to the normal level, which means we will make more money in Jordan, then the average or the effective tax rate for The consolidated company will come back down. Now we are also looking at ways, but we will have to talk with our test consultants In the U. S. First to see if there are some ways of shifting some of the income To our subsidiaries, which we can do some billings from our Hong Kong subsidiary and offset some of the losses over there, which we are going to look into that with our tax consultant And look at ways to lower the effective tax rate.

Speaker 6

Okay. And do you anticipate making more money in Jordan in proportion to The corporate losses incurred in Hong Kong and the U. S. Over the next 3, 4 quarters or how do you see that proportion playing out?

Speaker 4

Well, I think in fiscal 2024, we are not going to We're not going to see much improvement in this situation, but we will try to We will try to look at how we could reduce our operating expenses And make more money in Jordan, as well as controlling our expenses in the other subsidiaries, Such as U. S. And Hong Kong. So it may come down Slightly, but I think until we can increase our revenue, increase our Increased our bottom line, our operating expense income for the consolidated company. This proportion of income and losses will continue.

Speaker 6

Okay. That's helpful. Thank you.

Operator

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

Speaker 2

Thank you, Holy, and thanks to all of you for joining us today and for your continuous support to Juresh. We look forward to speaking with you next quarter and reporting on our This is progress. Thank you.

Speaker 3

Thank you, everyone.

Speaker 4

Thank you.

Speaker 2

Bye bye.

Operator

Thank you. This does conclude today's event. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

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Earnings Conference Call
Jerash Holdings (US) Q1 2024
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