Jerash Holdings (US) Q1 2025 Earnings Call Transcript

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Provided by Quartr
August 13, 2024

There are 6 speakers on the call.

Operator

Greetings. Welcome to the Jerash Holdings Fiscal 2025 First Quarter Financial Results Conference Call. Please note this conference is being recorded. I will now hand 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 Jerash Holdings fiscal 'twenty five Q1 and full year 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 its Chief Financial Officer, Gilbert Lee and Eric Tang, 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.

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 ks as 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 Jirash 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. Revenue for Q1 of fiscal 2025 increased nearly 18% over last year's Q1, attaining an all time trial. And I'm pleased to report that we are continuing to receive an increasing number of purchase orders for export shipments to global customers in the U. S. And Europe.

Speaker 2

Gross margin was affected again by the ongoing turmoil in the Red Sea, which continued to disrupt ocean trade routes and drove up ocean freight ratios and inland trucking trucks. We also incurred additional manufacturing costs associated with challenges in production scheduling and catch up deliveries to our customers due to delays carrying over from last quarter, primarily related to the logistics issues. Nevertheless, gross margin for the Q1 improved by more than 400 basis points over the preceding quarter ended March 31. Although some of the higher costs continuing into the 2nd quarter in fiscal 2025, we anticipate a return to a more stable operating environment in the second half of this fiscal year. To help address the logistics situation, we are seeking to add more vendors from Turkey and Egypt to source raw materials, which should help alleviate some related costs and shorten transportation time.

Speaker 2

All in all, we are encouraged by the positive momentum as we proceed into fiscal 2025. Purchase orders from our long term global customers are coming in at a pace we have not seen in the past 2 years. As well, we are receiving additional trial orders from other major brands through Prasanna Aperol Group, our joint venture partner. Our initiative and strategy of diversifying our customer base is paying off. We believe it will position us well for growth as economic environment improves.

Speaker 2

We are grateful that business and day to day life in Jordan remains stable and safe. However, due to the uncertainty in the surrounding countries, contingency plans have been put in place to ensure minimal disruption to our operations in the event of an escalating political situation in the region. Eric Tang, who is in charge of our operations, will share more about that shortly. And I'll now turn the call over to him. Hi, Eric.

Speaker 3

Thank you, Sam. As we mentioned during the last quarter's call, the supply chain disruption affected our ability to receive adequate supply of materials from Asia, which in turn delayed production. Approximately 16% to 18% of orders from last quarter were delayed and shipped in the fiscal 2025 Q1. To catch up on delivery schedules to our customers, we had to ramp up production over time and in some cases, we had to air fry certain shipment, incurring significant added cost. We expect over time to moderate starting in mid August and hopefully no additional air flight shipments going forward.

Speaker 3

Despite the unstable environment in the Middle East, our customers continue to have confidence in Gerard to be their trusted, responsive and responsible manufacturing partner. Thus far into our new fiscal year, we are experiencing good growth. Our manufacturing facilities are all operating at full capacity, with orders fully booked well into December 24. Currently, we are experiencing increases from major customers following a period of constraint at the retail level. Sam maximizing our customer base and we are delighted that we are starting to realize the benefits of this strategy.

Speaker 3

Today, we are producing garments to a number of new branded customers, and we are continuing to expand our product mix with new product categories. Our objective remains on balancing production, capacity utilization throughout the year to minimize revenue seasonality. Marketing efforts for Fresenius Apparel Group are continuing, and we are receiving additional trial orders from 4 global brands through this joint venture. We expect additional new business opportunities will arise in the future. Orders from our 2 European based high end apparel brands, including Amani, are steadily increasing, and we are receiving additional trial orders for Armani's other premium clothing lines.

Speaker 3

We are excited about the new products and look forward to expanding the brands further, which we anticipate will enhance our margins. As Sam mentioned before, contingency plans are in place with our partners in Indonesia and other locations to minimize disruptions to our operations in the event of an escalated flare up in the region. We have discussed such plans with our customers as well. I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please?

Speaker 4

Thank you, Eric. Revenue for our fiscal 2025 Q1 increased 17.8 percent to $40,900,000 from $34,700,000 for the same quarter last year. This record Q1 revenue reflected an increase in shipments to Jiraj's major U. S. Customers and growth with new customers in other regions that the company on boarded during the past 2 years.

Speaker 4

It also included approximately $3,000,000 to $4,000,000 of orders that were delayed from the previous quarter due to reasons mentioned earlier by Sam and Eric. Gross profit was $4,600,000 for the fiscal 2025 Q1 compared with $5,600,000 in the same quarter last year. Gross margin decreased to 11.3% from 16.0% in the same period last year, primarily due to the higher raw material import costs caused by the Red Sea shipping disruption as well as additional manufacturing costs associated with catching up on delivery schedules to customers. The increased logistics and labor costs had a combined negative impact of 4.40 basis points on gross margin in this quarter. Operating expenses for the fiscal 2025 Q1 was $5,500,000 compared with $4,500,000 for the same quarter last year.

Speaker 4

SG and A expenses increased 18 percent to $5,000,000 in this first quarter compared with $4,200,000 in same quarter last year. This increase included an additional air freight costs of approximately $300,000 to catch up deliveries to customers. Stock based compensation expenses for the fiscal 2025 Q1 were $469,000 compared with $241,000 for the same quarter last year. Other increases in operating expenses included higher sampling support costs and payroll expenses. Operating loss totaled $829,000 in the fiscal 2025 Q1 versus operating income of $1,100,000 in the same period last year.

Speaker 4

Total audit expenses were $426,000 in the fiscal 2025 Q1 compared with $299,000 in the same quarter last year. The increase primarily reflected higher interest expenses from the supply chain financing program of certain major customers. Net loss was $1,400,000 or 0 point 5 Q1 compared with net income of $495,000 or $0.04 per share in the same period last year. As of June 30, 2024, Jiraj had cash and restricted cash of $13,000,000 and net working capital of $34,500,000 Inventory was $20,700,000 and accounts receivables was $9,400,000 Net cash used in operating activities was approximately $2,200,000 for the quarter ended June 30, 2024, compared with net cash provided by operating activities of $25,000 for the same period last year. As Sam and Eric mentioned earlier, we see ordering patterns increasing with larger quantities into fiscal 2025, and factories are fully booked through December.

Speaker 4

Revenue for the 2nd quarter is expected to increase by 11% to 13% from the prior year quarter and full year 2025 revenue is anticipated to grow by 20% to 25%. Our gross margin goal for the 2025 fiscal year is expected to be approximately 12% to 14%, subject to logistics and shipping charges and product mix. On August 5, 2024, Duraish's Board of Directors approved a regular quarterly dividend of $0.05 per share on its common stock payable on August 23, 2024 to stockholders of record as of August 16, 2024. With that, we will now open up the call for questions. And I will turn the call back to the operator.

Operator

Thank you. At this time, we will be conducting a question and answer session. Your first question for today is from Mark Argento with Lake Street.

Speaker 5

Yes. Hi, good morning guys. First question I had was on the revenue guidance. Looks like you I just want to make sure I understand this right. It looks like you took it up fairly meaningfully from 15% to 18% for the full year now to 20 percent to 25%.

Speaker 5

Was there a couple of specific new wins in there? Or maybe you could break that apart a little bit for us to understand where all that additional revenue is coming from?

Speaker 4

Well, thank you, Mark. Our revenue increase for this fiscal year is going to be more on the second half of the year versus the last fiscal year. As you remember, our seasonality is always going to be more heavy on the first half. And then the second half, when we're producing more of the summer or summer weather clothings, the revenue will be somewhat lower. But this year, the Q1, we already achieved a record quarter for the Q1.

Speaker 4

And Q2 is continued coming in strong, but we're anticipating that the 3rd and the 4th quarter to be almost on par with the first half of the year because we see strong orders coming in, especially now that we're actually fully booked through the Q3 through December of 2024. And orders are still coming in for the spring for the quarter on or our last fiscal quarter, which is January to March of 2025. So even though those orders are not confirmed or booked yet, but we see the strength of the turnaround. So we forecast the second half to be almost as high as the first half of this year. So we will see a much higher percentage growth in the second half comparing to last year's second half.

Speaker 4

Does it make sense? That means in the first two quarters, we're seeing growth in the teens, but then the second half of the year, we're seeing stronger growth comparatively.

Speaker 5

And do you attribute that? Are those kind of catch up orders with existing customers? Or is that kind of new customers coming on and incrementally adding to the order flow?

Speaker 4

It's more the latter. It's more new customers coming in that we're anticipating that especially in the past couple of years, we did a lot of trial orders, sampling and those customers are now starting to place regular orders and they indicated that they will increase their ordering. But the first half is more for catching up. So up until now, up until August, we're still trying to get rid of some of the back orders that was delayed in the spring.

Speaker 5

The gross margin came in below what we were looking for in the quarter. We obviously knew that you're still trying to play a little bit of catch up in the supply chain disruptions adding to the expense there. Do you feel like you guys have your around that now? What kind of gross margin expectations do you have for Q2? And then I think the full year, you have maybe bumped that down a little bit.

Speaker 5

I'm guessing that's from what happened in Q1 or from the Q1 results. But should we see sequential improvement and do you guys fully have your hands around the supply chain issues at this point?

Speaker 4

Well, we are seeing that well, obviously, Q1 and Q2, we're still having pretty significant higher manufacturing costs because of labor costs and also because of the inbound freight that we have to pay higher on bringing in the raw materials. But we're looking at maybe after August, the situation will become stabilized. And also, we're implementing a lot of cost cutting and cost reduction kind of projects to lower our overhead, lower our even the SG and A, we're trying to reduce costs. But hopefully, I think the second half of the year, even though it is still not going to be high teens, but it will stabilize. It's not going to be like the 1st and second quarter.

Speaker 5

Last question, is there any provisions where you can work with your customers where they bear some of the incremental expense if you're air freighting or because of the disruptions? I mean, it feels a little unfair that you guys end up having to take the brunt of all of that relative to some of your customers who might be able to share in some of that expense. Are you sharing in those expenses? Or is there any kind of provision for you guys to be able to be made whole on some of that?

Speaker 4

Well, each order that we have with our customers, they will compensate, They understand our situation. And in most cases, they will add a little bit on the margin that they allow us to have. But if it is they wouldn't directly compensate for the additional costs that we incurred, especially on inbound freight. Those are the situation that nobody anticipated, but they will understand that we are paying more and they will also allow us as much as possible not having to airfreight the shipments to them if they can accept a longer delivery time. So just to answer your question, there is no direct compensation for contingent additional costs for manufacturing.

Speaker 4

But for the orders going forward, they will allow for a little bit of catching up margin.

Speaker 2

Regarding the inbound freight charges, some of our major customers, they are willing to absorb some of I mean, for the future order or in fact, what might mean future order in the since the last several months when we call our equity price to them. We let them know our increased inbound flight charges and some major customer, they are willing to absorb some of the increase of the inbound freight charges already.

Speaker 5

Okay. That's helpful. Then one last one, Gilbert. On the supply chain financing, are you guys actively utilizing that? Where are you in terms of leaning in on that?

Speaker 5

I know at the store, it's been kind of expensive.

Speaker 4

Yes. Especially when the interest rate is still pretty high and that financing cost is tied to sulfur. So we try not to use it as much as we can, But as the ordering and as the sales increase, sometimes we just have to tap into that and to make sure that we have enough cash flow to purchase raw material, to pay for freight and so on. So yes, the interest expenses were a little bit high in the last quarter, but we're watching it every time and make sure that we don't incur too much unnecessary interest costs.

Speaker 5

Great. Appreciate the color guys. Good luck.

Speaker 4

Sure.

Speaker 2

Thank you.

Operator

The question and answer session. And I will now turn the call over to Sam Choi for closing remarks.

Speaker 2

Thank you, operator, and thanks to all of you for joining us today and for your continued support. We look forward to speaking with you next quarter. Thank you, everyone. Thank you. Okay.

Operator

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

Speaker 2

Thank you.

Speaker 3

Thank you.

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Earnings Conference Call
Jerash Holdings (US) Q1 2025
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