Jerash Holdings (US), Inc. (JRSH) Earnings Call Transcript & Summary

Good day, everyone. Welcome to the Jerash Holdings Fiscal 2027 First Quarter Financial Results. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Roger Pondel, Investor Relations. The floor is yours.

Thanks so much, operator. Good morning, everyone. Welcome to Jerash Holdings Fiscal 2027 First Quarter Conference Call. I'm Roger Pondel with PondelWilkinson, Jerash Holdings Investor Relations firm. On the call today from the company are Chief Executive Officer, Sam Choi; Chief Financial Officer, Gilbert Lee; and Eric Tang, who leads the company's operations in Jordan. Also Ringo Ing, the company's Head of Marketing, will be on the call for the Q&A session. 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 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 Jerash 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?

Thank you, Roger. We are pleased to report another quarter of acceptable financial performance, highlighted by record revenue, improved gross margins and a significant increase in profitability. These strong results reflect the continued advantages of our Jordan-based manufacturing platform. combined with disciplined execution on delivery, quality and operational efficiency. Fiscal first quarter revenue reached a record level of more than $15 million, representing growth of nearly 27% compared with the prior year period. We are pleased to see increased order volumes from our 2 largest U.S. customers, along with continued contributions from the company's strategic partner, Hanson Group in Korea. As customer demand continues to grow, we are expanding our production capacity in a disciplined manner while maintaining the quality, reliability and service standards our customers expect. The strong momentum in our business reinforces our confidence in Jerash' ability to scale efficiently and deliver sustainable growth. In addition to our operational achievements, we are encouraged by recent trade developments that further strengthen our competitive position in the marketplace. The newly announced duty-free access for Jordanian apparel and textile exports to the U.S. is a meaningful advantage for Jerash and reinforces our standing as a preferred manufacturing source for leading global brands and retailers. We believe this favorable trade environment will support future growth, create opportunities to attract new customers and strategic partners and enhance our ability to deliver long-term value for our customers and shareholders. While our outlook remains positive, we are closely monitoring geopolitical developments in the Middle East that could affect near-term regional market conditions, including export logistics and transportation costs for raw materials sourced from Asia. Although these factors may create periodic challenges, we believe our strong customer relationships operational flexibility and growing attractiveness in the marketplace position us well to navigate a dynamic environment and continue supporting our customers' needs effectively. We remain focused on executing our growth strategy, investing in capacity and capabilities and leveraging the unique advantages of our manufacturing platform. With an expanded customer base, product mix and favorable trade conditions. We believe Jerash is well positioned to capitalize on emerging opportunities in the years ahead. With that, I will now turn the call over to Eric Tang who is in charge of our operations in Jordan. Eric?

Thank you, Sam. We had a very active fiscal first quarter. driven by increased production for our two largest customers and new store orders placed by Hanson. We continue to actively respond to a growing volume of inquiries, particularly following the recent U.S. Jordan trade agreement announced in July. By reinforcing the benefits of the original 2013 trade agreements with 0 duty for Jordanian apparel and textile exports. The new agreement further enhanced Jordan attractiveness as a sourcing hub for the U.S. market. As one of the country's leading apparel manufacturer, Jerash is uniquely positioned to capitalize on this favorable trade environment and convert new opportunities into long-term customer relationships. We are pleased to have received additional orders from Hanson, including expanded product categories and higher unit sales price. Additional product development through another large government conglomerate is progressing towards its final stage with order placements for a well-known global brand anticipated in the near term. If completed as anticipated, these orders could further support our growth momentum in fiscal 2027. Turning to our previously announced expansion plans. We are on target to add approximately 15% of production capacity by the end of calendar year 2026. Expanding two of our existing manufacturing facilities with additional production lines and 500 additional workers. The next stage of our expansion involved repurposing our most recently acquired facility into a smart warehouse and cutting operation while also adding production lines. As part of this expansion, we are converting the facilities that currently serve as our warehouse and checking department for additional production. These initiatives are expected to enhance our operating capability with 500 new state-of-the-art sewing machines and automation, supported by approximately 1,100 additional workers. The second phase is expected to increase capacity by approximately 20% to 25%, with completion targeted for around mid-calendar year 2027. Our partnership with the Jordanian Ministry of Labor to add capacity in rural community continue to move forward. Our second satellite factory which opened in March 2026, now supports 130 local jobs. We are currently expanding the site with additional floors. A project expected to increase overall production capacity by approximately 5% and bring employment at the facility to as many as 250 local workers. We expect this expansion to be completed by the end of fiscal year 2027. In addition, we continue to work closely with the Ministry of Labor on plans for a third satellite factory to create approximately 500 additional jobs in the surrounding community reaching about 1 hour away from Jerash' first satellite operation in Al Hasa. Together, these initiatives support Jerash' growth objectives while also contributing to local employment and economic development. At the same time, we are managing through near-term logistic challenges related to the ongoing conflict in the Middle East. Export shipments out of Haifa Ports are experiencing periodic delays and the cost of transporting imported raw materials from Asia has increased since the conflict resumed in July. While this condition may increase some timing and cost pressure, we are working closely with our customers and suppliers and give production flexibility to mitigate disruptions and maintain reliable delivery schedules. Overall, we see growth opportunities ahead. Our strategic capacity expansion plans, combined with Jordan's competitive trade advantages and our reputation for quality and reliability continue to enhance our position in the global apparel supply chain. With that, I will now turn the call over to Gilbert to discuss our financial results. Gilbert, please.

Thank you, Eric. Revenue for the fiscal 2027 first quarter grew 26.7% to $50.2 million compared with $39.6 million in the same quarter last year. The increase was primarily driven by higher shipments to the two major U.S. customers as well as continued U.S. contributions from the company's strategic partner in Korea. Gross profit increased 35.7% and to $8.3 million for the fiscal 2027 first quarter from $6.1 million in the same quarter last year. Gross margin for the quarter increased 100 basis points to 16.4% compared with 15.4% in the same period last year. The improvement was primarily driven by higher shipments to U.S. customers that typically generate stronger margins as well as improved efficiency gains from automation. Operating expenses totaled $5.6 million in the fiscal 2027 first quarter compared with $5.1 million in the same quarter last year. The increase was primarily attributable to higher sales volume as well as increased head count and related expenses. Operating income rose up 174% to $2.6 million in fiscal 2027 first quarter from $959,000 in the same period last year. Total other expenses were $546,000 in the fiscal 2027 first quarter compared with $307,000 in the same quarter last year. The increase was mainly due to higher interest expenses from supply chain financing programs used by 2 major customers as well as letter of credit for raw material purchases to support growing business from Hansoll. Income tax expenses were $404,000 in the fiscal 2027 first quarter compared with $329,000 in the prior year quarter. Net income advanced more than fivefold to $1.7 million or $0.13 per diluted share in the fiscal 2027 first quarter compared with $324,000 or $0.03 per diluted share in the same quarter last year. Comprehensive income attributable to the company's common stockholders advanced to $1.7 million in the fiscal 2027 first quarter compared with $328,000 in the same period last year. As of June 30, 2026, cash, cash equivalents and restricted cash totaled $14.5 million, and net working capital was $38.1 million. Inventory was $26.6 million, and accounts receivable amounted to $5.9 million. Net cash provided by operating activities was $2.5 million for the 3 months ended June 30, 2026 compared with net cash used in operating activities of $6.5 million in the same period last year. on August 7, 2026 Jerash' Board of Directors approved a regular quarterly dividend of $0.05 per share on its common stock, payable on August 24, 2026 to stockholders of record as of August 17. As Sam and Eric noted earlier, we remain optimistic about the company's future as we continue to focus on cost management and operating efficiencies, navigating current market conditions. Looking immediately ahead, we expect revenue for the fiscal 2027 second quarter to be approximately $49 million to $51 million. Subject to logistics, efficiency amid geopolitical uncertainties. Gross margin target for the fiscal 2027 second quarter is expected to be approximately 14% to 15%. And taking into consideration the increased transportation costs for raw material imports. I will turn the call back to the operator as we open the call for questions.

[Operator Instructions]. Your first question is coming from Ryan Meyers with Lake Street Capital Markets.

Congrats on another strong quarter here. I was just wondering if you could start. So with the announcement of the Duty-free access, have you seen any inbound orders from potentially new customers? And then secondly, what sort of capacity would you guys need to bring online? And at what point potentially do you think you could do that should new orders come through with this new update to the Duty Free.