Jerash Holdings (US), Inc. (NASDAQ:JRSH) has demonstrated its ability to navigate the challenging apparel environment with resilience and strategic diversification. Despite the ongoing headwinds in the retail market, the company has continued to attract new customers and maintain its strong position in the industry.

Financials

Jerash's second quarter performance for fiscal 2024 showcased its adaptability. Revenue for the quarter amounted to $33.4 million, compared to $37.8 million in the same period last year. The decrease was primarily due to fewer shipments being delivered to some of the major customers in the U.S., partially offset by shipments to other new geographical locations, including Hong Kong and Germany. Gross profit was $5.4 million, with a gross margin of 16.1%, compared to $6.9 million and 18.3% in the same quarter last year. The lower gross margin was principally driven by a shift in customer mix with lower profit margin orders.

For the nine months ended December 31, 2023, Jerash reported annual revenue of $117.2 million and a net loss of $2.0 million. The company's annual operating cash flow was $2.5 million, and its annual free cash flow was $1.2 million.

Recent Developments

Despite the challenging market conditions, Jerash has continued to make progress on several fronts. The company's joint venture with Busana Apparel Group is well underway, and the partnership is already bearing fruit. Marketing efforts continue to accelerate, and Jerash believes the partnership is well-positioned for growth ahead. The company is projecting $8 million to $9 million in new orders from the Busana joint venture in the next 12 months, starting in a meaningful way in the fourth quarter of fiscal 2024.

Jerash has also established a new joint venture with Newtech Textile, a textile innovation and solution company. This venture is expected to enable Jerash to leverage the latest technology to offer customers a new array of sustainable and innovative textile products. The company plans to build a state-of-the-art fabric facility in Jordan, with construction to begin in 2024. This initiative is expected to position Jerash as a leader in ESG textile manufacturing, aligning with the company's longstanding commitment to sustainability and responsible growth.

Customer Relationships

On the customer front, Jerash continues to strengthen its relationships with existing clients and diversify its customer base. Timberland, a VF Corporation brand, has become the second-largest brand for Jerash, with a significant increase in order volume. The company is also producing its first trial orders for Vans apparel, another VF Corporation brand, and is confident that order flow from Vans will increase significantly next fiscal year. Additionally, Jerash's business with its first European-based high-end apparel brand continues to expand, with the company projecting a doubling of orders in the second half of fiscal 2024.

Geographic Revenue Distribution

Geographically, Jerash's revenue is primarily derived from the United States, which accounted for 88% of total revenue in the nine months ended December 31, 2023. The company also generates revenue from Hong Kong, Germany, Jordan, and other locations, which collectively contributed 12% of total revenue during the same period.

Liquidity

Jerash's balance sheet and cash position remain strong, with $22.8 million of cash and restricted cash and net working capital of $40.5 million as of September 30, 2023. The company's inventory stood at $18.7 million, and accounts receivable were $5.2 million.

Outlook

Looking ahead, Jerash is taking a conservative approach to its fiscal 2024 guidance. The company expects revenue to be down approximately 3% to 5% from the previous fiscal year, with a gross margin goal of 15% to 16%. This outlook is subject to the final product mix of shipments and order flow from the new customers through the Busana joint venture.

Conclusion

Despite the ongoing challenges in the retail market, Jerash has demonstrated its ability to adapt and diversify its business. The company's strategic initiatives, including the joint ventures with Busana and Newtech Textile, as well as its focus on strengthening relationships with existing customers and attracting new high-profile brands, position Jerash for continued success in the long run.