Business Overview and History

Jerash Holdings (NASDAQ:JRSH) is a leading manufacturer and exporter of custom, ready-made sportswear and outerwear for some of the world's most recognized brands. With a focus on quality, efficiency, and responsiveness, Jerash has solidified its position as a preferred partner for global retailers seeking tariff-free manufacturing solutions.

Jerash Holdings was incorporated in Delaware in 2016 as a holding company for its various subsidiaries in Jordan and Hong Kong. The company's roots trace back to 2000 when its core subsidiary, Jerash Garments and Fashions Manufacturing Company Limited, was established in Amman, Jordan as a limited liability company with a declared capital of $212,000.

Over the past two decades, Jerash has significantly expanded its manufacturing capabilities through strategic acquisitions. In addition to the previously mentioned acquisitions of Paramount in 2018 and MK Garments and Kawkab Venus in 2021, the company has also acquired Jerash Embroidery, Chinese Garments, and Jerash The First. These acquisitions have allowed Jerash to vertically integrate its operations and enhance its manufacturing expertise.

A key milestone in Jerash's history was the United States-Jordan Free Trade Agreement, which came into effect in December 2001. This agreement has been instrumental in the company's growth, allowing it to export apparel to the U.S. market without incurring customs duties and providing a significant competitive advantage.

Throughout its history, Jerash has faced challenges related to the geopolitical turmoil in the Middle East region. The company has demonstrated resilience by implementing contingency plans, such as using alternative shipping routes, to minimize the impact on its operations and maintain its competitive edge in the global apparel manufacturing industry.

Financial Overview

Jerash's financial performance has been resilient, with the company reporting revenue of $117.19 million and a net loss of $2.04 million for the fiscal year ended March 31, 2024. The company's gross profit margin stood at 16.9% during the same period.

For the nine months ended December 31, 2024, Jerash reported revenue of $116.56 million, a 22% increase compared to the same period in the prior year. Gross profit margin, however, decreased to 15.0% during this period, primarily due to higher logistics costs arising from regional geopolitical tensions.

In the most recent quarter (Q3 2024), Jerash reported quarterly revenue of $35.38 million, representing a year-over-year growth of 28.6%. This growth was primarily attributed to increased shipments to the company's major U.S. customers. However, revenue was impacted by approximately $6 million due to congestion at the Haifa port in Israel, which caused shipment delays. Quarterly net income for Q3 2024 was $6,310.

Financials and Liquidity

The company's balance sheet remains strong, with $14.78 million in cash and restricted cash as of December 31, 2024, and a current ratio of 3.13. Jerash's working capital position of $34.8 million and inventory levels of $19.1 million provide the necessary resources to support its ongoing operations and future growth initiatives.

Jerash's debt-to-equity ratio stands at 0.016 as of December 31, 2024, indicating a conservative capital structure. The company has a $5 million credit facility from DBS Bank Hong Kong Limited, of which $4.97 million was outstanding as of December 31, 2024. The quick ratio of 1.96 further underscores Jerash's strong liquidity position.

For the fiscal year 2024, Jerash reported an annual operating cash flow of $2.48 million and an annual free cash flow of -$2.36 million. These figures reflect the company's ongoing investments in capacity expansion and operational improvements.

Geographical and Product Diversification

Jerash has a diversified customer base, with a significant portion of its revenue derived from leading global brands such as VF Corporation (The North Face, Timberland, Vans), New Balance, and G-III (Calvin Klein, Tommy Hilfiger, DKNY). In the nine months ended December 31, 2024, the United States accounted for 88% of the company's total revenue, while China, Germany, Jordan, and other markets contributed the remaining 12%.

The company's product mix is predominantly focused on outerwear, which accounted for approximately 90% of total revenue during the nine-month period. Jerash also manufactures personal protective equipment (PPE) to diversify its offerings and capitalize on emerging market trends.

Operational Expansion and Capacity Enhancements

To support its growing order book and anticipated future demand, Jerash is actively expanding its manufacturing capabilities. The company is currently in the process of expanding two of its existing facilities in Jordan, which is expected to increase production capacity by 15% by mid-2025.

Furthermore, Jerash is working with the Jordanian government to expand its satellite facility in Al-Hasa, which could add an additional 5-10% to its production capacity by the end of 2025. The company is also assessing longer-term, large-scale expansion plans to construct new manufacturing, warehousing, and housing facilities on land it has previously acquired.

These strategic investments in capacity expansion demonstrate Jerash's commitment to meeting the growing demand from its global customer base and solidifying its position as a preferred manufacturing partner in the region.

Challenges and Risks

Jerash's operations have not been immune to the broader geopolitical and logistical challenges affecting the industry. In the third quarter of fiscal 2025, the company's results were impacted by congestion at the Haifa port in Israel, which caused delays in shipments and contributed to an estimated $6 million in lost revenue for the period.

The company's reliance on a limited number of large customers also poses a risk, as the loss of a significant customer could have a material impact on its financial performance. Jerash is actively working to diversify its customer base and expand its product offerings to mitigate this risk.

Additionally, Jerash's operations in Jordan expose the company to regional political and economic uncertainties, which could disrupt its manufacturing and supply chain activities. The company has implemented contingency plans to address these risks, including exploring alternative shipping routes and diversifying its production facilities.

Outlook and Guidance

Jerash's strong reputation, strategic geographic location, and ongoing capacity expansion efforts position the company well to capitalize on the shifting global manufacturing landscape. The company's focus on quality, efficiency, and responsiveness has made it an attractive partner for leading global brands seeking tariff-free manufacturing solutions.

For the fiscal 2025 fourth quarter, Jerash expects revenue to increase by 50% to 53% compared to the prior year quarter. The company anticipates gross margin for this period to be approximately 15% to 16%, subject to logistics and shipping charges and product mix.

Looking ahead to fiscal 2026, Jerash expects first-quarter revenue to be in line with the record-setting first quarter of fiscal 2025, which included $3 million to $4 million in delayed shipments. The company's factories are fully booked through August 2025, and Jerash is receiving a growing number of new business inquiries, indicating strong demand for its manufacturing services.

Industry Trends and Long-term Prospects

The global sportswear and outerwear market is expected to grow at a compound annual growth rate (CAGR) of 4-6% over the next five years, driven by increasing demand for athleisure and activewear apparel. This trend bodes well for Jerash, given its focus on manufacturing outerwear and sportswear products.

As Jerash continues to diversify its customer base, expand its manufacturing capabilities, and navigate the evolving industry landscape, the company is well-positioned to deliver sustainable, long-term value for its shareholders. The ongoing capacity expansion initiatives, coupled with the company's strong reputation and strategic location, provide a solid foundation for future growth in the competitive global apparel manufacturing industry.