Business Overview and History
Jerash Holdings (US), Inc. (NASDAQ:JRSH) is a leading manufacturer and exporter of custom, ready-made sportswear and outerwear, serving prominent global brands and retailers. With a strong foothold in Jordan and a diverse customer base, the company has demonstrated its ability to navigate the evolving landscape of the apparel industry.
Jerash Holdings was incorporated in Delaware on January 20, 2016, and serves as a holding company for its subsidiaries. The company’s primary operating subsidiary, Jerash Garments and Fashions Manufacturing Company Limited, was established in 2000 in Amman, Jordan. Over the years, Jerash has expanded its operations through a series of strategic acquisitions, including Jerash Embroidery Company and Chinese Garments and Fashions Manufacturing Company Limited in 2013, Paramount in 2018, MK Garments in 2021, and Kawkab Venus.
In 2016, Jerash established Treasure Success International Limited in Hong Kong to provide staffing and other support for its Jordanian operations. The company has also formed several joint ventures in recent years, including a partnership with Newtech Textile HK Limited in 2023 to establish a fabric facility in Jordan.
Jerash’s manufacturing capabilities in Jordan, coupled with its proximity to major ports and free trade agreements, have enabled the company to offer a competitive advantage to its global customers. The company’s portfolio includes well-known brands such as The North Face, Timberland, and Vans, which are owned by VF Corporation, as well as other prominent names like G-III, New Balance, and American Eagle Outfitter.
Financial Performance and Ratios
In the fiscal year ended March 31, 2024, Jerash reported total revenue of $117.19 million, a decrease of 15.2% from the previous year’s $138.06 million. However, the company’s net income declined more significantly, from $2.42 million in fiscal 2023 to a loss of $2.04 million in fiscal 2024. This was primarily due to a combination of factors, including the impact of the COVID-19 pandemic on consumer demand, increased production costs, and higher operating expenses.
For the most recent quarter (Q2 2024), Jerash reported revenue of $40.24 million, representing a year-over-year growth of 21%. Net income for the quarter was $655,000, with operating cash flow of $4.63 million and free cash flow of $4.15 million. The increase in revenue was primarily due to more shipments to the company’s major customers in the U.S., partially offset by fewer shipments to some other major customers. The increase in net income was mainly attributable to the increase in gross profit and the decrease in income tax expenses.
Liquidity
The company’s liquidity position remains strong, with a current ratio of 3.10 and a quick ratio of 1.91 as of September 30, 2024, indicating its ability to meet short-term obligations. Jerash’s debt-to-equity ratio stood at 0.05, suggesting a low level of leverage. The company has a $5 million credit facility with DBS Bank Hong Kong Limited (DBSHK), of which $3.57 million was outstanding as of September 30, 2024.
Operational Highlights and Diversification Efforts
Jerash has been actively diversifying its customer base and product offerings to mitigate the impact of market volatility. In recent years, the company has expanded its partnership with VF Corporation, securing additional orders from Timberland and Vans brands. Additionally, Jerash has established a joint venture with Busana Apparel Group, a leading Indonesian garment manufacturer, to further expand its reach and secure new premium brand customers. 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 their fiscal fourth quarter.
The company’s efforts to invest in sustainable textile solutions, such as the joint venture with Newtech Textile, also demonstrate its commitment to innovation and environmental responsibility. The planned construction of a state-of-the-art fabric facility in Jordan is expected to reduce water usage, energy consumption, and carbon footprint compared to traditional textile manufacturing processes. This new facility is expected to cost between $25 million to $30 million in total capital expenditures.
Product Segments and Geographic Markets
Jerash Holdings operates in a single reportable business segment – the manufacturing and exporting of customized, ready-made sportswear and outerwear as well as personal protective equipment (PPE) products. The company’s primary products are outerwear, which accounted for approximately 89.3% and 92.0% of total revenue for the six months ended September 30, 2024 and 2023, respectively.
Outerwear segment revenue increased by 21.0% to $40.24 million for the three months ended September 30, 2024, compared to $33.36 million in the same period of the prior year. However, gross profit margin in the outerwear segment decreased by 2 percentage points to 14.0% for the six months ended September 30, 2024, primarily due to higher logistic costs and overtime work incurred to catch up with customer delivery schedules.
In addition to outerwear, Jerash also manufactures and sells PPE products, such as face masks and other medical supplies. For the three and six months ended September 30, 2024, PPE products accounted for approximately 11.8% and 10.7% of total revenue, respectively.
Geographically, the company’s sales are made primarily in the United States, which accounted for 86% of total revenue in Q2 2024 and 88% in the first half of fiscal 2024. Sales to China, including Hong Kong, were 8% in Q2 2024 and 6% in the first half. Sales to other regions such as Germany, Jordan, and others made up the remaining 6% in Q2 2024 and 6% in the first half.
Navigating Geopolitical Challenges
Jerash’s operations in Jordan have not been immune to the region’s geopolitical tensions. The ongoing conflict between Israel and Hamas has raised concerns about potential disruptions to the company’s import and export activities. However, Jerash has proactively implemented contingency plans, including the use of alternative ports, to ensure the continued flow of its products.
Furthermore, the company has maintained close communication with its customers, keeping them informed of the situation and the measures taken to mitigate any potential impact. Jerash’s strong relationships with its global partners and its ability to adapt to changing circumstances have been instrumental in navigating these challenges.
Outlook and Risks
For the fiscal year 2025, Jerash has provided a cautious outlook, expecting a 3% to 5% decline in revenue compared to the previous year. The company cites the slowly recovering consumer market and the continued shift towards lower-margin products as factors impacting its performance. Jerash is expecting a gross margin of approximately 15% to 16% for the current full fiscal year. The company’s outlook is subject to the final product mix of shipments as well as order flow from new customers through their joint venture with Busana.
Risks facing Jerash include the ongoing global economic uncertainties, fluctuations in customer demand, and potential supply chain disruptions. Additionally, the company’s heavy reliance on a limited number of large customers and suppliers presents concentration risks that require close monitoring.
Conclusion
Jerash Holdings (US), Inc. (NASDAQ:JRSH) has demonstrated its resilience in the face of a challenging market environment. The company’s diversification efforts, investments in sustainable solutions, and proactive management of geopolitical risks have positioned it to navigate the evolving landscape of the apparel industry. While the near-term outlook remains cautious, Jerash’s strong liquidity position, long-standing relationships with global brands, and strategic joint ventures suggest its potential to capitalize on future growth opportunities. The company’s focus on expanding its customer base and product offerings, coupled with its commitment to sustainability, provides a foundation for long-term growth and value creation for shareholders.
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