Igor Novgorodtsev

Igor Novgorodtsev from Lares Capital questioned Crown Crafts' continued high reliance on China for product sourcing, asking about contingency plans for potential tariff increases and the current effective tariff rate. He also inquired about the company's ability to implement further price increases.

Answer

Crown Crafts President and CEO Olivia Elliott confirmed that while they are actively exploring alternative sourcing in countries like Cambodia, Pakistan, and India, transitioning is slow due to critical quality and safety standards for infant products, with plastic toys being particularly challenging. Ms. Elliott noted that she does not have an average effective tariff rate, as it varies significantly by product category. She also stated that the company does not anticipate further price increases at this time, as current increases are already affecting sales, and consumers are unlikely to absorb more.

Igor Novgorodtsev expressed surprise at Crown Crafts' high reliance on China for product sourcing and questioned the company's contingency plans if tariffs were to increase significantly. He also inquired about the current effective tariff rate compared to previous periods and the potential for further price increases.

Answer

Crown Crafts President and CEO Olivia Elliott explained that while actively exploring alternative sourcing countries like Cambodia, Pakistan, and India for over a year, the company proceeds cautiously due to critical quality and safety standards for infant products. She noted that plastic molded toys would be the most challenging category to relocate. Ms. Elliott stated there isn't a single "effective tariff rate" as duties vary widely by product (e.g., toys 20%, diaper bags over 60%). She concluded that further price increases are unlikely for now, as consumers are already sensitive, and current increases are impacting sales.

Igor Novgorodtsev asked about Jerash Holdings' contingency plans for potential geopolitical disruptions, specifically concerning the U.S., Iran, and Israel situation, and its impact on delivery and port operations, given past issues. He also questioned the strategy for the significant cash balance on the balance sheet while financing expansion with debt. Lastly, he inquired about the health of VF Corp, Jerash's largest customer, and any ongoing pricing pressure.

Answer

Eric Tang (Head of Jordan Operations, Jerash Holdings) and Sam Choi (Chairman and CEO, Jerash Holdings) confirmed close monitoring of the political situation with the Ministry of Foreign Affairs, with assurances that Jordan remains stable. They noted that Haifa and Aqaba ports have been operating efficiently for the past six months without obstacles. Gilbert Lee (CFO, Jerash Holdings) explained that cash is being utilized more extensively due to business growth and new customers lacking supplier financing programs. He stated they are working with local banks to finance receivables and LCs, and will rely on debt for growth and expansion, while considering other financing alternatives later. Gilbert Lee and Sam Choi acknowledged pricing pressure due to tariffs affecting the market but highlighted Jerash's position as a high-quality, reliable manufacturer in Jordan. Sam Choi added that while FOB prices face pressure, fabric and trim costs also decrease, counterbalancing the overall impact, and Jordan's 15% tariff privilege is among the lowest.

Igor Novgorodtsev of Lares Capital inquired about Jerash Holdings' contingency plans for potential geopolitical disruptions in the Middle East, specifically concerning a possible war involving Iran, given past issues with shipping and port closures during the Gaza conflict. He also questioned the company's strategy for its cash reserves, considering the use of debt financing for expansion at an 8% interest rate. Additionally, he asked about the current health of VF Corp, Jerash's largest customer, and the ongoing pricing pressure from them.

Answer

Head of Jordan Operations Eric Tang assured that the company is closely monitoring the political situation with the Ministry of Foreign Affairs, and Jordan is expected to remain stable. He confirmed that Haifa and Aqaba ports have been operating efficiently for the past six months. CFO Gilbert Lee explained that cash is being utilized more extensively for business growth and new customers, with plans to rely on debt for expansion and working capital while exploring other financing alternatives later. Regarding VF Corp, he acknowledged pricing pressure due to tariffs but emphasized Jerash's position as a highly capable and reliable manufacturer, allowing for a balanced relationship. CEO Sam Choi added that Jordan's favorable tariff rates and counterbalancing reductions in fabric and trim costs help mitigate overall pricing pressure.

Igor Novgorodtsev of Lares Capital asked about the impact of currency fluctuations, requested a detailed breakdown of Jordan's effective apparel tariff rate versus competing nations, and inquired about the status of the Busana joint venture.

Answer

CFO Gilbert Lee stated that currency impact is minor as billings are in USD and the Jordanian Dinar is pegged. Eric Tang, Head of Jordan Operations, and CEO Sam Choi provided a detailed tariff comparison, explaining that Jordan's 15% rate is highly competitive because it's applied to a duty-free base, unlike Asian countries that pay a base duty plus a reciprocal tariff. Choi also confirmed the Busana joint venture was terminated as Jerash can now deal with those customers directly.

Inquired about the impact of currency fluctuations (USD vs. JOD) on expenses, asked for a detailed comparison of Jordan's effective tariff rate versus competing countries, and requested an update on the Busana joint venture.

Answer

The company stated that currency impact is minor because the Jordanian Dinar is pegged to the USD. They provided a detailed tariff comparison, highlighting that Jordan's 15% rate is highly competitive against countries like Bangladesh (20%) and Vietnam (20%), especially since those countries pay additional duties that Jordan does not. They also clarified that the Busana joint venture was terminated as they can now deal with those customers directly.

Asked about the potential for gross margin improvement due to increased demand from tariffs, the certainty of margins given the company is fully booked, whether regional geopolitical issues deter customers, and how the company is managing its own inbound supply chain risks.

Answer

The company expects gross margins to improve as they prioritize higher-margin FOB business over CMT business. While they are booked through December, margins for later quarters are still projections. Management emphasized that Jordan remains a safe and stable country, a fact that visiting customers confirm, alleviating concerns. To mitigate supply chain risks, the company has diversified its shipping routes and increased regional sourcing from countries like Turkey and Egypt.

Asked for details on logistics improvements through the Red Sea, the impact on gross margins, the company's normalized gross margin target, the status of the Busana joint venture, and whether Busana might shift production to Jordan.

Answer

Logistics are normalizing, with raw materials again coming through the Red Sea, which should improve costs. The company targets a 15-16% gross margin for fiscal 2026 as it onboards new customers. The Busana JV is seeing flat growth as new buyers remain cautious due to regional turmoil. The JV is used strategically for high-value, tariff-sensitive orders, a strategy that is not expected to change.

Igor Novgorodtsev requested details on the improved logistics situation and its impact on gross margin, the company's normalized gross margin target, the progress of the Busana joint venture, and the potential for Busana to shift production to Jordan.

Answer

CFO Gilbert Kwong-Yiu Lee explained that logistics have normalized, improving margins, and the company is targeting a 15-16% gross margin for fiscal 2026 as new customer volumes ramp up. He described the Busana JV growth as flat due to regional turmoil causing customer caution. Executive Eric Tang clarified that the JV is strategically used for high-value orders from brands like Hugo Boss to maximize tariff savings, while lower-end products are made elsewhere.

Asked about the company's cash utilization, specifically why they incur high interest expenses while holding cash, and whether recent political turmoil in Bangladesh creates a business opportunity for them.

Answer

The company explained that interest expenses stem from supply chain financing programs for early payment and a bank credit line, and they are monitoring these costs. Regarding Bangladesh, they confirmed that other apparel groups are moving to Jordan and that Jerash has been approached by Bangladeshi manufacturers about potential cooperation.

Igor Novgorodtsev of Lares Capital asked about the company's cash utilization, specifically the reasons for high interest expenses despite a strong cash position, and whether geopolitical instability in Bangladesh presented a business opportunity for Jerash.

Answer

CFO Gilbert Kwong-Yiu Lee attributed the high interest expenses to the use of supply chain financing programs with major customers like VF Corp. and New Balance, which are tied to higher global interest rates, as well as a credit line with DBS bank. Executive Director Eric Tang addressed the geopolitical question, confirming that Jerash has been approached by Bangladesh-based manufacturers to discuss potential cooperation, highlighting an emerging opportunity from regional instability.

Asked about the company's online advertising strategy, Subscribe & Save performance, the extent of international sales and related tariff risk, and the details and future of the relationship with GNC following their recent dispute.

Answer

Advertising spend is stable and optimized at a granular level, with subscriber counts generally growing. Direct international sales are minimal, limiting risk from retaliatory tariffs. The relationship with GNC is important and the dispute is settled; the company demonstrated it can service franchisees directly if needed but prefers using GNC's central distribution for logistical ease.