Jerash (US) - Earnings Call - Q1 2026

Executive Summary

• Q1 FY26 revenue was $39.63M and diluted EPS was $0.03; revenue beat consensus ($38.85M*) while EPS missed ($0.075*), reflecting stronger logistics-driven gross margin but higher tax and interest drag.
• Gross margin expanded 410 bps YoY to 15.4% on improved logistics and production planning after resuming raw material routing through Aqaba; operating income swung to $0.96M from a loss in the prior year.
• Management guided Q2 FY26 revenue to $40–42M and gross margin to 15–16% (midpoint roughly in line with Street revenue at $41.0M*), underpinned by capacity ramp and a major Hansoll order beginning shipments in September.
• Facilities are fully booked through February 2026; capacity expansion completed in June is ramping and expected to lift output ~15% starting Q2 FY26, with an additional ~5% from Al-Hasa targeted in early CY26.

Values with * are from S&P Global consensus.

What Went Well and What Went Wrong

• What Went Well

  • Margin inflection: “Gross margin increased to 15.4%… from 11.3%,” driven by “improved logistics and production planning” and resumption of sea routes via Aqaba with lower transport costs.
  • Demand and order visibility: “Our facilities are fully booked through February 2026,” and “we have successfully completed production of the first phase of a major initial order” via Hansoll; shipments slated from September to February 2026.
  • Operating leverage: Operating income rose to $0.96M from a loss, aided by “reduced import logistics costs… lower overtime… lower stock-based compensation… reduced spending on repair and maintenance”.

• What Went Wrong

  • Slight revenue decline YoY (-3.2%): Q1 FY26 revenue $39.6M vs $40.9M prior year due to shipment redirection from Haifa to Aqaba late in June that delayed several orders.
  • EPS below consensus: $0.03 vs $0.075* amid $0.33M income tax expense and $0.31M net other expense; tax rate remains an optimization focus.
  • Cash use from working capital: Cash and restricted cash declined to $7.5M at quarter-end as receivables spiked from late-June shipping reroutes; collections occurred in July.

Values with * are from S&P Global consensus.

Transcript

Speaker 5

Greetings. Welcome to Jerash Holdings' fiscal 2026 first quarter financial results conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Roger Pondel, Investor Relations. Roger, you may begin.

Speaker 3

Thank you, operator, and good morning, everyone, or afternoon, depending on where you are, and welcome to Jerash Holdings' fiscal 2026 first quarter conference call. I'm Roger Pondel with PondelWilkinson, Jerash Holdings' investor relations firm. On the call today from the company are Chairman and Chief Executive Officer Sam Choi, Chief Financial Officer Gilbert Lee, and Eric Tang, who leads the company's operations in Jordan. Before I turn the call over to Sam, I want to remind everyone 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. With that, it is my pleasure to turn the call over to Sam Choi. Sam?

Speaker 4

Thank you, Roger. Our fiscal first quarter performance reflects growing customer demand as companies continue to seek alternative manufacturing partners and diversify their supply chain away from China and Southeast Asia. Even with the most recently announced 15% U.S. tariff on products from Jordan, exporting from Jordan remains significantly more advantageous compared with most other countries, especially those in Asia, with total effective tariff rates on the payroll currently ranging from 20% to more than 60%. We also made meaningful improvements in operating efficiency during the quarter. By optimizing our logistics and better production planning, we were able to reduce costs and significantly limit the need for overtime. Another key contributor to our positive performance was the return to routing raw materials imports through Aqaba port in Jordan.

This shift allowed shorter lead times and lower transportation costs, especially when compared to the alternative routes we had to use during the Red Sea shipping disruptions. With strong FOB orders and improved cost efficiencies, we experienced a significant turnaround in our financial performance. Operating income climbed to nearly $1 million compared with a loss of more than $800,000 in the same quarter last year. Net income also turned positive, making a solid recovery from the net loss sustained in the prior year quarter. I'm pleased to report that we have successfully completed production of the first phase of a major initial order from one of the largest U.S.-based multinational and omnichannel retailers through our strategic collaboration with Hansshow Textile, a leading global apparel group based in South Korea.

With the success of this initial order, we remain focused on identifying and pursuing additional collaborations that create mutual value and help strengthen long-term partnerships. This is certainly an exciting time for Jerash. As we continue to see growing interest and increasing inquiries from global brands, at the same time, we are staying vigilant about the potential impacts of recently announced tariff changes and the ongoing geopolitical instability in the region, as we continue to plan for additional expansion opportunities to support future growth. I will now turn the call over to Eric Tang, who is in charge of our operations in Jordan. Eric?

Speaker 0

Thank you, Sam. The first quarter was a particularly active and productive period for Jerash. As we continue to operate in what we believe is a positive and expanding business environment, we are seeing a steady increase in new business inquiries from global brands, as well as other strategic collaboration opportunities, showing strong interest in our manufacturing capabilities and capacity. Additionally, the recent announcements regarding increased U.S. tariffs have accelerated the pace at which businesses are seeking to diversify their manufacturing base. I am also pleased to share that the shipping logistics difficulty in the region for over one year is essentially behind us, and things have been largely back to normal since mid-July 2025.

With Haifa port in Israel now fully operational again, along with returning to receive raw materials through Aqaba port, we are able to resume and maintain much more reliable shipping routes to support our global customers. As Sam mentioned earlier, in August, we will complete production of the first phase of a major initial order, placed through our collaboration with Hansshow Textile. Shipments are scheduled to begin in September, continuing through February of 2026. Additionally, we continue to work on sample orders and pricing exercise with several new products for other well-known brands in other regions outside of the U.S., where Jordan's free trade agreements still stand and offer strategic advantages. These new business opportunities strengthen our growth outlook and strategy, which is focused on diversifying our customers and product mix to optimize production capacity and deliver better margins year-round.

The expansion of our existing manufacturing facilities in Amman was completed in June, and we are now onboarding additional skilled workers from other countries to support an estimated 15% increase in production capacity. This added capacity is expected to begin contributing to Jerash's performance starting in the second fiscal quarter, a much-needed and timely expansion since our facilities are already fully booked through February 2026. Separately, the other expansion project through collaboration with the Jordanian Ministry of Labor to develop an extension adjacent to our existing facility in Al-Hassan is ongoing. We are still targeted for completion of that project in early calendar year 2026, and it should add another 5% to 10% in total production capacity. With that, I now turn the call over to Gilbert to discuss our financial results. Gilbert, please.

Speaker 3

Thank you, Eric. Thank you, Eric. Revenue for the fiscal 2026 first quarter was $39.6 million, compared with $40.9 million in the same quarter last year. The slight decline was primarily caused by some customer shipments being redirected to Aqaba port in Jordan in order to avoid disruptions at Haifa port in Israel, which began in late June 2025 and delayed shipments on several orders. Gross profit for the fiscal 2026 first quarter advanced 31.2% to $6.1 million from $4.6 million in the same quarter last year. Gross margin increased to 15.4% in the fiscal 2026 first quarter from 11.3% in the same quarter last year. The increase was primarily driven by improved logistics and production planning, along with the resumption of import sea routes through Aqaba port, which provides shorter lead times and lower transportation costs.

Operating expenses totaled $5.1 million in the fiscal 2026 first quarter, compared with $5.5 million in the same quarter last year. The decrease was primarily due to lower stock-based compensation expenses and lower costs on repair and maintenance. Operating income increased meaningfully to $959,000 in the fiscal 2026 first quarter from an operating loss of $829,000 in the same period of last year. The improvement was mainly attributable to reduced import logistics costs for raw materials, lower overtime expense from improved logistics and production planning, lower stock-based compensation expenses, and reduced spending on repair and maintenance. Total audit expenses were $307,000 in the fiscal 2026 first quarter, compared with $426,000 in the same quarter last year, primarily reflecting lower interest rates and a decline in supply chain financing program usage. Income tax expenses were $329,000 in the fiscal 2026 first quarter, compared with $112,000 in the prior year quarter.

We are in the process of consulting with international tax experts on developing global tax planning for achieving a more optimized tax structure. Net income for the fiscal 2026 first quarter increased to $324,000 or $0.03 per diluted share from a net loss of $1.4 million or $0.11 per diluted share in the same quarter of last year. Comprehensive profit attributable to the company's common stockholders totaled $328,000 in the fiscal 2026 first quarter versus a comprehensive loss of $1.3 million in the same period of last year. As of June 30, 2025, Jerash had cash and restricted cash totaled $7.5 million, and net working capital was $34.6 million. Inventory was $27.3 million, and accounts receivable amounted to $10 million.

Cash at the end of the quarter was lower because of a substantially higher receivable balance as a result of delays and eventual shutdown at the Haifa port throughout the month of June, forcing cumulative orders to be rerouted to the port of Aqaba and shipped out in the final week of June. These receivables were all collected in July. Net cash used by operating activities was approximately $6.5 million for the quarter ended June 30, 2025, compared with $2.2 million for the same quarter last year. As Sam and Eric mentioned, our business remains solid with visible opportunities ahead. We are evaluating longer-term, larger-scale expansion plans for the coming year, while remaining focused on driving growth and enhancing operational efficiency.

On August 8, 2025, Jerash's board of directors approved a quarterly regular dividend of $0.05 per share on its common stock, payable on August 29 to stockholders of record as of August 22. Looking ahead, we expect revenue for the fiscal 2026 second quarter to be approximately $40 to $42 million, and our gross margin for the fiscal 2026 second quarter is expected to be approximately 15% to 16%. We will now open up the call for questions, and I will return the call back to the operator.

Speaker 5

Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. The first question today is coming from Michael Baker from D.A. Davidson. Michael, your line is live.

Speaker 1

Great, thanks. A couple real quick here. First, on tariffs, and forgive me, you know, for losing track. It's been all over the place, but are there now tariffs being paid for products from Jordan? You know, historically, it was a tariff-free zone, but has there now been a 15% tariff put in place for Jordan?

Speaker 3

Yes, currently it's 15%.

Speaker 1

Okay, the idea is more than it was when there was no tariff, but less than, you know, 20% to 60% from other Asian countries. That's the right way to think about it, correct?

Speaker 3

Yes, that's correct.

Speaker 1

Okay, understood. Two more quick ones. You talked about some delays at the end of the quarter. Was there, can you quantify, was there a sales shift from the first quarter into the second quarter?

Speaker 3

Yeah, there were maybe a few orders that didn't get out at the end of June that was shifted to July, but it was not significant.

Speaker 1

Okay. Last one for me. You just spoke, Gilbert, at the end there about evaluating longer-term expansion plans. That's above and beyond the 5% to 10% increase for next year from expanding the building that you already have. Is that correct? If so, could you go into a little bit more detail of what those longer-term expansion plans could look like?

Speaker 3

Basically, we have been talking about and we have been planning about a longer-term expansion, which involves building on the piece of land that we have owned for the past six to seven years. However, we're still being cautious, especially during this time where the conflict in the Middle East just ended, and who knows when it is going to start again. Plus, the tariff situation is still creating a lot of uncertainties. Even though we believe the demand of our capacity and Jordan's production, people shifting, the trend is going to continue and it's going to intensify. Just because of the uncertainty, we're kind of tabling the major expansion maybe to fiscal year 2027.

For 2026, I think we're going to try to focus on, number one, to bring in and train sufficient new workers to our existing facilities so that we can capitalize on the 10% to 15% increase in the capacity, by adding machineries and adding people. Then on the second project of expanding our facility in Al-Hassan, which is in the desert, and we're in cooperation with the Jordanian government, the Ministry of Labor, and the Royal Court, and they're supporting us. The investment on this expansion is not going to be a lot of money, and we could definitely finance it ourselves, but it will give us more capacity and also create more employment opportunity for the local people in Al-Hassan. This one and our internal expansion should keep us busy for this current fiscal year.

We'll look at the situation, and then decide on when and how to expand on our piece of land, which is to build additional factories, dormitories, warehouses. Right now, we're actually studying the design, studying the architecture, and because that will take some time to really decide on how to move forward.

Speaker 1

Got it. Thank you. Thank you for that detailed answer.

Speaker 5

Thank you. The next question will be from Mark Argento from Lake Street. Mark, your line is live.

Speaker 2

Excuse me. Good morning, guys. Drill down a little bit on some of the incremental order activity. I know you talked about the Hansshow Textile relationship last quarter. Could you just maybe drill down a little bit further there and how quickly could that scale up to be something meaningful?

Speaker 3

Eric, do you want to answer this one?

Speaker 0

Yes. Okay. For the past six months, we have had numerous contacts with Hansshow Textile, which is one of the leading apparel groups in Korea. After several rounds of negotiation, we have successfully obtained two orders from Hansshow. One is the same staff's order, which we are now producing as a trial order, and the quantity is around 150,000 pieces. The other big order, which we already secured, is another order of 3.2 million pieces, which we are going to start this week. Currently, we are very optimistic about our cooperation with Hansshow. Hansshow also sent their team here in Jordan two weeks ago to watch our daily production. Another team of leaders from Hansshow is coming this weekend to have a further discussion with us for how we are going to cooperate together in 2026. We are very optimistic in the expansion of business with Hansshow.

Speaker 2

Yeah, that's helpful. I mean, it seems like you know those are pretty chunky orders. I mean, if things go well, could you, and if the relationship progresses, you know the opportunity to expand and add some capacity, we think that would make a ton of sense. You know, are you guys being just conservative in the expansion plans right now, or do you see you could change gears pretty quickly and add the capacity and really jumpstart growth?

Speaker 0

I'm Sam Choi. Maybe I answer this question. In fact, one of our biggest customers told us they will have a five-year expansion plan for the top line, and they will place a strong emphasis in sourcing from Jordan. I mean, to cope with this larger customer expansion plan, we will align with them to expand our capacity. The solid plan, I mean, we will wait until the plan of our major customer, how to cope with them on a yearly basis to meet their five-year expansion plan. That will be one of our three to five-year expansion plans. I do believe maybe within two to three months, we will formulate a three to five-year expansion plan. We'll tell all of you in public about our expansion plan.

Speaker 2

Great. Seeing with all the tariffs and everything else going on and some of the relationships you guys have, the opportunity to expand that capacity is probably the best plan in a long time. I know you guys are conservative, obviously, but I just wanted to get your thoughts on that. We'll look for more information going forward. In terms of, I know you talked about the tax rate, you're working through that. Going forward, what are some options for you guys in terms of trying to make that a little bit more consistent?

Speaker 3

I think the effective tax rate in last year and also the first quarter of this year has been high, mainly because we make money. We have profits in our operating entities in Jordan and also in our Hong Kong entity, so we have to pay local taxes. We don't have any income in our U.S. corporations, and we cannot take advantage of the expenses that we have being a U.S. company. You know about all the duty tax and supplier tax. That's making us kind of difficult because of our structure. We're talking with tax experts, especially international tax experts, to see if there are ways that we can find the best way to organize our company structure and our tax structure so that we don't unnecessarily pay more tax than we are supposed to.

As the earnings of the consolidated company, as the earnings improve, I think the effective tax rate will go down.

Speaker 2

Got it. Okay. Just one last one. I know, I think in the prepared remarks, you guys said you're booked up through February, and then you're going to be adding additional capacity, or that additional capacity, 15%, is coming online starting next quarter. I'm assuming that additional 15% is all booked up as well when you made that comment?

Speaker 3

Yes. We have included the increase in capacity because it is gradually improving every month, gradually increasing every month, starting from the end of June as we bring in additional workers. We don't expect the Al-Hassan expansion will come online before the end of this fiscal year. The increase in capacity in our Amman facilities, we are projecting the gradual increase while we bring in workers and train them. Those are within the consideration of how we ramp up. As we make the comment of all the facilities, all the factories are fully booked.

Speaker 2

Add an additional 15%. That kind of feathers in over a couple of quarters. It's not just one big stairstep up 15%.

Speaker 3

That's correct, yeah.

Speaker 2

Great. Thanks for the answers, guys. Good luck.

Speaker 3

Thank you.

Speaker 2

Thank you.

Speaker 5

Thank you. Once again, it will be star one on your phone if you wish to ask a question on today's call. That's star one if you wish to enter the Q&A queue. The next question is coming from Igor Novgorodtsev from Laris Capital. Igor, your line is live.

Speaker 0

Hello, and thank you for saying my last name correctly. I have a few questions. Let's get started with the currency. My understanding is that Jordanian currency is pegged to the U.S. dollar, and the dollar has weakened significantly this year. Could you just tell me, did it have any impact on your expenses, your salaries, your SG&A, and how that plays out? I'm talking about both the European delivery to your European clients and American clients. How does currency come into play?

Speaker 3

I believe all our invoicing or billings are in U.S. dollars. U.S. dollar and Jordanian dinar, yeah, they're closely related. They're pegged. In Jordan, we will pay in JOD, Jordanian dinar. Even if the U.S. dollar, whether it appreciates or depreciates, the impact to us is relatively minor.

Speaker 0

Would it not help to sell more to Europe since Europe obviously appreciated? You're relatively, but your salary would stay in dollars and expenses?

Speaker 3

Will it help us to sell more to Europe?

Speaker 0

Right.

Speaker 3

I think we're already increasing our sales to Europe quite significantly as we have our Timberland sales to the EU and also acquiring new and the luxurious brands like in Italy and the Hugo Boss in Germany. I think we're gradually increasing our presence in Europe, and that has nothing to do with whether the currency fluctuation or not.

Speaker 0

Okay. My other question is a little bit more clarification on tariffs. I know that everybody is confused. While the situation seems to have stabilized in August, we don't know if it's the final. Could you just give a little bit of a more detailed breakdown of your overall tariff rate on apparel vis-à-vis other big apparel manufacturing countries such as Bangladesh, Indonesia, and so on? I understand that Jordan has a 15% tariff. They have like 19%, 20%, I think Vietnam 25%. They also pay other tariffs on textiles. What's the overall rate of your tariff, which is at 15% versus their tariff?

Speaker 3

Ours is 15% currently, but the Jordanian government is still in negotiation with the U.S. government to try to lower that. I think our target is to get it back down to 10% or maybe even more. Comparing to other countries, especially countries in Southeast Asia or China, we are significantly lower or in an advantage with them. I think because of U.S. and Jordan, we have a long-time free trade agreement, and the relationship between U.S. and Jordan is very steady and stable. Brands, global brands, and retailers, their strategy is to try to stay away from the forever-changing situation in Asia and get to somewhere like Jordan that is more stable, that is more favorable. We also compare our situation with Egypt, which currently has a 10% tariff. However, our goal is to get back down to 10% so that we are competitive with Egypt.

However, Egypt, as everybody knows, is a much more difficult country to work with. Their quality, their efficiency, work ethics. Customers would much more prefer to work with Jordan than to work with Egypt if our tariff rates are comparable.

Speaker 0

Okay. Thank you so much. Allow me to say a few words. Okay. Currently, even though the tariff for Jordan is 15%, compared to our main competitors, we are still very, very competitive. I would like to quote some examples. Our main competitors, like Bangladesh, the tariff is 20%. India is 50%. Cambodia is 19%. Pakistan is 19%. Taiwan is 20%. Thailand is 90%. Vietnam is 20%. These are the rates of the tariff from all our so-called competitors. Compared with that, Jordan is still very, very competitive. In fact, now what we call this additional reciprocal tariff, and for our product, because for the cotton product from those exporting countries in Asia, they have to pay 16% to 18% when they export to the U.S. For polyester garment, they have to pay over 30% duty. Whereas, because Jordan enjoys the duty-free, we don't need to pay any duty.

What the reciprocal tariff means is in addition to the polyester garment, 30% for, for example, I mean, Vietnam, they have to pay 30% plus 20%. That means 50% import duty to the U.S. Whereas for Jordan, we only need to pay 15% because we enjoy the duty-free privilege since 2000. It will be a big difference in terms of real tariff in addition to the reciprocal tariff. I don't know whether it's clear to you or not. Yeah. Perfect. Yes. This is exactly the information I was looking for because I want to see the overall effective tariff.

If anything, it seems to be that the situation as it stands right now since April actually got a little bit more favorable for you because now you also have a differentiation on a reciprocal tariff vis-à-vis your competing countries, which is like 4% or 5% higher in addition to what it was even before.

Speaker 3

Yes, you are correct. Yeah.

Speaker 0

Excellent. My final question is about Busana. I know that you have a joint venture. It's just been a little bit quiet lately. If you can just tell me if this is ongoing, if it's ramping up, or it's steady. How's it doing?

Speaker 3

In fact, in our last announcement, we terminated the joint venture.

Speaker 0

Oh, okay. I'm sorry. I missed it.

Speaker 3

Yeah, because most of the customers we can directly deal with.

Speaker 0

Okay. You still have those customers. You just don't need to do it through the joint venture.

Speaker 3

You're right, yeah.

Speaker 0

Okay. Okay. I don't have any more questions. Thank you very much for your detailed answers.

Speaker 3

Thank you.

Speaker 0

Thank you.

Speaker 5

Thank you. The next question is coming from Mike Distler from AMNX. Mike, your line is live.

Speaker 1

Thank you. Good afternoon. Good morning, gentlemen. Sam, Gilbert, Eric, thank you once again. I'll be very fast. Congratulations on navigating a very difficult period. We always appreciate the level of transparency you have with your investors and shareholders and your continued return of capital, all of that. The essence of my thing, basically, Mike, Mark, and Igor got to the essence of my questions.

The one thing I just was pointing out for you, Gilbert, in particular, regarding the global taxes and having been a four-decade veteran in textiles and global textiles, the strategic allocation of the sourcing of your raw materials and then the intercompany transfers is where you should direct the folks, the accounting folks that you are dealing with, because that is where I believe you will find, you will uncover things that are completely legitimate that will allow you to allow the company, all of us, to save some funds in those allocations for taxes. That's it. I just want to say thank you. You guys are killing it. That's all. I just wanted to point that out to you. Okay, Gilbert?

Speaker 0

Thank you.

Speaker 1

Sam, thank you. Eric, yes, we appreciate everything you do.

Speaker 3

Thank you.

Speaker 0

All right. Okay. Be well.

Speaker 3

Sam, Mike.

Speaker 0

Yes.

Speaker 3

Can we talk offline and maybe I could ask you from your experience in terms of more strategically allocating our raw material? Because we, besides looking at our international tax structure, we are also doing an intercompany or transfer pricing study with some experts. If you could.

Speaker 1

I have your number, Gilbert. I have your number. Okay. Will do. That's all. I just want to tell you guys that you're really delivering on everything you've ever promised. It's really exceptional to listen to the quality of your calls. Thank you.

Speaker 3

Okay. Yeah, thank you, Mike.

Speaker 1

I'll speak to you, Gilbert.

Speaker 0

Take care.

Speaker 5

Thank you. This does conclude today's Q&A session. I will now hand the call back to Sam Choi for closing remarks.

Speaker 0

Okay. Thank you very much, operator. Thanks to all of you for joining us today. We are certainly in interesting times, definitely going in the right direction. We appreciate your continuous support and interest in Jerash, and we look forward to speaking with you next quarter. Thank you very much.

Speaker 1

Thank you.

Speaker 3

Thank you, everyone. Thank you.

Speaker 5

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.