Jerash (US) - Earnings Call - Q3 2025
February 11, 2025
Executive Summary
- Revenue grew 28.6% year over year to $35.4M, but results were lower than anticipated due to Haifa port congestion delaying ~$3.8M at port and ~$2.0M held back in warehouse; diluted EPS was $0.00 as an unusually high 98.6% effective tax rate offset operating gains.
- Gross margin compressed to 15.2% (vs. 16.2% YoY; up from 11.3% in Q1) on elevated logistics costs; operating income rose 88% YoY to $0.71M despite higher SG&A and interest from supply chain financing.
- Management guided Q4 revenue +50–53% YoY (vs. $21.6M prior year), Q1 FY2026 revenue “in line” with Q1 FY2025’s $40.9M, and Q4 GM 15–16%; factories are fully booked through August and capacity expansions of +15% by June plus Al‑Hasa +5–10% by year end are underway.
- A $0.05 dividend was declared for payment on or about Feb 25, 2025; consensus estimates from S&P Global were unavailable at the time of analysis, limiting beat/miss assessment vs. Street.
What Went Well and What Went Wrong
What Went Well
- Fully booked production and strengthening demand: “our factories are fully booked through August... orders from global brand customers are increasing steadily,” supported by tariff-free advantages in Jordan.
- Capacity expansion to support growth: expanding two facilities to add ~15% capacity by June, and working with the Jordanian government to expand Al‑Hasa by 5–10% by year-end; longer-term expansion plans under assessment.
- Customer diversification tailwinds: increasing inquiries from new and existing customers seeking tariff-free partners; working on samples/pricing for well-known European and Persian Gulf brands; “excellent position to capture greater opportunities”.
What Went Wrong
- Logistics disruptions and delayed shipments: congestion at Haifa port led to ~$3.8M stuck at port, ~$2.0M held in warehouse, and >$100K storage fees; most delayed goods shipped in January, pushing revenue into Q4.
- Margin and SG&A pressure: gross margin fell to 15.2% (16.2% last year) due to higher logistics costs; SG&A rose to ~$4.2M plus $0.47M stock-based comp; interest expense increased on supply chain financing programs.
- Tax rate spike compressing EPS: effective tax rate surged to 98.6% (vs. 14.2% YoY) mainly due to prior-year provision adjustment (~$274K), resulting in diluted EPS of $0.00 despite operating improvement.
Transcript
Operator (participant)
Good morning. Welcome to Jerash Holdings' fiscal 2025 third quarter financial results. At this time, all participants are in a listen-only mode, and if anyone should require the operator assistance during this conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Roger Pondel, Investor Relations of Jerash Holdings. The floor is yours.
Roger Pondel (Head of Investor Relations)
Thank you, Jenny. Good morning, everyone, and welcome to Jerash Holdings' fiscal 2025 third quarter conference call. I'm Roger Pondel with Pondel Wilkinson, 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, Eric Tang, who leads the company's operations in Jordan, and Ringo Ng, Head of Marketing. Before I turn the call over to Sam, I want to remind our listeners 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 factor section of Jerash's most recent Form 10-K, as filed with the Securities and Exchange Commission, 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, of course, as required by law. With that, it's my pleasure to turn the call over to Sam Choi. Sam?
Sam Choi (Chairman and CEO)
Thank you, Roger. Our business is continuing to gain traction. With increasing inquiries from new and existing customers, they are looking to add manufacturing partners in terrorist-free countries such as Jordan. Our fiscal third quarter revenue increased by nearly 30%, yet results were lower than originally anticipated. Sales were impacted by congestion at Haifa Port due to further geopolitical turmoil in the region, which caused long delays in shipments. We estimated that close to $6 million of finished goods were not shipped until early in the fiscal fourth quarter. Nevertheless, we are pleased to report that export trade routes since late January have markedly improved, and ocean containers are being shipped in a more timely manner. We are hopeful that stability in our operating environment will continue, and we are eager to resume our focus on growth.
On the new business front, we are encouraged by growing interest from international apparel companies, including well-recognized brands in Europe and the Persian Gulf region. This supports Jerash's goal of diversifying our customer base and expanding product mix. Our optimism further reflects new possibilities in today's environment, based on the competitive advantage for companies doing business in Jordan, combined with Jerash's long history and reputation for quality built over the past 20-plus years in the industry. We do believe we are in an excellent position to capture greater opportunities in the years ahead. To support anticipated growth, we recently started expanding two of our existing manufacturing facilities, with expectations of being completed by June of this year. The expansions will increase our production capacity by 15%.
Separately, we are actively working with the Jordanian government to expand our existing facilities in Al-Hasa, which by the end of this calendar year could add an additional 5%-10% of production capacity. We also are assessing long-term, larger-scale expansion plans. Eric Tang, who is in charge of our operations in Jordan, will share more about that shortly, and I will now turn the call over to him. Eric?
Eric Tang (Head of Operations)
Thank you, Sam. Jordan remains secure and stable as a country, but the broader geopolitical situation in the region has impacted our business since October 2023, especially with regard to both import and export shipping logistics. During the past quarter, we again experienced export shipping delays of up to four weeks at the Haifa Port. By late January, however, the port congestion had much improved, and today, conditions are essentially back to normal, and ocean containers are being shipped without undue delay. I am also happy to report that our factories are fully booked through August this year, and orders from our global brand customers are increasing steadily. We are receiving a growing number of new business inquiries, in part because of the tariff-free advantage of exporting to the US, EU, and other countries from Jordan.
As Sam mentioned, we are hearing from both existing customers as well as prospects from international apparel companies. Currently, we are working on sample orders and pricing for several well-known brands in Europe and the Persian Gulf region, along with leading manufacturers in Asia. This is all positive news, but as a reminder, securing large orders from high-profile global brands takes time. We are confident that Jerash's history and reputation for developing and producing quality garments will ensure trust among new customers and position us as a reliable and responsible manufacturing partner. Now, I'd like to provide a few details on our expansion plans to accommodate the growth that we see ahead.
In addition to the current expansion underway at two of our existing primary manufacturing facilities that would add 15% of production capacity by mid-year, we are working closely with the Jordanian Ministry of Labor to finalize a land grant adjacent to our existing facility in Al-Hasa. This operation began as a joint venture project between Jerash and Jordan Ministry of Labor in 2018 to create employment opportunities for women in remote areas, where unemployment rates were as high as 70%. We are planning to enlarge the facility in Al-Hasa to double its size and increase local hiring of women from 450 to 800. According to our current plan, upon completion of this project by the end of 2025, production capacity is expected to increase by another 5%-10%.
We also are assessing longer-term, larger-scale expansion plans to construct manufacturing, warehousing, and housing facilities on land that we purchased several years ago. At this point, we have commenced engineering site studies to reveal various options. With that, I will now turn the call over to Gilbert to discuss our financial results.
Gilbert Lee (CFO)
Thank you, Eric. Revenue for our fiscal 2025 third quarter increased 28.6% to $35.4 million from $27.5 million for the same quarter last year. The quarter's revenue reflected an increase in shipments to Jerash's major US customers. As Sam mentioned, due to congestion at Israel's Haifa Port, which caused delays in shipments, revenue for the quarter was impacted by approximately $6 million. We estimated $3.8 million of finished apparel was kept at the port, along with incurring more than $100,000 of port storage fees.
Additionally, we held back another $2 million of finished product in our warehouse for the same reason. Gross profit for the fiscal 2025 third quarter increased 20.6% to $5.4 million from $4.5 million in the same quarter last year. Gross margin was 15.2% in the fiscal 2025 third quarter, compared with 16.2% in the same quarter last year. The decrease was primarily driven by higher logistics costs arising from the geopolitical turmoil in the Middle East region. Operating expenses for the fiscal 2025 third quarter totaled $4.7 million, compared with $4.1 million in the same period last year. SG&A expenses were $4.2 million in its fiscal third quarter, compared with $3.8 million in the same quarter last year. The increase was primarily due to higher export logistics costs. Stock-based compensation expenses for the fiscal 2025 third quarter were $474,000, compared with $243,000 for the same quarter last year.
Operating income increased 88.3% to $708,000 in the fiscal 2025 third quarter, from $376,000 in the same quarter last year. Total other expenses were $252,000 in the fiscal 2025 third quarter, compared with $405,000 in the same quarter a year ago. The increase was primarily due to higher interest expenses from supply chain financing programs provided by the two major customers. Income tax expenses for the fiscal 2025 third quarter were approximately $450,000, compared with $39,000 for the same period in fiscal 2024. The increase was mainly due to a prior year tax provision adjustment of approximately $274,000. The effective tax rate amounted to 98.6% for the fiscal 2025 third quarter, compared with 14.2% for the same period in fiscal 2024. Net income was $6,000 in the fiscal 2025 third quarter, or zero per share, versus $232,000, or 2 cents per diluted share in the same quarter last year.
As of December 31, 2024, Jerash had $14.8 million in cash and restricted cash, and net working capital was $34.8 million. Inventory was $19.1 million and $7.2 million in accounts receivable. Net cash used by operating activities was approximately $581,000 for the nine months ended December 31, 2024, compared with net cash provided by operating activities of $7.9 million for the same period last year. As Sam and Eric mentioned, we are optimistic about Jerash's growing business, and our factories are fully booked through August. Revenue for the fiscal 2025 fourth quarter is expected to increase by 50%-53% from the prior year quarter. Revenue for the fiscal 2026 first quarter is expected to be in line with the fiscal 2025 first quarter, which was a record and included $3 million-4 million in delayed shipments from the fiscal 2024 fourth quarter.
Our gross margin goal for the fiscal 2025 fourth quarter is expected to be approximately 15%-16%, subject to logistics and shipping charges and product mix. On February 5, 2025, Jerash's board of directors approved a regular quarterly dividend of $0.05 per share on its common stock, payable on February 25, 2025, to stockholders of record as of February 18, 2025. We will now open up the call for questions, and I will turn the call back to the operator.
Operator (participant)
Thank you very much. We will now be conducting our question-and-answer session. If you would like to ask a question, please press Star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press Star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you. Your first question is coming from Mark Argento of Lake Street. Mark, your line is live.
Mark Argento (Co-Founder and President)
Hey, good morning, guys. Just a quick question. Given all the talk about—good morning. Can you guys hear me all right?
Gilbert Lee (CFO)
Yep.
Mark Argento (Co-Founder and President)
Yep. Given all the talk about tariffs recently with the new administration, could you—has that benefited or increased the number of conversations you're having? It sounds like it has, but maybe you could help quantify that. Maybe talk a little bit about the timing of the new capacity coming on and how quickly you can see that impact the business.
Sam Choi (Chairman and CEO)
As we said at the call, we are already fully booked through the summer, through the end of August for this calendar year, actually 2025. New orders are still in the pipeline, and we anticipate that the growth opportunities that we have in this fourth quarter, as well as the 2026 fiscal year, are all going to be limited by how fast we can grow our capacity. We are already expanding our internal capacity at the existing facilities, and that will add 10-15% after we expand the facility, adding more lines. We anticipate that to be finished by June—is it by June?
Mark Argento (Co-Founder and President)
June.
Sam Choi (Chairman and CEO)
By June. Yeah, by the end of June, which is very quick. The other project that we're working on is to expand our satellite factory in Al-Hasa, which we will add more workers from 450 people to 800 people. Even though that is a smaller facility, the overall increase in capacity is we are looking at maybe 5-10%, I mean, comparing to the overall capacity. Those two are very realistic, but the longer-term increase will come from that piece of land that we have had for over five years now. We are doing engineering study, looking at different options on how to build and what kind of costs. Once that is done and once we make a decision on what to do, we will be able to quantify the increase in capacity and the timing of it.
As of now, because of the tariff situation getting really heated up, we anticipate more and more brands and buyers are going to—well, it has already started maybe four to five years ago that people are looking for production and manufacturing facilities in the tariff-free countries, but now it is just getting more urgent. That is a great opportunity for us.
Mark Argento (Co-Founder and President)
Yeah, that makes sense. Just another quick follow-up. In terms of if you run kind of a test order for a customer, what's the typical conversion rate from test run to more of a full production run? Is it 50%, 25%, 75%? Maybe you could help us better understand that kind of sales cycle conversion rate.
Sam Choi (Chairman and CEO)
I'm sorry, what conversion rate are you referring to?
Mark Argento (Co-Founder and President)
New customer test, new customer full production.
Sam Choi (Chairman and CEO)
New customer test and.
Mark Argento (Co-Founder and President)
Typically, a customer gives you a test order. Gilbert, typically, a customer gives you a test order before they give you a full production order. I'm just wondering, do you convert 100% of the time or 50% of the time? What's your conversion?
Sam Choi (Chairman and CEO)
Oh, okay.
Mark Argento (Co-Founder and President)
From test to full production.
Sam Choi (Chairman and CEO)
From a test order to a full-blown order.
Mark Argento (Co-Founder and President)
Correct.
Sam Choi (Chairman and CEO)
The timing, Eric said the timing is going to take a long time. It's going to take at least nine months to convert. The conversion rate that you are looking for, I think the rate is pretty high. Once we start a test order, in most cases—I don't know how many percent, but in most cases, the customer will issue the long-term orders from us.
Mark Argento (Co-Founder and President)
Yeah. According to my past year experience with Jerash, I'm Eric. Once the customer places with a trial order, maybe after six months, they will place us the bulk quantity orders. We have never failed any customer for the past 10 years. Great. Appreciate the additional caller. Good luck, guys. Thank you.
Sam Choi (Chairman and CEO)
Okay. Thank you.
Gilbert Lee (CFO)
Thanks, Mark.
Operator (participant)
Thank you very much. Your next question is coming from Michael Baker of DA Davidson. Michael, your line is live.
Michael Baker (Analyst)
Great. Thanks. I'm just wondering, outside of the increased demand that you're seeing just because of tariffs and people wanting to get out of Asia, any comment on what you're seeing in terms of demand as it relates to the US consumer and apparel inventories and buying? It seems to be that apparel inventories are starting to tick up a little bit. Consumer spending has been good. What are you hearing from your customers in terms of overall apparel demand?
Sam Choi (Chairman and CEO)
Eric, have you heard any comments from customers about the demand on the products, on the apparel overall in the market?
Michael Baker (Analyst)
Yeah, I have a lot of responses from different kinds of customers. Some of the customers say they're still, I mean, trying to absorb the high level of inventories. 60% of the customers told us that most of the inventories they already absorbed during the past two years, they are going to place new orders to Jerash. This is what I heard from the.
Sam Choi (Chairman and CEO)
From the buyers.
Michael Baker (Analyst)
From the buyers, yeah. Great. The delayed shipments, the $6 million, when does that flow through the P&L? Does that come in in the fiscal fourth quarter? Is that part of that growth plan of 50-53%?
Sam Choi (Chairman and CEO)
Yeah, that's part of the 50-53% growth. The fourth quarter, those unshipped apparel products, most of them were shipped in January already. With those delayed shipments, that's how we anticipate that the growth is going to be 50-53%. It is still a relatively conservative estimate that we have right now, but we're still kind of being conservative due to, even though the situation in the Middle East is kind of calming down, the ceasefire, we don't know whether it's going to hold or not, but it seems like it's heading to the right direction. There is still a lot of uncertainties that we're looking at. Usually the fourth quarter is a slow quarter for us, especially in March. It's Ramadan.
Last year, last fiscal year in 2024, we spent a lot of money trying to catch up the production to ship out the products to our customers. We spent close to $1 million in overtime because in Ramadan, if you want people to work, because normally they would work a full shift or work like eight or nine hours, but in order for Ramadan, they do not want to work. We have to motivate them to work and offer them overtime. This year, we want to control our cost. Even though our customers, we are going to work with our customers to really plan out our production so that we do not incur too much overtime labor cost and still be able to meet our customers' delivery time. That is why we forecast a lower fourth quarter, but it is still a pretty healthy growth from last year.
Michael Baker (Analyst)
That makes perfect sense. If I could follow up on that, then understanding that overtime issue as well as some of the costs incurred at the port, that $100,000, first of all, was that incurred in the third quarter? Really the larger question is, how should we think about the SG&A costs going forward? Is that sort of low $4 million a good run rate?
Sam Choi (Chairman and CEO)
Yeah. The low $4 million would be a good run rate. I mean, SG&A, a lot of it depends on the sales volume, the sales revenue. We incur a significant amount in the first quarter because we have to air freight some of the shipments due to the delay of production because the raw material containers did not get into Jordan, if you remember the Red Sea crisis. We are trying to control our costs as much as we could, but it is still higher than what it was before. A low four would be a good estimate.
Michael Baker (Analyst)
Understood. Perfect. Thank you.
Sam Choi (Chairman and CEO)
Thank you.
Operator (participant)
Thank you very much. Your next question is coming from Igor Novgorodtsev of Laus Capital. Igor, your line is live.
Igor Novgorodtsev (Analyst)
Hello, and thank you for taking my question. You mentioned the situation in January now with the ceasefire and much better situation in the Middle East has remarkably improved. Could you just break it down a little bit more in detail, especially in terms of the logistics of getting things through the Red Sea? Are you getting them now through the Red Sea? Also, how this improved logistics would impact your gross margins, which, if I recall correctly, were as high as 19% during COVID. Maybe just not necessarily quantitative, but at least qualitative.
Sam Choi (Chairman and CEO)
We are getting containers through the Red Sea before the Red Sea was blocked because of the blockage. Now we are getting our importing raw material containers through the Red Sea to Jordan. We do have to pay slightly higher container shipment costs, but not as high as the first two quarters. We are doing a very diligent job in controlling our costs. That is reflected in the gross margin. On the export side, we had to pay, let's say, $100,000 in the third quarter because of the port storage fee because there are containers that were stuck at the port for four weeks. We incur additional costs in there. Now it is getting back to normal.
The exporting part of it is going to be much improved in this quarter, in the fourth quarter, as well as the first quarter of 2026. Does that answer your question?
Igor Novgorodtsev (Analyst)
Yeah. Maybe just not to push it too hard, but what would you consider your normalized gross margin for the business Q2 and Q3?
Sam Choi (Chairman and CEO)
Q2 and Q3 of 2025?
Igor Novgorodtsev (Analyst)
Yeah, just in general. Even if you do not provide the guidance, what kind of gross margins would you consider be happy and you say, "This is my normalized gross margin"? Because you had them very high during the COVID, obviously, because there was a huge demand. And then there was an issue of oversupply, so they fell drastically. As they are normalizing now, what would be your target gross margin where you would say, "Okay, this is a gross margin giving our competition and the market pricing that we would be happy with"?
Sam Choi (Chairman and CEO)
We anticipate this fiscal year, the 2025, the year we will end up around 15%-16%. Going forward, we still would try to target somewhere between 15%-16%. Let me tell you why. Because we are bringing in a lot of new customers and new products on an FOB basis. Because of new customers, the margin at the beginning is usually not that good because there is a lot of sampling, there is a lot of inefficiency, trying to learn. When the volume is low but the styles are many, it is hard to have a very efficient production. Once the volume gets ramped up, then we will be able to realize a better margin. We anticipate that 2026, we still want to place the gross margin in around 15%-16%.
Igor Novgorodtsev (Analyst)
Okay. My other question is about your joint venture with Busana. How's it going? Could you just tell us a little bit more details about it?
Sam Choi (Chairman and CEO)
The Busana joint venture, we're still working on that. The growth is relatively flat, but that was because there were turmoils in the region last year or in the past 12 months. Some of the new buyers, new customers, people like Macy's, like Brooks Brothers, they are kind of cautious. They sent us test orders, trial orders. We finished it and they are satisfied, but we're still waiting for them to really jump into the high-volume bulk orders.
Igor Novgorodtsev (Analyst)
I see. Does Busana make a lot of products in traditional textile manufacturing countries such as apparel manufacturing countries such as Indonesia and Vietnam and Bangladesh, which do have tariffs on the US if US enacts reciprocal tariffs? Or what do you expect that they might consider moving some of their factories and their joint venture to Jordan? Is that a potential play?
Sam Choi (Chairman and CEO)
I'm Eric. I can answer you this question. Busana have a lot of customers, okay, and dealing with different kinds of pricing and also different kinds of style. They have a manufacturing basis in Indonesia, also in Africa, and also a joint venture in Jordan. And Bangladesh also, recently, I think nine months ago, they started another joint venture in Bangladesh. That doesn't affect Jerash because usually the customer, okay, they would try to tailor-make those higher FOB value orders, okay, which the buyers can enjoy more tariff savings. They will place the order to Jordan. While for the low-end products, maybe they don't need too much duty savings, they will place in Bangladesh. For Busana, we are working with them like orders from buyers like Hugo Boss, like Brooks Brothers. These are the high-end customers and high FOB value orders.
Igor Novgorodtsev (Analyst)
Okay. Thank you. That's interesting to know.
Sam Choi (Chairman and CEO)
Thank you.
Igor Novgorodtsev (Analyst)
I don't have any more questions. Thank you.
Operator (participant)
Thank you very much. Your next question is coming from Mike Distler of AMK Holdings. Mike, your line is live.
Mike Distler (Analyst)
Yes. Good day, gentlemen. This question is.
Eric Tang (Head of Operations)
Hi.
Mike Distler (Analyst)
How you all doing? This question is for Gilbert. No disrespect, Sam or Eric. I was just wondering if you anticipate that you would have to tap the credit markets to fund that longer-term large-scale expansion plan that you're planning with the property you already have.
Sam Choi (Chairman and CEO)
We did consider tapping the debt market. Actually, maybe 12 months ago, we were talking to the World Bank and looking at maybe borrowing some money through the World Bank. Right now, we're open to any financing opportunities. Maybe we can go to the equity market and maybe we'll borrow some money. We definitely need to raise some capital to support our expansion plan, especially the larger-scale expansion. Right now, we haven't really decided which way to go. Maybe it's a combination of both.
Mike Distler (Analyst)
Right. Sounds prudent. You need not comment. I suspect that the Jordanian Commissioner of Labor will be part of that plan based on the ownership responsibilities. Towards that, I know that you're maintaining your dividends have been a fairly high priority since inception, since you went public. I suspect it will remain so only because it provides a floor for the stock price among other reasons. In the grand scheme of things, that really is important. The reality of just figuring out the prudent way to approach the markets, the credit markets now for that long-term build-out sounds like you're on the right track. Thank you very much for the update.
Sam Choi (Chairman and CEO)
Thank you.
Mike Distler (Analyst)
Thank you.
Sam Choi (Chairman and CEO)
All right.
Mike Distler (Analyst)
Yes. Be well, guys.
Operator (participant)
Thank you very much. I will now hand back over to Sam as we have reached the end of our question and answer session. Over to you.
Michael Baker (Analyst)
Okay. Thank you, Jenny. Thank you to all of you for joining us today and for your continuous support. We look forward to speaking with you next quarter. Thank you very much.
Sam Choi (Chairman and CEO)
Thank you.
Operator (participant)
Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Sam Choi (Chairman and CEO)
Thank you very much.
Michael Baker (Analyst)
Thank you very much. Have a good day.