Jerash Holdings (US), Inc. Q2 FY2023 earnings call

• General market conditions in the global retail sector are impacted by inflation, higher interest rates, and inventory levels. Orders from major customers are smaller, and product mix has shifted to lower average selling price items.
• Production for new customers Timberland and Skechers has begun, with initial shipments in the current third quarter. Pursuing opportunities to diversify customer base, including a joint venture with Busana Apparel Group.
• In Jordan, factory conditions are challenging with some smaller factories closing, and most factories working fewer days/hours. Jerash is still utilizing full capacity but monitors developments closely.
• Construction of a new dormitory for multinational workforce is underway but delayed, expected to save annual rental expense.

For the fiscal 2023 second quarter, revenue was $37.8 million compared to $45.7 million in the same quarter last year. Gross margin was 18.3% in the fiscal 2023 second quarter compared with 22.1% in the same quarter last year. No specific product segments with revenue contribution % were detailed.

• Fiscal 2023 third quarter revenue expected to be in the range of $33 million to $35 million compared to $36.8 million last year.
• Full-year margins expected to be lower, at 16% to 18% on average. Conservative approach to guidance due to inflation and market conditions.
• Monitoring developments closely and planning to provide update on next call.

• Retail environment challenges including inflation, higher interest rates, and inventory levels affecting customer orders and delivery schedules.
• Factory closures in Jordan due to lack of direct orders from brands, with many factories working fewer days/hours.
• Uncertainty in retail market and consumer sentiment impacting order fulfillment and revenue projections.

Q: Talked about inventory both own and from customers, and situation in Jordan compared to 3 months ago A: Inventory levels are higher, customers pushing back deliveries. In Jordan, many smaller factories closed, larger factories working fewer days/hours. Jerash still utilizing full capacity but situation may worsen before improvement.

Q: Expectations for sales weakness into fourth quarter and SG&A expenses A: Q3 expected to be weak, Q4 possibly better than last year. SG&A expenses expected to remain around $4.3 million to $4.4 million level as investing in sourcing and merchandising.

Q: Capacity booking and customer delivery latitude A: Customers dictate delivery times and can postpone due to inventory. Have good relationships with customers like VF and New Balance who work with them despite delays.

Q: Busana relationship, economic margins of JV A: Busana is large apparel group, MOU signed for joint venture. Details still being discussed, but new business already ongoing with some of their customers.

Q: Diversification, new brand demand, cost inputs A: New brands take time to establish relationships, with sampling and due diligence taking 6-12 months. Sourcing from Middle East (Egypt, Turkey) to shorten lead time and be more reliable, though cost comparable to China but helps with supply chain disruption.