Jerash Holdings (US), Inc. Q2 FY2024 earnings call

• Jerash demonstrated ability to attract new customers and resilience in challenging apparel environment; retail market recovery slow in US and Europe impacting business compared to prior year.
• Good progress with Busana joint venture: 5 premium brand customers committed to orders, projections for next 12 months $8-$9 million in new orders starting fiscal fourth quarter.
• Timberland increased orders to become second largest brand to Jerash; first trial orders for Vans apparel, confident order flow from Vans to increase next fiscal year; European high-end apparel brand orders projected to double in second half of fiscal 2024.
• New joint venture with Newtech Textile to use sustainable textile technology, plan to build state-of-the-art fabric facility in Jordan starting 2024 to reduce water, energy usage, and carbon footprint.
• Monitoring Middle East situation closely; early production ongoing, no changes in customers' orders/committments, ports functional normally.

In the fiscal 2024 second quarter, revenue was $33.4 million compared to $37.8 million in the same period last year. Gross profit was $5.4 million vs $6.9 million last year, with a gross margin of 16.1% vs 18.3% previously. Operating expenses increased slightly to $4.5 million from $4.3 million last year. Net income was $369,000 or $0.03 per share compared to $1.8 million or $0.14 per diluted share last year. Jerash's balance sheet and cash position remained strong with $22.8 million in cash and restricted cash and net working capital of $40.5 million as of September 30, 2023.

• Revenue for fiscal 2024 expected to be down about 3%-5% from last fiscal year.
• Gross margin goal for full fiscal year is approximately 15%-16%.
• Board of Directors approved quarterly dividend of $0.05 per share payable on November 28.

• Retail market recovery slow, impacting business with customers ordering lower-priced items with lower margins.
• Potential impact on ports in Middle East and contingency plan in place for temporary relocating production if necessary.
• Tax rate fluctuations due to consolidated earnings decline where expenses remain relatively stable but income drops significantly, affecting effective tax rate proportion.

Q: What are you hearing from big customers in US regarding consumer spending, holiday outlook?

A: Consumer market slowly recovering, spending shifted to lower-margin products; existing customers ordering more lower-margin items instead of high-margin ones but still have demand for low-cost items.

Q: About new textile joint venture construction cost and funding?

A: Joint venture 51%-49% with Jerash owning 51%, cost between $25-$30 million, discussing funding with financing parties from China, Asia, Hong Kong, Middle East, with China supporting as One Belt One Road project.

Q: Busana revenue projection, Q4 and next 12 months?

A: Projection of $8-$9 million in new orders for next 12 months starting fiscal fourth quarter, a few million in Q4 from Busana.

Q: Tax rate situation?

A: Most income from Jordan, US and Hong Kong operations mainly expenses; as consolidated earnings decline, tax proportion to operating income is higher, will come down when income rises.

Q: Total capacity, Busana impact, order book?

A: Currently fully booked through end of fiscal year, using existing capacity, Busana business will bring higher-margin orders, next year will forgo low-margin orders, strategy to keep production staff with lower margin orders to service when higher price orders return