10-Q: Jerash Holdings Reports Increased Revenue but Net Loss for Q3 2025 Due to Higher Costs and Tax Adjustments

Jerash Holdings (US), Inc. reports a revenue increase of 29% for the three months ended December 31, 2024, but experiences a net loss due to rising costs and a tax provision adjustment.

Summary

• Jerash Holdings (US), Inc. reported a 29% increase in revenue for the three months ended December 31, 2024, reaching $35.4 million compared to $27.5 million in the same period of fiscal year 2024.
• The revenue growth was primarily driven by increased shipments to major customers in the U.S.
• However, the company experienced a net loss of approximately $6,000 for the quarter, a decrease from the $232,000 net income reported in the same period last year.
• The decrease in net income is attributed to higher operating expenses, increased stock-based compensation, and a tax provision adjustment related to GILTI (Global Intangible Low-Taxed Income).
• For the nine months ended December 31, 2024, revenue increased by 22% to $116.6 million, but the company reported a net loss of $0.7 million compared to a net income of $1.1 million in the same period of fiscal 2024.
• The company's gross profit margin decreased by 1 percentage point to 15% for the nine-month period, impacted by higher logistics and labor costs.
• The company is addressing material weaknesses in internal control over financial reporting, particularly related to income taxes and account reconciliation.
• Jerash Holdings believes that its cash on hand and cash generated from operating activities will be sufficient to support its working capital needs for the next 12 months.

Sentiment

Score: 5

Explanation: The document presents mixed signals. While revenue increased, profitability declined, and internal control weaknesses were identified. This suggests a neutral to slightly negative outlook.

Positives

• Revenue increased by 29% for the three months ended December 31, 2024, indicating strong sales performance.
• Revenue increased by 22% for the nine months ended December 31, 2024.
• The company has access to a $5.0 million banking facility to support its operations.
• The company has been paying regular dividends to its shareholders.

Negatives

• The company reported a net loss of approximately $6,000 for the three months ended December 31, 2024, a decrease from the net income of $232,000 in the same period last year.
• The company reported a net loss of $0.7 million for the nine months ended December 31, 2024.
• Gross profit margin decreased to 15% for the three months ended December 31, 2024, due to higher import costs.
• The company identified material weaknesses in its internal control over financial reporting.

Risks

• The company's operations are subject to political, economic, and legal risks in Jordan.
• The company is exposed to foreign currency exchange risks.
• The company is monitoring the conflict between Israel and Hamas, which could potentially impact its operations.
• The company's internal control weaknesses could affect its ability to accurately report financial information.
• The company is exposed to customer concentration risk, with a significant portion of its revenue derived from a few major customers.

Future Outlook

The company believes that its cash on hand and cash generated from operating activities will be sufficient to support its working capital needs for the next 12 months. The company projects capital expenditures of approximately $2.2 million and $8.8 million in the fiscal years ending March 31, 2025 and 2026, respectively, for further enhancement of production capacity to meet future sales growth.

Management Comments

• Management has revised the plan to construct both dormitory and production facilities on the land in order to capture the increasing demand for our capacity.
• Management has concluded that the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report present fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America.

Industry Context

Jerash Holdings operates in the apparel manufacturing industry, which is subject to global economic conditions, trade agreements, and consumer demand. The company's focus on customized sportswear and outerwear allows it to cater to specific customer needs and maintain relationships with major brand-name retailers. The company's location in Jordan provides access to free trade agreements, such as the United States-Jordan Free Trade Agreement, which enhances its competitiveness in the U.S. market.

Comparison to Industry Standards

• It is difficult to compare Jerash Holdings directly to industry standards without knowing the specific product mix and customer base of comparable companies.
• However, some publicly traded apparel manufacturers, such as Hanesbrands Inc. and Gildan Activewear Inc., may provide some context for comparison.
• These companies typically report gross profit margins in the range of 30-40%, which is higher than Jerash Holdings' reported gross profit margin of 15%.
• This difference could be due to various factors, such as differences in product mix, cost structure, and pricing strategies.
• Jerash Holdings' revenue growth of 29% for the three months ended December 31, 2024, is relatively strong compared to some of its peers, which have experienced slower growth or even declines in revenue.
• For example, Hanesbrands Inc. reported a 6% decrease in net sales for the three months ended December 30, 2023.
• Gildan Activewear Inc. reported a 1% increase in net sales for the three months ended December 31, 2023.

Related Party Transactions

• Treasure Success entered into consulting agreements with Yukwise Limited and Multi-Glory Corporation Limited, which are wholly owned by the company's President/CEO/Chairman and a significant stockholder, respectively.

Stakeholder Impact

• Shareholders will be impacted by the decreased profitability and the need for remediation of internal control weaknesses.
• Employees may be impacted by the ongoing construction of a dormitory and potential changes in internal control procedures.
• Customers may be impacted by the company's ability to maintain consistent production and delivery schedules amid geopolitical turmoil and internal control challenges.
• Suppliers may be impacted by the company's ability to manage its working capital and maintain timely payments.

Next Steps

• The company plans to enhance communication with external consultants who are assisting the Company in taxation and management information systems.
• The company is conducting a comprehensive review and strengthened processes on user authorization, access log control, password control mechanism, and documentation of control procedures for the information technology systems supporting our financial reporting processes.
• The company will continue to evaluate and work to improve its internal control over financial reporting, and management may determine additional measures are necessary to address control deficiencies or determine that it is necessary to modify the remediation plan described above.

Key Dates