10-K: Jerash Holdings Reports Strong Revenue Growth Amid Geopolitical Headwinds and Internal Control Challenges

Jerash Holdings (US), Inc. reported a 24% increase in fiscal year 2025 revenue to $145.8 million, narrowing its net loss to $0.8 million, despite facing new U.S. tariffs and ongoing geopolitical risks in the Middle East, while also acknowledging persistent material weaknesses in internal financial controls.

Summary

• Revenue for fiscal year 2025 increased by $28.6 million, or 24%, to $145.8 million, up from $117.2 million in fiscal year 2024, primarily due to increased shipments to major U.S. customers.
• Net loss for fiscal year 2025 was $0.8 million, a significant improvement from a net loss of $2.0 million in fiscal year 2024.
• Gross profit margin improved to 15% in fiscal year 2025, up from 14% in fiscal year 2024, driven by higher production and shipment volume achieving economies of scale.
• VF Corporation remained the largest customer, accounting for approximately 64.6% of total sales in fiscal year 2025, a slight decrease from 67.3% in fiscal year 2024.
• Sales to the U.S. increased by approximately 25% in fiscal year 2025, reaching $128.6 million, partly due to shipments deferred from Q4 fiscal 2024 to Q1 fiscal 2025 due to Red Sea logistic disruptions.
• Total annual production capacity at existing facilities was approximately 24 million pieces as of March 31, 2025.
• Cash balance as of March 31, 2025, was approximately $13.3 million, with restricted cash of $1.7 million, an increase from $12.4 million cash and $1.6 million restricted cash as of March 31, 2024.
• Current ratio as of March 31, 2025, was approximately 2.7 to 1, with current assets of $54.4 million and current liabilities of $19.8 million.
• The company declared and paid a quarterly cash dividend of $0.05 per share throughout fiscal year 2025, totaling $2.46 million.
• Capital expenditures for fiscal year 2025 were approximately $2.4 million, including $1.0 million for plant and machinery and $1.1 million for construction of properties.
• The dormitory and dormitory kitchen construction, with a total capital expenditure of approximately $10.6 million, were fully completed and put into service in Q2 and Q4 fiscal 2025, respectively.
• The company entered into two joint ventures in Hong Kong: J&B International Limited (51% equity interest acquired April 11, 2023) for garment trading and manufacturing, and Jerash Newtech (Hong Kong) Holdings Limited (51% equity interest acquired November 3, 2023) for supplying fiber and fabric with Cooltrans technology.
• Management concluded that internal control over financial reporting was still ineffective as of March 31, 2025, due to un-remediated material weaknesses in information technology general controls related to privileged user access and user access review.

Sentiment

Score: 4

Explanation: While revenue growth and a reduced net loss are positive, the persistent material weaknesses in internal controls, the significant increase in effective tax rate, and the immediate and potential future impacts of U.S. tariffs on Jordanian imports, coupled with ongoing geopolitical risks, present substantial challenges and uncertainties that temper overall sentiment.

Positives

• Revenue increased by 24% to $145.8 million in fiscal year 2025, indicating strong sales growth.
• Net loss significantly narrowed to $0.8 million in fiscal year 2025 from $2.0 million in fiscal year 2024, showing improved profitability.
• Gross profit margin improved by 1 percentage point to 15% in fiscal year 2025, reflecting better operational efficiency and economies of scale.
• Increased sales to the U.S. by 25% demonstrates continued strength in the primary export market.
• Successful completion of the 195,000-square-foot housing facility for multi-national workforce in Al Tajamouat Industrial City, improving employee welfare and operational support.
• Participation in supply chain financing programs with major customers has improved liquidity and expedited receivable collections.
• Maintained a healthy current ratio of 2.7 to 1 as of March 31, 2025, indicating strong short-term liquidity.
• Continued payment of quarterly cash dividends of $0.05 per share, demonstrating commitment to shareholder returns.
• Strategic expansion through new joint ventures (J&B and Jerash Newtech) to diversify business activities and product offerings, including a planned $29.9 million investment in a fabric facility.

Negatives

• Despite revenue growth, the company still reported a net loss of $0.8 million for fiscal year 2025.
• Selling, general, and administrative expenses increased by 19% to $20.9 million in fiscal year 2025, partly due to higher shipment costs and increased share-based compensation expenses of $772,000.
• Other expenses, net, increased by 84% to $1.3 million in fiscal year 2025, primarily due to higher interest expenses from supply chain financing and short-term loans.
• The effective tax rate for fiscal year 2025 significantly increased to 656% from -49.1% in fiscal year 2024, partly due to increased operating profit in a Hong Kong subsidiary and a $175,290 amendment of federal tax returns.
• Management concluded that internal control over financial reporting was still ineffective as of March 31, 2025, due to un-remediated material weaknesses in information technology general controls, posing a risk to financial reporting accuracy.
• High customer concentration persists, with VF Corporation accounting for 64.6% of total sales in fiscal year 2025, making the company highly dependent on a single customer.
• The U.S. imposed a baseline tariff of 10% on imports from Jordan effective April 5, 2025, with a potential reciprocal tariff of 20% postponed for 90 days, which could negatively impact competitiveness and margins.

Risks

• Reliance on one key customer (VF Corporation) for a large portion of revenue (64.6% in FY25), with no long-term contracts or minimum purchase requirements, poses a significant risk if sales volumes or terms change.
• Exposure to political, security, and economic conditions in Jordan and the broader Middle East, including civil unrest, terrorism, and hostilities among neighboring countries (Syria, Israel, Iran), which could disrupt operations, communications, and trade routes (e.g., Red Sea attacks).
• Increased geopolitical tensions globally, including the Russia-Ukraine conflict, Israel-Hamas, and Israel-Iran conflicts, could disrupt international trade, industrial supply chains, and transportation, leading to market price volatility and increased operational costs.
• The imposition of new U.S. tariffs on imports from Jordan (10% baseline tariff effective April 5, 2025, with a potential 20% reciprocal tariff postponed for 90 days from April 9, 2025) could reduce competitiveness and profitability.
• Inability to operate principal production facilities in Jordan due to damage or other reasons, as there is no effective back-up, could significantly impair manufacturing ability and customer relationships.
• Lack of insurance for losses and interruptions caused by terrorist attacks, military conflicts, and wars could lead to significant financial losses.
• Subject to regulatory and political uncertainties in Jordan, including potential changes in economic policy, laws, and regulations affecting manufacturing companies, foreign investments, and currency exchange rates.
• Risk of violating applicable anti-corruption laws (e.g., FCPA) due to Jordan's complex business environment, potentially leading to financial penalties and reputational harm.
• Difficulties for stockholders in protecting their interests and exercising rights due to the majority of operations and certain officers/directors residing outside the United States.
• Failure to comply with Nasdaq listing standards could result in delisting, adversely affecting stock price, trading volume, and ability to raise capital.
• Future sales and issuances of common stock or rights to purchase common stock could result in additional dilution for existing stockholders.
• Inability to attract new customers or customers with comparable profit margins if key customers reduce purchases.
• Dependence on a limited number of product segments (sportswear and outerwear); a shift in demand could reduce business growth and require difficult product offering expansion/transition.
• Revenue and cash requirements are affected by the seasonal nature of the business, with a significant portion of revenue received in the first six months of the fiscal year.
• Changes in product mix and geographic destination of products or source of supplies may impact cost of goods sold, net income, and financial position.
• The clothing retail industry, where customers operate, is subject to substantial cyclical variations and changes in fashion preferences, which could adversely affect sales and earnings.
• Risk of product quality or late delivery problems, or financial problems, leading to order cancellations, customer refusal, or price reductions.
• Intense competition in the worldwide apparel manufacturing industry from manufacturers with lower cost bases, longer operating histories, or greater resources.
• Risks associated with joint ventures, including limited decision-making authority, reliance on partners' financial condition, potential disputes, and failure to achieve profitability.
• Fluctuations in currency exchange rates (JOD, HKD, CNY vs. USD) and inflation in Jordan, Hong Kong, or China may negatively affect earnings.
• Risks of doing business abroad, including work stoppages, transportation delays, political instability, expropriation, tariffs, and changes in governmental policies.
• Inability to sustain consistent product mix and geographic destinations for products could negatively impact financial condition and results of operations.
• Adverse effects of inflation and a potential recession on liquidity, cost structure, and demand for products.
• The company relies on dividends and distributions from its Jordanian and Hong Kong subsidiaries, which are subject to local regulations and reserve requirements, potentially limiting cash available to the holding company.

Future Outlook

The company plans to construct an additional project on a 133,000-square-foot parcel for a seventh factory and housing, with architectural design underway, contingent on business growth and new collaborations. Projected capital expenditures are approximately $1.3 million for fiscal year 2026 and $7.8 million for fiscal year 2027 to enhance production capacity. The company expects cash on hand and cash generated from operations to be sufficient to support working capital needs for the next 12 months. The company also expects to continue declaring comparable quarterly cash dividends in the future, subject to Board discretion and applicable law.

Management Comments

• "We believe that cash on hand and cash generated from operation will be sufficient to support our working capital needs for the next 12 months from the date of this Annual Report."
• "We will carefully plan the construction investment to meet the progress of business developments."
• "We continue to seek to expand and strengthen our relationship with our current customers and other brand names."
• "The Company plans to put in more resources to strengthen the internal control to duly address the above material control weaknesses. Details of implementation will be provided in the quarterly report on Form 10-Q for the quarter ending June 30, 2025."
• "Since the inception of the turmoil in the Middle East, the Company has been closely monitoring the situation and keeping its customers informed. Production is ongoing as usual, with no changes to customer orders or commitments, and the Company is currently mainly using the port in Aqaba, Jordan for import and export."
• "In order to provide flexibility, the Company has also been using the Port of Jebel Ali in the United Arab Emirates as an alternative route for raw material import since December 2023."
• "In the event of any potential impact on the ports, the Company has prepared a contingency plan, approved by its major customers, to temporarily relocate production to alternate regions."

Industry Context

The apparel manufacturing industry is highly competitive, with a focus on price, quality, and customer service. Production has largely shifted to countries with lower labor costs. The industry is subject to substantial cyclical variations and is strongly affected by economic downturns, consumer spending, and changes in fashion preferences. Geopolitical tensions, such as those in the Middle East and the Red Sea, are significantly impacting global trade, supply chains, and transportation costs, affecting manufacturers like Jerash Holdings. New tariffs, like those imposed by the U.S. on Jordanian imports, are also reshaping competitive landscapes and cost structures for companies operating under free trade agreements.

Comparison to Industry Standards

• The company's gross profit margin of 15% in fiscal 2025 is within the typical range for apparel manufacturers, though some competitors with lower cost bases may achieve higher margins.
• The high customer concentration with VF Corporation (64.6% of sales) is a significant deviation from industry best practices for risk diversification, where companies typically aim for a more balanced customer portfolio to mitigate reliance on a single entity.
• The company's reliance on free trade agreements (e.g., US-Jordan FTA, EU-Jordan Association Agreement) for competitive pricing is a common strategy for manufacturers in developing economies, but the recent imposition of U.S. tariffs highlights the vulnerability of this model to policy changes.
• The company's investment in new facilities and housing for workers aligns with industry trends of vertical integration and improving labor conditions to attract and retain a workforce, especially in regions with lower labor costs.
• The acknowledged material weaknesses in internal control over financial reporting are below industry standards for public companies, which typically strive for effective internal controls to ensure reliable financial reporting and compliance with regulations like Sarbanes-Oxley Act Section 404.

Corporate Governance

Legal Proceedings

• The company is not currently involved in any material legal proceedings.
• A legal case regarding personal protective equipment (PPE) products from 2020 is ongoing. The PPE customer declined to honor postdated checks, and Jerash Garments won in the Cassation Court. However, the PPE customer filed another case claiming product inconsistencies, where the Court of First Instance ruled against Jerash Garments, ordering payment of $653,000. Jerash Garments has filed an appeal, and management believes the chance of loss is remote based on legal advice and prior favorable verdicts.

Related Party Transactions

• The company has consulting agreements with Yukwise Limited and Multi-Glory Corporation Limited, both wholly owned by the company's President, CEO, Chairman, and a significant stockholder (Yukwise) and a significant stockholder (Multi-Glory). Each agreement provides for $300,000 per annum in consulting fees.
• Mr. Choi, the company's chairman, chief executive officer, president, treasurer, and a significant stockholder, has an indirect ownership interest in Jiangmen V-Apparel Manufacturing Limited, with which the company has entered into, or may enter into, agreements or arrangements.

Stakeholder Impact

• **Shareholders**: Continued quarterly dividends provide direct returns. However, the net loss, ineffective internal controls, and new tariffs could negatively impact share price and future profitability. Potential dilution from future equity financing is also a risk.
• **Employees**: Completion of the new dormitory facility improves living conditions for the multi-national workforce. The company employs approximately 6,000 people, primarily in Jordan, providing significant employment.
• **Customers**: Increased production capacity and strategic joint ventures aim to meet increasing demand and diversify product offerings, potentially improving service and product range. However, Red Sea disruptions and potential tariffs could affect delivery times and costs.
• **Suppliers**: Increased production volume and capital expenditures for raw materials and machinery indicate continued demand for supplier services. Supply chain financing programs benefit suppliers by expediting payments.
• **Creditors**: The company's improved cash balance and current ratio suggest a healthy liquidity position, which is favorable for creditors. The utilization of credit facilities indicates ongoing financing needs.

Next Steps

• Work with engineering consultants on the architectural design for the seventh factory and additional housing on the 133,000-square-foot parcel, with construction investment planned based on business growth and new collaborations.
• Continue to strengthen internal controls to address identified material weaknesses in information technology general controls, with implementation details to be provided in the quarterly report on Form 10-Q for the quarter ending June 30, 2025.
• Monitor and adapt to the impact of new U.S. tariffs on imports from Jordan, including the persistent 10% baseline tariff and the potential future imposition of the 20% reciprocal tariff.
• Continue to monitor geopolitical tensions in the Middle East and Red Sea, utilizing alternative shipping routes (e.g., Port of Jebel Ali) and contingency plans for production relocation if necessary.
• Complete the remaining capital contribution of HKD 5 million to Jiangmen Treasure Success before December 31, 2029.
• Continue to evaluate and potentially expand product offerings beyond sportswear and outerwear if demand shifts.
• Seek to expand and strengthen relationships with current customers and other brand names to mitigate customer concentration risk.

Key Dates

Recommendation

Keywords

Apparel Manufacturing, Sportswear, Outerwear, SEC Filing, 10-K, Financial Results, Jordan, VF Corporation, Supply Chain, Tariffs, Geopolitical Risk, Internal Controls, Customer Concentration, Dividends, Joint Ventures, Textile Industry, Corporate Governance, Risk Management, Financial Reporting