10-Q: Jerash Holdings Returns to Profitability Amidst Tariff Headwinds

Jerash Holdings reports a swing to net income for the six months ended September 30, 2025, despite a decline in quarterly profit and new U.S. tariffs on Jordanian imports.

Summary

• Revenue increased by 4% to $42.0 million for the three months ended September 30, 2025, compared to $40.2 million in the prior year.
• Revenue for the six months ended September 30, 2025, slightly increased by 1% to $81.6 million, up from $81.2 million in the previous year.
• Net income for the three months ended September 30, 2025, decreased by 28% to $0.5 million from $0.7 million in the same period last year.
• For the six months ended September 30, 2025, the company reported a net income of $0.8 million, a significant improvement from a net loss of $0.7 million in the prior year.
• Basic and diluted earnings per share were $0.04 for the three months and $0.06 for the six months ended September 30, 2025, compared to $0.05 and $(0.06) respectively in the prior year.
• Gross profit margin decreased to 15% for the three months ended September 30, 2025, from 18% in the prior year, but increased to 15% for the six months from 14%.
• Operating expenses decreased by 12% for the three months and 9% for the six months, primarily due to better control of export costs and lower stock-based compensation.
• Net cash provided by operating activities significantly decreased to $0.3 million for the six months ended September 30, 2025, from $2.4 million in the prior year.
• The company secured a new credit facility of up to $6.0 million from Bank al Etihad on July 31, 2025.
• Internal control over financial reporting was deemed effective as of September 30, 2025, after being ineffective in prior periods.

Sentiment

Score: 6

Explanation: The company demonstrated resilience by swinging from a net loss to a net profit for the six-month period, driven by revenue growth and improved cost control. Remediation of internal control deficiencies and securing new credit facilities are positive. However, the decline in quarterly net income, substantial decrease in cash from operations, and the impact of U.S. tariffs introduce notable uncertainties and risks.

Positives

• The company achieved a significant swing from a net loss of $0.7 million to a net income of $0.8 million for the six months ended September 30, 2025.
• Overall revenue increased by 4% for the three-month period and 1% for the six-month period, driven by increased shipments to the U.S. and customer base diversification.
• Operating expenses decreased by 12% for the three months and 9% for the six months, attributed to better control of export costs and lower stock-based compensation.
• Gross profit margin for the six-month period increased by 1 percentage point to 15%, due to better control of import costs and economies of scale.
• Internal control over financial reporting was concluded to be effective as of September 30, 2025, addressing prior deficiencies.
• A new credit facility of up to $6.0 million was obtained from Bank al Etihad, enhancing financial flexibility.

Negatives

• Net income for the three months ended September 30, 2025, decreased by 28% to $0.5 million compared to $0.7 million in the prior year.
• Gross profit margin for the three months ended September 30, 2025, decreased by 3 percentage points to 15%, primarily due to a different customer and product mix with lower profit margins.
• Net cash provided by operating activities decreased substantially to $0.3 million for the six months ended September 30, 2025, from $2.4 million in the same period last year.
• Sales to the U.S. decreased by 3% for the six months ended September 30, 2025, despite efforts in customer diversification.
• Sales to Germany, Jordan, and other locations decreased for both the three and six-month periods.
• The company is dissolving two joint ventures, J&B International Limited and Jerash Newtech (Hong Kong) Holdings Limited, indicating potential underperformance or strategic shifts in these ventures.

Risks

• Operations are subject to political, economic, and legal environments in Jordan, including potential impacts from regional conflicts (Israel and Hamas, Israel and Iran).
• U.S. government policies on importing business, specifically the imposition of a 15% baseline tariff on imports from Jordan as of July 31, 2025, could affect customer demand.
• Concentration of revenue with specific customers (two customers accounted for 60% and 12% of total revenue for the three months ended September 30, 2025).
• Concentration of purchases with specific suppliers (one major supplier accounted for 14% and 12% of total purchases for the three and six months ended September 30, 2025, respectively).
• Foreign currency exchange rate fluctuations (JOD, HKD, CNY against US$) may materially affect financial condition.
• An ongoing legal proceeding with a PPE customer, where Jerash Garments was ordered to pay $653,000 by a lower court, is currently under appeal, with management believing the chance of loss is remote.
• Reliance on dividends from subsidiaries in Jordan and Hong Kong, which are subject to local regulations and reserve requirements, could impact liquidity.

Future Outlook

The company expects capital expenditures to increase in the future to enhance production capacity and meet future sales growth, projecting an aggregate of approximately $7.8 million in fiscal year 2026, $14.5 million in fiscal year 2027, $16.5 million in fiscal year 2028, $3.5 million in fiscal year 2029, and $2 million in fiscal year 2030. The realization of these investments is contingent on business development, client base expansion, and increased customer commitments. The company may seek further bank financing and capital market funds if demand growth aligns with projections. The dissolution of J&B International Limited is expected to complete in April 2027, and the deregistration of Jerash Newtech (Hong Kong) Holdings Limited has been authorized.

Management Comments

• The increase in revenue for the three months ended September 30, 2025, was mainly due to an increase in shipments to the U.S. resulting from a more diverse customer base in fiscal 2026.
• The decrease in net income for the three months ended September 30, 2025, was mainly attributable to the different customer mix and product mix in fiscal 2025 that on average produced lower profit margins, partially offset by the decrease in operating expenses due to better control of export costs and lower stock-based compensation expenses in fiscal 2026.
• The slight increase in revenue for the six months ended September 30, 2025, was mainly due to the increase in the overall demand of most of our major customers following the Company’s effort in diversification of the customer base.
• The increase in net income for the six months ended September 30, 2025, was mainly attributable to the increase in the overall demand of most of our major customers, better control of import costs, and the lower average costs due to economy of scale.
• Based on our current operating plan, we believe that cash on hand and cash generated from operating activities will be sufficient to support our working capital needs for the next 12 months from the date this Quarterly Report is released.
• 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.
• Our capital expenditure plan is highly related to customer commitments and market responses to the demand of our capacity.

Industry Context

The apparel manufacturing industry faces ongoing challenges from global trade policies, such as the U.S. imposing a 15% baseline tariff on imports from Jordan, which could impact customer demand. Geopolitical instability in the Middle East, including conflicts between Israel and Hamas and between Israel and Iran, poses significant operational and supply chain risks for companies with manufacturing facilities in Jordan. The company's strategic responses, such as diversifying its customer base and utilizing alternative shipping routes like the Port of Jebel Ali, reflect efforts to mitigate these external pressures and maintain competitiveness.

Corporate Governance

Legal Proceedings

• An appeal is ongoing in the Court of Appeal regarding a dispute with a personal protective equipment (PPE) customer. Jerash Garments was previously ordered to pay US$653,000 by the Court of First Instance, but management, based on legal advice, believes the chance of loss is remote.

Related Party Transactions

• Consulting fees of $75,000 were paid to Yukwise Limited (wholly owned by the CEO) for the three months ended September 30, 2025, and $150,000 for the six months.
• Consulting fees of $75,000 were paid to Multi-Glory Corporation Limited (wholly owned by a significant stockholder) for the three months ended September 30, 2025, and $150,000 for the six months.

Stakeholder Impact

• Shareholders: Continued dividend payments ($0.05/share) and a return to profitability for the half-year are positive, but diluted EPS decreased for the three-month period. Potential future capital raises could lead to dilution.
• Employees: The company continues to invest in employee facilities, including the completion of a dormitory and dormitory kitchen in fiscal year 2025, and has stock-based compensation plans.
• Customers: Customer diversification efforts are ongoing, but U.S. tariffs on Jordanian imports could impact demand. Supply chain financing programs offer liquidity benefits.
• Suppliers: The company faces concentration risk with one major supplier for garments and raw materials, and advances to suppliers have increased.
• Creditors: The company secured a new credit facility from Bank al Etihad and maintains an existing DBSHK facility, indicating continued access to financing. Improved internal controls enhance creditworthiness.

Next Steps

• Complete the dissolution of J&B International Limited, expected by April 2027.
• Complete the deregistration of Jerash Newtech (Hong Kong) Holdings Limited.
• Continue to evaluate the potential impact of new accounting standards (ASU 2023-09 and ASU 2024-03) on consolidated financial statements.
• Proceed with the capital expenditure plan for production capacity enhancement, projected through fiscal year 2030.
• Potentially obtain further bank financing and raise funds from the capital market to support capital expenditure plans.
• Pay a dividend of $0.05 per share, as approved on November 7, 2025.
• Treasure Success is required to complete the remaining capital contribution of HKD 5 million (approximately $0.6 million) to Jiangmen Treasure Success before December 31, 2029.

Key Dates

Recommendation

Jerash Holdings demonstrates resilience with a return to net profitability for the six-month period and ongoing revenue growth, alongside significant improvements in internal controls. The new credit facility provides additional financial flexibility. However, the decline in net income for the most recent quarter, a substantial decrease in cash from operating activities, and the persistent risk of U.S. tariffs on Jordanian imports introduce considerable uncertainty. The dissolution of two joint ventures also warrants careful monitoring. While the long-term capital expenditure plan is ambitious, its realization is dependent on market response and customer commitments. Given these mixed signals and external pressures, a 'hold' recommendation is appropriate, balancing the positive operational and financial improvements against the existing headwinds and uncertainties.

Keywords

Apparel manufacturing, Jordan, SEC 10-Q, Financial results, Outerwear, Supply chain, Tariffs, Corporate governance, Cash flow, Net income, Revenue, Stock-based compensation, Credit facilities, Joint ventures