Greetings, and welcome to the Jerash Holdings Fiscal 2024 Second Quarter Financial Results. At this time, all participants are in a listen-only mode, and the floor will be open for questions after the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Roger Pondel, Investor Relations. You may begin.
Thanks so much, operator, and good morning again, everyone. Welcome to Jerash Holdings Fiscal 2024 second quarter conference call. I'm Roger Pondel with PondelWilkinson, Jerash Holdings' investor relations firm. It will be my pleasure momentarily to introduce the company's Chairman and Chief Executive Officer, Sam Choi, its Chief Financial Officer, Gilbert Lee, and Eric Tang, who leads the company's operations in Jordan. Before I turn the call over to Sam, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the risk factors section of the company's most recent Form 10-K, as filed with the Securities and Exchange Commission.
Copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and Jerash Holdings undertakes no obligation to update any forward-looking statements except as required by law. With that, it's my pleasure to turn this call over to Sam Choi. Sam?
Thank you, Roger, and hello, everyone. Our second quarter's performance again demonstrated Jerash ability to attract new customers and our resiliency in a challenging apparel environment. Retail market condition for global brands in the U.S. and Europe has been slow to recover, which in turn is impacting our business compared with the prior year. Customers' orders have generally shifted to lower priced items, which carry lower margins. Nevertheless, our revenue and gross margin remain essentially stable on a constant, on a sequential basis. During the quarter, good progress was made with our Busana joint venture partner. Thus far, five joint venture premium brand customers have committed to placing orders. Marketing to additional prospective customers is continuing, and feedback is encouraging.
Current projections from the joint venture for the next 12 months call for about $8 -$9 million in new orders, starting in a meaningful way in our fiscal fourth quarter. On Jerash customer front, Timberland has increased its orders significantly and has become the second-largest global brand to Jerash. We are also producing our first trial orders for Vans apparel, another VF Corp brand, and a confident order flow from Vans will increase significantly next fiscal year. As well, business from our first European-based high-end apparel brand continues to expand. We are currently projecting a doubling of orders in the second half of fiscal 2024. Furthermore, we are excited about the opportunity created by our recently established joint venture with New Tech Textile, a textile innovation and solution company.
This venture is expected to enable Jerash to employ the latest technology to offer customers in a new array of sustainable and innovative textile products. The proprietary textile dyeing process technology is expected to reduce water usage by approximately 90%, energy consuming by approximately 65%, and carbon footprint by over 50% in comparison with traditional processes. To achieve this, we plan to build a state-of-the-art fabric facility in Jordan, with construction to begin in 2024, and emerge Jerash as a leader in ESG textile manufacturing, which is in keeping with our long-standing commitment to sustainability and responsible growth. Lastly, I want to give an update regarding Middle East, which is on everyone's mind. Since turmoil began, we have been closely monitoring the situation and keeping our customers informed. Currently, production is ongoing as usual.
There have been no changes with customers' order or commitment, and both ports that Jerash uses for import and export are functioning normally. I will now turn the call over to Eric to talk about our operations, and Gilbert will then discuss financial results.
Thank you, Sam. Hello, everyone. Activities in Jordan continue to progress at a quick pace. We are excited about both of our joint ventures. Our Busana partnership is well underway and bearing fruit. Marketing efforts continue to accelerate, and we believe the partnership is forging a loyal position for growth ahead. Now, we are very busy forming plans with our New Tech Textile joint venture partner. At this juncture, we are actively identifying potential sites in a nearby industrial zone on which to build our new textile complex. Jerash is conferring with the Jordanian government for possible support and collaboration on this project, which will foster new employment in high-tech related jobs. The spending patterns at the consumer level are still geared toward lower-margin items, which in turn has impacted order mix as well as volume from our customers.
However, we are maintaining and growing our strong relationship with existing customers and moving forward with Jerash initiative to diversify and add to our customer base. Jerash is a trusted manufacturing partner for VF Corp, which owns multiple global brands. We have been producing jackets and other apparel for its North Face brand for more than eight years. Starting last fiscal year, we began producing apparel for Timberland, another VF brand, and the order volume has increased significantly, becoming our second-largest brand now. We look forward to working closely with other VF brands, such as Vans. Our first European-based high-end apparel brand is also progressing very well, and order volume is anticipated to double for the second half of fiscal 2024. Additionally, we are receiving inquiries from other high-profile global brands, both from the U.S. and Europe, with new garment sampling and costing underway.
To amplify on Sam's comment regarding the Middle East situation, we use both the Aqaba and Haifa ports for import and export. Thankfully, so far, both ports are operating with business as usual. That said, in the event of any potential impact on the ports, we have a contingency plan which is in place that has been approved by our major customers for temporarily relocating production, if and as necessary, to alternate regions. Our leadership position in Jordan provides unique and tangible benefits to customers around the group. The initiatives and plans we have in place, including vertical integration, sustainable textile solutions, and a focus on the environment, position Jerash with a distinct competitive advantage, and we believe an attractive partner for premium apparel brands. I will now turn the call over to Gilbert to discuss our financial results and the fiscal 2024 outlook. Gilbert, please.
Thank you, Eric. Revenue for our fiscal 2024 second quarter amounted to $33.4 million, compared with $37.8 million for the same period last year. The decrease was primarily due to fewer shipments being delivered to some of the major customers in the U.S., partially offset by shipments to other new geographical locations, including Hong Kong and Germany. Gross profit was $5.4 million for the fiscal 2024 second quarter, compared with $6.9 million in the same quarter last year. The gross margin was 16.1%, compared with 18.3% a year ago, principally driven by a shift in customer mix with lower profit margin orders. Operating expenses for the fiscal 2024 second quarter increased slightly to $4.5 million from $4.3 million last year.
Operating income totaled $888,000 in the most recent second quarter versus $2.6 million in the same period last year. Total other expenses were $167,000 in the fiscal year 2024 second quarter, compared with $106,000 in the same quarter last year. The increase was primarily due to higher interest expenses arisen from participating in supply chain financing programs of certain customers, partially offset by incomes from fixed deposits in banks. Net income was $369,000 or $0.03 per share in the fiscal year 2024 second quarter, compared with $1.8 million, or $0.14 per diluted share in the same period last year.
Jerash's balance sheet and cash position remains strong, with $22.8 million of cash and restricted cash, and net working capital of $40.5 million. As of September 30, 2023, inventory was $18.7 million, and accounts receivable was $5.2 million. Net cash provided by operating activities was approximately $8.2 million for the six months ended September 30, 2023, compared with $9.6 million for the same period last year. As Sam mentioned earlier, retail market conditions have not yet fully recovered. Therefore, we are taking a conservative approach to guide our revenue for fiscal 2024 to be down about 3%-5% from last fiscal year. Our gross margin goal for the current full fiscal year is expected to be approximately 15%-16%.
Our outlook is subject to final product mix of shipments, as well as order flow from the new customers through our joint venture with Busana. Lastly, on November 3rd, 2023, our board of directors approved a quarterly dividend of $0.05 per share, payable on November 28th, to stockholders of record as of November 14. With that, we will now open up the call for questions. Operator, may we have the first question, please?
Thank you very much. At this time, we are opening the floor for questions. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please hold a moment while we poll for the questions. Thank you. Your first question is coming from Mike Baker of D.A. Davidson. Mike, your line is live.
Okay, thanks. Just, I'm gonna ask two questions. First, you know, maybe it's obvious, but what are you hearing from your big customers, customers in the U.S. as it relates to consumer spending, holiday outlook, those kinds of things? Is that what is really causing, you know, the results to come in a little bit less than expected? Is it weakness in US consumer spending, or is there something else to consider?
Well, thanks, Mike. Yeah, I think it is mainly because of the slowly recovering of the consumer market, that the spending is still not back to the same level as before. So our existing customers' orders are shifting more toward the lower margin products instead of the high dollar value, high margin products, such as The North Face jackets. Eric, do you have anything to say about this? You, you've been-
Y- yes.
You've been talking to the customers more.
Yeah. I totally agree to what you have mentioned. I talked to many, many brands. Okay, you are right, because the spending power in the Europe and U.S. still did not recover so much and still very weak. So people are trying not to spend too much on the luxurious brands or luxurious product, like our North Face jackets or other kinds of high value jackets. So the order pricing to us is slightly less than before, but we have very big demand for low-cost T-shirts, low-cost jackets from some other brands, which is also very popular in the U.S. So that's why we can still be able to occupy all our current capacity and running on the full, full-time basis. Mm-hmm. This is the situation. Mm-hmm.
Okay, that makes sense. Thanks. One other question as it relates to the new joint venture for the textile situation. Can you just talk about the. So you said, I think construction begins in 2024. I assume you meant calendar 2024, and what the cost of that might be? What are your expected ways to fund that? Just some of the CapEx involved in that joint venture. Who funds it, you guys or your partners, et c?
Well, the joint venture is a 51/49 joint venture, and Jerash owns 51%. So any funding will be in that proportion to the joint venture company. And yes, you're right, the 2024 is calendar year. I think we have almost finalized the site of where we're going to build. And we have been discussing funding opportunities with a number of financing parties. And at this point, we cannot disclose who they are yet because nothing has been finalized. But there will be financing parties from China, from Asia, from Hong Kong, and also possibly from the Middle East.
Yeah, part of the, part of the funding could be financed from our own, cash flow, from our operating cash flow, but that would definitely not be enough, because, if I'm correct, I think the, I think the, the overall projection for the CapEx is about $20-$30 million. Am I correct, Eric?
Yes, you are absolutely correct. It's between $25-$30 million. Okay, they are already very interested, the financial institution. Okay, they are very interested in this project. We are, okay, discussing with them, so it's not appropriate to disclose the, the identity of each one, but, all of them are very positive about, the funding of this project. Mm-hmm.
And that $25-$30 million-
And, uh-
That's the total cost, not your 51%?
That's the total cost.
Yeah, total cost
... not the 51%. Overall. Mm-hmm.
Got it.
I would say from China's viewpoint, this is a One Belt, One Road project. So China will definitely support this project financially. So this will be not only, not only a One Belt, One Road project, but also a One Belt, One Road ESG project. So we'll attract some interest parties for this project.
Yeah.
Understood. Thank you.
Absolutely. Because of the ESG, the ESG part of it, both China and both the Middle East, they are... the governments. They are very interested in in supporting us.
Understood. Thank you.
Thank you very much. Your next question is coming from Mark Argento of Lake Street Capital. Mark, your line is live.
Thanks. Good morning, guys. Just a couple of quick questions. So in terms of Busana, you said you anticipate seeing revenue from that partnership in Q4. And then I think you mentioned $8-$9 million for the next 12 months. Maybe just help us think through, like, what does that mean for Q4? Is $2 million in Q4 and getting bigger from there? Is it $8-$9 million in Q4? A little clarity around that would be helpful.
Eric, do you want to take this one? Eric?
Oh, yeah. Maybe Sam answer this one. Yeah. According to the present projection, I think $a few million in the fourth quarter of fiscal 2024 will be in the orders from Busana. But after that, I think our order will be growing, yeah, with the solicitation of orders from at least five customers derived from Busana. And I think that will be very promising.
I guess maybe just asking another question, so another way. That $8 -$9 million, what in revenue, is that for Q4, or is that, you know, in the next 12 months?
I would say-
That was the projection-
Around Q4.
That was the projection for the next 12 months, starting from Q4 of fiscal 2024. So basically, in the next 12 months or in the calendar year of 2024, we are projecting about $8 -$9 million in additional incremental revenues from the Busana JV.
Okay. So $8-9 million in incremental revenue in calendar 2024.
Right.
Got it. All right. That's helpful. And then, more of a housekeeping question for you, Gilbert. I saw the tax rate was up a little bit. I know it was up in Q1 for the first time.
Mm-hmm.
And then the third quarter, it was, I think, 40-some%. What's going on in the tax rate there?
Well, the tax rate, most of our, most of our income is, is really from, from Jordan. That's where we, that's where we book most of our income. And, our U.S. operation and also the Hong Kong operations are mainly, just expenses.... So the expenses kind of remain the same and slightly increasing because of the growing in size, but, but income has dropped significantly. So when you combine all of those, as, as the earnings, as the consolidated earnings decline, so the proportion of the tax comparing to the, to the, operating income, is at a higher proportion. Now, when, when income goes back up, this effective tax rate will come back down.
All right. Well, maybe I'll follow up with you offline on that one. You can walk me through that a little bit more. Just lastly for me on, you know, kind of just total capacity and then with Busana coming online, are you building incremental capacity to support the Busana JV, or are you using some of your existing capacity at this point? And then, you know, are you guys booked up through the end of the year? Or maybe just talk about your order book right now.
I think right now we're pretty much fully booked through the end of the fiscal year. Maybe there, depending on the order flow, that maybe there are a couple of 100,000 pieces in one of those months that we still have capacity, but that is also filling up very quickly. We're afraid to be double-booked and not able to deliver, but we're also looking at ways to be able to take the order and get a complete, fully booked, on our, at our capacity. And if we, if we really need additional capacity, we could outsource some of the productions, and this is all approved by our customers. Now, with Busana business coming in, and, you know, we have always been very conservative. And last year, we have increased internally.
We have expanded our capacity internally, and we believe we will be able to handle, at least for the next fiscal year, the increase in business. But overall, I think that it will be a reverse of our this year's situation. When Busana business come in, it will be also for premium brands, for department stores that are in the U.S., that will be for the products that are of higher ASP and higher gross margin. This year, we were able to backfill some of the reduced orders from the higher-end products or the higher-end brands by lower gross margin products, some CM orders with high volume, but low gross margin, low gross profit. But next year, when Busana business comes in, we will be able to take the higher margin orders, but forgo some of the low margin orders.
We have already told some of the new customers that we are doing business with that next year we may not be able to handle all their orders. So if they want the business, they might have to increase the price or increase the margin that they give us. So I think the situation next year, when new business from Busana comes in, it will give us opportunity to improve our ASP and improve our gross margin.
That's helpful. And to this point, you guys have been able to hold on to your production staff using some of the lower margin orders. And that was the objective, right? To be able to keep everything intact so you can service the customer when the order books return for the higher priced products.
Exactly. That, that has been our strategy. I mean, if you compare, Jerash with other manufacturing facilities, other companies in Jordan, other companies, their business are down almost 50%, some are 60%, 70%, and they have significant layoffs of their, of their workers. Jerash, we are keeping a very conservative approach. We would rather fill up our capacity than letting go of our workers, because it will be very difficult to find and to backfill our capacity when business turn comes back. So our strategy has been to even to take on lower margin and low-profit orders and customers than to shut down the factory or to to let our, our workers go, because we know the business will come back very soon.
Great. Thanks, guys, and good luck the rest of the way this year.
Thank you.
Thank you.
Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now turn the call back over to Sam Choi for closing remarks.
Okay, thank you, Jenny, and thanks to all of you for joining us today and for your continuous support. We look forward to speaking with you next quarter and reporting on our business progress. Thank you very much.
Thank you.
Thank you very much-
Thank you
... everybody. That does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.