Jerash Holdings (JRSH) Q2 2027 earnings review
Jerash profit margins widen, but its factory expansion slips again
Jerash Holdings, which makes sportswear in Jordan for brands like The North Face and New Balance, earned much wider margins even though its factories are full. Second-quarter revenue rose 20% from a year ago to $50 million, which left sales unchanged from the first quarter, while gross margin reached 18%, well above what the company's own plan pointed to. Chief executive Sam Choi said early fabric buying and factory automation offset Middle East shipping disruptions, and he set the third-quarter gross margin outlook at 16% to 17%.
| Revenue | $50.3M +19.8% from a year ago |
|---|---|
| Gross margin | 18.2% above the 14–15% outlook |
| Profit per share | $0.16 $0.04 a year ago |
| Q3 outlook | $49–51M gross margin 16–17% |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because stronger factory profit was offset by another delay in adding new production lines. Beating the second-quarter margin target says that plan was cautious, while setting the third-quarter margin target two points higher shows freight costs are hurting less than feared. The bad news: an expansion plan that previously promised 15% more capacity by December 2026 and up to 25% more by mid-2027 now calls for just 15% to 20% by September 2027.
The question now is whether Jerash can lift quarterly sales above $50 million before those new factory lines open in late 2027. Either factory automation and richer U.S. orders push output per worker higher, or quarterly revenue stays capped near $50 million for the next three quarters. Third-quarter revenue and headcount will tell.
🐂 Bull Case
Early Fabric Buying Lifted Gross Margin
Shipping disruptions in the Middle East and lower-margin starter orders for new brands were the main threat to profitability entering the quarter. Three months ago, Jerash set a second-quarter gross margin target of 14% to 15% because it expected higher freight rates on fabric imported from Asia. Instead, the apparel maker delivered an 18.2% gross margin, up 3.2 percentage points from a year ago.
- Cost of goods sold (cost of making the clothes): 81.8% of revenue, down 3.2 percentage points from a year ago
- Operating expenses (shipping, sales and overhead): 12.1% of revenue, down 0.3 percentage points
- Operating margin: 6.1%, up 3.5 percentage points from 2.6% a year ago
Chief executive Sam Choi said the group "expanded margins through strategic early purchases of raw materials, disciplined cost controls, reduced waste, and enhanced operational efficiencies through automation initiatives". That beat alone only proves the prior target was cautious. However, Jerash also set its third-quarter gross margin plan at 16% to 17%, "taking into account of increased transportation costs for raw material imports", which eases the margin concern.
What to watch: third-quarter gross margin against the 16% to 17% plan. A result inside or above that range will show that factory automation and U.S. shipment mix can offset regional shipping rates even after the early fabric inventory runs out.
Duty-Free Trade Fills Factories Through June 2027
Jerash manufactures clothing in Jordan, so its competitive pitch relies on trade rules that let buyers skip U.S. and European import taxes. That reliance is also a standing policy risk, because U.S. tariff rules for Jordanian goods have changed several times over the past two years. This quarter, the trade advantage brought in more orders from global brands.
"Our production facilities are fully booked through June 2027, and order in-flow remains strong," Choi said. Last quarter, the factories were booked through December 2026, so the company extended its order visibility by six months in a single quarter. Choi credited "duty free and preferential tariff treatment for qualifying apparel and textile exports to key markets, including the United States, Europe and others" for drawing customer demand.
What to watch: the tariff footnote in the upcoming quarterly filing. It will show whether the July 2026 U.S. trade rules left any of Jerash's clothing categories exposed to a 10% tariff.
🐻 Bear Case
Factory Expansion Shrank and Slipped Again
Because Jerash's eight factory units are full, the company can only grow its quarterly revenue by adding workers and production lines. Last quarter, management laid out a two-part expansion: adding 15% to capacity at two existing factories by December 2026, followed by 20% to 25% at a newly bought building by mid-2027. Together with a smaller satellite plant, that plan pointed to roughly 40% more capacity by next summer.
This quarter, the timeline slipped and the target shrank without explanation. Choi said that "Renovations at our most recently acquired facility, along with the construction of a third satellite factory supported by the Jordanian government, are expected to be completed by September 2027", and that together they will "increase our production capacity by approximately 15-20 percent". Meanwhile, headcount stayed at 6,600 and quarterly revenue stayed near $50.3 million, up 0.1% from the first quarter by our math.
This matters because the December 2026 expansion step vanished from the release. Without new lines opening this winter, quarterly revenue cannot move much above the current $50 million ceiling until late 2027.
What to watch: the employee count and any mention of the December 2026 renovation in the third-quarter report. Flat headcount at 6,600 will confirm that quarterly sales are capped near $50 million for another nine months.
Customer Concentration and Supply Chain Financing Costs
Jerash has been adding apparel brands like Urban Outfitters and a partner in South Korea to reduce its reliance on VF Corporation, the owner of The North Face, Timberland and Vans. In the first quarter, VF still accounted for 57% of sales, and New Balance accounted for 16%. In the second quarter, the release noted that sales growth came from "higher shipments to our largest U.S. customer and others whose orders were primarily for the U.S."
That heavy U.S. brand volume boosts gross margin, because large U.S. orders carry better pricing than smaller starter orders for new clients. However, it also raises financing costs below the operating line: interest expense rose to $532,000 from $493,000 a year ago, which Jerash attributed to its new building mortgage and higher charges under customer supply-chain financing programs that pay bills early.
What to watch: the customer concentration table in the second-quarter filing. A VF share above 60% would show that new brands are still being crowded out by the biggest buyer inside Jerash's capped factories.
Risks this quarter didn't answer
Three standing financial and governance concerns got no new disclosure in the earnings release and await the full quarterly filing.
- Expansion funding and share dilution: prior filings flagged a possible capital-market raise to pay for new sewing machines and factory renovations; the filing's liquidity section will show whether equipment orders are now committed.
- Related-party consulting fees: prior filings disclosed $600,000 a year paid to companies owned by the chief executive and a major shareholder; the related-party footnote will show the second-quarter payments.
- Jordan sales tax exemption: an exemption from a 16% tax on local purchases expires on February 5, 2027; the tax footnote will show whether the government extended it.
👓 Other Themes
Jordan Tax Cut Added to the Profit Rise
Net income rose more than four-fold to $2.2 million, helped by a lower tax bill alongside factory margin gains. The share of pre-tax profit paid in tax fell to 15.7% from 24.3% a year ago because of "a tax concession in Jordan that reduced the corporate income tax rate from 20 percent to 10 percent, effective October 2025". By our math, at last year's tax rate, net income would have been $1.94 million. Because the cut took effect in October 2025, this tax tailwind fades starting next quarter.
💲 Other KPIs
By our math, Jerash generated $4.38 million of free cash flow (operating cash flow minus equipment purchases) in the second quarter, bringing the six-month total to $6.73 million. Inventories fell 11.2% from a year ago to $23.3 million as orders shipped, while advances to suppliers — upfront cash paid for fabric — rose 52.6% from last quarter to $11.9 million.
Cash and restricted cash rose to $16.9 million from $12.5 million in March 2026. Total debt — short-term credit lines plus the mortgage loan on the new factory building — stood at $7.28 million, down from $8.21 million in June. By our math, cash minus debt reached $9.60 million, up from $4.74 million six months ago.
Diluted shares rose 2.5% from a year ago and 0.8% from the first quarter as employee stock options moved into the money. Basic shares stayed unchanged at 12.70 million, and the board approved its regular $0.05 quarterly dividend, costing $635,000 per quarter.
🔮 Guidance
New. The sportswear maker expects third-quarter sales of $49 million to $51 million, up 17% to 22% from a year ago. At the $50 million middle of the range, revenue is down 0.6% from the second quarter by our math, matching the exact dollar range issued for the second quarter because factory capacity has not changed.
New. Management plans for a 16% to 17% gross margin, down from 18.2% in the second quarter because of higher shipping costs on imported raw materials, and 0.4 percentage points below last year's third quarter at the middle of the range. Jerash has beaten its gross margin plan for four straight quarters by an average of 2.3 percentage points; if the pattern holds, third-quarter gross margin would reach 18.8% by our math.
❓ Key Questions
What happened to the December 2026 factory expansion step?
Last quarter, management said it was on target to add 15% to capacity by December 2026 and 20% to 25% more by mid-2027. This release mentions only a 15% to 20% addition by September 2027, leaving the earlier expansion unaccounted for.
How much did VF Corporation and South Korea contribute?
The release credits the largest U.S. customer for second-quarter growth without giving percentages. The upcoming quarterly filing's customer and geographic tables will show whether VF's share rose above 57% and whether South Korean orders stayed near $2 million.
How will Jerash pay for the September 2027 factory projects?
Renovating the acquired building and opening a third satellite plant require new equipment, yet six-month capital spending was only $804,000. Investors need to know how much the projects will cost and whether cash on hand will cover them without issuing stock.
Why did upfront payments to fabric suppliers jump 53%?
Advances to suppliers rose to $11.9 million from $7.8 million in June while inventories fell by $3.3 million. Management did not clarify whether suppliers demanded stricter payment terms or if Jerash locked in early fabric prices again for the second half.