Declining Capital Allocation Trends and Low ROCE at Jerash Holdings (US)

Jerash Holdings (US) has a low return on capital employed (ROCE) of 5.1%, underperforming the Luxury industry average of 12%. The company's ROCE has declined from 12% five years ago, and capital employed has remained flat, suggesting a mature business with little growth. The increasing ratio of current liabilities to total assets has also impacted the ROCE.

Jerash Holdings (US) Inc. (JRSH) reported its fiscal 2026 Q1 results, showing a mixed performance with revenue declining to $39.6 million from $40.9 million in the same quarter last year. Despite this, the company's operating income surged to $959,000, up from an operating loss of $829,000 in the same period last year [1].

Key financial highlights include:
- Gross Profit: Increased by 31.2% to $6.1 million, up from $4.6 million in the same quarter last year.
- Gross Margin: Improved to 15.4% from 11.3%.
- Net Income: $324,000 or $0.03 per diluted share, compared to a net loss of $1.4 million or $0.11 per diluted share in the same quarter last year.
- Operating Expenses: $5.1 million, down from $5.5 million in the same quarter last year.
- Total Other Expenses: $307,000, down from $426,000 in the same quarter last year.
- Income Tax Expenses: $329,000, up from $112,000 in the prior year quarter.

However, the company's cash flow from operating activities increased to approximately $6.5 million for the quarter ended June 30, 2025, compared to $2.2 million for the same quarter last year. This is largely due to the increase in operating expenses and other expenses.

Jerash Holdings (US) Inc. also faces challenges with its return on capital employed (ROCE). The company's ROCE has declined to 5.1%, underperforming the luxury industry average of 12%. This decline can be attributed to a flat capital employed and an increasing ratio of current liabilities to total assets.

The company's revenue guidance for Q2 is expected to be approximately $40 million to $42 million, with a gross margin guidance of approximately 15% to 16%. The company is optimistic about its strategic collaborations and the expansion of its manufacturing facilities in Amman, which is expected to contribute to performance starting in the second fiscal quarter.

Jerash Holdings (US) Inc. is also facing geopolitical instability in the region, which could impact future operations and expansion plans. The company terminated its joint venture with Busana, although it continues to deal directly with the customers involved.

In conclusion, Jerash Holdings (US) Inc. reported a mixed performance in its fiscal 2026 Q1 results. While the company showed improvement in operating income and gross profit, it faces challenges with its ROCE and geopolitical instability. The company's revenue guidance for Q2 is promising, but the company will need to address its ROCE and geopolitical challenges to maintain its financial health.

References:
[1] https://finance.yahoo.com/news/jerash-holdings-us-inc-jrsh-070903959.html