JERASH HOLDINGS (JRSH) Q2 2026: Capacity Up 15% as U.S. Tariff Shift Drives Order Surge
JRSH’s strategic pivot toward a more diversified customer and product mix is reshaping its growth trajectory, with expanded manufacturing capacity and new partnerships fueling a strong order pipeline. Margin compression remains a near-term reality as the company absorbs onboarding costs for new customers, but management is betting on automation and scale to restore profitability over time. Capacity utilization and global trade flows are now central to the investment case, with the U.S. tariff climate accelerating the shift of international orders to Jordan-based production.
Summary
- Tariff-Driven Order Diversification: U.S. and EU tariff shifts are redirecting global apparel production to JRSH’s Jordan facilities.
- Capacity Expansion Fully Booked: New machinery and workforce investments have increased output, with production booked through February.
- Margin Recovery Hinges on Automation: Gross margin pressure persists, but automation and scale are targeted to restore profitability over several years.
Performance Analysis
JRSH delivered 4.3% revenue growth in Q2 2026, driven by higher shipment volumes to U.S. customers and a broader customer base. The company’s shift toward a more diversified product mix and increased reliance on large-volume orders from new partners, notably Hanseo Textile, have helped offset traditional seasonality, but at the cost of lower near-term gross margins. Gross margin fell to 15.0% from 17.5% a year ago, reflecting the onboarding of new styles and customers that initially dilute efficiency and profitability.
Operating expenses were down due to tighter export cost controls and lower stock-based compensation, but higher audit and tax expenses partially offset these gains. Net income declined to $479,000 from $665,000, as margin compression outweighed top-line gains. Inventory rose 30% year-over-year, a direct result of pre-buying raw materials to support large, non-seasonal orders and to buffer against supply chain volatility. Cash flow from operations contracted, primarily due to higher accounts receivable and advance supplier payments linked to the late-September shipping surge.
- Order Book Strength: Capacity is fully booked through February, with increased projections from both legacy and new customers.
- Inventory Build: Elevated inventory reflects a strategic shift to support higher, less seasonal production volumes.
- Dividend Continuity: The board approved a quarterly dividend, signaling confidence in cash generation despite margin pressure.
While top-line growth is accelerating, margin normalization will lag as the company absorbs the costs of onboarding new business and expands automation. The ability to translate volume into sustainable profitability is the key watchpoint for investors.
Executive Commentary
"As part of our ongoing strategy, we continue to successfully diversify both our customer base and product mix. This effort was aimed at enhancing year-round production stability and reducing the impact of seasonality on our business. While we anticipate these changes will strengthen our long-term growth we do expect a slightly lower average gross margin in the near term. As order volumes for our expanded product offerings continue to scale in the coming years, our goal is to gradually improve gross profit margins to approximately 20%. We expect to achieve this through increased production automation and the benefits of economies of scale."
Sam Choi, Chief Executive Officer
"Looking ahead, we expect revenue for the fiscal 2026 third quarter to increase by 19 to 21% over the same quarter last year. And our growth margin for the fiscal 2026 third quarter is expected to be approximately 13 to 15%."
Gilbert, Chief Financial Officer
Strategic Positioning
1. Tariff-Driven Manufacturing Shift
JRSH is capitalizing on global tariff policy changes, with U.S. and EU apparel buyers shifting orders from China and India to Jordan to benefit from lower or zero tariffs. This repositioning is drawing in both legacy brands (e.g., North Face, New Balance) and new partners like Hanseo, expanding the company’s addressable market while reducing reliance on any single geography.
2. Customer and Product Diversification
The company’s proactive effort to broaden its customer and product mix is reducing seasonality and driving more stable year-round production. New large-volume orders, such as the 3.7 million girl shorts from Hanseo, are emblematic of this shift. While onboarding new customers temporarily compresses margins, it sets the stage for higher volume and better fixed cost absorption in future periods.
3. Capacity Expansion and Automation
JRSH increased its production capacity by 10 to 15% over the past year through machinery upgrades and workforce additions. A further 5 to 10% boost is expected from the ongoing factory expansion adjacent to the Al-Hasr facility, targeted for completion in the second half of 2026. Automation and ERP system investments are underway, with management targeting a return to 20% gross margins over a five-year horizon as these initiatives scale.
4. Logistics and Supply Chain Resilience
Shipping disruptions have abated, with both Haifa and Aqaba ports fully operational. The company’s ability to maintain uninterrupted logistics is now a competitive advantage, supporting the surge in international orders and enabling efficient raw material procurement.
Key Considerations
JRSH’s Q2 2026 results underscore a business in transition, with structural changes in global trade and customer strategy reshaping its operational and financial profile. Investors should weigh the following:
Key Considerations:
- Margin Recovery Timeline: Management expects gross margin normalization to 20% will take several years, hinging on automation and scale.
- Capacity Utilization: The company’s near-term growth is constrained only by physical capacity, with bookings through February and expansion plans in place.
- Inventory and Working Capital: Elevated inventory and accounts receivable reflect both growth and execution risk, requiring continued discipline as the order book swells.
- Geopolitical and Tariff Volatility: The business model is increasingly exposed to shifting trade policy, regional instability, and global supply chain risks.
Risks
Margin compression is likely to persist as new customers and products ramp, challenging near-term profitability. Geopolitical instability in the Middle East could disrupt logistics or escalate costs, while future shifts in U.S. or EU tariff policies could erode the company’s competitive advantage. Elevated inventories and working capital needs introduce additional execution risk, especially if demand projections prove optimistic.
Forward Outlook
For Q3 2026, JRSH guided to:
- Revenue growth of 19 to 21% year-over-year
- Gross margin of approximately 13 to 15%
For full-year 2026, management did not provide explicit guidance but emphasized:
- Continued focus on capacity expansion and automation to drive margin recovery
- Expectations for second-half revenue to be similar to the first half, a departure from historical seasonality
Management highlighted a robust order pipeline, full capacity bookings through February, and ongoing strategic investments as key factors shaping the outlook.
Takeaways
JRSH’s transformation is unlocking new growth vectors, but the path to sustainable margin expansion remains long and dependent on operational execution. Investors should monitor:
- Execution on Automation and ERP Rollout: Realizing cost efficiencies and restoring margins will be critical as the company scales production for a more diversified customer base.
- Order Book Durability: Sustained demand from both legacy and new customers, especially in the face of shifting global trade dynamics, will determine the success of capacity investments.
- Geopolitical and Supply Chain Stability: The company’s reliance on regional logistics and tariff advantages introduces volatility that could impact both top-line and margin performance in future periods.
Conclusion
JRSH is in the midst of a strategic evolution, leveraging global trade shifts and capacity expansion to drive growth. Margin recovery is a multi-year journey, with automation and scale as the primary levers. The company’s ability to execute on its long-term vision will determine whether current growth translates into durable shareholder value.
Industry Read-Through
The apparel manufacturing sector is undergoing a significant realignment, with U.S. and EU tariff policies pushing buyers to diversify supply chains away from China and India. Jordan’s tariff advantages and logistics recovery are making it a prime beneficiary, a trend likely to persist if geopolitical stability holds. Other regional manufacturers with scalable operations and automation capabilities are poised to capture share, while those relying on legacy geographies or low-value labor arbitrage face increasing margin pressure and demand volatility. Supply chain resilience and the ability to absorb onboarding costs will be critical differentiators as the industry adapts to a new global order.