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Edited Transcript of QEPC earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q2 2020 QEP Co Inc Earnings Call

Boca Raton Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of QEP Co Inc earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Leonard Gould

Q.E.P. Co., Inc. - President & Director

* Lewis Gould

Q.E.P. Co., Inc. - Executive Chairman

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Conference Call Participants

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* Andrew M. Berger

SM Berger & Company, Inc. - MD

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for holding. Welcome to Q.E.P.'s Second Quarter 2020 Financial Results Conference Call. (Operator Instructions) My name is Chelsea, and I will be your conference coordinator today. As a reminder, please note that this call is being recorded. At this time, I would like to introduce your host for today's call, Andy Berger, QEP's Investor Relations representative.

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Andrew M. Berger, SM Berger & Company, Inc. - MD [2]

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Thank you, Chelsea, and good morning to everybody, and thank you for joining today's conference call to listen to our discussion of QEP's second quarter financial and operating results, which were issued in a press release on Tuesday, November 5. If you have not had a chance to review the press release and our financial statements, they are available on the QEP and over-the-counter markets websites. I am joined today by QEP's Chairman and CEO, Lewis Gould; and its President, Leonard Gould. On today's call, Lewis will review recent developments as well as the highlights of the second quarter and fiscal 2020. We will then give you the opportunity to ask questions.

Before we begin, we would like to remind you that certain statements made in this conference call may be forward-looking statements within the meanings of the federal securities laws. These statements can be identified by words such as expects, plans, projects, will, may, anticipates, believes, should, intends, estimates and other words of similar meaning. Any forward-looking statements are based on current expectations and beliefs and are subject to a number of risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding economic conditions, sales growth, price increases, profit improvements, product development and marketing, operating expenses, cost savings, acquisition integration, operational synergy realization, cash flow, debt and currency exchange rates. Forward-looking statements may also be adversely affected by general market factors, competitive product development, product availability, federal and state regulations and legislation, manufacturing issues that may arise, patent positions and litigation, among other factors.

The forward-looking statements contained on this call speak only as of the date of the statements are made and Q.E.P. does not undertake any obligation to update forward-looking statements, except as required by law.

I will now turn the call over to Q.E.P.'s Chairman and CEO, Lewis Gould. Go ahead, Lewis.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [3]

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Thank you, Andrew, and thank you for all the folks on the conference call. We appreciate it. I'm going to go over some of the highlights that will affect all of us with some positive news as we go forward. But first, I'd like to give everybody some highlights, just to give you a feeling -- subjective feeling of where we are.

In October, we had almost record sales of $39 million. This is a nice turn up. And most of our divisions have turned in record sales. And that means that in this particular quarter going forward that we have returned to profitability in the last 3 months in August, October -- I'm sorry in August, September and October, and it looks like right now, our future sales are on track to go forward.

One of the things that we have looked at that, I guess, most of the investors are aware of, we don't have a CFO at the present time, but we have hired a national search firm to look for, and we hope to have a CFO in place by January. We have a significant appointment. My son Leonard, we've appointed as the Chief Integration Officer, for the company as we go forward with our new sister company, Kraus. I want to put Leonard on for a second for a few words, and he'll tell you what the mission is and how it's going forward.

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Leonard Gould, Q.E.P. Co., Inc. - President & Director [4]

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Good morning, everybody, and thank you for taking the time to listening this morning on our conference call. The integration for Kraus and QEP is an exciting one because there's, frankly, opportunities throughout the organization. My role is to deliver these opportunities and to deliver them quickly and bring alignment so that, frankly, we can take advantage of our scale. So I can tell you that the people are on board. They're excited. They're invigorated. They're energized, and we're looking forward to getting going.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [5]

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Thank you, Len. That's appreciated. I want to continue with some of the highlights of the last quarter and where we're headed. The exchange rates have had a good effect on us in this last quarter. Currently, the British pound has recovered to $1.29, up from the low $1.20s, the Australian dollar is up a little bit also, perhaps $0.01, $0.015. All that's significant for us as we go forward.

On a personal note before I give you some actual results, I want you to know that I am an investor myself. I bought an awful lot of shares in the last quarter and the quarter before, we made an announcement that I bought almost $400,000. I continue to buy shares. I think, on a personal level, it's a good investment for myself and my family.

Here's more specific breakdown to where we are. In Australia, New Zealand area, there's a very large chain of stores similar to the chain in the United States and in their flooring area, where there's almost 400 stores. We have won 22 out of 24 line items. We estimate that the U.S. dollar total for us will be $20 million going forward. The first shipments should commence in December. We've also had, in New Zealand, an absolute knockout for record sales month last month. They sold almost $1 million in that little country, which is appreciated.

In England and the continent, Paul, who is on the line has landed new business of an additional 450 stores that will translate into dollars as we go forward in pounds, certainly. And we believe that's significant for the United Kingdom. We look generally at the future with a smile and we believe with the appointment of Leonard and looking very carefully at our integration plans that perhaps there's another $3 million to $3.5 million in integration savings. We've identified those, but now we have to go ahead and do it, and that's going to be part of Leonard's job and his opportunity to do that. That will have significant effect, obviously, on our balance sheet as we go forward.

All of the U.S. divisions that we've had here. On the North American side, except for Canada, were positive. We've done the integration in the United States portion between Kraus and Naturally Aged Flooring. That was a question from Jamie Wilen, who wrote me a note, unable to be on the recording today. And that has been working okay. It's been working positively. We have to continue that good work into Canada now. And we've made sales progress, but one of the things that always is a burden on our numbers is the fact that in our new business, we have to purchase a continuing amount of displays and samples. It pays dividends in the future, usually 90 to 120 days after a sample or a display is placed in a store. We have an awful lot of retail customers, and that's been significant. For example, last month, it was $290,000 just in the United States on samples and displays alone. And I don't look at it as a burden. If you reverse it, look at it as an investment, I think we've done the right thing because there are long-term benefits, and we're long-term thinkers on everything we do.

Some of the statistics that I'd like our shareholders to be aware of: Year-to-date, we have paid our loan down with a great bank by almost $10 million. We bought back a small number of shares, but we buy back shares on a continuing basis. Our inventory, I guess year-over-year is down by almost $11 million. So we're doing the right things. We're managing the business the right way. If you look at last year, we had a negative $6 million EBITDA. This year, it was $3 million. So we're making progress, and we know where the money is being spent right now. There are less losses at our Kraus division than they were originally, and we continue to work at it.

Now regarding the tariffs, everybody saw the news today that there may be a tariff rollback that we're unsure if it's a tariff 1, 2, 3 or 4, or it'll affect us. We just don't know at this point, but it would be positive if it helps us. Also for the people who watch the numbers, our SG&A is down by 1% of sales. That transmits into millions of dollars as we go forward. We're also looking to raise additional capital to strengthen our balance sheet by either sale leaseback of some of our properties or mortgaging those. That's a work-in-process right now. Also, on the go-forward list is we can't look or we don't see any significant CapEx coming up in the next 6 months.

Now a question. There were 3 questions from Jamie Wilen, who's not here. Australia, we've answered that. We own no real estate in Australia. We've done the integration of Kraus and NAF or Naturally Aged Flooring on this side. And on Harris Wood, in particular, we've rolled out a new product. It didn't turn out to be the best one that we have so far. It's been out in the marketplace, 30 or 60 days. Catalina Research in their latest report said that hardwood flooring has been the most affected. It's down the most significant number and LTV (sic) [LVT] or SPC is up by almost 50%. A big deal has been a switch and type of flooring. Right now, that's reflected, as you can see in some of the earnings reports that have come out. So I'm comfortable with where we go. We're changing and strengthening our team, as you see with the CFO and other significant things. We're taking that step with Leonard to look at the integration that we have right now. I think we have good partners worldwide. And [if the barret has] come down, that will even be better. So we're looking. We're looking smiling at the future. December has always been a challenging month for us because of the typical worldwide shipping days that we lose in Christmas and New Years, et cetera. But I think with Australia, probably, we're going to get a little bit of traction on that.

So at this point, I would like very much to open this up for any questions that the shareholders or any of the people on the conference line may have.

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Operator [6]

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(Operator Instructions) I am showing no further questions at this time. And we'll now turn the call back to Mr. Lewis Gould for closing comments.

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Lewis Gould, Q.E.P. Co., Inc. - Executive Chairman [7]

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Thank you, Chelsea, and thank you, Andrew, and thank all of the folks that have joined us this morning. It's appreciated. I want you to know that we don't turn the lights off here. We work very hard. I also want to mention that we have a new member of our Board of Directors, Tony Hair, who works for a significant New York Stock Exchange company. We welcome Tony to our board. And we want to thank everybody who's wished us well as we go forward. I do want you to know I'm comfortable with our balance sheet going forward. And we're look into the future to continue to grow, and we want to thank all of certainly our associates and all of our employees for the extra effort and hard work worldwide that they've put in, whether it's Canada, Australia, [Tasmania] wherever is or even Birmingham, Paul. We want to thank everybody for that. So please, thank you for joining us this morning, and everybody, have a great day.

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Operator [8]

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This concludes our program for today. You may all disconnect.