Q.E.P. CO., INC. Reports Fiscal 2024 Six Month and Second Quarter Financial Results

Q.E.P. Co., Inc.

Six Month Net Sales of $202.7 million/Net Income of $2.6 million

BOCA RATON, Fla., Oct. 16, 2023 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTCQX: QEPC) (the “Company” or “QEP”) today reported its consolidated results of operations for the first six months and second quarter of its fiscal year 2024, which ended on August 31, 2023.

QEP reported net sales of $202.7 million for the six months ended August 31, 2023, a decrease of $29.9 million or 12.9% from the $232.6 million reported in the same period of fiscal 2023. The Company reported net sales of $99.4 million for the quarter ended August 31, 2023, a decrease of $16.1 million or 13.9% from the $115.5 million reported in the same period of fiscal 2023.   The decrease in net sales was primarily due to lower demand in the North America retail and flooring dealer segments, along with the general softening of sales in the non- North America segments and the currency translation impact of the stronger U.S. Dollar in the current period.

Lewis Gould, Executive Chairman, commented on the Company’s results, “The Company’s topline net sales in the current year continue to be negatively impacted by the difficult macroeconomic backdrop, including the effect of inflation on consumer spending and the higher cost of borrowing. Despite this, gross profit margin improved as inbound freight costs declined to traditionally normal levels. Supply chain improvements have also allowed the Company to reduce its inventory levels and realize the associated reduction in borrowing.”

Mr. Gould concluded, “Additionally, I am pleased that the Company’s leadership team has executed on our strategy as outlined in recent press releases of addressing under-performing flooring product lines, along with re-aligning our global footprint, as evidenced by our recent exit from the North America flooring market and the divestment of our UK operations. We remain focused on completing the implementation of this strategy as our roadmap for a renewed emphasis on our core business aimed at increasing profitability and stockholder value.”

The Company’s gross profit for the first six months of fiscal 2024 was $58.7 million compared to $60.1 million in the corresponding fiscal 2023 period, a decrease of $1.4 million or 2.3%. Gross profit for the second quarter of fiscal 2024 was $29.4 million, representing an increase of $0.1 million or less than 0.1%, from $29.2 million in the corresponding fiscal 2023 period. The Company’s gross margin as a percentage of net sales for the first six months and second quarter of fiscal year 2024 was 29.0% and 29.5%, respectively, which increased from 25.8% and 25.3% in the corresponding prior fiscal year periods, respectively. The increase in gross margin as a percentage of net sales was largely due to lower inbound freight costs.

Operating expenses for the first six months and second quarter of fiscal 2024 were $53.7 million and $26.4 million, respectively, or 26.5% and 26.6% of net sales in those periods, compared to $58.5 million and $29.4 million, respectively, or 25.1% and 25.4% of net sales in the comparable fiscal 2023 periods. The reduction in operating expenses reflect lower variable shipping costs and marketing display expenses that were partially offset by higher personnel costs during the current period.

The higher interest expense during the first six months and second quarter of fiscal 2024 compared to the same periods in the prior fiscal year was due to higher interest rates during the current period.

The provision for income taxes as a percentage of income before taxes was 28.0% for the first six months and second quarter for both fiscal 2024 and fiscal 2023.

Net income for the first six months and second quarter of fiscal 2024 was $2.6 million and $1.7 million, respectively, or $0.78 and $0.50, respectively, per diluted share. For the comparable periods of fiscal 2023, net income and net loss was $0.5 million and minus $0.5 million, respectively, or $0.14 and minus $0.15, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted for gain on insurance recoveries, for the first six months and second quarter of fiscal 2024 was $5.4 million and $2.9 million, respectively, as compared to $3.6 million and $0.8 million for the first six months and second quarter of fiscal 2023, respectively.

		For the Three months Ended								For the Six months Ended
		August 31,  2023				August 31, 2022				August 31,  2023				August 31, 2022
Net income (loss)		$	1,682			$	(513	)		$	2,607			$	475
Add:	Interest expense, net	625				589				1,342				965
	Provision for income taxes	655					(199	)		1,015				185
	Depreciation and amortization	850				935				1,708				1,927
	Gain from insurance recoveries		(903	)		-					(1,293	)		-
EBITDA, as adjusted (1)		$	2,909			$	812			$	5,379			$	3,552

⁽¹⁾   EBITDA as adjusted for gain on insurance recoveries represent non-GAAP measures and exclude charges or credits not indicative of our core operations.

Cash provided by operations during the first six months of fiscal 2024 was $23.5 million as compared to cash used in operations of $14.7 million in the first six months of fiscal 2023, reflecting the reduction in inventory to more normalized levels, as previous supply chain disruptions were addressed. In the first six months of fiscal 2024, cash provided by operations was used to reduce borrowings under the Company’s credit facilities, fund capital expenditures and increase cash balances.

Working capital as of August 31, 2023 was $52.5 million compared to $55.0 million at the end of fiscal 2023.   Aggregate debt, net of available cash balances at the end of the second quarter of fiscal 2024 was $10.3 million or 12.8% of equity, a decrease of $23.2 million compared to $33.5 million or 43.0% of equity at the end of fiscal 2023.

Conference Call Information

The Company will be hosting the following conference call to discuss its financial results and answer questions.

Date:	October 19, 2023
Time:	10:00 a.m. Eastern Time
Dial-in Numbers:	800-225-9448 (US or Canada)
	203-518-9708 (International)
Confirmation ID:	QEP2Q
Replay:	800-654-1563 (Toll Free)
	862-902-0129 (Toll)
	Access Code: 10190800

About QEP

Founded in 1979, Q.E.P. Co., Inc. is a leading designer, manufacturer and distributor of a broad range of best-in-class flooring installation solutions for commercial and home improvement projects worldwide. QEP offers a comprehensive line of specialty installation tools, adhesives, and underlayment. QEP sells its products throughout the world to home improvement retail centers, and professional specialty distribution outlets, under brand names including QEP^®, LASH^®, ROBERTS^®, Capitol^®, Premix-Marbletite^® (PMM), Brutus^®, Homelux^®, PRCI^®, and Tomecanic^®.

QEP is headquartered in Boca Raton, Florida with offices in Canada, Europe, Asia, Australia and New Zealand. Please visit our website at www.qepcorporate.com.

Forward-Looking Statements

All statements contained in this press release, other than statements of historical facts, may constitute forward-looking statements within the meaning 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. These forward-looking statements include, but are not limited to, statements regarding implementation of the Company’s strategies and increasing profitability and stockholder value. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties, including those listed in the Company’s annual report, as such risk factors may be amended, supplemented or superseded from time to time by other reports and disclosures made by the Company. 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, scarcity and rising cost for raw materials, shifts in global sourcing patterns, and general inflationary pressures, economic conditions, sales growth, price increases, maintaining and improving profitability, product development and marketing, operating expenses, cost savings, the successful completion of acquisitions and dispositions, acquisition integration, operational synergy realization, global sourcing, political uncertainty, cash flow, debt and currency exchange rates, among other factors.  The forward-looking statements contained in this press release speak only as of the date the statements were made, and the Company does not undertake any obligation to update forward-looking statements, except as required by law.

-Financial Information Follows-

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
	For the Three Months Ended								For the Six Months Ended
	August 31,				August 31,				August 31,				August 31,
		2023				2022				2023				2022
Net sales	$	99,416			$	115,519			$	202,699			$	232,602
Cost of goods sold		70,055				86,280				143,993				172,485
Gross profit		29,361				29,239				58,706				60,117
Operating expenses:
Shipping		12,253				13,565				23,955				27,183
General and administrative		8,836				7,589				17,411				15,156
Selling and marketing		6,399				8,169				13,950				16,273
Other (income) expense, net		(1,089	)			39				(1,574	)			(120	)
Total operating expenses		26,399				29,362				53,742				58,492
Operating income (loss)		2,962				(123	)			4,964				1,625
Interest expense, net		(625	)			(589	)			(1,342	)			(965	)
Income (loss) before provision for
income taxes		2,337				(712	)			3,622				660
Provision (benefit) for income taxes		655				(199	)			1,015				185
Net income (loss)	$	1,682			$	(513	)		$	2,607			$	475
Earnings (loss) per share:
Basic	$	0.50			$	(0.15	)		$	0.78			$	0.14
Diluted	$	0.50			$	(0.15	)		$	0.78			$	0.14
Weighted average number of common
shares outstanding:
Basic		3,342				3,338				3,343				3,340
Diluted		3,347				3,338				3,348				3,349

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
	For the Three Months Ended							For the Six Months Ended
	August 31,			August 31,				August 31,			August 31,
	2023			2022				2023			2022
Net income (loss)	$	1,682			(513	)		$	2,607		$	475
Unrealized currency translation adjustments		263			(1,191	)			306			(1,989	)
Comprehensive income (loss)	$	1,945		$	(1,704	)		$	2,913		$	(1,514	)

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
	August 31, 2023				February 28, 2023
	(Unaudited)				(Audited)
ASSETS
Cash	$	13,252			$	4,996
Accounts receivable, less allowance for credit losses of $677
and $601 at August 31, 2023 and February 28, 2023, respectively		49,060				49,499
Inventories, net		58,030				80,347
Prepaid expenses and other current assets		5,601				3,485
Prepaid income taxes		-				288
Current assets		125,943				138,615
Property and equipment, net		11,478				10,864
Right of use operating lease assets		28,859				29,515
Deferred income taxes, net		4,079				4,100
Intangibles, net		7,422				7,990
Goodwill		2,251				2,163
Other assets		2,124				2,759
Total assets	$	182,156			$	196,006
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable	$	25,007			$	26,800
Accrued liabilities		19,621				19,131
Current operating lease liabilities		5,337				4,724
Income taxes payable		272				-
Lines of credit		23,137				31,039
Current maturities of debt		101				1,916
Current liabilities		73,475				83,610
Long term debt		362				5,513
Non-current operating lease liabilities		25,635				26,710
Other long term liabilities		1,771				2,333
Total liabilities		101,243				118,166
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares
issued and outstanding at August 31, 2023 and February 28, 2023,		-				-
respectively
Common stock, 20,000 shares authorized, $.001 par value;
4,005 shares issued: 3,291 and 3,293 shares outstanding at
August 31, 2023 and February 28, 2023, respectively		4				4
Additional paid-in capital		11,635				11,449
Retained earnings		83,812				81,205
Treasury stock, 714 and 712 shares held at cost at August 31, 2023
and February 28, 2023, respectively		(9,436	)			(9,410	)
Accumulated other comprehensive income		(5,102	)			(5,408	)
Shareholders' equity		80,913				77,840
Total liabilities and shareholders' equity	$	182,156			$	196,006

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	For the Six Months Ended
	August 31, 2023				August 31, 2022
Operating activities:
Net income	$	2,607			$	475
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization		1,708				1,927
(Gain) loss on sale of property		(10	)			135
Gain from insurance recoveries		(1,293	)			-
Proceeds from settlement of insurance claims		537				-
Other non-cash adjustments		223				(171	)
Changes in assets and liabilities:
Accounts receivable		(82	)			(1,245	)
Inventories		22,101				(2,215	)
Prepaid expenses and other assets		1,468				2,580
Trade accounts payable and accrued liabilities		(3,788	)			(16,137	)
Net cash provided by (used in) operating activities		23,471				(14,651	)
Investing activities:
Capital expenditures		(1,603	)			(2,519	)
Proceeds from sale of property		36				49
Proceeds from settlement of insurance claims		1,456				-
Net cash used in investing activities		(111	)			(2,470	)
Financing activities:
Net borrowings (repayments) under lines of credit		(8,104	)			21,286
Net repayments of term loan facilities		(6,910	)			(720	)
Purchase of treasury stock		(87	)			(153	)
Principal payments on finance leases		(58	)			(56	)
Net cash provided by (used in) financing activities		(15,159	)			20,357
Effect of exchange rate changes on cash		55				(274	)
Net increase in cash		8,256				2,962
Cash at beginning of period		4,996				3,203
Cash at end of period	$	13,252			$	6,165

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except shares data)
(Unaudited)
																						Accumulated
																						Other						Total
	Preferred Stock					Common Stock					Paid-in			Retained			Treasury					Comprehensive						Shareholders'
	Shares		Amount			Shares		Amount			Capital			Earnings			Stock					Income						Equity
Balance at February 28, 2022	-		$	-		4,005,370		$	4		$	11,449		$	81,268		$	(9,124			)	$	(4,195			)		$	79,402
Net income															475														475
Unrealized currency translation adjustments																							(1,989		)				(1,989	)
Purchase of treasury stock																		(93		)									(93	)
Balance at August 31, 2022	-		$	-		4,005,370		$	4		$	11,449		$	81,743		$	(9,217			)	$	(6,184			)		$	77,795
Balance at February 28, 2023	-		$	-		4,005,370		$	4		$	11,449		$	81,205		$	(9,410			)	$	(5,408			)		$	77,840
Net income															2,607														2,607
Unrealized currency translation adjustments																							306						306
Purchase of treasury stock																		(26		)									(26	)
Stock-based compensation expense												186																	186
Balance at August 31, 2023	-		$	-		4,005,370		$	4		$	11,635		$	83,812		$	(9,436			)	$	(5,102			)		$	80,913

CONTACT:
Q.E.P. Co., Inc.
Enos Brown
Executive Vice President and
Chief Financial Officer
561-994-5550