Q.E.P. Co., Inc. Reports Fiscal 2023 Nine Month and Third Quarter Financial Results

Q.E.P. Co., Inc.

Nine Month Net Sales of $335.4 million
Nine Month Net Income of $0.7 million

BOCA RATON, Fla., Jan. 17, 2023 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTCQX: QEPC) (the “Company” or “QEP”) today reported its consolidated results of operations for the first nine months and third quarter of its fiscal year 2023, which ended on November 30, 2022.

QEP reported net sales of $335.4 million for the nine months ended November 30, 2022, a decrease of $3.8 million or 1.1% from the $339.2 million reported in the same period of fiscal 2022. The Company reported net sales of $102.8 million for the quarter ended November 30, 2022, a decrease of $9.2 million or 8.2% from the $111.9 million reported in the same period of fiscal 2022. The decrease in net sales for the first nine months and third quarter of fiscal 2023 compared to the prior year reflects lower sales volume in the most recent three months, principally in the Company’s North America flooring business, and the currency translation impact of the strong U.S. Dollar in the current period, which were only partially offset by year-over-year product price increases to customers.

Lewis Gould, Executive Chairman, commented on the Company’s results, “While profitability for the first nine months is disappointing, supply chain costs are trending down from recent unprecedented highs, inventory levels are declining towards more normalized levels and the Company is beginning to reduce its debt burden. As part of our ongoing profit improvement initiatives, we remain focused on expanding primary sales channels, investing in core products and improving or disposing of non-accretive business units.”

The Company’s gross profit for the first nine months of fiscal 2023 was $87.8 million compared to $92.8 million in the corresponding fiscal 2022 period, a decrease of $5.0 million or 5.4%. Gross profit for the third quarter of fiscal 2023 was $27.6 million, representing a decrease of $2.9 million or 9.3%, from $30.5 million in the corresponding fiscal 2022 period. The Company’s gross margin as a percentage of net sales for the first nine months and third quarter of fiscal year 2023 was 26.2% and 26.9%, respectively, which decreased from 27.4% and 27.2% in the corresponding prior fiscal year periods, respectively. The decrease in gross margin as a percentage of net sales was due to inbound freight and other product cost increases during the earlier part of the fiscal year that have not been fully recovered through customer price increases and other cost reduction initiatives.

Operating expenses for the first nine months and third quarter of fiscal 2023 were $85.1 million and $26.6 million, respectively, or 25.4% and 25.8% of net sales in those periods, compared to $81.1 million and $26.4 million, respectively, or 23.9% and 23.6% of net sales in the comparable fiscal 2022 periods. The increase in operating expenses was due to increased outbound freight costs which resulted from higher fuel costs. Additionally, the Company had higher personnel and marketing costs, including marketing displays and samples, to support recently launched flooring product lines.

The higher interest expense during the first nine months and third quarter of fiscal 2023 compared to the same periods in the prior fiscal year was due to an increase in borrowings under the Company’s credit facilities and 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 nine months and third quarter for both fiscal 2023 and fiscal 2022.

Net income for the first nine months and third quarter of fiscal 2023 was $0.7 million and $0.2 million, respectively, or $0.21 and $0.07, respectively, per diluted share. For the comparable periods of fiscal 2022, net income was $7.7 million and $2.7 million, respectively, or $2.31 and $0.81, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted for restructuring charges and business disposal for the first nine months and third quarter of fiscal 2023 was $6.0 million and $2.4 million, respectively, as compared to $14.9 million and $5.2 million for the first nine months and third quarter of fiscal 2022, respectively.

		For the Three Months Ended							For the Nine Months Ended
		November 30, 2022				November 30, 2021			November 30, 2022				November 30, 2021
Net income		$	244			$	2,721		$	719			$	7,740
Add:	Interest expense, net		734				343			1,699				993
	Provision for income taxes		94				1,058			279				3,009
	Depreciation and amortization		954				1,046			2,881				3,178
	Restructuring charges		196				-			280				-
	Gain on sales of AC Products property		(130	)			-			(130	)			-
	Loss on disposal of business		307				-			307				-
EBITDA, as adjusted		$	2,399			$	5,168		$	6,035			$	14,920

The addback for restructuring charges relate to personnel cost in the Company’s North America segment and the business disposal relates to the net loss on closure of the Company’s AC Products Co. operation, a ceramic products manufacturer located in Ohio.

Cash used in operating activities during the first nine months of fiscal 2023 was $2.2 million as compared to cash provided by operating activities of $5.1 million in the first nine months of fiscal 2022, principally reflecting the payment to suppliers for the purchase of inventory and lower operating income in the current period. During the first nine months of fiscal 2023, borrowings under the Company’s lines of credit were used to fund operating activities and capital expenditures. In the prior fiscal year period, cash provided by operations was used primarily to fund capital expenditures and increase cash balances.

Working capital as of November 30, 2022 was $54.3 million compared to $55.0 million at the end of fiscal 2022. Aggregate debt, net of available cash balances at the end of the third quarter of fiscal 2023, was $37.1 million or 47.3% of equity, an increase of $3.7 million compared to $33.4 million or 42.0% of equity at the end of fiscal 2022.

Conference Call Information

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

Date:	Thursday, January 19, 2023
Time:	10:00 a.m. Eastern Time
Dial-in Numbers:	800-245-3047 (US or Canada)
	203-518-9765 (International)
Confirmation ID:	QEP3Q
Replay:	800-654-1563 (Toll Free)
	862-902-0129 (Toll)
	Access Code: 11621632

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 and installation solutions for commercial and home improvement projects worldwide. QEP offers a comprehensive line of specialty installation tools, adhesives, and underlayment as well as a complete line of hardwood, luxury vinyl, and modular carpet tile. QEP sells its products throughout the world to home improvement retail centers, professional specialty distribution outlets, and flooring dealers under brand names including QEP®, LASH®, ROBERTS®, Vitrex®, Brutus®, PRCI®, Plasplugs®, Tomecanic®, Premix-Marbletite® (PMM), Homelux®, Capitol® and XPS Foam™.   Brand names featured under QEP’s Harris Flooring Group® include Harris®, Kraus® and Naturally Aged Flooring™.

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

This press release contains forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 the Company's shifting of its focus to new challenges presented by (i) scarcity and rising cost of raw materials and transcontinental freight, (ii) shifts in global sourcing patterns; and (iii) general inflationary pressures, economic conditions, sales growth, price increases, maintaining and improving profitability, product development and marketing, operating expenses, cost savings, acquisition integration, operational synergy realization, global sourcing, political uncertainty, cash flow, debt and currency exchange rates. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties. 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 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 Nine Months Ended
		November 30,				November 30,				November 30,				November 30,
			2022				2021				2022				2021
	Net sales	$	102,789			$	111,942			$	335,391			$	339,211
	Cost of goods sold		75,147				81,455				247,632				246,396
	Gross profit		27,642				30,487				87,759				92,815
	Operating expenses:
	Shipping		11,902				12,248				39,085				37,461
	General and administrative		7,878				7,468				23,034				22,511
	Selling and marketing		6,730				6,723				23,003				21,524
	Other (income) expense, net		60				(74	)			(60	)			(423	)
	Total operating expenses		26,570				26,365				85,062				81,073
	Operating income		1,072				4,122				2,697				11,742
	Interest expense, net		(734	)			(343	)			(1,699	)			(993	)
	Income before provision for income taxes		338				3,779				998				10,749
	Provision for income taxes		94				1,058				279				3,009
	Net income	$	244			$	2,721			$	719			$	7,740
	Earnings per share:
	Basic	$	0.07			$	0.82			$	0.22			$	2.32
	Diluted	$	0.07			$	0.81			$	0.21			$	2.31
	Weighted average number of common
	shares outstanding:
	Basic		3,332				3,335				3,337				3,335
	Diluted		3,339				3,344				3,346				3,345

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
	For the Three Months Ended							For the Nine Months Ended
	November 30,			November30,				November 30,				November 30,
		2022			2021				2022				2021
Net income	$	244		$	2,721			$	719			$	7,740
Unrealized currency translation adjustments		521			(612	)			(1,468	)			(1,281	)
Comprehensive income (loss)	$	765		$	2,109			$	(749	)		$	6,459

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
	November 30, 2022				February 28, 2022
	(Unaudited)				(Audited)
ASSETS
Cash	$	7,472			$	3,203
Accounts receivable, less allowance for doubtful accounts of $802
and $807 at November 30, 2022 and February 28, 2022, respectively		49,919				55,990
Inventories, net		91,206				98,087
Prepaid expenses and other current assets		4,269				3,711
Prepaid income taxes		1,110				-
Current assets		153,976				160,991
Property and equipment, net		10,809				10,529
Right of use operating lease assets		30,393				15,485
Deferred income taxes, net		3,569				3,578
Intangibles, net		8,380				10,233
Goodwill		2,151				2,390
Other assets		4,857				3,150
Total Assets	$	214,135			$	206,356
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable	$	36,260			$	47,715
Accrued liabilities		20,292				24,919
Current operating lease liabilities		4,714				4,942
Income taxes payable		-				634
Lines of credit		34,424				26,449
Current maturities of debt		3,943				1,321
Current liabilities		99,633				105,980
Long term debt		6,185				8,797
Non-current operating lease liabilities		27,497				11,643
Other long term liabilities		2,438				534
Total Liabilities		135,753				126,954
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares
issued and outstanding at November 30, 2022 and February 28, 2022,		-				-
respectively
Common stock, 20,000 shares authorized, $.001 par value;
4,005 shares issued: 3,294 and 3,307 shares outstanding at
November 30, 2022 and February 28, 2022, respectively		4				4
Additional paid-in capital		11,449				11,449
Retained earnings		81,987				81,268
Treasury stock, 711 and 698 shares held at cost at November 30, 2022
and February 28, 2022, respectively		(9,395	)			(9,124	)
Accumulated other comprehensive income		(5,663	)			(4,195	)
Shareholders' Equity		78,382				79,402
Total Liabilities and Shareholders' Equity	$	214,135			$	206,356

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	For the Nine Months Ended
	November 30, 2022				November 30, 2021
Operating activities:
Net income	$	719			$	7,740
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Loss on disposal of business		307				-
(Gain) loss on sale of property		9				(88	)
Depreciation and amortization		2,881				3,178
Other non-cash adjustments		(75	)			(27	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		6,130				(522	)
Inventories		3,447				(19,806	)
Prepaid expenses and other assets		4,684				5,316
Trade accounts payable and accrued liabilities		(20,322	)			9,264
Net cash provided by (used in) operating activities		(2,220	)			5,055
Investing activities:
Capital expenditures		(4,451	)			(819	)
Proceeds from sale of property		1,388				1,173
Net cash provided by (used in) investing activities		(3,063	)			354
Financing activities:
Net borrowings under lines of credit		9,787				1,369
Net repayments of term loan facilities		268				(2,047	)
Purchase of treasury stock		(203	)			(90	)
Principal payments on finance leases		(84	)			(82	)
Dividends paid		-				(165	)
Net cash provided by (used in) financing activities		9,768				(1,015	)
Effect of exchange rate changes on cash		(216	)			(284	)
Net increase in cash		4,269				4,110
Cash at beginning of period		3,203				10,905
Cash at end of period	$	7,472			$	15,015

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, 2021	-		$	-		4,005,370		$	4		$	11,251		$	71,785			$	(9,082			)	$	(3,030			)		$	70,928
Net income															9,648															9,648
Unrealized currency translation adjustments																								(1,165		)				(1,165	)
Purchase of treasury stock																			(42		)									(42	)
Stock-based compensation expense												198																		198
Dividends paid															(165	)														(165	)
Balance at February 28, 2022	-		$	-		4,005,370		$	4		$	11,449		$	81,268			$	(9,124			)	$	(4,195			)		$	79,402
Net income															719															719
Unrealized currency translation adjustments																								(1,468		)				(1,468	)
Purchase of treasury stock																			(271		)									(271	)
Balance at November 30, 2022	-		$	-		4,005,370		$	4		$	11,449		$	81,987			$	(9,395		)		$	(5,663		)			$	78,382

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