Q.E.P. Co., Inc. Reports Fiscal 2023 Six Month And Second Quarter Financial Results

Q.E.P. Co., Inc.

Six Month Net Sales of $232.6 million
Six Month Net Income of $0.5 million

BOCA RATON, Fla., Oct. 17, 2022 (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 2023, which ended on August 31, 2022.

QEP reported net sales of $232.6 million for the six months ended August 31, 2022, an increase of $5.3 million or 2.3% from the $227.3 million reported in the same period of fiscal 2022. The Company reported net sales of $115.5 million for the quarter ended August 31, 2022, an increase of $2.6 million or 2.4% from the $112.9 million reported in the same period of fiscal 2022. The increase in net sales for the first six months and second quarter of fiscal 2023 compared to the prior year reflects year-over-year price increases that were implemented to mitigate the impact of inflationary pressures. These price increases were partially offset by lower sales volume and the currency translation impact of the stronger U.S. Dollar during the current period.

Lewis Gould, Executive Chairman, commented on the Company’s results, “While the inflationary pressures and volatile global supply chain that adversely impacted our financial results during the first half of the year are showing some signs of abating, economic conditions remain challenging. As the operating environment continues to evolve, our team of dedicated employees remains committed to implementing our strategic plan, which includes channel and product expansion, distribution facilities consolidation and investment in core product categories.”

The Company’s gross profit for the first six months of fiscal 2023 was $60.1 million compared to $62.3 million in the corresponding fiscal 2022 period, a decrease of $2.2 million or 3.5%. Gross profit for the second quarter of fiscal 2023 was $29.2 million, representing a decrease of $1.8 million or 5.7%, from $31.0 million in the corresponding fiscal 2022 period. The Company’s gross margin as a percentage of net sales for the first six months and second quarter of fiscal year 2023 was 25.8% and 25.3%, respectively, which decreased from 27.4% and 27.5% 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 that have not been fully recovered through customer price increases and other cost reduction initiatives implemented during the first six months and second quarter of fiscal 2023.

Operating expenses for the first six months and second quarter of fiscal 2023 were $58.5 million and $29.4 million, respectively, or 25.1% and 25.4% of net sales in those periods, compared to $54.7 million and $27.4 million, respectively, or 24.1% and 24.3% of net sales in the comparable fiscal 2022 periods. The increase in operating expenses was due to higher outbound freight costs directly related to higher fuel costs. Additionally, the Company had higher personnel and marketing costs as it continues to reinvest in sales support infrastructure, including marketing displays and samples, to support the recent launch of certain flooring product lines.

The higher interest expense during the first six months and second 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 six months and second quarter for both fiscal 2023 and fiscal 2022.

Net income and net loss for the first six months and second quarter of fiscal 2023 was $0.5 million and minus $0.5 million, respectively, or $0.14 and minus $0.15, respectively, per diluted share. For the comparable periods of fiscal 2022, net income was $5.0 million and $2.4 million, respectively, or $1.50 and $0.71, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first six months and second quarter of fiscal 2023 was $3.6 million and $0.8 million, respectively, as compared to $9.7 million and $4.7 million for the first six months and second quarter of fiscal 2022, respectively.

		For the Three Months Ended							For the Six Months Ended
		August 31, 2022				August 31, 2021			August 31, 2022			August 31, 2021
Net income (loss)		$	(513	)		$	2,380		$	475		$	5,019
Add:	Interest expense, net		589				306			965			633
	Provision (benefit) for income taxes		(199	)			926			185			1,951
	Depreciation and amortization		935				1,050			1,927			2,132
EBITDA		$	812			$	4,662		$	3,552		$	9,735

Cash used in operating activities during the first six months of fiscal 2023 was $14.7 million as compared to cash provided by operating activities of $1.7 million in the first six months of fiscal 2022, principally reflecting the payment to suppliers that previously funded the increase in inventory and lower operating income in the current period. During the first six 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 August 31, 2022 was $52.6 million compared to $55.0 million at the end of fiscal 2022. Aggregate debt, net of available cash balances at the end of the second quarter of fiscal 2023, was $49.1 million or 63.1% of equity, an increase of $15.7 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:	Wednesday, October 26, 2022
Time:	10:00 a.m. Eastern Time
Dial-in Numbers:	800-274-8461 (US or Canada)
	+1-203-518-9843 (International)
Confirmation ID:	QEP2Q
Replay:	800-654-1563 (Toll Free)
	862-902-0129 (Toll)
	Access Code: 10140315

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), Apple Creek^®, 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.

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

-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,
		2022				2021				2022				2021
Net sales	$	115,519			$	112,865			$	232,602			$	227,269
Cost of goods sold		86,280				81,850				172,485				164,941
Gross profit		29,239				31,015				60,117				62,328
Operating expenses:
Shipping		13,565				12,592				27,183				25,213
General and administrative		7,589				7,911				15,156				15,043
Selling and marketing		8,169				7,073				16,273				14,801
Other (income) expense, net		39				(173	)			(120	)			(332	)
Total operating expenses		29,362				27,403				58,492				54,725
Operating income (loss)		(123	)			3,612				1,625				7,603
Interest expense, net		(589	)			(306	)			(965	)			(633	)
Income (loss) before provision for income taxes		(712	)			3,306				660				6,970
Provision (benefit) for income taxes		(199	)			926				185				1,951
Net income (loss)	$	(513	)		$	2,380			$	475			$	5,019
Earnings (loss) per share:
Basic	$	(0.15	)		$	0.71			$	0.14			$	1.50
Diluted	$	(0.15	)		$	0.71			$	0.14			$	1.50
Weighted average number of common shares outstanding:
Basic		3,338				3,335				3,340				3,335
Diluted		3,338				3,346				3,349				3,346

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,
		2022				2021				2022				2021
Net income (loss)	$	(513	)		$	2,380			$	475			$	5,019
Unrealized currency translation adjustments		(1,191	)			(543	)			(1,989	)			(669	)
Comprehensive income (loss)	$	(1,704	)		$	1,837			$	(1,514	)		$	4,350

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
	August 31, 2022				February 28, 2022
	(Unaudited)				(Audited)
ASSETS
Cash	$	6,165			$	3,203
Accounts receivable, less allowance for doubtful accounts of $748 and $807 at August 31, 2022 and February 28, 2022, respectively		55,608				55,990
Inventories, net		97,690				98,087
Prepaid expenses and other current assets		4,951				3,711
Prepaid income taxes		1,107				-
Current assets		165,521				160,991
Property and equipment, net		11,659				10,529
Right of use operating lease assets		26,761				15,485
Deferred income taxes, net		3,577				3,578
Intangibles, net		8,719				10,233
Goodwill		2,101				2,390
Other assets		5,127				3,150
Total Assets	$	223,465			$	206,356
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable	$	39,347			$	47,715
Accrued liabilities		20,135				24,919
Current operating lease liabilities		4,644				4,942
Income taxes payable		-				634
Lines of credit		46,117				26,449
Current maturities of debt		2,668				1,321
Current liabilities		112,911				105,980
Long term debt		6,463				8,797
Non-current operating lease liabilities		23,768				11,643
Other long term liabilities		2,528				534
Total Liabilities		145,670				126,954
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares issued and outstanding at August 31, 2022 and February 28, 2022, respectively		-				-
Common stock, 20,000 shares authorized, $.001 par value; 4,005 shares issued: 3,303 and 3,307 shares outstanding at August 31, 2022 and February 28, 2022, respectively		4				4
Additional paid-in capital		11,449				11,449
Retained earnings		81,743				81,268
Treasury stock, 702 and 698 shares held at cost at August 31, 2022
and February 28, 2022, respectively		(9,217	)			(9,124	)
Accumulated other comprehensive income		(6,184	)			(4,195	)
Shareholders' Equity		77,795				79,402
Total Liabilities and Shareholders' Equity	$	223,465			$	206,356

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	For the Six Months Ended
	August 31, 2022				August 31, 2021
Operating activities:
Net income	$	475			$	5,019
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Gain) loss on sale of property		135				(59	)
Depreciation and amortization		1,927				2,132
Other non-cash adjustments		(171	)			(106	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(1,245	)			(1,095	)
Inventories		(2,215	)			(10,552	)
Prepaid expenses and other assets		2,580				3,856
Trade accounts payable and accrued liabilities		(16,137	)			2,488
Net cash provided by (used in) operating activities		(14,651	)			1,683
Investing activities:
Capital expenditures		(2,519	)			(603	)
Proceeds from sale of property		49				264
Net cash used in investing activities		(2,470	)			(339	)
Financing activities:
Net borrowings under lines of credit		21,286				391
Net repayments of term loan facilities		(720	)			(102	)
Purchase of treasury stock		(153	)			(60	)
Principal payments on finance leases		(56	)			(55	)
Dividends paid		-				(165	)
Net cash provided by financing activities		20,357				9
Effect of exchange rate changes on cash		(274	)			(119	)
Net increase in cash		2,962				1,234
Cash at beginning of period		3,203				10,905
Cash at end of period	$	6,165			$	12,139

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except shares data)
																							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															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