Q.E.P. Co., Inc. Reports Fiscal 2022 Nine Month and Third Quarter Financial Results

Record Nine Month Net Sales of $339.2 million
Nine Month Net Income of $7.7 million

BOCA RATON, Fla., Jan. 10, 2022 (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 2022, which ended on November 30, 2021.

QEP reported net sales of $339.2 million for the nine months ended November 30, 2021, an increase of $51.2 million or 17.8% from the $288.0 million reported in the same period of fiscal 2021. The Company reported net sales of $111.9 million for the quarter ended November 30, 2021, an increase of $13.0 million or 13.1% from the $98.9 million reported in the same period of fiscal 2021. The increase in net sales for the first nine months and third quarter of fiscal 2022 compared to the prior year reflects strong economic activity in the current year and the adverse impact of the worldwide economic downturn caused by the COVID-19 pandemic during the first quarter of the prior year.

Lewis Gould, Executive Chairman, commented on the Company’s results, “Despite significant inflationary pressures and unprecedented disruption in the global supply chain, demand for the Company’s products remains strong in all geographic segments and channels. The Company, in close collaboration with our customers, continues to monitor the impact of rising product costs, and has implemented appropriate price increases to moderate margin erosion. We have also increased our investment in inventory to ensure product availability and service levels to our customers and continue to invest in the sales support infrastructure necessary to drive our market expansion initiatives.”

The Company’s gross profit for the first nine months of fiscal 2022 was $92.8 million compared to $81.8 million in the corresponding fiscal 2021 period, an increase of $11.0 million or 13.5%. Gross profit for the third quarter of fiscal 2022 was $30.5 million, representing an increase of $1.8 million or 6.4%, from $28.7 million in the corresponding fiscal 2021 period. The Company’s gross margin as a percentage of net sales for the first nine months and third quarter of fiscal year 2022 was 27.4% and 27.2%, respectively, which decreased from 28.4% and 29.0% in the corresponding prior fiscal year periods, respectively. The decrease in gross margin as a percentage of net sales was due to increased inbound freight and product costs that have not been fully recovered through customer price increases during the first nine months and third quarter of fiscal 2022.

Operating expenses for the first nine months and third quarter of fiscal 2022 were $81.1 million and $26.4 million, respectively, or 23.9% and 23.6% of net sales in those periods, compared to $72.8 million and $25.4 million, respectively, or 25.3% and 25.6% of net sales in the comparable fiscal 2021 periods. The increase in operating expenses was due to higher shipping costs related to sales volume, along with higher personnel and market costs from the Company’s reinvestment in sales support infrastructure that was suspended or reduced during the prior year’s economic downturn caused by the COVID-19 pandemic. Additionally, during the prior year, the Company’s non-US based operations benefited from non-recurring local government subsidies received for maintaining certain employment levels during the pandemic.

The lower interest expense during the first nine months and third quarter of fiscal 2022 compared to the same periods in the prior fiscal year was principally due to a reduction in borrowings under the Company’s credit facilities.

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 2022 and fiscal 2021.

Net income for the first nine months and third quarter of fiscal 2022 was $7.7 million and $2.7 million, respectively, or $2.31 and $0.81, respectively, per diluted share. For the comparable periods of fiscal 2021, net income was $5.5 million and $2.1 million, respectively, or $1.66 and $0.63, respectively, per diluted share.

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) before restructuring charges for the first nine months and third quarter of fiscal 2022 was $14.8 million and $5.1 million, respectively as compared to $13.5 million and $4.8 million for the first nine months and third quarter of fiscal 2021, respectively.

			For the Three Months Ended								For the Nine Months Ended
			November 30, 2021				November 30, 2020				November 30, 2021				November 30, 2020
Net income			$	2,721			$	2,104			$	7,740			$	5,535
Add:		Interest expense, net		343				391				993				1,253
		Provision for income taxes		1,058				818				3,009				2,153
		Depreciation and amortization		1,019				1,180				3,093				3,402
		Restructuring charges		-				301				-				1,110
EBITDA before restructuring charges			$	5,141			$	4,794			$	14,835			$	13,453

Cash provided by operations during the first nine months of fiscal 2022 was $5.1 million as compared to $30.6 million in the first nine months of fiscal 2021, principally reflecting an increase in investment in inventory to mitigate delays in stock replenishment caused by supply chain disruptions and the rising cost of inbound freight from Asia. During the first nine months of fiscal 2021, cash from operations was used primarily to fund capital expenditures and increase cash balances. In the prior fiscal year period, cash provided by operations was used primarily to pay down debt.

Working capital as of November 30, 2021 was $51.4 million compared to $44.7 million at the end of fiscal 2021. Aggregate debt, net of available cash balances at the end of the third quarter of fiscal 2022 was $17.6 million or 22.8% of equity, a decrease of $5.4 million compared to $23.0 million or 32.4% of equity at the end of fiscal 2021.

Conference Call Information

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

Date:		Thursday, January 13, 2022
Time:		10:00 a.m. Eastern Time
Dial-in Numbers:		888-220-8451 (US or Canada)
		+1 646-828-8193 (International)
Confirmation Code:		1589898
Replay:		719-457-0820; Passcode: 1589898

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 emergence of the world from the COVID-19 pandemic and the Company's belief that it is positioned to respond to evolving uncertainties related thereto, the Company's shifting of its focus to new challenges presented by (i) scarcity and rising cost for raw materials and transcontinental freight, (ii) the weakening U.S. Dollar, (iii) shifts in global sourcing patterns and (iv) general inflationary pressures, economic conditions, sales growth, price increases, profit improvements, 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,
	2021				2020				2021				2020
Net sales	$	111,942			$	98,941			$	339,211			$	288,008
Cost of goods sold		81,455				70,277				246,396				206,257
Gross profit		30,487				28,664				92,815				81,751
Operating expenses:
Shipping		12,248				11,544				37,461				32,516
General and administrative		7,467				6,897				22,453				20,858
Selling and marketing		6,723				6,687				21,524				18,780
Restructuring		1				301				58				1,110
Other income, net		(74	)			(78	)			(423	)			(454	)
Total operating expenses		26,365				25,351				81,073				72,810
Operating income		4,122				3,313				11,742				8,941
Interest expense, net		(343	)			(391	)			(993	)			(1,253	)
Income before provision for income taxes		3,779				2,922				10,749				7,688
Provision for income taxes		1,058				818				3,009				2,153
Net income	$	2,721			$	2,104			$	7,740			$	5,535
Earnings per share:
Basic	$	0.82			$	0.63			$	2.32			$	1.66
Diluted	$	0.81			$	0.63			$	2.31			$	1.66
Weighted average number of common
shares outstanding:
Basic		3,335				3,335				3,335				3,335
Diluted		3,344				3,343				3,345				3,338

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
	For the Three Months Ended								For the Nine Months Ended
	November 30,				November 30,				November 30,				November 30,
	2021				2020				2021				2020
Net income	$	2,721			$	2,104			$	7,740			$	5,535
Unrealized currency translation adjustments		(612	)			160				(1,281	)			835
Comprehensive income	$	2,109			$	2,264			$	6,459			$	6,370

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share values)
	November 30, 2021				February 28, 2021
	(Unaudited)				(Audited)
ASSETS
Cash	$	15,015			$	10,905
Accounts receivable, less allowance for doubtful accounts of $888
and $1,059 as of November 30, 2021 and February 28, 2021, respectively		52,959				53,183
Inventories		85,406				67,032
Prepaid expenses and other current assets		4,409				6,829
Prepaid income taxes		-				736
Current assets		157,789				138,685
Property and equipment, net		10,415				11,398
Right of use operating lease assets		16,447				16,417
Deferred income taxes, net		3,402				3,436
Intangibles, net		10,686				12,454
Goodwill		2,375				2,493
Other assets		3,333				2,840
Total Assets	$	204,447			$	187,723
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable	$	48,513			$	40,900
Accrued liabilities		26,220				23,475
Current operating lease liabilities		5,067				5,196
Income taxes payable		1,480				-
Lines of credit		21,754				21,010
Current maturities of notes payable		3,343				3,417
Current liabilities		106,377				93,998
Notes payable		7,519				9,438
Non-current operating lease liabilities		12,478				12,336
Deferred income taxes		172				172
Other long term liabilities		679				851
Total Liabilities		127,225				116,795
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares
issued and outstanding at November 30, 2021 and February 28, 2021		-				-
Common stock, 20,000 shares authorized, $.001 par value;
4,005 shares issued, and 3,309 shares outstanding at
November 30, 2021 and February 28, 2021		4				4
Additional paid-in capital		11,251				11,251
Retained earnings		79,360				71,785
Treasury stock, 696 shares held at cost at November 30, 2021
and February 28, 2021		(9,082	)			(9,082	)
Accumulated other comprehensive income		(4,311	)			(3,030	)
Shareholders' Equity		77,222				70,928
Total Liabilities and Shareholders' Equity	$	204,447			$	187,723

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	For the Nine Months Ended
	November 30,				November 30,
	2021				2020
Operating activities:
Net income	$	7,740			$	5,535
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of property		(88	)			-
Restructuring		-				(260	)
Depreciation and amortization		3,093				3,402
Other non-cash adjustments		(27	)			132
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(522	)			526
Inventories		(19,806	)			6,999
Prepaid expenses and other assets		5,401				2,155
Trade accounts payable and accrued liabilities		9,264				12,090
Net cash provided by operating activities		5,055				30,579
Investing activities:
Acquisitions		-				(448	)
Capital expenditures		(819	)			(576	)
Proceeds from sale of property		1,173				252
Net cash provided by (used in) investing activities		354				(772	)
Financing activities:
Net borrowings (repayments) under lines of credit		1,369				(18,634	)
Net borrowings (repayments) of notes payable		(2,047	)			857
Purchase of treasury stock		(90	)			(90	)
Principal payments on finance leases		(82	)			(68	)
Dividend paid		(165	)			-
Net cash used in financing activities		(1,015	)			(17,935	)
Effect of exchange rate changes on cash		(284	)			413
Net increase in cash		4,110				12,285
Cash at beginning of period		10,905				4,999
Cash at end of period	$	15,015			$	17,284

	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 29, 2020	-			$	-			3,826,642			$	4			$	11,087			$	64,887			$	(8,869	)		$	(4,368	)		$	62,741
Net income																				6,898												6,898
Unrealized currency translation adjustments																												1,338				1,338
Purchase of treasury stock																								(213	)							(213	)
Stock-based compensation expense																164																164
Stock dividend								178,728																								-
Balance at February 28, 2021	-			$	-			4,005,370			$	4			$	11,251			$	71,785			$	(9,082	)		$	(3,030	)		$	70,928
Net income																				7,740												7,740
Unrealized currency translation adjustments																												(1,281	)			(1,281	)
Dividend paid																				(165	)											(165	)
Balance at November 30, 2021	-			$	-			4,005,370			$	4			$	11,251			$	79,360			$	(9,082	)		$	(4,311	)		$	77,222

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