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Q.E.P. Co., Inc. Reports Record Sales for the First Quarter of Fiscal 2020

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BOCA RATON, Fla., July 10, 2019 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the “Company” or “Q.E.P.”) today reported its consolidated results of operations for the first quarter of its fiscal year ending February 29, 2020.

Q.E.P. reported net sales of $102.6 million for the quarter ended May 31, 2019, an increase of $14.7 million or 16.8% from the $87.9 million reported in the first quarter of fiscal 2019. Net sales growth for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 reflects the positive impact of businesses acquired during fiscal 2019, offset by reductions due to the divestiture of certain non-core product lines, declines in certain core product categories and the impact of currency translation due to weakening currencies in Europe and Australia. As a percentage of net sales, gross margin was 26.1% in the first quarter of fiscal 2020, as compared to 27.5% in the first quarter of fiscal 2019.

Lewis Gould, Chairman of the Board of Directors, commented on the Company’s results, “We are pleased with the Company’s sales growth that has been achieved through our ongoing acquisition strategy. During the first quarter, we continued to make investments in new products, samples and displays for our distributors. While these investments negatively impacted the quarter’s results, they are expected to benefit us in the future. We also worked to right-size the cost structure of these businesses by reducing headcount and integrating back office operations, which should also benefit future quarters.”

Mr. Gould continued, “We continue to work hard to offset the impact of product, manufacturing and shipping costs as well as tariffs in our core business as well as generate new business from sale of domestic manufactured goods that are not subject to tariff in the United States.”

Mr. Gould concluded, “We have worked diligently through a period of significant investment in the Company’s future and believe the Company is now better positioned for future earnings growth.”

The Company’s gross profit for the first quarter of fiscal 2020 was $26.8 million, representing an increase of $2.7 million, or 11.0% from $24.1 million in the first quarter of fiscal 2019, which was driven by the same factors that impacted sales growth. Gross margin as a percentage of net sales was negatively impacted by changes in product mix; costs related to facility, production and product rationalization, increased transportation, product and manufacturing costs; and higher tariffs placed on the products the Company imports from China.

Operating expenses for the first quarter of fiscal 2020 and 2019 were $30.4 million or 29.6% of net sales and $22.0 million or 25.0% of net sales, respectively. The increase in operating expenses was due to the incremental costs assumed with the businesses acquired during the fiscal 2019 and one-time costs related to restructuring activity.

The increase in interest expense during the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 was due to incremental borrowings under the Company’s credit facilities to fund acquisitions and support sales growth, along with increases in interest rates.

The benefit for income taxes as a percentage of income before taxes was 28.0% for the first quarter of fiscal 2020, as compared to a provision for income taxes of 28.0% for the first quarter of fiscal 2019.

Net loss for the first quarter of fiscal 2020 was $1.3 million or $.42 per diluted share, compared to net income of $1.4 million or $.44 per diluted share for the first quarter of fiscal 2019.

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) as adjusted for non-operating income, corporate development and other one-time expenses for the first quarter of fiscal 2020 was a loss of $2.1 million compared to income of $3.3 million for the first quarter of fiscal 2019.

For the Three Months

Ended

May 31,

2019

2018

Net income (loss)

$

(1,320

)

$

1,422

Add:

Interest expense, net

678

180

(Benefit)/Provision for income taxes

(513

)

553

Depreciation and amortization

1,190

919

Non-operating income

(2,399

)

-

Corporate development and other expenses

234

259

EBITDA as adjusted for corporate development

and other expenses (1)

$

(2,130

)

$

3,333

(1) EBITDA as adjusted for corporate development and other one-time expenses represent non-GAAP measures and exclude charges or credits not indicative of our core operations, which may include but are not limited to corporate development expenses, acquisition integration and acquisition costs.

Cash used in operations during the first quarter of fiscal 2020 was $4.5 million as compared to cash provided by operations of $4.2 million in the first quarter of fiscal 2019, reflecting a decrease in operating income and an increase in net investments in working capital, principally inventory and accounts receivable. During the first quarter of fiscal 2020, the Company sold certain non-core product lines and recorded a gain on the sale of $2.4 million before income taxes, which is recorded in non-operating income. During the first quarter of fiscal 2019, the Company acquired businesses for $14.3 million. In the first quarter of fiscal 2020, operations, capital expenditures and seasonal inventory growth were funded through cash on-hand, proceeds from the sale of a product line and borrowings under the Company’s credit facilities. In the prior year’s first quarter, investments in acquisitions and capital expenditures were funded by cash from operations and net borrowings

Working capital as of May 31, 2020 was $39.0 million compared to $43.9 million at the end of fiscal 2019. Aggregate debt, net of available cash balances at the end of the first quarter of fiscal was $55.5 million or 75% of equity, a decrease of $0.3 million compared to $55.8 million or 74% of equity at the end of fiscal 2019.

The Company will be hosting a conference call to discuss these results and to answer your questions at 10:00 a.m. Eastern Time on Tuesday, July 16, 2019. If you would like to join the conference call, dial 1-866-548-4713 toll free from the US or 1-323-794-2093 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Investor Conference Call / Conference ID 8924732. A replay of the conference call will be available until midnight July 23, 2019 by calling 1-844-512-2921 toll free from the US and entering pin number 8924732; internationally, please call 1-412-317-6671 using the same pin number.

Q.E.P. Co., Inc., founded in 1979, is a world class, worldwide provider of innovative, quality and value-driven flooring and industrial solutions. As a leading manufacturer, marketer and distributor, QEP delivers a comprehensive line of hardwood and laminate flooring, flooring installation tools, adhesives and flooring related products targeted for the professional installer as well as the do-it-yourselfer. In addition, the Company provides industrial tools with cutting edge technology to the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Kraus®, Naturally Aged Flooring®, Vitrex®, Homelux®, TileRite®, PRCI®, Plasplugs®, Porta-Nails®, Tomecanic®, Bénètiere®, Elastiment®, X-TREME Board™ and AppleCreek™, the Company sells its products to home improvement retail centers, specialty distribution outlets, municipalities and industrial solution providers in 50 states and throughout the world.

This press release contains forward-looking statements, including 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. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Certain prior period amounts have been reclassified to conform to current presentation.

-Financial Information Follows-

Q.E.P. CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands except per share data)

(Unaudited)

For the Three Months Ended

May 31,

2019

2018

Net sales

$

102,604

$

87,876

Cost of goods sold

75,777

63,718

Gross profit

26,827

24,158

Operating expenses:

Shipping

11,238

8,091

General and administrative

9,858

8,107

Selling and marketing

9,463

5,962

Other income, net

(178

)

(157

)

Total operating expenses

30,381

22,003

Operating income

(3,554

)

2,155

Non-operating income

2,399

-

Interest expense, net

(678

)

(180

)

Income (loss) before provision for income taxes

(1,833

)

1,975

Provision (benefit) for income taxes

(513

)

553

Net income (loss)

$

(1,320

)

$

1,422

Earnings per share:

Basic

$

(0.42

)

$

0.45

Diluted

$

(0.42

)

$

0.44

Weighted average number of common

shares outstanding:

Basic

3,160

3,194

Diluted

3,160

3,196


Q.E.P. CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

For the Three Months Ended

May 31,

2019

2018

Net income (loss)

$

(1,320

)

$

1,422

Unrealized currency translation adjustments

(548

)

(582

)

Comprehensive income (loss)

$

(1,868

)

$

840


Q.E.P. CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except per share values)

May 31,
2019

February 28,
2019

(Unaudited)

(Audited)

ASSETS

Cash

$

4,726

$

6,467

Accounts receivable, less allowance for doubtful accounts of $768

and $751 as of May 31, 2019 and February 28, 2019, respectively

48,449

53,295

Inventories

81,239

91,684

Prepaid expenses and other current assets

7,033

7,360

Current assets

141,447

158,806

Property and equipment, net

16,151

16,695

Deferred income taxes, net

3,277

3,271

Intangibles, net

15,390

16,815

Goodwill

6,014

6,140

Other assets

20,494

1,056

Total Assets

$

202,773

$

202,783

LIABILITIES AND SHAREHOLDERS' EQUITY

Trade accounts payable

$

28,484

$

36,611

Accrued liabilities

26,794

29,358

Income taxes payable (prepaid)

(2,806

)

(2,217

)

Lines of credit

47,584

49,398

Current maturities of notes payable

2,355

1,733

Current liabilities

102,411

114,883

Notes payable

10,307

11,101

Deferred income taxes

193

193

Other long term liabilities

16,208

1,084

Total Liabilities

129,119

127,261

Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares

issued and outstanding at May 31, 2019 and February 28, 2019

-

-

Common stock, 20,000 shares authorized, $.001 par value;

3,821 shares issued, and 3,142 shares outstanding at

May 31, 2019 and February 28, 2019

4

4

Additional paid-in capital

10,963

10,963

Retained earnings

75,709

77,029

Treasury stock, 679 shares held at cost at May 31, 2019

and February 28, 2019

(8,700

)

(8,700

)

Accumulated other comprehensive income

(4,322

)

(3,774

)

Shareholders' Equity

73,654

75,522

Total Liabilities and Shareholders' Equity

$

202,773

$

202,783


Q.E.P. CO., INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

For the Three Months Ended

May 31,

2019

2018

Operating activities:

Net income (loss)

$

(1,320

)

$

1,422

Adjustments to reconcile net income to net cash

provided by operating activities:

Gain on sale of business

(2,399

)

-

Depreciation and amortization

1,190

919

Other non-cash adjustments

91

46

Changes in assets and liabilities, net of acquisitions:

Accounts receivable

4,001

(1,800

)

Inventories

7,385

(308

)

Prepaid expenses and other assets

(19,174

)

(642

)

Trade accounts payable and accrued liabilities

5,767

4,607

Net cash provided (used in) by operating activities

(4,459

)

4,244

Investing activities:

Acquisitions

(875

)

(14,254

)

Capital expenditures

(313

)

(948

)

Proceeds from sale of business

4,691

-

Proceeds from sale of property

84

18

Net cash provided by (used in) investing activities

3,587

(15,184

)

Financing activities:

Net borrowings (repayment) under lines of credit

(525

)

1,077

Net borrowings (repayments) of notes payable

(89

)

(214

)

Purchase of treasury stock

(30

)

(30

)

Net cash provided (used in) financing activities

(644

)

833

Effect of exchange rate changes on cash

(225

)

(59

)

Net decrease in cash

(1,741

)

(10,166

)

Cash at beginning of period

6,467

16,134

Cash at end of period

$

4,726

$

5,968

CONTACT:
Q.E.P. Co., Inc.
Mark S. Walter
Senior Vice President and
Chief Financial Officer
561-994-5550