Record Six Month Net Sales of $227.3 million
Six Month Net Income of $5.0 million
BOCA RATON, Fla., Oct. 14, 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 2023, which ended on August 31, 2023.
QEP reported net sales of $227.3 million for the six months ended August 31, 2023, an increase of $38.2 million or 20.2% from the $189.1 million reported in the same period of fiscal 2023. The Company reported net sales of $112.9 million for the quarter ended August 31, 2023, an increase of $9.8 million or 9.5% from the $103.1 million reported in the same period of fiscal 2023. The increase in net sales for the first six months and second quarter of fiscal 2023 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, “We continue to be pleased with the Company’s year-over-year sales growth in both the second quarter and first six months of the current fiscal year. Demand for the Company’s products remains strong in all geographic segments and channels, despite significant inflationary pressure and unprecedented disruptions in the global supply chain. The Company, in collaboration with its customers, has implemented a series of price increases to moderate the impact of rising product costs. We continue to relentlessly follow our growth plan.”
Mr. Gould concluded, “The Company remains steadfast in balancing the need to maintain profitability while investing in the resources necessary to continue our market expansion.”
The Company’s gross profit for the first six months of fiscal 2023 was $62.3 million compared to $53.1 million in the corresponding fiscal 2023 period, an increase of $9.2 million or 17.4%. Gross profit for the second quarter of fiscal 2023 was $31.0 million, representing an increase of $1.6 million or 5.4%, from $29.4 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 2023 was 27.4% and 27.5%, respectively, which decreased from 28.1% and 28.5% 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 product cost increases that have not been fully recovered through customer price negotiations 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 $54.7 million and $27.4 million, respectively, or 24.1% and 24.3% of net sales in those periods, compared to $47.5 million and $25.2 million, respectively, or 25.1% and 24.4% of net sales in the comparable fiscal 2023 periods. The increase in operating expenses was due to higher shipping costs related to sales volume, along with higher personnel and market costs as the Company reinvested in sales support infrastructure that was eliminated or reduced during the prior year in response to the economic downturn caused by the COVID-19 pandemic. Additionally, during the prior year, the Company’s non-US based operations benefited from local government subsidies received for maintaining certain employment levels during the pandemic.
The lower interest expense during the first six months and second quarter of fiscal 2023 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 incomes before taxes was 28.0% for the first six months and second quarter for both fiscal 2023 and fiscal 2023.
Net income for the first six months and second quarter of fiscal 2023 was $5.0 million and $2.4 million, respectively, or $1.50 and $0.71, respectively, per diluted share. For the comparable periods of fiscal 2023, net income was $3.4 million and $2.7 million, respectively, or $1.03 and $0.82, respectively, per diluted share.
Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) for the first six months and second quarter of fiscal 2023 was $9.7 million and $4.6 million, respectively as compared to $7.8 million and $5.3 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, 2020 | August 31, 2023 | August 31, 2020 | ||||||||||
| Net income | $ | 2,380 | $ | 2,743 | $ | 5,019 | $ | 3,431 | |||||
| Add: | Interest expense, net | 306 | 442 | 633 | 845 | ||||||||
| Provision for income taxes | 926 | 1,067 | 1,951 | 1,334 | |||||||||
| Depreciation and amortization | 1,021 | 1,082 | 2,074 | 2,222 | |||||||||
| EBITDA | $ | 4,633 | $ | 5,334 | $ | 9,677 | $ | 7,832 | |||||
Cash provided by operations during the first six months of fiscal 2023 was $1.7 million as compared to $20.8 million in the first six months of fiscal 2023, 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 six months of fiscal 2023, 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 August 31, 2023 was $48.4 million compared to $44.7 million at the end of fiscal 2023. Aggregate debt, net of available cash balances at the end of the second quarter of fiscal 2023 was $22.0 million or 29.3% of equity, a decrease of $1.0 million compared to $23.0 million or 32.4% 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: | Thursday, October 21, 2023 |
| Time: | 10:00 a.m. Eastern Time |
| Dial-in Numbers: | 800-353-6461 (US or Canada) |
| +1 334-323-0501 (International) | |
| Confirmation Code: | 3331272 |
| Replay: | 719-457-0820; Passcode: 3331272 |
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.
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, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales | $ | 112,865 | $ | 103,051 | $ | 227,269 | $ | 189,067 | ||||||||
| Cost of goods sold | 81,850 | 73,632 | 164,941 | 135,980 | ||||||||||||
| Gross profit | 31,015 | 29,419 | 62,328 | 53,087 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Shipping | 12,592 | 11,251 | 25,213 | 20,973 | ||||||||||||
| General and administrative | 7,911 | 8,000 | 15,043 | 14,770 | ||||||||||||
| Selling and marketing | 7,073 | 6,189 | 14,801 | 12,093 | ||||||||||||
| Other income, net | (173 | ) | (273 | ) | (332 | ) | (359 | ) | ||||||||
| Total operating expenses | 27,403 | 25,167 | 54,725 | 47,477 | ||||||||||||
| Operating income | 3,612 | 4,252 | 7,603 | 5,610 | ||||||||||||
| Interest expense, net | (306 | ) | (442 | ) | (633 | ) | (845 | ) | ||||||||
| Income before provision for income taxes | 3,306 | 3,810 | 6,970 | 4,765 | ||||||||||||
| Provision for income taxes | 926 | 1,067 | 1,951 | 1,334 | ||||||||||||
| Net income | $ | 2,380 | $ | 2,743 | $ | 5,019 | $ | 3,431 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.71 | $ | 0.82 | $ | 1.50 | $ | 1.03 | ||||||||
| Diluted | $ | 0.71 | $ | 0.82 | $ | 1.50 | $ | 1.03 | ||||||||
| Weighted average number of common | ||||||||||||||||
| shares outstanding: | ||||||||||||||||
| Basic | 3,335 | 3,335 | 3,335 | 3,335 | ||||||||||||
| Diluted | 3,346 | 3,337 | 3,346 | 3,336 | ||||||||||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||
| (In thousands) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | ||||||||||||||||
| August 31, | August 31, | August 31, | August 31, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||
| Net income | $ | 2,380 | $ | 2,743 | $ | 5,019 | $ | 3,431 | |||||||||
| Unrealized currency translation adjustments | (543 | ) | 815 | (669 | ) | 675 | |||||||||||
| Comprehensive income | $ | 1,837 | $ | 3,558 | $ | 4,350 | $ | 4,106 | |||||||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED BALANCE SHEETS | |||||||
| (In thousands except per share values) | |||||||
| August 31, 2023 | February 28, 2023 | ||||||
| (Unaudited) | (Audited) | ||||||
| ASSETS | |||||||
| Cash | $ | 12,139 | $ | 10,905 | |||
| Accounts receivable, less allowance for doubtful accounts of $847 | |||||||
| and $1,059 as of August 31, 2023 and February 28, 2023, respectively | 53,960 | 53,183 | |||||
| Inventories | 76,931 | 67,032 | |||||
| Prepaid expenses and other current assets | 5,906 | 6,829 | |||||
| Prepaid income taxes | 384 | 736 | |||||
| Current assets | 149,320 | 138,685 | |||||
| Property and equipment, net | 10,863 | 11,398 | |||||
| Right of use operating lease assets | 17,305 | 16,417 | |||||
| Deferred income taxes, net | 3,408 | 3,436 | |||||
| Intangibles, net | 11,367 | 12,454 | |||||
| Goodwill | 2,454 | 2,493 | |||||
| Other assets | 2,932 | 2,840 | |||||
| Total Assets | $ | 197,649 | $ | 187,723 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Trade accounts payable | $ | 40,009 | $ | 40,900 | |||
| Accrued liabilities | 29,122 | 23,475 | |||||
| Current operating lease liabilities | 5,424 | 5,196 | |||||
| Lines of credit | 21,289 | 21,010 | |||||
| Current maturities of notes payable | 5,107 | 3,417 | |||||
| Current liabilities | 100,951 | 93,998 | |||||
| Notes payable | 7,722 | 9,438 | |||||
| Non-current operating lease liabilities | 12,985 | 12,336 | |||||
| Deferred income taxes | 172 | 172 | |||||
| Other long term liabilities | 706 | 851 | |||||
| Total Liabilities | 122,536 | 116,795 | |||||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares | |||||||
| issued and outstanding at August 31, 2023 and February 28, 2023 | – | – | |||||
| Common stock, 20,000 shares authorized, $.001 par value; | |||||||
| 4,005 shares issued, and 3,309 shares outstanding at | |||||||
| August 31, 2023 and February 28, 2023 | 4 | 4 | |||||
| Additional paid-in capital | 11,251 | 11,251 | |||||
| Retained earnings | 76,639 | 71,785 | |||||
| Treasury stock, 696 shares held at cost at August 31, 2023 | |||||||
| and February 28, 2023 | (9,082 | ) | (9,082 | ) | |||
| Accumulated other comprehensive income | (3,699 | ) | (3,030 | ) | |||
| Shareholders’ Equity | 75,113 | 70,928 | |||||
| Total Liabilities and Shareholders’ Equity | $ | 197,649 | $ | 187,723 | |||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
| (In thousands) | |||||||
| (Unaudited) | |||||||
| For the Six Months Ended | |||||||
| August 31, | August 31, | ||||||
| 2021 | 2020 | ||||||
| Operating activities: | |||||||
| Net income | $ | 5,019 | $ | 3,431 | |||
| Adjustments to reconcile net income to net cash | |||||||
| provided by operating activities: | |||||||
| Gain on sale of property | (59 | ) | – | ||||
| Depreciation and amortization | 2,074 | 2,222 | |||||
| Other non-cash adjustments | (106 | ) | 63 | ||||
| Changes in assets and liabilities, net of acquisitions: | |||||||
| Accounts receivable | (1,095 | ) | (3,259 | ) | |||
| Inventories | (10,552 | ) | 7,831 | ||||
| Prepaid expenses and other assets | 3,914 | 3,419 | |||||
| Trade accounts payable and accrued liabilities | 2,488 | 7,076 | |||||
| Net cash provided by operating activities | 1,683 | 20,783 | |||||
| Investing activities: | |||||||
| Acquisitions | – | (436 | ) | ||||
| Capital expenditures | (603 | ) | (364 | ) | |||
| Proceeds from sale of property | 264 | 168 | |||||
| Net cash used in investing activities | (339 | ) | (632 | ) | |||
| Financing activities: | |||||||
| Net borrowings (repayments) under lines of credit | 391 | (18,709 | ) | ||||
| Net borrowings (repayments) of notes payable | (102 | ) | 1,658 | ||||
| Purchase of treasury stock | (60 | ) | (60 | ) | |||
| Principal payments on finance leases | (55 | ) | (39 | ) | |||
| Dividends | (165 | ) | – | ||||
| Net cash provided by (used in) financing activities | 9 | (17,150 | ) | ||||
| Effect of exchange rate changes on cash | (119 | ) | 226 | ||||
| Net increase in cash | 1,234 | 3,227 | |||||
| Cash at beginning of period | 10,905 | 4,999 | |||||
| Cash at end of period | $ | 12,139 | $ | 8,226 | |||
| 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 dividends | 178,728 | – | – | ||||||||||||||||||||||||||||
| Balance at February 28, 2023 | – | $ | – | 4,005,370 | $ | 4 | $ | 11,251 | $ | 71,785 | $ | (9,082 | ) | $ | (3,030 | ) | $ | 70,928 | |||||||||||||
| Net income | 5,019 | 5,019 | |||||||||||||||||||||||||||||
| Unrealized currency translation adjustments | (669 | ) | (669 | ) | |||||||||||||||||||||||||||
| Dividends paid | (165 | ) | (165 | ) | |||||||||||||||||||||||||||
| Balance at August 31, 2023 | – | $ | – | 4,005,370 | $ | 4 | $ | 11,251 | $ | 76,639 | $ | (9,082 | ) | $ | (3,699 | ) | $ | 75,113 | |||||||||||||
