×

Q.E.P. Co., Inc. Reports Fiscal 2014 Six Month and Second Quarter Sales and Earnings

Record Six Month Sales – $159.8 Million
Record Second Quarter Sales – $76.4 Million

Six Month Net Income – $6.9 Million
Second Quarter Net Income – $1.8 Million

BOCA RATON, Fla., Sept. 24, 2013 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the "Company") today reported its consolidated results of operations for the first six months and second quarter of its fiscal year ending February 28, 2014.

The Company reported record net sales of $159.8 million for the six months ended August 31, 2013, an increase of $18.9 million or 13.4% from the $140.9 million reported in the same period of fiscal 2013. As a percentage of net sales, gross profit was 28.4% in the first six months of fiscal 2014 compared to 28.8% in the first six months of fiscal 2013.

Net sales for the second quarter of fiscal 2014 also reached a record $76.4 million and reflected a gross profit margin of 28.4% compared to net sales of $71.0 million and a gross profit margin of 28.8% for the second quarter of fiscal 2013.

Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are pleased to report that our ongoing strategy focusing on synergistic acquisitions continues to diversify our product offerings and customer base, and our position in the global marketplace. Continued margin pressures, particularly in our North American operations, further support the importance of this strategic focus. As we execute our acquisition strategy and embark on additional sales and marketing initiatives in both the US and internationally, our operating performance should improve. While there can be no guarantees that we will be successful in identifying and completing future acquisitions, we remain optimistic about the opportunities in the market."

The growth in net sales for the three and six month periods ended August 31, 2013 as compared to the comparable periods in the prior fiscal year reflects the impact of our acquisitions of the Homelux and Plasplugs businesses in Europe as well as the Imperial, Nupla and Ludell businesses in the US. Also contributing to the increase was a modest expansion of product lines with existing customers in the Company's operations outside North America. Nonetheless, during the fiscal 2014 second quarter, the cumulative impact of the late fiscal 2013 price decreases and fiscal 2014 second quarter impact of discontinued purchases of certain products by a significant customer in the US and the overall impact of changes in currency exchange rates offset the growth in net sales excluding acquisitions.

The Company's gross profit for the six months ended August 31, 2013 and the second quarter of fiscal 2014 was $45.4 million and $21.7 million, respectively, an increase of $4.8 million or 11.8% and $1.2 million or 6.0%, respectively, as compared to gross profit of $40.6 million and $20.5 million, respectively, during the comparable fiscal 2013 periods. The increase in gross profit reflects the result of acquisitions offset by price decreases and discontinued purchases of certain products by a significant customer, as well as cost increases on certain raw materials and overall changes in currency exchange rates. The decrease in the Company's gross profit as a percentage of net sales for both the quarter and year-to-date as compared to the comparable periods in the prior fiscal year principally reflects changes in the product mix, reduced pricing in our North American mass merchant channel and increases in the cost of raw materials.

Operating expenses for the first six months and second quarter of fiscal 2014 were $39.1 million and $18.9 million, respectively, or 24.5% and 24.7% of net sales in those periods, compared to $33.5 million and $17.1 million, respectively, or 23.8% and 24.1% of net sales in the comparable fiscal 2013 periods. The increase in operating expenses is principally associated with acquisitions and investments in sales and marketing infrastructure as well as US direct marketing costs, offset by a decrease in acquisition and integration costs, and the impact of changes in currency exchange rates.

Non-operating income for the first six months of fiscal 2014 represents the gain related to the sale and leaseback of a Company facility in Canada, net of selling costs and the present value of future lease payments.

Increased interest expense for each of the periods during fiscal 2014 as compared to the comparable periods in fiscal 2013 principally related to the financing of acquisitions, net of cash provided by the sale of the Company's Canadian facility and cash provided by operations.

The provision for income taxes as a percentage of income before taxes for the first six months and second quarter of fiscal 2014 was 24.6% and 31.0%, respectively, compared to 37.0% and 37.6%, respectively, for the comparable periods of fiscal 2013. The effective tax rate in fiscal 2014 reflects the favorable rate impact of the sale of our Canadian property during the first quarter of the fiscal year and the relative contribution of the Company's earnings sourced from jurisdictions with differing statutory tax rates.

Net income for the first six months and second quarter of fiscal 2014 was $6.9 million and $1.8 million, respectively, or $2.09 and $0.54, respectively, per diluted share. For the comparable periods of fiscal 2013, net income was $4.2 million and $2.0 million, respectively, or $1.27 and $.59, respectively, per diluted share.

On September 19, 2013, the Company's administrative and warehousing facility located outside of Melbourne, Australia, was largely destroyed by fire and the facility is currently not usable. The Company is in the process of assessing the impact to its operations and implementing contingency plans. While the Company is insured against casualties, based on information currently available, it expects to incur some loss associated with the fire, which will be recorded in the Company's third quarter results. In addition, the interruption of the Company's ongoing operations in Australia will affect its future operating results. As a result of its recent occurrence, the Company currently is unable to estimate the impact of the interruption on its future results of operations, although the impact could be material during the remainder of the current fiscal year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) and non-operating income for the first six months and second quarter of fiscal 2014 were $8.4 million and $3.8 million, respectively, as compared to $8.4 million and $4.1 million, respectively, for the comparable periods of fiscal 2013.

For the Three Months For the Six Months
Ended August 31, Ended August 31,
2013 2012 2013 2012
Net income $ 1,766 $ 1,961 $ 6,908 $ 4,246
Add (deduct): Interest expense, net 233 193 487 357
Provision for income taxes 793 1,180 2,259 2,495
Depreciation and amortization 1,038 725 2,120 1,327
Gain on sale of property -- -- (3,379) --
EBITDA before non-operating income $ 3,830 $ 4,059 $ 8,395 $ 8,425

Increased depreciation and amortization expenses during fiscal 2014 principally is related to acquisitions.

Cash provided by operations during the first six months of fiscal 2014 was $3.2 million as compared to $4.0 million in the first six months of fiscal 2013, reflecting both the decrease in operating income and additional investments in working capital. Investments in acquisitions totaling $23.8 million during the first six months of fiscal 2014 combined with capital expenditures and the Company's continuing treasury stock program were funded through a combination of borrowings, proceeds from the sale of a Canadian property and cash from operations. During fiscal 2013, Company investments in acquisitions of $7.4 million, capital expenditures and treasury stock purchases were funded by borrowings and cash flow from operations.

Working capital at the end of the Company's fiscal 2014 second quarter was $26.3 million compared to $38.0 million at the end of the 2013 fiscal year. Aggregate debt at the end of the Company's fiscal 2014 second quarter was $32.9 million or 57.0% of equity compared to $15.3 million or 29.6% of equity at the end of the 2013 fiscal year.

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 Wednesday, September 25, 2013. If you would like to join the conference call, dial 1-877-941-4774 toll free from the US or 1-480-629-9760 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Second Quarter Conference Call / Conference ID 4641174. A replay of the conference call will be available until midnight October 2nd by calling 1-877-870-5176 toll free from the US and entering pin number 4641174; internationally, please call 1-858-384-5517 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 worldwide manufacturer, marketer and distributor, QEP delivers a comprehensive line of hardwood 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 all of the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Vitrex®, Homelux®, TileRite®, PRCI®, Nupla®, HISCO, Ludell, Porta-Nail and Elastiment®, the Company markets over 5,000 products. 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 sales growth, pricing pressures, long-term profitability, cost increases, benefits of acquisitions, potential acquisition opportunities, capital availability and the impacts of an Australian facility fire. These statements are not guarantees of future performance and actual results could differ materially from our current expectations.

-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 August 31,
For the Six Months
Ended August 31,
2013 2012 2013 2012
Net sales $ 76,418 $ 71,042 $ 159,817 $ 140,877
Cost of goods sold 54,745 50,590 114,421 100,259
Gross profit 21,673 20,452 45,396 40,618
Operating expenses:
Shipping 7,023 7,214 14,964 14,084
General and administrative 6,505 5,406 12,931 10,551
Selling and marketing 5,506 4,627 11,544 9,050
Other income, net (153) (129) (318) (165)
Total operating expenses 18,881 17,118 39,121 33,520
Operating income 2,792 3,334 6,275 7,098
Non-operating income -- -- 3,379 --
Interest expense, net (233) (193) (487) (357)
Income before provision for income taxes 2,559 3,141 9,167 6,741
Provision for income taxes 793 1,180 2,259 2,495
Net income $ 1,766 $ 1,961 $ 6,908 $ 4,246
Net income per share:
Basic $ 0.54 $ 0.59 $ 2.11 $ 1.28
Diluted $ 0.54 $ 0.59 $ 2.09 $ 1.27
Weighted average number of common shares outstanding:
Basic 3,274 3,310 3,275 3,320
Diluted 3,299 3,338 3,300 3,353
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
For the Three Months
Ended August 31,
For the Six Months
Ended August 31,
2013 2012 2013 2012
Net income $ 1,766 $ 1,961 $ 6,908 $ 4,246
Unrealized currency translation adjustments, net of tax (424) 475 (775) (304)
Comprehensive income $ 1,342 $ 2,436 $ 6,133 $ 3,942
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share values)
August 31, February 28,
2013 2013
(Unaudited)
ASSETS
Cash $ 1,595 $ 737
Accounts receivable, less allowance for doubtful accounts of $426 and $298 as of August 31, 2013 and February 28, 2013, respectively 45,102 39,581
Inventories 39,382 37,299
Prepaid expenses and other current assets 3,388 2,586
Deferred income taxes 1,239 1,238
Current assets 90,706 81,441
Property and equipment, net 13,646 14,018
Deferred income taxes, net 1,093 1,152
Intangibles, net 21,260 4,119
Other assets 337 386
Total Assets $ 127,042 $ 101,116
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable $ 20,714 $ 19,650
Accrued liabilities 14,526 13,641
Lines of credit 28,155 8,872
Current maturities of notes payable 1,011 1,246
Current liabilities 64,406 43,409
Notes payable 3,782 5,222
Other long term liabilities 1,033 647
Total Liabilities 69,221 49,278
Preferred stock, 2,500 shares authorized, $1.00 par value;
337 shares issued and outstanding at August 31, 2013 and February 28, 2013
337 337
Common stock, 20,000 shares authorized, $.001 par value;
3,801 and 3,799 shares issued; 3,274 and 3,282 shares outstanding at August 31, 2013 and February 28, 2013, respectively
4 4
Additional paid-in capital 10,656 10,639
Retained earnings 52,953 46,049
Treasury stock, 527 and 517 shares held at cost at August 31, 2013 and February 28, 2013, respectively (5,468) (5,305)
Accumulated other comprehensive income (661) 114
Shareholders' Equity 57,821 51,838
Total Liabilities and Shareholders' Equity $ 127,042 $ 101,116
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Six Months Ended
August 31,
2013 2012
Operating activities:
Net income $ 6,908 $ 4,246
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,120 1,327
Gain on sale of property (3,379) --
Other non-cash adjustments 121 85
Changes in assets and liabilities, net of acquisition:
Accounts receivable (2,254) (6,299)
Inventories (42) (4,272)
Prepaid expenses and other assets (740) 463
Trade accounts payable and accrued liabilities 465 8,474
Net cash provided by operating activities 3,199 4,024
Investing activities:
Acquisitions (23,814) (7,356)
Proceeds from sale of property 4,630 --
Capital expenditures (319) (638)
Net cash used in investing activities (19,503) (7,994)
Financing activities:
Net borrowings under lines of credit 18,929 4,808
Repayments of notes payable (1,666) (382)
Purchase of treasury stock (103) (558)
Stock options (repurchased) exercised, net 17 (25)
Dividends (4) (4)
Net cash provided by financing activities 17,173 3,839
Effect of exchange rate changes on cash (11) (37)
Net (decrease) increase in cash 858 (168)
Cash at beginning of period 737 976
Cash at end of period $ 1,595 $ 808

CONTACT: Q.E.P. Co., Inc. Richard A. Brooke Senior Vice President and Chief Financial Officer 561-994-5550Source:Q.E.P. Co., Inc.