×

Q.E.P. Co., Inc. Reports Fiscal 2018 Six Month and Second Quarter Sales and Earnings

SIX MONTH SALES – $166.1 MILLION
SECOND QUARTER SALES – $84.1 MILLION

SIX MONTH NET INCOME – $4.7 MILLION
SECOND QUARTER NET INCOME – $2.4 MILLION

SIX MONTH EARNINGS PER SHARE (DILUTED) - $1.47
SECOND QUARTER EARNINGS PER SHARE (DILUTED) - $0.75

BOCA RATON, Fla., Oct. 03, 2017 (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, 2018.

The Company reported net sales of $166.1 million for the six months ended August 31, 2017, an increase of $5.9 million or 3.7% from the $160.2 million reported in the same period of fiscal 2017. As a percentage of net sales, gross margin was 28.4% in the first six months of fiscal 2018 compared to 28.2% in the first six months of fiscal 2017.

The Company reported net sales of $84.1 million for the quarter ended August 31, 2017, an increase of $4.1 million or 5.1% from the $80.1 million reported in the same period of fiscal 2017. As a percentage of net sales, gross margin was 28.3% in the second quarter of fiscal 2018 compared to 28.1% in the second quarter of fiscal 2017.

Lewis Gould, Chairman of the Board of Directors, commented on Q.E.P.’s six month results, “I continue to be very pleased with the progress Q.E.P. is making. We have seen unprecedented growth in our Australian business with the rollout of new product offerings, successfully integrated the acquisition of the Halex tack strip business into our North American operation and continued the rollout of our new products in Europe. We still have difficult top line comparisons due to shifting product demand in North America, foreign currency in Europe and our discontinued carpet installation business in Australia.”

Net sales growth for the first six months and second quarter of fiscal 2018 as compared to the same periods in the prior fiscal year reflect the impact of acquired businesses during the first six months of the current fiscal year and net growth across a range of product categories in the Australian and European segments. Foreign currency rate changes in our European operations had a negative effect on the six month period and minimal effect on the second quarter compared to the prior fiscal year.

The Company’s gross margin as a percentage of net sales for first six months and second quarter of fiscal 2018 increased compared to the prior fiscal year periods. The Company benefited from changes in the product mix during the first six months of the current fiscal year. The negative impact of foreign currency rates in our European operations compared to first six months of the prior fiscal year partially offset these gains.

Operating expenses for the first six months and second quarter of fiscal 2018 were $39.2 million and $19.7 million, respectively, or 23.6% and 23.4% of net sales in those periods, compared to $37.5 million and $18.7 million, respectively, or 23.4% and 23.3% of net sales in the comparable fiscal 2017 periods. The increase in operating expenses was due to the incremental costs assumed with the businesses acquired during fiscal 2018 and additional operating costs incurred to support the sales growth in Australia.

Non-operating income for the six months of fiscal 2017 represents a gain on the sale of certain non-core assets of the Company.

The decrease in interest expense during fiscal 2018 as compared to fiscal 2017 is due to repayment of outstanding debt.

The provision for income taxes as a percentage of income before taxes for the first six months and second quarter of fiscal 2018 and fiscal 2017 was 37.5% in each period. The effective tax rate in both fiscal years reflects the relative contribution of the Company’s earnings sourced from its international operations.

Net income for the first six months and second quarter of fiscal 2018 was $4.7 million and $2.4 million, respectively, or $1.47 and $0.75, respectively, per diluted share. For the comparable periods of fiscal 2017, net income was $4.5 million and $2.3 million, respectively, or $1.41 and $0.73, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) and non-operating income for the first six months and second quarter of fiscal 2018 was $10.0 million and $5.1 million, respectively, as compared to $9.6 million and $4.8 million, respectively, for the comparable periods of fiscal 2017.

For the Three Months For the Six Months
Ended August 31, Ended August 31,
2017 2016 2017 2016
Net income$2,402 $2,343 $4,693 $4,528
Add:Interest expense, net 254 291 495 572
Provision for income taxes 1,440 1,407 2,817 2,718
Depreciation and amortization 992 977 1,951 1,993
Non-operating expense - (184) - (184)
EBITDA$5,088 $4,834 $9,956 $9,627

Cash provided by operations during the first six months of fiscal 2018 was $4.8 million as compared to $3.0 million in the first six months of fiscal 2017, reflecting an increase in operating income and a lower net investment in working capital in the current period compared to the same period in the prior year. During the first six months of fiscal 2018, the Company acquired businesses for $3.9 million and also made capital expenditures of approximately $2.7 million, including $1.5 million related to one of those acquisitions. In the first six months of the current fiscal year, these investments as well as additional capital expenditures and treasury stock purchases were funded through cash on-hand and cash from operations. Borrowings under our credit lines were used to fund seasonal inventory growth in North America and Australia. In the prior year our capital expenditures, investments and treasury stock purchases were funded from cash from operations with any additional funds used to reduce debt.

Working capital at the end of the Company’s fiscal 2018 second quarter was $48.3 million compared to $45.0 million at the end of the 2017 fiscal year. During the first six months of fiscal 2018, certain of the Company’s property and equipment totaling $1.5 million was reclassified into working capital because they are not being actively utilized in the business and they are now classified as held for sale. Aggregate debt, net of available cash balances at the end of the Company’s fiscal 2018 second quarter was $12.5 million or 15.6% of equity, an increase of $2.1 million compared to $10.4 million or 13.9% of equity at the end of the 2017 fiscal year, reflecting our use of cash to make strategic investments in the business.

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 Friday, October 6, 2017. If you would like to join the conference call, dial 1-888-280-4443 toll free from the US or 1-719-457-2615 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Second Quarter Conference Call / Conference ID 4995444. A replay of the conference call will be available until midnight October 13, 2017 by calling 1-844-512-2921 toll free from the US and entering pin number 4995444; 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, Fausfloor®, Vitrex®, Homelux®, TileRite®, PRCI®, Nupla®, HISCO®, Plasplugs®, Ludell®, 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, profit improvements, product development and marketing, operating expenses, cost savings, acquisition integration, 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 with 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 For the Six Months Ended
Ended August 31, Ended August 31,
2017 2016 2017 2016
Net sales$84,146 $80,080 $166,130 $160,258
Cost of goods sold 60,373 57,548 118,928 115,117
Gross profit 23,773 22,532 47,202 45,141
Operating expenses:
Shipping 7,219 7,025 14,348 13,682
General and administrative 6,786 6,504 13,608 12,904
Selling and marketing 5,856 5,291 11,616 11,212
Other income, net (184) (145) (375) (291)
Total operating expenses 19,677 18,675 39,197 37,507
Operating income 4,096 3,857 8,005 7,634
Non-operating income - 184 - 184
Interest expense, net (254) (291) (495) (572)
Income before provision for income taxes 3,842 3,750 7,510 7,246
Provision for income taxes 1,440 1,407 2,817 2,718
Net income $2,402 $2,343 $4,693 $4,528
Net income per share:
Basic$0.75 $0.73 $1.47 $1.41
Diluted$0.75 $0.73 $1.47 $1.41
Weighted average number of common
shares outstanding:
Basic 3,191 3,202 3,194 3,199
Diluted 3,194 3,215 3,197 3,217


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
Ended August 31, Ended August 31,
2017 2016 2017 2016
Net income $2,402 $2,343 $4,693 $4,528
Unrealized currency translation adjustments 832 (361) 841 143
Comprehensive income $3,234 $1,982 $5,534 $4,671


Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share values)
August 31,
2017

(Unaudited)
February 28,
2017
(Audited)
ASSETS
Cash$17,140 $19,152
Accounts receivable, less allowance for doubtful accounts of $328
and $274 as of August 31, 2017 and February 28, 2017, respectively 42,081 38,493
Inventories 46,542 40,826
Prepaid expenses and other current assets 3,663 2,858
Assets held for sale 1,510 -
Current assets 110,936 101,329
Property and equipment, net 19,375 19,072
Deferred income taxes 5,723 5,726
Intangibles, net 11,455 10,997
Goodwill 3,175 2,745
Other assets 398 372
Total Assets$151,062 $140,241
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable$20,696 $18,106
Accrued liabilities 19,283 17,819
Income taxes payable (prepaid) 457 (845)
Lines of credit 19,668 18,683
Current maturities of notes payable 2,529 2,573
Current liabilities 62,633 56,336
Notes payable 7,418 8,284
Deferred income taxes 294 294
Other long term liabilities 552 555
Total Liabilities 70,897 65,469
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 and 18
shares outstanding at August 31, 2017 and February 28, 2017,
respectively - 18
Common stock, 20,000 shares authorized, $.001 par value;
3,821 shares issued, and 3,183 and 3,189 shares outstanding at
August 31, 2017 and February 28, 2017 4 4
Additional paid-in capital 10,825 10,796
Retained earnings 80,000 75,308
Treasury stock, 638 and 632 shares held at cost at August 31, 2017
and February 28, 2017 (7,557) (7,406)
Accumulated other comprehensive income (3,107) (3,948)
Shareholders' Equity 80,165 74,772
Total Liabilities and Shareholders' Equity$151,062 $140,241


Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Six Months
Ended August 31,
2017 2016
Operating activities:
Net income$4,693 $4,528
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,951 1,993
Other non-cash adjustments 13 (180)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (2,763) (1,182)
Inventories (2,370) (94)
Prepaid expenses and other assets (783) (514)
Trade accounts payable and accrued liabilities 4,055 (1,506)
Net cash provided by operating activities 4,796 3,045
Investing activities:
Acquisitions (3,899) (1,702)
Capital expenditures (2,671) (802)
Proceeds from sale of businesses 97 850
Proceeds from insurance settlements 252 -
Proceeds from sale of property 115 48
Net cash used in investing activities (6,106) (1,606)
Financing activities:
Net borrowings (repayments) under lines of credit 250 (2,515)
Net repayments of notes payable (921) (994)
Purchase of treasury stock (60) (60)
Redemption of preferred stock (18) -
Dividends (1) (4)
Net cash provided by (used in) financing activities (750) (3,573)
Effect of exchange rate changes on cash 48 (142)
Net decrease in cash (2,012) (2,276)
Cash at beginning of period 19,152 15,923
Cash at end of period$17,140 $13,647


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

Source:Q.E.P. Co., Inc.