FIRST QUARTER SALES – $82.0 MILLION FIRST QUARTER NET INCOME – $2.3 MILLION FIRST QUARTER EARNINGS PER SHARE (DILUTED) - $0.71
BOCA RATON, Fla., July 06, 2017 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the “Company”) today reported its consolidated results of operations for the first quarter of its fiscal year ending February 28, 2018.
The Company reported net sales of $82.0 million for the quarter ended May 31, 2017, an increase of $1.8 million or 2.3% from the $80.2 million reported in the same period of fiscal 2017. As a percentage of net sales, gross margin was 28.6% in the first quarter of fiscal 2018 compared to 28.2% in the first quarter of fiscal 2017.
Lewis Gould, Chairman of the Board of Directors, commented on Q.E.P.’s three month results, “I am very pleased with the progress Q.E.P. is making. We successfully absorbed the acquisition of the Halex tack strip business and started the rollout of our new products in Europe. Despite the fact that we still have headwinds in top line comparisons with foreign currency and our discontinued carpet installation business in Australia we continue to make solid progress. I am also pleased with the increase in our book value, continuing progress of consolidation and customer acquisitions and the strengthening of our balance sheet and increase in EBITDA.”
Net sales growth for the first quarter of fiscal year 2018 as compared to the same period in the prior fiscal year reflect net growth across a range of product categories and the impact of acquired businesses during the quarter, net of the impact of the negative effects of foreign currency rate changes in our European operations as well as the exit of carpet-related product lines in Australia.
The Company’s gross margin as a percentage of net sales for first quarter of fiscal year 2018 increased compared to the prior fiscal year period. The Company benefited from changes in the product mix, which were partially offset by the negative impact of changes in foreign currency rates compared to first quarter in the prior year in our European operations.
Operating expenses for the first quarter of fiscal 2018 and fiscal 2017 were $19.5 million and $18.8 million, respectively, or 23.8% and 23.5% of net sales in those periods. The increase in operating expenses was due to higher shipping expenses as a result of our increase in net sales, as well as sales mix changes and increased personnel costs, partially offset by decreases in North America marketing programs and the impact of foreign currency movements.
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 was 37.5% for the first quarter of fiscal 2018 and fiscal 2017. 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 quarter of fiscal 2018 and 2017 was $2.3 million and $2.2 million, respectively, or $0.71 and $0.68, respectively, per diluted share.
For the first quarter of fiscal 2018, earnings before interest, taxes, depreciation and amortization (EBITDA) was $4.9 million, compared to $4.8 million for the first quarter of fiscal 2017.
| For the Three Months | ||||||||
| Ended May 31, | ||||||||
| 2017 | 2016 | |||||||
| Net income | $ | 2,292 | $ | 2,185 | ||||
| Add: | Interest expense, net | 241 | 281 | |||||
| Provision for income taxes | 1,377 | 1,311 | ||||||
| Depreciation and amortization | 959 | 1,016 | ||||||
| EBITDA | $ | 4,869 | $ | 4,793 | ||||
Cash provided by operations during the first quarter of fiscal 2018 was $1.2 million as compared to $0.9 million in the first quarter of fiscal 2017, reflecting an increase in operating income and a reduction of net investments in working capital. During the first quarter of fiscal 2018, the Company acquired businesses for approximately $3.8 million and also made capital expenditures of approximately $1.5 million related to one of those acquisitions. In the current quarter, 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, mainly in Europe. 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 first quarter was $45.7 million compared to $45.0 million at the end of the 2017 fiscal year. During the first quarter of fiscal 2018, certain of the Company’s property and equipment were 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 first quarter was $15.4 million or 20.0% of equity, an increase of $5.0 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 Tuesday, July 11, 2017. If you would like to join the conference call, dial 1-877-675-4757 toll free from the US or 1-719-325-4833 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. First Quarter Conference Call / Conference ID 8907627. A replay of the conference call will be available until midnight July 18, 2017 by calling 1-844-512-2921 toll free from the US and entering pin number 8907627; 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 | |||||||||
| Ended May 31, | |||||||||
| 2017 | 2016 | ||||||||
| Net sales | $ | 81,984 | $ | 80,178 | |||||
| Cost of goods sold | 58,555 | 57,569 | |||||||
| Gross profit | 23,429 | 22,609 | |||||||
| Operating expenses: | |||||||||
| Shipping | 7,129 | 6,657 | |||||||
| General and administrative | 6,793 | 6,418 | |||||||
| Selling and marketing | 5,759 | 5,921 | |||||||
| Other income, net | (162 | ) | (164 | ) | |||||
| Total operating expenses | 19,519 | 18,832 | |||||||
| Operating income | 3,910 | 3,777 | |||||||
| Interest expense, net | (241 | ) | (281 | ) | |||||
| Income before provision for income taxes | 3,669 | 3,496 | |||||||
| Provision for income taxes | 1,377 | 1,311 | |||||||
| Net income | $ | 2,292 | $ | 2,185 | |||||
| Net income per share: | |||||||||
| Basic | $ | 0.72 | $ | 0.68 | |||||
| Diluted | $ | 0.71 | $ | 0.68 | |||||
| Weighted average number of common | |||||||||
| shares outstanding: | |||||||||
| Basic | 3,197 | 3,195 | |||||||
| Diluted | 3,208 | 3,219 | |||||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||
| (In thousands) | ||||||||||
| (Unaudited) | ||||||||||
| For the Three Months Ended | ||||||||||
| Ended May 31, | ||||||||||
| 2017 | 2016 | |||||||||
| Net income | $ | 2,292 | $ | 2,185 | ||||||
| Unrealized currency translation adjustments | 9 | 504 | ||||||||
| Comprehensive income | $ | 2,301 | $ | 2,689 | ||||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||
| (In thousands except per share values) | |||||||||
| May 31, 2017 (Unaudited) | February 28, 2017 (Audited) | ||||||||
| ASSETS | |||||||||
| Cash | $ | 15,440 | $ | 19,152 | |||||
| Accounts receivable, less allowance for doubtful accounts of $299 | |||||||||
| and $274 as of May 31, 2017 and February 28, 2017, respectively | 41,383 | 38,493 | |||||||
| Inventories | 44,735 | 40,826 | |||||||
| Prepaid expenses and other current assets | 3,617 | 2,858 | |||||||
| Assets held for sale | 1,510 | - | |||||||
| Current assets | 106,685 | 101,329 | |||||||
| Property and equipment, net | 19,451 | 19,072 | |||||||
| Deferred income taxes | 5,711 | 5,726 | |||||||
| Intangibles, net | 11,142 | 10,997 | |||||||
| Goodwill | 3,426 | 2,745 | |||||||
| Other assets | 376 | 372 | |||||||
| Total Assets | $ | 146,791 | $ | 140,241 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| Trade accounts payable | $ | 20,477 | $ | 18,106 | |||||
| Accrued liabilities | 16,862 | 17,819 | |||||||
| Income taxes payable (prepaid) | 640 | (845 | ) | ||||||
| Lines of credit | 20,479 | 18,683 | |||||||
| Current maturities of notes payable | 2,547 | 2,573 | |||||||
| Current liabilities | 61,005 | 56,336 | |||||||
| Notes payable | 7,851 | 8,284 | |||||||
| Deferred income taxes | 294 | 294 | |||||||
| Other long term liabilities | 553 | 555 | |||||||
| Total Liabilities | 69,703 | 65,469 | |||||||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 18 shares | |||||||||
| issued and outstanding at May 31, 2017 and February 28, 2017 | 18 | 18 | |||||||
| Common stock, 20,000 shares authorized, $.001 par value; | |||||||||
| 3,821 shares issued, and 3,189 shares outstanding at | |||||||||
| May 31, 2017 and February 28, 2017 | 4 | 4 | |||||||
| Additional paid-in capital | 10,811 | 10,796 | |||||||
| Retained earnings | 77,600 | 75,308 | |||||||
| Treasury stock, 632 shares held at cost at May 31, 2017 | |||||||||
| and February 28, 2017 | (7,406 | ) | (7,406 | ) | |||||
| Accumulated other comprehensive income | (3,939 | ) | (3,948 | ) | |||||
| Shareholders' Equity | 77,088 | 74,772 | |||||||
| Total Liabilities and Shareholders' Equity | $ | 146,791 | $ | 140,241 | |||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
| (In thousands) | ||||||||||
| (Unaudited) | ||||||||||
| For the Three Months | ||||||||||
| Ended May 31, | ||||||||||
| 2017 | 2016 | |||||||||
| Operating activities: | ||||||||||
| Net income | $ | 2,292 | $ | 2,185 | ||||||
| Adjustments to reconcile net income to net cash | ||||||||||
| provided by operating activities: | ||||||||||
| Depreciation and amortization | 959 | 1,016 | ||||||||
| Other non-cash adjustments | (6 | ) | 35 | |||||||
| Changes in assets and liabilities, net of acquisitions: | ||||||||||
| Accounts receivable | (2,509 | ) | (907 | ) | ||||||
| Inventories | (1,177 | ) | (836 | ) | ||||||
| Prepaid expenses and other assets | (726 | ) | (438 | ) | ||||||
| Trade accounts payable and accrued liabilities | 2,398 | (140 | ) | |||||||
| Net cash provided by operating activities | 1,231 | 915 | ||||||||
| Investing activities: | ||||||||||
| Acquisitions | (3,836 | ) | - | |||||||
| Capital expenditures | (2,156 | ) | (243 | ) | ||||||
| Proceeds from insurance settlements | 252 | - | ||||||||
| Proceeds from sale of property | 39 | - | ||||||||
| Net cash used in investing activities | (5,701 | ) | (243 | ) | ||||||
| Financing activities: | ||||||||||
| Net borrowings (repayments) under lines of credit | 1,243 | (463 | ) | |||||||
| Net repayments of notes payable | (464 | ) | (470 | ) | ||||||
| Purchase of treasury stock | (30 | ) | (30 | ) | ||||||
| Dividends | - | (4 | ) | |||||||
| Net cash provided by (used in) financing activities | 749 | (967 | ) | |||||||
| Effect of exchange rate changes on cash | 9 | 149 | ||||||||
| Net decrease in cash | (3,712 | ) | (146 | ) | ||||||
| Cash at beginning of period | 19,152 | 15,923 | ||||||||
| Cash at end of period | $ | 15,440 | $ | 15,777 | ||||||
CONTACT: Q.E.P. Co., Inc. Mark S. Walter Senior Vice President Finance and Chief Financial Officer 561-994-5550
