Six Month Sales – $135.6 Million
Second Quarter Sales – $67.9 Million
Six Month Net Income – $6.9 Million
Second Quarter Net Income – $2.7 Million
BOCA RATON, Fla., Sept. 20, 2011 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (Pink Sheets:QEPC) (the "Company") today announced its financial results for the first six months and the second quarter of its fiscal year ending on February 29, 2012.
The Company reported record net sales of $135.6 million for the six months ended August 31, 2011, an increase of $14.4 million or 11.9% from the $121.2 million reported in the same period of fiscal 2011. As a percentage of net sales, gross profit was 31.4% in the first six months of fiscal 2012 compared to 29.9% in the first six months of fiscal 2011.
Net sales for the second quarter of fiscal 2012 also reached a record $67.9 million and reflected a gross profit margin of 30.1% compared to net sales of $60.6 million and a gross profit margin of 29.5% for the second quarter of fiscal 2011.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "This year's record results reflect positively on the Company's continued progress in successfully expanding its business while maintaining a diligent focus on cost control and operating efficiencies. This quarter's restructuring of our Argentine operations completes a transition of all of our Latin American operations from direct distribution to strategic alliances with distribution partners in those markets." Mr. Gould added, "We are continuing our focus on opportunities to expand our market share and non-core product lines and on responding to continuing changes in economic circumstances. We believe both objectives are well served by our continuing interest in synergistic acquisitions that are complementary to our existing businesses."
The increase in net sales continues to reflect the growth of the Company's hardwood flooring and international operations driven both by an expansion of sales to existing customers and by an expansion of the Company's product lines and customer base. Additionally, the Company's international operations benefited from the effects of the strengthening of local currencies against the U.S. dollar during both the first and second quarters of fiscal 2012 as compared to the prior fiscal year.
The improvement in the Company's gross margin as compared to the comparable periods in the prior fiscal year reflects an improved product mix, increased production volumes in the Company's manufacturing operations and the improved purchasing power of our international operations associated with the strengthening of local currencies against the US dollar. During the second quarter of fiscal 2012, margin improvements were partially offset by cost increases principally associated with changes in commodity prices.
As a result of both the increase in net sales and the improvement in gross margins, gross profit for the six months ended August 31, 2011 and the second quarter of fiscal 2012 was $42.6 million and $20.4 million, respectively, an increase of 17.7% and 14.5%, respectively, from the gross profit of $36.2 million and $17.8 million, respectively, during the comparable fiscal 2011 periods.
Operating expenses for the three and six months ended August 31, 2011 includes $1.3 million of non-cash restructuring charges associated with the Company's Argentine operations, including $0.7 million of realized currency translation losses previously reflected in accumulated other comprehensive income. The Company also recognized a tax benefit totaling $1.0 million in connection with the restructuring. This tax benefit is being realized over the remainder of the fiscal year.
Operating expenses before the restructuring charges for the first six months and second quarter of fiscal 2012 were $30.8 million and $15.2 million, respectively, or 22.7% and 22.5% of net sales in those periods, compared to $29.4 million and $14.4 million, respectively, or 24.3% and 23.8% of net sales in the comparable fiscal 2011 periods. While operating expenses have increased with the growth in the Company's sales and with the effects of changes in currency exchange rates, the decrease in those expenses as a percentage of net sales reflects increased leveraging of administrative costs and continuing cost oversight.
The provision for income taxes as a percentage of income before taxes for the first six months and second quarter of fiscal 2012 was 31.6% and 25.7% compared to 35.0% for both comparable periods in fiscal 2011. The decrease in the effective tax rates principally reflects the tax benefits associated with restructuring the Company's Argentine operations.
Net income for the first six months and second quarter of fiscal 2012 was $6.9 million and $2.7 million, respectively, or $2.02 and $0.80, respectively, per diluted share. Net income per diluted share in each period is after a charge of $0.10 associated with restructuring of the Company's Argentine operations net of related tax benefits. For the comparable periods of fiscal 2011, net income was $3.9 million and $2.0 million, respectively, or $1.15 and $0.58, respectively, per diluted share.
Excluding the effects of restructuring our Argentine operations, earnings before interest, taxes, depreciation and amortization (EBITDA) for the first six months and second quarter of fiscal 2012 was $13.1 million and $5.8 million, respectively, an increase of 63% and 44% respectively, as compared to $8.0 million and $4.1 million, respectively, for the comparable periods of fiscal 2011.
Cash provided by operations during the first six months of fiscal 2012 was $5.4 million as compared to $3.8 million in the first six months of fiscal 2011, principally reflecting improved operating results. Cash from operations during fiscal 2012 was used primarily to reduce aggregate borrowings by $2.9 million, to purchase the business of Porta-Nails, Inc. and additional treasury shares, and for investments in new IT systems. By comparison, cash provided by operations during the first six months of fiscal 2011 was $3.8 million and was used to fund capital expenditures principally related to expanding the Company's manufacturing capabilities, a reduction in aggregate debt and the purchase of treasury stock.
Working capital at the end of the Company's fiscal 2012 second quarter was $33.7 million, an increase from $27.6 million at the end of the 2011 fiscal year. Aggregate debt at the end of the Company's fiscal 2012 second quarter was reduced to $18.8 million or 44% of equity from $21.7 million or 62% of equity at the end of the 2011 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 Thursday, September 22, 2011. If you would like to join the conference call, approximately 10 minutes prior to the start time please dial 1-877-941-1427 toll free from the US and ask for Q.E.P. Co., Inc. Internationally, please dial 1-480-629-9664. A replay of the conference call will be available until midnight September 29th by calling 1-877-870-5176 toll free from the US and entering pin number 4472525; internationally, please call 1-858-384-5517 using the same pin number.
Q.E.P. Co., Inc., founded in 1979, is a leading worldwide manufacturer, marketer and distributor of 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. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Vitrex®, PRCI®, BRUTUS® and Elastiment®, the Company markets over 3,000 flooring and flooring related products. In addition to a complete hardwood flooring line, Q.E.P. products are used primarily for surface preparation and installation of wood, laminate, ceramic tile, carpet and vinyl flooring. The Company sells its products to home improvement retail centers and specialty distribution outlets in 50 states and throughout the world.
This press release contains forward-looking statements, including statements regarding business expansion, productivity and cost management, potential opportunities, growth and synergies related to acquisitions, currency exchange rates, economic conditions, new products and demand for Company products, Company performance, and capital availability that involve risks and uncertainties. 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, |
|||
| 2011 | 2010 | 2011 | 2010 | |
| Net sales | $ 67,856 | $ 60,603 | $ 135,630 | $ 121,176 |
| Cost of goods sold | 47,425 | 42,755 | 93,039 | 84,992 |
| Gross profit | 20,431 | 17,848 | 42,591 | 36,184 |
| Operating expenses: | ||||
| Shipping | 6,793 | 6,353 | 13,245 | 12,940 |
| General and administrative | 4,538 | 4,670 | 9,683 | 9,338 |
| Selling and marketing | 4,051 | 3,446 | 8,146 | 7,224 |
| Restructuring charges | 1,273 | -- | 1,273 | -- |
| Other income, net | (138) | (57) | (312) | (94) |
| Total operating expenses | 16,517 | 14,412 | 32,035 | 29,408 |
| Operating income | 3,914 | 3,436 | 10,556 | 6,776 |
| Interest expense, net | (243) | (371) | (528) | (727) |
| Income before provision for income taxes | 3,671 | 3,065 | 10,028 | 6,049 |
| Provision for income taxes | 943 | 1,073 | 3,168 | 2,117 |
| Net income | $ 2,728 | $ 1,992 | $ 6,860 | $ 3,932 |
| Net income per share: | ||||
| Basic | $ 0.82 | $ 0.60 | $ 2.07 | $ 1.18 |
| Diluted | $ 0.80 | $ 0.58 | $ 2.02 | $ 1.15 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 3,332 | 3,325 | 3,308 | 3,329 |
| Diluted | 3,404 | 3,422 | 3,398 | 3,424 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, except par values) | ||
|
August 31, 2011 (Unaudited) |
February 28, 2011 |
|
| ASSETS | ||
| CURRENT ASSETS | ||
| Cash | $ 1,413 | $ 447 |
| Accounts receivable, less allowance for doubtful accounts of $367 and $619 as of August 31, 2011 and February 28, 2011, respectively | 34,985 | 31,350 |
| Inventories | 32,938 | 34,447 |
| Prepaid expenses and other current assets | 1,213 | 2,638 |
| Deferred income taxes | 1,445 | 1,430 |
| Total current assets | 71,994 | 70,312 |
| Property and equipment, net | 12,410 | 12,991 |
| Deferred income taxes, net | 1,102 | 1,084 |
| Intangibles, net | 2,760 | 2,499 |
| Other assets | 527 | 1,012 |
| Total Assets | $ 88,793 | $ 87,898 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| CURRENT LIABILITIES | ||
| Trade accounts payable | $ 16,859 | $ 16,887 |
| Accrued liabilities | 9,515 | 13,448 |
| Lines of credit | 10,323 | 9,568 |
| Current maturities of notes payable | 1,626 | 2,801 |
| Total current liabilities | 38,323 | 42,704 |
| Notes payable | 6,848 | 9,294 |
| Other long term liabilities | 658 | 657 |
| Total Liabilities | 45,829 | 52,655 |
| SHAREHOLDERS' EQUITY | ||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at August 31, 2011 and February 28, 2011 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,789 and 3,696 shares issued; 3,363 and 3,293 shares outstanding at August 31, 2011 and February 28, 2011, respectively | 4 | 4 |
| Additional paid-in capital | 10,782 | 10,406 |
| Retained earnings | 34,560 | 27,703 |
| Treasury stock, 426 and 403 shares held at cost at August 31, 2011 and February 28, 2011, respectively | (3,621) | (3,219) |
| Accumulated other comprehensive income | 902 | 12 |
| Total Shareholders' Equity | 42,964 | 35,243 |
| Total Liabilities and Shareholders' Equity | $ 88,793 | $ 87,898 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
|
For the Six Months Ended August 31, |
||
| 2011 | 2010 | |
| Operating activities: | ||
| Net income | $ 6,860 | $ 3,932 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 1,290 | 1,252 |
| Restructuring charges | 1,273 | -- |
| Other non-cash adjustments | 30 | 99 |
| Changes in assets and liabilities: | ||
| Accounts receivable | (3,537) | (1,955) |
| Inventories | 1,951 | 2,104 |
| Prepaid expenses and other assets | 1,829 | 799 |
| Trade accounts payable and accrued liabilities | (4,336) | (2,413) |
| Net cash provided by operating activities | 5,360 | 3,818 |
| Investing activities: | ||
| Acquisition | (959) | -- |
| Capital expenditures | (577) | (1,273) |
| Cash used in investing activities | (1,536) | (1,273) |
| Financing activities: | ||
| Net borrowings under lines of credit | 642 | 304 |
| Repayments of notes payable | (3,521) | (1,285) |
| Purchase of treasury stock | (368) | (1,042) |
| Proceeds from exercise of stock options | 376 | -- |
| Dividends paid | (4) | (4) |
| Net cash used in financing activities | (2,875) | (2,027) |
| Effect of exchange rate changes on cash | 17 | (22) |
| Net increase in cash | 966 | 496 |
| Cash at beginning of period | 447 | 856 |
| Cash at end of period | $ 1,413 | $ 1,352 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| RECONCILIATION OF NET INCOME TO EBITDA BEFORE RESTRUCTURING CHARGES | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
|
For the Three Months Ended August 31, |
For the Six Months Ended August 31, |
|||
| 2011 | 2010 | 2011 | 2010 | |
| Net income | $ 2,728 | $ 1,992 | $ 6,860 | $ 3,932 |
| Add back: | ||||
| Restructuring charges | 1,273 | -- | 1,273 | -- |
| Interest | 243 | 371 | 528 | 727 |
| Provision for income taxes | 943 | 1,073 | 3,168 | 2,117 |
| Depreciation and amortization | 649 | 626 | 1,290 | 1,252 |
| EBITDA before restructuring charges | $ 5,836 | $ 4,062 | $ 13,119 | $ 8,028 |