Q.E.P. Co., Inc. Reports Fiscal 2022 Six Month and Second Quarter Financial Results

Boca Raton, Florida, UNITED STATES


Record Six Month Net Sales of $227.3 million
Six Month Net Income of $5.0 million

BOCA RATON, Fla., Oct. 14, 2021 (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 2022, which ended on August 31, 2021.

QEP reported net sales of $227.3 million for the six months ended August 31, 2021, an increase of $38.2 million or 20.2% from the $189.1 million reported in the same period of fiscal 2021. The Company reported net sales of $112.9 million for the quarter ended August 31, 2021, an increase of $9.8 million or 9.5% from the $103.1 million reported in the same period of fiscal 2021. The increase in net sales for the first six months and second quarter of fiscal 2022 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 2022 was $62.3 million compared to $53.1 million in the corresponding fiscal 2021 period, an increase of $9.2 million or 17.4%. Gross profit for the second quarter of fiscal 2022 was $31.0 million, representing an increase of $1.6 million or 5.4%, from $29.4 million in the corresponding fiscal 2021 period. The Company’s gross margin as a percentage of net sales for the first six months and second quarter of fiscal year 2022 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 2022.

Operating expenses for the first six months and second quarter of fiscal 2022 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 2021 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 2022 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 2022 and fiscal 2021.

Net income for the first six months and second quarter of fiscal 2022 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 2021, 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 2022 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 2021, respectively.

  For the Three Months Ended  For the Six Months Ended  
  August 31, 2021 August 31, 2020 August 31, 2021 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 2022 was $1.7 million as compared to $20.8 million in the first six months of fiscal 2021, 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 2021, 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, 2021 was $48.4 million compared to $44.7 million at the end of fiscal 2021.   Aggregate debt, net of available cash balances at the end of the second quarter of fiscal 2022 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 2021.

Conference Call Information

The Company will be hosting the following conference call to discuss its financial results and answer questions.

Date:Thursday, October 21, 2021
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, 2021 February 28, 2021
 (Unaudited) (Audited)
    
ASSETS   
Cash$12,139  $10,905 
Accounts receivable, less allowance for doubtful accounts of $847   
     and $1,059 as of August 31, 2021 and February 28, 2021, 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, 2021 and February 28, 2021 -   - 
Common stock, 20,000 shares authorized, $.001 par value;   
     4,005 shares issued, and 3,309 shares outstanding at   
     August 31, 2021 and February 28, 2021 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, 2021   
     and February 28, 2021 (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, 2021- $ - 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, 2021- $ - 4,005,370 $ 4 $ 11,251 $ 76,639  $ (9,082) $ (3,699)  $ 75,113