Q.E.P. CO., INC. Reports Fiscal 2024 Six Month and Second Quarter Financial Results

Six Month Net Sales of $202.7 million/Net Income of $2.6 million


BOCA RATON, Fla., Oct. 16, 2023 (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 2024, which ended on August 31, 2023.

QEP reported net sales of $202.7 million for the six months ended August 31, 2023, a decrease of $29.9 million or 12.9% from the $232.6 million reported in the same period of fiscal 2023. The Company reported net sales of $99.4 million for the quarter ended August 31, 2023, a decrease of $16.1 million or 13.9% from the $115.5 million reported in the same period of fiscal 2023.   The decrease in net sales was primarily due to lower demand in the North America retail and flooring dealer segments, along with the general softening of sales in the non- North America segments and the currency translation impact of the stronger U.S. Dollar in the current period.  

Lewis Gould, Executive Chairman, commented on the Company’s results, “The Company’s topline net sales in the current year continue to be negatively impacted by the difficult macroeconomic backdrop, including the effect of inflation on consumer spending and the higher cost of borrowing. Despite this, gross profit margin improved as inbound freight costs declined to traditionally normal levels. Supply chain improvements have also allowed the Company to reduce its inventory levels and realize the associated reduction in borrowing.”

Mr. Gould concluded, “Additionally, I am pleased that the Company’s leadership team has executed on our strategy as outlined in recent press releases of addressing under-performing flooring product lines, along with re-aligning our global footprint, as evidenced by our recent exit from the North America flooring market and the divestment of our UK operations. We remain focused on completing the implementation of this strategy as our roadmap for a renewed emphasis on our core business aimed at increasing profitability and stockholder value.”

The Company’s gross profit for the first six months of fiscal 2024 was $58.7 million compared to $60.1 million in the corresponding fiscal 2023 period, a decrease of $1.4 million or 2.3%. Gross profit for the second quarter of fiscal 2024 was $29.4 million, representing an increase of $0.1 million or less than 0.1%, from $29.2 million in the corresponding fiscal 2023 period. The Company’s gross margin as a percentage of net sales for the first six months and second quarter of fiscal year 2024 was 29.0% and 29.5%, respectively, which increased from 25.8% and 25.3% in the corresponding prior fiscal year periods, respectively. The increase in gross margin as a percentage of net sales was largely due to lower inbound freight costs.

Operating expenses for the first six months and second quarter of fiscal 2024 were $53.7 million and $26.4 million, respectively, or 26.5% and 26.6% of net sales in those periods, compared to $58.5 million and $29.4 million, respectively, or 25.1% and 25.4% of net sales in the comparable fiscal 2023 periods. The reduction in operating expenses reflect lower variable shipping costs and marketing display expenses that were partially offset by higher personnel costs during the current period.

The higher interest expense during the first six months and second quarter of fiscal 2024 compared to the same periods in the prior fiscal year was due to higher interest rates during the current period.

The provision for income taxes as a percentage of income before taxes was 28.0% for the first six months and second quarter for both fiscal 2024 and fiscal 2023.

Net income for the first six months and second quarter of fiscal 2024 was $2.6 million and $1.7 million, respectively, or $0.78 and $0.50, respectively, per diluted share. For the comparable periods of fiscal 2023, net income and net loss was $0.5 million and minus $0.5 million, respectively, or $0.14 and minus $0.15, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted for gain on insurance recoveries, for the first six months and second quarter of fiscal 2024 was $5.4 million and $2.9 million, respectively, as compared to $3.6 million and $0.8 million for the first six months and second quarter of fiscal 2023, respectively.

   For the Three months Ended    For the Six months Ended 
  August 31,
 2023
  August 31,
2022
  August 31,
 2023
  August 31,
2022
            
Net income (loss)$1,682  $(513) $2,607  $475
            
Add:Interest expense, net625  589  1,342  965
 Provision for income taxes655   (199) 1,015  185
 Depreciation and amortization850  935  1,708  1,927
 Gain from insurance recoveries (903) -   (1,293) -
EBITDA, as adjusted (1)$2,909  $812  $5,379  $3,552
            

(1)   EBITDA as adjusted for gain on insurance recoveries represent non-GAAP measures and exclude charges or credits not indicative of our core operations.

Cash provided by operations during the first six months of fiscal 2024 was $23.5 million as compared to cash used in operations of $14.7 million in the first six months of fiscal 2023, reflecting the reduction in inventory to more normalized levels, as previous supply chain disruptions were addressed. In the first six months of fiscal 2024, cash provided by operations was used to reduce borrowings under the Company’s credit facilities, fund capital expenditures and increase cash balances.

Working capital as of August 31, 2023 was $52.5 million compared to $55.0 million at the end of fiscal 2023.   Aggregate debt, net of available cash balances at the end of the second quarter of fiscal 2024 was $10.3 million or 12.8% of equity, a decrease of $23.2 million compared to $33.5 million or 43.0% of equity at the end of fiscal 2023.

Conference Call Information

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

Date:October 19, 2023
Time:10:00 a.m. Eastern Time
Dial-in Numbers:800-225-9448 (US or Canada)
 203-518-9708 (International)
Confirmation ID:QEP2Q
  
Replay:800-654-1563 (Toll Free)
 862-902-0129 (Toll)
 Access Code: 10190800
  

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 installation solutions for commercial and home improvement projects worldwide. QEP offers a comprehensive line of specialty installation tools, adhesives, and underlayment. QEP sells its products throughout the world to home improvement retail centers, and professional specialty distribution outlets, under brand names including QEP®, LASH®, ROBERTS®, Capitol®, Premix-Marbletite® (PMM), Brutus®, Homelux®, PRCI®, and Tomecanic®.

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

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 implementation of the Company’s strategies and increasing profitability and stockholder value. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties, including those listed in the Company’s annual report, as such risk factors may be amended, supplemented or superseded from time to time by other reports and disclosures made by the Company. 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, scarcity and rising cost for raw materials, shifts in global sourcing patterns, and general inflationary pressures, economic conditions, sales growth, price increases, maintaining and improving profitability, product development and marketing, operating expenses, cost savings, the successful completion of acquisitions and dispositions, acquisition integration, operational synergy realization, global sourcing, political uncertainty, cash flow, debt and currency exchange rates, 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.

-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,
  2023   2022   2023   2022 
        
Net sales$99,416  $115,519  $202,699  $232,602 
Cost of goods sold 70,055   86,280   143,993   172,485 
Gross profit 29,361   29,239   58,706   60,117 
        
Operating expenses:       
Shipping 12,253   13,565   23,955   27,183 
General and administrative 8,836   7,589   17,411   15,156 
Selling and marketing 6,399   8,169   13,950   16,273 
Other (income) expense, net (1,089)  39   (1,574)  (120)
Total operating expenses 26,399   29,362   53,742   58,492 
        
Operating income (loss) 2,962   (123)  4,964   1,625 
        
Interest expense, net (625)  (589)  (1,342)  (965)
        
Income (loss) before provision for               
income taxes 2,337   (712)  3,622   660 
        
Provision (benefit) for income taxes 655   (199)  1,015   185 
        
Net income (loss)$ 1,682  $ (513) $ 2,607  $ 475 
        
Earnings (loss) per share:       
Basic$0.50  $(0.15) $0.78  $0.14 
Diluted$0.50  $(0.15) $0.78  $0.14 
        
Weighted average number of common       
shares outstanding:       
Basic 3,342   3,338   3,343   3,340 
Diluted 3,347   3,338   3,348   3,349 
        


Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
        
 For the Three Months Ended For the Six Months Ended
 August 31, August 31, August 31, August 31,
 2023 2022 2023 2022
        
Net income (loss)$1,682  (513) $2,607 $475 
        
Unrealized currency translation adjustments 263  (1,191)  306  (1,989)
        
Comprehensive income (loss)$ 1,945 $ (1,704) $ 2,913 $ (1,514)
        


Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
    
 August 31,
2023
 February 28,
2023
 (Unaudited) (Audited)
    
ASSETS   
Cash$13,252  $4,996 
Accounts receivable, less allowance for credit losses of $677   
and $601 at August 31, 2023 and February 28, 2023, respectively 49,060   49,499 
Inventories, net 58,030   80,347 
Prepaid expenses and other current assets 5,601   3,485 
Prepaid income taxes -   288 
Current assets 125,943   138,615 
    
Property and equipment, net 11,478   10,864 
Right of use operating lease assets 28,859   29,515 
Deferred income taxes, net 4,079   4,100 
Intangibles, net 7,422   7,990 
Goodwill 2,251   2,163 
Other assets 2,124   2,759 
Total assets$ 182,156  $ 196,006 
    
LIABILITIES AND SHAREHOLDERS' EQUITY   
    
Trade accounts payable$25,007  $26,800 
Accrued liabilities 19,621   19,131 
Current operating lease liabilities 5,337   4,724 
Income taxes payable 272   - 
Lines of credit 23,137   31,039 
Current maturities of debt 101   1,916 
Current liabilities 73,475   83,610 
    
Long term debt 362   5,513 
Non-current operating lease liabilities 25,635   26,710 
Other long term liabilities 1,771   2,333 
Total liabilities 101,243   118,166 
    
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares   
issued and outstanding at August 31, 2023 and February 28, 2023, -   - 
respectively   
Common stock, 20,000 shares authorized, $.001 par value;   
4,005 shares issued: 3,291 and 3,293 shares outstanding at   
August 31, 2023 and February 28, 2023, respectively 4   4 
Additional paid-in capital 11,635   11,449 
Retained earnings 83,812   81,205 
Treasury stock, 714 and 712 shares held at cost at August 31, 2023   
and February 28, 2023, respectively (9,436)  (9,410)
Accumulated other comprehensive income (5,102)  (5,408)
Shareholders' equity 80,913   77,840 
    
Total liabilities and shareholders' equity$ 182,156  $ 196,006 
    


Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
    
 For the Six Months Ended
 August 31,
2023
 August 31,
2022
    
Operating activities:   
Net income$2,607  $475 
Adjustments to reconcile net income to net cash   
provided by (used in) operating activities:   
Depreciation and amortization 1,708   1,927 
(Gain) loss on sale of property (10)  135 
Gain from insurance recoveries (1,293)  - 
Proceeds from settlement of insurance claims 537   - 
Other non-cash adjustments 223   (171)
Changes in assets and liabilities:   
Accounts receivable (82)  (1,245)
Inventories 22,101   (2,215)
Prepaid expenses and other assets 1,468   2,580 
Trade accounts payable and accrued liabilities (3,788)  (16,137)
Net cash provided by (used in) operating activities 23,471   (14,651)
    
Investing activities:   
Capital expenditures (1,603)  (2,519)
Proceeds from sale of property 36   49 
Proceeds from settlement of insurance claims 1,456   - 
Net cash used in investing activities (111)  (2,470)
    
Financing activities:   
Net borrowings (repayments) under lines of credit (8,104)  21,286 
Net repayments of term loan facilities (6,910)  (720)
Purchase of treasury stock (87)  (153)
Principal payments on finance leases (58)  (56)
Net cash provided by (used in) financing activities (15,159)  20,357 
    
Effect of exchange rate changes on cash 55   (274)
    
Net increase in cash 8,256   2,962 
Cash at beginning of period 4,996   3,203 
Cash at end of period$ 13,252  $ 6,165 
    



Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except shares data)
(Unaudited)
               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 28, 2022- $ - 4,005,370 $ 4 $ 11,449 $ 81,268 $ (9,124)$ (4,195) $ 79,402 
                   
Net income           475       475 
Unrealized currency translation adjustments              (1,989)  (1,989)
Purchase of treasury stock             (93
)    (93)
Balance at August 31, 2022- $ - 4,005,370 $ 4 $ 11,449 $ 81,743 $ (9,217)$ (6,184) $ 77,795 
                   
Balance at February 28, 2023- $ - 4,005,370 $ 4 $ 11,449 $ 81,205 $ (9,410)$ (5,408) $ 77,840 
Net income           2,607       2,607 
Unrealized currency translation adjustments              306   306 
Purchase of treasury stock             (26)    (26)
Stock-based compensation expense         186         186 
Balance at August 31, 2023- $ - 4,005,370 $ 4 $ 11,635 $ 83,812 $ (9,436)$ (5,102) $ 80,913 
                   


CONTACT:
Q.E.P. Co., Inc.
Enos Brown
Executive Vice President and
Chief Financial Officer
561-994-5550