Q.E.P. CO., INC. Reports Fiscal 2024 Nine Month and Third Quarter Financial Results and Declares Special Dividend of $1.00 Per Share


BOCA RATON, Fla., Jan. 16, 2024 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTCQX: QEPC) (the “Company” or “QEP”) today reported its consolidated results of operations for the first nine months and third quarter of its fiscal year 2024, which ended on November 30, 2023, and announced the declaration of a special dividend.

Results of Operations

During the third quarter of fiscal 2024, QEP successfully completed the divestment of its North American flooring businesses and its UK operations. As of the third quarter, these businesses are now classified as discontinued operations. Amounts for prior periods, including sales and operating income, have been reclassified to conform to this presentation.

QEP reported net sales of $233.1 million for the nine months ended November 30, 2023, a decrease of $23.8 million or 9.3% from the $256.9 million reported in the same period of fiscal 2023. The Company reported net sales of $74.6 million for the quarter ended November 30, 2023, which was comparable to the $74.5 million reported in the same period of fiscal 2023. The decrease in net sales was primarily due to a general softening in consumer demand in the domestic and international segments as well as the currency translation impact of the stronger U.S. Dollar in the current period.

The Company’s gross profit for the first nine months of fiscal 2024 was $74.3 million compared to $69.4 million in the corresponding fiscal 2023 period, an increase of $4.9 million or 7.0%. Gross profit for the third quarter of fiscal 2024 was $24.4 million, representing an increase of $3.7 million or 18.0%, from $20.7 million in the corresponding fiscal 2023 period. The Company’s gross margin as a percentage of net sales for the first nine months and third quarter of fiscal 2024 was 31.9% and 32.7%, respectively, which increased from 27.0% and 27.8% 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.

Lewis Gould, Executive Chairman, commented on the Company’s results, “The third quarter was highlighted by significant progress in the ongoing realignment of the Company’s focus on its market leadership in flooring installation tools and accessories. During the quarter, we successfully completed the exit from our North American flooring product lines and divested our UK operations. Proceeds from these transactions have positioned the Company to become debt-free by fiscal year-end, with a healthy cash balance.”

Leonard Gould, President & Chief Executive Officer, added, “This strategic transformation allows the Company to intensify our focus on the innovation and expansion of our best-in-class product offerings to our diverse customer base, offsetting the softer consumer demand caused by the current macroeconomic backdrop of higher inflation and higher cost of borrowing.”

Operating expenses for the first nine months and third quarter of fiscal 2024 were $64.3 million and $21.8 million, respectively, or 27.6% and 29.2% of net sales in those periods, compared to $61.7 million and $18.6 million, respectively, or 24.0% and 24.9% of net sales in the comparable fiscal 2023 periods. The increase in operating expenses was due to higher personnel and transaction costs in the current period.

Interest expense has trended down in recent months as the significant repayment of debt has offset 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 nine months and third quarter for both fiscal 2024 and fiscal 2023.

Net loss for the first nine months and third quarter of fiscal 2024 was $3.3 million and $5.9 million, respectively, or $0.97 and $1.76, respectively, per diluted share. Excluding discontinued operations, adjusted net income for the first nine months and third quarter of fiscal 2024 was $6.0 million and $1.6 million, respectively, or $1.79 and $0.48, respectively, per diluted share. For the comparable periods of fiscal 2023, adjusted net income was $4.4 million and $1.0 million, respectively, or $1.31 and $0.31, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations for the first nine months and third quarter of fiscal 2024 was $11.2 million and $3.0 million, respectively, as compared to $8.9 million and $2.5 million for the first nine months and third quarter of fiscal 2023, respectively.

  For the Three Months Ended  For the Nine Months Ended  
  November 30,
2023
 November 30,
2022
 November 30,
2023
 November 30,
2022
 
          
Net income from continuing operations$1,619  $1,026  $5,978  $4,397  
          
Add:Interest expense, net 401   710   1,689   1,623  
 Provision for income taxes 630   399   2,326   1,710  
 Depreciation and amortization 390   403   1,168   1,178  
EBITDA, as adjusted$3,040  $2,538  $11,161  $8,908  
          

Cash provided by operations during the first nine months of fiscal 2024 was $29.7 million as compared to cash used in operations of $2.2 million in the first nine months of fiscal 2023, reflecting the reduction in inventory to more normalized levels from the elevated levels of the previous year. In the first nine months of fiscal 2024, cash provided by operations, along with proceeds from the sale of businesses, was used to reduce borrowings under the Company’s credit facilities, fund capital expenditures and increase cash balances.

Working capital as of November 30, 2023 was $59.0 million compared to $55.0 million at the end of fiscal 2023. Aggregate available cash, net of outstanding debt at the end of the third quarter of fiscal 2024 was $16.9 million compared to aggregate debt, net of available cash of $33.5 million or 43.0% of equity at the end of fiscal 2023.

Special Dividend

On January 9, 2024, the Board of Directors of the Company declared a special dividend of $1.00 per share or approximately $3.3 million. The dividend will be payable on February 16, 2024 to stockholders of record as of the close of business on January 22, 2024.

Mr. Lewis Gould stated, “The Board of Directors agreed to use a portion of the proceeds generated from our recent divestitures to return capital to its stockholders through the payment of a special dividend. The payment of related debt and the special dividend will not impact the Company’s ability to make strategic investments in the business and meet its operating needs in the coming year. The Company’s Board of Directors is committed to implementing additional initiatives to return value to our stockholders.”

Conference Call Information

The Company expects to hold its next investor conference call in June 2024 to discuss the financial results of its fiscal year ending on February 29, 2024.

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 Nine Months Ended 
  November 30, November 30, November 30, November 30, 
   2023   2022   2023   2022  
          
 Net sales$74,575  $74,492  $233,053  $256,903  
 Cost of goods sold 50,155   53,801   158,755   187,464  
 Gross profit 24,420   20,691   74,298   69,439  
          
 Operating expenses:        
 Shipping 9,202   8,149   28,216   29,572  
 General and administrative 8,308   6,421   22,701   18,417  
 Selling and marketing 4,306   3,927   13,713   13,782  
 Other (income) expense, net (46)  59   (325)  (62) 
 Total operating expenses 21,770   18,556   64,305   61,709  
          
 Operating income 2,650   2,135   9,993   7,730  
          
 Interest expense, net (401)  (710)  (1,689)  (1,623) 
          
 Income before provision for income taxes 2,249   1,425   8,304   6,107  
          
 Provision for income taxes 630   399   2,326   1,710  
          
 Net income from continuing operations 1,619   1,026   5,978   4,397  
          
 Loss from discontinued operations, net of tax (including loss on sale of discontinued operations of $5,863) (7,481)  (782)  (9,233)  (3,678) 
          
 Net income (loss)$ (5,862) $ 244  $ (3,255) $ 719  
          
 Basic earnings (loss) per share:        
 From continuing operations 0.49   0.31   1.79   1.32  
 From discontinued operations (2.24)  (0.23)  (2.76)  (1.10) 
 Basic earnings (loss) per share (1.76)  0.07   (0.97)  0.22  
          
 Diluted earnings (loss) per share:        
 From continuing operations 0.48   0.31   1.79   1.31  
 From discontinued operations (2.24)  (0.23)  (2.76)  (1.10) 
 Diluted earnings (loss) per share (1.75)  0.07   (0.97)  0.21  
          
 Weighted average number of common        
      shares outstanding:        
 Basic 3,336   3,332   3,341   3,337  
 Diluted 3,344   3,339   3,347   3,346  
          


Q.E.P. CO., INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
(In thousands, except par values) 
      
  November 30,
2023
 February 28,
2023
 
  (Unaudited) (Audited) 
      
 ASSETS    
 Cash$25,346  $3,804  
 Accounts receivable, less allowance for credit losses of $364 and    
 $329 at November 30, 2023 and February 28, 2023, respectively 38,679   42,038  
 Inventories, net 41,845   49,403  
 Prepaid expenses and other current assets 3,067   3,082  
 Prepaid income taxes 641   288  
 Current assets of discontinued operations -   40,000  
 Current assets 109,578   138,615  
      
 Property and equipment, net 9,215   8,048  
 Right of use operating lease assets 25,364   28,431  
 Deferred income taxes, net 4,183   4,191  
 Intangibles, net 228   266  
 Goodwill 259   263  
 Other assets 1,632   2,430  
 Non-current assets of discontinued operations -   13,762  
 Total assets$ 150,459  $ 196,006  
      
 LIABILITIES AND SHAREHOLDERS' EQUITY    
      
 Trade accounts payable$21,603  $17,543  
 Accrued liabilities 15,614   14,382  
 Current operating lease liabilities 4,711   4,427  
 Lines of credit 8,330   25,051  
 Current maturities of debt 99   1,908  
 Current liabilities of discontinued operations 229   20,299  
 Current liabilities 50,586   83,610  
      
 Long term debt -   5,513  
 Non-current operating lease liabilities 22,791   25,920  
 Deferred income taxes -   -  
 Other long term liabilities 1,537   2,333  
 Non-current liabilities of discontinued operations -   790  
 Total liabilities 74,914   118,166  
      
 Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares    
 issued and outstanding at November 30, 2023 and -   -  
 February 28, 2023, respectively    
 Common stock, 20,000 shares authorized, $.001 par value;    
 4,005 shares issued: 3,286 and 3,293 shares outstanding at    
 November 30, 2023 and February 28, 2023, respectively 4   4  
 Additional paid-in capital 11,635   11,449  
 Retained earnings 77,950   81,205  
 Treasury stock, 719 and 712 shares held at cost at November 30, 2023    
 and February 28, 2023, respectively (9,517)  (9,410) 
 Accumulated other comprehensive income (4,527)  (5,408) 
 Shareholders' equity 75,545   77,840  
 Total liabilities and shareholders' equity$ 150,459  $ 196,006  
      


Q.E.P. CO., INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands) 
(Unaudited) 
      
  For the Nine Months Ended 
  November 30,
2023
 November 30,
2022
 
      
 Operating activities:    
 Net income (loss)$(3,255) $719  
 Adjustments to reconcile net income to net cash    
 provided by (used in) operating activities:    
 Depreciation and amortization 2,261   2,881  
 Loss on disposal of businesses 5,863   307  
 Loss on sale of property 41   9  
 Gain from insurance recoveries (134)  -  
 Proceeds from settlement of insurance claims 537   -  
 Other non-cash adjustments 265   (75) 
 Changes in assets and liabilities:    
 Accounts receivable 7,795   6,130  
 Inventories 20,442   3,447  
 Prepaid expenses and other assets 3,167   4,684  
 Trade accounts payable and accrued liabilities (7,287)  (20,322) 
 Net cash provided by (used in) operating activities 29,695   (2,220) 
      
 Investing activities:    
 Capital expenditures (2,602)  (4,451) 
 Proceeds from sale of businesses 22,560   -  
 Proceeds from sale of property 81   1,388  
 Proceeds from settlement of insurance claims 285   -  
 Net cash provided by (used in) investing activities 20,324   (3,063) 
      
 Financing activities:    
 Net borrowings (repayments) under lines of credit (22,800)  9,787  
 Net borrowings (repayments) of term loan facilities (7,249)  268  
 Purchase of treasury stock (198)  (203) 
 Principal payments on finance leases (82)  (84) 
 Net cash provided by (used in) financing activities (30,329)  9,768  
      
 Effect of exchange rate changes on cash 660   (216) 
      
 Net increase in cash 20,350   4,269  
 Cash at beginning of period 3,804   2,072  
 Cash at beginning of the period from discontinued operations 1,192   1,131  
 Cash at end of period$ 25,346  $ 7,472  
      


 

Q.E.P. CO., INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
 (In thousands, except shares data) 
                    
                    
 The following table shows the changes in the stockholders's equity for the nine months ended November 30, 2023 and 2022.   
                Accumulated
   
            Other Total 
  Preferred Stock Common Stock Paid-in Retained Treasury Comprehensive Shareholders' 
  Shares Amount Shares AmountCapital 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           719       719  
 Unrealized currency translation adjustments              (1,468)  (1,468) 
 Purchase of treasury stock             (271)    (271) 
 Balance at November 30, 2022- $ - 4,005,370 $ 4 $ 11,449 $ 81,987  $ (9,395) $ (5,663) $ 78,382  
                    
                Accumulated   
            Other Total 
  Preferred Stock Common Stock Paid-in Retained Treasury Comprehensive Shareholders' 
  Shares Amount Shares AmountCapital Earnings Stock Income Equity 
                    
 Balance at February 28, 2023- $ - 4,005,370 $ 4 $ 11,449 $ 81,205  $ (9,410) $ (5,408) $ 77,840  
                    
 Net loss           (3,255)      (3,255) 
 Unrealized currency translation adjustments              881   881  
 Purchase of treasury stock             (107)    (107) 
 Stock-based compensation expense         186        186  
 Balance at November 30, 2023- $ - 4,005,370 $ 4 $ 11,635 $ 77,950  $ (9,517) $ (4,527) $ 75,545  
                    


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