SIX MONTH SALES – $166.1 MILLION
SECOND QUARTER SALES – $84.1 MILLION
SIX MONTH NET INCOME – $4.7 MILLION
SECOND QUARTER NET INCOME – $2.4 MILLION
SIX MONTH EARNINGS PER SHARE (DILUTED) - $1.47
SECOND QUARTER EARNINGS PER SHARE (DILUTED) - $0.75
BOCA RATON, Fla., Oct. 03, 2017 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the “Company”) today reported its consolidated results of operations for the first six months and second quarter of its fiscal year ending February 28, 2018.
The Company reported net sales of $166.1 million for the six months ended August 31, 2017, an increase of $5.9 million or 3.7% from the $160.2 million reported in the same period of fiscal 2017. As a percentage of net sales, gross margin was 28.4% in the first six months of fiscal 2018 compared to 28.2% in the first six months of fiscal 2017.
The Company reported net sales of $84.1 million for the quarter ended August 31, 2017, an increase of $4.1 million or 5.1% from the $80.1 million reported in the same period of fiscal 2017. As a percentage of net sales, gross margin was 28.3% in the second quarter of fiscal 2018 compared to 28.1% in the second quarter of fiscal 2017.
Lewis Gould, Chairman of the Board of Directors, commented on Q.E.P.’s six month results, “I continue to be very pleased with the progress Q.E.P. is making. We have seen unprecedented growth in our Australian business with the rollout of new product offerings, successfully integrated the acquisition of the Halex tack strip business into our North American operation and continued the rollout of our new products in Europe. We still have difficult top line comparisons due to shifting product demand in North America, foreign currency in Europe and our discontinued carpet installation business in Australia.”
Net sales growth for the first six months and second quarter of fiscal 2018 as compared to the same periods in the prior fiscal year reflect the impact of acquired businesses during the first six months of the current fiscal year and net growth across a range of product categories in the Australian and European segments. Foreign currency rate changes in our European operations had a negative effect on the six month period and minimal effect on the second quarter compared to the prior fiscal year.
The Company’s gross margin as a percentage of net sales for first six months and second quarter of fiscal 2018 increased compared to the prior fiscal year periods. The Company benefited from changes in the product mix during the first six months of the current fiscal year. The negative impact of foreign currency rates in our European operations compared to first six months of the prior fiscal year partially offset these gains.
Operating expenses for the first six months and second quarter of fiscal 2018 were $39.2 million and $19.7 million, respectively, or 23.6% and 23.4% of net sales in those periods, compared to $37.5 million and $18.7 million, respectively, or 23.4% and 23.3% of net sales in the comparable fiscal 2017 periods. The increase in operating expenses was due to the incremental costs assumed with the businesses acquired during fiscal 2018 and additional operating costs incurred to support the sales growth in Australia.
Non-operating income for the six months of fiscal 2017 represents a gain on the sale of certain non-core assets of the Company.
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 for the first six months and second quarter of fiscal 2018 and fiscal 2017 was 37.5% in each period. 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 six months and second quarter of fiscal 2018 was $4.7 million and $2.4 million, respectively, or $1.47 and $0.75, respectively, per diluted share. For the comparable periods of fiscal 2017, net income was $4.5 million and $2.3 million, respectively, or $1.41 and $0.73, respectively, per diluted share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) and non-operating income for the first six months and second quarter of fiscal 2018 was $10.0 million and $5.1 million, respectively, as compared to $9.6 million and $4.8 million, respectively, for the comparable periods of fiscal 2017.
| For the Three Months | For the Six Months | |||||||||||||||
| Ended August 31, | Ended August 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net income | $ | 2,402 | $ | 2,343 | $ | 4,693 | $ | 4,528 | ||||||||
| Add: | Interest expense, net | 254 | 291 | 495 | 572 | |||||||||||
| Provision for income taxes | 1,440 | 1,407 | 2,817 | 2,718 | ||||||||||||
| Depreciation and amortization | 992 | 977 | 1,951 | 1,993 | ||||||||||||
| Non-operating expense | - | (184 | ) | - | (184 | ) | ||||||||||
| EBITDA | $ | 5,088 | $ | 4,834 | $ | 9,956 | $ | 9,627 | ||||||||
Cash provided by operations during the first six months of fiscal 2018 was $4.8 million as compared to $3.0 million in the first six months of fiscal 2017, reflecting an increase in operating income and a lower net investment in working capital in the current period compared to the same period in the prior year. During the first six months of fiscal 2018, the Company acquired businesses for $3.9 million and also made capital expenditures of approximately $2.7 million, including $1.5 million related to one of those acquisitions. In the first six months of the current fiscal year, 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 in North America and Australia. 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 second quarter was $48.3 million compared to $45.0 million at the end of the 2017 fiscal year. During the first six months of fiscal 2018, certain of the Company’s property and equipment totaling $1.5 million was 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 second quarter was $12.5 million or 15.6% of equity, an increase of $2.1 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 Friday, October 6, 2017. If you would like to join the conference call, dial 1-888-280-4443 toll free from the US or 1-719-457-2615 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Second Quarter Conference Call / Conference ID 4995444. A replay of the conference call will be available until midnight October 13, 2017 by calling 1-844-512-2921 toll free from the US and entering pin number 4995444; 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 | For the Six Months Ended | |||||||||||||||
| Ended August 31, | Ended August 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Net sales | $ | 84,146 | $ | 80,080 | $ | 166,130 | $ | 160,258 | ||||||||
| Cost of goods sold | 60,373 | 57,548 | 118,928 | 115,117 | ||||||||||||
| Gross profit | 23,773 | 22,532 | 47,202 | 45,141 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Shipping | 7,219 | 7,025 | 14,348 | 13,682 | ||||||||||||
| General and administrative | 6,786 | 6,504 | 13,608 | 12,904 | ||||||||||||
| Selling and marketing | 5,856 | 5,291 | 11,616 | 11,212 | ||||||||||||
| Other income, net | (184 | ) | (145 | ) | (375 | ) | (291 | ) | ||||||||
| Total operating expenses | 19,677 | 18,675 | 39,197 | 37,507 | ||||||||||||
| Operating income | 4,096 | 3,857 | 8,005 | 7,634 | ||||||||||||
| Non-operating income | - | 184 | - | 184 | ||||||||||||
| Interest expense, net | (254 | ) | (291 | ) | (495 | ) | (572 | ) | ||||||||
| Income before provision for income taxes | 3,842 | 3,750 | 7,510 | 7,246 | ||||||||||||
| Provision for income taxes | 1,440 | 1,407 | 2,817 | 2,718 | ||||||||||||
| Net income | $ | 2,402 | $ | 2,343 | $ | 4,693 | $ | 4,528 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 0.75 | $ | 0.73 | $ | 1.47 | $ | 1.41 | ||||||||
| Diluted | $ | 0.75 | $ | 0.73 | $ | 1.47 | $ | 1.41 | ||||||||
| Weighted average number of common | ||||||||||||||||
| shares outstanding: | ||||||||||||||||
| Basic | 3,191 | 3,202 | 3,194 | 3,199 | ||||||||||||
| Diluted | 3,194 | 3,215 | 3,197 | 3,217 | ||||||||||||
| 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 | |||||||||||||||||
| Ended August 31, | Ended August 31, | |||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||
| Net income | $ | 2,402 | $ | 2,343 | $ | 4,693 | $ | 4,528 | ||||||||||
| Unrealized currency translation adjustments | 832 | (361 | ) | 841 | 143 | |||||||||||||
| Comprehensive income | $ | 3,234 | $ | 1,982 | $ | 5,534 | $ | 4,671 | ||||||||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (In thousands except per share values) | ||||||||
| August 31, 2017 (Unaudited) | February 28, 2017 (Audited) | |||||||
| ASSETS | ||||||||
| Cash | $ | 17,140 | $ | 19,152 | ||||
| Accounts receivable, less allowance for doubtful accounts of $328 | ||||||||
| and $274 as of August 31, 2017 and February 28, 2017, respectively | 42,081 | 38,493 | ||||||
| Inventories | 46,542 | 40,826 | ||||||
| Prepaid expenses and other current assets | 3,663 | 2,858 | ||||||
| Assets held for sale | 1,510 | - | ||||||
| Current assets | 110,936 | 101,329 | ||||||
| Property and equipment, net | 19,375 | 19,072 | ||||||
| Deferred income taxes | 5,723 | 5,726 | ||||||
| Intangibles, net | 11,455 | 10,997 | ||||||
| Goodwill | 3,175 | 2,745 | ||||||
| Other assets | 398 | 372 | ||||||
| Total Assets | $ | 151,062 | $ | 140,241 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Trade accounts payable | $ | 20,696 | $ | 18,106 | ||||
| Accrued liabilities | 19,283 | 17,819 | ||||||
| Income taxes payable (prepaid) | 457 | (845 | ) | |||||
| Lines of credit | 19,668 | 18,683 | ||||||
| Current maturities of notes payable | 2,529 | 2,573 | ||||||
| Current liabilities | 62,633 | 56,336 | ||||||
| Notes payable | 7,418 | 8,284 | ||||||
| Deferred income taxes | 294 | 294 | ||||||
| Other long term liabilities | 552 | 555 | ||||||
| Total Liabilities | 70,897 | 65,469 | ||||||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 0 and 18 | ||||||||
| shares outstanding at August 31, 2017 and February 28, 2017, | ||||||||
| respectively | - | 18 | ||||||
| Common stock, 20,000 shares authorized, $.001 par value; | ||||||||
| 3,821 shares issued, and 3,183 and 3,189 shares outstanding at | ||||||||
| August 31, 2017 and February 28, 2017 | 4 | 4 | ||||||
| Additional paid-in capital | 10,825 | 10,796 | ||||||
| Retained earnings | 80,000 | 75,308 | ||||||
| Treasury stock, 638 and 632 shares held at cost at August 31, 2017 | ||||||||
| and February 28, 2017 | (7,557 | ) | (7,406 | ) | ||||
| Accumulated other comprehensive income | (3,107 | ) | (3,948 | ) | ||||
| Shareholders' Equity | 80,165 | 74,772 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 151,062 | $ | 140,241 | ||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
| For the Six Months | ||||||||
| Ended August 31, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities: | ||||||||
| Net income | $ | 4,693 | $ | 4,528 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 1,951 | 1,993 | ||||||
| Other non-cash adjustments | 13 | (180 | ) | |||||
| Changes in assets and liabilities, net of acquisitions: | ||||||||
| Accounts receivable | (2,763 | ) | (1,182 | ) | ||||
| Inventories | (2,370 | ) | (94 | ) | ||||
| Prepaid expenses and other assets | (783 | ) | (514 | ) | ||||
| Trade accounts payable and accrued liabilities | 4,055 | (1,506 | ) | |||||
| Net cash provided by operating activities | 4,796 | 3,045 | ||||||
| Investing activities: | ||||||||
| Acquisitions | (3,899 | ) | (1,702 | ) | ||||
| Capital expenditures | (2,671 | ) | (802 | ) | ||||
| Proceeds from sale of businesses | 97 | 850 | ||||||
| Proceeds from insurance settlements | 252 | - | ||||||
| Proceeds from sale of property | 115 | 48 | ||||||
| Net cash used in investing activities | (6,106 | ) | (1,606 | ) | ||||
| Financing activities: | ||||||||
| Net borrowings (repayments) under lines of credit | 250 | (2,515 | ) | |||||
| Net repayments of notes payable | (921 | ) | (994 | ) | ||||
| Purchase of treasury stock | (60 | ) | (60 | ) | ||||
| Redemption of preferred stock | (18 | ) | - | |||||
| Dividends | (1 | ) | (4 | ) | ||||
| Net cash provided by (used in) financing activities | (750 | ) | (3,573 | ) | ||||
| Effect of exchange rate changes on cash | 48 | (142 | ) | |||||
| Net decrease in cash | (2,012 | ) | (2,276 | ) | ||||
| Cash at beginning of period | 19,152 | 15,923 | ||||||
| Cash at end of period | $ | 17,140 | $ | 13,647 | ||||