BOCA RATON, Fla., Sept. 18, 2012 (GLOBE NEWSWIRE) --
| Record Six Month Sales – $140.9 Million |
| Record Second Quarter Sales – $71.0 Million |
| Six Month Net Income – $4.2 Million |
| Second Quarter Net Income – $2.0 Million |
Q.E.P. CO., INC. (Pink Sheets:QEPC) (the "Company") today reported its consolidated results of operations for the first six months and second quarter of its fiscal year ending February 28, 2013.
The Company reported record net sales of $140.9 million for the six months ended August 31, 2012, an increase of $5.2 million or 3.9% from the $135.6 million reported in the same period of fiscal 2012. As a percentage of net sales, gross profit was 28.8% in the first six months of fiscal 2013 compared to 31.4% in the first six months of fiscal 2012.
Net sales for the second quarter of fiscal 2013 also reached a record $71.0 million and reflected a gross profit margin of 28.8% compared to net sales of $67.9 million and a gross profit margin of 30.1% for the second quarter of fiscal 2012.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are pleased with the record sales during the quarter which reflects our continuing commitment to growth in the face of substantial economic changes in our markets. That growth is the result of both increases in overall unit sales and the addition of two acquisitions during this quarter." Mr. Gould continued, "Despite success on the sales line, our margins continue to reflect market pressures. We remain committed to our strategy of focusing on synergistic acquisitions that will position the Company for continued growth and long-term profitability in both domestic and international markets as well as expanding our sales and marketing personnel with a heavier emphasis on non-mass merchant accounts. While there can be no guarantees that we will be successful in completing more acquisitions, we remain optimistic about the opportunities in the market."
The increase in net sales for the six months ended August 31, 2012 reflects an increase in sales from the acquisition in the US of Nupla Corporation, a manufacturer and distributor of professional grade fiberglass handled striking, digging, cutting and fire tools. Also contributing to the increase was an expansion of product lines with existing customers in the Company's operations outside North America. Nonetheless, during the second quarter of fiscal 2013, decreases in North American sales partially offset the increases from the acquisition of Nupla and our international operations.
The decrease in the Company's gross margin as compared to the comparable periods in the prior fiscal year principally reflects reduced pricing in our mass merchant channels coupled with certain cost increases. During the second quarter of fiscal 2013, cost increases moderated but remained elevated compared to the prior year.
As a result of the margin pressures experienced during the periods and despite the increase in net sales, gross profit for the six months ended August 31, 2012 and the second quarter of fiscal 2013 was $40.6 million and $20.5 million, respectively, compared to gross profit of $42.6 million and $20.4 million, respectively, during the comparable fiscal 2012 periods.
Operating expenses before the restructuring charges for the first six months and second quarter of fiscal 2013 were $33.5 million and $17.1 million, respectively, or 23.8% and 24.1% of net sales in those periods, compared to $30.8 million and $15.2 million, respectively, or 22.7% and 22.5% of net sales in the comparable fiscal 2012 periods. The increase in operating expenses as a percentage of net sales principally reflects an increased investment in personnel, increased freight rates in certain markets and transaction expenses associated with the Company's recent investment activities. Operating expenses for the six months ended August 31, 2011 include $1.3 million of non-cash restructuring charges associated with the Company's Argentine operations.
The Company's effective tax rate for the first six months and second quarter of fiscal 2013 was 37.0% and 37.6%, respectively. Excluding a $1.0 million tax benefit from the restructuring of the Company's Argentine operations, the Company's effective tax rate was 36.5% and 38.3%, respectively for the comparable periods of fiscal 2012. The fluctuation in the Company's effective tax rate is principally the result of changes in the proportion of the Company's earnings sourced in jurisdictions with different statutory tax rates.
Net income for the first six months and second quarter of fiscal 2013 was $4.2 million and $2.0 million, respectively, or $1.27 and $0.59, respectively, per diluted share. For the comparable periods of fiscal 2012, net income was $6.9 million and $2.7 million, respectively, or $2.02 and $0.80, respectively, per diluted share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) before restructuring charges for the first six months and second quarter of fiscal 2013 decreased to $8.4 million and $4.1 million, respectively, as compared to $13.1 million and $5.8 million, respectively, for the comparable periods of fiscal 2012.
| For the Three Months | For the Six Months | |||
| Ended August 31, | Ended August 31, | |||
| 2012 | 2011 | 2012 | 2011 | |
| Net income | $ 1,961 | $ 2,728 | $ 4,246 | $ 6,860 |
| Add back: Restructuring charges | -- | 1,273 | -- | 1,273 |
| Interest | 193 | 243 | 357 | 528 |
| Provision for income taxes | 1,180 | 943 | 2,495 | 3,168 |
| Depreciation and amortization | 725 | 649 | 1,327 | 1,290 |
| EBITDA | $ 4,059 | $ 5,836 | $ 8,425 | $ 13,119 |
In addition to the acquisitions completed during the second quarter of fiscal 2013, in July 2012, the Company entered into a merger agreement with Imperial Industries, Inc. (OTCBB:IPII) ("Imperial") pursuant to which each outstanding share of the common stock of Imperial will be converted into the right to receive $.30 in cash (approximately $770 thousand). Imperial manufactures and markets stucco and plaster products, roof tile mortar, adhesive products and pool finish products. The Company has extended a bridge loan to Imperial to provide up to $500 thousand to fund its operations until it can complete a shareholder vote on the merger, which vote is expected to be completed during October 2012. During the second quarter of fiscal 2013, the Company advanced $260 thousand under the bridge loan.
Cash provided by operations during the first six months of fiscal 2013 was $4.0 million as compared to $5.4 million in the first six months of fiscal 2012, principally reflecting the decrease in net income. During fiscal 2013 the Company made investments totaling $8.0 million which include the completion of two acquisitions and advances related to the proposed Imperial merger. The investments were funded through a combination of cash from operations and from the Company's domestic revolving credit facility. By comparison, cash provided by operations during the first six months of fiscal 2012 was $5.4 million and was used to reduce aggregate borrowings, to fund the acquisition of Porta-Nails, Inc. and capital expenditures.
Working capital at the end of the Company's fiscal 2013 second quarter was $35.1 million compared to $35.9 million at the end of the 2012 fiscal year. Aggregate debt at the end of the Company's fiscal 2013 second quarter was $16.9 million or 35% of equity compared to $12.7 million or 28% of equity at the end of the 2012 fiscal year. The increase in debt primarily relates to the funding of investments during the second quarter of fiscal 2013.
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 20, 2012. If you would like to join the conference call, dial 1-877-941-2068 toll free from the US or 1-480-629-9712 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Second Quarter Conference Call / Conference ID 4565205. A replay of the conference call will be available until midnight September 27th by calling 1-877-870-5176 toll free from the US and entering pin number 4565205; 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® Nupla® 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 sales growth, pricing pressures, long-term profitability, cost increases, benefits of acquisitions, potential acquisition opportunities and, capital availability. 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 | For the Six Months | |||
| Ended August 31, | Ended August 31, | |||
| 2012 | 2011 | 2012 | 2011 | |
| Net sales | $ 71,042 | $ 67,856 | $ 140,877 | $ 135,630 |
| Cost of goods sold | 50,590 | 47,425 | 100,259 | 93,039 |
| Gross profit | 20,452 | 20,431 | 40,618 | 42,591 |
| Operating expenses: | ||||
| Shipping | 7,214 | 6,793 | 14,084 | 13,245 |
| General and administrative | 5,406 | 4,538 | 10,551 | 9,683 |
| Selling and marketing | 4,627 | 4,051 | 9,050 | 8,146 |
| Restructuring Charges | -- | 1,273 | -- | 1,273 |
| Other income, net | (129) | (138) | (165) | (312) |
| Total operating expenses | 17,118 | 16,517 | 33,520 | 32,035 |
| Operating income | 3,334 | 3,914 | 7,098 | 10,556 |
| Interest expense, net | (193) | (243) | (357) | (528) |
| Income before provision for income taxes | 3,141 | 3,671 | 6,741 | 10,028 |
| Provision for income taxes | 1,180 | 943 | 2,495 | 3,168 |
| Net income | $ 1,961 | $ 2,728 | $ 4,246 | $ 6,860 |
| Net income per share: | ||||
| Basic | $ 0.59 | $ 0.82 | $ 1.28 | $ 2.07 |
| Diluted | $ 0.59 | $ 0.80 | $ 1.27 | $ 2.02 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 3,310 | 3,332 | 3,320 | 3,308 |
| Diluted | 3,338 | 3,404 | 3,353 | 3,398 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
| For the Three Months | For the Six Months | |||
| Ended August 31, | Ended August 31, | |||
| 2012 | 2011 | 2012 | 2011 | |
| Net income | $ 1,961 | $ 2,728 | $ 4,246 | $ 6,860 |
| Unrealized currency translation adjustments, net of tax | 475 | 380 | (304) | 890 |
| Comprehensive income | $ 2,436 | $ 3,108 | $ 3,942 | $ 7,750 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands except per share values) | ||
| August 31, | February 29, | |
| 2012 | 2012 | |
| (Unaudited) | ||
| ASSETS | ||
| Cash | $ 808 | $ 976 |
| Accounts receivable, less allowance for doubtful accounts of $361 and $314 as of August 31, 2012 and February 29, 2012, respectively | 43,052 | 35,386 |
| Inventories | 37,351 | 31,441 |
| Prepaid expenses and other current assets | 2,381 | 2,596 |
| Deferred income taxes | 1,514 | 1,484 |
| Current assets | 85,106 | 71,883 |
| Property and equipment, net | 13,997 | 11,546 |
| Deferred income taxes, net | 673 | 686 |
| Intangibles, net | 4,050 | 2,542 |
| Other assets | 389 | 552 |
| Total Assets | $ 104,215 | $ 87,209 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Trade accounts payable | $ 23,330 | $ 17,437 |
| Accrued liabilities | 14,462 | 10,954 |
| Lines of credit | 9,876 | 5,215 |
| Current maturities of notes payable | 2,312 | 2,343 |
| Current liabilities | 49,980 | 35,949 |
| Notes payable | 4,760 | 5,102 |
| Other long term liabilities | 723 | 723 |
| Total Liabilities | 55,463 | 41,774 |
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at August 31, 2012 and February 29, 2012 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,797 and 3,793 shares issued; 3,310 and 3,338 shares outstanding at August 31, 2012 and February 29, 2012, respectively | 4 | 4 |
| Additional paid-in capital | 10,642 | 10,666 |
| Retained earnings | 42,160 | 37,917 |
| Treasury stock, 487 and 455 shares held at cost at August 31, 2012 and February 29, 2012, respectively | (4,799) | (4,201) |
| Accumulated other comprehensive income | 408 | 712 |
| Shareholders' Equity | 48,752 | 45,435 |
| Total Liabilities and Shareholders' Equity | $ 104,215 | $ 87,209 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
| For the Six Months Ended | ||
| August 31, | ||
| 2012 | 2011 | |
| Operating activities: | ||
| Net income | $ 4,246 | $ 6,860 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 1,327 | 1,290 |
| Restructuring charges | -- | 1,273 |
| Other non-cash adjustments | 85 | 30 |
| Changes in assets and liabilities, net of acquisition: | ||
| Accounts receivable | (6,299) | (3,537) |
| Inventories | (4,272) | 1,951 |
| Prepaid expenses and other assets | 463 | 1,829 |
| Trade accounts payable and accrued liabilities | 8,474 | (4,336) |
| Net cash provided by operating activities | 4,024 | 5,360 |
| Investing activities: | ||
| Acquisitions | (7,356) | (959) |
| Capital expenditures | (638) | (577) |
| Net cash used in investing activities | (7,994) | (1,536) |
| Financing activities: | ||
| Net borrowings under lines of credit | 4,808 | 642 |
| Repayments of notes payable | (382) | (3,521) |
| Purchase of treasury stock | (558) | (368) |
| Stock options (repurchased) exercised, net | (25) | 376 |
| Dividends | (4) | (4) |
| Net cash provided by (used in) financing activities | 3,839 | (2,875) |
| Effect of exchange rate changes on cash | (37) | 17 |
| Net (decrease) increase in cash | (168) | 966 |
| Cash at beginning of period | 976 | 447 |
| Cash at end of period | $ 808 | $ 1,413 |