SIX MONTH SALES – $156.8 MILLION
SECOND QUARTER SALES – $77.0 MILLION
SIX MONTH NET INCOME – $1.6 MILLION
SECOND QUARTER NET INCOME – $0.5 MILLION
BOCA RATON, Fla., Oct. 14, 2014 (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, 2015.
The Company reported net sales of $156.8 million for the six months ended August 31, 2014, a decrease of $3.0 million or 1.9% from the $159.8 million reported in the same period of fiscal 2014. As a percentage of net sales, gross profit was 27.4% in the first six months of fiscal 2015 compared to 28.4% in the first six months of fiscal 2014.
Net sales for the second quarter of fiscal 2015 was $77.0 million and reflected a gross margin of 27.0% compared to net sales of $76.4 million and a gross margin of 28.4% for the second quarter of fiscal 2014.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "The second quarter was challenging for our company. Although we replaced a portion of our lost sales from last year's first half, the margins did not reflect our goals. We are taking steps to reduce our overall costs, continuing to introduce higher margin items and to grow our sales to select customers." Mr. Gould also noted that "Last year included the profitable sale of our Canadian property and the current year reflects the impact of more volatile currency exchange rates." Mr. Gould concluded, "We are, however, confident that our progress will continue quarter to quarter."
Net sales for the three and six month periods ended August 31, 2014 as compared to the comparable periods in the prior fiscal year reflects the beneficial impact of our acquisitions of the Faus and Plasplugs businesses, an expansion of our product lines with existing customers in the Company's international operations and the net benefit from changes in currency exchange rates. These increases were offset by declines in North America both for the quarter and the six months in fiscal 2015 as a result of the fiscal 2014 second quarter impact of discontinued purchases of certain products by a significant customer in the US.
The decrease in the Company's gross profit as a percentage of net sales for both the quarter and year-to-date as compared to the comparable periods in the prior fiscal year principally reflects both the net beneficial impact of changes in the product mix and the increased purchasing power from overall changes in currency exchange rates offset by the discontinued purchases of certain products by a significant customer in the US, reduced pricing in our North American mass merchant channel, increases in the cost of raw materials and adjustments to cost of sales accruals.
Operating expenses for the first six months and second quarter of fiscal 2015 were $39.7 million and $19.6 million, respectively, or 25.3% and 25.4% of net sales in those periods, compared to $39.1 million and $18.9 million, respectively, or 24.5% and 24.7% of net sales in the comparable fiscal 2014 periods. The increase in operating expenses is principally associated with the increased costs of direct marketing in the US and the unfavorable impact of foreign currency movements, partially offset by decreases in general and administrative expenses in the US.
Non-operating income for the first six months of fiscal 2015 and fiscal 2014 represents the settlement of a third party obligation associated with a prior year acquisition and the gain related to the sale and leaseback of a Company facility in Canada, net of selling costs and the present value of future lease payments, respectively.
Increases in interest expense during fiscal 2015 as compared to fiscal 2014 principally reflect the impact of new term loan facilities.
The provision for income taxes as a percentage of income before taxes for the first six months and second quarter of fiscal 2015 was 32.2% and 28.7%, respectively, compared to 24.6% and 31.0%, respectively, for the comparable periods of fiscal 2014. The effective tax rate in both fiscal years reflects the relative contribution of the Company's earnings sourced from its international operations. The effective tax rate in the fiscal 2015 also reflects the second quarter benefit of certain employment related US state income tax credits while the effective tax rate in the fiscal 2014 also reflects the favorable rate impact of the sale of our Canadian property.
Net income for the first six months and second quarter of fiscal 2015 was $1.6 million and $0.5 million, respectively, or $0.49 and $0.16, respectively, per diluted share. For the comparable periods of fiscal 2014, net income was $6.9 million and $1.8 million, respectively, or $2.09 and $0.54, 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 2015 were $5.7 million and $2.5 million, respectively, as compared to $8.4 million and $3.8 million, respectively, for the comparable periods of fiscal 2014.
| For the Three Months | For the Six Months | ||||
| Ended August 31, | Ended August 31, | ||||
| 2014 | 2013 | 2014 | 2013 | ||
| Net income | $ 516 | $ 1,766 | $ 1,605 | $ 6,908 | |
| Add (deduct): | Interest expense, net | 350 | 233 | 650 | 487 |
| Provision for income taxes | 208 | 793 | 762 | 2,259 | |
| Depreciation and amortization | 1,272 | 1,038 | 2,591 | 2,120 | |
| Settlement of acquisition claim | 133 | -- | 133 | -- | |
| Gain on sale of property | -- | -- | -- | (3,379) | |
| EBITDA before non-operating income | $ 2,479 | $ 3,830 | $ 5,741 | $ 8,395 | |
Cash provided by operations during the first six months of fiscal 2015 was $0.4 million as compared to $3.2 million in the first six months of fiscal 2014, reflecting both the decrease in operating income and additional investments in working capital. During fiscal 2015, the Company's acquisitions, capital expenditures, and treasury stock purchase were funded from borrowings and cash from operations. During the first six months of fiscal 2014, investments in acquisitions totaled $23.8 million. These acquisitions, combined with capital expenditures and the Company's continuing treasury stock program were funded through a combination of borrowings, proceeds from the sale of a Canadian property and cash from operations.
In connection with its Faus acquisition, the Company borrowed $9.0 million under a new term loan facility and used the proceeds to reduce the balance outstanding under the Company's lines of credits. During the first quarter of the current fiscal year, the Company also amended its principal loan agreements to provide further new term loan facilities in the amount of $10.9 million, increase its borrowing limit, reduce interest rates and extend the maturity date of the loan agreements to June 2017.
Working capital at the end of the Company's fiscal 2015 second quarter was $38.7 million compared to $28.8 million at the end of the 2014 fiscal year. Aggregate debt at the end of the Company's fiscal 2015 second quarter was $51.6 million or 76% of equity compared to $41.4 million or 62% of equity at the end of the 2014 fiscal year.
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 October 16, 2014. If you would like to join the conference call, dial 1-888-397-5352 toll free from the US or 1-719-325-2469 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Second Quarter Conference Call / Conference ID 9301706. A replay of the conference call will be available until midnight October 23, 2014 by calling 1-877-870-5176 toll free from the US and entering pin number 9301706; internationally, please call 1-858-384-5517 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® and Elastiment®, the Company markets over 7,000 products. 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 sales initiatives and future market position, cost savings and profitability. 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 Ended August 31, |
For the Six Months Ended August 31, |
|||
| 2014 | 2013 | 2014 | 2013 | |
| Net sales | $ 77,048 | $ 76,418 | $ 156,755 | $ 159,817 |
| Cost of goods sold | 56,244 | 54,745 | 113,872 | 114,421 |
| Gross profit | 20,804 | 21,673 | 42,883 | 45,396 |
| Operating expenses: | ||||
| Shipping | 7,580 | 7,023 | 15,096 | 14,964 |
| General and administrative | 6,014 | 6,505 | 12,602 | 12,931 |
| Selling and marketing | 6,100 | 5,506 | 12,254 | 11,544 |
| Other income, net | (97) | (153) | (219) | (318) |
| Total operating expenses | 19,597 | 18,881 | 39,733 | 39,121 |
| Operating income | 1,207 | 2,792 | 3,150 | 6,275 |
| Non-operating income (expense) | (133) | -- | (133) | 3,379 |
| Interest expense, net | (350) | (233) | (650) | (487) |
| Income before provision for income taxes | 724 | 2,559 | 2,367 | 9,167 |
| Provision for income taxes | 208 | 793 | 762 | 2,259 |
| Net income | $ 516 | $ 1,766 | $ 1,605 | $ 6,908 |
| Net income per share: | ||||
| Basic | $ 0.16 | $ 0.54 | $ 0.49 | $ 2.11 |
| Diluted | $ 0.16 | $ 0.54 | $ 0.49 | $ 2.09 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 3,246 | 3,274 | 3,252 | 3,275 |
| Diluted | 3,269 | 3,299 | 3,274 | 3,300 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
|
For the Three Months Ended August 31, |
For the Six Months Ended August 31, |
|||
| 2014 | 2013 | 2014 | 2013 | |
| Net income | $ 516 | $ 1,766 | $ 1,605 | $ 6,908 |
| Unrealized currency translation adjustments, net of tax | (415) | (424) | (129) | (775) |
| Comprehensive income | $ 101 | $ 1,342 | $ 1,476 | $ 6,133 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands except per share values) | ||
| August 31, 2014 | February 28, 2014 | |
| (Unaudited) | ||
| ASSETS | ||
| Cash | $ 12,093 | $ 2,621 |
| Accounts receivable, less allowance for doubtful accounts of $413 and $382 as of August 31, 2014 and February 28, 2014, respectively | 48,004 | 45,726 |
| Inventories | 43,592 | 42,906 |
| Prepaid expenses and other current assets | 4,065 | 3,338 |
| Deferred income taxes | 744 | 744 |
| Current assets | 108,498 | 95,335 |
| Property and equipment, net | 23,061 | 24,353 |
| Deferred income taxes, net | 3,933 | 3,926 |
| Intangibles, net | 20,869 | 21,697 |
| Other assets | 495 | 470 |
| Total Assets | $ 156,856 | $ 145,781 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Trade accounts payable | $ 20,597 | $ 21,989 |
| Accrued liabilities | 16,002 | 14,613 |
| Lines of credit | 28,822 | 28,173 |
| Current maturities of notes payable | 4,387 | 1,746 |
| Current liabilities | 69,808 | 66,521 |
| Notes payable | 18,347 | 11,487 |
| Other long term liabilities | 821 | 931 |
| Total Liabilities | 88,976 | 78,939 |
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at August 31, 2014 and February 28, 2014 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,801 shares issued; 3,237 and 3,262 shares outstanding at August 31, 2014 and February 28, 2014, respectively | 4 | 4 |
| Additional paid-in capital | 10,650 | 10,620 |
| Retained earnings | 63,730 | 62,130 |
| Treasury stock, 564 and 539 shares held at cost at August 31, 2014 and February 28, 2014, respectively | (6,164) | (5,701) |
| Accumulated other comprehensive income | (677) | (548) |
| Shareholders' Equity | 67,880 | 66,842 |
| Total Liabilities and Shareholders' Equity | $ 156,856 | $ 145,781 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
|
For the Six Months Ended August 31, |
||
| 2014 | 2013 | |
| Operating activities: | ||
| Net income | $ 1,605 | $ 6,908 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 2,591 | 2,120 |
| Gain on sale of property | -- | (3,379) |
| Other non-cash adjustments | 80 | 121 |
| Changes in assets and liabilities, net of acquisitions: | ||
| Accounts receivable | (2,417) | (2,254) |
| Inventories | (557) | (42) |
| Prepaid expenses and other assets | (730) | (740) |
| Trade accounts payable and accrued liabilities | (215) | 465 |
| Net cash provided by operating activities | 357 | 3,199 |
| Investing activities: | ||
| Acquisitions | (254) | (23,814) |
| Proceeds from sale of property | 87 | 4,630 |
| Capital expenditures | (547) | (319) |
| Net cash used in investing activities | (714) | (19,503) |
| Financing activities: | ||
| Net borrowings under lines of credit | 728 | 18,929 |
| Net borrowings (repayments) of notes payable | 9,501 | (1,666) |
| Purchase of treasury stock | (396) | (103) |
| Stock options exercised, net | -- | 17 |
| Dividends | (4) | (4) |
| Net cash provided by financing activities | 9,829 | 17,173 |
| Effect of exchange rate changes on cash | -- | (11) |
| Net increase in cash | 9,472 | 858 |
| Cash at beginning of period | 2,621 | 737 |
| Cash at end of period | $ 12,093 | $ 1,595 |