Quarterly Net Sales of $117.1 million
Quarterly Net Income of $1.0 million
BOCA RATON, Fla., July 14, 2022 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC: QEPC.PK) (the “Company” or “QEP”) today reported its consolidated results of operations for the first quarter of fiscal year 2023, which ended on May 31, 2022.
Q.E.P. reported net sales of $117.1 million for the quarter ended May 31, 2022, an increase of $2.7 million or 2.3% compared to $114.4 million in the first quarter of fiscal 2022. The increase in net sales was primarily due to year-over-year price increases that were implemented to mitigate the impact of inflationary pressures. These price increases were partially offset by lower sales volume and the currency translation impact of the strong U.S. Dollar in the current period. As a percentage of net sales, gross margin was 26.4% in the first quarter of fiscal 2023, as compared to 27.4% in the first quarter of fiscal 2022.
Lewis Gould, Executive Chairman, commented on the Company’s results, “We continue to be adversely impacted by significant inflationary pressures and disruption to the global supply chain. Despite implementing an unprecedented series of price increases, we continue to lag the impact of elevated inbound freight rates, along with higher product, labor and other operating costs. In light of these headwinds, the Company continues to closely monitor and take appropriate actions on marginally profitable products, product lines and operating expenses.”
Mr. Gould concluded, “The Company recognizes the challenging and volatile environment in which we operate and remains focused on improving the overall profitability of our operations.”
The Company’s gross profit for the first quarter of fiscal 2023 was $30.9 million, representing a decrease of $0.4 million, or 1.4% from $31.3 million in the first quarter of fiscal 2022. The decrease in absolute gross margin and gross margin as a percentage of net sales was due to increased inbound freight and products costs, that were not fully recovered through price increases to customers and cost reduction initiatives.
Operating expenses for the first quarter of fiscal 2023 and 2022 were $29.1 million or 24.9% of net sales and $27.3 million or 23.9% of net sales, respectively. The increase in operating expenses was due to higher outbound freight costs directly related to higher energy costs. Additionally, the Company had higher personnel and marketing costs as it reinvested in sales support infrastructure, including marketing displays and samples, to support the recent launch of certain flooring product lines.
The higher interest expense during the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022 was due to an increase in borrowings under the Company’s credit facilities and higher interest rates during the current period.
The provision for income taxes as a percentage of income before taxes was 28.0% for both the first quarter of fiscal 2023 and the first quarter of fiscal 2022.
Net income for the first quarter of fiscal 2023 was $1.0 million or $0.29 per diluted share, compared to $2.6 million or $0.79 per diluted share for the first quarter of fiscal 2022.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of fiscal 2023 was $2.7 million as compared to $5.1 million for the first quarter of fiscal 2022.
| For the Three Months Ended | ||||||||
| May 31, 2022 | May 31, 2021 | |||||||
| Net income | $ | 988 | $ | 2,639 | ||||
| Add: | Interest expense, net | 376 | 327 | |||||
| Provision for income taxes | 384 | 1,026 | ||||||
| Depreciation and amortization | 992 | 1,082 | ||||||
| EBITDA | $ | 2,740 | $ | 5,074 | ||||
Cash used in operations during the first quarter of fiscal 2023 was $8.8 million as compared to cash provided by operations of $1.4 million in the first quarter of fiscal 2022, reflecting the payment to suppliers that previously funded the increase in inventory. In the first quarter of fiscal 2023, cash used in operations and capital expenditures was funded by increased borrowings under the Company’s lines of credit.
Working capital as of May 31, 2022 was $53.4 million compared to $55.0 million at the end of fiscal 2022. Aggregate debt, net of available cash balances at the end of the first quarter of fiscal 2023 was $43.4 million or 54.5% of equity, an increase of $10.0 million compared to $33.4 million or 42.0% of equity at the end of fiscal 2022.
Conference Call Information
The Company will be hosting the following conference call to discuss its financial results and answer questions.
| Date: | Thursday, July 21, 2022 | |
| Time: | 10:00 a.m. Eastern Time | |
| Dial-in Numbers: | 888-221-3881 (US or Canada) +1 646-828-8193 (International) | |
| Confirmation Code: | 2074266 | |
| Replay: | 719-457-0820; Passcode 2074266 | |
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 and installation solutions for commercial and home improvement projects worldwide. QEP offers a comprehensive line of specialty installation tools, adhesives, and underlayment as well as a complete line of hardwood, luxury vinyl, and modular carpet tile. QEP sells its products throughout the world to home improvement retail centers, professional specialty distribution outlets, and flooring dealers under brand names including QEP®, LASH®, ROBERTS®, Vitrex®, Brutus®, PRCI®, Plasplugs®, Tomecanic®, Premix-Marbletite® (PMM), Apple Creek®, Homelux®, Capitol® and XPS Foam™. Brand names featured under QEP’s Harris Flooring Group® include Harris®, Kraus® and Naturally Aged Flooring™.
QEP is headquartered in Boca Raton, Florida with offices in Canada, Europe, Asia, Australia and New Zealand.
Forward-Looking Statements
This press release contains forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 emergence of the world from the COVID-19 pandemic and the Company's belief that it is positioned to respond to evolving uncertainties related thereto, and the Company's shifting of its focus to new challenges presented by (i) scarcity and rising cost of raw materials and transcontinental freight, (ii) shifts in global sourcing patterns; and (iii) general inflationary pressures, economic conditions, sales growth, price increases, maintaining and improving profitability, product development and marketing, operating expenses, cost savings, acquisition integration, operational synergy realization, global sourcing, political uncertainty, cash flow, debt and currency exchange rates. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties. 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, 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 | |||||||
| May 31, | May 31, | ||||||
| 2022 | 2021 | ||||||
| Net sales | $ | 117,083 | $ | 114,404 | |||
| Cost of goods sold | 86,205 | 83,091 | |||||
| Gross profit | 30,878 | 31,313 | |||||
| Operating expenses: | |||||||
| Shipping | 13,618 | 12,621 | |||||
| General and administrative | 7,567 | 7,132 | |||||
| Selling and marketing | 8,104 | 7,728 | |||||
| Other income, net | (159 | ) | (160 | ) | |||
| Total operating expenses | 29,130 | 27,321 | |||||
| Operating income | 1,748 | 3,992 | |||||
| Interest expense, net | (376 | ) | (327 | ) | |||
| Income before provision for income taxes | 1,372 | 3,665 | |||||
| Provision for income taxes | 384 | 1,026 | |||||
| Net income | $ | 988 | $ | 2,639 | |||
| Earnings per share: | |||||||
| Basic | $ | 0.30 | $ | 0.79 | |||
| Diluted | $ | 0.29 | $ | 0.79 | |||
| Weighted average number of common shares outstanding: | |||||||
| Basic | 3,341 | 3,335 | |||||
| Diluted | 3,351 | 3,346 | |||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||
| (In thousands) | |||||||
| (Unaudited) | |||||||
| For the Three Months Ended | |||||||
| May 31, | May 31, | ||||||
| 2022 | 2021 | ||||||
| Net income | $ | 988 | $ | 2,639 | |||
| Unrealized currency translation adjustments | (798 | ) | (126 | ) | |||
| Comprehensive income | $ | 190 | $ | 2,513 | |||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED BALANCE SHEETS | |||||||
| (In thousands, except par values) | |||||||
| May 31, 2022 | February 28, 2022 | ||||||
| (Unaudited) | (Audited) | ||||||
| ASSETS | |||||||
| Cash | $ | 4,542 | $ | 3,203 | |||
| Accounts receivable, less allowance for doubtful accounts of $737 and $807 as of May 31, 2022 and February 28, 2022, respectively | 55,787 | 55,990 | |||||
| Inventories, net | 96,250 | 98,087 | |||||
| Prepaid expenses and other current assets | 4,416 | 3,711 | |||||
| Current assets | 160,995 | 160,991 | |||||
| Property and equipment, net | 11,517 | 10,529 | |||||
| Right of use operating lease assets | 23,476 | 15,485 | |||||
| Deferred income taxes, net | 3,582 | 3,578 | |||||
| Intangibles, net | 9,462 | 10,233 | |||||
| Goodwill | 2,266 | 2,390 | |||||
| Other assets | 5,470 | 3,150 | |||||
| Total Assets | $ | 216,768 | $ | 206,356 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Trade accounts payable | $ | 40,348 | $ | 47,715 | |||
| Accrued liabilities | 20,449 | 24,919 | |||||
| Current operating lease liabilities | 4,818 | 4,942 | |||||
| Income taxes payable | 784 | 634 | |||||
| Lines of credit | 38,407 | 26,449 | |||||
| Current maturities of debt | 2,773 | 1,321 | |||||
| Current liabilities | 107,579 | 105,980 | |||||
| Long term debt | 6,744 | 8,797 | |||||
| Non-current operating lease liabilities | 20,148 | 11,643 | |||||
| Other long term liabilities | 2,754 | 534 | |||||
| Total Liabilities | 137,225 | 126,954 | |||||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares issued and outstanding at May 31, 2022 and February 28, 2022, respectively | - | - | |||||
| Common stock, 20,000 shares authorized, $.001 par value; 4,005 shares issued: 3,305 and 3,307 shares outstanding at May 31, 2022 and February 28, 2022, respectively | 4 | 4 | |||||
| Additional paid-in capital | 11,449 | 11,449 | |||||
| Retained earnings | 82,256 | 81,268 | |||||
| Treasury stock, 700 and 698 shares held at cost at May 31, 2022 and February 28, 2022, respectively | (9,173 | ) | (9,124 | ) | |||
| Accumulated other comprehensive income | (4,993 | ) | (4,195 | ) | |||
| Shareholders' Equity | 79,543 | 79,402 | |||||
| Total Liabilities and Shareholders' Equity | $ | 216,768 | $ | 206,356 | |||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
| (In thousands) | |||||||
| (Unaudited) | |||||||
| For the Three Months Ended | |||||||
| May 31, 2022 | May 31, 2021 | ||||||
| Operating activities: | |||||||
| Net income | $ | 988 | $ | 2,639 | |||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
| Gain on sale of property | (6 | ) | (42 | ) | |||
| Depreciation and amortization | 992 | 1,082 | |||||
| Other non-cash adjustments | (121 | ) | (100 | ) | |||
| Changes in assets and liabilities, net of acquisitions: | |||||||
| Accounts receivable | (301 | ) | (602 | ) | |||
| Inventories | 952 | (4,024 | ) | ||||
| Prepaid expenses and other assets | 1,632 | (168 | ) | ||||
| Trade accounts payable and accrued liabilities | (12,965 | ) | 2,636 | ||||
| Net cash provided by (used in) operating activities | (8,829 | ) | 1,421 | ||||
| Investing activities: | |||||||
| Capital expenditures | (1,539 | ) | (243 | ) | |||
| Proceeds from sale of property | 6 | 140 | |||||
| Net cash used in investing activities | (1,533 | ) | (103 | ) | |||
| Financing activities: | |||||||
| Net borrowings (repayments) under lines of credit | 12,364 | (27 | ) | ||||
| Net borrowings (repayments) of term loan facilities | (502 | ) | 1,024 | ||||
| Purchase of treasury stock | (79 | ) | (30 | ) | |||
| Principal payments on finance leases | (28 | ) | (26 | ) | |||
| Net cash provided by financing activities | 11,755 | 941 | |||||
| Effect of exchange rate changes on cash | (54 | ) | 35 | ||||
| Net increase in cash | 1,339 | 2,294 | |||||
| Cash at beginning of period | 3,203 | 10,905 | |||||
| Cash at end of period | $ | 4,542 | $ | 13,199 | |||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | |||||||||||||||||||||||||||||
| (In thousands, except shares data) | |||||||||||||||||||||||||||||
| 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, 2021 | - | $ | - | 4,005,370 | $ | 4 | $ | 11,251 | $ | 71,785 | $ | (9,082 | ) | $ | (3,030 | ) | $ | 70,928 | |||||||||||
| Net Income | 2,639 | 2,639 | |||||||||||||||||||||||||||
| Unrealized currency translation adjustments | (126 | ) | (126 | ) | |||||||||||||||||||||||||
| Balance at May 31, 2021 | - | $ | - | 4,005,370 | $ | 4 | $ | 11,251 | $ | 74,424 | $ | (9,082 | ) | $ | (3,156 | ) | $ | 73,441 | |||||||||||
| 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 | 988 | 988 | |||||||||||||||||||||||||||
| Unrealized currency translation adjustments | (798 | ) | (798 | ) | |||||||||||||||||||||||||
| Purchase of treasury stock | (49 | ) | (49 | ) | |||||||||||||||||||||||||
| Balance at May 31, 2022 | - | $ | - | 4,005,370 | $ | 4 | $ | 11,449 | $ | 82,256 | $ | (9,173 | ) | $ | (4,993 | ) | $ | 79,543 | |||||||||||
CONTACT:
Q.E.P. Co., Inc.
Enos Brown
Executive Vice President and
Chief Financial Officer
561-994-5550
