Q.E.P. Co., Inc. Reports Fiscal 2014 First Quarter Sales And Earnings

Record Quarterly Sales – $83.4 Million

Quarterly Net Income – $5.1 Million

BOCA RATON, Fla., June 27, 2013 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the "Company") today reported its consolidated results of operations for the first quarter of its fiscal year ending February 28, 2014.

The Company reported record net sales of $83.4 million for the three months ended May 31, 2013, an increase of $13.6 million or 19.4% from the $69.8 million reported in the same period of fiscal 2013. As a percentage of net sales, gross profit was 28.4% in the first three months of fiscal 2014 compared to 28.9% in the first three months of fiscal 2013.

Lewis Gould, Chairman of the Company's Board of Directors, commented: "Sales continue to grow quarter over quarter reflecting the positive contribution of our recent acquisitions as well as modest growth in our core operations in spite of challenging market conditions. With an eye on building net asset value for the long-term, we are continuing to target strategic acquisitions that expand our sales and earnings base. The acquisition of Homelux at the beginning of this fiscal quarter certainly contributed to that objective." Mr. Gould concluded that: "With a focus on further optimizing cash flow, working capital and shareholder value, during the first quarter of the current fiscal year we also completed a sale and leaseback of a facility in Canada and used the cash proceeds to pay down debt."

The growth in net sales for the quarter as compared to the fiscal year 2013 first quarter principally reflects the contribution of both North American and European acquisitions completed during the past twelve months. Excluding acquisitions, net sales increased 3.3% quarter over quarter due to modest sales growth in both North America and certain international operations partially offset by the effects of competitive pricing pressures in North America and, to a lesser degree, international markets.

The Company's gross margin was 28.4% for the first quarter of fiscal 2014 as compared to 28.9% for the first quarter of the prior fiscal year. The decrease in margin as compared to the first quarter of the prior fiscal year principally reflects price reductions and product mix changes coupled with cost increases on certain raw materials. In addition, the purchasing power of our international operations weakened as the US dollar strengthened during the first quarter of fiscal 2014.

Operating expenses for the first three months of fiscal 2014 and 2013 were $20.2 million and $16.4 million, respectively, or 24.3% and 23.5% of net sales, respectively. The increase in operating expenses is principally associated with acquisitions, while the increase in operating expenses as a percentage of net sales also reflects increased US direct media marketing costs and increases in personnel costs implemented in the prior fiscal year.

Non-operating income for the first three months of fiscal 2014 represents 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.

The provision for income taxes as a percentage of income before taxes for the first three months of fiscal 2014 and 2013 was 22.2% and 36.5%, respectively. The effective tax rate in fiscal 2014 reflects the favorable rate impact of the sale of our Canadian property and the impact of a larger portion of the Company's earnings being sourced in jurisdictions with lower tax rates.

Net income for the first three months of fiscal 2014 and 2013 was $5.1 million and $2.3 million, respectively, or $1.56 and $0.68, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) before non-operating income for the first quarter of fiscal 2014 increased to $4.6 million as compared to $4.4 million for the fiscal 2013 first quarter:
    For the Three Months  Ended May 31,
    2013 2012
       
Net income  $ 5,142  $ 2,286
Add back (deduct): Interest  254  165
  Provision for income taxes  1,466  1,314
  Depreciation and amortization  1,082  602
  Non-operating income  (3,379)  -- 
EBITDA before non-operating income  $ 4,565  $ 4,367

Increased depreciation and amortization charges during fiscal 2014 principally related to acquisitions.

Cash provided by operations was $1.2 million in both the first three months of fiscal 2014 and 2013. Funding for the acquisition of Homelux during the first quarter of fiscal 2014, as well as capital expenditures and the Company's continuing treasury stock program, was provided from a combination of cash from operations, borrowings and proceeds from the sale of a Canadian property. Cash from operations during the first quarter of fiscal 2013 was used to pay down debt and fund the purchase of treasury shares and capital expenditures.

Working capital at the end of the Company's fiscal 2014 first quarter was $24.8 million, a decrease of $13.2 million from $38.0 million at the end of the 2013 fiscal year due to the use of lines of credit to fund the Homelux acquisition. Similarly, aggregate debt at the end of the Company's fiscal 2014 first quarter rose to $34.3 million from $15.3 million at the end of the 2013 fiscal year as a result of the Homelux acquisition. Total debt to equity stood at 0.61 as of May 31, 2013.

Continuing our focus on building net asset value through targeted acquisitions, earlier this week, the Company announced that its UK subsidiary had completed the purchase of the Plasplugs® trade name and other assets of the Plasplugs business. Founded in the early 1970s, the Plasplugs product range includes general purpose wall anchors, fasteners, sharpeners, tiling tools and spacers, tile cutters and saws, knives, abrasives, electrical products and power tools.

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, June 28, 2013. If you would like to join the conference call, dial 1-877-941-1427 toll free from the US or 1-480-629-9664 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. First Quarter Conference Call / Conference ID 4627120. A replay of the conference call will be available until midnight July 5th by calling 1-877-870-5176 toll free from the US and entering pin number 4627120; 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 worldwide manufacturer, marketer and distributor, QEP delivers 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. In addition the Company provides industrial tools with cutting edge technology to all of the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris Wood®, Vitrex®, Homelux®,  PRCI, Plasplugs®, Nupla®, HISCO™, Ludell™, Porta-Nails™ and Elastiment®, the Company markets over 5,000 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 growth, the benefits of acquisitions and success in completing and integrating transactions, economic conditions, future growth, net asset and shareholder value, pricing pressures, cost increases, the effects of changes in foreign exchange rates and personnel costs, the tax impact of changes in the sources of profits, 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  Ended May 31,
  2013 2012
     
Net sales  $ 83,399  $ 69,835
Cost of goods sold  59,676  49,669
Gross profit  23,723  20,166
     
Operating expenses:    
Shipping  7,941  6,870
General and administrative  6,426  5,144
Selling and marketing  6,038  4,423
Other income, net  (165)  (36)
Total operating expenses  20,240  16,401
     
Operating income  3,483  3,765
     
Non-operating income  3,379  -- 
Interest expense, net  (254)  (165)
     
Income before provision for income taxes  6,608  3,600
     
Provision for income taxes  1,466  1,314
     
Net income   $ 5,142  $ 2,286
     
Net income per share:    
Basic  $ 1.57  $ 0.69
Diluted  $ 1.56  $ 0.68
     
Weighted average number of common shares outstanding:    
Basic  3,276  3,330
Diluted  3,300  3,367
 
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
     
  For the Three Months  Ended May 31,
  2013 2012
     
Net income  $ 5,142  $ 2,286
     
Unrealized currency translation adjustments, net of tax  351  779
     
Comprehensive income  $ 5,493  $ 3,065
 
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share values)
     
  May 31, 2013 (Unaudited) February 28, 2013
     
ASSETS    
Cash  $ 1,788  $ 737
Accounts receivable, less allowance for doubtful accounts of $369 and $298 as of May 31, 2013 and February 28, 2013, respectively  48,499  39,581
Inventories  38,981  37,299
Prepaid expenses and other current assets  3,119  2,586
Deferred income taxes  1,238  1,238
Current assets  93,625  81,441
     
Property and equipment, net  14,017  14,018
Deferred income taxes, net  1,134  1,152
Intangibles, net  21,234  4,119
Other assets  354  386
     
Total Assets  $ 130,364  $ 101,116
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
     
Trade accounts payable   $ 22,520  $ 19,650
Accrued liabilities  16,024  13,641
Lines of credit  29,254  8,872
Current maturities of notes payable  1,010  1,246
Current liabilities  68,808  43,409
     
Notes payable  4,035  5,222
Other long term liabilities  1,037  647
Total Liabilities  73,880  49,278
     
Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at May 31, 2013 and February 28, 2013  337  337
Common stock, 20,000 shares authorized, $.001 par value; 3,801 and 3,799 shares issued; 3,274 and 3,282 shares outstanding at May 31, 2013 and February 28, 2013, respectively  4  4
Additional paid-in capital  10,656  10,639
Retained earnings  51,187  46,049
Treasury stock, 526 and 517 shares held at cost at May 31, 2013 and February 28, 2013, respectively  (5,463)  (5,305)
Accumulated other comprehensive income  (237)  114
Shareholders' Equity  56,484 51,838
     
Total Liabilities and Shareholders' Equity  $ 130,364  $ 101,116
 
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
     
   For the Three Months Ended May 31, 
  2013 2012
     
Operating activities:    
Net income  $ 5,142  $ 2,286
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization  1,082  602
Non-operating income  (3,379)  -- 
Other non-cash adjustments  55  15
Changes in assets and liabilities, net of acquisition:    
Accounts receivable  (5,323)  (2,762)
Inventories  613  (2,667)
Prepaid expenses and other assets  (462)  135
Trade accounts payable and accrued liabilities  3,518  3,597
Net cash provided by operating activities  1,246  1,206
     
Investing activities:    
Acquisitions  (23,495)  -- 
Proceeds from sale of property  4,630  -- 
Capital expenditures  (188)  (180)
Net cash used in investing activities  (19,053)  (180)
     
Financing activities:    
Net borrowings (repayments) under lines of credit  20,321  (379)
Repayments of notes payable  (1,415)  (310)
Purchase of treasury stock  (57)  (280)
Dividends and other  14  5
Net cash used in financing activities  18,863  (964)
     
Effect of exchange rate changes on cash  (5)  (59)
     
Net increase in cash  1,051  3
Cash at beginning of period  737  976
Cash at end of period  $ 1,788  $ 979
CONTACT: Q.E.P. Co., Inc.         Richard A. Brooke         Senior Vice President and         Chief Financial Officer         561-994-5550

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