Record Six Month Sales – $159.8
Million Record Second Quarter Sales – $76.4
Million
Six Month Net Income – $6.9
Million Second Quarter Net Income – $1.8
Million
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, 2014.
The Company reported record net sales of $159.8 million for the
six months ended August 31, 2013, an increase of $18.9 million or
13.4% from the $140.9 million reported in the same period of fiscal
2013. As a percentage of net sales, gross profit was 28.4% in the
first six months of fiscal 2014 compared to 28.8% in the first six
months of fiscal 2013.
Net sales for the second quarter of fiscal 2014 also reached a
record $76.4 million and reflected a gross profit margin of 28.4%
compared to net sales of $71.0 million and a gross profit margin of
28.8% for the second quarter of fiscal 2013.
Lewis Gould, Chairman of the Company's Board of Directors,
commented: "We are pleased to report that our ongoing strategy
focusing on synergistic acquisitions continues to diversify our
product offerings and customer base, and our position in the global
marketplace. Continued margin pressures, particularly in our North
American operations, further support the importance of this
strategic focus. As we execute our acquisition strategy and embark
on additional sales and marketing initiatives in both the US and
internationally, our operating performance should improve. While
there can be no guarantees that we will be successful in
identifying and completing future acquisitions, we remain
optimistic about the opportunities in the market."
The growth in net sales for the three and six month periods
ended August 31, 2013 as compared to the comparable periods in the
prior fiscal year reflects the impact of our acquisitions of the
Homelux and Plasplugs businesses in Europe as well as the Imperial,
Nupla and Ludell businesses in the US. Also contributing to the
increase was a modest expansion of product lines with existing
customers in the Company's operations outside North America.
Nonetheless, during the fiscal 2014 second quarter, the cumulative
impact of the late fiscal 2013 price decreases and fiscal 2014
second quarter impact of discontinued purchases of certain products
by a significant customer in the US and the overall impact of
changes in currency exchange rates offset the growth in net sales
excluding acquisitions.
The Company's gross profit for the six months ended August 31,
2013 and the second quarter of fiscal 2014 was $45.4 million and
$21.7 million, respectively, an increase of $4.8 million or 11.8%
and $1.2 million or 6.0%, respectively, as compared to gross profit
of $40.6 million and $20.5 million, respectively, during the
comparable fiscal 2013 periods. The increase in gross profit
reflects the result of acquisitions offset by price decreases and
discontinued purchases of certain products by a significant
customer, as well as cost increases on certain raw materials and
overall changes in currency exchange rates. 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 changes in the product
mix, reduced pricing in our North American mass merchant channel
and increases in the cost of raw materials.
Operating expenses for the first six months and second quarter
of fiscal 2014 were $39.1 million and $18.9 million, respectively,
or 24.5% and 24.7% of net sales in those periods, compared to $33.5
million and $17.1 million, respectively, or 23.8% and 24.1% of net
sales in the comparable fiscal 2013 periods. The increase in
operating expenses is principally associated with acquisitions and
investments in sales and marketing infrastructure as well as US
direct marketing costs, offset by a decrease in acquisition and
integration costs, and the impact of changes in currency
exchange rates.
Non-operating income for the first six 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.
Increased interest expense for each of the periods during fiscal
2014 as compared to the comparable periods in fiscal 2013
principally related to the financing of acquisitions, net of cash
provided by the sale of the Company's Canadian facility and cash
provided by operations.
The provision for income taxes as a percentage of income before
taxes for the first six months and second quarter of fiscal 2014
was 24.6% and 31.0%, respectively, compared to 37.0% and 37.6%,
respectively, for the comparable periods of fiscal 2013. The
effective tax rate in fiscal 2014 reflects the favorable rate
impact of the sale of our Canadian property during the first
quarter of the fiscal year and the relative contribution of the
Company's earnings sourced from jurisdictions with differing
statutory tax rates.
Net income for the first six months and second quarter of fiscal
2014 was $6.9 million and $1.8 million, respectively, or $2.09 and
$0.54, respectively, per diluted share. For the comparable periods
of fiscal 2013, net income was $4.2 million and $2.0 million,
respectively, or $1.27 and $.59, respectively, per diluted
share.
On September 19, 2013, the Company's administrative and
warehousing facility located outside of Melbourne, Australia, was
largely destroyed by fire and the facility is currently not usable.
The Company is in the process of assessing the impact to its
operations and implementing contingency plans. While the Company is
insured against casualties, based on information currently
available, it expects to incur some loss associated with the fire,
which will be recorded in the Company's third quarter results. In
addition, the interruption of the Company's ongoing operations in
Australia will affect its future operating results. As a result of
its recent occurrence, the Company currently is unable to estimate
the impact of the interruption on its future results of operations,
although the impact could be material during the remainder of the
current fiscal year.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) and non-operating income for the first six months and
second quarter of fiscal 2014 were $8.4 million and $3.8 million,
respectively, as compared to $8.4 million and $4.1 million,
respectively, for the comparable periods of fiscal 2013.
| |
|
For the Three Months |
For the Six Months |
| |
|
Ended August
31, |
Ended August
31, |
| |
|
2013 |
2012 |
2013 |
2012 |
| Net income |
|
$ 1,766 |
$ 1,961 |
$ 6,908 |
$ 4,246 |
| Add (deduct): |
Interest expense, net |
233 |
193 |
487 |
357 |
| |
Provision for income taxes |
793 |
1,180 |
2,259 |
2,495 |
| |
Depreciation and amortization |
1,038 |
725 |
2,120 |
1,327 |
| |
Gain on sale of property |
-- |
-- |
(3,379) |
-- |
| EBITDA before non-operating
income |
$ 3,830 |
$ 4,059 |
$ 8,395 |
$ 8,425 |
Increased depreciation and amortization expenses during fiscal
2014 principally is related to acquisitions.
Cash provided by operations during the first six months of
fiscal 2014 was $3.2 million as compared to $4.0 million in the
first six months of fiscal 2013, reflecting both the decrease in
operating income and additional investments in working capital.
Investments in acquisitions totaling $23.8 million during the first
six months of fiscal 2014 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. During fiscal 2013, Company
investments in acquisitions of $7.4 million, capital expenditures
and treasury stock purchases were funded by borrowings and cash
flow from operations.
Working capital at the end of the Company's fiscal 2014 second
quarter was $26.3 million compared to $38.0 million at the end of
the 2013 fiscal year. Aggregate debt at the end of the Company's
fiscal 2014 second quarter was $32.9 million or 57.0% of equity
compared to $15.3 million or 29.6% of equity at the end of the 2013
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 Wednesday, September 25,
2013. If you would like to join the conference call, dial
1-877-941-4774 toll free from the US or 1-480-629-9760
internationally approximately 10 minutes prior to the start time
and ask for the Q.E.P. Co., Inc. Second Quarter Conference Call /
Conference ID 4641174. A replay of the conference call will
be available until midnight October 2nd by calling 1-877-870-5176
toll free from the US and entering pin number 4641174;
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®, TileRite®, PRCI®, Nupla®,
HISCO, Ludell, Porta-Nail 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, pricing pressures,
long-term profitability, cost increases, benefits of acquisitions,
potential acquisition opportunities, capital availability and the
impacts of an Australian facility fire. 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, |
| |
2013 |
2012 |
2013 |
2012 |
| |
|
|
|
|
| Net sales |
$ 76,418 |
$ 71,042 |
$ 159,817 |
$ 140,877 |
| Cost of goods sold |
54,745 |
50,590 |
114,421 |
100,259 |
| Gross profit |
21,673 |
20,452 |
45,396 |
40,618 |
| |
|
|
|
|
| Operating expenses: |
|
|
|
|
| Shipping |
7,023 |
7,214 |
14,964 |
14,084 |
| General and administrative |
6,505 |
5,406 |
12,931 |
10,551 |
| Selling and marketing |
5,506 |
4,627 |
11,544 |
9,050 |
| Other income, net |
(153) |
(129) |
(318) |
(165) |
| Total operating expenses |
18,881 |
17,118 |
39,121 |
33,520 |
| |
|
|
|
|
| Operating income |
2,792 |
3,334 |
6,275 |
7,098 |
| |
|
|
|
|
| Non-operating income |
-- |
-- |
3,379 |
-- |
| Interest expense, net |
(233) |
(193) |
(487) |
(357) |
| |
|
|
|
|
| Income before provision for income
taxes |
2,559 |
3,141 |
9,167 |
6,741 |
| |
|
|
|
|
| Provision for income taxes |
793 |
1,180 |
2,259 |
2,495 |
| |
|
|
|
|
| Net income |
$ 1,766 |
$ 1,961 |
$ 6,908 |
$ 4,246 |
| |
|
|
|
|
| Net income per share: |
|
|
|
|
| Basic |
$ 0.54 |
$ 0.59 |
$ 2.11 |
$ 1.28 |
| Diluted |
$ 0.54 |
$ 0.59 |
$ 2.09 |
$ 1.27 |
| |
|
|
|
|
| Weighted average number of common
shares outstanding: |
|
|
|
|
| Basic |
3,274 |
3,310 |
3,275 |
3,320 |
| Diluted |
3,299 |
3,338 |
3,300 |
3,353 |
| |
| |
| 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, |
| |
2013 |
2012 |
2013 |
2012 |
| |
|
|
|
|
| Net income |
$ 1,766 |
$ 1,961 |
$ 6,908 |
$ 4,246 |
| |
|
|
|
|
| Unrealized currency translation adjustments,
net of tax |
(424) |
475 |
(775) |
(304) |
| |
|
|
|
|
| Comprehensive income |
$ 1,342 |
$ 2,436 |
$ 6,133 |
$ 3,942 |
| |
| |
| Q.E.P. CO., INC. AND
SUBSIDIARIES |
| CONSOLIDATED BALANCE
SHEETS |
| (In thousands except per share
values) |
| |
|
|
| |
August 31, |
February 28, |
| |
2013 |
2013 |
| |
(Unaudited) |
|
| |
|
|
| ASSETS |
|
|
| Cash |
$ 1,595 |
$ 737 |
| Accounts receivable, less allowance for
doubtful accounts of $426 and $298 as of August 31, 2013 and
February 28, 2013, respectively |
45,102 |
39,581 |
| Inventories |
39,382 |
37,299 |
| Prepaid expenses and other current
assets |
3,388 |
2,586 |
| Deferred income taxes |
1,239 |
1,238 |
| Current assets |
90,706 |
81,441 |
| |
|
|
| Property and equipment, net |
13,646 |
14,018 |
| Deferred income taxes, net |
1,093 |
1,152 |
| Intangibles, net |
21,260 |
4,119 |
| Other assets |
337 |
386 |
| |
|
|
| Total Assets |
$ 127,042 |
$ 101,116 |
| |
|
|
| LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
| |
|
|
| Trade accounts payable |
$ 20,714 |
$ 19,650 |
| Accrued liabilities |
14,526 |
13,641 |
| Lines of credit |
28,155 |
8,872 |
| Current maturities of notes payable |
1,011 |
1,246 |
| Current liabilities |
64,406 |
43,409 |
| |
|
|
| Notes payable |
3,782 |
5,222 |
| Other long term liabilities |
1,033 |
647 |
| Total Liabilities |
69,221 |
49,278 |
| |
|
|
| Preferred stock, 2,500 shares authorized,
$1.00 par value; 337 shares issued and outstanding at August 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 August 31, 2013 and February 28, 2013,
respectively |
4 |
4 |
| Additional paid-in capital |
10,656 |
10,639 |
| Retained earnings |
52,953 |
46,049 |
| Treasury stock, 527 and 517 shares held at
cost at August 31, 2013 and February 28, 2013,
respectively |
(5,468) |
(5,305) |
| Accumulated other comprehensive income |
(661) |
114 |
| Shareholders' Equity |
57,821 |
51,838 |
| |
|
|
| Total Liabilities and Shareholders'
Equity |
$ 127,042 |
$ 101,116 |
| |
| |
| Q.E.P. CO., INC. AND
SUBSIDIARIES |
| CONSOLIDATED STATEMENTS
OF CASH FLOWS |
| (In thousands) |
| (Unaudited) |
| |
|
|
| |
For the Six
Months Ended August 31, |
| |
2013 |
2012 |
| |
|
|
| Operating activities: |
|
|
| Net income |
$ 6,908 |
$ 4,246 |
| Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
| Depreciation and amortization |
2,120 |
1,327 |
| Gain on sale of property |
(3,379) |
-- |
| Other non-cash adjustments |
121 |
85 |
| Changes in assets and liabilities, net of
acquisition: |
|
|
| Accounts receivable |
(2,254) |
(6,299) |
| Inventories |
(42) |
(4,272) |
| Prepaid expenses and other assets |
(740) |
463 |
| Trade accounts payable and accrued
liabilities |
465 |
8,474 |
| Net cash provided by operating
activities |
3,199 |
4,024 |
| |
|
|
| Investing activities: |
|
|
| Acquisitions |
(23,814) |
(7,356) |
| Proceeds from sale of property |
4,630 |
-- |
| Capital expenditures |
(319) |
(638) |
| Net cash used in investing
activities |
(19,503) |
(7,994) |
| |
|
|
| Financing activities: |
|
|
| Net borrowings under lines of credit |
18,929 |
4,808 |
| Repayments of notes payable |
(1,666) |
(382) |
| Purchase of treasury stock |
(103) |
(558) |
| Stock options (repurchased) exercised,
net |
17 |
(25) |
| Dividends |
(4) |
(4) |
| Net cash provided by financing
activities |
17,173 |
3,839 |
| |
|
|
| Effect of exchange rate changes on
cash |
(11) |
(37) |
| |
|
|
| Net (decrease) increase in
cash |
858 |
(168) |
| Cash at beginning of period |
737 |
976 |
| Cash at end of period |
$ 1,595 |
$ 808 |
CONTACT: Q.E.P. Co., Inc.
Richard A. Brooke
Senior Vice President and
Chief Financial Officer
561-994-5550
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