Q.E.P. CO., INC. Reports Fiscal 2018 Year-End Sales and Earnings

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| Source: Q.E.P. Co., Inc.

Net Sales - $322.4 Million
Net Income - $7.9 Million
Earnings Per Share (Diluted) $2.49

BOCA RATON, Fla., May 15, 2018 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the “Company”) today reported its consolidated results of operations for the fiscal year ended February 28, 2018.

Results of Operations:

The Company reported net sales of $322.4 million for the year ended February 28, 2018, an increase of $12.3 million or 4.0% from the $310.1 million reported in the same period of fiscal 2017.  As a percentage of net sales, gross margin was 27.7% in the fiscal 2018 compared to 28.0% in fiscal 2017.

Lewis Gould, Chairman of the Board of Directors, commented on Q.E.P.’s full year results, “We are pleased that we continued to grow in core areas of our business while also investing for the future.”   

Mr. Gould continued, “This was an exciting year for Q.E.P. as many transitional events occurred to benefit long-term growth for our company.  On the operational side, we initiated the consolidation of three West Coast locations into a new, modern, Phoenix-area hub, where we will become a one stop shop for all of our divisions in our company.  As previously announced, we sold both the Adelanto, California facility and the facility in Calhoun, Georgia and rewarded shareholders with a special cash dividend for the first time.  Our Board of Directors worked with Company leadership on strategies for the best way to grow our top line for the long-term and to help determine what acquisitions would be beneficial for Q.E.P.

Mr. Gould further stated, “In April 2018 we completed the acquisition in Australia of PR Floors, which expands our distribution base and makes Q.E.P. the dominant distributor of flooring sundries in Australia and New Zealand.  We also entered into an agreement with a large European laminate manufacturer to become their exclusive agent for distribution of flooring in Australia/New Zealand later this year.  The Company also recently purchased the operating assets of a distributor on the West Coast of the U.S. who specializes in wood flooring, which will improve the integration of our manufacturing and selling in the wood flooring space.  We expect both acquisitions to provide sales and EBITDA growth as we go forward.  I am also pleased to say Q.E.P. has now opened an office and begun distributing products in Germany, the 2nd largest DIY market.  We look forward to continuing to work hard for our shareholders as the company grows.”

Net sales growth for fiscal year 2018 reflects the impact of businesses acquired during the current fiscal year, business growth in Australia and in net change in domestic product mix.

The Company’s gross margin as a percentage of net sales decreased slightly compared to the prior fiscal year due to the changes in product mix and higher product and manufacturing costs.

Operating expenses for fiscal 2018 were $74.2 million or 23.0% of net sales, compared to $74.8 million or 24.1% of net sales in fiscal 2017 period. Included in operating expenses for fiscal 2018 is a $5.6 million net gain on disposal of property and equipment related to the Company’s operations in Adelanto, California and Calhoun, Georgia and corporate development related expenses of $1.8 million.  Excluding this net gain and the corporate development related expenses, operating expenses were $78.0 million or 24.2% of net sales.  Operating expenses in fiscal 2018 also include incremental expenses assumed with the businesses acquired during fiscal 2018 and additional operating costs incurred to support international sales growth.

Non-operating income in fiscal 2017 is related to a gain of less than $0.1 million that resulted from the sale of certain non-core assets of the Company.

The decrease in interest expense during fiscal 2018 when compared to fiscal 2017 was due to repayment of outstanding debt, which more than offset increases to interest rates and utilization of credit facilities to support sales growth in Australia.

The provision for income taxes as a percentage of income before taxes for fiscal 2018 was 44.3% and 33.4% in fiscal 2018 and 2017, respectively.  The effective tax rate in fiscal 2018 reflects the estimated impact of the enacted U.S. tax legislation, Tax Cuts and Jobs Act, which includes the lowering of the U.S. corporate tax rate, transitioning to a modified territorial system and providing for current expensing of certain qualified capital expenditures.  The effect of the tax rate change was more than offset by provisional amounts recorded for the re-measurement of U.S. deferred tax assets and liabilities and the tax on the mandatory deemed repatriation of foreign earnings.  Both fiscal years reflect the relative contribution of the Company’s earnings sourced from its international operations.

Net income for fiscal 2018 was $7.9 million or $2.49 per diluted share. For fiscal 2017, net income was $7.4 million or $2.29 per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) as adjusted for corporate development and other expenses and gain on disposal of long-lived assets, net of impairment and non-operating income for fiscal 2018 was $15.3 million as compared to $16.2 million for fiscal 2017.

  For the Year Ended
February 28,
   2018   2017 
Net income$7,945  $7,366 
         
Add:Interest expense, net 952   1,060 
 Provision for income taxes 6,325   3,691 
 Depreciation and amortization 3,837   4,087 
 Non-operating income -   (49)
 Corporate development and other expenses 1,830   - 
Less:Gain on disposal of long-lived assets,
  net of impairment
 (5,561)  - 
EBITDA as adjusted for corporate development       
and other expenses, and gain on disposal of       
long-lived assets, net of impairment (1)$15,328  $16,155 
         

 (1)  EBITDA as adjusted for corporate development and other expenses and gain on disposal of long-lived assets, net of impairment represent non-GAAP measures and exclude charges or credits not indicative of our core operations which may include but are not limited to gain on disposal of long lived assets, asset impairments, corporate development expenses, acquisition integration and acquisition costs. 

Cash provided by operations during fiscal 2018 was $5.6 million as compared to $11.8 million in fiscal 2017, reflecting a decrease in cash from operations and a higher net investment in working capital in the current year compared to the prior year. During fiscal 2018, the Company acquired businesses for $3.9 million, made capital expenditures of approximately $3.9 million, including $1.5 million related to one of those acquisitions and paid a special dividend of $3.2 million.  In the fiscal year 2018, these investments as well as treasury stock purchases and debt reductions were funded through proceeds from the sale of property, cash from operations and cash on-hand.  In the prior year our capital expenditures, investments and treasury stock purchases were funded from cash from operations with any additional funds used to reduce debt and increase cash on-hand.

Working capital at the end of fiscal 2018 was $54.9 million compared to $45.0 million at the end of the 2017 fiscal year.  Aggregate debt, net of available cash balances at the end of fiscal 2018 was $5.1 million or 6.4% of equity, a decrease of $5.3 million compared to $10.4 million or 13.9% of equity at the end of the 2017 fiscal year, reflecting repayment of debt from the proceeds of sales of property and equipment.

Acquisition:

In May 2018, the Company acquired certain assets and assumed certain liabilities of Ace Flooring Co., Inc., a hardwood flooring importer, manufacturer and distributor based in Southern California, which expanded the Company’s product portfolio as well as its presence on the West Coast of the U.S.

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, May 17, 2018. If you would like to join the conference call, dial 1-888-394-8218 toll free from the US or 1-323-701-0225 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Fiscal Year 2018 Year-end Conference Call / Conference ID 6462331. A replay of the conference call will be available until midnight May 24, 2018 by calling 1-844-512-2921 toll free from the US and entering pin number 6462331; internationally, please call 1-412-317-6671 using the same pin number.  

The Company is posting its consolidated fiscal 2018 audited financial statements on the Investor section of its website at www.qepcorporate.com today.

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®, Elastiment®, X-TREME Board™ and AppleCreek™, 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 economic conditions, sales growth, tax law change impacts, profit improvements, product development and marketing, operating expenses, cost savings, acquisition integration, strategic plans, working capital, cash flow, debt and currency exchange rates. These statements are not guarantees of future performance and actual results could differ materially from our current expectations.  Certain prior period amounts have been reclassified to conform with current presentation.

-Financial Information Follows-

 
 
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
 
    
  For the Year Ended
February 28,
  2018   2017 
        
Net sales$322,388  $310,111 
Cost of goods sold 232,930   223,203 
Gross profit   89,458      86,908  
        
Operating expenses:       
Shipping 28,550   26,913 
General and administrative 28,569   25,928 
Selling and marketing 23,155   22,534 
Gain on disposal of long-lived assets, net of impairment (5,561)  - 
Other income, net (477)  (535)
Total operating expenses 74,236   74,840 
        
Operating income   15,222      12,068  
        
Non-operating income -   49 
Interest expense, net (952)  (1,060)
        
Income before provision for income taxes   14,270      11,057  
        
Provision for income taxes 6,325   3,691 
        
Net income  $  7,945   $  7,366  
        
Net income per share:       
Basic$2.49  $2.30 
Diluted$2.49  $2.29 
        
Weighted average number of common       
shares outstanding:       
Basic 3,194   3,204 
Diluted 3,196   3,211 
        
    


    
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
    
 For the Year Ended
February 28,
  2018  2017 
    
Net income$7,945 $7,366 
       
Unrealized currency translation adjustments 1,167  (58)
       
Comprehensive income$   9,112  $   7,308  
       
       

 

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share values)
    
 February 28,
 2018
 February 28,
2017
        
ASSETS       
Cash$16,134  $19,152 
Accounts receivable, less allowance for doubtful accounts of $371       
and $274 as of February 28, 2018 and February 28, 2017, respectively 41,443   38,493 
Inventories 48,276   40,826 
Prepaid expenses and other current assets 6,578   2,858 
Current assets   112,431      101,329  
        
Property and equipment, net 10,923   19,072 
Deferred income taxes, net 2,154   5,726 
Intangibles, net 11,442   10,997 
Goodwill 3,308   2,745 
Other assets 834   372 
        
Total Assets$   141,092   $   140,241  
        
LIABILITIES AND SHAREHOLDERS' EQUITY       
        
Trade accounts payable$22,350  $18,106 
Accrued liabilities 17,433   17,819 
Income taxes payable (prepaid) (1,600)  (845)
Lines of credit 18,470   18,683 
Current maturities of notes payable 857   2,573 
Current liabilities   57,510      56,336  
        
Notes payable 1,929   8,284 
Deferred income taxes 282   294 
Other long term liabilities 802   555 
Total Liabilities   60,523      65,469  
        
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 and 18       
shares outstanding at February 28, 2018 and February 28, 2017,       
respectively -   18 
Common stock, 20,000 shares authorized, $.001 par value;       
3,821 shares issued, and 3,183 and 3,189 shares outstanding at       
February 28, 2018 and February 28, 2017, respectively 4   4 
Additional paid-in capital 10,854   10,796 
Retained earnings 80,049   75,308 
Treasury stock, 638 and 632 shares held at cost at February 28, 2018       
and February 28, 2017, respectively (7,557)  (7,406)
Accumulated other comprehensive income (2,781)  (3,948)
Shareholders' Equity   80,569      74,772  
        
Total Liabilities and Shareholders' Equity$   141,092   $   140,241  
        
        

 

Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
    
  For the Year Ended February 28, 
  2018   2017 
        
Operating activities:       
Net income$7,945  $7,366 
Adjustments to reconcile net income to net cash       
provided by operating activities:       
Gain on sale of property (6,793)  (61)
Impairment loss on long term assets 1,231   - 
Depreciation and amortization 3,837   4,087 
Gain from sale of business -   (49)
Other non-cash adjustments 244   85 
Changes in assets and liabilities, net of acquisitions:       
Accounts receivable (1,624)  306 
Inventories (3,500)  2,008 
Prepaid expenses and other assets 2,773   (631)
Trade accounts payable and accrued liabilities 1,474   (1,306)
Net cash provided by operating activities   5,587      11,805  
        
Investing activities:       
Proceeds from sale of property 12,381   75 
Acquisitions (3,899)  (1,710)
Capital expenditures (3,862)  (2,133)
Proceeds from sale of businesses 97   1,050 
Proceeds from insurance settlements   252     -  
Net cash provided by (used in) investing activities   4,969      (2,718)
        
Financing activities:       
Net repayment under lines of credit   (2,227)    (2,712)
Net repayments of notes payable   (8,113)    (2,032)
Purchase of treasury stock   (120)    (509)
Dividends   (3,204)    (10)
Redemption of preferred stock   (18)    (319)
Net cash used in financing activities   (13,682)    (5,582)
Effect of exchange rate changes on cash   108     (276)
        
Net increase (decrease) in cash   (3,018)    3,229  
Cash at beginning of period   19,152     15,923 
Cash at end of period$   16,134   $   19,152  
    

CONTACT:          
Q.E.P. Co., Inc.                                                                                 
Mark S. Walter
Senior Vice President Finance and
Chief Financial Officer
561-994-5550