Record Quarterly Sales – $69.8 Million
Quarterly Net Income – $2.3 Million
Two Acquisitions Completed and One Pending
BOCA RATON, Fla., June 20, 2012 (GLOBE NEWSWIRE) -- Q.E.P. Co., Inc. (Pink Sheets:QEPC) (the "Company") today reported its consolidated results of operations for the first quarter of its fiscal year ending February 28, 2013.
The Company reported record net sales of $69.8 million for the three months ended May 31, 2012, an increase of $2.1 million or 3.0% from the $67.8 million reported in the same period of fiscal 2012. As a percentage of net sales, gross profit was 28.9% in the first three months of fiscal 2013 compared to 32.7% in the first three months of fiscal 2012. For the fiscal year ended February 29, 2012, gross profit as a percentage of net sales was 30.2%.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are disappointed with our earnings this quarter which reflect the decrease in margins that we discussed in our recent investor calls. Sales for the quarter did increase, however, showing our efforts to overcome the impact on margins from price concessions provided to our major customer in order to retain several strategic products for our Company. We recognize many retailers are exerting increased pricing pressures and that those pressures are likely to continue. As a result, the Company's strategy has changed over the past year to focus increasingly on synergistic acquisitions that will position the Company for continued growth and long-term profitability in both domestic and international markets as well as expanding our sales and marketing personnel with a heavy emphasis on non-mass merchant accounts. The Company also is expanding its domestic manufacturing capability and developing a market position in specialty products." Mr. Gould continued, "Today we are announcing the completion of two acquisitions and the initiation of a third. These acquisitions make us more of a prime manufacturer, something that is important to our global customer base. In the interim, although our margins have been adversely impacted, outstanding debt, excluding the impact of these recent acquisitions, is at an all time low as the Company continues to concentrate its efforts on sales, cash flow and increased shareholder value."
The growth in net sales for the quarter as compared to the fiscal year 2012 first quarter reflects the growth in the breadth of the Company's US flooring-related product line, as well as the extension of our product lines in certain of our international operations, offset somewhat by the strengthening of the US dollar.
The Company's gross margin was 28.9% for the first quarter of fiscal 2013 as compared to 32.7% for the first quarter of the prior fiscal year and 30.2% for the Company's 2012 fiscal year. The decrease in margin as compared to both the first quarter and the full year of the prior fiscal year principally reflects reduced pricing with our major customer coupled with modest cost increases. In addition, the purchasing power of our international operations weakened as the US dollar strengthened during the first quarter.
Operating expenses for the first three months of fiscal 2013 and 2012 were $16.4 million and $15.5 million, respectively, or 23.5% and 22.9% of net sales, respectively. The increase in operating expenses as a percentage of net sales principally reflects an increased investment in personnel, increased freight rates in certain of the Company's markets and transaction expenses associated with the Company's recent investment activities. By comparison, operating expenses for the Company's 2012 fiscal year also were 23.5% of net sales.
The provision for income taxes as a percentage of income before taxes for the first three months of fiscal 2013 and 2012 was 36.5% and 35.0%, respectively. The increase in the effective tax rate principally reflects the impact of a larger portion of the Company's earnings being sourced in jurisdictions with higher tax rates.
Net income for the first three months of fiscal 2013 and 2012 was $2.3 million and $4.1 million, respectively, or $0.68 and $1.22, respectively, per diluted share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of fiscal 2013 decreased to $4.4 million as compared to $7.3 million for the fiscal 2012 first quarter, a return on net sales of approximately 6.3% in fiscal 2013 and 10.7% in fiscal 2012 principally reflecting the decrease in gross margin:
| First Quarter of Fiscal Year | |||
| (In thousands) | |||
| 2013 | 2012 | ||
| Net income | $ 2,286 | $ 4,132 | |
| Add back: | Interest | 165 | 285 |
| Provision for income taxes | 1,314 | 2,225 | |
| Depreciation and amortization | 602 | 640 | |
| EBITDA | $ 4,367 | $ 7,282 | |
Cash provided by operations during the first three months of fiscal 2013 was $1.2 million as compared to $3.6 million in the first three months of fiscal 2012, principally reflecting both reduced operating income and additional investments in working capital to support increased sales. Cash from operations during fiscal 2013 was used to reduce aggregate borrowings, purchase treasury shares and fund capital improvements, while during fiscal 2012 cash from operations also funded the purchase of Porta-Nails, Inc.
Working capital at the end of the Company's fiscal 2013 first quarter was $37.4 million, an increase of $1.5 million from $35.9 million at the end of the 2012 fiscal year. Aggregate debt at the end of the Company's fiscal 2013 first quarter was reduced to $11.6 million from $12.7 million at the end of the 2012 fiscal year.
As part of the Company's strategy of growing sales outside of its traditional sales channels, since the end of the Company's 2013 fiscal first quarter on May 31st, the Company made two investments totaling $7.1 million. The investments were funded by a combination of available cash and the Company's domestic revolving credit facility.
During June 2012, the Company acquired Nupla Corporation and two sister companies (collectively "Nupla") for $6.2 million, net of cash acquired. Nupla manufactures and distributes professional grade fiberglass handled striking, digging, cutting and fire tools operating out of two facilities totaling approximately 80,000 square feet in Sun Valley, California and Oklahoma City, Oklahoma. The acquisition will be accounted for as a purchase and included in the Company's future results of operations. Nupla's net sales and its earnings before income taxes, depreciation and amortization for the calendar year 2011 were $12.4 million and $1.4 million, respectively. The purchase price equaled the fair value of net assets acquired consisting primarily of accounts receivable, inventory, trademarks, trade accounts payable and accrued liabilities.
In June 2012, the Company also acquired the assets of a prime US supplier for approximately $900 thousand. The supplier is a manufacturer of injection molded products, including trowels, spacers and other products that previously were supplied to the Company and to the supplier's other US-based customers. This new manufacturing capability will provide new market opportunities for the Company worldwide and will serve to supply our non-US operations.
In addition to the two investments described above, the Company has entered into a bridge loan agreement with Imperial Industries, Inc. (OTCBB:IPII) ("Imperial") to provide Imperial with up to $500 thousand to fund its operations until it can complete a shareholder vote for the proposed sale of Imperial to the Company for an amount not to exceed $.30 per share (approximately $770 thousand). Imperial manufactures and markets stucco and plaster products, roof tile mortar, adhesive products and pool finish products.
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, June 21, 2012. If you would like to join the conference call, dial 1-877-941-2068 toll free from the US or 1-480-629-9712 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. First Quarter Conference Call / Conference ID 4545896. A replay of the conference call will be available until midnight June 28th by calling 1-877-870-5176 toll free from the US and entering pin number 4545896; internationally, please call 1-858-384-5517 using the same pin number.
Q.E.P. Co., Inc., founded in 1979, is a leading worldwide manufacturer, marketer and distributor of 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. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Vitrex®, PRCI®, BRUTUS® Porta-Nailer® and Elastiment®, the Company markets over 3,000 flooring and flooring related products. In addition to a complete hardwood flooring line, Q.E.P. products are used primarily for surface preparation and installation of wood, laminate, ceramic tile, carpet and vinyl flooring. The Company sells its products to home improvement retail centers and specialty distribution outlets in 50 states and throughout the world.
This press release contains forward-looking statements, including statements regarding pricing pressures, future growth and long-term profitability, shareholder value, cost increases, sales growth, benefits of acquisitions, potential acquisitions 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, | ||
| 2012 | 2011 | |
| Net sales | $ 69,835 | $ 67,774 |
| Cost of goods sold | 49,669 | 45,614 |
| Gross profit | 20,166 | 22,160 |
| Operating expenses: | ||
| Shipping | 6,870 | 6,452 |
| General and administrative | 5,144 | 5,145 |
| Selling and marketing | 4,423 | 4,095 |
| Other income, net | (36) | (174) |
| Total operating expenses | 16,401 | 15,518 |
| Operating income | 3,765 | 6,642 |
| Interest expense, net | (165) | (285) |
| Income before provision for income taxes | 3,600 | 6,357 |
| Provision for income taxes | 1,314 | 2,225 |
| Net income | $ 2,286 | $ 4,132 |
| Net income per share: | ||
| Basic | $ 0.69 | $ 1.26 |
| Diluted | $ 0.68 | $ 1.22 |
| Weighted average number of common | ||
| shares outstanding: | ||
| Basic | 3,330 | 3,285 |
| Diluted | 3,367 | 3,392 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
| (In thousands) | ||
| (Unaudited) | ||
| For the Three Months Ended May 31, | ||
| 2012 | 2011 | |
| Net income | $ 2,286 | $ 4,132 |
| Unrealized currency translation adjustments, net of tax | 779 | (510) |
| Comprehensive income | $ 3,065 | $ 3,622 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands except per share values) | ||
|
May 31, 2012 (Unaudited) |
February 28, 2012 |
|
| ASSETS | ||
| Cash | $ 979 | $ 976 |
| Accounts receivable, less allowance for doubtful accounts of $491 and | ||
| $495 as of May 31, 2012 and February 29, 2012, respectively | 37,392 | 35,386 |
| Inventories | 33,336 | 31,441 |
| Prepaid expenses and other current assets | 2,503 | 2,596 |
| Deferred income taxes | 1,499 | 1,484 |
| Current assets | 75,709 | 71,883 |
| Property and equipment, net | 11,120 | 11,546 |
| Deferred income taxes, net | 655 | 686 |
| Intangibles, net | 2,455 | 2,542 |
| Other assets | 445 | 552 |
| Total Assets | $ 90,384 | $ 87,209 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Trade accounts payable | $ 18,803 | $ 17,437 |
| Accrued liabilities | 12,639 | 10,954 |
| Lines of credit | 4,539 | 5,215 |
| Current maturities of notes payable | 2,297 | 2,343 |
| Current liabilities | 38,278 | 35,949 |
| Notes payable | 4,796 | 5,102 |
| Other long term liabilities | 723 | 723 |
| Total Liabilities | 43,797 | 41,774 |
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares | ||
| issued and outstanding at May 31, 2012 and February 29, 2012 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,795 | ||
| and 3,793 shares issued; 3,319 and 3,338 shares outstanding | ||
| at May 31, 2012 and February 29, 2012, respectively | 4 | 4 |
| Additional paid-in capital | 10,675 | 10,666 |
| Retained earnings | 40,199 | 37,917 |
| Treasury stock, 474 and 455 shares held at cost at May 31, 2012 | ||
| and February 29, 2012, respectively | (4,561) | (4,201) |
| Accumulated other comprehensive income | (67) | 712 |
| Shareholders' Equity | 46,587 | 45,435 |
| Total Liabilities and Shareholders' Equity | $ 90,384 | $ 87,209 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
| For the Three Months Ended May 31, | ||
| 2012 | 2011 | |
| Operating activities: | ||
| Net income | $ 2,286 | $ 4,132 |
| Adjustments to reconcile net income to net cash | ||
| provided by operating activities: | ||
| Depreciation and amortization | 602 | 640 |
| Other non-cash adjustments | 15 | 127 |
| Changes in assets and liabilities, net of acquisition: | ||
| Accounts receivable | (2,762) | (3,046) |
| Inventories | (2,667) | 3,333 |
| Prepaid expenses and other assets | 135 | 1,313 |
| Trade accounts payable and accrued liabilities | 3,597 | (2,856) |
| Net cash provided by operating activities | 1,206 | 3,643 |
| Investing activities: | ||
| Acquisition | -- | (959) |
| Capital expenditures | (180) | (371) |
| Net cash used in investing activities | (180) | (1,330) |
| Financing activities: | ||
| Net (repayments) borrowings under lines of credit | (379) | 1,550 |
| Repayments of notes payable | (310) | (3,205) |
| Purchase of treasury stock | (280) | (243) |
| Dividends and other | 5 | (3) |
| Net cash used in financing activities | (964) | (1,901) |
| Effect of exchange rate changes on cash | (59) | 12 |
| Net increase in cash | 3 | 424 |
| Cash at beginning of period | 976 | 447 |
| Cash at end of period | $ 979 | $ 871 |