Nine Month Sales – $182.2 Million
Quarterly Sales – $61.0 Million
Nine Month Net Income – $6.9 Million
Quarterly Net Income – $3.0 Million
BOCA RATON, Fla., Dec. 20, 2010 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (Pink Sheets:QEPC) (the "Company") today announced its financial results for the first nine months and third quarter of its fiscal year ending on February 28, 2011.
The Company reported record net sales of $182.2 million for the nine months ended November 30, 2010, an increase of $26.2 million from the $156.0 million reported in the same period of fiscal 2010. As a percentage of net sales, gross profit was 30.2% in the first nine months of fiscal 2011 compared to 31.5% in the first nine months of fiscal 2010. Net sales for the third quarter of fiscal 2011 were $61.0 million with a gross profit margin of 30.9% compared to net sales of $54.2 million and a gross profit margin of 32.3% for the third quarter of fiscal 2010.
Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are pleased with the general trend of the Company's businesses as we continue to focus on opportunities to improve operations and to expand our product lines and market share."
Mr. Gould also noted that outside directors Mr. David Kreilein, Managing Director of Centre Lane Partners, and Mr. Emil Vogel, President of Tarnow Associates, were reelected to the Company's Board of Directors at the Company's December 3, 2010 annual meeting of shareholders, along with Mr. Lewis Gould and Mr. Leonard Gould, President of the Company. On December 8, 2010, the Company further announced that Mr. Martin Cooperman, a Senior Leadership Team Member of Grant Thornton LLP prior to his recent retirement from the firm, was elected to join the Company's Board of Directors at its next meeting.
The increase in net sales for both the nine months ended November 30, 2010 and for the quarter then ended continues to principally reflect the expansion of the Company's operations to include a comprehensive line of hardwood flooring through its February 2010 acquisition of its Harris®Wood operations. While the majority of the increase in net sales was the result of the Harris®Wood business, the increase in net sales also reflects modest year over year growth in net sales from the Company's operations outside of North America, a decrease in certain accumulated sales allowances and the benefit of changes in foreign currency exchange rates compared to the U.S. Dollar.
As a result of the substantial increase in net sales, gross profit for the nine months ended November 30, 2010 and the third quarter of fiscal 2011 was $55.0 million and $18.8 million, respectively, up from $49.1 million and $17.5 million, respectively, in fiscal 2010. The reduction in the gross profit as a percentage of net sales for the current fiscal year's nine month and quarterly operations reflects the lower average margins inherent in our Harris®Wood operations and the relative growth of those operations since acquisition as well as selected cost increases.
Operating expenses for the first nine months and third quarter of fiscal 2011 were $43.7 million and $14.3 million, respectively, or 24.0% and 23.4% of net sales in those periods, compared to $38.0 million and $13.8 million, respectively, or 24.3% and 25.5% of net sales in the comparable fiscal 2010 periods. The increase in operating expenses is the result of the addition of the Harris®Wood operations, other increases in personnel and marketing costs consistent with the Company's growth strategy, costs associated with the restructuring of certain of the Company's Latin American operations and the impact of changes in foreign currency exchange rates compared to the U.S. dollar.
Operating income for the first nine months and third quarter of fiscal 2011 was $11.3 million and $4.6 million, respectively, as compared to the prior year amounts of $11.1 million and $3.7 million, respectively. During the 2011 fiscal year, increased operating costs generally offset the accretive benefit of our acquired Harris®Wood operations.
The increase in net interest expense in the current fiscal year principally reflects the costs associated with debt issued in connection with the acquisition of the Company's Harris®Wood operations offset by savings associated with reduced balances under the Company's lines of credit.
The provision for income taxes as a percentage of income before taxes for the first nine months and third quarter of fiscal 2011 was 33.1% and 30.3% compared to 36.1% and 35.9%, respectively, in the comparable fiscal 2010 periods. The decrease in the effective tax rates during the 2011 fiscal year as compared to the 2010 fiscal year principally reflects the net tax benefit of restructuring certain of the Company's Latin American operations.
Net income for the first nine months and third quarter of fiscal 2011 was $6.9 million and $3.0 million, respectively, or $2.02 and $0.87 per diluted share. For the comparable periods of fiscal 2010, net income was $6.5 million and $2.2 million, respectively, or $1.86 and $0.63 per diluted share.
Cash provided by operations during the first nine months of fiscal 2011 was $7.2 million and was used to fund capital expenditures principally related to expanding the Company's manufacturing capabilities, a reduction in aggregate debt and the purchase of treasury stock. By comparison, cash provided by operations during the first nine months of fiscal 2010 was $14.1 million, substantially all of which was used to reduce debt.
Working capital at the end of the Company's fiscal year 2011 third quarter was $23.3 million compared to $19.7 million at the Company's fiscal 2010 year-end. Aggregate debt at the end of the Company's fiscal year 2011 third quarter was $23.6 million compared to $26.8 million at the Company's fiscal 2010 year-end representing a debt to equity ratio of 0.74 at the end of the current quarter down from 1.03 at the fiscal 2010 year end.
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® 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 company performance, the potential growth of product lines and the ability to gain market share that involve risks and uncertainties. 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 OPERATIONS | ||||
| (In thousands, except per share data) | ||||
| (Unaudited) | ||||
|
For the Three Months Ended November 30, |
For the Nine Months Ended November 30, |
|||
| 2010 | 2009 | 2010 | 2009 | |
| Net sales | $ 61,035 | $ 54,167 | $ 182,211 | $ 156,003 |
| Cost of goods sold | 42,203 | 36,690 | 127,195 | 106,932 |
| Gross profit | 18,832 | 17,477 | 55,016 | 49,071 |
| Costs and expenses: | ||||
| Shipping | 5,871 | 6,066 | 18,811 | 17,217 |
| General and administrative | 4,862 | 4,381 | 14,200 | 12,346 |
| Selling and marketing | 3,575 | 3,119 | 10,799 | 8,243 |
| Other (income) expense, net | (49) | 223 | (143) | 147 |
| Total costs and expenses | 14,259 | 13,789 | 43,667 | 37,953 |
| Operating income | 4,573 | 3,688 | 11,349 | 11,118 |
| Interest expense, net | (326) | (266) | (1,053) | (901) |
| Income before provision for income taxes | 4,247 | 3,422 | 10,296 | 10,217 |
| Provision for income taxes | 1,288 | 1,230 | 3,405 | 3,691 |
| Net income | $ 2,959 | $ 2,192 | $ 6,891 | $ 6,526 |
| Net income per share: | ||||
| Basic | $ 0.89 | $ 0.64 | $ 2.07 | $ 1.87 |
| Diluted | $ 0.87 | $ 0.63 | $ 2.02 | $ 1.86 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 3,304 | 3,432 | 3,321 | 3,486 |
| Diluted | 3,394 | 3,470 | 3,414 | 3,499 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (In thousands, except par values) | ||
|
November 30, 2010 (Unaudited) |
February 28, 2010 | |
| ASSETS | ||
| Current Assets | ||
| Cash | $ 1,265 | $ 856 |
| Accounts receivable, less allowance for doubtful accounts of $658 and $621 as of November 30, 2010 and February 28, 2010, respectively | 35,112 | 32,792 |
| Inventories | 28,012 | 30,485 |
| Prepaid expenses and other current assets | 2,086 | 2,497 |
| Deferred income taxes | 1,392 | 1,386 |
| Total current assets | 67,867 | 68,016 |
| Property and equipment, net | 13,664 | 12,385 |
| Deferred costs | 661 | 1,322 |
| Deferred income taxes | 1,798 | 1,776 |
| Intangibles, net | 2,517 | 2,788 |
| Other assets | 214 | 237 |
| Total Assets | $ 86,721 | $ 86,524 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Current Liabilities | ||
| Trade accounts payable | $ 15,995 | $ 19,555 |
| Accrued liabilities | 14,578 | 13,547 |
| Lines of credit | 10,965 | 12,443 |
| Current maturities of notes payable | 3,021 | 2,749 |
| Total current liabilities | 44,559 | 48,294 |
| Notes payable | 9,569 | 11,639 |
| Other long term liabilities | 547 | 566 |
| Total Liabilities | 54,675 | 60,499 |
| SHAREHOLDERS' EQUITY | ||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares issued and outstanding at November 30, 2010 and February 28, 2010 | 337 | 337 |
| Common stock, 20,000 shares authorized, $.001 par value; 3,696 shares issued; 3,303 and 3,402 shares outstanding at November 30, 2010 and February 28, 2010, respectively | 4 | 4 |
| Additional paid-in capital | 10,406 | 10,419 |
| Retained earnings | 25,160 | 18,276 |
| Treasury stock, 393 and 294 shares held at cost at November 30, 2010 and February 28, 2010, respectively | (3,091) | (1,823) |
| Accumulated other comprehensive loss | (770) | (1,188) |
| Total Shareholders' Equity | 32,046 | 26,025 |
| Total Liabilities and Shareholders' Equity | $ 86,721 | $ 86,524 |
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
|
For the Nine Months Ended November 30, |
||
| 2010 | 2009 | |
| Cash flows from operating activities: | ||
| Net income | $ 6,891 | $ 6,526 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||
| Depreciation and amortization | 1,955 | 1,094 |
| Realized accumulated foreign currency translation adjustment | 456 | -- |
| Other non-cash adjustments | 257 | 173 |
| Changes in assets and liabilities: | ||
| Accounts receivable | (2,432) | (2,071) |
| Inventories | 2,514 | 2,452 |
| Prepaid expenses and other assets | 774 | 1,161 |
| Trade accounts payable and accrued liabilities | (3,260) | 4,802 |
| Net cash provided by operating activities | 7,155 | 14,137 |
| Cash used in investing activities - Capital expenditures | (1,942) | (471) |
| Cash flows from financing activities: | ||
| Net repayments under lines of credit | (1,565) | (12,168) |
| Repayments of notes payable | (1,921) | (1,578) |
| Borrowings of notes payable | -- | 930 |
| Purchase of treasury stock | (1,297) | (405) |
| Dividends paid and other | (20) | (7) |
| Net cash used in financing activities | (4,803) | (13,228) |
| Effect of exchange rate changes on cash | (1) | 105 |
| Net increase in cash | 409 | 543 |
| Cash at beginning of period | 856 | 695 |
| Cash at end of period | $ 1,265 | $ 1,238 |