Record Quarterly Sales – $69.8
Million Quarterly Net Income –
$2.3 Million Two Acquisitions
Completed and One Pending
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 |
CONTACT: Q.E.P. Co., Inc.
Richard A. Brooke
Senior Vice President and
Chief Financial Officer
561-994-5550
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