Q.E.P. CO., INC. Reports Fiscal 2017 Six Month and Second Quarter Sales and Earnings

 SIX MONTH SALES – $160.2 MILLION SECOND QUARTER SALES – $80.1 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, 2017.

The Company reported net sales of $160.2 million for the six months ended August 31, 2016, an increase of $0.2 million or 0.1% from the $160.0 million reported in the same period of fiscal 2016.  As a percentage of net sales, gross margin was 28.2% in the first six months of fiscal 2017 compared to 27.1% in the first six months of fiscal 2016.

Net sales for the second quarter of fiscal 2017 were $80.1 million and reflected a gross margin of 28.1% compared to net sales of $81.7 million and a gross margin of 27.1% for the second quarter of fiscal 2016.

Lewis Gould, Chairman of the Company’s Board of Directors, commented, "In spite of the numerous headwinds and pressure on our worldwide companies, I am pleased to report additional profit and a decrease in our debt balance this year to date."

Net sales for both the six and three month periods ended August 31, 2016 as compared to the same period in the prior fiscal year reflects mixed growth across product categories, net of the impact of changes in inventory purchasing patterns of certain retail customers and the negative effects of foreign currency rate changes, particularly in the UK during the second quarter. 

The Company’s gross margin as a percentage of net sales for both year-to-date and the second quarter increased compared to the prior fiscal year periods. The Company benefited from changes in the product mix and management of costs, which were offset by the negative impact of changes in foreign currency rates.

Operating expenses for the first six months and second quarter of fiscal 2017 were $37.5 million and $18.7 million, respectively, or 23.4% and 23.3% of net sales in those periods, compared to $37.4 million and $18.4 million, respectively, or 23.4% and 22.5% of net sales in the comparable fiscal 2016 periods. The relatively unchanged Operating expense trend was driven by targeted increases in US marketing programs, offset by decreased shipping costs related to customer and product mix and the favorable translation impact of foreign currency movements.

Non-operating income for the first six months and the second quarter of fiscal 2017 represents a gain on the sale of certain non-core assets of the Company.

The decrease in interest expense during fiscal 2017 as compared to fiscal 2016 is principally the result of the repayment of $5.6 million outstanding under a term loan facility in the first quarter of fiscal 2016.

The provision for income taxes as a percentage of income before taxes for the first six months and second quarter of fiscal 2017 was 37.5% in each period, compared to 35.0% in each period for the comparable periods of fiscal 2016. The effective tax rate in both fiscal years reflects the relative contribution of the Company’s earnings sourced from its international operations.

Net income for the first six months and second quarter of fiscal 2017 was $4.5 million and $2.3 million, respectively, or $1.41 and $0.73, respectively, per diluted share. For the comparable periods of fiscal 2016, net income was $3.5 million and $2.2 million, respectively, or $1.08 and $0.69, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) and non-operating income for the first six months and second quarter of fiscal 2017 was $9.6 million and $4.8 million, respectively, as compared to $8.2 million and $4.8 million, respectively, for the comparable periods of fiscal 2016.

			For the Three Months								For the Six Months
			Ended August 31,								Ended August 31,
				2016				2015				2016				2015
	Net income		$	2,343			$	2,220			$	4,528			$	3,488
	Add:	Interest expense, net		291				287				572				607
		Provision for income taxes		1,407				1,195				2,718				1,878
		Depreciation and amortization		977				1,115				1,993				2,185
		Gain on sale of business		(184	)			-				(184	)			-					.
	EBITDA before non-operating income		$	4,834			$	4,817			$	9,627			$	8,158

Cash provided by operations during the first six months of fiscal 2017 was $3.0 million as compared to $3.5 million in the first six months of fiscal 2016, reflecting both the increase in operating income and additional net investments in working capital. In both the current and prior year six month fiscal periods, the Company’s capital expenditures, investments and treasury stock purchases were funded through cash from operations as additional funds from operations were used, along with cash balances, to reduce debt.

Working capital at the end of the Company’s fiscal 2017 second quarter was $43.5 million compared to $38.7 million at the end of the 2016 fiscal year.  Aggregate debt, net of available cash balances, at the end of the Company’s fiscal 2017 second quarter was $18.0 million or 24.7% of equity, a decrease of $2.1 million compared to $20.1 million or 29.4% of equity at the end of the 2016 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 Tuesday, October 11, 2016. If you would like to join the conference call, dial 1-888-455-2311 toll free from the US or 1-719-325-2364 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Second-Quarter Conference Call / Conference ID 9856218. A replay of the conference call will be available until midnight October 18, 2016 by calling 1-844-512-2921 toll free from the US and entering pin number 9856218; internationally, please call 1-412-317-6671 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 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® and Elastiment®, 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, profit improvements, product development and marketing, operating expenses, cost savings, 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.

-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,
			2016				2015				2016				2015
	Net sales	$	80,080			$	81,706			$	160,258			$	159,973
	Cost of goods sold		57,548				59,594				115,117				116,619
	Gross profit		22,532				22,112				45,141				43,354
	Operating expenses:
	Shipping		7,025				7,106				13,682				14,416
	General and administrative		6,504				6,329				12,904				12,585
	Selling and marketing		5,291				5,087				11,212				10,578
	Other income, net		(145	)			(112	)			(291	)			(198	)
	Total operating expenses		18,675				18,410				37,507				37,381
	Operating income		3,857				3,702				7,634				5,973
	Non-operating expense		184				-				184				-
	Interest expense, net		(291	)			(287	)			(572	)			(607	)
	Income before provision for income taxes		3,750				3,415				7,246				5,366
	Provision for income taxes		1,407				1,195				2,718				1,878
	Net income	$	2,343			$	2,220			$	4,528			$	3,488
	Net income per share:
	Basic	$	0.73			$	0.69			$	1.41			$	1.09
	Diluted	$	0.73			$	0.69			$	1.41			$	1.08
	Weighted average number of common
	shares outstanding:
	Basic		3,202				3,206				3,199				3,209
	Diluted		3,215				3,228				3,217				3,231

 

	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,
			2016				2015				2016				2015
	Net income	$	2,343			$	2,220			$	4,528			$	3,488
	Unrealized currency translation adjustments		(361	)			(363	)			143				(481	)
	Comprehensive income	$	1,982			$	1,857			$	4,671			$	3,007

 

	Q.E.P. CO., INC. AND SUBSIDIARIES
	CONSOLIDATED BALANCE SHEETS
	(In thousands except per share values)
		August 31, 2016 (Unaudited)				February 29, 2016
	ASSETS
	Cash	$	13,647			$	15,923
	Accounts receivable, less allowance for doubtful accounts of $406
	and $377 as of August 31, 2016 and February 29, 2016, respectively		40,990				39,491
	Inventories		43,125				42,797
	Prepaid expenses and other current assets		3,013				2,234
	Current assets		100,775				100,445
	Property and equipment, net		18,669				19,538
	Deferred income taxes, net		5,276				5,288
	Intangibles, net		15,491				15,717
	Other assets		371				550
	Total Assets	$	140,582			$	141,538
	LIABILITIES AND SHAREHOLDERS' EQUITY
	Trade accounts payable	$	18,616			$	18,432
	Accrued liabilities		16,611				17,854
	Income taxes payable		271				383
	Lines of credit		19,737				23,093
	Current maturities of notes payable		1,992				2,032
	Current liabilities		57,227				61,794
	Notes payable		9,945				10,899
	Other long term liabilities		589				589
	Total Liabilities		67,761				73,282
	Preferred stock, 2,500 shares authorized, $1.00 par value; 337 shares
	issued and outstanding at August 31, 2016 and February 29, 2016		337				337
	Common stock, 20,000 shares authorized, $.001 par value; 3,821 and
	3,802 shares issued, and 3,208 and 3,198 shares outstanding at
	August 31, 2016 and February 29, 2016, respectively		4				4
	Additional paid-in capital		10,766				10,737								-
	Retained earnings		72,477				67,952
	Treasury stock, 612 and 604 shares held at cost at August 31, 2016
	and February 29, 2016, respectively		(7,016	)			(6,884	)
	Accumulated other comprehensive income		(3,747	)			(3,890	)
	Shareholders' Equity		72,821				68,256
	Total Liabilities and Shareholders' Equity	$	140,582			$	141,538

 

	Q.E.P. CO., INC. AND SUBSIDIARIES
	CONSOLIDATED STATEMENTS OF CASH FLOWS
	(In thousands)
	(Unaudited)
		For the Six Months Ended August 31,
			2016				2015
	Operating activities:
	Net income	$	4,528			$	3,488
	Adjustments to reconcile net income to net cash
	provided by operating activities:
	Depreciation and amortization		1,993				2,185
	(Gain)/Loss on sale of business		(184	)			-
	Other non-cash adjustments		4				117
	Changes in assets and liabilities, net of acquisition:
	Accounts receivable		(1,182	)			(5,093	)
	Inventories		(94	)			(1,763	)
	Prepaid expenses and other assets		(514	)			591
	Trade accounts payable and accrued liabilities		(1,506	)			3,934
	Net cash provided by operating activities		3,045				3,459
	Investing activities:
	Proceeds from sale of property		48				344
	Capital expenditures		(802	)			(592	)
	Acquisitions, net of cash acquired		(1,702	)			-
	Proceeds from sale of business		850				-
	Net cash used in investing activities		(1,606	)			(248	)
	Financing activities:
	Net (repayments) under lines of credit		(2,515	)			(667	)
	Net (repayments) of notes payable		(994	)			(6,568	)
	Purchase of treasury stock		(60	)			(60	)
	Dividends		(4	)			(4	)
	Net cash (used in) financing activities		(3,573	)			(7,299	)
	Effect of exchange rate changes on cash		(142	)			(4	)
	Net (decrease) increase in cash		(2,276	)			(4,092	)
	Cash at beginning of period		15,923				10,576
	Cash at end of period	$	13,647			$	6,484

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