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Q.E.P. Co., Inc. Reports Fiscal 2023 Nine Month and Third Quarter Financial Results

Nine Month Net Sales of $335.4 million
Nine Month Net Income of $0.7 million

BOCA RATON, Fla., Jan. 17, 2023 (GLOBE NEWSWIRE) — Q.E.P. CO., INC. (OTCQX: QEPC) (the “Company” or “QEP”) today reported its consolidated results of operations for the first nine months and third quarter of its fiscal year 2023, which ended on November 30, 2022.

QEP reported net sales of $335.4 million for the nine months ended November 30, 2022, a decrease of $3.8 million or 1.1% from the $339.2 million reported in the same period of fiscal 2022. The Company reported net sales of $102.8 million for the quarter ended November 30, 2022, a decrease of $9.2 million or 8.2% from the $111.9 million reported in the same period of fiscal 2022. The decrease in net sales for the first nine months and third quarter of fiscal 2023 compared to the prior year reflects lower sales volume in the most recent three months, principally in the Company’s North America flooring business, and the currency translation impact of the strong U.S. Dollar in the current period, which were only partially offset by year-over-year product price increases to customers.

Lewis Gould, Executive Chairman, commented on the Company’s results, “While profitability for the first nine months is disappointing, supply chain costs are trending down from recent unprecedented highs, inventory levels are declining towards more normalized levels and the Company is beginning to reduce its debt burden. As part of our ongoing profit improvement initiatives, we remain focused on expanding primary sales channels, investing in core products and improving or disposing of non-accretive business units.”

The Company’s gross profit for the first nine months of fiscal 2023 was $87.8 million compared to $92.8 million in the corresponding fiscal 2022 period, a decrease of $5.0 million or 5.4%. Gross profit for the third quarter of fiscal 2023 was $27.6 million, representing a decrease of $2.9 million or 9.3%, from $30.5 million in the corresponding fiscal 2022 period. The Company’s gross margin as a percentage of net sales for the first nine months and third quarter of fiscal year 2023 was 26.2% and 26.9%, respectively, which decreased from 27.4% and 27.2% in the corresponding prior fiscal year periods, respectively. The decrease in gross margin as a percentage of net sales was due to inbound freight and other product cost increases during the earlier part of the fiscal year that have not been fully recovered through customer price increases and other cost reduction initiatives.

Operating expenses for the first nine months and third quarter of fiscal 2023 were $85.1 million and $26.6 million, respectively, or 25.4% and 25.8% of net sales in those periods, compared to $81.1 million and $26.4 million, respectively, or 23.9% and 23.6% of net sales in the comparable fiscal 2022 periods. The increase in operating expenses was due to increased outbound freight costs which resulted from higher fuel costs. Additionally, the Company had higher personnel and marketing costs, including marketing displays and samples, to support recently launched flooring product lines.

The higher interest expense during the first nine months and third quarter of fiscal 2023 compared to the same periods in the prior fiscal year was due to an increase in borrowings under the Company’s credit facilities and higher interest rates during the current period.

The provision for income taxes as a percentage of income before taxes was 28.0% for the first nine months and third quarter for both fiscal 2023 and fiscal 2022.

Net income for the first nine months and third quarter of fiscal 2023 was $0.7 million and $0.2 million, respectively, or $0.21 and $0.07, respectively, per diluted share. For the comparable periods of fiscal 2022, net income was $7.7 million and $2.7 million, respectively, or $2.31 and $0.81, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted for restructuring charges and business disposal for the first nine months and third quarter of fiscal 2023 was $6.0 million and $2.4 million, respectively, as compared to $14.9 million and $5.2 million for the first nine months and third quarter of fiscal 2022, respectively.

        
  For the Three Months Ended For the Nine Months Ended 
  November 30, 2022 November 30, 2021 November 30, 2022 November 30, 2021 
          
Net income$244  $2,721 $719  $7,740 
          
Add:Interest expense, net 734   343  1,699   993 
 Provision for income taxes 94   1,058  279   3,009 
 Depreciation and amortization 954   1,046  2,881   3,178 
 Restructuring charges 196     280    
 Gain on sales of AC Products property (130)    (130)   
 Loss on disposal of business 307     307    
EBITDA, as adjusted$ 2,399  $ 5,168 $ 6,035  $ 14,920 
          
         
          

The addback for restructuring charges relate to personnel cost in the Company’s North America segment and the business disposal relates to the net loss on closure of the Company’s AC Products Co. operation, a ceramic products manufacturer located in Ohio.

Cash used in operating activities during the first nine months of fiscal 2023 was $2.2 million as compared to cash provided by operating activities of $5.1 million in the first nine months of fiscal 2022, principally reflecting the payment to suppliers for the purchase of inventory and lower operating income in the current period. During the first nine months of fiscal 2023, borrowings under the Company’s lines of credit were used to fund operating activities and capital expenditures. In the prior fiscal year period, cash provided by operations was used primarily to fund capital expenditures and increase cash balances.  

Working capital as of November 30, 2022 was $54.3 million compared to $55.0 million at the end of fiscal 2022. Aggregate debt, net of available cash balances at the end of the third quarter of fiscal 2023, was $37.1 million or 47.3% of equity, an increase of $3.7 million compared to $33.4 million or 42.0% of equity at the end of fiscal 2022.

Conference Call Information

The Company will be hosting the following conference call to discuss its financial results and answer questions.

Date:  Thursday, January 19, 2023
Time:10:00 a.m. Eastern Time
Dial-in Numbers:800-245-3047 (US or Canada)
 203-518-9765 (International)
Confirmation ID:QEP3Q
  
Replay: 800-654-1563 (Toll Free)
 862-902-0129 (Toll)
 Access Code: 11621632
  

About QEP

Founded in 1979, Q.E.P. Co., Inc. is a leading designer, manufacturer and distributor of a broad range of best-in-class flooring and installation solutions for commercial and home improvement projects worldwide. QEP offers a comprehensive line of specialty installation tools, adhesives, and underlayment as well as a complete line of hardwood, luxury vinyl, and modular carpet tile. QEP sells its products throughout the world to home improvement retail centers, professional specialty distribution outlets, and flooring dealers under brand names including QEP®, LASH®, ROBERTS®, Vitrex®, Brutus®, PRCI®, Plasplugs®, Tomecanic®, Premix-Marbletite® (PMM), Homelux®, Capitol® and XPS Foam™.   Brand names featured under QEP’s Harris Flooring Group® include Harris®, Kraus® and Naturally Aged Flooring™.

QEP is headquartered in Boca Raton, Florida with offices in Canada, Europe, Asia, Australia and New Zealand. Please visit our website at www.qepcorporate.com.

Forward-Looking Statements

This press release contains forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release, other than statements of historical facts, may constitute forward-looking statements within the meaning of the federal securities laws. These statements can be identified by words such as “expects,” “plans,” “projects,” “will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates,” and other words of similar meaning. These forward-looking statements include, but are not limited to, statements regarding the Company’s shifting of its focus to new challenges presented by (i) scarcity and rising cost of raw materials and transcontinental freight, (ii) shifts in global sourcing patterns; and (iii) general inflationary pressures, economic conditions, sales growth, price increases, maintaining and improving profitability, product development and marketing, operating expenses, cost savings, acquisition integration, operational synergy realization, global sourcing, political uncertainty, cash flow, debt and currency exchange rates. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties. Forward-looking statements may also be adversely affected by general market factors, competitive product development, product availability, federal and state regulations and legislation, manufacturing issues that may arise, patent positions and litigation, among other factors. The forward-looking statements contained in this press release speak only as of the date the statements were made, and the Company does not undertake any obligation to update forward-looking statements, except as required by law.


-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 For the Nine Months Ended
  November 30, November 30, November 30, November 30,
   2022   2021   2022   2021 
         
 Net sales$102,789  $111,942  $335,391  $339,211 
 Cost of goods sold 75,147   81,455   247,632   246,396 
 Gross profit 27,642   30,487   87,759   92,815 
         
 Operating expenses:       
      Shipping 11,902   12,248   39,085   37,461 
      General and administrative 7,878   7,468   23,034   22,511 
      Selling and marketing 6,730   6,723   23,003   21,524 
      Other (income) expense, net 60   (74)  (60)  (423)
      Total operating expenses 26,570   26,365   85,062   81,073 
         
 Operating income 1,072   4,122   2,697   11,742 
         
 Interest expense, net (734)  (343)  (1,699)  (993)
         
 Income before provision for income taxes 338   3,779   998   10,749 
         
 Provision for income taxes 94   1,058   279   3,009 
         
 Net income $ 244  $ 2,721  $ 719  $ 7,740 
         
 Earnings per share:       
      Basic$0.07  $0.82  $0.22  $2.32 
      Diluted$0.07  $0.81  $0.21  $2.31 
         
 Weighted average number of common       
      shares outstanding:       
      Basic 3,332   3,335   3,337   3,335 
      Diluted 3,339   3,344   3,346   3,345 
         



Q.E.P. CO., INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 
(In thousands) 
(Unaudited) 
         
 For the Three Months Ended For the Nine Months Ended 
 November 30, November30, November 30, November 30,  
  2022  2021   2022   2021  
         
Net income$244 $2,721  $719  $7,740  
         
Unrealized currency translation adjustments 521  (612)  (1,468)  (1,281) 
         
Comprehensive income (loss)$ 765 $ 2,109  $ (749) $ 6,459  
         


     
Q.E.P. CO., INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
(In thousands, except par values) 
     
 November 30, 2022 February 28, 2022 
 (Unaudited) (Audited) 
     
ASSETS    
Cash$7,472  $3,203  
Accounts receivable, less allowance for doubtful accounts of $802    
     and $807 at November 30, 2022 and February 28, 2022, respectively 49,919   55,990  
Inventories, net 91,206   98,087  
Prepaid expenses and other current assets 4,269   3,711  
Prepaid income taxes 1,110     
Current assets 153,976   160,991  
     
Property and equipment, net 10,809   10,529  
Right of use operating lease assets 30,393   15,485  
Deferred income taxes, net 3,569   3,578  
Intangibles, net 8,380   10,233  
Goodwill 2,151   2,390  
Other assets 4,857   3,150  
Total Assets$ 214,135  $ 206,356  
     
LIABILITIES AND SHAREHOLDERS’ EQUITY    
     
Trade accounts payable$36,260  $47,715  
Accrued liabilities 20,292   24,919  
Current operating lease liabilities 4,714   4,942  
Income taxes payable    634  
Lines of credit 34,424   26,449  
Current maturities of debt 3,943   1,321  
Current liabilities 99,633   105,980  
     
Long term debt 6,185   8,797  
Non-current operating lease liabilities 27,497   11,643  
Other long term liabilities 2,438   534  
Total Liabilities 135,753   126,954  
     
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares    
     issued and outstanding at November 30, 2022 and February 28, 2022,      
     respectively    
Common stock, 20,000 shares authorized, $.001 par value;    
     4,005 shares issued: 3,294 and 3,307 shares outstanding at    
     November 30, 2022 and February 28, 2022, respectively 4   4  
Additional paid-in capital 11,449   11,449  
Retained earnings 81,987   81,268  
Treasury stock, 711 and 698 shares held at cost at November 30, 2022    
and February 28, 2022, respectively (9,395)  (9,124) 
Accumulated other comprehensive income (5,663)  (4,195) 
Shareholders’ Equity 78,382   79,402  
     
Total Liabilities and Shareholders’ Equity$ 214,135  $ 206,356  
     

     
Q.E.P. CO., INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(In thousands) 
(Unaudited) 
  
     
 For the Nine Months Ended 
 November 30, 2022 November 30, 2021 
     
Operating activities:    
Net income$719  $7,740  
Adjustments to reconcile net income to net cash    
   provided by (used in) operating activities:    
     Loss on disposal of business 307     
     (Gain) loss on sale of property 9   (88) 
     Depreciation and amortization 2,881   3,178  
     Other non-cash adjustments (75)  (27) 
Changes in assets and liabilities, net of acquisitions:    
     Accounts receivable 6,130   (522) 
     Inventories 3,447   (19,806) 
     Prepaid expenses and other assets 4,684   5,316  
     Trade accounts payable and accrued liabilities (20,322)  9,264  
Net cash provided by (used in) operating activities (2,220)  5,055  
     
Investing activities:    
     Capital expenditures (4,451)  (819) 
     Proceeds from sale of property 1,388   1,173  
Net cash provided by (used in) investing activities (3,063)  354  
     
Financing activities:    
     Net borrowings under lines of credit 9,787   1,369  
     Net repayments of term loan facilities 268   (2,047) 
     Purchase of treasury stock (203)  (90) 
     Principal payments on finance leases (84)  (82) 
     Dividends paid    (165) 
Net cash provided by (used in) financing activities 9,768   (1,015) 
     
Effect of exchange rate changes on cash (216)  (284) 
     
Net increase in cash 4,269   4,110  
     Cash at beginning of period 3,203   10,905  
Cash at end of period$ 7,472  $ 15,015  
     

                    
       Q.E.P. CO., INC. AND SUBSIDIARIES      
       CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
       (In thousands, except shares data)      
       (Unaudited)          
                    
               Accumulated   
           Other  Total 
 Preferred Stock Common Stock Paid-in Retained Treasury Comprehensive  Shareholders’ 
 Shares Amount Shares AmountCapital Earnings Stock Income  Equity 
                    
Balance at February 28, 2021 $ 4,005,370 $ 4 $ 11,251 $ 71,785  $ (9,082)$ (3,030) $ 70,928  
                    
Net income           9,648        9,648  
Unrealized currency translation adjustments               (1,165  (1,165) 
Purchase of treasury stock             (42    (42) 
Stock-based compensation expense         198         198  
Dividends paid           (165)       (165) 
Balance at February 28, 2022 $ 4,005,370 $ 4 $ 11,449 $ 81,268  $ (9,124)$ (4,195) $ 79,402  
                    
Net income           719        719  
Unrealized currency translation adjustments               (1,468  (1,468) 
Purchase of treasury stock             (271    (271) 
Balance at November 30, 2022 $ 4,005,370 $ 4 $ 11,449 $ 81,987  $ (9,395)$ (5,663)  $ 78,382  
                    

CONTACT:
Q.E.P. Co., Inc.
Enos Brown
Executive Vice President and
Chief Financial Officer
561-994-5550

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