Q.E.P. Co., Inc. Reports Fiscal 2020 Year-End Sales and Earnings

Monday, 13. July 2020 16:08

BOCA RATON, Fla., July 13, 2020 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC: QEPC.PK) (the “Company” or “QEP.”) today reported its consolidated results of operations for its fiscal year ended February 29, 2020.

QEP reported net sales of $393.9 million for the year ended February 29, 2020, an increase of $14.5 million or 3.8% from the $379.4 million reported in fiscal 2019.  Net sales growth for fiscal 2020 as compared to the prior fiscal year reflects the positive contribution of businesses acquired during fiscal 2019, offset by divestment of certain non-core product lines and sales declines in certain North America core product categories, along with the unfavorable impact of foreign currency translation.  As a percentage of net sales, gross margin was 26.4% in fiscal 2020, as compared to 26.5% in fiscal 2019.

Lewis Gould, Chairman & CEO, commented on the Company’s results, “We are pleased with the Company’s sales growth that has been achieved through our recent acquisitions.  However, challenges associated with the integration of these acquisitions and investment made to update their product offerings had a negative impact on the current year earnings.  Additionally, in fiscal 2020 the Company was adversely affected by higher tariffs imposed on certain flooring products imported from China.”

Mr. Gould continued, “The Company continues to actively monitor and adjust our cost structure and use of working capital, modifying our plans to achieve the best return on these investments.”

Mr. Gould concluded, “In these uncertain times, the Company is being very deliberate in making strategic decisions to secure our future.  We believe that these decisions, along with the expansion of our product offerings and distribution channels, will create significant opportunities for sales growth and increased profitability in the year ahead.”

The Company’s gross profit for fiscal 2020 was $103.9 million, representing an increase of $3.3 million, or 3.3% from $100.6 million in fiscal 2019, which resulted from fiscal 2019 acquisitions.  Gross margin as a percentage of net sales was relatively flat as favorable product mix and reduced facility and production costs offset the increase in product cost resulting from higher tariffs placed on certain products the Company imports from China.

Operating expenses, excluding the impairment loss on goodwill, for fiscal 2020 and 2019 were $112.6 million or 28.6% of net sales and $106.4 million or 28.0% of net sales, respectively. The increase in operating expenses was due to the incremental costs assumed with the businesses acquired during fiscal 2019, net of cost reduction in general and administrative expenses through the removal of duplicative acquisition overhead and one-time transaction costs related to acquisition activity in 2019.  Operating expenses for 2020 include a non-cash impairment charge for goodwill of $4.0 million resulting from the decline in the Company’s market valuation.

Non-operating income in fiscal 2020 and fiscal 2019 represents the sale of assets related to non-core product lines.

The increase in interest expense during fiscal 2020 as compared to fiscal 2019 was due to incremental borrowings under the Company’s credit facilities to fund acquisitions and support sales growth.

The benefit for income taxes as a percentage of income before taxes was 5.0% for fiscal 2020, as compared to 23.9% for fiscal 2019.  The effective tax rate in fiscal 2020 reflects a valuation allowance of $2.7 million on deferred tax assets related to the Company’s Canadian subsidiary. 

Net loss for fiscal 2020 was $12.1 million or $3.84 per diluted share, as compared to a net loss of $3.0 million or $0.95 per diluted share for fiscal 2019.

Earnings before interest, taxes, depreciation and amortization (EBITDA) as adjusted for impairment charges, non-operating income, corporate development and other one-time expenses for fiscal 2020 was minus $3.3 million as compared to $2.0 million for fiscal 2019.

   For the Year
Ended February,

    2020   2019 
          
 Net income (loss)$(12,142) $(3,020)
          
 Add:Interest expense, net 2,441   1,567 
  Benefit for income taxes (641)  (950)
  Depreciation and amortization 4,754   4,728 
  Non-operating income (2,370)  (3,414)
  Corporate development and other expenses 637   2,813 
  Impairment loss on goodwill 4,041   - 
  Impairment of long-lived assets -   238 
 EBITDA as adjusted for impairment charges, non-operating       
 income and corporate development and other expenses (1)$(3,280) $1,962 
          
         
 (1) EBITDA as adjusted for impairment charges, non-operating income and corporate development and other one-time expenses represent non-GAAP measures and exclude charges or credits not indicative of our core operations, which may include but are not limited to corporate development expenses, acquisition integration and restructuring costs.
      

Cash provided by operations during fiscal 2020 was $8.3 million as compared to cash used in operations of $13.0 million in fiscal 2019, reflecting a decrease in net investment in working capital, principally inventory and other assets that offset the decreased operating income.  During fiscal 2020, the Company made acquisition payments of $1.3 million compared to $39.1 million during fiscal 2019.  In fiscal 2020, cash provided by operations, along with proceeds from the sale of a non-core business line were used to repay borrowings under the Company’s credit facility.  In the prior fiscal year, investments in acquisitions, capital expenditures and inventory growth were funded through cash on-hand, proceeds from the sale of a business and borrowings under the Company’s credit facilities.   

Working capital as of February 29, 2020 was $29.1 million compared to $43.9 million at the end of the 2019 fiscal year. Aggregate debt, net of available cash balances at the end of fiscal 2020, was $46.4 million or 73.9% of equity, a decrease of $9.4 million compared to $55.8 million or 73.8% of equity at the end of the 2019 fiscal year.

Conference Call Information

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

Date:Thursday, July 16, 2020
Time:10:00 a.m. Eastern Time
Dial-in Numbers: 800-367-2403 (US or Canada)
 +1 334-777-6978 (International)
Confirmation Code: 7860603

The Company is posting its consolidated fiscal 2020 audited financial statements on the Investor section of its website at www.qepcorporate.com today.

About QEP

Founded in 1979, Q.E.P. Co., Inc. is a leading global provider of high quality, innovative and value-driven flooring and flooring installation solutions. QEP manufactures, markets and sells a comprehensive line of flooring installation tools, adhesives, and underlayment for both consumers as well as professional installers.  Under the Harris Flooring Group ™, QEP manufactures and offers 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®, Harris Flooring Group™, Capitol®, Harris®Wood, Kraus®, Naturally Aged Flooring™, Vitrex®, Homelux®,  Brutus®, PRCI®, Plasplugs®, Tomecanic®, Premix-Marbletite® (PMM), Apple Creek® and Elastiment®.

QEP is headquartered in Boca Raton, Florida with offices in Canada, Europe, Asia, Australia and New Zealand.

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. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties. These forward-looking statements include, but are not limited to, statements regarding economic conditions, sales growth, price increases, profit improvements, product development and marketing, operating expenses, cost savings, acquisition integration, operational synergy realization, cash flow, debt and currency exchange rates. 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 EARNINGS
(In thousands except per share data)
     
  For the Year Ended
  February 29, February 28,
   2020   2019 
         
Net sales $393,901  $379,402 
Cost of goods sold  289,983   278,798 
Gross profit  103,918   100,604 
         
Operating expenses:        
Shipping  43,986   37,923 
General and administrative  33,778   41,112 
Selling and marketing  35,860   28,209 
Impairment loss on goodwill  4,041   - 
Other income, net  (1,035)  (823)
Total operating expenses  116,630   106,421 
         
Operating income (loss)  (12,712)  (5,817)
         
Non-operating income  2,370   3,414 
Interest expense, net  (2,441)  (1,567)
         
Income (loss) before provision for income taxes  (12,783)  (3,970)
         
Benefit for income taxes  (641)  (950)
         
Net income (loss) $ (12,142) $ (3,020)
         
Earnings (loss) per share:        
Basic $(3.84) $(0.95)
Diluted $(3.84) $(0.95)
         
Weighted average number of common        
  shares outstanding:        
Basic  3,160   3,179 
Diluted  3,160   3,181 
         


Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
     
  For the Year Ended
  February 29, February 28,
   2020   2019 
         
Net income (loss) $(12,142) $(3,020)
         
Unrealized currency translation adjustments  (594)  (993)
         
Comprehensive income (loss) $ (12,736) $ (4,013)
     


Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
    
   February 29, 2020  February 28, 2019
         
ASSETS        
Cash $4,999  $6,467 
Accounts receivable, less allowance for doubtful accounts of $475        
and $751 as of February 29, 2020 and February 28, 2019, respectively  49,264   53,295 
Inventories  69,061   91,684 
Prepaid expenses and other current assets  4,280   7,360 
Prepaid income taxes  740   2,217 
Current assets  128,344   161,023 
         
Property and equipment, net  15,168   16,695 
Right of use operating lease assets  18,320   - 
Deferred income taxes, net  4,135   3,271 
Intangibles, net  13,871   16,815 
Goodwill  2,288   6,140 
Other assets  2,824   1,056 
         
Total Assets $ 184,950  $ 205,000 
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
         
Trade accounts payable $31,114  $36,611 
Accrued liabilities  19,366   29,358 
Current operating lease liabilities  5,262   - 
Lines of credit  40,107   49,398 
Current maturities of notes payable  3,399   1,733 
Current liabilities  99,248   117,100 
         
Notes payable  7,854   11,101 
Non-current operating lease liabilities  14,121   - 
Deferred income taxes  114   193 
Other long term liabilities  872   1,084 
Total Liabilities  122,209   129,478 
         
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares        
issued and outstanding at February 29, 2020 and February 28, 2019,  -   - 
respectively        
Common stock, 20,000 shares authorized, $.001 par value;        
3,827 and 3,821 shares issued, and 3,139 and 3,142 shares outstanding at        
February 29, 2020 and February 28, 2019, respectively  4   4 
Additional paid-in capital  11,087   10,963 
Retained earnings  64,887   77,029 
Treasury stock, 688 and 679 shares held at cost at February 29, 2020  -     
and February 28, 2019, respectively  (8,869)  (8,700)
Accumulated other comprehensive income  (4,368)  (3,774)
Shareholders' Equity  62,741   75,522 
         
Total Liabilities and Shareholders' Equity $ 184,950  $ 205,000 
         


 Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) 
     
  For the Year Ended
  February 29, 2020 February 28, 2019
         
Operating activities:        
Net income (loss) $(12,142) $(3,020)
Adjustments to reconcile net income to net cash        
provided by operating activities:        
Gain on sale of businesses  (2,370)  (3,415)
Gain on sale of property  (10)  (96)
Impairment loss on goodwill  4,041   - 
Impairment loss on long term assets  -   238 
Depreciation and amortization  4,754   4,728 
Other non-cash adjustments  273   281 
Changes in assets and liabilities, net of acquisitions:        
Accounts receivable  2,975   (2,457)
Inventories  19,480   (15,141)
Prepaid expenses and other assets  9,331   (2,253)
Trade accounts payable and accrued liabilities  (18,018)  8,161 
Net cash provided by (used in) operating activities  8,314   (12,974)
         
Investing activities:        
Acquisitions  (1,324)  (39,075)
Capital expenditures  (1,339)  (8,206)
Proceeds from sale of businesses  4,663   9,350 
Proceeds from sale of property  401   599 
Purchase of equity securities  (1,900)  - 
Net cash provided by (used in) investing activities  501   (37,332)
         
Financing activities:        
Net borrowings (repayment) under lines of credit  (8,397)  31,805 
Net borrowings (repayments) of notes payable  (1,408)  10,036 
Purchase of treasury stock  (155)  (1,121)
Principal payments on finance leases  (21)  - 
Net cash provided by (used in) financing activities  (9,981)  40,720 
         
Effect of exchange rate changes on cash  (302)  (81)
         
Net decrease in cash  (1,468)  (9,667)
Cash at beginning of period  6,467   16,134 
Cash at end of period $ 4,999  $ 6,467 
         

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

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