Quarterly Sales - $54.2 Million
Record Third Quarter Net Income - $2.2 Million
Record Nine Month Net Income - $6.5 Million
BOCA RATON, Fla., Dec. 15, 2009 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (Pink Sheets:QEPC) (the "Company") today announced its financial results for the third quarter and the first nine months of its fiscal year ending on February 28, 2010.
The Company reported net sales of $54.2 million for the three months ended November 30, 2009, an increase of $5.6 million from the $48.6 million reported in the comparable period of the prior fiscal year. As a percentage of net sales, gross profit increased to 32.3% for the third quarter of fiscal 2010 from 24.1% for the third quarter of fiscal 2009.
Net sales for the first nine months of fiscal 2010 were $156.3 million with a gross profit margin of 31.5% compared to net sales of $162.5 million with a gross profit margin of 27.9% for the first nine months of fiscal 2009.
Mr. Lewis Gould, Chairman of the Company's Board of Directors, commented: "We are delighted with the results of our nine months of operations. Since last November we have substantially improved operations, reduced working capital requirements, paid down debt to record low levels and increased our cash availability." Mr. Gould emphasized, "We are actively considering new opportunities for expanding our product lines and for more effectively managing costs even as the cost controls implemented late last year, including going to the 'Pink Sheets,' continue to result in lower cost of operations and the streamlining of the Company."
Mr. Gould further noted that outside directors Mr. David Kreilein of Monomoy Capital Partners and Mr. Emil Vogel of Tarnow Associates were reelected to the Company's Board of Directors at the Company's November 11, 2009 annual meeting of shareholders, along with Mr. Lewis Gould and Mr. Leonard Gould, President of the Company.
The sales increase for the third quarter of fiscal 2010 compared to the corresponding period in the prior fiscal year principally is due to the current year sales recovery from the severe economic downturn that started in the third quarter of fiscal 2009.
The sales decline for the nine months ended November 30, 2009 compared to the corresponding period in the prior year principally is due to the relatively stronger value of foreign currencies compared to the U.S. Dollar in the first nine months of the 2009 fiscal year -- although foreign currency rates have since seen a significant reversal. Additionally, current fiscal year sales reflect lower sales volumes during the first half of the current fiscal year as compared to the prior year in many of the markets in which the Company operates.
The increase in gross profit as a percentage of net sales for the three and nine months ended November 30, 2009 as compared to the corresponding periods in the prior year principally is due to an improved product mix following the rollout of certain lower margin products to one of the Company's home center customers in the third quarter of the prior fiscal year.
Operating income for the third quarter of fiscal 2010 was $3.7 million compared to an operating income before a non-cash charge for impairment of goodwill in the third quarter of fiscal 2009 of $0.4 million while operating income the first nine months of fiscal 2010 was $11.1 million compared to operating income before a non-cash charge for impairment of goodwill for the first nine months of fiscal 2009 of $4.0 million.
Operating income for the first nine months of fiscal 2010 benefited from the gross profit improvement and from the significant cost reduction measures that were implemented in the second half of fiscal 2009 and that continued into the 2010 fiscal year, although the Company is beginning to experience an upward pressure on costs as a result of costs associated with meeting customer service levels and supporting higher sales volume. Operating income for the first nine months of fiscal 2009 also includes the fiscal third quarter $7.9 million charge for impairment of goodwill.
Net income for the third quarter and nine months of fiscal 2010 was $2.2 million and $6.5 million, respectively, or $0.63 and $1.86 per diluted share. For the comparable periods of fiscal 2009, net loss was $8.4 million and $6.3 million, respectively, or a loss of $2.48 and $1.86 per diluted share.
Cash provided by operations during the first nine months of fiscal 2010 was $14.1 million, including cash provided from the Company's continuing cash management programs, substantially all of which was used to reduce debt during the period. By comparison, during the first nine months of fiscal 2009 $6.6 million of cash was used in operations to fund working capital requirements and was financed by additional borrowings. Working capital at the end of the Company's fiscal year 2010 third quarter was $14.7 million, an increase of $8.8 million from $5.9 million at the Company's fiscal 2009 year-end.
While world economic conditions are showing signs of improvement, the timing and degree of any improvements in the economic outlook in each of the markets in which the Company operates remain uncertain. Accordingly, it remains extremely difficult for the Company to project how the global economic environment will perform and the extent to which, or whether, the improvements in the Company's results of operations will continue.
Q.E.P. Co., Inc., founded in 1979, is a leading worldwide manufacturer, marketer and distributor of a broad line of flooring tools and accessories for the home improvement market. Under brand names including QEP, ROBERTS, Smoothedge, Vitrex, PRCI, Capitol and Elastiment, the Company markets over 3,000 specialty tools and flooring related products used primarily for surface preparation and installation of ceramic tile, carpet, vinyl and wood flooring. The Company sells its products to home improvement retail centers and specialty distribution outlets in 50 states and around the world.
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the Three Months For the Nine Months
Ended November 30, Ended November 30,
------------------------------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Net sales $ 54,167 $ 48,626 $ 156,003 $ 162,511
Cost of goods sold 36,690 36,896 106,932 117,201
--------- --------- --------- ---------
Gross profit 17,477 11,730 49,071 45,310
--------- --------- --------- ---------
Operating costs
and expenses:
Shipping 6,066 5,276 17,217 18,094
General and
administrative 4,381 3,801 12,346 12,839
Selling and marketing 3,119 3,176 8,243 10,574
Impairment of goodwill -- 7,927 -- 7,927
Other expense
(income), net 223 (100) 147 (245)
--------- --------- --------- ---------
Total operating costs
and expenses 13,789 20,080 37,953 49,189
--------- --------- --------- ---------
Operating income (loss) 3,688 (8,350) 11,118 (3,879)
Interest expense, net (266) (542) (901) (1,575)
--------- --------- --------- ---------
Income (loss) before
provision for income
taxes 3,422 (8,892) 10,217 (5,454)
Provision (benefit) for
income taxes 1,230 (516) 3,691 871
--------- --------- --------- ---------
Net income (loss) $ 2,192 $ (8,376) $ 6,526 $ (6,325)
========= ========= ========= =========
Net income (loss)
per share:
Basic $ 0.64 $ (2.48) $ 1.87 $ (1.86)
========= ========= ========= =========
Diluted $ 0.63 $ (2.48) $ 1.86 $ (1.86)
========= ========= ========= =========
Weighted average number
of common shares
outstanding
Basic 3,432 3,377 3,486 3,412
========= ========= ========= =========
Diluted 3,470 3,377 3,499 3,412
========= ========= ========= =========
Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Nov. 30, Feb. 28,
2009 2009
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,238 $ 695
Accounts receivable, less allowance for doubtful
accounts of $765 and $561 as of November 30,
2009 and February 28, 2009, respectively 30,702 26,746
Inventories 23,904 24,446
Prepaid expenses and other current assets 1,611 2,026
Deferred income taxes 1,456 1,472
-------- --------
Total current assets 58,911 55,385
Property and equipment, net 6,323 6,225
Deferred costs 1,542 2,203
Deferred income taxes 2,073 2,072
Goodwill 980 826
Other intangible assets, net 1,911 1,991
Other assets 300 263
-------- --------
Total Assets $ 72,040 $ 68,965
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 18,707 $ 15,136
Accrued liabilities 10,875 8,228
Lines of credit 13,727 24,832
Current maturities of long term debt 948 1,292
-------- --------
Total current liabilities 44,257 49,488
Notes payable 3,724 3,442
Other long term liabilities 629 495
-------- --------
Total Liabilities 48,610 53,425
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, 2,500,000 shares authorized,
$1.00 par value; 336,660 shares issued and
outstanding at November 30, 2009 and
February 28, 2009 337 337
Common stock,; 20,000,000 shares authorized,
$.001 par value; 3,695,841 and 3,694,841 shares
issued, and 3,424,367 and 3,531,085 shares
outstanding at November 30, 2009 and
February 28, 2009, respectively 4 4
Additional paid-in capital 10,419 10,406
Retained earnings 15,825 9,306
Treasury stock, 271,474 and 163,756 shares
(held at cost) outstanding at November 30, 2009
and February 28, 2009, respectively (1,608) (1,113)
Accumulated other comprehensive loss (1,547) (3,400)
-------- --------
Total Shareholders' Equity 23,430 15,540
-------- --------
Total Liabilities and Shareholders' Equity $ 72,040 $ 68,965
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Q.E.P. CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
For the
Nine Months Ended
November 30,
-------- --------
2009 2008
-------- --------
Cash flows from operating activities:
Net income (loss) $ 6,526 $ (6,325)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,094 1,355
Impairment of goodwill -- 7,927
Bad debt expense 160 182
Stock-based compensation expense 13 (38)
Deferred income taxes -- (482)
-------- --------
Operating cash flow before change in
working capital 7,793 2,619
Changes in assets and liabilities:
Accounts receivable (2,071) 1,744
Inventories 2,452 (8,232)
Prepaid expenses and other current assets 538 (403)
Deferred costs and other assets 623 (2,545)
Trade accounts payable and accrued liabilities 4,802 209
-------- --------
Net cash provided by (used in) operating
activities 14,137 (6,608)
-------- --------
Cash flows from investing activities:
Capital expenditures (471) (824)
Proceeds from sale of businesses -- 335
-------- --------
Net cash used in investing activities (471) (489)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) under
lines of credit (12,168) 8,280
Borrowings of long-term debt 930 478
Repayments of long-term debt (1,578) (1,197)
Purchase of treasury stock (405) (359)
Dividends (7) (13)
-------- --------
Net cash provided by (used in) financing
activities (13,228) 7,189
-------- --------
Effect of exchange rate changes on cash 105 (145)
-------- --------
Net increase in cash 543 (53)
Cash and cash equivalents at beginning of period 695 949
-------- --------
Cash and cash equivalents at end of period $ 1,238 $ 896
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