Q.E.P. CO., INC. REPORTS RECORD SIX MONTH AND SECOND QUARTER SALES
COMPLETES THE ACQUISITION OF KRAUS DISTRIBUTION BUSINESS IN THE U.S. AND CANADA
BOCA RATON, FLORIDA — October 11, 2018 — Q.E.P. CO., INC. (OTC: QEPC.PK) (the “Company” and “Q.E.P.”) reported today net sales of $92.6 million for the quarter ended August 31, 2018, an increase of 10.0% over the same period last year. In addition, Q.E.P. today announced that it completed the acquisition of certain assets of the hard surface and carpet tile distribution business of Kraus (“Kraus”) in both the U.S. and Canada.
Lewis Gould, Executive Chairman, commented, “The quarter and year to date results had a great deal of investment in the future. We relocated to a new facility in Arizona which will produce adhesives, tack strip and serve as the main West Coast distribution center. In addition, the Company invested resources that led to its largest acquisition in the distribution business in the U.S. and Canada. The acquisition will reposition the Company for growth in the flooring industry.”
The Company today also reported its consolidated results of operations for the first six months and second quarter of its fiscal year ending February 28, 2019.
Q.E.P. reported net sales of $180.4 million for the six months ended August 31, 2018, an increase of $14.3 million or 8.6% from the $166.1 million reported in the same period of fiscal 2018. As a percentage of net sales, gross margin was 27.3% in the first six months of fiscal 2019 compared to 28.4% in the first six months of fiscal 2018.
The Company reported net sales of $92.6 million for the quarter ended August 31, 2018, an increase of $8.4 million or 10.0% from the $84.1 million reported in the same period of fiscal 2018. As a percentage of net sales, gross margin was 27.1% in the second quarter of fiscal 2019 compared to 28.3% in the second quarter of fiscal 2018.
Harry Schulman, Chief Executive Officer, commented on Q.E.P.’s six month results, “We have grown our top line sales through strategic acquisitions in the first six months of this year. Our operating expenses have increased during the first half of this year due to these acquisitions as well as our continued investment in new business opportunities, such as Kraus. The overall business continues to experience cost pressures as product, manufacturing and shipping costs increase. Q.E.P. has worked with our customers to pursue market-based price increases to mitigate these cost increases and will continue to do so in the future as market conditions dictate.”
Mr. Schulman continued, “In the first six-months of this year, Q.E.P. has made investments in a number of initiatives to improve overall operational efficiency, including the consolidation of several of our West Coast facilities. More recently we have improved our wood-manufacturing supply chain by consolidating two facilities and also expanded our capabilities to manufacture new, fashion-forward wood flooring products. While these investments have reduced our profitability in the near term, we believe they will lead to greater growth going forward as well as provide support for the strategic acquisitions we have made this year.”
Net sales growth for the first six months and second quarter of fiscal 2019 as compared to the same periods in the prior fiscal year reflect the positive impact of businesses acquired during the first six months of the current fiscal year, offset by sales declines in certain core products categories.
The Company’s gross profit for the first six months of fiscal 2019 was $49.2 million representing an increase of $2.0 million, or 4.3%, from $47.2 million in fiscal 2018 period. Gross profit for the second quarter of fiscal 2019 was $25.1 million representing an increase of $1.3 million, or 5.4%, from $23.8 million in fiscal 2018 period.
The Company’s gross margin as a percentage of net sales for the first six months and second quarter of fiscal year 2019 of 27.3% and 27.1%, respectively, which decreased from 28.4% and 28.3% in the prior fiscal year periods, respectively. The fiscal 2019 acquisitions were responsible for the increased gross profit in both the quarter and six-month period compared to the prior year. The Company experienced changes in its product mix, charges related to facility, production and product rationalization, increased transportation, product and manufacturing costs and the impact of new and higher tariffs placed on the products it imports from China.
These higher costs were partially offset by price increases to our customers.
Operating expenses for the first six months and second quarter of fiscal 2019 were $46.1 million and $24.1 million, respectively, or 25.5% and 26.0% of net sales in those periods, compared to $39.2 million and $19.7 million, respectively, or 23.6% and 23.4% of net sales in the comparable fiscal 2018 periods. The increase in operating expenses was due to the incremental costs assumed with the businesses acquired during fiscal 2019, one-time costs related to acquisition activity and additional shipping costs to support customer needs in Europe.
The decrease in interest expense during fiscal 2019 as compared to fiscal 2018 is due to repayment of outstanding debt, which more than offset increases to interest rates and the utilization of the Company’s credit facilities to support sales growth and fund acquisitions.
The provision for income taxes as a percentage of income before taxes was 28.0% for the first six months and second quarter of fiscal 2019 and 37.5% for the comparable fiscal 2018 periods. The effective tax rate in fiscal 2019 periods reflects the estimated impact of the enacted U.S. tax legislation, Tax Cuts and Jobs Act. Both fiscal years reflect 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 2019 was $2.0 million and $0.6 million, respectively, or $0.62 and $0.18, respectively, per diluted share. For the comparable periods of fiscal 2018, net income was $4.7 million and $2.4 million, respectively, or $1.47 and $0.75, respectively, per diluted share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) as adjusted for corporate development and other one-time expenses for the first six months and second quarter of fiscal 2019 was $6.2 million and $2.9 million, respectively as compared to $10.1 million and $5.1 million for the first six months and second quarter of fiscal 2018, respectively.