Q.E.P. CO., INC. REPORTS FISCAL 2019 NINE MONTH AND THIRD QUARTER SALES AND EARNINGS

BOCA RATON, FLORIDA — January 14, 2019 — Q.E.P. CO., INC. (OTC: QEPC.PK) (the “Company” and “Q.E.P.”) today reported its consolidated results of operations for the first nine months and third quarter of its fiscal year ending February 28, 2019.

Q.E.P. reported net sales of $281.2 million for the nine months ended November 30, 2018, an increase of $34.3 million or 13.9% from the $246.9 million reported in the same period of fiscal 2018. As a percentage of net sales, gross margin was 26.6% in the first nine months of fiscal 2019 compared to 28.3% in the first nine months of fiscal 2018.

The Company reported net sales of $100.7 million for the quarter ended November 30, 2018, an increase of $20.0 million or 24.8% from the $80.7 million reported in the same period of fiscal 2018. As a percentage of net sales, gross margin was 25.5% in the third quarter of fiscal 2019 compared to 27.9% in the third quarter of fiscal 2018.

Lewis Gould, Chairman of the Board of Directors, commented on the Company’s results, “We are pleased with the Company’s sales growth that has been achieved through the implementation of our acquisition strategy that was started last year. The acquisitions have partially offset the significant upfront costs associated with their completion and integration. Our expansion and consolidation into a new West Coast distribution center located in Arizona will be completed in the fourth quarter. This facility will also provide manufacturing capacity for adhesives, carpet tack strip and new glue cartridge filling capability. In the fourth quarter, we will complete the consolidation and enhancement of our wood manufacturing supply chain operations with the transition from our current Indiana facility. As you know, in the third quarter, we closed the transaction to buy the hard-surface flooring assets of the Kraus business in both Canada and the U.S. Each of these events have come together to create a new look for our Company, which will be on full display at the Surfaces Trade Show in Las Vegas in January 2019.”

Mr. Gould continued, “The core business continues to experience cost pressures as product, manufacturing and shipping costs increase, along with the absorption of higher tariffs. Q.E.P. continues to work with our customers to pursue market-based price increases to pass along these cost increases and will continue to do so in the future as circumstances allow. We continue to monitor our cost structure and use of working capital, adjusting our plans to achieve the best return on these investments.”

Mr. Gould concluded, “The Company has been deliberate in making the strategic investment in our future. We believe that these investments, along with expanded initiatives in our business-to-business model, E-commerce and social media will create significant opportunities for sales growth and increased profitability.”

Net sales growth for the first nine months and third 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 nine months of the current fiscal year, offset by sales declines in certain core product categories.

The Company’s gross profit for the first nine months of fiscal 2019 was $74.9 million representing an increase of $5.2 million, or 7.4%, from $69.7 million in fiscal 2018 period. Gross profit for the third quarter of fiscal 2019 was $25.7 million representing an increase of $3.1 million, or 13.9%, from $22.5 million in fiscal 2018 period. The fiscal 2019 acquisitions were responsible for the increased gross profit in both the quarter and nine-month period compared to the prior year. Gross margin as a percentage of net sales was negatively impacted by changes in product mix; costs related to facility, production and product rationalization; increased transportation, product and manufacturing costs; and higher tariffs placed on the products the Company imports from China.

Operating expenses for the first nine months and third quarter of fiscal 2019 were $73.7 million and $27.7 million, respectively, or 26.2% and 27.5% of net sales in those periods, compared to $61.0 million and $21.8 million, respectively, or 24.7% and 27.0% 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 growth in outbound shipping costs.

The increase in interest expense during fiscal 2019 as compared to fiscal 2018 is due to incremental borrowings under the Company’s credit facilities to fund acquisitions and support sales growth, along with increases to interest rates.

The (benefit)/provision for income taxes as a percentage of income before taxes was 28.0% for the first nine months and third 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 (loss)/income for the first nine months and third quarter of fiscal 2019 was $0.2 million and ($1.8) million, respectively, or $0.06 and ($0.57), respectively, per diluted share. For the comparable periods of fiscal 2018, net income was $5.0 million and $0.3 million, respectively, or $1.57 and $0.10, respectively, per diluted share.

Earnings before interest, taxes, depreciation and amortization (EBITDA) as adjusted for impairment of long-lived assets, corporate development and other one-time expenses for the first nine months and third quarter of fiscal 2019 was $7.0 million and $0.8 million, respectively as compared to $14.1 million and $4.0 million for the first nine months and third quarter of fiscal 2018, respectively

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