Q.E.P. CO., INC. REPORTS RECORD SALES FOR THE FIRST QUARTER OF FISCAL 2020

BOCA RATON, FLORIDA — July 10, 2019 — Q.E.P. CO., INC. (OTC: QEPC.PK) (the “Company” or “Q.E.P.”) today reported its consolidated results of operations for the first quarter of its fiscal year ending February 29, 2020.

Q.E.P. reported net sales of $102.6 million for the quarter ended May 31, 2019, an increase of $14.7 million or 16.8% from the $87.9 million reported in the first quarter of fiscal 2019. Net sales growth for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 reflects the positive impact of businesses acquired during fiscal 2019, offset by reductions due to the divestiture of certain non-core product lines, declines in certain core product categories and the impact of currency translation due to weakening currencies in Europe and Australia.

As a percentage of net sales, gross margin was 26.1% in the first quarter of fiscal 2020, as compared to 27.5% in the first quarter of fiscal 2019.

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 our ongoing acquisition strategy. During the first quarter, we continued to make investments in new products, samples and displays for our distributors. While these investments negatively impacted the quarter’s results, they are expected to benefit us in the future. We also worked to right-size the cost structure of these businesses by reducing headcount and integrating back office operations, which should also benefit future quarters.”

Mr. Gould continued, “We continue to work hard to offset the impact of product, manufacturing and shipping costs as well as tariffs in our core business as well as generate new business from sale of domestic manufactured goods that are not subject to tariff in the United States.”

Mr. Gould concluded, “We have worked diligently through a period of significant investment in the Company’s future and believe the Company is now better positioned for future earnings growth.”

The Company’s gross profit for the first quarter of fiscal 2020 was $26.8 million, representing an increase of $2.7 million, or 11.0% from $24.1 million in the first quarter of fiscal 2019, which was driven by the same factors that impacted sales growth. 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 expensesmfor the first quarter of fiscal 2020 and 2019 were $30.4 million or 29.6% of net sales and $22.0 million or 25.0% of net sales, respectively. The increase in operating expenses was due to the incremental costs assumed with the businesses acquired during the fiscal 2019 and one-time costs related to restructuring activity.

The increase in interest expense during the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019 was due to incremental borrowings under the Company’s credit facilities to fund acquisitions and support sales growth, along with increases in interest rates.

The benefit for income taxes as a percentage of income before taxes was 28.0% for the first quarter of fiscal 2020, as compared to a provision for income taxes of 28.0% for the first quarter of fiscal 2019.

Net loss for the first quarter of fiscal 2020 was $1.3 million or $.42 per diluted share, compared to net income of $1.4 million or $.44 per diluted share for the first quarter of fiscal 2019.

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) as adjusted for non-operating income, corporate development and other one-time expenses for the first quarter of fiscal 2020 was a loss of $2.1 million compared to income of $3.3 million for the first quarter of fiscal 2019.

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