Q.E.P. CO., Inc. Reports Fiscal 2021 Year-End Sales and Earnings

BOCA RATON, Fla., June 14, 2021 (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 28, 2021.

QEP reported net sales of $387.6 million for the year ended February 28, 2021, a decrease of $6.3 million or 1.6% from the $393.9 million reported in fiscal 2020. Net sales decline for fiscal 2021 as compared to the prior fiscal year reflects the adverse impact of the worldwide economic downturn caused by the COVID-19 pandemic during the first quarter of the current year. All subsequent quarters reflect increased year-over-year net sales.   As a percentage of net sales, gross margin was 28.0% in fiscal 2021, as compared to 26.4% in fiscal 2020.

Lewis Gould, Executive Chairman, commented on the Company’s results, “I am pleased that the Company was able to generate year-over-year sales growth for the third consecutive quarter, which has significantly offset the sales decline in the first quarter that was the result of the COVID-19 related economic downturn. The recent sales increase was driven by retail channels in North America, despite COVID-19 related challenges in the dealer and distributor channels, as well as growth in the Company’s overseas operations. During the year, the Company introduced aggressive cost control measures, which included the reduction of personnel costs, overhead and marketing expenses. Additionally, the Company was able to successfully navigate the integration and restructuring of the Company’s recent wood flooring acquisitions. Collectively, these actions resulted in the Company’s return to profitability during the year.”

Mr. Gould concluded, “As the world gradually begins to emerge from the COVID-19 pandemic, we are shifting our focus to new challenges presented by the scarcity and rising cost for raw materials and transcontinental freight, the weakening U.S. Dollar, shifts in global sourcing patterns and general inflationary pressures. We believe that the Company is positioned to respond to these evolving uncertainties.”

The Company’s gross profit for fiscal 2021 was $108.7 million, representing an increase of $4.8 million, or 4.6% from $103.9 million in fiscal 2020, which resulted from fiscal 2019 acquisitions. The improvement in gross margin as a percentage of net sales was due to favorable changes in product mix and timely actions taken by the Company to reduce manufacturing overhead during the first half of the current year.

Operating expenses, excluding restructuring charges and the impairment loss on goodwill, for fiscal 2021 and 2020 were $96.7 million or 25.0% of net sales and $112.6 million or 28.6% of net sales, respectively. The reduction in operating expenses was due to year-over-year synergies realized through the integration and rationalization of fiscal 2019 acquisitions, lower personnel costs resulting from the reduction-in-force and furlough of employees during the COVID-19 economic downturn, lower marketing and travel expenses, along with government subsidies received for maintaining employment levels at the Company’s international operations.

Operating expenses for 2021 include restructuring charges of $0.8 million relating to the Company’s Canadian subsidiary, which consisted of legal, administrative and asset impairment charges, net of the benefit related to the Plan of Compromise and Arrangement approved by the subsidiary’s unsecured creditors. Operating expenses in fiscal 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 loss in fiscal 2021 and income in fiscal 2020 represents the sale of assets related to non-core business unit and product lines, respectively.

The decrease in interest expense during fiscal 2021 as compared to fiscal 2020 was principally due to the reduction in borrowings under the Company’s credit facilities during the current year.

The provision for income taxes as a percentage of income before taxes was 27.3% for fiscal 2021, as compared to a benefit for income taxes of 5.0% for fiscal 2020. 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 income for fiscal 2021 was $6.9 million or $2.06 per diluted share, as compared to a net loss of $12.1 million or $3.64 per diluted share for fiscal 2020.

Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted for impairment charges, non-operating income, gain on sale of real property, corporate development and other one-time expenses for fiscal 2021, was $15.4 million as compared to minus $3.3 million for fiscal 2020.

    For the Year Ended  
    February 28,     February 29,  
    2021     2020    
Net income (loss) $ 6,898     $ (12,142
Add: Interest expense, net 1,603     2,441  
  Provision (benefit) for income taxes 2,584     (641 )
  Depreciation and amortization 4,492     4,754  
  Non-operating income 24     (2,370 )
  Corporate development and other expenses 840     637  
  Gain on sale of real property (1,063 )    
  Impairment loss on goodwill     4,041  
EBITDA, as adjusted (1) $ 15,378     $ (3,280 )

(1) EBITDA, as adjusted for impairment charges, non-operating income, gain on sale of real property, 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, restructuring costs and divestiture expenses.

Cash provided by operations during fiscal 2021 was $24.8 million as compared to $8.3 million in fiscal 2020, reflecting an increase in operating income and a reduction in the net investment in working capital. In fiscal 2021 and fiscal 2020, cash provided by operations, along with proceeds from the sale of property and the sale of non-core business lines were used to fund capital expenditures, pay for prior period acquisitions and repay borrowings under the Company’s credit facility.

Working capital as of February 28, 2021 was $44.7 million compared to $29.1 million at the end of the 2020 fiscal year.  Aggregate debt, net of available cash balances at the end of fiscal 2021, was $23.0 million or 32.4% of equity, a decrease of $23.4 million compared to $46.4 million or 73.9% of equity at the end of the 2020 fiscal year.

Leadership Changes

On July 20, 2020, the Company’s Board of Directors appointed Enos Brown as Executive Vice President, Chief Financial Officer and Treasurer of the Company. On January 5, 2021, the Company’s Board of Directors appointed Leonard Gould as President & Chief Executive Officer, The Americas, Paul Boyce as Chief Executive Officer of International Operations, and reappointed Lewis Gould as Executive Chairman of the Company.

Conference Call Information

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

Date: Thursday, June 17, 2021
Time:  10:00 a.m. Eastern Time
Dial-in Numbers: 800-367-2403 (US or Canada)
  +1 334-777-6978 (International)
Confirmation Code:  271610

The Company’s consolidated fiscal 2021 audited financial statements are available on the Investor section of its website at www.qepcorporate.com.

About QEP

Founded in 1979, Q.E.P. Co., Inc. is a leading designer, manufacturer and distributor of a broad range of best-in-class flooring and installation solutions for commercial and home improvement projects worldwide. QEP offers a comprehensive line of specialty installation tools, adhesives, and underlayment as well as 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®, Vitrex®, Brutus®, PRCI®, Plasplugs®, Tomecanic®, Premix-Marbletite® (PMM), Apple Creek®, Homelux®, Capitol® and XPS Foam™.   Brand names featured under QEP’s Harris Flooring Group® include Harris®, Kraus® and Naturally Aged Flooring™.

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. These forward-looking statements include, but are not limited to, statements regarding emergence of the world from the COVID-19 pandemic and the Company’s belief that it is positioned to respond to evolving uncertainties related thereto, the Company’s shifting of its focus to new challenges presented by (i) scarcity and rising cost for raw materials and transcontinental freight, (ii) the weakening U.S. Dollar, (iii) shifts in global sourcing patterns and (iv) general inflationary pressures, economic conditions, sales growth, price increases, profit improvements, product development and marketing, operating expenses, cost savings, acquisition integration, operational synergy realization, global sourcing, political uncertainty, cash flow, debt and currency exchange rates. Any forward-looking statements contained herein are based on current expectations and beliefs, and are subject to a number of risks and uncertainties. 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.

Q.E.P. Co., Inc.
Enos Brown
Executive Vice President and
Chief Financial Officer

-Financial Information Follows-

(In thousands except per share data)

  For the Year Ended
  February 28,   February 29,
    2021       2020  
Net sales $ 387,597     $ 393,901  
Cost of goods sold   278,904       289,983  
Gross profit   108,693       103,918  
Operating expenses:      
     Shipping   44,595       43,986  
     General and administrative   28,402       33,778  
     Selling and marketing   25,340       35,860  
     Impairment loss on goodwill         4,041  
     Restructuring   840        
     Other income, net   (1,593 )     (1,035 )
     Total operating expenses   97,584       116,630  
Operating income (loss)   11,109       (12,712 )
Non-operating income (loss)   (24 )     2,370  
Interest expense, net   (1,603 )     (2,441 )
Income (loss) before provision for income taxes   9,482       (12,783 )
Provision (benefit) for income taxes   2,584       (641 )
Net income (loss) $ 6,898     $ (12,142 )
Earnings (loss) per share:      
     Basic $ 2.07     $ (3.64 )
     Diluted $ 2.06     $ (3.64 )
Weighted average number of common      
     shares outstanding:      
     Basic   3,336       3,340  
     Diluted   3,341       3,340  

(In thousands)

  For the Year Ended
  February 28,   February 29,
   2021     2020  
Net income (loss) $ 6,898   $ (12,142 )
Unrealized currency translation adjustments   1,338     (594 )
Comprehensive income (loss) $ 8,236   $ (12,736 )

(In thousands, except par values)

  February 28, 2021   February 29, 2020
Cash $ 10,905     $ 4,999  
Accounts receivable, less allowance for doubtful accounts of $1,059      
     and $475 as of February 28, 2021 and February 29, 2020, respectively   53,183       49,264  
Inventories   67,032       69,061  
Prepaid expenses and other current assets   6,829       4,280  
Prepaid income taxes   736       740  
Current assets   138,685       128,344  
Property and equipment, net   11,398       15,168  
Right of use operating lease assets   16,417       18,320  
Deferred income taxes, net   3,436       4,135  
Intangibles, net   12,454       13,871  
Goodwill   2,493       2,288  
Other assets   2,840       2,824  
Total Assets $ 187,723     $ 184,950  
Trade accounts payable $ 40,900     $ 31,114  
Accrued liabilities   23,475       19,366  
Current operating lease liabilities   5,196       5,262  
Lines of credit   21,010       40,107  
Current maturities of notes payable   3,417       3,399  
Current liabilities   93,998       99,248  
Notes payable   9,438       7,854  
Non-current operating lease liabilities   12,336       14,121  
Deferred income taxes   172       114  
Other long term liabilities   851       872  
Total Liabilities   116,795       122,209  
Preferred stock, 2,500 shares authorized, $1.00 par value; 0 shares      
     issued and outstanding at February 28, 2021 and February 29, 2020          
Common stock, 20,000 shares authorized, $.001 par value;      
     4,005 and 3,827 shares issued, and 3,309 and 3,139 shares outstanding      
     at February 28, 2021 and February 29, 2020, respectively   4       4  
Additional paid-in capital   11,251       11,087  
Retained earnings   71,785       64,887  
Treasury stock, 696 and 688 shares held at cost at February 28, 2021      
     and February 29, 2020, respectively   (9,082 )     (8,869 )
Accumulated other comprehensive income   (3,030 )     (4,368 )
Shareholders’ Equity   70,928       62,741  
Total Liabilities and Shareholders’ Equity $ 187,723     $ 184,950  

(In thousands)

  For the Year Ended
  February 28, 2021   February 29, 2020
Operating activities:      
Net income (loss) $ 6,898     $ (12,142 )
Adjustments to reconcile net income to net cash      
     provided by operating activities:      
    (Gain)/loss on sale of businesses   24       (2,370 )
     Gain on sale of property   (1,066 )     (10 )
     Impairment loss on goodwill         4,041  
     Restructuring   (453 )      
     Depreciation and amortization   4,492       4,754  
     Other non-cash adjustments   523       273  
Changes in assets and liabilities, net of acquisitions:      
     Accounts receivable   (3,168 )     2,975  
     Inventories   2,102       19,480  
     Prepaid expenses and other assets   (3,137 )     9,331  
     Trade accounts payable and accrued liabilities   18,632       (18,018 )
Net cash provided by operating activities   24,847       8,314  
Investing activities:      
     Acquisitions   (461 )     (1,324 )
     Capital expenditures   (811 )     (1,339 )
     Proceeds from sale of businesses   200       4,663  
     Proceeds from sale of property   3,285       401  
     Purchase of equity securities         (1,900 )
Net cash provided by investing activities   2,213       501  
Financing activities:      
     Net repayments under lines of credit   (20,621 )     (8,397 )
     Net repayments of notes payable   (599 )     (1,408 )
     Purchase of treasury stock   (120 )     (155 )
     Principal payments on finance leases   (96 )     (21 )
Net cash used in financing activities   (21,436 )     (9,981 )
Effect of exchange rate changes on cash   282       (302 )
Net decrease in cash   5,906       (1,468 )
     Cash at beginning of period   4,999       6,467  
Cash at end of period $ 10,905     $ 4,999  
(In thousands, except shares data)    
                      Other   Total
  Preferred Stock   Common Stock   Paid-in   Retained   Treasury   Comprehensive   Shareholders’
  Shares   Amount   Shares   Amount Capital   Earnings   Stock   Income   Equity
Balance at February 28, 2019   $   3,820,785   $ 4   $ 10,963   $ 77,029     $ (8,700 )   $ (3,774 )   $ 75,522  
Net loss                       (12,142 )             (12,142 )
Other comprehensive income (loss)                               (594 )     (594 )
Issuance of common stock in connection with exercise of stock options         5,857         124                 124  
Purchase of treasury stock                           (169 )         (169 )
Balance at February 29, 2020       3,826,642     4     11,087     64,887       (8,869 )     (4,368 )     62,741  
Net income                       6,898               6,898  
Other comprehensive income (loss)                               1,338       1,338  
Purchase of treasury stock                           (213 )         (213 )
Stock-based compensation expense                   164                 164  
Stock dividends         178,728                          
Balance at February 28, 2021   $   4,005,370   $ 4   $ 11,251   $ 71,785     $ (9,082 )   $ (3,030 )   $ 70,928