Boca Raton, FL - Q.E.P. Co., Inc. reported its consolidated results of operations for the first quarter of its fiscal year ending February 28, 2014.
The company reported record net sales of $83.4 million for the three months ended May 31, 2013, an increase of $13.6 million or 19.4% from the $69.8 million reported in the same period of fiscal 2013. As a percentage of net sales, gross profit was 28.4% in the first three months of fiscal 2014 compared to 28.9% in the first three months of fiscal 2013.
Lewis Gould, Chairman of the company's Board of Directors, commented: "Sales continue to grow quarter over quarter reflecting the positive contribution of our recent acquisitions as well as modest growth in our core operations in spite of challenging market conditions. With an eye on building net asset value for the long-term, we are continuing to target strategic acquisitions that expand our sales and earnings base. The acquisition of Homelux at the beginning of this fiscal quarter certainly contributed to that objective." Mr. Gould concluded that: "With a focus on further optimizing cash flow, working capital and shareholder value, during the first quarter of the current fiscal year we also completed a sale and leaseback of a facility in Canada and used the cash proceeds to pay down debt."
The growth in net sales for the quarter as compared to the fiscal year 2013 first quarter principally reflects the contribution of both North American and European acquisitions completed during the past twelve months. Excluding acquisitions, net sales increased 3.3% quarter over quarter due to modest sales growth in both North America and certain international operations partially offset by the effects of competitive pricing pressures in North America and, to a lesser degree, international markets.
The company's gross margin was 28.4% for the first quarter of fiscal 2014 as compared to 28.9% for the first quarter of the prior fiscal year. The decrease in margin as compared to the first quarter of the prior fiscal year principally reflects price reductions and product mix changes coupled with cost increases on certain raw materials. In addition, the purchasing power of our international operations weakened as the US dollar strengthened during the first quarter of fiscal 2014.
Operating expenses for the first three months of fiscal 2014 and 2013 were $20.2 million and $16.4 million, respectively, or 24.3% and 23.5% of net sales, respectively. The increase in operating expenses is principally associated with acquisitions, while the increase in operating expenses as a percentage of net sales also reflects increased US direct media marketing costs and increases in personnel costs implemented in the prior fiscal year.
Non-operating income for the first three months of fiscal 2014 represents the gain related to the sale and leaseback of a Company facility in Canada, net of selling costs and the present value of future lease payments.
The provision for income taxes as a percentage of income before taxes for the first three months of fiscal 2014 and 2013 was 22.2% and 36.5%, respectively. The effective tax rate in fiscal 2014 reflects the favorable rate impact of the sale of our Canadian property and the impact of a larger portion of the Company's earnings being sourced in jurisdictions with lower tax rates.
Net income for the first three months of fiscal 2014 and 2013 was $5.1 million and $2.3 million, respectively, or $1.56 and $0.68, respectively, per diluted share.
Earnings before interest, taxes, depreciation and amortization (EBITDA) before non-operating income for the first quarter of fiscal 2014 increased to $4.6 million as compared to $4.4 million for the fiscal 2013 first quarter:
Increased depreciation and amortization charges during fiscal 2014 principally related to acquisitions.
Cash provided by operations was $1.2 million in both the first three months of fiscal 2014 and 2013. Funding for the acquisition of Homelux during the first quarter of fiscal 2014, as well as capital expenditures and the Company's continuing treasury stock program, was provided from a combination of cash from operations, borrowings and proceeds from the sale of a Canadian property. Cash from operations during the first quarter of fiscal 2013 was used to pay down debt and fund the purchase of treasury shares and capital expenditures.
Working capital at the end of the Company's fiscal 2014 first quarter was $24.8 million, a decrease of $13.2 million from $38.0 million at the end of the 2013 fiscal year due to the use of lines of credit to fund the Homelux acquisition. Similarly, aggregate debt at the end of the Company's fiscal 2014 first quarter rose to $34.3 million from $15.3 million at the end of the 2013 fiscal year as a result of the Homelux acquisition. Total debt to equity stood at 0.61 as of May 31, 2013.