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Good morning, ladies and gentlemen, and thank you for holding. Welcome to the Q.E.P.'s Financial Results Conference Call for Second Quarter of Fiscal year 2023. [Operator Instructions] My name is Chris, and I will be your conference coordinator today. As a reminder, please note that this call is being recorded.
At this time, I would like to introduce your host for today's call, Stan Berger, Q.E.P.'s Investor Relations representative. Please go ahead.
Thank you, Chris. Good morning, and thank you for joining today's conference call to listen to our discussion of Q.E.P.'s financial results for the second quarter of fiscal year 2023, which were issued in a press release on Monday, October 17. If you have not had a chance to review the press release and our financial statements, they are available on the Investors section of the Q.E.P. website and on the OTC markets website.
I am joined today by Q.E.P.'s Executive Chairman, Lewis Gould; President and CEO of the Americas, Leonard Gould; CEO of International Operations, Paul Boyce; Chief Financial Officer, Enos Brown; and Chief Legal and Administrative Officer, Adam Morgan.
On today's call, Lewis, Len, Paul and Enos will review recent developments as well as the highlights of the second quarter of fiscal 2023. We will then give you an opportunity to ask questions.
Before we begin, we would like to remind you that some of the comments today will include forward-looking statements within the meaning of the U.S. federal securities laws. Actual results may differ materially from those projected or implied due to a variety of factors. We refer everyone to Q.E.P.'s more robust looking statements, disclaimer and discussion of risk factors facing its business in Q.E.P.'s earnings press release and in its filings with the OTC markets.
I will now turn the call over to Q.E.P.'s Executive Chairman, Lewis Gould. Lewis?
Stanley, thank you very much, and welcome to all our investors, directors and stakeholders. It's all appreciated. By now, we hope that most of the investors and the people who are shareholders have had a chance to review our October 17 results. The press release has been out for quite some time now.
So the fiscal review in my comments, I hope that you can refer to the printed documents. In the future, what we would like is to be more accurate if you find enough to e-mail any questions or comments before the meeting, and we'll address those.
As you know, in the prior quarter, the headwinds have been rather severe. Everything from inbound freight, prime rate, FX, inventory shortages, et cetera, all seem to come together at 1 point, which were reflected in the numbers. I do want to tell you that your company is taking steps to mitigate each of these areas and make sure that we remain not only competitive, but we remain as a robust company.
I do want to tell the stakeholders that we have comfort with our suppliers and our banking relationships, we feel comfortable as we go forward. What I'd like to do in this meeting is turn the specific areas over to Leonard and Paul and then Enos will have some very, very brief remarks, and then we'll open this up for questions.
But I think everyone is aware of what's going on with the margin compressions, it's just a difficult environment. But I want you to be assured that the company is looking very carefully at the future to mitigate all of these problems. Please refer again to our October 17 note.
So at this point, I'd like to turn this over to Leonard for his comments, followed by Paul.
Good morning. I'd like to start by thanking our customer, vendor and financial partners and also by recognizing the hard work of the many dedicated people at Q.E.P. across the globe, quite a few who are on the call right now listening to us.
At the end of the day, our customer is great and small, they understand our track record of innovation, especially in some very old categories. But more importantly, the trust that we're going to deliver upon that innovation. And for us, that flow really doesn't stop. So I look at the inventory, it's -- it's high, but we leaned into inventory as a strategic decision to keep our customer shelves full.
And so while we see some mitigation out there, the inventory is based at a higher cost, and that was part of our decision to connect the dots between ourselves, our customers and the Pro installer because at the -- with the tumultuous economy out there, the 1 shining light that continues to hold across industry wise is the commercial and industrial business. So for us to tap into that is something that's very near and dear to us and something that we're working on. Paul?
Okay. Good morning, everyone. I hope you're all well. A quick update from an international perspective. Overall, international operations strengthened as we close out quarter 2. We're able to rebalance the sales with the movement of purchase orders and inventory into certain major clients as we finish those few months. You've probably seen FX across both sectors is volatile. The teams work hard with all our key partners, many of them to rebalance some of our needs on that. As well as FX, the economy and politics, particularly in Europe, of course, of volatility. However, developed in the last few days have gone some way to stabilize this, but there's a lot more that needs to be done there.
All of the international operations have many initiatives on the [ tile, wood ] customers in terms of new categories, expanded sales channels and operational requirements, and that's including some supply chain and logistics improvements warehousing, et cetera, which are underway.
So wrapping up a solid set of results through quarter 2 for International in line with the plan. And we will -- I will then hand back to you, Lew, I think.
Len and Paul, thank you very much. Just some very brief comments from our Chief Financial Officer.
Good morning, everyone. It's pleasing to see that despite the challenges of the current environment, we were able to maintain our track record of year-over-year sales growth albeit at a lower rate than the previous year.
As the supply chain improves, we will begin to see and have the ability to reduce our safety stock to levels before the volatility of the supply chain, which should result in a reduction in inventory investment and with the associated repayment of debt. I think as everybody is aware, inflation generally and energy cost specifically remain a concern, both on the supply and the demand side.
I'll hand over now to you, Lewis.
Thank you very much, Enos. Appreciate it. We'll turn this over, and we'll open this up for questions in just a moment. Just a few comments. We report quarterly, which is very difficult for us right now. We are asking the Board to review our communications policy, perhaps we should do this twice a year, but there'll be some information forthcoming after our next board meeting.
We appreciate it. I can tell you that the company is diligently looking at all the strategic objectives that we've made from the prior year, many of them, unfortunately, are competitive, and we're not able to be very specific about it.
But I can tell you that we did consolidate successfully many of our warehouses into 1. And we heard some good news yesterday that although we consolidated 4 warehouses, the variances on counting all of the stock and the inventory turned out to be slightly positive, in fact. And so we're pleased with shipping out of our new warehouse. It's working. And it was probably the right strategic decision for us.
So now I'd like very much to open this up for any questions, operator, and we'll try to be more specific in any of the questions that you have.
[Operator Instructions] And our first question comes from Jamie Wilen from Wilen Management.
Could you discuss a little bit with what's happening with Home Depot over -- about a year ago, you started to increase the number of days from 1 to 2 in a number of Home Depot. And could you talk about that rollout, where it stands and where you would expect it to be over the next 6 to 9 months?
Jamie, it's Len here. Actually, we don't comment on specific customers 1 way or the other. I mean that's a phenomenal customer of ours, and there is growth there, but not prepared to discuss our strategy there at this call.
Have you made any more progress in expanding the number of days that we're 1 day and are now 2 days?
I can tell you that we're very pleased with the plans that we have to expand that business.
Okay. You have a number of businesses which are noncore, nonflooring-related. Could you talk about any thought process of possibly divesting of those if you can get reasonable prices. I'm thinking specifically about Imperial, which does a lot of roofing cement with hurricanes. You see a lot of blue tarps on all the roofs if you fly over Florida. And they should be performing rather well. But could you talk about the divestment opportunities of Imperial as well as the other noncore businesses?
First of all, thank you for the question. We are going through a strategic review of everything we do, not only the businesses. And at this point in time, we've identified certain targets that we're looking at to make decisions on, because it involves our employees and banking relationships. We'd rather not at this conference call, go through the specifics. But in the next quarter, we'll be able to answer the questions.
We have other subsidiaries that are located throughout the United States that we're looking at very, very carefully. I can tell you is Imperial anecdotally. It's 1 of our best performers, and we're in the process right now of opening up another manufacturing and distribution center in Texas, which should be online by the new year.
I can tell you that it's very akin to our businesses because they -- every swimming pool that they sell has tile in it, and there are tile tools, et cetera. So there'll be more to come on that shortly, but I can assure you that we're looking at financially, strategically every subsidiary that we have to make the correct decisions, which you will hear about in the form of a press release and certainly our comments at the next quarter.
Lew, could you talk about historically the incredible level of flooding with the hurricane, how quickly does that translate into increased flooring business? And how large could that increase be?
As a general rule, what happens is you have a flooded property, the floor is probably the last thing you do because you got to take off the drywall, fix the roof, et cetera, et cetera. So typically, there's a lag time that it may be depending on the level of government activity, et cetera, at least about 6 months, and then we'll start to see the product coming through.
The West Coast is, as you know, floor was really devastated and there was a very large number of homes. And I would think that most people want to get rid of the floors, no matter what even if they've been slightly water damaged, they probably have odors and other stuff. So I think that, that will be very helpful for us as we go forward, but it isn't going to happen in the next quarter or 2.
Okay. And on the Harris Wood business, could you talk about the status of that? Are we picking up any new accounts? How is their volume again Harris Wood?
Leonard?
Yes, Jamie, I really don't want to comment on the volume. I would tell you though that the wood category as a general statement has emerge from the pandemic as a different category than it was going into the pandemic.
So with the rise of various types of plastic and vinyl floors, it's pushed hardwood flooring up the continuum. So we're evolving to essentially play in a new sandbox, if you will, where while the market may be smaller, the opportunity is much larger. So that's in process as well, with the American hardwood species we manufacture.
Could you clarify what the opportunities may be larger or what are you specifically referring to?
Well, I'm specifically referring to that -- it's the days of trying to compete at an opening price point with hardwood, those days are over, at least in my opinion, they're over, because you're competing with a product that's much less expensive to produce, procure, to install, to maintain, et cetera, et cetera, et cetera. So it's pushed wood up into a higher level of competition, if you will, so it's much more demanding at the fashion and performance than it's ever been before for hardwood.
But by that same token, you're never going to see a real estate ad that says, "Oh, and by the way, beautiful vinyl throughout the house". So that tells you where our target has to be. So we are experimenting with species, looks, mixes, lengths, widths, et cetera, formats, waterproofing features because for us, nobody needs us to be the $0.02 cheaper alternative. What they need is an American hardwood innovator that's going to make them money. So that's where we're moving towards.
Okay. Internationally, could you discuss the -- where things are currently and where they have been U.K. and Australia specifically and as well as I thought we were starting to roll out the Spanish tile in Australia is that continuing as well.
Hi, Jamie. It's Paul. Yes, I'll pick that up. Correct, Jamie, on the tower program. That's actually performing really well at store level. In the last 4 months, we've seen retail sales double digits out of the tills which is really good. So that program is situated in all the stores now.
The -- flipping over to Europe. Obviously, what I mentioned earlier on in terms of the economy, it's put widely published with the downturn there. But saying that, our operations have performed quite strong. We've got some softening in Germany and France. We're looking at moving some of the operations in terms of warehousing and inventory into potentially a different partner in Germany, which could be good for us. So overall, everything seems to be on plan.
And our next question comes from David Cohen from Minerva Advisors.
I'd like to drill down a little on the observation about working capital release going forward. I'd sort of like to get a order of magnitude with regard to the safety stock and how much worth of safety stock is likely to be released over the next 6 to 12 months? That's number one.
Number two is, is there a -- also a working capital reduction that we can expect to benefit from with regard to the warehouse consolidation?
This is Enos. So in -- I'll answer the question probably within a 6-month time frame. And the safety stock benefit of the consolidation is included in the response because that is factored into our working capital projections. And we're expecting within the next 6 months to see a reduction in our inventory of 10% to 15%, driven by a combination of the fact that fewer warehouse locations, fewer locations carry in safety stock as well as improvements in the supply chain.
Okay. And I guess my second comment is a comment, not a question. I am not a big fan of the idea of moving to semiannual reporting. I think it's sort of moving in the wrong direction. And I think as long as you have a stock, which trades daily, hourly, the idea of only reporting semiannually is not a great idea from my perspective. Thanks. If you have any response, I'll be interested to hear it. Otherwise, best of luck in the post-storm era.
Thank you very much. Well, we will have the next conference call after that, the Board will decide. Our annual meeting is coming up shortly. And look for us on our press release as well try to make sure since I'm an investor also and a shareholder, I certainly want to see only good things happen, but we appreciate all the support that we've had in the past. Are there any further questions that we could answer?
And I am showing no further questions at this time. I'd like to go ahead and turn it back to Lewis Gould from -- for closing comments.
First of all, we want to thank everybody. It's a difficult economic environment for every company. I looked at the reporting this morning. I was not surprised there's a general slowdown. I can't tell you that we've been through a couple of wars. We've been through recessions and everything else. And lo and behold, we're going on our 47th year. So I feel on a personal level, only some comfort.
I do want to tell you that the team has been working quite hard. We have a good strategic plan as we go forward. And I want to tell you that although we're only $0.5 billion in sales, we're a pretty tough competitor. We want to thank, certainly, all the partners that we have, our banks, our suppliers, our customers for having faith in us, and we are not going to let that faith down.
So let me close by saying god bless America, and we look forward to seeing you shareholders and stakeholders very shortly. Thank you.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.