AMCON Distributing Company — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; comparable period is fiscal 2020. AMCON operates wholesale distribution and natural-food retail businesses. It reported approximately 4,100 wholesale customers and 20 retail stores.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,672.4 million | $1,521.3 million |
| Gross profit / gross margin | $100.5 million / 6.0% | $87.7 million / 5.8% |
| Operating income | $17.8 million | $9.1 million |
| Net income | $15.5 million | $5.5 million |
| Diluted EPS | $27.36 | $9.76 |
| Cash from operations | $20.9 million | $15.2 million |
- Revenue grew 9.9%. Wholesale sales increased $149.8 million, primarily from manufacturer cigarette price increases and higher sales of other products; retail sales rose $1.3 million.
- Wholesale gross margin improved to 5.1% from 4.9%; retail gross margin rose to 37.8% from 35.0%. Consolidated operating expenses increased about $4.1 million, including higher compensation, insurance and fuel costs.
- Net income included $3.36 million of after-tax earnings from AMCON’s Team Sledd equity-method investment, versus $0.18 million in FY2020. That contribution is distinct from operating income.
- Operating cash flow increased to $20.9 million. Property and equipment purchases were $1.5 million; cash dividends were $3.4 million.
Liquidity, debt and capital
- At September 30, 2021, cash was $0.5 million and working capital was approximately $89.4 million. Current assets were $136.6 million and current liabilities $47.1 million.
- Revolver borrowings were $43.7 million, down from $62.0 million a year earlier. The borrowing base limit was $109.5 million, leaving $65.8 million available. The facility matures in March 2025; the reported average interest rate at year-end was 1.89%.
- Long-term debt, including current maturities, was $5.6 million, compared with $3.1 million in FY2020. The facility’s fixed-charge coverage covenant applies if excess availability falls below 10%; AMCON reported a trailing-twelve-month ratio above 1.0.
- Operating lease liabilities totaled $18.2 million. The company paid $5.72 per common share in dividends during FY2021, versus $1.00 in FY2020.
Material changes, outlook and risks
- Management described FY2021 results as strong but remained cautious about FY2022 and beyond. Pandemic-era demand may return toward historical levels, while supply disruptions, product inflation and labor shortages are raising costs and affecting product availability. No quantified earnings or revenue guidance is provided.
- Cigarettes accounted for about 68% of consolidated revenue but only 16% of gross profit. Declining cigarette demand, tobacco regulation and taxes, manufacturer pricing programs, and potential direct distribution by manufacturers are material exposures.
- AMCON is repositioning its retail business amid intense competition; management says the strategy may include opening new store prototypes. Retail operating income improved to $1.8 million from a $1.8 million loss, but the strategy’s future results remain uncertain. FY2020 included $0.5 million of retail impairment charges; none were reported in FY2021.
- Team Sledd, in which AMCON held approximately 49% at year-end, contributed $3.4 million of after-tax equity earnings. AMCON also had a $3.5 million secured loan to the venture.
- Other disclosed risks include customer credit losses, supply-chain and workforce disruption, inflation, fuel and interest-rate exposure (not hedged), competition, self-insured claims, and goodwill or retail asset impairment. The company reported no legal proceedings and no off-balance-sheet arrangements. A $0.5 million letter of credit supports its workers’ compensation program.
- The independent auditor issued an unqualified opinion on the financial statements and identified goodwill valuation as a critical audit matter. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether pandemic-related demand persists and whether labor, freight and product-cost inflation can be passed through without eroding margins.
- How much of FY2021 earnings growth is repeatable from core operations versus Team Sledd equity-method earnings.
- Team Sledd’s operating performance, distributions, loan repayment prospects and AMCON’s ownership economics.
- Revolver availability under changing receivables and inventory levels, and compliance with facility covenants and cross-default provisions.
- Progress and cash requirements of the retail repositioning strategy, including store-level profitability and impairment assumptions.
- Cigarette concentration and the potential effects of falling volumes, excise taxes, regulation and manufacturer distribution changes.
- AMCON disclosed that shareholders of record were below 300 at September 30, 2021; verify the resulting reporting and NYSE American listing implications described in the filing.