AMCON Distributing Company — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended March 31, 2021; fiscal year ends September 30. Comparisons are with the corresponding 2020 periods. AMCON operates wholesale consumer-products distribution and 21 natural/health-food stores. Sales include excise taxes.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Sales | $378.5M | $337.9M | $783.3M | $698.0M |
| Gross profit / margin | $23.0M / 6.1% | $20.7M / 6.1% | $46.4M / 5.9% | $41.5M / 6.0% |
| Operating income | $3.2M | $1.4M | $7.3M | $2.6M |
| Net income | $2.4M | $0.7M | $5.5M | $1.2M |
| Diluted EPS | $4.33 | $1.22 | $9.87 | $2.02 |
- Quarterly change: Sales grew 12.0% and net income rose 247.3%. Gross margin was unchanged; operating expenses increased 2.6%, while interest expense declined 19.8%.
- Six-month change: Sales grew 12.2% and net income rose 378.3%. Gross margin slipped to 5.9% from 6.0%, while operating expenses were nearly flat and interest expense fell 20.1%.
- Segments, Q2: Wholesale sales rose 12.7% to $366.2M, with gross profit up 13.1% to $18.3M and a 5.0% gross margin. Retail sales fell 5.3% to $12.3M, but gross profit increased 3.5% to $4.7M and margin improved to 38.1% from 34.9%.
- Cash flow, six months: Operating cash flow was $21.3M versus $20.4M; investing outflow was $0.7M versus $2.2M; financing outflow was $20.6M versus $17.8M. Cash ended at $0.6M, down $45,000.
Balance sheet, debt and liquidity
- At March 31, 2021, cash was $0.6M, current assets $120.9M and current liabilities $41.2M, for working capital of approximately $79.7M. Total assets were $171.5M, down from $188.0M at September 30, 2020, primarily alongside lower inventory.
- Credit-facility borrowings were $42.1M, down from $62.0M at September 2020. Long-term debt, including current maturities, totaled $5.9M; total borrowings were approximately $48.0M. The facility had $53.6M available against a borrowing limit of $95.7M; its average interest rate was 1.85%.
- Operating cash flow benefited from a $17.8M inventory reduction. Management notes cash flows vary with inventory timing and seasonal purchasing.
- The revolving facility matures in March 2025 and is secured by receivables, inventory, equipment and intangibles. Its fixed-charge coverage covenant applies if availability falls below a threshold; the company reported a trailing-twelve-month ratio above 1.0 and no cross-defaults.
Material developments, outlook and risks
- Wholesale sales growth reflected cigarette manufacturer price increases, cigarette volume and mix, and higher volumes in tobacco, confectionery, foodservice and other products. Retail’s quarterly sales decline was attributed mainly to pantry restocking near the onset of COVID-19 in the prior-year quarter; improved retail margins reflected operational efficiencies and product mix.
- AMCON recognized $0.3M of equity-method earnings in Q2 and $0.6M for six months from its Team Sledd investment. It held approximately 44% at quarter-end; subsequent to quarter-end, redemptions increased its ownership to approximately 49%. The investment’s carrying value was $7.6M, and a related secured loan was $3.5M.
- Dividends paid were $3.0M in Q2 and $3.1M for six months, compared with $0.3M and $0.4M in the prior-year periods. Reported dividends per share were $5.18 for Q2 and $5.36 for six months; the filing also describes a regular $0.18-per-share quarterly dividend. Verify the timing and nature of the substantially higher per-share amounts.
- No specific financial guidance was provided. Management said both segments continued operating as essential suppliers, but the pandemic’s longer-term effects remain uncertain; further demand or supply-chain disruption could harm financial results. Other cited risks include competition, labor and operating costs, tobacco regulation and demand, customer credit, inflation, and retail repositioning.
- Management reported effective disclosure controls as of March 31, 2021, with no material internal-control changes during the quarter. The filing reported no legal proceedings and no material changes to previously disclosed risk factors.
Investor verification checklist
- Reconcile the reported $5.18 Q2 and $5.36 six-month dividends per share with the regular $0.18 quarterly dividend and cash dividends disclosed.
- Assess whether wholesale growth from pricing and volume is sustainable, and track the retail sales trend and margin improvement.
- Review facility availability, collateral-based borrowing limits, seasonal inventory needs and covenant headroom.
- Evaluate Team Sledd’s earnings contribution, subsequent ownership increase and the terms and recoverability of the related loan.
- Monitor COVID-19-related supply, demand and customer-credit risks, as well as the company’s exposure to interest-rate and fuel-price movements, which it does not hedge.