AMCON Distributing Company — Q2 FY2023 Form 10-Q
Reporting period: Three and six months ended March 31, 2023; balance-sheet comparisons are with September 30, 2022. AMCON distributes consumer products through its wholesale segment and operates 18 natural-food retail stores. Reported sales include cigarette and tobacco excise taxes.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Sales | $585.0 million | $391.9 million | $1,151.0 million | $814.5 million |
| Gross profit / margin | $41.1 million / 7.0% | $26.7 million / 6.8% | $76.1 million / 6.6% | $53.6 million / 6.6% |
| Operating income | $5.3 million | $3.9 million | $10.8 million | $7.7 million |
| Interest expense | $2.2 million | $0.2 million | $3.9 million | $0.6 million |
| Net income available to common shareholders | $2.1 million | $3.0 million | $4.7 million | $6.0 million |
| Diluted EPS | $3.49 | $5.19 | $7.94 | $10.33 |
| Operating cash flow | Not separately provided for the quarter | $42.9 million | $13.8 million |
- Q2 sales rose 49.3%, while net income fell 31.3%; six-month sales rose 41.3%, while net income fell 21.9%. Sales growth was driven substantially by the Team Sledd and Henry’s acquisitions and supplier price increases, rather than solely by comparable-volume growth.
- Wholesale Q2 sales increased 51.2%, with gross margin improving to 6.5% from 5.8%. Retail Q2 sales declined 8.6% and gross margin fell to 35.6% from 38.1%. For the six months, retail sales declined 11.2% and the segment recorded a $95,000 operating loss.
- Six-month operating cash flow benefited from working-capital movements, notably a $19.8 million inventory reduction and a $10.5 million increase in accounts payable. Investing cash outflow was $57.6 million, including the $55.0 million Henry’s acquisition; capital expenditures were $2.8 million.
Financial position and material developments
- At March 31, cash was $0.8 million, current assets $211.7 million and current liabilities $81.8 million. Accounts receivable were $65.9 million and inventories $130.9 million.
- Credit-facility borrowings were $103.1 million; long-term debt, including current maturities, was $15.5 million. The facilities’ collateral-based combined limit was $197.6 million, with $94.5 million available. The stated aggregate facility capacity was $290.0 million. Average facility borrowing rate was 6.49%; six-month average borrowings were $120.7 million. AMCON reported compliance with financial covenants.
- Henry’s was acquired on February 3 for approximately $55.0 million cash, funded through bank borrowings. It contributed $44.0 million revenue and a $91,000 net loss from acquisition through March 31. Purchase-price allocation is provisional and could change materially during the measurement period.
- Property and equipment increased to $75.4 million from $48.1 million, largely reflecting the acquisition. Total assets rose to $320.5 million from $289.1 million.
- Subsequent to quarter-end, Team Sledd membership interests were redeemed, increasing AMCON’s ownership from approximately 56% to 64%.
Outlook, risks and other matters
- No quantified earnings or revenue guidance is provided. Management says results remain affected by supply-chain and product-availability disruptions, inflation, and higher product, labor, fuel and interest costs, alongside pressure on discretionary spending and retail demand.
- Management warns that potential FDA, state or local restrictions on cigarette, tobacco and vaping products—including menthol—could adversely affect results. Other identified risks include higher interest rates and variable-rate debt, customer credit and collections, labor and fuel costs, acquisition integration, competition, and supply disruptions. The company does not hedge interest-rate or fuel-cost exposure.
- Retail sales were affected by Hurricane Ian damage and temporary closure of the Port Charlotte store, as well as two store closures. The filing says liquidity is expected to be adequate, but a sharp operating-environment change could affect revenue, collections and access to bank credit.
- Management reported effective disclosure controls as of March 31. No legal proceedings or material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Reconcile the dividend disclosures: the statements show $5.18 per share for Q2 and $5.36 for six months, while the equity statement lists a Q2 dividend of $0.18 per share; cash-dividend descriptions also differ on the quarterly amount.
- Assess how much reported growth reflects acquisitions, price increases and excise taxes versus underlying volumes and mix, particularly cigarette-carton trends.
- Track interest expense, variable-rate exposure, facility availability and covenant compliance as acquisition-related debt remains outstanding.
- Follow Henry’s integration and final purchase-price allocation, as well as retail recovery and the status of the hurricane-damaged store.