AMCON Distributing Company — Q1 FY2024 10-Q
Reporting period: Three months ended December 31, 2023, compared with the three months ended December 31, 2022. AMCON operates wholesale consumer-products distribution and natural/health-food retail businesses. The wholesale segment serves about 7,000 outlets; the retail segment operates 15 stores. The quarter’s results include Henry’s Foods, acquired in Q2 FY2023.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Sales | $645.0 million | $566.0 million | +14.0% |
| Gross profit / margin | $43.3 million / 6.7% | $35.0 million / 6.2% | +23.8% gross profit |
| Operating income | $3.8 million | $5.5 million | -30.7% |
| Interest expense | $2.3 million | $1.7 million | +36.4% |
| Net income available to common shareholders | $1.1 million | $2.6 million | -59.3% |
| Diluted EPS | $1.78 | $4.46 | Down 60.1% |
| Operating cash flow | $5.0 million | $(48.5) million | Improved by $53.5 million |
| Capital expenditures | $3.9 million | $1.5 million |
Wholesale revenue grew 14.1% to $634.3 million; wholesale gross margin increased to 6.2% from 5.6%. Retail revenue rose 4.2% to $10.7 million, and retail gross margin was 36.9% versus 36.0%. Consolidated operating expenses increased 34.1% to $39.5 million, outpacing gross-profit growth. The filing attributes the increase mainly to Henry’s, employee compensation and benefits, credit-loss expense and insurance.
Liquidity, debt and balance sheet
- Cash was $1.0 million at December 31, 2023. Current assets were $243.4 million and current liabilities were $72.8 million.
- Credit facilities had a $228.6 million collateral-based credit limit, with $140.1 million outstanding and $88.5 million available at quarter-end. The average facility interest rate was 7.17%; borrowings are at prime or SOFR-based rates.
- Long-term debt and current maturities totaled approximately $13.1 million; together with facility borrowings, reported debt was approximately $153.2 million, excluding lease liabilities and mandatorily redeemable non-controlling interest.
- Total assets were $362.4 million and shareholders’ equity was $106.9 million. The company reported compliance with facility financial covenants and no cross defaults at December 31.
- Operating cash flow was positive, while investing cash flow was $(3.8) million, primarily reflecting property and equipment purchases. Financing cash flow was $(1.0) million. Prior-year operating cash outflow was largely associated with a $50.7 million inventory-related use of cash.
Material changes and unusual items
- Henry’s contributed $78.7 million of wholesale sales growth and $9.0 million of gross-profit growth, while adding $7.8 million of operating expenses. Management says it continues to integrate Henry’s and evaluate growth and geographic expansion opportunities.
- Wholesale sales also benefited from $26.3 million of cigarette manufacturer price increases and $5.0 million of higher sales in tobacco, confectionery, foodservice and other products. These gains were partly offset by a $31.5 million decline in cigarette-carton sales volume and mix.
- Higher interest rates and Henry’s-related debt contributed to the $0.6 million increase in interest expense. Other income included an insurance recovery; the filing does not specify its amount.
- The fair-value liability for Team Sledd’s mandatorily redeemable non-controlling interest increased by $0.2 million and totaled $9.7 million at quarter-end, including $1.8 million classified as current. Its valuation uses Level 3 unobservable assumptions.
- AMCON declared a $0.28-per-share special dividend during the quarter, approximately $0.2 million, paid in Q2 FY2024. Cash dividends paid during the quarter totaled approximately $0.1 million.
Outlook, risks and other disclosures
The filing provides no numerical earnings or revenue guidance. Management says liquidity should be adequate to sustain operations in the short and long term, but cautions that a sharp change in operating conditions could affect revenue, receivable collections and access to bank credit. It cites sustained inflation, supply-chain disruption, reduced consumer discretionary spending and higher product, labor, equipment and financing costs. AMCON does not currently hedge interest-rate or fuel-cost exposure.
Management is monitoring potential FDA and other restrictions on cigarettes, e-cigarettes, tobacco and vaping products, including menthol cigarettes; restrictions could reduce product availability, demand, revenue and margins. Other disclosed risks include variable-rate borrowing costs, customer credit risk, labor and transportation costs, competition, retail repositioning, acquisition integration, and cyber or operational disruptions. The company adopted the expected-credit-loss accounting standard in October 2023; adoption had no material effect. Management concluded disclosure controls were effective at December 31, 2023. The filing reports no legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of sales and gross-profit growth is sustainable after separating Henry’s, supplier price increases and product-volume changes.
- Whether expense growth, especially compensation, credit losses and integration costs, moderates enough to improve operating income and earnings.
- Facility availability and borrowing costs as interest rates, eligible receivables and inventory collateral change; verify debt maturities and covenant compliance.
- Potential effects of FDA or other tobacco-product restrictions, inflation and customer credit conditions on demand, margins and cash generation.
- The assumptions underlying the Level 3 Team Sledd redemption liability and the timing and cash impact of future redemptions.