AMCON Distributing Company — Q1 FY2021 10-Q
Reporting period: Three months ended December 31, 2020; comparisons are with the three months ended December 31, 2019. AMCON operates a wholesale consumer-products distribution business and 21 natural/health-food retail stores.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Sales, including excise taxes | $404.7 million | $360.1 million | +12.4% |
| Gross profit / margin | $23.5 million / 5.8% | $20.8 million / 5.8% | +12.6% profit |
| Operating income | $4.1 million | $1.2 million | +250.4% |
| Net income | $3.1 million | $0.45 million | +581.1% |
| Diluted EPS | $5.57 | $0.80 | Up |
| Cash from operations | $26.7 million | $28.4 million | Down $1.7 million |
Wholesale sales rose 12.5%, while its gross margin edged down to 4.9% from 5.0%. Retail sales rose 10.4%; retail gross margin improved to 36.7% from 32.3%, and the segment’s operating loss narrowed to $0.1 million from $1.1 million. Consolidated operating expenses declined 1.5%. Management attributed higher wholesale sales primarily to cigarette price increases and sales volumes, with higher volumes and mix also supporting other product categories. Retail growth reflected increased sales at existing stores.
Liquidity, debt and capital
- Cash was $0.5 million at December 31, down from $0.7 million at September 30, 2020. Operating cash flow was positive at $26.7 million; inventory reductions were a significant working-capital cash source.
- Revolving credit-facility borrowings were $33.1 million, down from $62.0 million at September 30. The borrowing limit based on collateral was $87.7 million, leaving $54.6 million available. The average facility interest rate was 2.13% at quarter-end.
- Long-term debt, including current maturities, was $6.0 million, versus $3.1 million at September 30; the increase primarily reflects a $3.0 million real-estate loan borrowing. Total assets were $157.7 million, compared with $188.0 million at September 30.
- AMCON declared a $5.00-per-share special dividend, approximately $2.9 million, payable in the second fiscal quarter, in addition to its $0.18-per-share regular dividend. The credit agreement limits distributions unless specified availability and coverage conditions are met.
Material developments, outlook and risks
- AMCON held approximately 44% of Team Sledd, a wholesale distributor, and recognized $0.3 million of after-tax equity-method earnings. Its investment carried at $7.2 million; a separate secured, subordinated loan to the venture was $3.5 million.
- Both segments continued operating as essential suppliers during COVID-19. Management said the effects of prolonged or renewed restrictions on demand, supply chains, warehouse operations and collections could not be predicted.
- The filing provides no quantified earnings or sales guidance. Management said it believed liquidity would be adequate to sustain operations, while warning that a sharp change in operating conditions could affect revenue, collections or access to bank credit. The company does not hedge interest-rate or fuel-cost exposure.
- Risks discussed include pandemic-related disruption, competition and retail repositioning, tobacco regulation and excise taxes, labor and operating costs, customer credit, and online retail competition. The filing reports no material change to previously disclosed risk factors and no legal proceedings.
- The fixed-charge coverage covenant applies if excess availability falls below a specified threshold; management reported the trailing-twelve-month ratio was above 1.0. Disclosure controls were assessed as effective, and no material change in internal control was reported.
Important facts for investors to verify
- Whether the sales and profit gains persist, particularly given the wholesale margin decline and the drivers of cigarette pricing and volume.
- Whether operating cash flow and credit-facility availability remain adequate as inventory and seasonal working-capital needs change.
- The funding and covenant implications of the special dividend, and the amount and timing of future distributions.
- Team Sledd’s performance, AMCON’s subordinated loan exposure, and the anticipated funding of future ownership-interest redemptions.
- The effect of COVID-19, tobacco regulation, customer credit conditions, labor costs and unhedged interest-rate and fuel-cost changes on future results.