AMCON Distributing Company — Q1 Fiscal 2022 10-Q
Reporting period: Three months ended December 31, 2021. AMCON operates a wholesale consumer-products distribution business and 20 natural-food retail stores. Comparisons below are against the three months ended December 31, 2020, unless otherwise noted.
Financial results
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Sales, including excise taxes | $422.6 million | $404.7 million | +4.4% |
| Gross profit | $26.9 million | $23.5 million | +14.8% |
| Gross margin | 6.4% | 5.8% | +0.6 percentage points |
| Operating income | $3.8 million | $4.1 million | -8.1% |
| Net income | $3.0 million | $3.1 million | -2.5% |
| Diluted EPS | $5.18 | $5.57 | Lower |
| Operating cash flow | $(0.6) million | $26.7 million | Decrease |
Sales include excise taxes of $97.1 million in Q1 FY2022 and $100.5 million in Q1 FY2021. Approximate operating margin was 0.9% versus 1.0%, and net margin was 0.7% versus 0.8%. Equity-method earnings from Team Sledd, net of tax, rose to $0.8 million from $0.3 million.
Business and performance changes
- Wholesale sales increased 4.3% to $410.6 million; wholesale gross profit rose 15.5% to $22.4 million, with gross margin improving to 5.4% from 4.9%.
- Retail sales increased 7.0% to $11.9 million; retail gross profit rose 11.2% to $4.6 million, and gross margin improved to 38.2% from 36.7%. Existing-store sales and product mix contributed to growth.
- Management attributed wholesale sales growth to cigarette price increases and higher volumes in tobacco, confectionery, foodservice and other products, partly offset by lower cigarette carton volume and mix.
- Operating expenses increased $3.8 million, including higher employee compensation and benefits, insurance, and fuel costs. Management cited competitive labor conditions and higher wage levels as significant drivers.
Cash, debt and liquidity
- Cash was $0.8 million at December 31, 2021, versus $0.5 million at September 30, 2021. Current assets were $134.3 million and current liabilities $38.3 million.
- Operating cash flow was negative $0.6 million. Working-capital movements included a $2.6 million inventory cash use and a $5.8 million reduction in accounts payable; accounts receivable provided $5.1 million. The prior-year operating cash inflow was strongly affected by working-capital movements, including a $31.0 million inventory-related source.
- Revolving credit borrowings were $48.4 million. The borrowing base-adjusted limit was $109.5 million, leaving $61.1 million available. Average facility interest was 1.40%; the facility matures in March 2025.
- Long-term debt, including current maturities, was approximately $5.5 million. Total borrowings under the revolver and long-term debt were approximately $53.9 million.
- The company reported a trailing-twelve-month fixed-charge coverage ratio above 1.0 and no cross-defaults. It said liquidity should be adequate, while warning that operating disruption could affect revenue, collections or access to bank credit.
Outlook, risks and notable items
- No quantified financial guidance was provided. Management said it remained cautious despite strong operating results, citing Omicron-related staffing pressure, disrupted supply chains, product inflation, and uncertainty over whether elevated demand would persist.
- Management warned that labor shortages, wage inflation, supply constraints, increased operating costs, and potential workplace mandates could materially adversely affect operations and financial results.
- The company paid a $5.00-per-share special dividend, approximately $3.0 million, during the quarter, in addition to its $0.18-per-share regular dividend. The prior-year $5.00 special dividend was paid in the following quarter.
- Equity-based compensation expense was approximately $0.7 million, compared with $0.3 million a year earlier. The company recognized a $1.2 million deferred income tax expense adjustment in cash-flow reconciliation.
- No legal proceedings or material changes to previously disclosed risk factors were reported. Management concluded disclosure controls were effective as of December 31, 2021.
Key facts for investors to verify
- Whether gross-profit growth can continue to offset rising labor, insurance, fuel and other operating costs, given the decline in operating income.
- Whether sales growth reflects durable demand or temporary pandemic-related patterns, and how cigarette volume and product mix evolve.
- Whether supply availability and workforce constraints affect fulfillment, costs and customer demand.
- How operating cash flow and working capital develop after the quarter’s inventory and payable movements.
- Facility availability and borrowing-base capacity under changing receivables and inventory levels, alongside the special dividend and debt obligations.