AMCON DISTRIBUTING COMPANY — Form 10-Q Summary
Reporting period: Second fiscal quarter ended March 31, 2015; results compare the three and six months ended March 31, 2015 with the corresponding 2014 periods. Balance-sheet amounts compare March 31, 2015 with September 30, 2014. The company operates wholesale consumer-products distribution and natural-food retail segments.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Sales | $287.4m | $272.4m | $602.9m | $578.0m |
| Gross profit | $17.7m | $17.6m | $37.3m | $37.3m |
| Gross margin | 6.2% | 6.5% | 6.2% | 6.4% |
| Operating income | $1.7m | $1.2m | $4.4m | $3.7m |
| Net income | $0.8m | $0.5m | $2.3m | $1.8m |
| Net income available to common shareholders | $0.7m | $0.5m | $2.2m | $1.7m |
| Basic / diluted EPS | $1.17 / $1.04 | $0.79 / $0.72 | $3.61 / $3.15 | $2.79 / $2.46 |
Reported sales include cigarette and tobacco excise taxes: $87.4m in Q2 2015 and $85.7m in Q2 2014; $184.4m and $183.1m, respectively, for the six-month periods. Sales are reported net of retailer incentives.
Cash flow, liquidity and debt
- Cash from operations: Cash used was $15.5m in the first six months of fiscal 2015, versus $0.04m provided in the prior-year period. The principal use was a $21.9m increase in inventories.
- Investing and financing: Investing activities used $0.6m, primarily for capital spending. Financing activities provided $16.2m, including $16.9m of net credit-facility borrowings. Cash increased $0.09m to $0.19m.
- Working capital: $76.3m at March 31, up from $55.8m at September 30, 2014, largely reflecting seasonal and timing-related inventory purchases financed with additional borrowing. Current assets were $101.2m and current liabilities $25.0m.
- Borrowings: Credit-facility balance was $32.0m, up from $15.1m at September 30; availability was $37.6m against a borrowing limit of $69.6m. The facility’s average interest rate was 2.48%. Long-term debt, including current maturities, totaled approximately $3.9m; the filing reports no cross-defaults.
- The revolving facility matures in July 2018, is secured by company assets, and has a fixed-charge coverage covenant that applies if availability falls below specified levels. Management reported that availability had not fallen below the threshold and the coverage ratio exceeded 1.0.
Changes and segment results
- Q2 sales rose 5.5%, while gross profit increased only 0.6%; six-month sales rose 4.3%, while gross profit was essentially unchanged. Gross-margin compression offset much of the sales growth.
- Wholesale Q2 sales increased 6.1% to $279.2m and gross profit rose 4.4% to $14.2m; its margin edged down to 5.1% from 5.2%. For six months, wholesale sales rose 4.7% and gross profit 2.9%.
- Retail Q2 sales declined 10.4% to $8.2m and gross profit fell 12.2% to $3.5m. Six-month retail sales declined 9.6% and gross profit 11.1%, which management attributed primarily to increased competition and lower store sales volume.
- Operating expenses declined 2.2% in both the quarter and six-month period. Management cited lower wholesale delivery and health-insurance costs and reduced retail operating costs, partly offset over six months by higher compensation and other costs.
Outlook, risks and other disclosures
The filing provides no quantified earnings or revenue guidance. Management said it expects liquidity to be adequate to sustain operations, while noting that a sharp change in operating conditions could affect revenue, collections, and access to bank credit. It described wholesale competition as intense and retail competition as likely to persist or increase. Wholesale priorities include technology, temperature-controlled delivery capacity, and potential strategic acquisitions; retail initiatives include merchandising, marketing, and business reconfiguration.
Risks include tobacco demand and regulation, excise-tax and supplier-price changes, competition, fuel and commodity costs, inventory and customer-credit exposure, retail-store execution, and weather or other disruptions. The company does not hedge interest-rate or fuel-cost exposure. Inventory purchases and seasonal stocking can create substantial cash-flow variability. The filing reports no off-balance-sheet arrangements, no material changes to previously disclosed risk factors, and no legal proceedings. Disclosure controls were deemed effective; no material internal-control changes were reported. Adoption impact of the new revenue-recognition standard was still being assessed.
Important facts for investors to verify
- Whether inventory levels and the associated operating cash outflow unwind as management expects, and how much credit-facility borrowing is required.
- Whether wholesale sales growth translates into sustainable gross-profit growth despite margin pressure.
- Whether retail sales declines and competitive pressures stabilize or worsen.
- Credit-facility availability, collateral-based borrowing limits, covenant headroom, and exposure to interest-rate and fuel-cost movements.
- Effects of tobacco regulation, excise taxes, supplier pricing, and consumer demand on future results; interim results may not indicate full-year performance.