AMCON Distributing Company — Form 10-Q summary
Reporting period: Second fiscal quarter ended March 31, 2022; comparisons are with the three and six months ended March 31, 2021. AMCON distributes consumer products through its wholesale segment and operates 20 natural and health food stores through its retail segment. Reported sales include excise taxes.
Financial results
| Metric | Three months ended March 31, 2022 | Year-over-year change | Six months ended March 31, 2022 | Year-over-year change |
|---|---|---|---|---|
| Sales | $391.9 million | +3.5% | $814.5 million | +4.0% |
| Gross profit | $26.7 million | +16.1% | $53.6 million | +15.5% |
| Gross margin | 6.8% | 6.1% prior year | 6.6% | 5.9% prior year |
| Operating income | $3.9 million | +24.4% | $7.7 million | +6.1% |
| Net income | $3.0 million | +23.8% | $6.0 million | +9.1% |
| Diluted EPS | $5.19 | $4.33 prior year | $10.33 | $9.87 prior year |
For the quarter, wholesale sales rose 3.6% and retail sales 0.9%. Wholesale gross margin improved to 5.8% from 5.0%; retail gross margin was 38.1%, unchanged. For the six-month period, wholesale gross margin was 5.6% versus 5.0%, and retail gross margin was 38.2% versus 37.5%. Higher wholesale sales and gross profit were concentrated in tobacco, confectionery, foodservice and other products; cigarette carton volume and mix reduced sales.
Operating expenses increased $2.9 million for the quarter and $6.7 million for six months. Management attributed much of the increase to employee compensation and benefits ($1.8 million quarterly; $4.8 million six-month), with higher fuel and insurance costs also contributing. Interest expense declined year over year, while income tax expense rose; management cited higher nondeductible compensation and effective tax rates above statutory rates.
Cash flow, balance sheet and liquidity
- Operating cash flow: $13.8 million for six months, down from $21.3 million. Inventory reductions provided $4.8 million of cash, compared with $17.8 million in the prior-year period.
- Investing cash flow: $0.7 million used, including $1.0 million of property and equipment purchases.
- Financing cash flow: $13.1 million used, including $3.2 million of dividends and net revolving-credit repayments of approximately $8.5 million. Cash ended at $0.5 million.
- Working capital: Current assets were $130.5 million and current liabilities $45.4 million at March 31, 2022; current ratio was approximately 2.9.
- Debt: Credit-facility borrowings were $35.2 million; current and long-term debt totaled approximately $5.3 million. The facility had $70.8 million available against a $106.0 million borrowing limit, subject to collateral-based limits. Average facility interest rate was 1.76%; maturity is March 2025.
- Other balance-sheet items: Operating lease liabilities totaled approximately $16.6 million. AMCON held $10.5 million in its 49%-owned Team Sledd equity-method investment and recognized $1.4 million of related earnings, net of tax, for six months.
Changes, outlook and risks
Results improved year over year, with gross profit growing faster than sales, but higher operating costs limited the six-month increase in operating income. Management reported continuing supply-chain and product-availability challenges, inflationary cost pressures, higher fuel costs and a competitive labor market. Consumer demand had remained elevated since the pandemic, but management said it was unclear whether those trends would persist, particularly as inflation could pressure discretionary spending.
The filing provides no specific earnings or revenue guidance. Management stated that it believes liquidity is adequate for short- and long-term operations, while warning that a sharp change in operating conditions could affect revenue, customer collections and access to bank credit. Other identified risks include proposed FDA restrictions on menthol and flavored tobacco products, tobacco regulation and taxes, competition, labor availability, fuel and commodity costs, supply disruptions, customer credit risk, and technology and cybersecurity risks. The company does not hedge interest-rate or fuel-cost exposure. No legal proceedings or material changes to previously disclosed risk factors were reported. Disclosure controls were deemed effective; no material internal-control changes were reported.
AMCON paid $3.2 million in dividends during the six-month period. The statements show $0.18 per share for the March 2022 quarter versus $5.18 in the comparable 2021 quarter, while six-month dividends were $5.36 per share in both periods; the filing attributes the 2021 difference to dividend timing and amount rather than explaining it in the summary disclosure.
Important facts for investors to verify
- Whether sales and elevated consumer demand persist, and the extent to which cigarette volume and product mix affect wholesale results.
- Whether wage, fuel, insurance and supply-chain cost increases continue to outpace gross-profit growth.
- Facility availability and covenant headroom if eligible receivables or inventory decline; the fixed-charge coverage covenant applies when availability falls below its stated threshold.
- The potential financial impact of FDA action on menthol or flavored tobacco products and other tobacco-related regulation or taxes.
- The dividend-per-share presentation and timing, given the quarter-versus-six-month amounts disclosed.