AMCON Distributing Company (NYSE:DIT), a leading wholesale distributor and specialty retailer, has reported its financial results for the third quarter of fiscal 2024. While the company achieved a 3.1% year-over-year increase in sales, reaching $717.9 million, its earnings per share (EPS) declined significantly to $2.46 from $6.59 in the prior-year quarter. This drop in profitability can be attributed to the company's rising costs and expenses, which outpaced the revenue growth.

Financials

For the full fiscal year 2023, AMCON reported annual net income of $11.6 million, annual revenue of $2.54 billion, annual operating cash flow of $19.7 million, and annual free cash flow of $8.2 million. These figures demonstrate the company's overall financial strength, despite the challenges faced in the most recent quarter.

In the third quarter of fiscal 2024, AMCON's gross profit increased to $48.0 million, up from $46.9 million in the same period last year. The gross profit margin remained stable at approximately 6.7%, indicating the company's ability to maintain profitability amidst the inflationary environment. However, the company's operating income declined to $5.6 million, down from $7.9 million in the prior-year quarter, primarily due to higher selling, general, and administrative (SG&A) expenses.

The increase in SG&A expenses, which rose 8.3% year-over-year to $39.9 million, can be attributed to several factors. These include higher employee compensation and benefit costs, increased insurance expenses, and additional operating costs associated with the company's recent acquisitions. Additionally, interest expenses increased to $2.9 million, up from $2.4 million in the third quarter of fiscal 2023, reflecting the impact of higher interest rates and increased debt levels.

Recent Developments

Despite the challenges, AMCON's management remains focused on strategic initiatives to drive long-term growth and profitability. The company has continued to invest in technology and distribution capabilities, which are expected to yield benefits in the future, though they currently burden the financials.

One of the key strategic moves made by AMCON during the quarter was the acquisition of Burklund Distributors, Inc. and Richmond Master Distributors, Inc. These acquisitions are expected to expand the company's regional footprint and provide customers with an enhanced range of products and services. The integration of these new businesses is expected to contribute to AMCON's top-line growth and operational efficiency in the coming quarters.

In addition to the acquisitions, AMCON has also made progress on the construction of its new 175,000-square-foot distribution facility in Springfield, Missouri, and the ongoing enhancements to its 250,000-square-foot facility in Colorado City, Colorado. These investments in infrastructure are aimed at strengthening the company's distribution network and improving its ability to serve its growing customer base.

Segment Performance

AMCON's Wholesale Segment, which accounts for the majority of its revenue, reported a 3.2% year-over-year increase in sales to $707.7 million during the third quarter. This growth was driven by the contributions from the recent acquisitions, as well as higher selling prices implemented by cigarette manufacturers. However, the segment's gross profit margin remained stable at 6.3%, as the increase in sales was partially offset by a decline in the volume and mix of cigarette cartons sold and lower margins in the company's other product categories.

The Retail Segment, which operates 11 health food stores, reported a 5.1% year-over-year decrease in sales to $10.2 million. This decline was primarily due to the closure of four stores between the comparative periods, partially offset by increased sales at the company's existing stores and the reopening of the Port Charlotte store that was previously damaged by Hurricane Ian. The Retail Segment's gross profit margin improved to 36.2% from 35.1% in the prior-year quarter, reflecting the company's efforts to optimize its product mix and pricing strategies.

Outlook

Looking ahead, AMCON's management remains cautiously optimistic about the company's future prospects. The company has not provided any specific financial guidance for the upcoming fiscal year. However, the management has emphasized its focus on continued investment in technology, distribution capabilities, and strategic acquisitions to drive long-term growth and enhance shareholder value.

Risks and Challenges

One of the key risks facing AMCON is the potential for further regulatory changes or product limitations related to cigarette, tobacco, and vaping products. The company's Wholesale Segment is heavily dependent on the sale of these products, and any significant changes in the regulatory landscape could have a material impact on the company's revenues and profitability.

Additionally, AMCON's business is susceptible to macroeconomic factors, such as inflation, interest rate fluctuations, and changes in consumer spending patterns. The company's management has acknowledged these challenges and is actively working to mitigate the impact through cost-control measures, strategic pricing adjustments, and diversification of its product portfolio.

Conclusion

AMCON Distributing Company has demonstrated its resilience in the face of a challenging operating environment. While the company's profitability has been impacted by rising costs and expenses, its strategic initiatives, including targeted acquisitions and infrastructure investments, are expected to strengthen its competitive position and drive long-term growth. Investors should closely monitor the company's progress in navigating the current inflationary pressures and its ability to capitalize on emerging opportunities in the wholesale distribution and retail health food sectors.