AMCON Distributing : Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

About this update from Amcon Distributing Company

Management's Discussion and Analysis of Financial Condition and Results of Operations ​ BUSINESS UPDATE ​ Similar to other retail formats, the convenience retailing sector we service continues to operate in a challenging operating environment, impacted in part by weaker consumer spending. At the same time, the cost structures for wholesale distributors such as our Company have been impacted by the cumulative impact of inflation over a multi-year period. These inflationary pressures have increased operating costs in all areas of our business such as product costs, labor and employee benefits, equipment, and insurance. ​ We continue to monitor the impact that changes in tariff rates may have on our operations. Additionally, we remain focused on proposals from regulatory bodies, including the United States Food and Drug Administration ("FDA"), which is evaluating potential limitations and/or prohibitions on the sale of certain products sold by our Company such as cigarettes (including menthol cigarettes), e-cigarettes, tobacco, and vaping products. ​ In response to this operating environment, the Company has made a number of strategic investments to enhance its competitive position over time. These strategic investments include expanding the depth of our foodservice programs and facilities, expansion of our geographic coverage footprint to enhance services for growth-oriented customers, and continued investments in proprietary technology solutions. ​ Our Company has made a number of forward-looking, targeted investments in recent years (acquisitions, the opening of new distribution centers, etc.) and now ranks as the third largest Convenience Distributor in the United States as measured by territory covered. We believe this geographic footprint will provide an attractive platform for growth in the coming years and positions the Company well with major consumer goods manufacturers who are increasingly relying on large distributors to drive market penetration and operational efficiencies. ​ FORWARD-LOOKING STATEMENTS ​ This Quarterly Report on Form 10-Q, including the Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and reflect management's current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words "future," "position," "anticipate(s)," "expect(s)," "believe(s)," "see," "plan," "further improve," "outlook," "should" or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. ​ It should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements: ​ ● risks to our business, customers, or employees associated with social unrest, labor disputes (strikes), natural disasters, domestic/political unrest and/or acts of violence, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, ​ ● the potential impact that ongoing or proposed increases or fluctuations in trade tariffs and/or changes to trade policies may have on raw materials or finished goods sourced from abroad which could result in higher prices for the products we sell while also decreasing consumer disposable income and demand, ​ ● risks associated with new tariffs or other macroeconomic considerations such as changes to government programs or funds which may impact discretionary consumer spending, operating costs, and overall business risk, particularly as it relates to product and equipment costs, wages, fuel, interest, food ingredient and commodity prices, customer credit risk, and ultimately our ability to absorb the impact of these items or pass them on where possible, ​ ● risks associated with continued weakness in retail level demand within the convenience store industry including declining demand for cigarette products, ​ ● risks associated with the emergence of artificial intelligence (AI) and how it may impact our industry, business, and/or ability to compete in the future, ​ ● risks associated with workforce availability and/or wage pressures which may be impacted by economic conditions, changes in governmental policies, or other changes in the operating environment which may impact our labor force, ​ ● risks associated with all forms of insurance renewals and the risk that the Company may not be able to renew various insurance with adequate levels of coverage, at favorable rates, or obtain insurance at all based upon market conditions within the insurance industry and/or because of the industry in which the Company operates, ​ ● risks associated with unrest in certain global regions which could further disrupt world supply chains, manufacturing centers, and shipping routes, impacting commodity/product availability and/or cost, as well as consumer demand trends, ​ ● risks associated with higher interest rates or prolonged periods of higher interest rates and the related impact on demand, customer credit risk, profitability and cash flows for both the Company and its customer base, particularly as it relates to variable interest rate borrowings, as well as the risk that such borrowings may not be renewed in the future on favorable terms or at all, ​ ● risks associated with any systemic pressures in the banking system, particularly as they relate to customer credit risk and any resulting impact on our cash flow and our ability to collect on our receivables, ​ ● regulations, potential bans, limitations and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, e-cigarette, tobacco, and vaping products imposed by the FDA, state or local governmental agencies, or other parties, including proposed and pending regulations and/or product approvals/authorizations related to the manufacturing, distribution, and sale of certain menthol, vaping, and flavored tobacco products, including proposed rules which would limit nicotine levels in certain cigarette and tobacco products, ​ ● risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn, ​ ● risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, ​ ● risks associated with macroeconomic, black swan, or other similar events (e.g., stock market crashes, global unrest, supply chain disruptions, pandemics, etc.) that may impact the Company's sales volumes and/or cost structure and for which the Company has limited ability within its business model to offset the related financial impact, ​ ● risks associated with the acquisition of businesses or assets, capital asset expenditure projects by either of our business segments such as the development of new facilities/locations or upgrades to distribution centers or retail stores, including, but not limited to, risks associated with consummating such transactions on expected terms or timing, purchase price and business valuation and recording risks, customer turnover and retention risks, and risks related to the assumption of certain liabilities or obligations, ​ ● risks associated with the integration of new businesses or equity investments by either of our business segments including, but not limited to, risks associated with vendor and customer retention, technology integration, and the potential loss of any key management personnel or employees, ​ ● increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, ​ ● risk that our repositioning strategy for our retail business will not be successful, ​ ● risks associated with opening new, or closing unprofitable, retail stores, ​ ● risks to our brick and mortar retail business and potentially to our wholesale distribution business if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, ​ ● increasing product and operational costs resulting from ongoing supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice, ​ ● increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes, ​ ● risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber and ransomware attacks, malware, or other methods by which such information systems could or may have been compromised or impacted, ​ ● increases in inventory carrying costs and customer credit risks, ​ ● changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, ​ ● changing demand for the Company's products, particularly cigarette, tobacco and vaping products, ​ ● risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, ​ ● changes in laws and regulations and ongoing compliance related to health care and associated insurance, ​ ● increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending, ​ ● decreased availability of capital resources and/or our access to credit to adequately fund our operations, ​ ● domestic regulatory and legislative risks, ​ ● adverse weather including the impact of climate change and/or other sudden and unanticipated changes in weather conditions that may materially impact our operations temporarily (e.g., wildfires, floods, wind storms, tornadoes, extreme temperature changes, ice storms, blizzards, or other violent storms), ​ ● consolidation trends within the convenience store, wholesale distribution, and retail health food industries, and ​ ● other risks over which the Company has little or no control, and any other factors not identified herein. ​ Changes in these factors could result in significantly different results. Consequently, future results may differ from management's expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time. ​ CRITICAL ACCOUNTING ESTIMATES ​ Certain accounting estimates used in the preparation of the Company's condensed consolidated unaudited financial statements ("financial statements") require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2025, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these estimates and related policies during the three months ended December 2025. FIRST FISCAL QUARTER 2026 (Q1 2026) ​ The following discussion and analysis includes the Company's results of operations for the three months ended December 2025 and December 2024: ​ Wholesale Segment ​ Our Wholesale Segment is one of the largest wholesale distributors in the United States, serving approximately 8,500 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 20,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. We have licenses, and operate, in 34 states, and are the third (3rd) largest convenience store distributor by geographic territory served. ​ Our Wholesale Segment offers retailers the ability to take advantage of manufacturer- and Company-sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers' investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distribution capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit. ​ Our Wholesale Segment operates 14 distribution centers located in Colorado, Idaho, Illinois, Indiana, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia. These distribution centers, combined with cross-dock facilities, include approximately 1.7 million square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellanova, Kraft Heinz, Mars Wrigley, General Mills, Procter and Gamble, Ferrero and other major Consumer Packaged Goods and Foodservice suppliers. We also work closely with our customer base to source private label products on their behalf in a wide variety of categories. In addition, we market our own private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers. However, we do participate in a number of programs with our major vendors to support in-stock positions of our key products. ​ Retail Segment ​ Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and operates 15 retail health food stores under the Chamberlin's Natural Foods, Akin's Natural Foods, and Earth Origins Market banners. We operate within the natural products retail industry, which is a subset of the United States grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers. These stores carry over 32,000 different nationally and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. ​ ​ RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2025 ​ ​ ​ 2024 ​ ​ ​ Incr (Decr) ​ ​ ​ % Change CONSOLIDATED: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales (1) ​ $ 730,055,330 ​ $ 711,273,256 ​ $ 18,782,074 2.6 Cost of sales ​ 682,007,003 ​ 664,379,704 ​ 17,627,299 2.7 Gross profit ​ 48,048,327 ​ 46,893,552 ​ 1,154,775 2.5 Gross profit percentage ​ 6.6 % 6.6 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expense ​ $ 44,105,432 ​ $ 43,223,231 ​ $ 882,201 2.0 Operating income ​ 3,942,895 ​ 3,670,321 ​ 272,574 7.4 Interest expense ​ 2,661,636 ​ 2,846,621 ​ (184,985) (6.5) Change in fair value of mandatorily redeemable non-controlling interest ​ ​ 322,640 ​ ​ 194,812 ​ ​ 127,828 ​ 65.6 Income tax expense ​ 245,000 ​ 392,000 ​ (147,000) (37.5) Net income available to common shareholders ​ 792,964 ​ 348,419 ​ 444,545 127.6 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ BUSINESS SEGMENTS: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Wholesale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ $ 719,266,910 ​ $ 700,747,921 ​ $ 18,518,989 2.6 Gross profit ​ 44,104,194 ​ 43,103,716 ​ 1,000,478 2.3 Gross profit percentage ​ 6.1 % 6.2 % ​ ​ ​ Retail ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales ​ $ 10,788,420 ​ $ 10,525,335 ​ $ 263,085 2.5 Gross profit ​ 3,944,133 ​ 3,789,836 ​ 154,297 4.1 Gross profit percentage ​ 36.6 % 36.0 % ​ ​ ​ (1) Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $10.5 million in Q1 2026 and $10.0 million in Q1 2025. ​ SALES ​ Changes in sales are primarily driven by: ​ (i) changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; (ii) changes in the volume and mix of products sold to our customers, either due to a change in purchasing patterns resulting from shifting consumer preferences or the fluctuation in the comparable number of business days in our reporting period; and (iii) acquisitions. ​ SALES - Q1 2026 vs. Q1 2025 ​ Sales in our Wholesale Segment increased $18.5 million during Q1 2026 as compared to Q1 2025. Significant items impacting sales during Q1 2026 included a $29.2 million increase in sales related to price increases implemented by cigarette manufacturers, and a $5.7 million increase in sales related to the volume and mix of products in our tobacco, confectionery, foodservice, and other categories ("Other Products"), partially offset by a $16.4 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment increased approximately $0.3 million during Q1 2026 as compared to Q1 2025, primarily due to higher sales volumes in our existing stores. ​ ​ GROSS PROFIT - Q1 2026 vs. Q1 2025 ​ Our gross profit does not include fulfillment costs and costs related to the distribution network, which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs. ​ Gross profit in our Wholesale Segment increased $1.0 million during Q1 2026 as compared to Q1 2025. Significant items impacting gross profit during Q1 2026 included an increase of $1.2 million related to the mix of volumes and promotions in our Other Products category, partially offset by a $0.2 million decrease in gross profit due to the timing and related benefits of cigarette manufacturer price increases. Gross profit in our Retail Segment increased approximately $0.2 million during Q1 2026 as compared to Q1 2025, primarily due to an increase in gross profit related to same store sales. ​ OPERATING EXPENSE - Q1 2026 vs. Q1 2025 ​ Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our Q1 2026 operating expenses increased $0.9 million as compared to Q1 2025. Significant items impacting operating expenses during Q1 2026 included the impact of a prior year (Q1 2025) reduction in operating expenses related to a $1.5 million contingent liability fair value adjustment, a $0.1 million increase related to employee compensation and benefit costs, a $0.1 million increase in other Wholesale Segment operating costs, and a $0.1 million increase in operating expense costs in our Retail Segment. These increases in operating expenses were partially offset by a $0.9 million decrease in health and other insurance costs. The increase in our Retail Segment was primarily due to an increase in costs associated with our existing stores. ​ INTEREST EXPENSE - Q1 2026 vs. Q1 2025 ​ Interest expense decreased $0.2 million in Q1 2026 as compared to Q1 2025, primarily due to lower interest rates, partially offset by higher average debt balances in the current period. ​ INCOME TAX EXPENSE - Q1 2026 vs. Q1 2025 ​ The change in the Q1 2026 income tax rate as compared to Q1 2025 was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense and variances in the average effective state income tax rates between the comparative periods. ​ ​ LIQUIDITY AND CAPITAL RESOURCES ​ Overview ​ The Company's variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory "buy-in" opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities that we expect to reverse in later periods. Additionally, during our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction. ​ The Company primarily finances its operations through three credit facility agreements (a) a facility that is an obligation of AMCON Distributing Company (the "AMCON Facility"), (b) a facility that is an obligation of Team Sledd, LLC ("Team Sledd" and, the "Team Sledd Facility") and (c) a facility that is the obligation of Henry's (the "Henry's Facility") (collectively, the "Facilities") and long-term debt agreements with banks. The Team Sledd Facility and the Henry's Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. ​ At December 2025, the Facilities had a total combined borrowing capacity of $305.0 million, including provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The AMCON Facility matures in June 2027, the Henry's Facility matures in February 2028, and the Team Sledd Facility matures in March 2028, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company's respective equipment, intangibles, inventories, accounts receivable, and certain real estate. The Facilities each feature an unused commitment fee and springing financial covenants. Borrowings under the Facilities bear interest at the Secured Overnight Financing Rate ("SOFR"), plus any applicable spreads. ​ The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2025 was $229.4 million, of which $140.7 million was outstanding, leaving $88.7 million available. ​ The average interest rate of the Facilities was 5.29% at December 2025. For the three months ended December 2025, the peak borrowings under the Facilities was $193.2 million, and the average borrowings and average availability under the Facilities was $163.6 million and $79.2 million, respectively. ​ Cross Default and Co-Terminus Provisions ​ The Team Sledd Facility and Team Sledd's two notes payable contain cross default provisions. The Henry's Facility and the Henry's note payable also contain cross default provisions. There were no such cross defaults for either Team Sledd or Henry's at December 2025. Additionally, the Team Sledd Facility and the Henry's Facility are non-recourse to AMCON Distributing Company, are not guaranteed by AMCON Distributing Company and have no cross default provisions applicable to AMCON Distributing Company. The Company and its subsidiaries, including Team Sledd and Henry's, were in compliance with all of the financial covenants under the respective Facilities at December 2025. ​ Dividend Payments ​ The Company paid cash dividends on its common stock totaling $0.1 million in each of the three-month periods ended December 2025 and December 2024. During Q1 2026, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that will be paid in Q2 2026. During Q1 2025, the Company declared a $0.28 per share special dividend totaling approximately $0.2 million that was paid in Q2 2025. ​ Other ​ The Company has issued letters of credit totaling $3.1 million to its workers' compensation insurance carriers as part of its self-insured loss control program. ​ Off-Balance Sheet Arrangements ​ The Company does not have any off-balance sheet arrangements. ​ Liquidity Risk ​ The Company's liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and our industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions. ​ The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company's profitability. ​ While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company's future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit. ​

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