AMCON DISTRIBUTING COMPANY BUSINESS UPDATE AND IMPACT OF COVID-19
While the Company reported strong Q1 2022 operating results, we remain cautious based on a highly challenging operating environment and a range of other considerations including, but not limited to, those described below.
First, the rapid spread of the Omicron variant of COVID-19 has impacted both of
our business segments. The variant's surge has only amplified the already acute
workforce shortage, which has particularly impacted the Company as it relates to
staffing warehouse and transportation roles. Further, workplace mask, testing,
and/or vaccine mandates similar to the recently proposed Emergency Temporary
Standard from the
Secondly, since the onset of the COVID-19 pandemic, both of our business segments experienced an increase in demand and sales across a broad range of products. It remains unclear, however, if these demand trends will remain intact or if they will eventually revert back to more historical levels over time.
Lastly, worldwide supply chains continue to remain highly disrupted, which has impacted product availability and resulted in product pricing inflation and may impact long term demand trends.
All of these factors have contributed to an inflationary environment resulting in higher labor costs and an overall increase in the Company's cost structure.
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 which 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 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 (such as the
recently proposed
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 the Company's business model which since the onset of the ? COVID-19 pandemic has experienced both higher sales volumes and labor costs,
and the related risk of sales returning to more historical levels without the
Company being able to offset increases in its cost structure,
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risks associated with the acquisition of assets or new businesses or
investments in equity investees by either of our business segments including, ? but not limited to, risks associated with purchase price and business valuation
risks, vendor and customer retention risks, employee and technology integration
risks, and risks related to the assumption of certain liabilities or
obligations,
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,
? that our repositioning strategy for our retail business will not be successful,
? risks associated with opening new retail stores,
if online shopping formats such as Amazon™ continue to grow in popularity and ? further disrupt traditional sales channels, it may present a significant direct
risk to our brick and mortar retail business and potentially to our wholesale
distribution business,
the potential impact that ongoing, decreasing, or changing trade tariff and ? trade policies may have on our product costs or on consumer disposable income
and demand,
increasing product and operational costs resulting from ongoing COVID-19
related 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,
? higher commodity prices and general inflation which could impact food
ingredient costs and demand for many of the products we sell,
regulations, potential bans and/or litigation related to the manufacturing, ? distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping
products by the
local governmental agencies, or other parties,
? increases in inventory carrying costs and customer credit risks,
? changes in pricing strategies and/or promotional/incentive programs offered by
cigarette and tobacco manufacturers,
? demand for the Company's products, particularly cigarette, tobacco and
e-cigarette/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,
? domestic regulatory and legislative risks,
? poor weather conditions, and the adverse effects of climate change,
? consolidation trends within the convenience store, wholesale distribution, and
retail health food industries,
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natural disasters, and domestic or political unrest, or any restrictions, ? regulations, or security measures implemented by governmental bodies in
response to these items,
? 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
FIRST FISCAL QUARTER 2022 (Q1 2022)
The following discussion and analysis includes the Company's results of
operations for the three months ended
Wholesale Segment
Our Wholesale Segment is one of the largest wholesale distributors in
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 distributing 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 six distribution centers located in
Retail Segment
Our Retail Segment, through our
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products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.
We operate within the natural products retail industry, which is a subset of the
Our Retail Segment operates twenty retail health food stores as
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