Release Date: May 08, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ARKO Corp (ARKO, Financial) delivered results above the midpoint of their guidance despite challenging conditions.
- The company is executing a transformation strategy, including dealerization and expansion of high-margin categories like other tobacco products (OTP) and food service.
- The 'Fueling America's Future' campaign has increased loyalty program enrollment by 35% and boosted average basket size by 16%.
- ARKO Corp (ARKO) has successfully converted 77 stores to their wholesale network, with 130 more under contract, aiming for a $20 million annualized operating income benefit.
- The company maintains substantial liquidity with approximately $847 million, including $265 million in cash on hand.
Negative Points
- ARKO Corp (ARKO) faced headwinds from lower traffic, consumer spending, and severe weather, impacting sales and increasing operating costs by $1.7 million for snow and ice removal.
- Persistently high inflation and consumer debt have put financial pressure on lower and middle-income households, affecting store performance.
- Same-store merchandise sales, excluding cigarettes, were down 5.2% year-over-year, with total same-store merchandise sales down 6.9%.
- The company reported a net loss of $12.7 million for the quarter, compared to a net loss of $0.6 million in the prior year.
- Fuel margins were impacted by a 6.2% decline in gallons, and same-store fuel contribution was down approximately $3.2 million for the quarter.
Q & A Highlights
Q: How has ARKO's business performed after the winter weather issues?
A: Ari Kotler, CEO, explained that sales were initially down due to severe weather in February, which caused a 9.3% drop in sales excluding cigarettes. However, there has been a slight improvement in sales in April, and the company is optimistic about Q2, with elevated fuel margins helping offset some declines.
Q: Can you provide an update on the dealerization network and its financial impact?
A: Rob Gianmao, CFO, stated that the $20 million annualized benefit from dealerization is expected at full scale. Currently, the channel optimization has delivered about $2.4 million this quarter, indicating they are roughly halfway through the program financially.
Q: What is the timeline and cost for the remodel initiative?
A: Ari Kotler, CEO, mentioned that they plan to complete seven pilot store remodels by Q3 2025, with costs ranging from $700,000 to $1.1 million per store. Depending on results, they may accelerate the rollout regionally by the end of 2025, with potential expansion in 2026.
Q: What factors are driving the strong fuel margins in Q2?
A: Ari Kotler, CEO, attributed the strong fuel margins to market volatility and the need for businesses to cover expenses amid soft in-store sales. The company has seen fuel margins of $0.46 per gallon in April, which have remained stable.
Q: How is ARKO approaching capital allocation, particularly regarding share buybacks?
A: Ari Kotler, CEO, noted that they repurchased 1.3 million shares in the quarter but did not provide specific guidance on the cadence of future buybacks. The company continues to evaluate capital allocation strategies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
