• Adjusted EBITDA: $78.8 million for Q3 2024, down from $87.3 million in Q3 2023.
• Retail Segment Operating Income: Approximately $71 million, down from $81.5 million in the previous year.
• Adjusted Operating Income: $85.1 million, compared to $96.5 million in the prior year.
• Total Retail Merchandise Sales: Down approximately 7.3% for the quarter.
• Merchandise Contribution: Down 4.2% with a margin rate expansion of 110 basis points.
• Total Retail Fuel Contribution: Down 3.4% with a 5.9% gallon decline, partially offset by a margin increase of 1 per gallon.
• Same Store Merchandise Sales (excluding cigarettes): Down 5.7% year-over-year.
• Same Store Transactions: Down high single digits for the quarter.
• Same Store Fuel Contribution: Down approximately 4.3% for the quarter.
• Same Store Fuel Gallon Demand: Down 6.6% for the quarter.
• Fuel Margin: 41.4 per gallon, up 1 per gallon from the previous year.
• Wholesale Segment Operating Income: $8.2 million, compared to $10 million in the prior year.
• Fleet Segment Operating Income: $10.8 million, up from $8.8 million in the previous year.
• General and Administrative Expense: $38.6 million, down from $44.1 million in the prior year.
• Net Income: $9.7 million, compared to $21.5 million in the previous year.
• Long Term Debt: $885 million at the end of Q3 2024.
• Liquidity: Approximately $869 million, including $292 million in cash on hand.
• Capital Expenditures: $29.3 million for the quarter.
• Q4 2024 Adjusted EBITDA Guidance: Expected range of $53 to $63 million.
• Full Year 2024 Adjusted EBITDA Guidance: Revised range of $245 to $255 million.

• Warning! GuruFocus has detected 5 Warning Sign with ARKO.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• ARKO Corp (NASDAQ:ARKO) delivered adjusted EBITDA at the midpoint of their guidance by effectively managing operating expenses.
• The company saw a strong customer response to their expanded food service offerings, with same-store hotdog sales up more than 30% and non-franchised pizza sales increasing by 11.5%.
• ARKO Corp (NASDAQ:ARKO) successfully converted 51 retail stores to dealer sites, exceeding their target and expecting an annualized benefit of $8.5 million from these conversions.
• The company expanded their new-to-industry (NTI) pipeline with eight new stores, indicating a focus on long-term organic growth.
• ARKO Corp (NASDAQ:ARKO) maintained substantial liquidity with approximately $869 million, including $292 million in cash on hand at the end of the quarter.

Negative Points

• ARKO Corp (NASDAQ:ARKO) experienced a decrease in adjusted EBITDA to $78.8 million from $87.3 million in the previous year, primarily due to lower retail fuel and merchandise contributions.
• Total retail merchandise sales were down approximately 7.3% for the quarter, with same-store merchandise sales excluding cigarettes down 5.7%.
• Same-store fuel gallon demand declined by 6.6% for the quarter, reflecting continued external headwinds.
• The company faced persistent pressure on consumers due to inflation and increased prices for daily necessities, impacting consumer spending.
• ARKO Corp (NASDAQ:ARKO) reported a net income of $9.7 million for the quarter, down from $21.5 million in the previous year.

Q & A Highlights

Q: Can you provide more details on the seven-store pilot and its go-to-market strategy? A: Arie Kotler, Chairman, President, and CEO, explained that the pilot is crucial for ensuring the right approach. A third-party consultant was hired, and customer feedback was gathered. The store layout and merchandise assortment are being finalized, including a new brand name for the food service, which will be disclosed after layout completion. Permits will be sought in Q4, with construction starting in Q1 2025. If successful, more stores will be added in the Richmond market region.

Q: How is the backbar space expansion for OTP (Other Tobacco Products) progressing, and what impact is it having? A: Arie Kotler noted that tests in several stores showed successful results, with consumers shifting from cigarettes to OTP. The company plans to roll out new fixtures to 1,000 stores by the end of Q1 2025. While specific results are not yet available, the shift is evident, and OTP represents about 10% of total merchandise penetration, indicating significant potential.

Q: Are there regional differences in merchandise sales trends, and how are they impacting overall performance? A: Robert Giammatteo, CFO, stated that there are no significant regional differences; the trends are broad-based and likely macroeconomic. Arie Kotler added that the pressure on consumers is nationwide, affecting various industries, including QSR. The focus is on increasing food service offerings to improve margins and profitability despite sales declines.

Q: What is the outlook for same-store sales in Q4, and how did the hurricane impact the business? A: Robert Giammatteo mentioned that October was better than September, leading to a cautious optimism that Q3 was the bottom. The hurricane had no material financial impact in Q3, and most stores were operational within a week, so it is not expected to significantly affect Q4.

Q: Can you elaborate on the dealer organization initiative and its expected benefits? A: Arie Kotler explained that approximately 150 stores will be converted to dealer sites by the end of Q4, with an expected annualized benefit of $8.5 million. The initiative aims to realize higher profits from fuel supply agreements and rental income. The conversion will continue into Q1 and Q2 2025, with a total expected benefit of $15 to $20 million.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.