ARKO Corp. Reports Second Quarter 2024 Results

RICHMOND, Va., Aug. 06, 2024 (GLOBE NEWSWIRE) -- ARKO Corp. (Nasdaq: ARKO) ("ARKO" or the "Company"), a Fortune 500 company and one of the largest convenience store operators in the United States, today announced financial results for the second quarter ended June 30, 2024.

Second Quarter 2024 Key Highlights (vs. Year-Ago Quarter)1,2

• Net income for the quarter was $14.1 million compared to $14.5 million, with recent acquisitions and higher fuel margin partially offsetting continued declines in gallon demand and lower same store merchandise contribution.
• Adjusted EBITDA for the quarter was $83.8 million compared to $86.2 million, which was above the Company's previously issued guidance of $70 million to $77 million, driven by higher retail fuel margin per gallon.
• Merchandise revenue decreased by 2.1% to $474.2 million, with incremental merchandise sales from recent acquisitions offset by a mid-single digit decline in same store merchandise sales.
• Merchandise margin expanded approximately 90 basis points to 32.8%, supported by key marketing and merchandising initiatives.
• Merchandise contribution increased 0.7% to $155.8 million.
• Retail fuel contribution increased 1.2% to $118.0 million, driven by the combined impact of margin increases and incremental gallons from recent acquisitions, which more than offset a decline in same store fuel gallons sold.
• Retail fuel margin increased to 41.6 cents per gallon from 39.7, while same store fuel gallons sold declined 6.6% compared to a decrease in national OPIS average same-station fuel gallon volume of approximately 4.2%.

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1 See Use of Non-GAAP Measures below.
2 All figures for fuel contribution and fuel margin per gallon exclude the estimated fixed margin or fixed fee paid to the Company's wholesale fuel distribution subsidiary, GPM Petroleum LP ("GPMP") for the cost of fuel (intercompany charges by GPMP).

Other Key Highlights

• As part of ARKO's focus on accelerating organic growth, the Company continues to develop its multi-year transformation plan, which is expected to include the following elements:
  • Additional targeted capital allocation toward strategic sub-segments of its retail stores intended to drive traffic and improve profitability. The Company plans to allocate capital based in part on a pilot program, currently in development, designed to improve the customer experience and value proposition, potentially including an expanded and refined offering across a larger store network, with a focus on food and an enhanced in-store experience. Currently, the pilot will focus on seven stores within one region, with the goal of a region-wide roll out before, ultimately, the expansion of this program across the Company's retail footprint. The Company expects to begin implementing the new design in our pilot stores in the fourth quarter of 2024.
  • Increased focus on both pricing and procurement strategies across the Company's retail stores to support ongoing merchandise margin rate growth.
  • Leveraging the Company's unique, multi-segment operating model through more active conversion of retail stores within the Company's retail segment to dealer sites within its wholesale segment. Following the Company's review of its retail store portfolio, a meaningful number of retail locations were identified for potential conversion, which are expected to yield greater profitability after conversion. The Company expects to have converted approximately 40 retail stores to dealer sites by the end of the third quarter of 2024, of which a small number had converted as of the end of the second quarter of 2024.

Additional details of the Company's multi-year transformation plan will be provided at the Company's investor day that is being scheduled for the fourth quarter of 2024. Details will be shared at a later date.

• The Company continued its enhanced food program rollout, including expansion of a re-launched hot dog and roller grill program anchored by Nathan's Famous as its supplier of quality, 100% all beef hot dogs, to more than 460 of its retail stores.
• The Board declared a quarterly dividend of $0.03 per share of common stock to be paid on August 30, 2024 to stockholders of record as of August 19, 2024.

"This quarter, we continued to navigate a challenging macroeconomic environment alongside our customers," said Arie Kotler, Chairman, President and Chief Executive Officer of ARKO. "We continued to see pressure on consumers as they struggle with inflation and elevated prices for everyday goods, especially in markets with a large percentage of lower income consumers. While this negatively impacted our retail sales, our team worked hard to control same store expenses and leverage our strong vendor partner relationships to deliver another quarter of merchandise margin growth, while providing much-needed value to our customers. When combined with higher fuel margins, we exceeded our Adjusted EBITDA guidance for the second quarter."

Mr. Kotler continued: "Our commitment to strong execution, enhancing customer value, and improving store level economics remain a top priority. We are well positioned to navigate the near-term macro headwinds, and we continue to believe in the long-term opportunities for ARKO. We expect the ongoing enhancements to our operations will guide us through this environment, while also laying the foundation for our multi-year transformation plan."

Second Quarter 2024 Segment Highlights

Retail

Total merchandise contribution for the second quarter of 2024 increased $1.1 million, or 0.7%, compared to the second quarter of 2023, due to $5.6 million in incremental merchandise contribution from recent acquisitions, which was partially offset by a decrease in same store merchandise contribution. Same store merchandise contribution decreased primarily due to lower contribution from certain core destination categories, as well as cigarettes.

Merchandise margin increased 90 basis points to 32.8% for the second quarter of 2024, supported by key marketing and merchandising initiatives.

For the second quarter of 2024, retail fuel contribution increased $1.4 million to $118.0 million compared to the prior year period, with resilient fuel margin capture of 41.6 cents per gallon, an increase of 1.9 cents per gallon compared to the second quarter of 2023. Incremental fuel contribution from recent acquisitions of approximately $5.0 million was partially offset by same store fuel contribution, which decreased to $111.4 million for the second quarter of 2024, compared to $114.7 million for the prior year quarter.

Wholesale

In wholesale, total fuel contribution was approximately $24.0 million for the second quarter of 2024. Fuel contribution was similar for the second quarters of 2024 and 2023. Other revenues, net increased by approximately $0.7 million primarily due to vendor rebates. For the second quarter of 2024, site operating expenses decreased $0.6 million compared to the prior year period primarily due to lower credit card fees.

Fleet Fueling

Fuel contribution increased 24.2% to approximately $17.9 million for the second quarter of 2024 compared to the prior year period. At proprietary cardlocks, fuel margin increased by 5.2 cents per gallon compared to the second quarter of 2023. At third-party cardlock locations, fuel margin increased by 2.4 cents per gallon for the second quarter of 2024 compared to the second quarter of 2023. These changes were primarily due to higher volumes and the cardlocks acquired in the WTG Acquisition.

Site Operating Expenses

For the quarter ended June 30, 2024, convenience store operating expenses increased $4.8 million, or 2.4%, as compared to the prior year period, primarily due to $7.4 million of incremental expenses related to recent acquisitions. Same store expenses were down $0.9 million from the prior year period, or 0.5%, primarily related to lower personnel costs and lower credit card fees. The increase in site operating expenses was partially offset by underperforming retail stores that were closed or converted to dealers.

Liquidity and Capital Expenditures

As of June 30, 2024, the Company's total liquidity was approximately $806 million, consisting of approximately $232 million of cash and cash equivalents and approximately $574 million of availability under lines of credit. Outstanding debt was $890 million, resulting in net debt, excluding lease related financing liabilities, of approximately $658 million. Capital expenditures were approximately $19.3 million for the quarter ended June 30, 2024.

Quarterly Dividend and Share Repurchase Program

The Company's ability to return cash to its stockholders through its cash dividend program and share repurchase program is consistent with its capital allocation framework and reflects the Company's confidence in the strength of its cash generation ability and strong financial position.

The Board declared a quarterly dividend of $0.03 per share of common stock to be paid on August 30, 2024 to stockholders of record as of August 19, 2024.

During the second quarter, the Board approved the expansion of the Company's share repurchase program to $125 million, up from $100 million. There was approximately $25.7 million remaining under the share repurchase program as of June 30, 2024.

Company-Operated Retail Store Count and Segment Update

The following tables present certain information regarding changes in the retail, wholesale and fleet fueling segments for the periods presented:

Changes in Non-GAAP Definitions; Third Quarter and Full Year 2024 Guidance

Beginning in the third quarter of 2024, the Company has made certain changes to its definitions for Adjusted EBITDA that impact the comparability of the metric to prior periods. Specifically, the Company will no longer include non-cash rent expense adjustments in its calculation of Adjusted EBITDA. Accordingly, the Company's third quarter 2024 Adjusted EBITDA and full year 2024 Adjusted EBITDA guidance reflects the Company's updated definition of Adjusted EBITDA. See "Supplemental Disclosure of Non-GAAP Financial Information" below for a reconciliation of the definitions prior to the third quarter of 2024 to allow for like-for-like comparisons to the new definitions for all periods presented.

The Company currently expects third quarter 2024 Adjusted EBITDA, using the revised methodology to calculate Adjusted EBITDA, to range between $70 million and $86 million, with an assumed range of average retail fuel margin from 38 to 44 cents per gallon, and which now includes approximately $3.5 million of non-cash rent expense.

The Company currently expects full year 2024 Adjusted EBITDA, using the revised methodology to calculate Adjusted EBITDA, to range between $235 million and $275 million, which now includes approximately $15 million of non-cash rent expense. This guidance translates directly to the Company maintaining its full year Adjusted EBITDA range of $250 million to $290 million using the historical methodology. The Company's full year Adjusted EBITDA range assumes a range of average retail fuel margin from 37 to 45 cents per gallon for the back half of the year.

The Company is not providing guidance on net income at this time due to the volatility of certain required inputs that are not available without unreasonable efforts, including future fair value adjustments associated with its stock price, as well as depreciation and amortization related to its capital allocation as part of its focus on accelerating organic growth.

Conference Call and Webcast Details

The Company will host a conference call today to discuss these results at 5:00 p.m. Eastern Time. Investors and analysts interested in participating in the live call can dial 800-245-3047 or 203-518-9765.

A simultaneous, live webcast will also be available on the Investor Relations section of the Company's website at The webcast will be archived for 30 days.

About ARKO Corp.

ARKO Corp. (Nasdaq: ARKO) is a Fortune 500 company that owns 100% of GPM Investments, LLC and is one of the largest operators of convenience stores and wholesalers of fuel in the United States. Based in Richmond, VA, we operate A Family of Community Brands that offer delicious, prepared foods, beer, snacks, candy, hot and cold beverages, and multiple popular quick serve restaurant brands. Our high value fas REWARDS loyalty program offers exclusive savings on merchandise and gas. We operate in four reportable segments: retail, which includes convenience stores selling merchandise and fuel products to retail customers; wholesale, which supplies fuel to independent dealers and consignment agents; GPM Petroleum, which sells and supplies fuel to our retail and wholesale sites and charges a fixed fee, primarily to our fleet fueling sites; and fleet fueling, which includes the operation of proprietary and third-party cardlock locations, and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites. To learn more about GPM stores, visit: . To learn more about ARKO, visit: .

Forward-Looking Statements

This document includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may address, among other things, the Company's expected financial and operational results and the related assumptions underlying its expected results. These forward-looking statements are distinguished by use of words such as "anticipate," "aim," "believe," "continue," "could," "estimate," "expect," "guidance," "intends," "may," "might," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and the negative of these terms, and similar references to future periods. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to, among other things, changes in economic, business and market conditions; the Company's ability to maintain the listing of its common stock and warrants on the Nasdaq Stock Market; changes in its strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; expansion plans and opportunities; changes in the markets in which it competes; changes in applicable laws or regulations, including those relating to environmental matters; market conditions and global and economic factors beyond its control; and the outcome of any known or unknown litigation and regulatory proceedings. Detailed information about these factors and additional important factors can be found in the documents that the Company files with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements speak only as of the date the statements were made. The Company does not undertake an obligation to update forward-looking information, except to the extent required by applicable law.

Use of Non-GAAP Measures

The Company discloses certain measures on a "same store basis," which is a non-GAAP measure. Information disclosed on a "same store basis" excludes the results of any store that is not a "same store" for the applicable period. A store is considered a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. The Company believes that this information provides greater comparability regarding its ongoing operating performance. Neither this measure nor those described below should be considered an alternative to measurements presented in accordance with generally accepted accounting principles in the United States ("GAAP").

The Company defines EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets, impairment charges, acquisition costs, share-based compensation expense, other non-cash items, and other unusual or non-recurring charges. Each of Operating Income, as adjusted, EBITDA and Adjusted EBITDA is a non-GAAP financial measure.

At the segment level, the Company defines Operating Income, as adjusted, as operating income excluding the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel.

The Company uses EBITDA and Adjusted EBITDA for operational and financial decision-making and believe these measures are useful in evaluating its performance because they eliminate certain items that it does not consider indicators of its operating performance. Additionally, the Company believes Operating Income, as adjusted provides greater comparability regarding its ongoing segment operating performance by eliminating intercompany charges at the segment level. EBITDA and Adjusted EBITDA are also used by many of its investors, securities analysts, and other interested parties in evaluating its operational and financial performance across reporting periods. The Company believes that the presentation of EBITDA and Adjusted EBITDA provides useful information to investors by allowing an understanding of key measures that it uses internally for operational decision-making, budgeting, evaluating acquisition targets, and assessing its operating performance.

Operating Income, as adjusted, EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as a substitute for net income or any other financial measure presented in accordance with GAAP. These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of its results as reported under GAAP. The Company strongly encourages investors to review its financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not standardized, same store measures, Operating Income, as adjusted, EBITDA and Adjusted EBITDA, as defined by the Company, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare the Company's use of these non-GAAP financial measures with those used by other companies.

Change in Non-GAAP Definitions

Beginning on July 1, 2024, the Company has made certain changes to its calculation of Adjusted EBITDA that impact the comparability of the metrics to prior periods. Specifically, the Company will no longer include non-cash rent expense adjustments in its calculation of Adjusted EBITDA. Accordingly, the Company's third quarter of 2024 and full year 2024 Adjusted EBITDA guidance reflect the Company's updated definition of Adjusted EBITDA. See "Supplemental Disclosure of Non-GAAP Financial Information" below for a reconciliation of the definitions prior to July 1, 2024 to allow for like-for-like comparisons to the new definitions for all periods presented.

Company Contact
Jordan Mann
ARKO Corp.
investors@gpminvestments.com

Investor Contact
Sean Mansouri, CFA
Elevate IR
(720) 330-2829
ARKO@elevate-ir.com

Supplemental Disclosure of Non-GAAP Financial Information

Supplemental Disclosures of Segment Information

Retail Segment

The tables below show financial information and certain key metrics of recent acquisitions in the Retail Segment that do not have (or have only partial) comparable information for any of the prior periods.

Wholesale Segment

The table below shows financial information and certain key metrics of recent acquisitions in the Wholesale Segment that have only partial comparable information for prior periods.

Fleet Fueling Segment

The table below shows financial information and certain key metrics of recent acquisitions in the Fleet Fueling Segment that have only partial comparable information for the prior periods.

Released August 6, 2024