ARKO Corp. Q1 FY2025 earnings call

Key Points

• Dealerization Program: Converted 77 stores to the wholesale network by April, with over 130 stores under contract. Expects cumulative annualized operating income benefit over $20 million at full scale.
• Fueling America Future Campaign: Launched March 12, saw 35% increase in average daily enrollment, 9.8 gallons per transaction for previously enrolled loyalty members vs 6.8 gallons previously, and average basket increase of ~$2.38 or 16%.
• Cigarette and OTP Back Bar Refresh: Completed in over 900 stores, improving merchandising and assortment. OTP mix evolving to meet customer demand.
• Remodel Program: Started construction on the first of seven pilot remodels this week, with a new brand Fast Craves and first store in Richmond, Virginia.
• Fast Rewards Loyalty Program: Enrolled members spent ~47% more and visited 2.5 times more per month than non-enrolled members in Q1 2025. Added ~27,000 enrolled members, reaching over 2.3 million total enrolled members.

In the first quarter of 2025, the Retail segment contributed approximately $40.2 million, down from $46.5 million in the same period of 2024. Same-store merchandise sales excluding cigarettes were down 5.2%, while total same-store merchandise sales were down 6.9%. Same-store margin rate increased by approximately 50 basis points. Same-store fuel contribution decreased by approximately $3.2 million due to a 6.2% decline in gallons, but same-store fuel margin was $0.0379 per gallon, up $0.01 per gallon year over year. The Wholesale segment had operating income of $18.6 million in Q1 2025, compared to $18.3 million in the prior year, with fuel margin of $0.0088 per gallon vs $0.0092 per gallon in the year-ago period. Gallons were modestly up driven by channel optimization. The Fleet segment had operating income of $11 million in Q1 2025, up from $9.8 million in the prior year, with total gallons down 4.2% and fuel margin $0.0436 per gallon vs $0.038 per gallon in the year-ago period.

Second Quarter 2025

• Total company adjusted EBITDA expected in the range of $70 million to $80 million.
• Retail segment: Average retail store count ~1,300 sites, merchandise sales per average store flat to up low single digits, gallons per average store up low single digits, total retail fuel margin $0.0425 to $0.0445 per gallon.
• Wholesale segment: Mid to high single-digit operating income growth driven by channel optimization.
• Fleet segment: Operating income up modestly as begin to cycle prior year fuel margins.

Full-Year 2025

• Total company EBITDA guidance maintained in the range of $233 million to $253 million, based on average retail fuel margin $0.40 to $0.42 per gallon.

• Unpredictable tariff environment creates uncertainty in customer spending.
• Inclement weather can lead to incremental operating costs.
• Risk of not realizing benefits from new dealer fuel supply contracts, though stores transitioned to the wholesale channel are performing in line with expectations.

Q: How has the business performed recently after winter weather, particularly in April and May?

A: In January, total sales were down 5.8% and excluding cigarettes down 3.8%; March excluding cigarettes down 3.9%; February excluding cigarettes down 9.3% due to severe weather. Saw slight improvement in April inside sales and optimistic about Q2.

Q: Is the savings from dealerization starting to impact the P&L in Q1? What does the $20 million annualized savings assume in terms of total stores?

A: Channel optimization delivered $2.4 million for transitioned sites in Q1, with an annualized run rate of ~$10 million. The $20 million is at scale when completed, with 77 stores converted by May 1, 30 under contract, and more stores to convert.

Q: When might the remodel initiative be accelerated, and what's the capital expenditure per store?

A: Plan to finish seven pilot remodels, with the first store starting construction this week and the second in mid-May. Investment per remodel store is ~$700,000 to $1 million, likely seeing progress towards Q3 2025 and potential uptick in 2026 if results are favorable.

Q: What are the characteristics of strategic retail stores?

A: Look at sites in strategic markets with favorable demographics, competitive environment, and physical plant.

Q: How has the realization of benefits from new dealer fuel supply contracts played out?

A: Stores transitioned to the wholesale channel are performing in line with expectations, with ~14 million incremental gallons, and baseline prior year business comparable accounts moving closer to zero vs negative mid-single digits, pleased with performance to date.

Q: Regarding dealerization loyalty members and balance of share buybacks vs bond buybacks?

A: Loyalty program doesn't stay with dealerized stores, customers move to other retail stores. Can't comment on share buyback cadence at the moment.

Q: How do inside sales and gallons relate to consumer outlook, and G&A in the dealerization plan?

A: Inside sales and gallons reflect a weaker consumer view. G&A expected to be more aggressive as the dealerization plan is further implemented.