Arko (ARKO) Q1 2025 Earnings Call May 08, 2025 05:00 PM ET Speaker0 Afternoon, ladies and gentlemen, and welcome to the Arco Corp. First Quarter twenty twenty five Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 05/08/2025. I would now like to turn the conference over to Jordan Mann, Senior Vice President, Corporate Strategy and Capital Markets, Investor Relations. ...

RICHMOND, Va., April 24, 2025 (GLOBE NEWSWIRE) -- ARKO Corp. (Nasdaq: ARKO) (the “Company”), a Fortune 500 company and one of the largest convenience store operators in the United States, today announced that the Company will host a conference call on Thursday, May 8, 2025 at 5:00 p.m. Eastern Time to discuss its financial results for the first quarter ended March 31, 2025. ARKO Corp.’s management team will host the conference call, followed by a question-and-answer period. The Company will provide its fina ...

Group 1 - ARKO Corp. closed at $4.25, with a daily increase of +0.71%, underperforming the S&P 500, which gained 2.51% [1] - Over the past month, ARKO shares increased by 1.2%, while the Consumer Staples sector rose by 2.1% and the S&P 500 decreased by 8.86% [1] Group 2 - ARKO Corp. is expected to report an EPS of -$0.17, reflecting a 750% decline from the same quarter last year, with anticipated revenue of $1.84 billion, down 11.21% year-over-year [2] - Full-year estimates predict earnings of $0.10 per share and revenue of $8.01 billion, indicating year-over-year changes of -23.08% and -8.29%, respectively [3] Group 3 - Recent changes to analyst estimates for ARKO Corp. are important as they reflect short-term business trends, with positive revisions indicating optimism about the company's outlook [4] - The Zacks Rank system, which evaluates estimate changes, has ARKO Corp. currently rated at 4 (Sell), with no changes in the EPS estimate over the last 30 days [6] Group 4 - ARKO Corp. has a Forward P/E ratio of 44.42, significantly higher than the industry average of 19.64, suggesting it is trading at a premium [7] - The Consumer Products - Staples industry, to which ARKO belongs, has a Zacks Industry Rank of 143, placing it in the bottom 43% of over 250 industries [7]

Core Viewpoint - ARKO Corp. is facing significant challenges with expected earnings and revenue declines, while its stock performance has been relatively stable compared to broader market indices [1][2][3]. Group 1: Stock Performance - ARKO Corp. closed at $3.80, showing no change from the previous day, and outperformed the S&P 500, which fell by 5.98% [1]. - Over the last month, ARKO's shares decreased by 5.71%, underperforming the Consumer Staples sector's gain of 6.06% and exceeding the S&P 500's loss of 7.66% [1]. Group 2: Earnings and Revenue Estimates - Analysts expect ARKO Corp. to report an EPS of -$0.17, a decline of 750% from the same quarter last year [2]. - The consensus estimate for revenue is $1.84 billion, reflecting an 11.21% decrease compared to the previous year [2]. - For the annual period, earnings are anticipated to be $0.10 per share and revenue at $8.01 billion, indicating declines of 23.08% and 8.29%, respectively [3]. Group 3: Analyst Estimates and Rankings - Recent changes in analyst estimates for ARKO Corp. may indicate shifting business dynamics, with positive revisions seen as a favorable sign for the company's outlook [3]. - The Zacks Rank system currently rates ARKO Corp. at 4 (Sell), with a stagnant EPS projection over the past 30 days [5]. Group 4: Valuation Metrics - ARKO Corp. has a Forward P/E ratio of 40, which is a premium compared to the industry average of 20.78 [6]. - The Consumer Products - Staples industry, to which ARKO belongs, ranks in the bottom 40% of all industries according to the Zacks Industry Rank [6].

Group 1: Company Performance - ARKO Corp. shares closed at $4.07, down 0.49% from the previous trading day, underperforming the S&P 500's loss of 0.22% [1] - Over the past month, ARKO Corp. has experienced a significant decline of 47.7%, while the Consumer Staples sector gained 2.67% [1] - The upcoming earnings release is projected to show an EPS of -$0.17, indicating a 750% decrease year-over-year, with revenue expected at $1.84 billion, down 11.21% from the same quarter last year [2] Group 2: Annual Estimates - For the annual period, earnings are anticipated to be $0.10 per share and revenue at $8.01 billion, reflecting declines of 23.08% and 8.29% respectively from the previous year [3] - Recent analyst estimate revisions indicate a changing outlook for ARKO Corp., with positive revisions suggesting optimism about the company's business and profitability [3][4] Group 3: Zacks Rank and Valuation - ARKO Corp. currently holds a Zacks Rank of 4 (Sell), with a notable 75% decrease in the Zacks Consensus EPS estimate over the past month [5] - The company is trading at a Forward P/E ratio of 43.05, which is significantly higher than the industry average of 20.9 [6] - The Consumer Products - Staples industry, to which ARKO belongs, has a Zacks Industry Rank of 150, placing it in the bottom 41% of over 250 industries [6][7]

Financial Data and Key Metrics Changes - Total company adjusted EBITDA for Q4 2024 was $56.8 million, down from $61.8 million in the same period last year, primarily due to lower retail fuel and merchandise contributions [22] - Full year 2024 total company adjusted EBITDA was $248.9 million compared to $276.3 million in the previous year [27] - Net loss for Q4 2024 was $2.3 million, compared to a net income of $1.1 million in the prior year [26] Business Line Data and Key Metrics Changes - Retail segment operating income decreased to approximately $62.9 million from $72.3 million year-over-year, with same store merchandise sales down 2.1% [23] - Wholesale segment operating income increased to $20 million from $18.1 million, driven by channel optimization [25] - Fleet segment operating income rose to $12.4 million from $9.7 million, despite total gallons down 1% [25] Market Data and Key Metrics Changes - Same store retail fuel gallons were down mid-single digits for both the quarter and year, with same store fuel margin down $0.011 per gallon [17] - Same store fuel contribution decreased by 7.1% for the quarter due to a decline in gallons and lower fuel margin [24] - Same store operating expenses decreased by approximately 1.2% for the quarter [24] Company Strategy and Development Direction - The company is focused on a transformation plan, including a dealerization program to optimize its retail portfolio and enhance profitability [19][20] - The "Fueling America's Future" campaign aims to drive customer traffic and sales by offering significant discounts on fuel for loyalty program members [11][49] - The company is enhancing its food service offerings and optimizing its tobacco product category to align with evolving consumer preferences [10][15] Management's Comments on Operating Environment and Future Outlook - Management noted that 2024 was a challenging year due to persistent inflation and constrained consumer spending, but they remain focused on long-term growth strategies [9] - The company expects to see improvements in same store performance as the year progresses, despite current negative trends [40][42] - Management is optimistic about the impact of promotional activities and the dealerization program on future performance [35][84] Other Important Information - The company has substantial liquidity of approximately $841 million, including $262 million in cash at quarter end [27] - Total capital expenditures for Q4 2024 were $36.1 million, with full year 2024 capital expenditures at $113.9 million [29] Q&A Session Summary Question: Can you help connect the dots on the 2025 guidance? - Management indicated that the guidance reflects a shifting same store base, with current negative trends expected to improve as the year progresses [40][42] Question: Is there a building effect from dealerization savings? - Management confirmed that dealerization savings will accrue over time, with more significant impacts expected in 2026 [44][45] Question: What initiatives are in place for remaining retail stores? - The company is focusing on promotions for fuel and tobacco to drive traffic and sales in remaining stores [47][50] Question: How is the weather impacting business? - Management acknowledged that adverse weather conditions have negatively affected customer mobility and sales, particularly in January and February [33][86] Question: What is the strategy regarding fuel margins versus gallons? - Management clarified that the focus remains on maximizing fuel contribution dollars while using promotions to drive traffic and sales [96][97]

Core Viewpoint - ARKO Corp. reported a quarterly loss of $0.03 per share, missing the Zacks Consensus Estimate of $0.04, which reflects a significant earnings surprise of -175% compared to break-even earnings per share a year ago [1] Financial Performance - The company posted revenues of $1.99 billion for the quarter ended December 2024, missing the Zacks Consensus Estimate by 7.43% and down from $2.23 billion year-over-year [2] - Over the last four quarters, ARKO has surpassed consensus EPS estimates only once and has not beaten consensus revenue estimates during this period [2] Stock Performance - ARKO shares have increased approximately 8.5% since the beginning of the year, outperforming the S&P 500, which gained 1.3% [3] Future Outlook - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the upcoming quarter is -$0.05 on revenues of $2.03 billion, and for the current fiscal year, it is $0.38 on revenues of $8.66 billion [7] Industry Context - The Consumer Products - Staples industry, to which ARKO belongs, is currently ranked in the bottom 49% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

Revenue Sources - Cigarettes and other tobacco products accounted for approximately 39% of total merchandise revenues for the year ended December 31, 2024[89]. - Fuel sales represented approximately 79% of total revenues and about 46% of combined fuel, merchandise, and other income margin for the year ended December 31, 2024[91]. - Electric vehicles accounted for approximately 8.1% of all light vehicle sales in the United States in 2024[92]. Market Risks - Significant increases in wholesale cigarette prices and new tobacco regulations could adversely affect demand for tobacco products[90]. - Changes in macro-economic conditions, such as inflation and consumer confidence, could negatively impact demand for fuel and convenience store products[78]. - The volatility of crude oil and wholesale fuel prices could materially impact the company's financial condition and results of operations[91]. - The company faces risks related to the integration of acquired businesses, which could affect anticipated financial benefits[84]. Operational Risks - The company relies on several principal suppliers for fuel and merchandise, and disruptions could adversely affect operations[97]. - The company operates under stringent environmental, health, and safety laws, which may lead to significant compliance costs and liabilities[100]. - The company is vulnerable to cybersecurity risks, with potential breaches leading to significant reputational damage and financial losses[119]. - The company must comply with various data privacy and security regulations, with non-compliance potentially resulting in fines and adverse publicity[122]. - The company relies on third-party carriers for fuel transportation, exposing it to risks such as accidents and environmental pollution[102]. - The company may incur substantial costs for environmental remediation and compliance with evolving regulations related to climate change[106]. Financial Position - As of December 31, 2024, approximately 49% of the company's debt bore interest at variable rates, which could lead to significantly higher debt service requirements if market interest rates increase[132]. - The company's common stock has been volatile, ranging from a high of $8.42 to a low of $4.09 per share between January 1, 2024, and February 17, 2025[142]. - A limited number of stockholders owned approximately 67% of the outstanding voting stock as of December 31, 2024, which may impact corporate governance and decision-making[141]. - The company has 115,771,318 shares of common stock outstanding and warrants to purchase approximately 18.4 million shares, which could affect market price if sold[144]. - Future cash dividends are subject to the discretion of the board and depend on various factors, including cash balances and capital requirements[147]. - The company may face increased tax liabilities due to its corporate structure, particularly with Israeli entities, which could adversely impact financial results[137]. - The company is subject to various financial covenants in its credit facilities, which may restrict its ability to finance operations or expand business activities[133]. Compliance and Governance - The company relies on third-party vendors for PCI DSS compliance, and any failure to comply could result in fines and increased transaction fees[125]. - The company’s insurance policies may not cover all operational risks, potentially leading to significant uninsured losses[130]. - The company’s ability to comply with debt covenants may be impaired by market conditions, risking accelerated repayment of debt[135]. Liquidity and Cash Flow - The company reported a strong liquidity position of approximately $841 million, consisting of $262 million in cash and cash equivalents and $579 million available under lines of credit[251]. - Dividends of $0.03 per share were declared and paid on four occasions in 2024, totaling approximately $14.0 million, with a future dividend of the same amount scheduled for March 21, 2025[252]. - The share repurchase program was increased to $125.0 million, with approximately 4.8 million shares repurchased for about $28.3 million at an average price of $5.89 during 2024[253]. - Cash flows provided by operating activities for the year ended December 31, 2024, were $221.9 million, an increase from $136.1 million in 2023, primarily due to lower net tax payments and dealer deposits[258]. - Cash used in investing activities decreased by $182.0 million to $114.9 million in 2024, with $113.9 million allocated for capital expenditures and $9.5 million for the SpeedyQ Acquisition[260]. - Financing activities included net receipts of $21.2 million from long-term debt, offset by $14.0 million in dividend payments and $32.0 million in common stock repurchases[262]. Debt and Obligations - Total contractual obligations as of December 31, 2024, amounted to $4.4 billion, with debt obligations of $1.1 billion due in various time frames[264]. - The company had $450 million in 5.125% Senior Notes due 2029, which are subject to restrictive covenants limiting certain financial activities[265]. - The PNC Line of Credit provides up to $140 million for working capital, with $8.2 million in letters of credit outstanding as of December 31, 2024[267]. - GPMP has a revolving credit facility with a principal amount of up to $800 million, which can be increased to $1.0 billion[270]. - As of December 31, 2024, approximately $380.8 million was drawn on the Capital One Line of Credit, with $418.7 million available[271]. - The interest on the Capital One Line of Credit ranges from 2.25% to 3.25% above Adjusted Term SOFR, or 1.25% to 2.25% above the alternate base rate, depending on GPMP's leverage[272]. Impairment and Valuation - The annual impairment test for goodwill utilized a discount rate of approximately 8.5% for the GPMP reporting unit and 10.5% for the retail reporting unit[281]. - The long-term growth rate used in the terminal year was (0.6)% for the GPMP reporting unit and 3.0% for the retail reporting unit[281]. - The company evaluates property and equipment for impairment when the carrying values may not be recoverable, comparing estimated future cash flows to carrying values[278]. - Deferred tax assets are recognized based on the likelihood of future taxable profit, with management periodically assessing the recoverability of these assets[283]. - The company estimates environmental costs related to gasoline marketing operations and recognizes liabilities when losses are anticipated and can be reasonably estimated[276]. - The Capital One Line of Credit matures on May 5, 2028, providing flexibility for working capital and permitted acquisitions[271]. - The company performs sensitivity analyses on key assumptions such as discount rates and long-term growth rates to assess potential impairments[282].

Financial Performance - Net loss for Q4 2024 was $2.3 million compared to net income of $1.1 million in Q4 2023; full year net income decreased to $20.8 million from $34.6 million[6] - Adjusted EBITDA for Q4 2024 was $56.8 million, down from $61.8 million in Q4 2023; for the full year, it decreased to $248.9 million from $276.3 million[6] - Total revenues for Q4 2024 were $1,992,109, a decrease of 10.8% from $2,233,160 in Q4 2023[38] - Fuel revenue for the year ended December 31, 2024, was $6,858,919, down 8.1% from $7,464,372 in 2023[38] - Operating income for the year ended December 31, 2024, was $94,026, a decline of 20.3% from $118,014 in 2023[38] - Adjusted EBITDA for the year ended December 31, 2024, was $248,860, a decrease of 9.9% compared to $276,260 in 2023[43] - Total revenues for the year ended December 31, 2024, reached $60,465,000, with a quarterly revenue of $18,139,000[48] Margins and Contributions - Merchandise margin rate increased to 33.0% in Q4 2024 from 32.9% in Q4 2023; for the year, it rose to 32.8% from 31.8%[6] - Retail fuel margin for Q4 2024 was 38.7 cents per gallon, down from 39.2 cents per gallon in Q4 2023; for the year, it increased to 39.6 cents per gallon from 38.8 cents[6] - Retail fuel contribution for Q4 2024 decreased to $100.2 million from $109.3 million in Q4 2023; for the year, it was $428.2 million compared to $435.3 million[6] - Merchandise contribution for Q4 2024 was $134.9 million, down from $146.8 million in Q4 2023; for the year, it decreased to $579.6 million from $585.1 million[6] - Fuel revenue for the retail segment decreased to $3,509,935 for the year ended December 31, 2024, down from $3,858,777 in 2023, representing a decline of 9.0%[47] Expenses and Costs - Convenience store operating expenses decreased by $13.0 million, or 6.5%, in Q4 2024 compared to the prior year, mainly due to closures of underperforming stores[19] - For the year ended December 31, 2024, convenience store operating expenses increased by $11.2 million, or 1.4%, primarily due to $33.1 million of incremental expenses from recent acquisitions[20] - Total operating expenses for the Retail Segment in Q4 2024 were $1,141,074, a decrease of 12.6% from $1,305,104 in Q4 2023[47] - Fuel costs for the year ended December 31, 2024, were $3,081,719, down from $3,423,455 in 2023, indicating a reduction of 10.0%[47] - Total operating expenses for the wholesale segment were $640,739,000 for the three months ended December 31, 2024, down from $688,826,000 in the same period of 2023, a reduction of approximately 7.0%[49] Liquidity and Debt - As of December 31, 2024, total liquidity was approximately $841 million, consisting of $262 million in cash and cash equivalents and $579 million in availability under lines of credit[21] - Outstanding debt was $881 million, resulting in net debt of approximately $619 million, excluding lease-related financing liabilities[22] - Cash and cash equivalents increased to $261,758 as of December 31, 2024, from $218,120 in 2023[39] - Cash flows from operating activities for the year ended December 31, 2024, were $221,858, an increase of 62.9% from $136,094 in 2023[41] Store Operations and Acquisitions - The company converted 153 retail stores to dealer sites in 2024, with an expected annualized benefit of approximately $8.5 million to operating income[6] - The planned pipeline of new-to-industry (NTI) stores expanded to eight, with four expected to open in 2025[6] - The company acquired 21 sites in 2024 and closed or converted 25 sites, resulting in a total of 1,389 retail sites at the end of the year[25] - The company acquired seven Speedy's retail stores on April 9, 2024, which is expected to enhance market presence and revenue streams[48] Dividends - The board declared a quarterly dividend of $0.03 per share to be paid on March 21, 2025[7] - The company declared a quarterly dividend of $0.03 per share to be paid on March 21, 2025[23] Future Outlook - The company plans to focus on higher-growth categories and optimize its store portfolio to drive sustainable long-term growth[7] - The company expects Q1 2025 Adjusted EBITDA to range between $27 million and $33 million, with an average retail fuel margin of 37.0 to 39.0 cents per gallon[27]

Core Insights - ARKO Corp. reported a net loss of $2.3 million for Q4 2024, a decline from a net income of $1.1 million in Q4 2023, while the full year net income decreased to $20.8 million from $34.6 million in 2023 [6][29] - The company experienced a decrease in merchandise contribution for Q4 2024, down to $134.9 million from $146.8 million in Q4 2023, attributed to the dealerization program and underperforming stores [9][10] - Retail fuel contribution for Q4 2024 was $100.2 million, down from $109.3 million in the same period last year, with a retail fuel margin of 38.7 cents per gallon compared to 39.2 cents per gallon in Q4 2023 [11][12] Financial Performance - Adjusted EBITDA for Q4 2024 was $56.8 million, a decrease from $61.8 million in Q4 2023, while full year Adjusted EBITDA fell to $248.9 million from $276.3 million [6][29] - Merchandise margin rate increased to 33.0% in Q4 2024 from 32.9% in Q4 2023, and for the full year, it rose to 32.8% from 31.8% [6][10] - Total revenues for Q4 2024 were $1.99 billion, down from $2.23 billion in Q4 2023, with fuel revenue decreasing to $1.56 billion from $1.76 billion [39] Operational Highlights - The company converted 153 retail stores to dealer sites in 2024, with approximately 100 conversions occurring in Q4 2024, expecting an annualized benefit of $8.5 million to operating income [6][10] - Same store fuel gallons sold decreased by 4.4% in Q4 2024, while same store merchandise sales saw a decline of 4.3% [7][11] - The company plans to open four new-to-industry (NTI) stores in 2025, expanding its retail footprint [6][10] Liquidity and Capital Expenditures - As of December 31, 2024, ARKO had total liquidity of approximately $841 million, consisting of $262 million in cash and cash equivalents and $579 million available under lines of credit [23] - Capital expenditures for Q4 2024 were $36.1 million, totaling $113.9 million for the full year [23] Dividend and Share Repurchase - The Board declared a quarterly dividend of $0.03 per share, to be paid on March 21, 2025, to stockholders of record as of March 10, 2025 [24][25]