ARKO (US:ARKO)2023-08-12 11:48Financial Data and Key Metrics Changes - Adjusted EBITDA for Q2 2023 was $86.2 million, up 9.1% from $79 million in Q2 2022 [7][30] - Merchandise revenue increased to $484.6 million from $431.8 million in the prior year quarter [27] - Net income for Q2 2023 was $14.5 million, down from $31.8 million in the prior year period, primarily due to increased depreciation and amortization expenses [30] Business Line Data and Key Metrics Changes - Merchandise gross profit dollars grew to $135.6 million, a 5% increase on a same-store basis compared to Q2 2022 [8] - Same-store merchandise sales excluding cigarettes grew 3.8%, while same-store sales increased by 0.7% compared to Q2 2022 [9] - Retail fuel contribution increased to $156 million from $130.8 million in the prior year quarter, despite a 5.1% decline in same-store retail fuel gross profit [19][27] Market Data and Key Metrics Changes - Total fuel contribution increased by $25.2 million year-over-year, but same-store retail fuel gross profit was down due to a 2.6% decline in gallons sold [19][20] - The average retail cent per gallon on a same-store basis was $0.403, down from $0.414 in the prior year period [20][27] Company Strategy and Development Direction - The company focuses on improving retail store performance through customer service, marketing, and merchandising strategies, alongside executing accretive M&A transactions [7] - The three strategic pillars include growing sales in core destination categories, enhancing the fas REWARDS loyalty program, and expanding food and beverage services [12][14][16] - The company aims to decrease exposure to cigarettes, with core destination categories increasing from 38.4% to 44.6% of total merchandise sales since Q2 2020 [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategy and performance, anticipating continued strong results in 2023 [31] - The company acknowledged challenges such as wage inflation, with average hourly wages increasing by approximately 10% [28][45] - Management does not expect retail fuel margins to be as high as the previous year due to exceptional conditions in Q3 2022 [38][20] Other Important Information - The company has access to over $2 billion in available funding for continued M&A activity [23][51] - A quarterly dividend of $0.03 per share was declared, to be paid on September 1, 2023 [31] Q&A Session Summary Question: How much of the same-store sales increase was due to pricing versus traffic? - Management indicated that sales increases were a mix of inflation and unit declines, with some categories showing growth [32][33] Question: What is the opportunity to add branded food franchise offerings? - Management noted ongoing transformation of delis and a robust pipeline for new food offerings, with significant sales increases in food categories [34][36] Question: Any considerations for the strong performance in Q3 last year? - Management highlighted that Q3 2022 had exceptional fuel margins, which are not expected to repeat [38] Question: Changes to previously disclosed EBITDA run rate targets and synergy capture? - Management confirmed that while some synergies have been realized, there is still more to achieve from recent acquisitions [40][42] Question: How does the average hourly wage compare to peers? - Management stated that they are competitive in wages, with a focus on quality of life for employees [44][45] Question: What is a healthy same-store operating expense growth rate for the industry? - Management indicated that they are targeting lower growth rates in operating expenses moving forward [46][48] Question: Current status of M&A activity and integration? - Management confirmed that they will continue to pursue M&A opportunities and have the capacity to integrate new acquisitions [50][51] Question: Insights on merchandise margin expansion contributors? - Management attributed margin expansion to the right assortment and increased sales in core categories [59][60] Question: Current deal flow and valuations in the M&A market? - Management noted a robust pipeline for acquisitions and does not see a slowdown in the marketplace [62][63]