Arko Corp. (ARKO) Q2 2025 Earnings Call Transcript

New Format Stores: Introduced a bold and innovative remodel designed to elevate customer experience, focusing on food service, convenience, and community connection. Opened the first store in Ashland, Virginia, on June 25, 2025, and the second in Mechanicsville, Virginia. Early results show outperformance in foodservice and key categories like candy and beverages.

New-to-Industry (NTI) Stores: Opened the second NTI store in Kinston, North Carolina, incorporating new store format elements. Three more NTI stores are in progress, with two expected to open in the second half of 2025.

Fas Craves Brand: Launched a new food and beverage concept to grow food service as a differentiator across the network.

Dealerization Program: Converted over 300 stores to dealer locations, with 200 more under contract or letter of intent. Expected to deliver over $20 million in annualized operating income and $10 million in structural G&A savings when fully scaled.

Loyalty Program Expansion: Added 38,000 new members in Q2 2025, bringing total enrollment to 2.35 million, up 10% year-over-year. Loyalty members spend 50% more and visit 3 more times per month compared to non-members.

Operational Efficiencies: Focused on smarter labor scheduling, tighter cost management, and optimizing promotional offers. Same-store operating expenses decreased by 0.8%.

Fuel Margin and Wholesale Segment: Fuel margin increased to $0.45 per gallon despite a 6.5% decline in gallons. Wholesale segment operating income grew to $23.2 million, up from $21.3 million in the prior year.

Transformation Strategy: Focused on dealerization, remodeling stores, and enhancing customer engagement through targeted promotions and loyalty programs.

Capital Allocation: Repurchased 2.2 million shares in Q2 2025, reflecting confidence in long-term shareholder value creation.

Challenging macro environment: The company is navigating a challenging macro environment marked by geopolitical events, persistent inflation, mixed consumer sentiment, and restrained personal consumption, which could adversely impact financial performance and operations.

Price sensitivity and value-based purchasing: Consumers are showing more price sensitivity and a shift towards value-based purchasing, which could pressure margins and require increased promotional efforts.

Decline in same-store sales: Same-store merchandise sales, excluding cigarettes, were down 3% year-over-year, and total same-store merchandise sales were down 4.2%, indicating potential challenges in maintaining customer traffic and sales.

Soft fuel demand: Industry-wide demand for fuel remained soft, with national retail fuel volumes down approximately 4%, impacting the company's fuel segment performance.

Dealerization program execution risks: The dealerization program involves converting company-operated stores to dealer locations, which, while promising long-term benefits, carries execution risks and potential disruptions during the transition.

Economic uncertainties: Economic uncertainties, including inflation and consumer spending patterns, could impact the company's ability to achieve its financial and operational goals.

Operational cost pressures: The company is focusing on controlling expenses, including labor scheduling and cost management, but operational cost pressures remain a challenge.

Dependence on loyalty programs: The company relies heavily on loyalty-driven offers to drive customer engagement and sales, which may not sustain long-term growth if consumer behavior shifts.

Decline in wholesale gallons (excluding channel optimization): Excluding channel optimization, wholesale gallons were down approximately 4.1% at comparable wholesale sites, indicating potential challenges in the wholesale segment.

Execution of new store formats and remodels: The introduction of new store formats and remodels requires significant investment and carries risks related to customer acceptance and return on investment.

Third Quarter Guidance: Total company adjusted EBITDA expected to be in the range of $70 million to $80 million. Retail segment: average retail store count approximately 1,220 sites; merchandise sales up mid-single digits per average store; gallons up mid-single digits per average store; same-store gallon performance down low to mid-single digits; total retail fuel margin expected in the range of $0.425 to $0.445 per gallon. Wholesale segment: mid- to high-teen percentage operating income growth driven by channel optimization. Fleet segment: operating income growth up low single digits with gallons roughly in line with the prior year and higher expected cents per gallon.

Full-Year Guidance: Maintaining full-year total company adjusted EBITDA guidance in a range of $233 million to $253 million.

Dealerization Program: Expected to deliver a cumulative annualized operating income benefit of more than $20 million before G&A once fully scaled. Identified more than $10 million in expected annual structural G&A savings as the program scales.

New Format Stores: Plans to remodel additional stores with a focus on improved customer experience and food service. Early results from the first new-format store show outperformance in foodservice and key categories. Two new-format stores opened, with more in the pipeline.

New-to-Industry (NTI) Stores: Three NTI stores in progress, with two expected to open in the second half of 2025.

Channel Optimization Program: Expected to deliver in excess of $20 million in incremental operating income across retail and wholesale segments at full maturity, excluding additional G&A efficiencies.

Share Repurchase: In the second quarter, Arko Corp. repurchased 2.2 million shares as part of its disciplined capital allocation strategy. This move aligns with the company's transformation plan and operational execution to deliver long-term shareholder value.