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AC

ARKO Corp. (ARKO)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 came in mixed: revenue fell to $2.28B (down 13% YoY, down 4.6% QoQ), diluted EPS was $0.07 (vs $0.17 YoY, $0.11 QoQ), and Adjusted EBITDA was $78.8M, at the midpoint of the prior guide for the quarter .
  • Retail fuel and merchandise margins held up (41.3 cpg fuel, +100 bps YoY merch margin to 32.8%), partly offsetting broad-based demand softness (SSS -7.7%; fuel gallons -6.6%) .
  • Management accelerated “dealerization” (51 stores converted YTD; ~100 more targeted in Q4), targeting ~$8.5M run-rate Operating Income benefit in 2025 from this tranche and ~$15–$20M cumulative annualized benefit as the broader channel optimization completes .
  • FY24 Adjusted EBITDA guidance narrowed to $245–$255M (midpoint down ~$5M vs the beginning-of-year guide), and Q4 guide is $53–$63M with 38–42 cpg retail fuel margin assumed; October trends improved vs September, but remain negative on SSS .

What Went Well and What Went Wrong

  • What Went Well

    • Margin resilience despite softer traffic: retail fuel margin 41.3 cpg (+1.0 cpg YoY); merchandise margin 32.8% (+110 bps YoY) .
    • Fleet Fueling strength: operating income rose to $10.8M (from $8.8M YoY) on stronger proprietary cardlock fuel margins (43.5–46.1 cpg range across periods cited) .
    • Strategic plan execution: accelerated dealer conversions and an 8-store NTI pipeline; CEO: “We believe the improvements in our operations and investments in our stores will…build the foundation for our multi-year transformation” .

  • What Went Wrong

    • Broad-based demand softness: same-store merchandise sales -7.7% (ex-cigarettes -5.7%); same-store fuel gallons -6.6% (macro-driven), weighing on retail contribution .
    • Wholesale contribution down YoY (~$23.4M vs ~$26.3M) on reduced prompt-pay discounts and lower volumes; fuel supply margin per gallon fell to 5.9 cpg (from 6.4) .
    • Earnings down YoY: net income $9.7M vs $21.5M; diluted EPS $0.07 vs $0.17; Adjusted EBITDA $78.8M vs $87.3M .

Financial Results

Q3 headline metrics vs prior year and prior quarter

MetricQ3 2023Q2 2024Q3 2024
Total Revenue ($MM)$2,622.1 $2,388.2 $2,279.2
Net Income ($MM)$21.5 $14.1 $9.7
Diluted EPS ($)$0.17 $0.11 $0.07
Adjusted EBITDA ($MM)$87.3 $80.1 (new method) $78.8
Retail Fuel Margin (cpg)40.3 41.6 41.3
Merchandise Margin (%)31.7% 32.8% 32.8%

Segment contribution/margins

Segment KPIQ3 2023Q2 2024Q3 2024
Retail – Fuel Contribution ($MM)$121.3 $118.0 $117.1
Retail – Merchandise Contribution ($MM)$160.7 $155.8 $154.0
Wholesale – Fuel Contribution ($MM)~$26.3 (13.222+13.107) ~$24.0 (12.287+11.699) ~$23.4 (12.077+11.283)
Wholesale – Fuel Supply Margin (cpg)6.4 6.0 5.9
Fleet – Fuel Contribution ($MM)~$14.3 (13.497+0.794) ~$17.9 (17.529+0.331) ~$16.2 (15.699+0.482)
Fleet – Proprietary Cardlock Margin (cpg)39.4 49.1 46.1

Key operating KPIs (Retail)

KPIQ3 2023Q2 2024Q3 2024
Same-Store Fuel Gallons (% chg)-5.3% -6.6% -6.6%
Same-Store Merch Sales (% chg)+0.1% -5.1% -7.7%
SSS ex-Cigarettes (% chg)+1.0% -4.0% -5.7%
Fuel Margin (cpg)40.3 41.6 41.3
Merch Margin (%)31.7% 32.8% 32.8%

Liquidity, capex and capital returns

  • Liquidity ~$869M (cash ~$292M; availability ~$577M); net debt (ex-lease) ~$593M; Q3 capex ~$29.3M .
  • Dividend declared: $0.03/share (payable Dec 3, 2024); buyback authorization remaining ~$25.7M at 9/30/24 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($MM)Q4 2024N/A$53–$63New Q4 guide
Retail Fuel Margin (cpg)Q4 2024N/A38–42New Q4 assumption
Adjusted EBITDA ($MM)FY 2024 (new methodology)$235–$275 $245–$255 Narrowed; midpoint to $250 (down ~$5M vs early-year midpoint)
Retail Fuel Margin (cpg)Back half of 202437–45 (assumption) 38–42 (Q4 assumption) Narrower band into Q4

Management cited reduced Q4 same-store merchandise expectations as the reason the full-year midpoint is ~$5M below the beginning-of-year outlook .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1–Q2 2024)Current Period (Q3 2024)Trend
Consumer/macro“Hesitant consumer” amid inflation; margin mix shift to higher-margin items (pizza rollout) Persistent pressure; vendor-funded promotions; October better than September but still negative Stabilizing sequentially; still soft YoY
Dealerization/channel optimizationIdentified meaningful conversion opportunity; planned ~40 by Q3 51 converted YTD; targeting ~100 more by Q4; ~$8.5M run-rate from 150 stores; ~$15–$20M cumulative potential Accelerating
Foodservice initiativesPizza launch; Nathan’s hotdogs expansion to >460 stores >500 stores with hotdogs; 7-store remodel pilot; 8 NTIs with 3 to open in Q4; strong food penetration in NTI Ramping
Loyalty>2M members; larger baskets vs non-enrolled Enrolled spend ~$110/month (+80% vs non-enrolled); ~8 visits/month; Fas Million sweepstakes Growing engagement
Tobacco mix/OTPMix-driven margin focus OTP strength; back-bar re-fixture rolling to 1,000 stores by Q1’25; OTP ~10% of merchandise Positive mix shift
Wholesale/FleetQ2 wholesale steady; fleet margins strong on WTG cardlocks Wholesale margins down (prompt pay discounts, volumes); fleet margins up YoY Mixed
GuidanceQ2: FY24 Adj. EBITDA $235–$275 (new method) FY24 narrowed to $245–$255; Q4 guide introduced Narrowing toward midpoint

Management Commentary

  • “Our focus on operational excellence, improving customer offerings, and strengthening store-level performance remains a top priority…[and] build the foundation for our multi-year transformation.” – Arie Kotler, CEO .
  • On dealerization: “We expect this initiative to cumulatively benefit combined wholesale… and retail… operating income by approximately $15 million to $20 million.”
  • On Q4/FY24: “Our fourth quarter guide translates to a full year 2024 adjusted EBITDA range of $245 million to $255 million… midpoint… $5 million below our beginning of year guide, reflecting our reduced expectation for fourth quarter same-store merchandise sales.” – CFO Rob Giammatteo .
  • On OTP and back-bar reset: “We expect to roll this new back bar installation to 1,000 stores by the end of the first quarter 2025… the margin is much higher [vs cigarettes].” – CEO .

Q&A Highlights

  • Remodel pilot/brand: 7-store pilot in Richmond area; permitting in Q4, construction early Q1’25; broader rollout if successful .
  • October trend: materially better than September; informs Q4 SSS down low- to mid-single digits (still negative) .
  • Promotions funding: vendor-funded (~100%); launching OTP promo in December at $1.99 price point with >$10 savings to drive traffic .
  • Dealerization cadence and economics: ~150 stores by Q4-end → ~$8.5M annualized benefit in 2025; additional conversions in 1H25 to reach ~$15–$20M run-rate; limited Q4 impact due to timing .
  • Cost control: same-store operating expenses down ~1.4% (labor flex, lower card fees); trend expected to continue in Q4 .

Estimates Context

  • S&P Global (Capital IQ) consensus (EPS, revenue, EBITDA) for Q3 2024 and forward was not retrievable at this time due to provider rate limits; therefore, we cannot provide a definitive beat/miss vs Street for the quarter or for guidance. Values would be retrieved from S&P Global; unavailable at time of analysis.
  • Implication: With no consensus benchmark, investors should anchor on the company’s reported at-guidance performance for Q3 (midpoint) and narrowed FY guide ($245–$255M) versus the prior range ($235–$275M, new methodology), noting the midpoint reduction vs the start-of-year outlook .

Key Takeaways for Investors

  • Margin defense is working: retail fuel and merchandise margins expanded YoY despite negative SSS and softer fuel gallons, helping deliver Q3 at the guidance midpoint .
  • 2025 earnings lift visibility improving: dealerization (~150 stores by Q4-end) drives ~$8.5M run-rate EBIT benefit in 2025 from this tranche, with ~$15–$20M cumulative potential as the program broadens .
  • Sequential trend watch: October improved over September; Q4 guide embeds continued negative SSS and mid-single-digit retail gallon declines with 38–42 cpg fuel margin assumption .
  • NTI/Remodel pipeline can re-accelerate inside sales: 8 NTIs (3 expected in Q4), 7-store remodel pilot with a system-wide food brand under development; >500 stores carrying Nathan’s hot dogs .
  • Loyalty/OTP mix are structural levers: enrolled members show materially higher spend/visit frequency; OTP category (higher margin) expansion and back-bar reset should support inside margin durability .
  • Guide narrowed: FY24 Adjusted EBITDA now $245–$255M (midpoint lower vs beginning-of-year), reflecting a more conservative Q4 SSS view; delivery against Q4 fuel margin band is a key trading catalyst .

Appendix: Additional Detail

Selected operating details and capital allocation

  • Site operating expenses: down $3.1M YoY (-1.5%) driven by lower same-store expenses and dealer conversions; partially offset by ~$3.8M from acquisitions .
  • Liquidity: ~$869M (cash ~$292M; availability under lines ~$577M); net debt (ex-lease) ~$593M .
  • Dividend: $0.03 per share declared; buyback authorization remaining ~$25.7M at quarter-end .

All data are sourced from ARKO’s Q3 2024 8-K/press release and earnings call, and prior quarter releases/transcripts: .