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AC

ARKO Corp. (ARKO)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered mixed results: total revenue $1.99B (down vs Q3 and prior year), diluted EPS of -$0.03, and Adjusted EBITDA of $56.8M (vs $61.8M prior year), with margin resilience offset by lower retail gallons and merchandise contribution .
  • Retail fuel margin held at 38.7 cpg (down 0.5 cpg YoY) and merchandise margin improved to 33.0%, but retail fuel contribution fell to $100.2M and merchandise contribution to $134.9M, largely due to macro-driven gallon declines and dealerization-related site conversions .
  • Transformation plan accelerated: 153 retail stores dealerized in 2024 (~100 in Q4); management now expects cumulative annualized operating income benefit in excess of $20M at scale, with $8.5M annualized from 2024 conversions, and additional ~100 conversions targeted by end of Q1 2025 .
  • FY 2025 guidance: Adjusted EBITDA $233–$253M with retail fuel margin 39.5–41.5 cpg; Q1 2025 Adjusted EBITDA $27–$33M with retail fuel margin 37.0–39.0 cpg; quarterly dividend of $0.03 declared .

What Went Well and What Went Wrong

What Went Well

  • Merchandise margin rate increased to 33.0% in Q4 (32.9% prior-year), reflecting category mix and pricing initiatives; management highlighted OTP margin expansion and back-bar refreshes driving contribution mix .
  • Fleet Fueling segment margin strength: proprietary cardlock margin rose to 48.1 cpg, lifting segment operating income to $12.4M vs $9.7M YoY .
  • Transformation execution: 153 dealer conversions in 2024 (≈100 in Q4) with expected cumulative annualized operating income benefit >$20M at scale; near-term benefit from 2024 conversions estimated at ~$8.5M .

Representative quotes:

  • “We made progress with our dealerization program…strengthening merchandising initiatives…enhancing customer engagement…a more aggressive value offer at the pump.” – Arie Kotler, CEO .
  • “We now expect our total dealerization program to generate an annualized benefit in excess of $20 million…” .
  • “We expect mid-teen percent operating profit growth in our Wholesale segment, driven by our ongoing channel optimization work.” – CFO guidance framing .

What Went Wrong

  • Retail fuel contribution fell to $100.2M (vs $109.3M prior-year) on macro-driven gallon declines and reduced price volatility; retail gallons sold declined, with same-store fuel contribution down $7.4M .
  • Merchandise contribution decreased to $134.9M (vs $146.8M), with pressure in core destination categories and cigarettes, and dealerization removing contribution from closed/converted stores despite margin improvement .
  • Consolidated operating income dropped to $14.4M (vs $25.3M prior-year), and diluted EPS moved to -$0.03 (vs $0.00 prior-year), reflecting lower retail segment profitability despite segment margin resilience .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Total Revenue ($USD Billions)$2.233 $2.388 $2.279 $1.992
Diluted EPS ($USD)$0.00 $0.11 $0.07 -$0.03
Operating Income ($USD Millions)$25.3 $42.9 $41.6 $14.4
Adjusted EBITDA ($USD Millions)$61.8 $80.1 (new def.) $78.8 $56.8
Retail Fuel Margin (cents/gal)39.2 41.6 41.3 38.7
Merchandise Margin (%)32.9% 32.8% 32.8% 33.0%

Segment Breakdown (Operating Income):

SegmentQ4 2023 ($MM)Q4 2024 ($MM)
Retail$72.3 $62.9
Wholesale$18.1 $20.0
Fleet Fueling$9.7 $12.4

Retail KPIs and Contribution:

KPI / ContributionQ4 2023Q2 2024Q3 2024Q4 2024
Fuel Gallons Sold (000s)279,035 283,481 300,796 258,856
Same-Store Fuel Gallons YoY-7.5% -6.6% -6.6% -4.4%
Merchandise Revenue ($MM)$446.7 $474.2 $506.4 $408.8
Merchandise Contribution ($MM)$146.8 $155.8 $154.0 $134.9
Same-Store Merch Sales YoY-2.8% -5.1% -7.7% -4.3%
Same-Store Merch ex Cigarettes YoY-1.8% -4.0% -5.7% -2.1%
Same-Store Site Opex ($000s)181,527 192,258 192,548 179,302

Notes on drivers:

  • Retail fuel contribution decreased $9.1M YoY; same-store fuel contribution down $7.4M on gallon declines; margin down 0.5 cpg due to lower fuel prices and volatility .
  • Merchandise contribution decreased $11.9M YoY, tied to same-store declines (-$6.2M) and closure/dealer conversions (-$7.7M), partially offset by SpeedyQ (+$2.0M) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDA ($MM)Q1 2025—$27–$33New
Retail Fuel Margin (cpg)Q1 2025—37.0–39.0New
Adjusted EBITDA ($MM)FY 2025—$233–$253New
Retail Fuel Margin (cpg)FY 2025—39.5–41.5New
Wholesale Operating Income GrowthFY 2025—Mid-teens % (framework)New
Dividend per Share ($)Quarterly$0.03 (ongoing)$0.03 (pay 3/21/2025)Maintained
Share Repurchase Program Remaining ($MM)As of 12/31/2024~$25.7~$25.7Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Dealerization / Channel OptimizationIntroduced; ~40 stores targeted by Q3; accretive economics vs retail ~150 stores targeted by YE; $8.5M annualized benefit from YE set; $15–$20M at scale 153 conversions in 2024 (~100 in Q4); >$20M annualized benefit at scale; ~100 more by end of Q1 2025 Accelerating
OTP vs CigarettesOTP margin strength; developing back-bar optimization Back-bar to 1,000 stores by Q1 2025; OTP ~10% merch penetration; higher margin vs cigarettes >800 back-bar refreshes; OTP margin +200 bps; OTP nearly half tobacco contribution in Q4 Strengthening
FoodservicePizza/hot dogs margin uplift; >460 stores with Nathan’s NTI pipeline expanded; pilot remodels planned Pilot permits in progress; strong consumer response; >600k pizzas sold at $4.99 since Q1 2024 Building
Fuel Margin OutlookStrong retail CPG; volatility broadened guidance Q4 guide 38–42 cpg; FY24 guide implied stronger CPG FY25 retail fuel margin 39.5–41.5 cpg; Jan margin up +2.5 cpg YoY Constructive
Loyalty / Promotions$10 sign-on promotion; loyalty spend/visit benefits Sweepstakes, vendor-funded promos, OTP savings “Fueling America’s Future” campaign: up to $2/gal discount tied to in-store purchases; loyalty members higher spend/visits Intensifying
Macro / WeatherConsumer pressure impacting merch and gallons October improved vs September; hurricane minimal impact Jan–Feb weather headwinds; expect seasonal recovery; margins resilient Transitory headwinds

Management Commentary

  • Strategic focus: “We remain committed to driving sustainable long-term growth…investing in higher-growth categories, delivering further value…and further optimizing our store portfolio.” – CEO .
  • Dealerization economics: “We now expect…channel optimization will yield a cumulative annualized benefit of operating income in excess of $20 million.” – Company statement .
  • Wholesale trajectory: “Mid-teen percent operating profit growth in our Wholesale segment, driven by our ongoing channel optimization work.” – CFO .
  • Retail guidance framework: shift to “average per store” modeling due to changing same-store base; assume retail fuel margin 37–39 cpg for Q1 .
  • Fueling America’s Future: promotions intended to “drive gallons” without compressing in-store or fuel margins, leveraging vendor partnerships .

Q&A Highlights

  • Guidance bridge and dealerization accrual: FY25 midpoint below FY24 due to negative same-store trends early in the year and weather; dealerization accrues through ’25 with wraparound into ’26; accretive overall .
  • Modeling shift: Management prefers average-per-store metrics given a materially changing same-store base in 2025; retained stores are more productive but still negative early in Q1 .
  • Fuel margin drivers: Expect modest structural increases and competitive pricing responses to offset traffic challenges; January margin was up YoY .
  • Promotions economics: Up to $2/gal fuel discount tied to in-store purchases is vendor-funded and designed to drive traffic and gallons without harming margins .
  • Capital allocation and FCF: Capex expected broadly consistent with prior years; management expects to remain free cash flow positive absent unusual items .

Estimates Context

  • Consensus (S&P Global) EPS/Revenue estimates were unavailable at time of request; therefore, vs-estimate comparisons are not provided. Where estimates are available to your team, incorporate management’s FY 2025 Adjusted EBITDA range ($233–$253M) and retail fuel margin assumptions (39.5–41.5 cpg) to update models for dealerization accrual and early-’25 weather impacts .

Key Takeaways for Investors

  • Margin resilience but revenue pressure: Retail fuel and merchandise margins held up (38.7 cpg; 33.0%), yet lower gallons and dealerization-related site transitions reduced retail contribution and consolidated operating income in Q4 .
  • Dealerization is a core catalyst: ~153 conversions in 2024 and ~100 more targeted by end of Q1 2025; cumulative annualized operating income benefit >$20M at scale; wholesale and fleet segments benefit as stores transition .
  • FY 2025 setup: EBITDA guide $233–$253M with constructive retail fuel margin; early Q1 softness from weather expected to improve heading into peak season .
  • OTP and loyalty strategy driving mix: OTP margins expanding (+200 bps in Q4) and loyalty promotions (including campaign for fuel discounts) aim to lift traffic and in-store basket .
  • Expect model changes: Shift from same-store to average-per-store frameworks for 2025; retained store base more productive, but comps start negative in Q1 .
  • Capex and cash returns: Dividend maintained at $0.03; ~$25.7M buyback capacity remains; capital focused on pilot remodels, NTIs, and dealerization .
  • Near-term trading lens: Watch for intra-quarter margin prints and dealerization cadence; Q1 margins tracking favorably (Jan +2.5 cpg YoY) could support sentiment amid soft traffic .