ARKO Corp. Q4 FY2024 earnings call

• Dealerization program: Converted over 150 retail stores to dealer sites in 2024, expect more conversions in 2025, with annualized benefit over $20M to combined wholesale and retail segment operating income.
• OTP category: Enhanced merchandising, promotional activity, and supply partnerships led to 200 basis points improvement in gross margin in Q4 2024, OTP represented nearly half of total tobacco category contribution in Q4.
• Fuel: Retail fuel volume declined, but pricing strategy helped preserve margin. Same store retail fuel gallons down mid-single digits, same store retail fuel margin down $0.011 per gallon in Q4 but up $0.7 per gallon for full year 2024.
• Food service: Strong customer response to upgraded offerings, sold over 600,000 pizzas since $4.99 pizza special in Q1 2024, refining strategy to enhance convenience, quality, and profitability.

The retail segment contributed approximately $62.9 million in operating income compared to $72.3 million for the prior year period. Same store merchandise sales were down 2.1% year-over-year, total same store merchandise sales down 4.3%, and same store margin rate relatively inline. Same store fuel contribution was down 7.1% for the quarter due to decline in gallons and lower fuel margin per gallon. The wholesale segment had operating income of $20 million for the quarter compared to $18.1 million in the prior year, driven by channel optimization. The fleet segment had operating income of $12.4 million for the quarter compared to $9.7 million in the prior year, with resilient fuel margin performance.

• Full year 2025 total company adjusted EBITDA expected in range of $233M to $253M, assuming retail fuel margin $0.395-$0.415 per gallon and mid-teen percent operating profit growth in wholesale segment.
• Q1 2025 total company adjusted EBITDA expected in range of $27M to $33M.
• Retail segment: Estimated 1,339 stores in Q1 2025, low single-digit decline in merchandise sales per average store partially offset by productivity increase, low-single-digit increase in gallons per average store with retail fuel margin $0.37-$0.39 per gallon.
• Wholesale segment: Mid-single-digit operating income growth driven by channel optimization.
• Fleet segment: High-single to low-double-digit operating income growth driven by resilient fuel margin per gallon.

• Weather impact: Adverse weather conditions in first quarter unfavorably impacted customer mobility and sales.
• Consumer spending pressures: Persistent inflation and constrained consumer spending affecting sales across categories.
• Market competition: Shift in consumer consumption to mass and grocery channels away from c-stores, potentially impacting sales.

Q: Bobby Griffin asked about connecting the dots on 2025 guidance with dealerization savings and cost pressures.

A: Robert Giammatteo said the same store base is shifting, steering away from same store metrics, and there's a negative trend in gallons and merch sales currently but expecting improvement as the year progresses.

Q: Kelly Bania inquired about same store sales and gallons trends for remaining retail stores post-dealerization.

A: Robert Giammatteo said remaining stores outperformed in Q4 and Q1-to-date, are more productive, and benefit from being more competitive.

Q: Anthony Bonadio asked about fuel margin guidance and same store OpEx decline.

A: Robert Giammatteo said fuel margin guidance is constructive based on pricing strategies and competitive set, and same store OpEx declines are due to lower top line, managing what can be controlled.

Q: Mark Astrachan asked about weather impact and consumer shift to mass/grocery channels.

A: Arie Kotler said consumer is feeling microeconomic pressure, concentrating on fuel and tobacco to drive traffic, and weather impact is considered in guidance.

Q: Hale Holden asked about bridging dealerization savings to EBITDA guidance.

A: Robert Giammatteo said dealerization savings are annualized run rate, not fully accreting in 2025 as not at steady state yet.

Q: William Reuter asked about dealerization strategy and other alternatives like acquisitions/divestitures.

A: Arie Kotler said dealerization is part of transformation plan, and M&A is still on the table for evaluation based on ROI.