Arko Corp. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Navigated a challenging macro environment with geopolitical events, persistent inflation, etc., with adjusted EBITDA above guidance midpoint.
• Expanded merchandise margin by 80 basis points year-over-year due to category mix, effective promotions, and assortment optimization.
• Saw consecutive improvement from May to June, with better trends in Q3 so far, including improved same-store sales and inside sales trends.
• Dealerization program: over 300 stores converted to date, ~200 under LOI/contract, expected cumulative annualized operating income benefit of more than $20 million before G&A. Identified more than $10 million in expected annual structural G&A savings.
• Launched new store format: first new-format store opened in June, second in July, focusing on food service and elevated customer experience. Introduced Fas Craves food and beverage concept.
• Loyalty program: added over 38,000 new members, enrolled members spend 50% more and visit 3 more trips per month on average.
• OTP: top-performing category for same-store sales and contribution growth, benefiting from expanded assortments and improved visual merchandising.

Segment Performance

• Retail: Operating income was approximately $80.4 million in Q2 2025 compared to $87.9 million in Q2 2024. Same-store merchandise sales (excluding cigarettes) were down 3% year-over-year, while total same-store merchandise sales were down 4.2%. Same-store margin rate was up approximately 50 basis points. Same-store fuel contribution was down approximately $0.8 million with a 6.5% decline in gallons, mostly offset by an increase of $0.026 per gallon. Same-store fuel margin was $0.45 per gallon for the quarter. Same-store operating expenses were down approximately 0.8%.
• Wholesale: Operating income was $23.2 million in Q2 2025 versus $21.3 million in Q2 2024. Fuel margin was $0.101 per gallon versus $0.09 in Q2 2024. Gallons were up 3.9% for the quarter, driven by the channel optimization program, which contributed more than 19 million gallons for the quarter or almost 8% of total wholesale gallons.
• Fleet: Operating income was $13.1 million in Q2 2025 versus $13.7 million in Q2 2024. Total gallons were down 6.8% to the prior year. Fuel margin was very strong for the quarter at $0.49 per gallon, up from $0.459 in Q2 2024.

Guidance

• Third Quarter: Expect total company adjusted EBITDA in the range of $70 million to $80 million. Retail: expected mid-single digits growth per average store in merchandise and gallons, total retail fuel margin in range of $0.425 to $0.445 per gallon. Wholesale: mid- to high-teen percentage operating income growth. Fleet: low single-digit operating income growth, gallons roughly in line with prior year on higher expected cents per gallon.
• Full-Year: Maintained total company adjusted EBITDA guidance in range of $233 million to $253 million.

Risks

• Macro environment challenges including geopolitical events, inflation, and consumer sentiment.
• Execution risks with dealerization program, such as ensuring dealers are fully licensed and equipped.
• Fuel demand softness impacting retail and wholesale fuel volumes.

Question and Answer

Q: Dive into July commentary, driver of improvement?

A: Arie Kotler mentions Fueling America promotions, stronger assortments, and loyalty-driven offers driving trip frequency and improved sales.

Q: Channel optimization G&A savings?

A: Rob Giammatteo states G&A savings already seen in Q2, with more to come as the program scales, with some savings immediate and others to come in 2026.

Q: CapEx on 22 fee properties?

A: Arie Kotler says $22 million for the 22 fee properties, with CapEx back to prior year pace when excluding this one-time purchase.

Q: Fuel margins, competitive environment?

A: Arie Kotler and Rob Giammatteo discuss fuel margin improvement, CPG margin benefits from volatility, and continued focus on competitiveness despite soft fuel demand.

Q: Dealerization pace, new store format?

A: Arie Kotler states dealerization pace is in line with plan, with 500 stores targeted in 18 months; Benjamin Wood问及new store format square footage and labor, with Arie explaining no square footage increase in first new store and shared labor model for food service concept.