RICHMOND, Va. — ARKO Corp.'s second quarter 2023 results demonstrate that the convenience store chain's core merger-and-acquisition (M&A) and integration capabilities help create long-term stockholder value, Arie Kotler, chairman, president and CEO, said during the company's latest earnings call held this month.
During the quarter, ARKO closed the books on its 23rd and 24th acquisitions since 2013, respectively. On March 1, the parent company of GPM Investments LLC completed its $370 million purchase of the assets of Transit Energy Group (TEG) and its affiliates. The deal for TEG added 135 c-stores to ARKO's operational footprint and expanded its southern retail territory into Alabama and Mississippi. The company also picked up 181 dealer locations in the deal.
Then, on June 6, ARKO closed on its acquisition of WTG Fuels Holdings LLC, owner of Uncle's Convenience Stores and GASCARD fleet fueling operations. The transaction significantly enhanced the company's footprint in key Texas and New Mexico markets, and increased its fleet fueling operations with 68 GASCARD-branded fleet fueling cardlock sites and 43 private cardlock sites.
Through the WTG acquisition, ARKO expects to add approximately $14.9 million of adjusted EBITDA on an annualized basis, including expected synergies, Kotler reported.
In addition to its second quarter 2023 acquisitions, ARKO is beginning to see strong early results materialize following the acquisition of Pride Convenience Holdings LLC, which closed in the fourth quarter of 2022. In the second quarter of 2023, merchandise margin expanded 290 basis points vs. the first quarter of 2023. Additionally, for the first and second quarters of 2023, Pride generated approximately $8.5 million of store-level adjusted EBITDA.
On June 30, ARKO opened a new-to-industry Pride travel center opened in South Windsor, Conn., bringing the brand's total store count to 32.
ARKO currently operates 1,547 c-stores in more than 30 states under more than 25 regional brands. The retailer added 159 company-operated stores in 2023 through completed acquisitions.
"We have additional new units in the pipeline that are in various stages of development, and I look forward to adding more into the future," Kotler said.
Retail Operations Earnings
In addition to integration efforts paying off, ARKO is seeing positive results of many initiatives across its convenience stores. The company bases its in-store growth strategy on three key pillars:
As a result of these efforts, second quarter same-store merchandise sales, excluding cigarettes, grew 3.8 percent, while same-store sales increased by 0.7 percent. The increase in same-store sales was driven by continued strong performance in high-margin destination categories of candy (+12.2 percent), salty snacks (+11.7 percent), packaged sweet snacks (+7.3 percent), packaged beverages (+5.2 percent), alternative snacks (+3.9 percent) and beer (+2.8 percent).
Merchandise gross profit contribution grew by $6.5 million for the quarter, or 5 percent, on a same-store basis when compared to the same period last year. Merchandise margin increased 150 basis points to 31.9 percent for the quarter vs. 30.4 percent year over year.
Other earnings the Richmond-based company reported included:
Adjusted EBITDA was up $7.2 million to $86.2 million vs. $79 million year over year, an increase of 9.1 percent, including recent acquisitions.
Net income for quarter was $14.5 million when compared to $31.8 million in the year-ago period, primarily due to an approximately $15 million increase in depreciation and amortization expenses in connection with recent acquisitions, and favorable fair-value adjustments in the prior year quarter.
Total retail gallons increased 15.9 percent in Q2 2023 vs. Q2 2022, while volumes on a same-store basis declined 2.6 percent.
Operating expenses increased 17.5 percent to $29.5 million primarily due to $29.8 million of expenses related to recent acquisitions and an increase of $3.2 million in expenses at same stores, mainly driven by $4.2 million, or 6.5 percent, of higher personnel costs when compared to the year-ago period.
ARKO operates in four reportable segments: retail, which includes convenience stores selling merchandise and fuel products to retail customers; wholesale, which supplies fuel to independent dealers and consignment agents; fleet fueling, which includes the operation of proprietary and third-party cardlock locations, and issuance of proprietary fuel cards that provide customers access to a nationwide network of fueling sites; and GPM Petroleum, which sells and supplies fuel to its retail and wholesale sites and charges a fixed fee, primarily to its fleet fueling sites.