ARKO Weathers Challenging Q2 2024
RICHMOND, Va. — ARKO Corp. continued to navigate a challenging macroeconomic environment alongside its customers.
"We continued to see pressure on consumers as they struggle with inflation and elevated prices for everyday goods, especially in markets with a large percentage of lower-income consumers," ARKO Chairman, President and CEO Arie Kotler said during the company's second quarter 2024 earnings call, held Aug. 5.
"While this negatively impacted our retail sales, our team worked hard to control same-store expenses and leverage our strong vendor partner relationships to deliver another quarter of merchandise margin growth while providing much-needed value to our customers," he continued.
[Read more: CSN EXCLUSIVE: ARKO Corp. Balances Quality & Value]
For the quarter ended June 30, total merchandise contribution increased $1.1 million year over year due to $5.6 million in incremental merchandise contribution from recent acquisitions, which was partially offset by a decrease in same-store merchandise contribution. Same-store merchandise contribution decreased primarily due to lower contribution from certain core destination categories, as well as cigarettes.
Merchandise margin increased 90 basis points to 32.8% for the second quarter of 2024, which was supported by ARKO's three key marketing and merchandising initiatives. They are growing sales in core destination categories; using the fas REWARDS loyalty program to develop and strengthen the relationship with customers; and expanding the packaged and fresh food offering.
As Kotler reported, ARKO is seeing "great results" in the value-oriented pizza offering that launched in the first quarter of the year. Relative to convenience retailer's old pizza program, same-store pizza sales in Q2 increased approximately 19% and units sold increased 36%.
In addition to the pizza program, ARKO expanded its foodservice offering with Nathan's Famous hot dogs, which are available in more than 460 of its retail stores across the country. Even though the program started in the middle of the quarter, ARKO is seeing strong customer response with same-store hot dog sales at approximately 16% over the prior year quarter.
All in, same-store food and dispense beverage contribution dollars were up more than 9% and 400-plus basis points in margin rate when compared to the prior year period.
"We plan to continue leaning into foodservice by offering value and bundles to further help our customers in this challenging macroenvironment," Kotler said. "Food and dispensed beverages are key components of our strategic plan and I'm pleased with the progress that the team has made given the ongoing consumer pressure."
Leveraging the strength of its fas REWARDS program, ARKO reinstated a $10 sign-on incentive for newly enrolled members. For context, the retailer added more than 365,000 enrolled loyalty program members during the third quarter of 2023.
"We ran our promotion last year and we expect the return of these promotions to continue to improve loyalty enrollment and accelerate traffic and spending across our stores, as reflected by same-store loyalty sales, and deliver incremental merchandise contribution dollars," the chief executive explained.
Other Q2 2024 Financials
Overall, for the second quarter of 2024, ARKO reported:
- Net income for the quarter was $14.1 million vs. $14.5 million for Q2 2023.
- Adjusted EBITDA was $83.8 million compared to $86.2 million for the year-ago period.
- Retail fuel contribution increased $1.4 million to $118 million compared to the prior-year period, with resilient fuel margin capture of 41.6 cents per gallon, an increase of 1.9 cents per gallon compared to the second quarter of 2023.
- Incremental fuel contribution from recent acquisitions of approximately $5 million was partially offset by same-store fuel contribution, which decreased to $111.4 million for the second quarter of 2024 vs. $114.7 million for the second quarter of 2023.
- C-store operating expenses increased $4.8 million, primarily due to $7.4 million of incremental expenses related to recent acquisitions.
- Same-store expenses were down 0.5% due to lower personnel costs and lower credit card fees. The increase in site operating expenses was partially offset by underperforming retail stores that were closed or converted to dealers.
Richmond-based ARKO, which owns 100% of GPM Investments LLC, is one of the largest operators of convenience stores and wholesalers of fuels in the United States. 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.
ARKO is No. 6 on the 2024 Convenience Store News Top 100 ranking.