RICHMOND, Va. — ARKO Corp. navigated historic volatility and inflation by remaining focused on multiple in-store strategies to see growth in same-store merchandise sales while increasing margins.
Particularly, strong in-store sales of frozen foods, center store items including sweet and salty snacks, alcohol and other tobacco products (OTP) drove merchandise margin to increase 170 basis points and total merchandise contribution to increase approximately 7.3 percent to $131.4 million when compared to the same quarter of 2021.
Same-store merchandise sales, excluding cigarettes, increased 1.4 percent for the quarter, according to the company's second quarter 2022 earnings. ARKO is the parent company of GPM Investments LLC.
"In our stores, customers continue to buy items that fulfill their basic needs. We believe that we are driving some of this demand with compelling fas REWARDS promotions and offering great discounts on fuel and in-store purchases," Arie Kotler, president, chairman and CEO of ARKO, said during the company's recent earnings call.
"We have a very compelling offering and continue to implement key initiatives that are resonating with our customers. One of the factors that make this company successful is our ability to identify and deliver the right combination of initiatives," he added.
The company continued to pursue several strategic initiatives in the second quarter, completing five store remodels while continuing to implement aspects of its remodel program including investment in high-margin categories and improved foodservice in stores throughout its operating footprint.
This included remodeling store deli areas to open four Sbarro pizza locations, for a total of eight open for business. ARKO plans to open 50 Sbarro locations by the end of 2022.
The company is also planning to break ground on three Dunkin' locations and remodel two stores. Two Dunkin' sites have been remodeled so far this year. In addition, ARKO remodeled one Subway location during the second quarter for a total of six Subway remodels this year.
Following on the heels of a successful rollout of open-air coolers and freezers, ARKO installed on-demand bean-to-cup coffee machines in 548 stores, exceeding its stated goal of 525 stores. The retailer increased coffee unit sales by almost 22 percent during the quarter, according to Kotler, who noted that the program is "very competitively priced for cost-conscious consumers."
ARKO also recently installed level 3 fast chargers at a Village Pantry in Marysville, Ohio. Deployed by ChargePoint, the chargers support all types of electric vehicles (EV). The company will also install chargers at two stores in Colorado.
"We are in the early stages of our EV charging strategy. We are identifying grants and subsidies and exploring partnerships at the corporate level," Kotler said. "Our ambition is to make EV drivers loyal customers as adoption increase in our store footprint."
Other key initiatives for the company include:
- ARKO remains on track to begin engineering on a new-to-industry store in Atlanta, Texas.
- Continued growth of the fas REWARDS loyalty program, which has approximately 1.1 million enrolled members.
- The rollout of the retailer's loyalty app, which is currently under development. The app will enable communication between ARKO and fas REWARDS members, and offer capabilities such as order and delivery, among other features.
Overall, ARKO reported net income of $31.8 million, an increase of $6.2 million or 24.4 percent compared to $25.6 million in the second quarter in 2021. Adjusted EBITDA increased 4.4 percent to $79 million for the second quarter vs. $75.7 million for the same period of 2021.
Total fuel gross profit increased 15.1 percent to $130.8 million and same-store fuel profit increased $8.5 million year over year. Fuel margins increased 20.4 percent from the comparable quarter in 2021 to 41.3 cents per gallon during the most recent quarter.
During the second quarter, ARKO closed on the company's 21st acquisition in less than 10 years, picking up certain assets from Quarles Petroleum Inc.
The deal, which was announced in February, included 121 proprietary Quarles-branded cardlock sites, management of 63 third party cardlock sites for fleet fueling operations, and 46 independent dealer locations, including certain lessee-dealer sites. The company also acquired a small transportation fleet.
The acquisition is expected to add approximately $17.5 million of adjusted EBITDA on an annualized basis.
According to Kotler, ARKO's acquisition pipeline is "very, very active," noting that the company is well positioned to use the current market conditions to the company's advantage, given its strong financial position.
"In terms of acquisitions, cost pressure has created opportunities and advantage for a large operator like ARKO. It's important to remember that the convenience store industry tends to be very resilient and has historically grown during recession," he commented.
As of June 30, ARKO operated 1,308 retail sites and 1,620 wholesale sites.
Richmond-based ARKO owns 100 percent of GPM Investments LLC and is one of the largest convenience store operators and wholesalers in the United States.