ARKO's Growth Strategy Leads to Record Results

RICHMOND, Va. — ARKO Corp.'s focus on three pillars for growth and its acquisition pipeline paid off in 2022. The parent company of GPM Investments LLC reported record revenue and profitability last year based on its strong performance on multiple fronts.

"2022 was another year of strong results and continued expansion," said Arie Kotler, president, chairman and CEO, during the company's 2022 fourth-quarter and year-end earnings call. "These results emphasize that at our core, ARKO is a retail convenience store operator. It is important to remember that the majority of our profits are generated in our stores."

Same-store merchandise sales, excluding cigarettes, rose 4.3 percent for the quarter and 2.6 percent for the year compared to prior year periods. On a two-year stack bases, they jumped 9.2 percent for the quarter and 7.4 percent for the year, the company reported. 

Additionally, merchandise revenue increased $7 million to $403.1 million during Q4 2022 compared to Q4 2021 and reached $1.65 billion for the full year, up $31.2 million from 2021. Merchandise margin rose 50 basis points to 30.5 percent for the fourth quarter and 110 basis points for the full year.

Kotler commended the company's realigned and expanded marketing and merchandise team, as its strategic initiatives led to continued in-store gross profit expansion. He also noted that, based on IRI data, total in-store dollar sales outpaced the overall market, including in key product categories like beer, wine, packaged beverages, packaged sweet snacks, frozen foods, alternative snacks and general merchandise.

"We continue to price tobacco products competitively to attract adult tobacco consumers," Kotler said. "However, our main in-store focus is to lead with an assortment relevant to our customers and on developing our programs in higher margin items like foodservice and dispensed beverage categories."

ARKO bases its in-store growth strategy on three key pillars:

• Growing sales in core destination categories: When the company acquires new sites, it often adds hundreds of items to the acquired stores, focusing on key merchandise that the company knows resonates with its customers.
• Using the fas REWARDS loyalty program to develop and strengthen the relationship with customers: ARKO ended 2022 with nearly 1.3 million enrolled loyalty members who continue to incrementally grow their total spend over the course of the year. The company is in the final stages of preparing stores for the activation of a new loyalty app that offers real-time information and seeks to enhance customer engagement.
• Expanding its packaged and fresh food offering: ARKO is expanding its food and beverage lineup, creating a value proposition to position its stores as a food destination, and working to increase margin trips and average basket size over the long term.

"Updating areas of our store with a nice food and drink offering has continued to work well for us," Kotler said, noting that unit sales of bean-to-cup coffee increased 7.2 percent last year and are trending up. "We believe that through continuous improvement in each pillar, our core convenience store business is well positioned to deliver great results. Turning to fuel gross profit is the most important metric when analyzing our performance."

ACQUISITIONS & UPGRADES

As part of its long-term growth strategy, ARKO announced four accretive acquisitions in 2022, marking 22 total acquisitions completed since 2013. ARKO closed its 23rd acquisition in the first quarter of 2023. The $370 million deal for Transit Energy Group added approximately 135 c-stores to its network and expanded ARKO's footprint to Alabama and Mississippi.

Another acquisition is pending.

"Our balance sheet is strong, with manageable debt and favorable interest rates. Our industry continues to be highly fragmented," Kotler said. "As a result, the overall deal pipeline is still strong, and we expect to expand our core convenience store business through our acquisition strategy."

Along with its acquisitions, in 2022 ARKO fully remodeled six stores, started the planning and engineering phase of a new-to-industry store in Atlanta, Texas, and expanded its electric vehicle (EV) charging network.

"We continue to identify potential opportunities to install EV charging," Kotler said. "Our goal is to offer EV drivers convenience and amenities they seek in charging destination away from their home at areas where we identify sufficient potential demand."

BY THE NUMBERS

ARKO reported net income of $12.86 million during the fourth quarter, down slightly from $12.93 million in the prior year period, while net income for the full year rose from $59.4 million to $72 million. Operating income was $33.7 million for Q4 2022, up from $28.4 million in Q4 2021, and $167 million for the full year, up from $142.1 million the previous year.

Adjusted EBITDA was $72.4 million for the quarter, compared to $58.4 million one year ago, and $301.1 million for the full 2022, compared to $256.6 million in 2021.

Retail fuel gross profit increased 16.3 percent during Q4 to $104.3 million and increased 19 percent for the full year to $416.2 million.

The company closed the quarter and the year with 1,404 retail sites in operation across its network, along with 1,674 wholesale sites and 183 fleet fueling sites.

Richmond-based ARKO Corp. owns 100 percent of GPM Investments LLC and is one of the largest convenience store operators and wholesalers in the United States.