ARKO - ARKO Corp. Reports Fourth Quarter and Full Year 2023 Results

RICHMOND, Va., Feb. 27, 2024 (GLOBE NEWSWIRE) -- ARKO Corp. (Nasdaq: ARKO) (“ARKO” or the “Company”), a Fortune 500 company and one of the largest convenience store operators in the United States, today announced financial results for the quarter and full year ended December 31, 2023.

Fourth Quarter and Full Year 2023 Key Highlights ^1,2

• Net income for the quarter was $1.1 million, compared to $12.9 million for the prior year quarter. For the year, net income was $34.6 million, compared to $72.0 million for the prior year.
• Adjusted EBITDA for the quarter was $65.5 million, compared to $72.4 million for the prior year quarter, primarily due to reduced fuel contribution at same stores, with retail cents per gallon (“CPG”) of 39.2 in the fourth quarter of 2023 compared to retail CPG of 41.4 in the fourth quarter of 2022. For the year, adjusted EBITDA was $290.4 million, compared to $301.1 million for the prior year, primarily due to reduced fuel contribution at same stores, with retail CPG of 38.8 in 2023 compared to retail CPG of 41.4 in 2022.
• Merchandise revenue for the fourth quarter of 2023 was $446.7 million, an increase of $43.6 million compared to the prior year period. Merchandise revenue for 2023 was $1.84 billion, an increase of $190.4 million compared to 2022.
• Merchandise contribution increased by $24.0 million for the fourth quarter of 2023, or 19.6%, and increased by $83.9 million for the year ended December 31, 2023, or 16.7%, as compared to the respective prior year periods. Merchandise margin expanded, increasing approximately 240 basis points to 32.9% for the quarter and 140 basis points for the full year, primarily due to execution of key marketing and merchandising initiatives.
• Retail fuel contribution increased 4.8% for the fourth quarter of 2023 to $109.3 million and increased 4.6% for the full year to $435.3 million. Retail same store fuel gallons sold decreased 7.5% for the fourth quarter of 2023 and 5.3% for the year.

¹ See Use of Non-GAAP Measures below.
² All references to fuel contribution and fuel margin per gallon are excluding the estimated fixed margin or fixed fee paid to the Company’s wholesale fuel distribution subsidiary, GPM Petroleum LP (“GPMP”) for the cost of fuel (intercompany charges by GPMP).

Other Key Highlights

• Completed five acquisitions in the last eighteen months, with the largest one in March 2023.
• Ended 2023 with more than two million enrolled loyalty members.
• In January 2024, the Company launched a new pizza program, the culmination of over one year of development, which is currently offered at more than 1,000 of the Company’s stores as take-and-bake from the freezer, offering a great quality whole pizza at a value price for enrolled loyalty members, and as a fresh, hot pizza, either whole or by the slice, at approximately 225 of those stores.
• ARKO’s Board of Directors declared a quarterly dividend of $0.03 per share of common stock to be paid on March 21, 2024, to stockholders of record as of March 11, 2024.
• Welcomed Robb Giammatteo to the Company to serve as Executive Vice President and Chief Financial Officer, recognizing his experience in relevant financial and transformation roles in retail and convenience.
  

“Reflecting on our first three years as a public company, we have significantly broadened our geographic footprint through acquisitions, and have delivered approximately $166 million in net income and approximately $850 million in cumulative adjusted EBITDA over this period,” said Arie Kotler, Chairman, President and Chief Executive Officer of ARKO. “For the full year 2023, we delivered $290.4 million in adjusted EBITDA, holding performance within 3.5% of 2022, which was a record retail CPG year of over 41 cents per gallon, in the context of a 3.4% decline in national OPIS fuel gallon demand, with a more pronounced decline in the fourth quarter. As we move into 2024, we are focusing more of our management’s time on driving organic growth and unlocking the value of our retail segment, and I believe we have many levers to pull. Our team is focused on improving the experience of our customers and the productivity of our stores, and later this year, we are planning to host an investor day during which we will share with you our multi-year roadmap and specific milestones to enhance organic performance and drive shareholder value. We continue to execute on our three key merchandise and marketing pillars, including our fas REWARDS loyalty program, which we designed to enhance our relationship with our customers and provide them with extraordinary value, focus on our core destination categories and our food service offering."

Fourth Quarter and Full Year 2023 Segment Highlights

Retail

Same store merchandise sales excluding cigarettes decreased 1.8% for the fourth quarter of 2023 compared to the fourth quarter of 2022, reflecting macroeconomic headwinds. Same store merchandise sales decreased 2.8% for the fourth quarter of 2023 compared to the prior year period. Penetration of the Company’s core destination categories (packaged beverages, candy, salty snacks, packaged sweet snacks, alternative snacks and beer) as a percent of same store merchandise sales increased 90 basis points for the quarter. Total merchandise contribution for the fourth quarter of 2023 increased $24.0 million, or 19.6%, compared to the fourth quarter of 2022, due to $19.7 million in incremental merchandise contribution from the businesses acquired in 2023, and the acquisition of Pride (the “Pride Acquisition”), and an increase in merchandise contribution at same stores of approximately $4.7 million. Merchandise margin increased 240 basis points, to 32.9% for the fourth quarter of 2023 from 30.5% in the fourth quarter of 2022, primarily due to execution of key marketing and merchandising initiatives.

Same store merchandise sales excluding cigarettes increased 2.5% for the year ended December 31, 2023 compared to 2022. Same store merchandise sales increased 0.4% for 2023 compared to the prior year. Total merchandise contribution for 2023 increased $83.9 million or 16.7%, compared to 2022, due to $68.6 million in incremental merchandise contribution from the businesses acquired in 2023, and the Pride Acquisition, and an increase in merchandise contribution at same stores of approximately $20.6 million. Merchandise margin increased 140 basis points, to 31.8% for the year ended December 31, 2023 from 30.4% in 2022, primarily due to execution of key marketing and merchandising initiatives.

For the fourth quarter of 2023, retail fuel contribution increased $5.0 million to $109.3 million compared to the prior year period, with resilient fuel margin capture of 39.2 cents per gallon, a decrease of 2.2 cents per gallon for the fourth quarter of 2023 as compared to the fourth quarter of 2022. Same store fuel contribution was $86.2 million for the fourth quarter of 2023, compared to $99.8 million for the prior year quarter. This decrease in same store fuel contribution was fully offset by approximately $19.3 million of incremental fuel contribution from recent acquisitions.

For the year ended December 31, 2023, retail fuel contribution increased $19.1 million to $435.3 million compared to the prior year, with fuel margin of 38.8 cents per gallon, a decrease of 2.6 cents per gallon compared to the prior year. Same store fuel contribution was $360.1 million for the year ended December 31, 2023, compared to $406.3 million for the prior year. This decrease in same store fuel contribution was fully offset by approximately $70.7 million of incremental fuel contribution from recent acquisitions.

Wholesale

In wholesale, total fuel contribution was approximately $21.6 million for the fourth quarter of 2023 and $92.9 million for the year. Fuel contribution from fuel supply locations increased by $0.1 million for the quarter and decreased by $2.7 million for the full year compared to the prior year periods, while fuel margin decreased, primarily due to decreased prompt pay discounts related to lower fuel costs and lower volumes at wholesale sites not part of the 2023 and 2022 acquisitions, which was partially offset by the incremental contribution from recent acquisitions.

Fuel contribution from consignment agent locations decreased by $0.9 million for the fourth quarter of 2023 and $2.6 million for the full year compared to the prior year periods. Fuel margin also decreased for the quarter and for the year ended December 31, 2023, compared to the prior year periods, primarily due to lower rack-to-retail margins and decreased prompt pay discounts related to lower fuel costs, which was partially offset by the incremental contribution from recent acquisitions.

Fleet Fueling

The fleet fueling segment commenced operations on July 22, 2022; therefore, the year ended December 31, 2022 does not reflect the operations of this segment for the entirety of such period, which affects period-over-period comparability.

Fuel contribution was approximately $13.4 million for the fourth quarter of 2023 and $55.9 million for the year, a decrease of $3.5 million for the quarter and an increase of $28.1 million for the year, compared to the prior year periods reflecting a full year of operations from the Quarles Acquisition, which closed in July 2022, as compared to a partial year of operations in the prior year, and the WTG Acquisition, which closed in June 2023. At proprietary cardlocks, fuel margin per gallon decreased as compared to 2022, which year was impacted by historically high rack-to-retail margins and fuel price volatility.

Store Operating Expenses

For the fourth quarter of 2023, convenience store operating expenses increased $31.0 million, or 18.2% as compared to the prior year period, primarily due to $31.5 million of incremental expenses related to recent acquisitions. Same store expenses were up less than 2%, with increases in repairs and maintenance expenses, rent and personnel expenses partially offset by lower credit card fees. At same stores, personnel expenses for the fourth quarter of 2023 were up $0.7 million from the prior year period, or 1.1%, with wage increases partially offset by reduced overtime and incentives. The total increase in store operating expenses was partially offset by underperforming retail stores that the Company closed or converted to dealer locations.

For the year ended December 31, 2023, convenience store operating expenses increased by $109.6 million, or 16.4%, as compared to the prior year, primarily due to $110.7 million of incremental expenses related to recent acquisitions and an increase in expenses at same stores, including approximately $11.1 million, or 4.1%, of higher personnel costs. The increase in store operating expenses was partially offset by lower credit card fees at same stores and underperforming retail stores that the Company closed or converted to dealer locations.

Long-Term Growth Strategy Updates

Acquisitions and M&A

The Company continued to execute its long-term growth strategy, closing three transactions in 2023, marking 25 total acquisitions since 2013. In December 2022, the Company completed its acquisition of Pride, which operated 31 Pride retail convenience stores at closing and had one store under construction that is now opened. Since closing the Pride Acquisition, the Company has earned back in Adjusted EBITDA approximately 65% of its consideration paid for that transaction.

Liquidity and Capital Expenditures

As of December 31, 2023, the Company’s total liquidity was approximately $831 million, consisting of approximately $218 million of cash and cash equivalents and approximately $613 million of availability under lines of credit. Outstanding debt was $845 million, resulting in net debt, excluding lease related financing liabilities, of approximately $627 million. On May 2, 2023, the Company amended its program agreement (the “Program Agreement”) with affiliates of Oak Street, a division of Blue Owl Capital (“Oak Street”). This amendment extended the term of the Program Agreement and provides for an aggregate up to $1.5 billion of capacity, almost all of which is currently available to the Company through September 30, 2024. Capital expenditures were approximately $111.2 million for the year ended December 31, 2023, including the purchase of certain fee properties, upgrades to fuel dispensers and other investments in stores.

Quarterly Dividend and Share Repurchase Program

The Company’s ability to return cash to its stockholders through its cash dividend program and share repurchase program is consistent with its capital allocation framework and reflects the Company’s confidence in the strength of its cash generation ability and financial position.

The Company’s Board of Directors declared a quarterly dividend of $0.03 per share of common stock to be paid on March 21, 2024 to stockholders of record as of March 11, 2024.

During the quarter, the Company repurchased approximately 1.1 million shares of common stock under the repurchase program for approximately $8.5 million, or an average share price of $7.49. There was approximately $29 million remaining under the expanded share repurchase program as of December 31, 2023.

Company-Operated Retail Store Count and Segment Update

The following tables present certain information regarding changes in the retail, wholesale and fleet fueling segments for the periods presented:

2024 Full Year Guidance Range

The following table provides the Company’s guidance for the year ending December 31, 2024, including a reconciliation of net income to EBITDA and Adjusted EBITDA:

The 2024 full year earnings guidance assumes a range of average retail fuel margin from 36 CPG to 40 CPG.

Based on quarter-to-date trends, the Company expects its first quarter to contribute less to the full year Adjusted EBITDA than in prior years, representing 12% to 14% of the 2024 full year rather than the approximately 16.5% historical contribution to the full year. The Company’s full year guidance framework anticipates current trends to normalize coming out of the first quarter of 2024. The first quarter guidance corresponds to a range of average retail fuel margin from 35 CPG to 39 CPG.

Conference Call and Webcast Details

The Company will host a conference call to discuss these results at 10:00 a.m. Eastern Time on February 28, 2024. Investors and analysts interested in participating in the live call can dial 877-605-1792 or 201-689-8728.

A simultaneous, live webcast will also be available on the Investor Relations section of the Company’s website at https://www.arkocorp.com/news-events/ir-calendar . The webcast will be archived for 30 days.

About ARKO Corp.

ARKO Corp. (Nasdaq: ARKO) is a Fortune 500 company that owns 100% of GPM Investments, LLC and is one of the largest operators of convenience stores and wholesalers of fuel in the United States. Based in Richmond, VA, we operate A Family of Community Brands that offer delicious, prepared foods, beer, snacks, candy, hot and cold beverages, and multiple popular quick serve restaurant brands. Our high value fas REWARDS® loyalty program offers exclusive savings on merchandise and gas. We operate 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; GPM Petroleum, which sells and supplies fuel to our retail and wholesale sites and charges a fixed fee, primarily to our fleet fueling sites; and 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. To learn more about GPM stores, visit: www.gpminvestments.com. To learn more about ARKO, visit: www.arkocorp.com .

Forward-Looking Statements

This document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may address, among other things, the Company’s expected financial and operational results and the related assumptions underlying its expected results. These forward-looking statements are distinguished by use of words such as “anticipate,” “aim,” “believe,” “continue,” “could,” “estimate,” “expect,” “guidance,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and the negative of these terms, and similar references to future periods. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to, among other things, changes in economic, business and market conditions; the Company’s ability to maintain the listing of its common stock and warrants on the Nasdaq Stock Market; changes in its strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; expansion plans and opportunities; changes in the markets in which it competes; changes in applicable laws or regulations, including those relating to environmental matters; market conditions and global and economic factors beyond its control; and the outcome of any known or unknown litigation and regulatory proceedings. Detailed information about these factors and additional important factors can be found in the documents that the Company files with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements speak only as of the date the statements were made. The Company does not undertake an obligation to update forward-looking information, except to the extent required by applicable law.

Use of Non-GAAP Measures

The Company discloses certain measures on a “same store basis,” which is a non-GAAP measure. Information disclosed on a “same store basis” excludes the results of any store that is not a “same store” for the applicable period. A store is considered a same store beginning in the first quarter in which the store had a full quarter of activity in the prior year. The Company believes that this information provides greater comparability regarding its ongoing operating performance. Neither this measure nor those described below should be considered an alternative to measurements presented in accordance with generally accepted accounting principles in the United States (“GAAP”).

The Company defines EBITDA as net income before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding the gain or loss on disposal of assets, impairment charges, acquisition costs, other non-cash items, and other unusual or non-recurring charges. Each of Operating Income, as adjusted, EBITDA and Adjusted EBITDA is a non-GAAP financial measure.

At the segment level, the Company defines Operating Income, as adjusted as operating income excluding the estimated fixed margin or fixed fee paid to GPMP for the cost of fuel.

The Company uses EBITDA and Adjusted EBITDA for operational and financial decision-making and believe these measures are useful in evaluating its performance because they eliminate certain items that it does not consider indicators of its operating performance. Additionally, the Company believes Operating Income, as adjusted provides greater comparability regarding its ongoing segment operating performance by eliminating intercompany charges at the segment level. EBITDA and Adjusted EBITDA are also used by many of its investors, securities analysts, and other interested parties in evaluating its operational and financial performance across reporting periods. The Company believes that the presentation of EBITDA and Adjusted EBITDA provides useful information to investors by allowing an understanding of key measures that it uses internally for operational decision-making, budgeting, evaluating acquisition targets, and assessing its operating performance.

Operating Income, as adjusted, EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as a substitute for net income or any other financial measure presented in accordance with GAAP. These measures have limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of its results as reported under GAAP. The Company strongly encourages investors to review its financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not standardized, same store measures, Operating Income, as adjusted, EBITDA and Adjusted EBITDA, as defined by the Company, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare the Company’s use of these non-GAAP financial measures with those used by other companies.

Supplemental Disclosure of Non-GAAP Financial Information

Supplemental Disclosures of Segment Information

Retail Segment

The tables below shows financial information and certain key metrics of recent acquisitions in the Retail Segment that do not have (or have only partial) comparable information for the prior periods.