Arko Corp. (ARKO) Q3 2024 Earnings Call Transcript
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Nov 09 2024
0mins
Should l Buy ARKO?
Source: SeekingAlpha
Adjusted EBITDA $78.8 million (down from $87.3 million, a decrease of approximately 5.7% year-over-year) due to lower retail fuel and merchandise contribution.
Retail Segment Operating Income $71 million (down from $81.5 million, a decrease of approximately 12.1% year-over-year) attributed to lower merchandise sales.
Adjusted Operating Income $85.1 million (down from $96.5 million, a decrease of approximately 11.8% year-over-year) due to decreased retail fuel and merchandise contribution.
Total Retail Merchandise Sales Down approximately 7.3% year-over-year, with merchandise contribution down 4.2%, despite a margin rate expansion of 110 basis points.
Total Retail Fuel Contribution Down 3.4% year-over-year, with a 5.9% gallon decline, partially offset by a margin increase of $0.01 per gallon.
Same Store Merchandise Sales (excluding cigarettes) Down 5.7% year-over-year.
Same Store Transactions Down high-single digits for the quarter, reflecting continued external headwinds.
Same Store Fuel Contribution Down approximately 4.3% for the quarter, with same store fuel gallon demand down 6.6%.
Fuel Margin $0.414 per gallon (up $0.01 per gallon from the year-ago period).
Wholesale Segment Operating Income $8.2 million (down from $10 million, a decrease of approximately 18% year-over-year) due to a decline in gallons and lower fuel margin per gallon.
Fleet Segment Operating Income $10.8 million (up from $8.8 million, an increase of approximately 22.7% year-over-year) driven by strong fuel margin performance.
General and Administrative Expense $38.6 million (down from $44.1 million, a decrease of approximately 12.5% year-over-year) due to lower stock-based compensation expense.
Net Interest and Other Financial Expenses $23.6 million (up from $14.6 million, an increase of approximately 61.6% year-over-year) primarily due to fair value adjustments related to warrants.
Net Income $9.7 million (down from $21.5 million, a decrease of approximately 55.1% year-over-year).
Long-term Debt $885 million at the end of the quarter.
Total Capital Expenditures $29.3 million for the quarter.
Liquidity Approximately $869 million, including $292 million in cash on hand at quarter end.
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Analyst Views on ARKO
About ARKO
Arko Corp. is operators of convenience stores and wholesalers of fuel in the United States. The Company operates through four segments: Retail Segment, Wholesale Segment, Fleet Fueling Segment, and GPMP Segment. The Retail segment includes the operation of a chain of retail stores, which includes convenience stores selling fuel products and other merchandise to retail customers. The Wholesale segment supplies fuel to dealers, on either a consignment or cost-plus basis. The Fleet Fueling segment 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. The GPMP segment includes the operations of GPM Petroleum LP (GPMP), which primarily sells and supplies fuel to GPM Investments, LLC (GPM). It operates its stores under more than 25 regional store brands, including 1-Stop, Admiral, Apple Market, BreadBox, Corner Mart, Handy Mart, Jetz, Jiffi Stop, and others.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Company Valuation: The IPO values ARKO Petroleum at approximately $819 million, reflecting market recognition of its growth potential despite challenges, particularly in the stable demand within the fuel distribution sector.
- Financial Performance: For the nine-month period ending September 30, ARKO Petroleum reported a profit of $24.7 million on revenues of $4.27 billion, a decline from the previous year's profit of $32.7 million on $4.92 billion in revenue, highlighting increasing competitive pressures.
- Use of Proceeds: The company plans to utilize the proceeds from the offering to pay down debt and for general corporate purposes, a strategy that not only aids in improving its financial health but also provides necessary funding for future expansion and operations.
See More
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- Overallotment Option: The underwriters have a 30-day option to purchase an additional 1.67 million shares to cover overallotments, providing additional financial security for the IPO and enhancing market confidence.
- Equity Structure: Post-IPO, ARKO is expected to own 35 million shares of APC's Class B common stock, representing a 75.9% interest and 94.0% of the combined voting power, which will strengthen ARKO's control over APC.
- Market Impact: This IPO not only provides ARKO with crucial funding but may also elevate its position in the small-cap market, attracting more investors to its future growth potential.
See More
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- IPO Pricing Announcement: ARKO Petroleum Corp. has priced its initial public offering (IPO) at $18.00 per share for 11,111,111 shares, with trading expected to commence on February 12, 2026, reflecting strong market confidence in its business model.
- Over-Allotment Option: The company has granted underwriters a 30-day option to purchase an additional 1,666,666 shares, enhancing market liquidity and investor confidence in the offering's success.
- Control Structure: Upon completion of the IPO, ARKO is set to own 35,000,000 shares of APC's Class B common stock, representing 75.9% of economic interests and 94.0% of voting power, ensuring significant influence over corporate decisions and bolstering investor trust in governance.
- Underwriter Lineup: The IPO is being led by UBS Investment Bank, Raymond James, and Stifel, showcasing a robust presence in the capital markets that is likely to attract further investor interest in ARKO's growth trajectory.
See More
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- New Store Opening: ARKO Corp. has opened its latest Handy Mart store in Garner, North Carolina, marking the second NTI store featuring the fas craves food concept, which enhances the company's competitive edge in the convenience retail market.
- Menu Expansion: The new store offers a wide range of hot and cold grab-and-go options, including Nathan's hot dogs, breakfast sandwiches, and various beverages, aimed at meeting the modern customer's demand for quick, high-quality food, thereby increasing customer satisfaction and retention.
- Customer Experience Optimization: The store features a contemporary layout and digital menu boards designed to enhance shopping flow, making it easy for customers to quickly grab meals and beverages, which further strengthens brand appeal.
- Loyalty Program Benefits: Through the fas REWARDS program, customers can save up to $2.50 per gallon at the pump, attracting more customers and boosting overall sales, reflecting the company's commitment to delivering value to its customers.
See More
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- Adjusted EBITDA: The expected Adjusted EBITDA for Q4 2025 is projected between $63.1 million and $66.1 million, demonstrating operational resilience despite losses, which may instill confidence in potential investors.
- Annual Performance Outlook: For the full year 2025, net income is expected to range from $19.1 million to $21.3 million, suggesting stability in overall business performance, with positive growth anticipated despite market fluctuations.
- IPO Roadshow Launch: ARKO's subsidiary, ARKO Petroleum Corp., has initiated a roadshow for its initial public offering, which is expected to bring in new capital inflows, further supporting the company's expansion and investment plans while enhancing its competitive position in the market.
See More
ARKO Subsidiary Launches IPO Roadshow
- IPO Offering Size: ARKO's subsidiary APC plans to offer 10,500,000 shares of Class A common stock in its IPO, with an expected price range of $18.00 to $20.00 per share, which will provide crucial funding for future expansion initiatives.
- Underwriter Arrangement: UBS Investment Bank, Raymond James, and Stifel are serving as lead underwriters, expected to provide strong market support for the IPO, thereby enhancing ARKO's influence in the capital markets.
- Additional Share Option: APC plans to grant underwriters a 30-day option to purchase up to an additional 1,575,000 shares of Class A common stock at the IPO price, a strategy that will offer the company flexible capital-raising options.
- Market Listing Plans: APC has applied to list on Nasdaq under the symbol “APC,” a move that will not only enhance the company's market visibility but also lay the groundwork for its future growth strategy.
See More
