Richmond, Va.-based ARKO Corp., the seventh-largest convenience store chain in the U.S., announced financial results for the first quarter ended March 31, 2021.
The company operates or supplies fuel to approximately 2,950 locations in 33 states and Washington, D.C., comprised of approximately 1,325 company-operated stores and approximately 1,625 dealer sites to which it supplies fuel.
First Quarter 2021 Key Highlights
- Operating income of $13.2 million for the quarter versus an operating loss of $8.0 million in first quarter of 2020
- Net loss for the quarter of $14.7 million compared to a net loss of $12.9 million for the first quarter 2020
- Net loss for first quarter 2021 includes $12.1 million for interest expense primarily related to non-cash fair value adjustments for warrants along with one-time $4.5 million in additional interest for the early redemption of the Israeli Bonds (Series C)
- Adjusted EBITDA of $42.3 million, an increase of $25.4 million, or 150%, versus the prior year period, with Empire contributing approximately $13 million of the increase
- Same store merchandise sales increase of 6.0% compared to the prior year period while merchandise margin increased 130 basis points to 27.4% from 26.1%
- Same store merchandise sales excluding cigarettes increase of 9.2% compared to the prior year period
- Eliminating the extra day in 2020 due to the leap year, same store merchandise sales increased by 7.2% and same store merchandise sales excluding cigarettes increased by 10.4% as compared to the first quarter of 2020
- Retail fuel margin cents per gallon increase of 22% to 32.1 cents per gallon; same store fuel gallons sold declined by 13.8%
- DoorDash delivery partnership continues its expansion, now operating in more than 625, or nearly half, of all Company-operated stores
- Empire added 14 new dealers during the quarter
“We are pleased to report another quarter of strong financial results in spite of what remains a challenging operating environment a full year since the start of the pandemic,” said Arie Kotler, Chief Executive Officer of ARKO. “We continue making progress on several of our core growth initiatives, including having launched our remodel program, while at the same time, making solid headway on the Empire integration.”
Kotler also said that ARKO has continued to build upon its strong record of acquisitions through planned purchase of approximately 60 sites from ExpressStop. Just recently, ARKO announced an agreement with Oak Street Real Estate Capital under which it agreed to purchase up to $1 billion dollars in real estate to assist with planned future growth.
“I’m very proud of the dedication of our team and the profitable growth momentum of the business demonstrated in the first quarter of 2021,” said Kotler, “as we continue our journey as one of the largest and most successful convenience store operators in the country.”
First Quarter 2021 Segment Highlights
On the retail side, same store merchandise sales increased 6.0% for the quarter and 9.2% excluding cigarettes as compared to the first quarter of 2020. Adjusting to eliminate the extra day in 2020 due to the leap year, same store merchandise sales increased by 7.2% and same store merchandise sales excluding cigarettes increased by 10.4%.
Total merchandise contribution increased $13.9 million for the quarter compared to the prior year due to the same store revenue growth coupled with a 130-basis point increase in merchandise margin along with a $6.8 million increase as a result of the Empire acquisition.
For the first quarter of 2021, retail fuel profitability (excluding intercompany charges by our wholesale fuel distribution subsidiary, GPM Petroleum LP) increased approximately $10.8 million compared to the prior year period primarily due to the $10.5 million contribution from the Empire acquisition. Higher retail fuel margin cents per gallon increased 22% to 32.1 cents per gallon; same store gallons sold declined by 13.8% as compared to the first quarter of 2020 primarily due to the COVID-19 pandemic.
Wholesale results for the first quarter of 2021 saw fuel profitability (excluding intercompany charges by GPMP) increased approximately $16.2 million compared to the prior year period, with the Empire acquisition accounting for $16.0 million of the growth. Fuel contribution from non-consignment agent locations grew by $8.9 million compared to the prior year due to a 176 million gallon increase in fuel volume. Fuel margin cents per gallon for these locations decreased 0.9 cents versus the first quarter of 2020. The decrease in the margin was due to the inclusion of Empire non-consignment sales, which included spot market sales and longer-term contracts which generally are at a lower margin.
Fuel contribution from consignment agent locations grew $7.3 million compared to the prior year due to quarter over quarter increases in both volume of 32 million gallons and fuel margin, cents per gallon of 2.8 cents. Although volume sold through consignment locations aggregated 17% of the combined total, fuel margin dollars realized accounted for approximately 47% of the fuel margin dollar contribution.
Liquidity and Capital Expenditures
As of March 31, the Company’s total liquidity was approximately $457 million, consisting of cash and cash equivalents of $205.0 million, plus $31.8 million of restricted investments, and approximately $220 million of unused availability under lines of credit.
Outstanding debt was $674.3 million, resulting in net debt of $437.5 million. Capital expenditures were $17.5 million for the three months ended March 31, 2021, compared to $12.1 million for the prior year period.