ARKO recently announced in an earnings call that it will temporarily shift its focus from acquiring new businesses to strategically driving traffic in its existing stores, as well as converting approximately 40 locations to dealer sites by the end of the year.
In the earnings call, ARKO revealed that for the second quarter of 2024, net income was $14.1 million, compared to $14.5 million in Q2 2023, with recent acquisitions and higher fuel margins partially offsetting continued declines in gallon demand and lower same store merchandise contribution.
Merchandise revenue decreased by 2.1% to $474.2 million, with incremental merchandise sales from recent acquisitions offset by a slight decline in same store merchandise sales.
As part of ARKO’s focus on accelerating organic growth, the company has announced key developments to its multi-year transformation plan.
First, ARKO plans to allocate capital based in part on a pilot program, currently in development, designed to improve the customer experience and value proposition, potentially including an expanded and refined offering across a larger store network, with a focus on food and an enhanced in-store experience.
Currently, the pilot will focus on seven stores within one region, with the goal of a region-wide roll out before, ultimately, the expansion of this program across the company’s entire retail footprint.
ARKO expects to begin implementing the new design in its pilot stores in the fourth quarter of 2024.
Additionally, the company plans to leverage its multi-segment operating model through more active conversion of retail stores to dealer sites within its wholesale segment.
“Following the company’s review of its retail store portfolio, a meaningful number of retail locations were identified for potential conversion, which are expected to yield greater profitability after conversion,” the company wrote in a statement.
The company plans to have converted approximately 40 retail stores to dealer sites by the end of the third quarter of 2024, of which a small number had converted as of the end of the second quarter of 2024.
Additional details of the multi-year transformation plan will be provided at the company’s investor day that is being scheduled for the fourth quarter of 2024.
“This quarter, we continued to navigate a challenging macroeconomic environment alongside our customers,” said Arie Kotler, chairman, president and CEO of ARKO. “We continued to see pressure on consumers as they struggle with inflation and elevated prices for everyday goods, especially in markets with a large percentage of lower income consumers. While this negatively impacted our retail sales, our team worked hard to control same store expenses and leverage our strong vendor partner relationships to deliver another quarter of merchandise margin growth, while providing much-needed value to our customers. When combined with higher fuel margins, we exceeded our Adjusted EBITDA guidance for the second quarter.”
Kotler continued: “Our commitment to strong execution, enhancing customer value, and improving store level economics remain a top priority. We are well positioned to navigate the near-term macro headwinds, and we continue to believe in the long-term opportunities for ARKO. We expect the ongoing enhancements to our operations will guide us through this environment, while also laying the foundation for our multi-year transformation plan.”
