8-K: ARKO Corp. Reports Mixed Fourth Quarter and Full Year 2024 Results Amidst Transformation Plan

ARKO Corp. announces its Q4 and full year 2024 financial results, showing a decrease in net income and adjusted EBITDA, but an increase in merchandise margin rate, as the company progresses with its dealerization program and transformation plan.

Summary

• ARKO Corp. reported a net loss of $2.3 million for the fourth quarter of 2024, compared to a net income of $1.1 million in the same period last year.
• For the full year 2024, net income was $20.8 million, down from $34.6 million in 2023.
• Adjusted EBITDA for Q4 2024 was $56.8 million, compared to $61.8 million in Q4 2023.
• Full year 2024 Adjusted EBITDA was $248.9 million, a decrease from $276.3 million in the previous year.
• The merchandise margin rate increased to 33.0% for the quarter and 32.8% for the year.
• Merchandise contribution decreased to $134.9 million for the quarter and $579.6 million for the year.
• Retail fuel margin was 38.7 cents per gallon for the quarter and 39.6 cents per gallon for the year.
• The company converted 153 retail stores to dealer sites in 2024, with approximately 100 conversions in Q4 alone.
• ARKO expects to convert another approximately 100 retail stores by the end of the first quarter of 2025.
• The stores converted to dealer locations in 2024 are expected to produce an annualized benefit to combined wholesale segment and retail segment operating income of approximately $8.5 million.
• The company expects its channel optimization to yield a cumulative annualized benefit of operating income in excess of $20 million at scale.
• ARKO expanded its planned pipeline of NTI (new-to-industry) stores to eight, including two stores that opened in 2024 and an additional two stores opened in the first quarter of 2025.
• The Board declared a quarterly dividend of $0.03 per share of common stock to be paid on March 21, 2025, to stockholders of record as of March 10, 2025.
• The company expects first quarter 2025 Adjusted EBITDA to range between $27 million and $33 million, with an assumed range of average retail fuel margin from 37.0 to 39.0 cents per gallon.
• The company expects full year 2025 Adjusted EBITDA to range between $233 million and $253 million, with an assumed range of average retail fuel margin from 39.5 to 41.5 cents per gallon.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the company highlights positive aspects like increased merchandise margin and strategic initiatives, the overall financial results show a decline in net income and adjusted EBITDA. The forward-looking guidance is cautiously optimistic but acknowledges ongoing challenges.

Positives

• Merchandise margin rate increased to 33.0% for the quarter and 32.8% for the year, indicating improved profitability on merchandise sales.
• The dealerization program is expected to yield significant annualized operating income benefits, estimated at $8.5 million for stores converted in 2024.
• Channel optimization is projected to generate a cumulative annualized operating income benefit exceeding $20 million at scale.
• The company expanded its planned pipeline of NTI stores to eight, with two stores opened in 2024 and two more in the first quarter of 2025.
• The Board declared a quarterly dividend of $0.03 per share of common stock.
• Fleet Fueling fuel contribution increased by $8.4 million compared to the year ended December 31, 2023.

Negatives

• Net loss for Q4 2024 was $2.3 million, compared to a net income of $1.1 million in Q4 2023.
• Net income for the full year 2024 decreased to $20.8 million from $34.6 million in 2023.
• Adjusted EBITDA decreased to $56.8 million in Q4 2024 from $61.8 million in the prior year's quarter.
• Full year 2024 Adjusted EBITDA was $248.9 million, a decrease from $276.3 million in the previous year.
• Merchandise contribution decreased to $134.9 million for the quarter and $579.6 million for the year.
• Retail fuel contribution decreased $9.1 million to $100.2 million compared to the prior year period.

Risks

• The company acknowledges navigating a challenging macroeconomic environment in 2024.
• The company's future financial results are subject to 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 is a risk factor.
• Changes in applicable laws or regulations, including those relating to environmental matters, could impact the company's performance.
• The outcome of any known or unknown litigation and regulatory proceedings could affect the company's financial results.

Future Outlook

The company expects first quarter 2025 Adjusted EBITDA to range between $27 million and $33 million, with an assumed range of average retail fuel margin from 37.0 to 39.0 cents per gallon, and full year 2025 Adjusted EBITDA to range between $233 million and $253 million, with an assumed range of average retail fuel margin from 39.5 to 41.5 cents per gallon.

Management Comments

• Arie Kotler, Chairman, President, and CEO of ARKO, stated that the company navigated a challenging macroeconomic environment in 2024 while advancing the development of its multi-year transformation plan.
• Mr. Kotler mentioned progress with the dealerization program, strengthening merchandising initiatives, and enhancing customer engagement.
• Mr. Kotler stated that the company remains committed to driving sustainable long-term growth and value creation for its stakeholders in 2025.
• Mr. Kotler stated that the company plans to strengthen its competitiveness by continuing to invest in higher-growth categories, delivering further value to its customers and further optimizing its store portfolio.

Industry Context

ARKO Corp., operating in the convenience store and fuel wholesale sectors, is adapting to changing consumer preferences and macroeconomic conditions through strategic initiatives like dealerization and investments in higher-growth categories such as food service and other tobacco products. The company's focus on operational efficiencies and channel optimization reflects a broader industry trend of streamlining operations and enhancing customer experience to maintain competitiveness.

Comparison to Industry Standards

• ARKO's performance can be compared to other major convenience store chains like 7-Eleven, Circle K (Alimentation Couche-Tard), and Casey's General Stores.
• While specific financial metrics vary, a key industry benchmark is same-store sales growth, which ARKO reported declines in for both fuel and merchandise in Q4 2024.
• The company's focus on increasing merchandise margin rates aligns with industry efforts to drive profitability through non-fuel sales, as fuel margins can be volatile.
• The dealerization program is a strategic move to optimize capital allocation, similar to asset-light strategies employed by other retailers.
• ARKO's Adjusted EBITDA margins can be compared to those of its peers to assess its operational efficiency and profitability.

Stakeholder Impact

• Shareholders will receive a quarterly dividend of $0.03 per share.
• Employees may be affected by the ongoing dealerization program and store conversions.
• Customers may experience changes in store offerings and promotions as the company focuses on higher-growth categories.
• Suppliers may see shifts in demand as the company optimizes its merchandise mix.
• Creditors should note the company's total liquidity of approximately $841 million and outstanding debt of $881 million.

Next Steps

• The company expects to convert another approximately 100 retail stores to dealer sites by the end of the first quarter of 2025.
• The company expects to open the four remaining NTI locations over the course of 2025.
• The company plans to continue investing in higher-growth categories and optimizing its store portfolio.

Key Dates