Arko (ARKO) Q2 2024 earnings summary

Executive summary

• Adjusted EBITDA for Q2 2024 exceeded guidance, driven by higher retail fuel margins and effective management of fuel pricing and vendor relationships, despite inflationary pressures and lower same-store sales and fuel volumes.

• Net income for Q2 2024 was $14.1 million, slightly down from $14.5 million year-over-year, as acquisitions and higher fuel margins offset declines in fuel demand and same-store merchandise contribution.

• Merchandise revenue decreased 2.1% to $474.2 million, with margin rates expanding to 32.8% and food service initiatives like pizza and hot dogs driving growth in those categories.

• Retail fuel contribution dollars increased modestly due to acquisitions and higher per-gallon margins, despite continued declines in gallon demand.

• The company is advancing a multi-year transformation plan focused on organic and M&A-driven growth, store conversions, and enhanced food programs.

Financial highlights

• Q2 2024 revenue was $2.39 billion, down 3.3% year-over-year; adjusted EBITDA was $83.8 million (old definition), $80.1 million (new definition), both above guidance.

• Net income attributable to common shareholders was $12.6 million, or $0.11 per diluted share, flat year-over-year.

• Retail merchandise sales declined just over 2%, but merchandise contribution rose 0.7% with a 90 basis point margin rate expansion.

• Retail segment fuel gallons fell 3.4% year-over-year, but fuel contribution increased due to higher margins and acquisitions.

• Cash and cash equivalents at quarter-end were $232 million; total liquidity was $806 million.

Outlook and guidance

• Q3 2024 adjusted EBITDA guidance is $70–$86 million (new definition), reflecting a new methodology that includes non-cash rent expense.

• Full-year 2024 adjusted EBITDA guidance is $235–$275 million (new definition), inclusive of $15 million in non-cash rent expense.

• Retail fuel margin guidance for the back half of 2024 is $0.37–$0.45 per gallon.

• Management expects continued volatility in fuel margins due to geopolitical and macroeconomic factors.

• No net income guidance provided due to volatility in certain inputs.