Arko (c-store operator) reported continued pressure on their core low-income consumers who are struggling with elevated prices for everyday goods. 2Q24 results reflected a -6.6% y/y decline in fuel gallon sales & an -8% drop in same-store transactions, partially offset by a +4.8% y/y increase in its fuel margin (cent per gallon) & strong food service sales propelled by compelling pizza value. Management reported that 70% of the 150,000 domestic c-store industry is currently generating positive results by increasing their fuel margin until inside sales start to rebound.
Key Points
- 2Q24 sales declined -3.3% y/y & a -3% adjusted EBITDA drop beat guidance, helped by a higher-than-expected retail fuel margin per gallon.
- In any case, fuel gallon comps declined -6.6% y/y as low-income consumers continued to cut back on driving.
- A -5.1% y/y merchandise comp sale decline (including a substantial -8% transaction drop) was partially offset by a +90 bps y/y increase in its merchandise margin to 32.8%, driven by marketing & merchandising initiatives
- Food & beverage same-store sales increased +9% y/y & the company intends to continue leaning into food service by emphasizing value, bundles, the return of loyalty discounts, and a $10 incentive for newly enrolled members.
- Same-store pizza sales increased +19% y/y (units sold +36%) driven by a strong value proposition.
- Efforts to continue enhancing its food program include the expansion of a re-launched hot dog & roller grill program (anchored by Nathan’s Famous all beef hot dogs) to 460+ of its retail stores.
