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05/12/2022

ARKO CEO Says Company Is 'Primed for Prodigious Growth'

The M&A pipeline is more active than last year, according to Arie Kotler.
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Arko Corporation

RICHMOND, Va. — Strong in-store sales of packaged beverages, candy and other tobacco products (OTP), as well as increased fuel margins, led ARKO Corp. to a strong first quarter in its 2022 fiscal year. 

Packaged beverage sales rose by 1.6 percent compared to the prior year, candy was up 3.9 percent and despite declines in cigarette sales, customers shifted to purchasing OTP, Arie Kotler, president, chairman and CEO of ARKO, parent company of GPM Investments LLC, reported during the company's recent Q1 2022 earnings call. 

Retail fuel gallons sold increased by 5.9 percent year over year to 239.558 million gallons, and fuel margins increased by 16.8 percent to 37.5 cents per gallon during ARKO’s most recent quarter ended March 31.

"The business continues to be quite healthy," Kotler stated during the earnings call, held earlier this month. "We are primed for prodigious growth. We are a unique business and a market leader.

He stressed that due to inflation and the conflict in Ukraine causing major changes to the fuel market, customer behavior is in flux. Consumers may not have the same amount of net cash as a year ago, he noted. 

"We are well positioned [though]," Kotler assured. "We offer pizza and fresh coffee at a low price. Loyalty customers can get [a slice of] pizza for as low as 99 cents.

Grab-and-go food options and bean-to-cup coffee, which are now available at more than 275 of the company's convenience stores, have been big hits, according to the chief executive, who added that the coffee offering is slated to expand to more stores — both newly renovated and traditional locations.

Sbarro franchises are another source of strength, relayed Kotler. Two Sbarro locations were added in 2022's first quarter, with many more on the way this year.

Overall, ARKO achieved net income of $2.3 million in its 2022 first quarter, a sizeable increase compared to the $14.7 million the company lost during its 2021 first quarter. Merchandise margins increased to 29.5 percent, vs. 27.4 percent a year ago. Same-store merchandise sales, excluding cigarettes, increased by 0.1 percent year over year.

M&A OUTLOOK

Thanks to a one-year extension of its existing $1 billion agreement with real estate investment firm Oak Street Real Estate Capital LLC, ARKO is well positioned to acquire more convenience stores. The extension provides aggregate availability in the amount of $1.15 billion for the second year of the term. 

"The M&A pipeline is very active," said Kotler. "We see a lot of opportunities coming. It is more active than last year."

ARKO will also focus on renovating its existing properties. Raze-and-rebuilds are another focal point, following the tremendous success ARKO saw with its recent raze-and-rebuild of a Scotchman truck stop in Rock Hill, S.C. That property, which was formerly 3,500 square feet, now spans 5,660 square feet. It reopened in November.

"We saw tremendous results at that location. We had an almost 100-percent sales increase, excluding cigarettes," said Kotler. "Raze-and-rebuilds show the best results. We will increase our pace."

Richmond-based ARKO Corp. is the 100-percent owner of GPM Investments, the sixth-largest U.S. convenience store chain. The company operates 1,402 c-stores.