Arko investors show concern over retailer's ‘dealerization' strategy

Yahoo

6 days ago

This story was originally published on C-Store Dive. To receive daily news and insights, subscribe to our free daily C-Store Dive newsletter.
Dive Brief:
Arko Corp.'s total revenue dropped for the fifth straight quarter as the convenience retailer continues its store dealerization strategy, according to its Q2 earnings report released on Wednesday.
Total revenue fell from over $2.3 billion earned during last year's Q2 to about $1.9 billion in the latest quarter, according to the report. Arko also saw year-over-year drops in merchandise and fuel contribution, which leadership said resulted from the dealerization program and a challenging macroeconomic environment.
Arko launched the dealerization program — in which it converts company-operated c-stores to wholesale locations — in May 2024 as a way to reduce expenses. But over a year later, most of the financial gains haven't materialized, leaving investors anxious about the program's future.
Dive Insight:
Arko's leadership has said since last summer that the dealerization program should help the company yield a cumulative annualized operating income benefit of over $20 million.
Executive Vice President and CFO Robert Giammatteo said on Wednesday's earnings call that Arko is close to a third of the way towards this goal. But attendees on the call repeatedly questioned Kotler and Giammatteo about when they expect the millions in savings to bear fruit, why it's taking a while to do so and if the initial $20 million goal has changed in recent months. Arko's stock price is also down nearly 30% compared to this time last year.
Kotler said that getting the dealers equipped with proper licensing to run the stores is taking longer than anticipated, but despite any slowdown, Arko is 'very pleased' with the progress. He emphasized that all is going according to plan.
'This is a long term play, and we want to make sure that [the dealers] continue to make money, and we want to make sure that they get all of their licenses in order to continue to operate from the minute that we stop operating,' Kotler said.
This isn't the first time investors have expressed concern about the program. In February, analysts asked why Arko was ramping up the strategy even after it saw full-year revenue declines in 2024 because of it. At the time, Giammatteo reassured them that the program was accretive, and that Arko would see gains begin in late 2025 or 2026 once it built out more of a runway with the conversions.
As of June 30, Arko has converted 282 sites and plans to continue doing so into 2026, according to the report. However, Kotler and Giammatteo declined to share with investors the total number of stores it aims to convert, although one attendee on the call speculated that to be about 500. Arko, whose c-store network includes over 1,200 company-operated c-stores across 30 states, is also using the program to inject more capital into the stores it's keeping. This is manifesting in the company's new food-focused stores, the first of which Arko debuted in May in its home area of Richmond, Virginia. Arko opened the second of these stores on Aug. 5 in Kinston, North Carolina.
Recommended Reading
Inside Arko's new food-focused c-store