Arko Corp's Q3 2025: Contradictions Emerge on Dealerization Pace, Fuel Margins, and Store Remodel Timelines

Business Commentary:

* Dealerization Impact: - Arko Corp. converted approximately 350 stores to dealerization as of September 30, 2025, with an additional 185 sites committed for future conversion. - This strategy is expected to deliver a cumulative annualized operating income benefit of over $20 million before G&A and more than $10 million in expected annual structural G&A savings. - The dealerization program aims to reduce overhead, improve operating efficiency, and drive consistent returns and long-term value creation for shareholders.

• Fueling America's Future Campaign:
• The average daily loyalty enrollment for the fas REWARDS program grew by 37% in the quarter and 43% from the beginning of the promotion compared to the average daily enrollment prior to the campaign.
• Arko added nearly 35,000 new enrollees, reaching approximately 2.4 million total enrolled members at quarter end.
• This campaign is designed to deepen customer relationships, drive engagement, and improve same-store sales performance through value offerings and loyalty-driven promotions.

• Operational Efficiency and Financial Performance:

• Adjusted EBITDA for the quarter was $75.2 million, slightly above the midpoint of guidance, with a focus on profitability over volume.
• Same-store gallons improved sequentially from Q2, and September performance showed improvement from August, reflecting a disciplined pricing strategy and network optimization.

• The company's focus on controllable factors and cost management, coupled with strategic growth initiatives, drove strong per gallon margin performance.

• Expansion and Investment Strategy:

• Arko plans to open several new-to-industry stores and new Dunkin' locations in high-traffic areas, with a focus on integrating fresh food, fuel, and loyalty-driven promotions.
• The company aims to increase its cardlock locations, with plans for five new sites in 2026, leveraging the cash flow profile of fleet fueling.
• These investments are part of a broader strategy to grow and diversify its fueling infrastructure amid a competitive market and a challenging consumer environment.

Contradiction Point 1

Dealerization Pace and Savings Target

It involves the expected pace and benefits of the dealerization program, which could impact operational costs and financial projections.

What is the opportunity to accelerate store remodels, given that 7 stores are a small portion of your store base? Can you outline the timeline for accelerating these remodels? - Robert Griffin (Raymond James & Associates, Inc.)

2025Q3: We are working on increasing the number of stores beyond the initial 7, focusing on food service and core categories. We expect to have another 20-25 stores ready immediately after the initial 7 are completed. - Arie Kotler(CEO)

Is the dealerization pace on track with original plans and the expected savings target? - Benjamin Wood (BMO Capital Markets)

2025Q2: Dealerization pace is in line with plans, with 500 stores targeted in 18 months. The savings target of $20 million is inclusive of all planned dealerizations. The program is on track with licenses and legalities in process. - Arie Kotler(CEO)

Contradiction Point 2

Fuel Margins and Pricing Strategy

It involves the company's approach to fuel margins and pricing, which directly affects revenue and competitive positioning.

How sustainable are gross margin improvements, and are you still competitive on pricing? - Benjamin Wood (BMO Capital Markets Equity Research)

2025Q3: Heavy promotions in food service and back bar initiatives have improved margins. Fuel margins have been strong, with a $0.035 increase in Q2. - Arie Kotler(CEO)

Can you discuss fuel margins and competitive market dynamics? - Anthony Bonadio (Wells Fargo Securities, LLC)

2025Q2: Fuel margins have been strong, with a $0.035 increase in Q2. The company is competitive, leveraging software to optimize gross profit. Market volatility can support higher CPG margins. - Arie Kotler(CEO)

Contradiction Point 3

Store Remodel Initiatives and Timing

It involves the timeline and priorities for store remodels, which can significantly impact operational efficiency and financial performance.

What is the opportunity to accelerate store remodels given that 7 stores are a small portion of the total base? What is the timeline for accelerating the remodels? - Robert Griffin (Raymond James & Associates, Inc., Research Division)

2025Q3: We are working on increasing the number of stores beyond the initial 7, focusing on food service and core categories. We expect to have another 20-25 stores ready immediately after the initial 7 are completed. - Arie Kotler(CEO)

When will the remodel initiative accelerate, and what is the expected CapEx per store? - Bobby Griffin (Raymond James)

2025Q1: Remodel plans are progressing, with construction starting on pilot stores. The investment ranges from $700,000 to $1.1 million per store. Initial results from pilot stores will drive future expansion decisions, with increased rollout expected in 2026. - Arie Kotler(CEO)

Contradiction Point 4

Store Remodeling and Dealerization Strategy

It involves the company's strategy for store remodeling and dealerization, which directly impacts capital expenditure allocation and operational efficiency.

What is the opportunity to accelerate the store remodels, especially given that 7 stores represent a small fraction of your store base, and what is the timeframe for this acceleration? - Robert Griffin(Raymond James & Associates, Inc., Research Division)

2025Q3: We are working on increasing the number of stores beyond the initial 7, focusing on food service and core categories. We expect to have another 20-25 stores ready immediately after the initial 7 are completed. - Arie Kotler(CEO)

Could you outline the 2025 strategic priorities and the company's positioning for growth? - Mitchell Pinheiro(Piper Sandler)

2024Q4: We believe that a significant portion of our locations can benefit from dealerization, which will reduce our maintenance CapEx and increase our cash flow conversion. - Arie Kotler(CEO)

Contradiction Point 5

Gross Margin Improvements and Pricing Strategy

It involves the company's gross margin improvements and pricing strategy, which are critical factors for financial performance and competitive positioning.

Are the gross margin improvements sustainable, and are you maintaining pricing competitiveness? - Benjamin Wood(BMO Capital Markets Equity Research)

2025Q3: Margin improvements are due to heavy promotions supported by vendors. The pricing remains competitive, and the sustainability of margin improvements is supported by continued promotional activity. - Arie Kotler(CEO)

Can you provide an update on your gross-to-net realization and key account growth trends? - Mitchell Pinheiro(Piper Sandler)

2024Q4: The gross-to-net realization improved by 80 and 100 basis points in Q4 and January, respectively. Key accounts continued to grow, with a 10% increase year-over-year. - James Gingerich(CFO)