Q2 2021 Arko Corp. Earnings Call
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Greetings and welcome to the Arco's second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Chris Mandeville, managing director of Investor Relations at ICR. Thank you you may begin.
Good morning, and welcome to Arco's second quarter fiscal year, 2021 earnings conference call and webcast.
On todays call are art, Cutler, Chairman, President and Chief Executive Officer, and Don Myself, Chief Financial Officer.
By now everyone should have access to the company's earnings press release that was filed with the SEC. This morning and is also available on the Investor Relations section of our cause website at Www Dot Arco Corp Dot com.
Before we begin please note that all second quarter 2021 financial information is unaudited and during the course of this call management may make forward looking statements within the means of the private Securities Litigation Reform Act of 1995.
These statements maybe identified by the use of words, such as will May expect plan intend could estimate and similar references to future periods.
These statements speak only as of today are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward looking statements.
Please refer to today's press release, the company's annual report on form 10-K for the fiscal year ended December 31st 2020.
Other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Except as required by federal Securities laws, Arco does not undertake to publicly update or revise any forward looking statements. Subsequent to the date made as a result of new information future events changing circumstances or for any other reason.
Please note on today's call management will refer to non-GAAP financial measures, including same store measures EBITDA and adjusted EBITDA.
While the company believes these non-GAAP financial measures provide useful information for investors.
Station of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
Please refer to today's press release for reconciliations of our non-GAAP measures to the most directly comparable GAAP measures.
I would also like to note that we are conducting our call today from our respective remote locations as such there may be brief delays crosstalk or other minor technical issues. During this call. We thank you in advance for your patience and understanding and now I would like to turn the call over to Ari.
Thank you, Chris and good morning, everyone on today's call I will briefly review our financial highlights for the quarter ended June 32021, and provide an update on our business.
Dan will then review our financial results in more detail before we take your questions.
I would like to start by thanking our over 10000 associates companywide rising the occasion and once again continuing to execute in a challenging environment.
On by Covid 19, and several other dynamics.
Let's review a few of the challenges and successfully navigate them to start much like the rest of the economy, we are experiencing a very tight labor market.
Address this we have implemented several initiatives, including 500 dollar sign on bonuses fast rewards point to existing associate.
Time hours and job fairs, along with hiring an additional team of 10 full time recruiters.
Next was the colonial pipeline cyber attack.
Which disrupted fuel supply in the southeast for several days and continued shortage of transportation drivers a few logistics team leverage our strong fuel supplier and transportation partnerships.
Disruption successfully secure supply and continue to manage supply efficiently.
On an ongoing basis.
Supply chain disruption in store merchandise was also persistent related to continued driver and labor shortages as well as the lack of availability of certain raw material. However, the marketing Department also leveraged our strong supplier partnership and conducted regular supply chain calls with our top suppliers solutions, including the extended delivery.
Lead times product substitution and inventory buildup to ensure we met our customers' needs.
Luckily, there's covid 19, when it comes to the pandemic.
Top priority is the safety of our associates and customers and.
And we continue to encourage and educate our associates on the importance of getting vaccinated as.
There's a new variant of the virus continues to spread we are ready and prepared with PPE supplies such as masks sanitizers.
And wipes to meet the needs of customers and our employees.
In spite of these challenges once again, our business model proved resilient.
And we're very pleased to report strong results for the second quarter of 2021 or.
Our adjusted EBITDA was $75.7 million for the quarter versus $68.5 million up over 10% versus the prior year period supported by strong results in overall profitability of our Empire acquisition.
Which is currently exceeding our expectation along with continued in store sales and margin growth.
Spirit than other quarter merchandize margin expansion of 140 basis points.
And a solid two 4% increase in same store merchandise sales importantly, we realized further sequential acceleration in our two year stock to seven 4% from six 2% for same store merchandise sales.
Excluding cigarettes, our results are even more impressive same store sales of four 3% and 10, 2% on a one and two year basis. Additionally, we have an increase in same store sales.
So margin other debacle project of six 3% from the prior year with the category margin increase of 170 basis points, which is in line with market trends of cigarettes consumer converting to other tobacco products.
Let me now add some color to the three key drivers of our insight sales and margin.
First one is process improvement.
We have implemented new processes to include annual category reviews annual top to top suppliers meeting annual plan O Gram reset to ensure new items execution and additional marketing resources to ensure all categories are receiving the appropriate amount of attention.
The second one was consumer facing initiatives, having grown through acquisition either grant select opportunities for growth and we are in the process of executing them.
They include adding approximately 525 grab and go coolers and 650 freezers frozen food.
Fountain assortment in over 250 doors.
Spending a partnership with door Dash, which is now available at 684 site, including 84 sites in Virginia that now deliver beer and expanded otp offering and a nice value food offering and and assortment driven by process improvements.
And the third one of course its supplier partnership in May we extended and restructured our COO Mark wholesale supply agreement.
This is particularly impactful as the agreement aligned ourselves grow and profitability incentives.
In addition, we have awards at core Mark of 190, additional stores, allowing us to consolidate down to two wholesalers.
Retail gallons sold dropped 27% compared to a year ago reflected continued increase in consumer mobility. As we are now in the summer driving season and the economy as a whole has received an increase in vaccinations.
On a same store basis gallons were up 11, 9% and despite a fairly considerable run up in fuel prices throughout the quarter. Our fuel margin was quite resilient having come in at 34 three per gallon for retail.
Switching gears to our longer term strategic growth initiatives.
Beginning with permanent.
Of an aggressive yet disciplined M&A strategy.
Priority is deploying capital at very attractive returns, we have many M&A opportunities in the pipeline that we are actively exploring and I look forward to talking about this in the future.
The Empire acquisition, we closed in October 2020 is outperforming our expectation.
We have been very pleased with the acquisition from both synergies and growth perspective.
Just to renegotiate three major fuel contracts and add 52, net new dealer seems to be close with 19 of those coming just in the second quarter alone.
Our recent acquisition of 60 convenient stores under the highly regarded brands expressed up in Michigan and Ohio.
During the quarter and added over $26 million in revenues and $800000 in net income for the quarter.
This is a high quality operation and our brand well regarded we think the communities to which it services.
On a remodel or new store prototype initiative as stated previously we believe that we have significant embedded opportunity to optimize our store base and invest capital prudently for remodeling stores.
We opened our second remodel sites at the end of the second quarter and while very early we are pleased with the preliminary results.
Among other upgrade the new site include the following features.
New interior and exterior design newly incorporated store daily featuring fried chicken pizza and grab and go inclusive of breakfast and snacking items.
Two cup coffee machine with a selection of always fresh coffee.
Walk in beer cave, featuring easy access to a large variety of cold beer crap.
Craft beer and seltzer offering.
And of course, we expanded the pumped an assortment featuring 16 flavor and chewy ice.
Our third site, which is a raise and rebuild is expected to open within the next two months. These sites will be a 5600 square foot travel centers nearly two times larger than our average store with 26 fueling position located on six acres of land in Rock Hill, South Carolina, just off Interstate I 77.
Two additional sides of completing the design phase and are in the permitting process.
Construction on those sites planned to begin by the end of the third quarter.
Three additional sites are in the design phase and we'd be moving to permitting shortly.
Planning for 2022 has already begun including the addition of resources to increase the scale and pace of Remodels.
Lastly, we have a fast rewards loyalty program as a reminder, we re launched our loyalty program last November the focus being developed lasting customer relationships and positively influence consumer behavior by driving incremental drips and increase in basket size.
We are currently enrolling approximately 5000, new fast rewards members each week and now have an excess of 480000 enrolled members before we communicate on a regular basis and I'm excited to share with you.
Our early results.
Since we launch are enrolled customers are visiting our stores over four times more often than non loyal customers and their average spend per trip.
These two times larger.
In conclusion I'm very pleased that we are continuing to demonstrate our strength and capabilities as we navigate through the constantly changing consumer environment. I Hope you are as excited as I am about our multiple growth opportunities, which we believe position us well for the future.
I would like now to turn the call over to Don who will walk you through our financial results.
Thanks, Alright, it's great to be speaking with you all today about our strong second quarter results.
Total revenue, excluding fuel was $449 million or 10, 4% increase from the prior year period.
This is really a result of strong same store merchandise sales growth of two 4% on top of 5% growth in the prior year period.
And expressed up and Empire acquisitions, which contributed nine 6% of the overall 10, 4% increase this was partially offset by a decrease from underperforming sites that were either closed or converted to dealer operated sites.
Merchandise margin dollars increased by $15.3 million versus the prior year, while margin expanded approximately 140 basis points to 28, 7% largely due to a lower reliance on cigarettes and higher contribution from packaged beverage other tobacco products and other center store items.
The expressed up an empire acquisitions contributed $10.1 million, while same stores increased by $6.9 million, which was offset by sites that were closed were converted to dealer operated sites.
Retail fuel profitability, excluding intercompany charges for the quarter increased $2.2 million or two 5% on increased volume a function of our 11, 9% increase in same store fuel volumes as well as expressed up and Empire's contribution.
Offset by a reduction of fuel margin $34 three per gallon versus a record setting 42 five cents per gallon from the prior year.
For the second quarter of 2021 wholesale fuel profitability, excluding intercompany charges increased approximately $29 million compared.
Compared to the prior year period.
With the majority coming from the Empire acquisition, which contributed approximately $26 million of the growth.
Fuel contribution from non consignment agent locations grew by $11.7 million compared to the prior year due to a 207 million gallon increase in fuel volume.
Fuel margin per gallon for these locations increased <unk> <unk> versus the second quarter 2020, due to the increase in the prompt pay discount on fuel invoices related to the increased cost of fuel.
<unk> contribution from consignment agent locations grew $9.2 million compared to the prior year due to an increase in volume.
37 million gallons.
Although fuel margin per gallon declined four seven versus a record setting 31 cents per gallon from the prior year.
Second quarter store operating expenses increased $28.6 million or 22, 7% versus prior year, primarily due to approximately $20 million of incremental expenses related to the expressed up and Empire acquisitions.
General and administrative expenses increased $11.3 million or 55, 2% for the quarter as compared to the prior year, primarily due to expenses associated with express stop and Empire acquisitions annual wage increases incentive accruals and stock compensation expenses.
Net interest and other financial expenses decreased by half a million to $12 million in the quarter primarily.
Primarily due to favorable fair value adjustments of $2.3 million and lower foreign currency losses, which were partially offset by higher interest expense from incremental debt in 2021.
Second quarter net income was $25.5 million compared to $21.9 million for the prior year.
Incremental earnings in the second quarter related to strong results from the Empire acquisition, coupled with strong same store merchandize margin with partial offsets coming from higher expenses, including depreciation related to acquisitions.
Minority interest was almost eliminated versus prior year, primarily as a result of the merger in late December 2020.
Adjusted EBITDA was $75.7 million, an increase of $7.2 million or 10, 5% compared to the second quarter of 2020.
Higher same store merchandize margin contribution and $22 million from the Empire acquisition.
Partially offset by the previously mentioned reduced fuel margin as well as higher credit card fees.
Our balance sheet remains strong on June 30, the Companys total liquidity was approximately $509 million consisting.
Consisting of cash and cash equivalents of $229.4 million plus.
Plus $31.8 million of restricted investments and approximately $248 million of unused availability under our lines of credit.
Outstanding debt was $685.7 million, resulting in net debt of $424.5 million.
For the first six months of 2021 net cash provided by operating activities was $59 million versus $101.9 million for the first six months of 2020.
The decrease was primarily due to working capital changes related to higher fuel costs and increased volumes.
In addition, there are approximately $7.9 million of higher tax payments.
$11.9 million of higher net interest payments, including $5.2 million related to the early redemption of these bonds.
Operating cash flow was also impacted by approximately $13.6 million of incentive payments.
2020 included favorable working capital adjustment of approximately $16 million, which went away in Q3.2020.
Capital expenditures were $32.6 million for the six months ended June 32021, compared to $20.5 million for the prior year period.
We ended the quarter with 1381 retail sites and 1647 wholesale sites.
I am very proud of the dedication of our team and the profitable growth momentum of the business demonstrated by our strong financial results. As we continue our journey is one of the largest and most successful convenience store operators in the country and with that I'll turn it back over to Ari.
Thanks, Don.
Cited the continued strong execution against our priority as we drive growth and increase shareholder value. Thanks for joining the call today and your interest in Oracle I will now turn it over to the operator for questions operator.
Yeah.
Thank you at this time, we will be conducting a question and answer session.
Like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that Youre line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from Bobby Griffin with Raymond James. Please proceed with your question.
Good morning, everybody. Thank you for taking my questions and congrats on a strong quarter.
Alright, I guess first I want to unpack the merchandize margin performance, a little bit more pretty impressive growth year over year.
We dive into a little bit more details of what's driving the expansion in merchandise margin and then more importantly, what opportunities do you see going forward over the next one or two years for where merchandize margin could go is it possible that works its way into the low $30 like some of your peers.
Sure I will answer that.
So.
As I mentioned and as I mentioned on the call.
Excess cigarette numbers came very very strong and we are at four 3%.
Same store sales ex cigarettes as you can see.
The margin to high margin comps Bob talked about.
Comp from grab and go for example, our revenue goal same store sales are up 51, 3% compared to last year and the margin increased from 31, 4% to 37, 8% Thats just one example.
The other example is same store sales on.
Frozen foods that I mentioned I've been talking about adding freezers and.
All along.
And again, we are up 43, 7% with a margin increase from 39 to $35 four so as.
As we continue to move from cigarettes are percentage of cigarette sales continue to come down and we see an increase on that merchandise sales.
That's going to continue to drive the margin up.
Substantially the same thing by the way it goes to <unk>, we keep talking about the otp.
And as you can imagine as a consumer.
Stop.
Stopped using stopped buying cigarettes, I mean, they're moving to other type of nicotine.
And I mentioned that we saw an increase of over six 3% of.
Other tobacco products with a margin increase of even better 170 basis points.
Yes, I think that I think we're going to continue to see that.
As we move along because I remember last year, a lot of people were pantry loaded cigarettes or beer during this time period.
So the more people that are out there more people are going to continue to lap so basically purchase merchandise inside the stores the center of the store with a much higher margin.
Okay, and then what about on I understand there are still a very tiny base only a few of them done, but what about on the remodel stores like what what are the merchandize margins look like there versus kind of the core average the company averages at significantly higher if there's any color to help us understand as those become a bigger and bigger part of.
The mix of your stores, what the potential margin upside could be inside those stores.
Yes.
It's really too early.
In our second store just opened six weeks ago, it's a little bit too early but I think the mix within the store as I mentioned I mean, we added.
All of the items that I mentioned earlier are basically margin items I mean, we talked about the food for example, the foodservice. So we added that grab and go we added pizza, we added fried chicken those are really high margin.
I imagine items.
We added to the stores, we added more assortment of fountain drinks.
We extended of course the beer okay.
All of those things that I mentioned are much higher margin than basically what we see.
The rest of the stores. So there's no question that we more the more so we're going to continue to remodel. The more features like this we're going to continue to add to the stores. There is no question that we expect the margin to expand because of that.
Okay, and then how many.
You mentioned the plans look good for 2022, but do you ever give a number you can share on how many remodels you might be able to get done in 2022.
Are you targeting we don't have we don't have the final number.
Moment.
But this is something that we are working on right now.
Okay and then just lastly for me you called out labor in the prepared remarks and understanding of the tight labor environment for everybody right now has it.
Hindered results at all or is it more just you know a challenge that were working through have you had to cut store hours or anything like that for us to keep in mind.
Sure so.
We are no different than any other retailer as you can imagine.
And as you guys remember I've been mentioning at from the beginning of our coals.
Bob.
The one thing that's very different broadly from their ASP is that we were not fully involved in foodservice.
And we decided to shift gears towards grab and go and frozen foods.
When less labor intensive is required on this one.
This is this is our business I mean, we have the challenges like everybody else and we continue to work through those challenges.
Yes, we did reduce our.
In Iraq, 75 stores, but again the hours were reduced just because we felt that.
And those particular stores the Terra chips to now I'm talking about after 11 o'clock at night, we just felt that there was really no reason to keep those stores open from a profitability standpoint, you know, we always look on profitability.
And but this is really what we did over here other than that we continue to work through all of those issues and we just we know how to manage our business. This is.
And let me just add on to our <unk> point about the.
They reduced hours, they're not significant we're trying to shave them like in the morning, and the evening and we're even in the process of starting restore those hours now so I think.
They're being done strategically where it makes sense, where we are having problems, but it wasn't like cutting out massive hours. It was just being done where we had particular issues and we're already in the process of restoring some of those stores that we cut the Arizona.
I understand I appreciate the details and best of luck here in the second half.
Thank you Bobby.
Thank you. Our next question comes from Kelly Bania with BMO capital. Please proceed with your question.
Hi, good morning, Thanks for taking our questions.
Just had a couple here first just the comment about the integration of wholesale I think running ahead of expectations. Maybe just wondering if you could elaborate a little bit more on what youre seeing there and just your expectations now for for wholesale and Empire.
A little more time under the belt.
Sure John would you like to take this.
Sure I'd be happy to Kelly I think I think the biggest thing that we found is number one obviously.
When we look at total gallons.
We're signing up a lot more accounts you heard already talk about.
<unk> 52, new accounts since inception, I mean, we've got very aggressive team on the on the ground.
Signing them up so that's really been helping US is the additional fuel volume obviously, we benefited from the higher margin levels that we anticipated, but I think the biggest boost that we found out of all of this is just what we thought would be true has proven to be true plus more is that we've got a very aggressive team on the ground to bring on a lot of new business.
Perfect.
In terms of GAAP.
Alright, sorry go ahead, Jeff just to add Kelly just to add I mentioned, the three I mentioned, the three supply contracts that we were able to negotiate I remember those things are going to cross so not going only on the wholesale business, they're actually going to impact also the retail business and as you can see we came with a very high CPG margin for the quarter.
So just just to note that as well.
Alright.
Good point, sorry, I left that out and I want to 0.1 thing out that that is ongoing too. It's not just the we've gotten done what we think we we expected to get done, but as we know agreements expire and this will be ongoing so I think between the combination of the gallons again as already mentioned, which is very importantly.
Our plan to go out and aggressively negotiated when we got the target of what we thought we would get done this isn't a thing that will keep on giving us giving us benefits going forward as we as we go through agreements that come up for closer to exploration.
Okay. That's very helpful. I guess, maybe just to follow up on the retail business.
I guess one would.
Do you attribute that sequential acceleration in fuel margins to the supply contracts or anything else I know, it's always hard to know but.
I guess, what would you attribute to attribute that sequential exploration and then can you also just talk about gallons on the retail side and how those are coming in line with your expectation and maybe where we are on a gallon standpoint versus 2019 kind of on a pro forma basis with everything.
Sure. So let me start I'll, let Don answer the second piece of the question, but let me start with basically with the gallons.
So.
As you understand you know profitability is something that we are always laser focus.
And we want to make sure that while we focus on profitability and are we're not losing gallons because of that.
We are managing the car loans.
By markets.
Region by region.
And as we look at demand over there you were just there are some pockets as we see opportunities and as we see opportunities to keep our.
To keep margin.
It did over 30.
Basically range I mean, this is something that we continue to do on a daily basis and.
As I said at the end of the day.
There is no question that people are driving less people are working from home more.
And we don't have the same ability that we so probably in 2019.
And because of that we are trying to go at least after the margin in areas that we think we can I will let Dan answer the second piece of the question sure. So kilian on a gallon basis, we're not back to 2019 levels.
Obviously, we saw a nice increase.
But I think again, it's a different story by area I don't know that will in the short term get back to the 2019 levels.
We are experiencing a new reality, especially with the new variant out there I think companies have now.
Put off going back to work plans people are changing habits, but I think what we're what we're doing is.
As already talked about is for us it's maintaining the volumes that were there.
They are steadily growing and have been pretty stable, but we're also trying to maximize the gross profit out of that so we're very competitive out there we're not we're not.
Outside of the bounds of the market, but we're not who knows when it will get back to 2019 levels, we're not there yet, but we are growing.
Yes, just wanted to add one more thing just to finish the sentence on this one.
I think I mentioned that probably at the beginning of 2021.
Mentioned that.
Right now, we see tight labor environment, and when you have tight labor environment. There's no question that a lot of the comps actually are more involved with foodservice.
And you know given that you have that.
Strength in labor.
Which means that a lot of people are not able to continue to get the same results that they get we think the stores the area that youre going to see probably an expansion will probably be outside the store, which is the fuel margin.
And this is something that we've been seeing for the past 15 months as you know.
Great that's very helpful.
Just also wanted to ask on the labor just just obviously a big topic.
Can you just help us understand where turnover is and can you quantify the impact of maybe the sign on bonuses and and and and costs that you're kind of maybe hopefully dealing with on a transitory basis.
Sure so.
We are not commenting on that turnover numbers.
At the moment, but one thing I can tell you is that.
We actually see an increase.
And basically we iron more people than return, we have more people that being higher than the numbers of the people that actually turn we'll be here the $500 bonus and of course. This is something that we measure for the past few weeks and it's been working.
They've been working at basically Youll know when you hire those people in order for them to get the 500 dollar they need to stay.
A period of time with PNR basically within our stores and.
And we see that a lot of those people are actually staying and keeping their jobs.
<unk>. The other thing is really making sure that you have enough recruiters.
To hire people.
Applications are coming in and especially now we feel that and we see that in the last couple of weeks and I think we're going to see more there was almost $7.5 million people.
At least for the time being their unemployment benefits are going to expire by the end of <unk> beginning of September we will we believe we're going to see a very high.
Basically an application.
Volume coming in and this is the reason that we hire all of those are two areas. We wanted to make sure that the store people are working at the store and they're not focusing on hiring and because of that we would be if our HR department and edit those recruiters to make sure that they are actually dealing with the day to day hiring.
In the past the store manager with just dealing with that we want to make sure that we take it away from the store manager and he can focus on the store and how these customers.
And Kelly one of the things that we've been able to do that has been very successful is make that hiring decision an offer on the spot. So because the market is so fluid and people are getting so many offers so we're able to interview make that hiring hiring decision give that offer right. Then because one of the things. We found is if you are taking more than a day or so to get back the play they've already they've already got them.
So I think that's been very critical.
As was talked about.
Since that $500 bonuses come into effect, we're really tracking net hires because that's what's really important to us are.
Are we increasing the.
The Labor force. So I think I think we have.
It was an uphill battle and I think we're now on the Stillwater can issue on the downside of that Hill.
Great. That's very helpful. And then just last one for me.
In terms of the Remodels I mean, it's really expect it to kind of ramp more aggressively next year, but.
Just any update on the costs that you are seeing for materials or just the overall.
Outlook for Remodels and pace, there that that you've provided in the past just any change in expectations there.
There are no changes in expectation I, just wanted to remind everyone over here.
We decided to do 10 stores this year and not because of a lack of basically pace of lack of.
Basically availability, we decided to do that because we wanted to make sure that we measured the right concept. So what were dealing over the past few months is really making sure we have the right concept in place.
And then we basically going to increase the pace over here.
And this is what we're doing we true just for your benefit in the last couple of stores, we really put everything that you can imagine retail store and we tried to test all kind of concept to make sure that this is the right concept. So I think we're getting very close to make some decisions about that about what's like the final concept on that.
They may not have the final concept I think we're going to be able to to start to increase basically the pace over here.
Thank you as a reminder, it as Saar wanted to ask a question at this time. Our next question comes from the line of Luke Lemoine with capital One Securities. Please proceed with your question.
Yeah.
Hey, good morning, Don.
Really good quarter, just curious what's the colonial pipeline impact noticeable in our results.
And is there any way you could maybe quantify the impact.
I don't think the colonial pipeline actually impacting results.
If you remember it was a week of Saar.
Some issues in the southeast, but remember we are a very well diversified.
I know it was all over the news then.
People are running even in Florida, which is not impacted by the colonial pipeline people, who are just running all over the place just to kind of the gas station to fill gaps and I think it was more panic boy buying.
Buying more than anything else.
Again, we were given our size and given you know given that we are diversified we were able to.
If you use our connection and our contacts within our logistic department.
We were able to bring projects from some other states that retail business just next to the southeast.
I don't think there is any major impact that happened during this quarter. It was just a challenge that we have to deal with probably for two weeks.
During the first few days of the cyber attack and Dan.
Following that again the problem of getting product in.
Making more product available to our stores, but I don't think Thats was something so impactful.
Yes.
Follow up look I mean, essentially what happened I mean, if if there wasn't in the news I don't think there wasn't as big of a problem essentially.
All of the inventory transferred out of tanks in the People's cars. So there were huge spikes in sales.
When those announcements came out and then once everything calmed down I think net net it really didn't have an impact but it was just a really if you think about it.
It was just a shift of fuel, which actually helped us because you know when you convert over to summer fill is you have to turn your tanks. So.
A lot of ways. It helps us turn of our tanks over.
But I think the news panic caused more issues than anything else.
And people are just topping off tanks and panic buying so again it was an incident that concerned us, but I don't think that a major results.
So the shortage the shortage came because all of the sudden you know if youre selling X amount of gallons on a daily basis all of the sudden you've got 300% increase in sales. During this time. So you know it doesn't matter I mean, you just can you cannot fill the tank and expect 300% increase in a very short order that does usually what happen.
And then you know this is similar to what we see.
I think where we can see them whenever we can actually enhance that's usually what we see over there.
Got it thanks a bunch.
Thank you. Our next question is coming from the line of Mark Astrachan with Stifel. Please proceed with your question.
Thanks, and good morning, everyone I wanted.
Wanted to ask firstly about just.
The retail fuel margin and just how to broadly think about the numbers, obviously bounced around a bit remains pretty pretty good across the industry anything that we should be thinking about.
We're keeping in mind as it relates to your business, specifically relative to kind of what we're seeing more broadly.
No I think as I said earlier I think that to the end of the day, we are competing with the rest of the markets. We are in line with the rest of the market and as I said I think that.
The more people that rely on that basically inside cells inside the high margin items like foodservice.
People rely on that then they can't they can't get those results back.
Back to the 2019 numbers I think that margin is going to continue to expand outside.
Again, I don't have a crystal ball of course, I don't know whats going to happen next month, but the only thing I would say that there is this something that's been going on for the past 15 months and again, we don't expect that to stop anytime soon.
Okay and switching over just store acquisitions I appreciate your earlier commentary on the opportunities out there any sense of pace of acquisitions going forward I mean to the extent that you can talk about it I feel like it's been maybe a little bit.
Slower out of the gate than history, and so there's a lot of opportunities out. There then should we be expecting that to accelerate from where we are.
Sure.
Just to answer your comments I don't think it's slower I think that there is consistent we do two to three acquisitions a year. This is something that we've been mentioning all along we already finished the first one.
We finished the first one already in May we continue to basically to grow through acquisition remember, we mentioned, adding just 19 contract and also contract.
During this quarter.
So I think the other thing that you need to take into account over here is basically that now when we have the wholesale business as well.
We target.
We have a 20% target return and target comes from increasing all silicones versus just retail accounts I mean, we of course going after that I mean, we are trying to be very very careful I mean, it's not just doing acquisition is doing the acquisition and continue to.
Actually continued to.
Deploy our capital and we received the returns that we saw in the past I don't think were going to have any slowdown I don't expect any slowdown in place.
From what you actually you guys saw in the past.
Right.
I can also add on I think I said this in the past I mean, the pipeline has been very robust.
Obviously, theres things deals, where we're looking at all the time, there's no shortage of deals there is no shortage of deals that we're working on.
Like I said theres more to come down the road as some of the some of these to come.
As we finish them and get through and say for the successful bidder and finish all the due diligence.
There's no shortage of deals out there.
I think the environment given a lot of things has not slowed that down at all.
Yeah, and I just wanted to mention it given that we have a lot of liquidity over here and given that we are very illiquid doesn't mean that we need to do deals that do not make sense. I mean, we are not going to change our strategy. I mean, we have a high mark basically return investment threshold and we're going to continue to basically to use these thresholds to benefit us and.
This is something to take into account and we will not do crazy deals just to make deals we will do the right deal and continue to basically to provide the returns that we exited the show.
All along.
Got it.
Okay.
I guess, just lastly, and then a follow up to that other question. So on.
On the Remodels I think some competitors have commented on just supply chain challenges labor shortages any thoughts there, especially as you think about ramping that.
Remodel pace into 2020 to anything that would prevent that from happening near term and then on back on the deals just just can follow up there.
What is it about some of the deals that youre looking at that you are passing on are there any sort of big Big picture things that maybe aren't working out return profiles et cetera.
Okay.
Yes, So let me start spreads reached a remark that I don't think about the remodel will be going to add basically nothing is going to slow us down.
We have the same challenges like everybody else.
But again I don't see any reason to believe that things will slow down again, but no different than the others. However.
As I mentioned we.
We need to make sure that we have the right concept and all along from the get go I said, we're going to do it first 10 stores not because of that.
But because of challenges because the peso because of we don't have the capability of doing that as I said, we want to make sure that we see at least 20% return on investment on the concept and those things take some time I mean as you can see we did the two stores so far.
The second one was just opened with a broad concept just opened six weeks ago, we're getting ready to test another concept, which is a 5600 square foot store.
Travel.
<unk> centre smoke driving center and again, it's a big store, it's a different concept. So the minute, we actually refined all of those concepts.
Sign off and make sure that this concept in the country that we feel comfortable that's going to drive us into the future I mean, we're going to actually to start to pay them. So I don't think we're going to have any slowdown other than making sure. We have the right concept that's.
Regarding to this regarding to our acquisition without based.
Basically mentioning names or anything like that I can tell you that every deal in the market, we are participating or I believe at least every deal in the market. We are participating we are being invited to almost.
Everything that we see over here.
The one of the problems we saw at the beginning of the year is that a lot of people believe that.
Speedway 711 deal that was.
It was done for almost 40 and multiple people believe that they've got to get those numbers.
And again, we this is not something that we are willing to pay.
The return on investment that you are willing to basically to go after.
So.
I don't think about it we're not passing on anything other than we are submitting our beds and you know given that the environment interest rate is very very low right now.
Fair enough.
<unk> margin are very very well.
Very high compared to do through the path and I think people are not taking this into account.
And I can tell you mark that in the past.
So that in the past people you know you have one year that people just didn't take this into account and when the word settle all of the sudden and again without mentioning names towards acquisition that closed for very high double digit multiple and figures later those guys end up selling the stores for a much lower multiple because they couldnt basically carried.
The expense Couldnt carry the debt then I think this is something that we're going to see I'll be here moving forward and because of that we want to make sure that we are liquid and we are ready to execute on every opportunity that actually meet our threshold.
Mark I wanted to add one thing on to the first question. You had there are components of Remodels, which will go in many of our stores that we're taking advantage of when we see opportunities to buy supplies of them that we're going after them buying them. So we are taking advantage of that not sitting back and saying whatever.
So we have had several cases, where we've gone out and bought certain equipment that we know we're going to need whether it be remodel or whether we are just going to put in our existing stores as part of our marketing program. So we are doing that proactively.
Yes, so and this is by the way. This is being said also for acquisition Mark just for your benefit.
Everybody knows that there is some bad shortage in computers E N V.
And things like that then like Don mentioned I mean, if you're doing the same thing over here I mean, we know that that we are this is basically our DNA acquisition its part of our DNA and we make sure that we keep enough supply in place.
To make sure that when the opportunity basically up and we are not able to close because of short of supply. So we are actually keeping more.
Centaury.
Basically at the moment.
Okay, great. Thanks, Paul.
Sure.
Thank you we have reached the end of our question and answer session. So I'd like to pass the floor back over to Ari for additional closing comments.
Thank you very much. Thank you everybody for participating I, just you know before we before we end over here I'd like to say that our thoughts are really.
Those affected by the virus in the U S.
Around the globe.
I want to make sure everybody try to keep safe in this very and it's really contagious.
And we need to make sure that you know.
Everybody just keeping safe over here, thank you for participating again and goodbye.
Ladies and gentlemen, this does conclude today's teleconference and webcast. Once again, we thank you for your participation and you may disconnect your lines at this time.
Uh huh.
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Okay.
Yes.
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Yeah.
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