Q3 2021 Arko Corp. Earnings Call
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Greetings welcome to Arco's third quarter fiscal year, 2021 earnings conference call and webcast at.
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At this time I'll now turn the conference over to Chris Mandeville, Managing director of Investor Relations, Chris You May now begin.
Thank you good morning, and welcome to Arco's third quarter fiscal year 2021 earnings conference call and webcast.
On todays call are art, Kotler, Chairman, President and Chief Executive Officer, and Don Mcgowan Chief Financial Officer.
By now everyone should have access to the company's earnings press release that was furnished to the SEC. This morning and is also available on the Investor Relations section of <unk> website at Www Dot Arco Corp Dot com.
Before we begin please note that all third 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 $19 95.
These statements may be identified by the use of words, such as will may.
<unk> plan intend could estimate and similar references to future periods.
Statements speak only as of today.
Based on management's current beliefs and expectations 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 31 2020.
And the company's other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially.
Those expressed or implied in any forward looking statements made today.
Except as required by federal Securities laws barcode 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 that on today's call management will refer to non-GAAP financial measures, including same store measures EBITDA, adjusted EBITDA and adjusted EBITDA and net of incremental bonuses while.
While the company believes these non-GAAP financial measures.
<unk> useful information for investors. The presentation 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.
We are conducting our call today from our respective remote locations.
Such there may be brief delays cross talk or other minor technical issues. During this call. We thank you in advance for your patience and understanding and now I'd 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 September 30 of 2021 and provide an update on our business. Dan will then review our financial results in more detail before we take your question.
To start we report record merchandise revenue and net income for the third quarter, our adjusted EBITDA net of incremental bonuses increased nearly 40% to $82 million for the quarter.
Driven by both profitable growth in store and at the pump for our Recon segment as well as continued outperformance by Empire right now all sub segment.
In store, we experienced another quarter of meaningful merchandise margin expansion, where regenerated merchandize margin in excess of 30% to 270 basis points in merchandise margin expansion to 30.6% not only reflect our continued emphasis on leveraging analytics to purposely and strategically drive greater.
Sales of higher margin categories, such as packaged beverages candy other tobacco product and grab and go buy it also highlights our airports.
These margins within key categories as well.
Our top 10 categories by insights.
Which account for nearly 90% of our total merchandise sales, we managed to deliver notable margin expansion through our strategic merchandising decision pricing and improved purchasing economics.
In light of certain Covid related demand deterioration in the prior year period I'd like to focus on our two year stack same store merchandise sales excluding cigarettes DRAM is more accurate indicator for the underlying health of our business and a better barometer to evaluate our performance given the company's strategic focus on driving iron.
And so.
On a two year stock basis same store merchandise sales, excluding cigarettes increased eight 7% with dollar growth, most notably driven by frankly, and I'll, just tobacco products packaged beverages and candy.
From a growth rate perspective, we have continued to see considerable gains in frozen food grab and go and alternative snacks as a various process improvement and announced merchandising airports.
No Steve of our continued expansion of grabbing go coolers and freezers continued to pay dividend.
In our retail fuel operations got on a soldier up 15% versus the prior year period, reflecting the addition of our expressed up an Empire acquisition.
Margin, excluding intercompany charges.
It was strong for the quarter up three 5%.
The prior year period to $34.05 per gallon. The net result was that we delivered strong gross profit growth of over $21 million or 28% in retail fuel profitability for the quarter.
Moving to some of our longer term strategic growth initiatives.
Remodel and new store prototype initiative, we continue to make steady progress on what we believe is a significant embedded opportunity to optimize our store base. We have completed two remodels and we expect to have our first 10 completed by early 2022, while our pace has been modest he that's been intentional we are being very methodical to ensure that we have there.
<unk> prototype to optimize profitability and provide our customers that had been announced shopping experience. However, as we have already begun engineering and redesigned pages for 45 additional stores. We believe we can move quickly accelerating growth and unlocking additional value for our stockholders over the next several years.
Regarding our fast rewards loyalty program, we remain pleased with the considerable progress we've made in total equal time recently, we have grown over a half a million enrolled members doubling our member base since the beginning of 'twenty 'twenty. We have continued to see very positive responses from our engage members with our loyal customer throwing a considerably higher rate of visit.
Our stores and with the larger basket.
As we begin to plan for the coming year, we have identified serious of upgrade.
Loyalty program, which we believe will only further training both our analytical insights and the value we provide to our most loyal consumers.
Turning to our inorganic grow opportunity, we remain focused on pursuing disciplined I our ROI M&A. In fact, just yesterday, we acquired 36 company operated Andy Marsh convenience stores and gas station plus one under development all of which are located in North Carolina.
Total $112 million purchase price plus the inventory and cash in the stores.
We can spend 100 million for the real estate of 29 of the site and we are paying off with $6 million per year to rent. These sites from Dan We paid the remaining 12 million purchased right using cash on hand.
We also believe that there remains a robust pipeline of assets that are available for potential acquisition.
As is always the case, we are actively exploring several opportunities and our priority is deploying capital at a very attractive return.
We will remain highly disciplined in how we pursue any deal.
Touching briefly on our two other deals we close in the past 13 months Empire. An express stop Empire has continued to outperform our expectation both from a synergy and growth perspective, and we believe there remains considerable opportunity to extract additional value.
And the last several months, we've renegotiated three major fuel contracts, representing approximately 30% of our gallons. While we've also added 79 net new dealers since we acquired the Empire business with 27 of those additions coming in the third quarter of 2021 alone an additional 13 contracts signed that we have yet to benefit.
Our P&L.
Unexpressed stop 41, 53 stores that have gone through merchandise resets. The standard plan O grams that we believe relinquish cell and margin at these sites.
Taken together I'm very pleased by what we've accomplished year to date I'm excited by the organic and inorganic opportunities that lie ahead to fuel our growth and I'm committed to remaining as stewards of capital allocating funds based primarily we focused on return on capital I would like now to turn the call over to Don will walk you through our fit.
Actual results.
Thanks, sorry, it's great to be speaking with you all today about our strong third quarter results.
Merchandise revenue increased by seven 7%, primarily due to the express stop and Empire acquisition.
Merchandise merchandise margin dollars increased by $20 3 million versus dollars versus the prior year, while margin expanded 270 basis points to 36% largely due to a lower reliance on cigarettes and higher contribution from packaged beverage other tobacco products.
Other center store items as well as improved purchasing economics.
Expressed up and Empire acquisitions added $12 $7 million and merchandise contribution while same stores increased by $8 $7 million, which was offset by sites that we either closed or converted to dealer operated sites.
Retail fuel profitability, excluding intercompany charges for the quarter increased $21 $2 million or 28%.
With Empire and expressed up accounting for $18 $5 million of the increase coupled with same stores, increasing by $3 7 million.
Retail fuel margin for the quarter was $34.05 per gallon versus 31 cents per gallon for the prior year.
For the third quarter of 2021 wholesale fuel profitability, excluding intercompany charges increased approximately $22 million compared to the prior year period with substantially all of the growth coming from the Empire acquisition fuel contribution from non consignment agent locations grew by $12 million compared to the prior year driven.
By approximately 206 million gallon increase in fuel volume and a half a cent increase in fuel margin per gallon for these locations versus the third quarter of 2020 due to an increase in the prompt pay discount related to the increased cost of fuel along with increased rebates.
Fuel contribution from consignment agent locations grew $10 million compared to the prior year due to an increase in volume of 37 million gallons, an increase of fuel margin per gallon of $1.01.
Third quarter store operating expenses increased $32 $7 million.
Our 24, 8% versus prior year, primarily due to approximately $26 $8 million of incremental expenses related to the expressed up an empire acquisitions. In addition to higher credit card expenses.
General and administrative expenses increased $7 $3 million or 20, or 28, 7% for the quarter as compared to prior year, primarily due to expenses associated with the Empire acquisition annual wage increases incentive accruals and stock compensation expenses.
Net interest and other financial expenses increased by $4 $2 million for the quarter versus the prior year, primarily related to higher interest expense for more outstanding debt and fair value adjustments of $1 $1 million.
Third quarter net income was $35 6 million compared to $17 $2 million for the prior year.
Incremental earnings in 2021 related to strong contribution from the Empire acquisition, coupled with strong same store merchandise gross margin and fuel margin with partial offsets coming from higher expenses, including credit card fees and depreciation related to acquisitions.
Minority interest was almost eliminated versus prior year, primarily as a result of the business combination with haymaker and December 2020.
Adjusted EBITDA net of incremental bonuses was $80 2 million, an increase of $22 9 million or 39, 9% compared to the third quarter 2020.
Higher same store merchandise and fuel margin contribution and approximately $23 million from the Empire acquisition was partially offset by higher credit card fees and higher general and administrative expenses, primarily related to annual rate increases and incentive accruals or.
Our balance sheet remains strong in October we completed a debt offering of $450 million and used the net proceeds to repay in full the $223 million term loan with Ares Capital Corporation and $200 million of our line of credit with capital one and the remaining proceeds are intended to be used for general corporate purposes.
On September 30th couples companies total liquidity was approximately $551 million, consisting of cash and cash equivalents of $275 $2 million plus $31.8 million of restricted investments and approximately $244 million of unused availability under our lines of credit.
Outstanding debt was $689 $6 million, resulting in net debt of $382 $6 million as a result of our bond offering in October our liquidity increased by $200 million to $200 million due to the partial pay down of our capital one line of credit.
For the first nine months of 2021 net cash provided by operating activities was $119 5 million versus $126 $5 million for the first nine months of 2020.
The decrease was due primarily due to working capital changes related to higher fuel costs and increased volumes. In addition, there were approximately $12 $2 million of higher net tax payments and $16 million of higher net interest payments, including $5 $2 million related to the early redemption of the Israeli bonds in the first quarter of this year.
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Operating cash flow was also impacted by approximately $13 $6 million of incentive payments capital expenditures were $48 1 million for the nine months that ended September 32021, compared to $28 8 million for the prior year period and included the purchase of certain fee properties, we ended the quarter with <unk>.
1379 retail sites at 1674 wholesale site.
I am pleased that we have demonstrated our strength and capabilities through yet another quarter of solid financial results as we continue to execute on a journey. That's one of the largest and most successful convenience our operators in the country.
And with that I'll turn it back over to Ari.
Thanks, Don I'd like to close by thanking our over 10000 associates companywide.
The driving force behind what success, we realized in the quarter and then.
Prove instrumental in our executing against what we believe remains a significant and exciting long term Roe outlook.
Thanks for joining the call today and your interest in Oracle I will now turn it over to the operator for questions operator.
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One moment, please while we poll for questions.
Thank you and our first question comes from the line of Bobby Griffin with Raymond James. Please proceed with your questions.
Good morning, everybody. Thanks for taking my questions and congrats on a good quarter.
Alright, I just wanted to maybe touch on the merchandize margin improvement again in retail and asked for a little bit more detail and then I guess secondly was there anything unique with the mix of the products this quarter that might not be sustainable going forward or do you look at kind of the mix of your items. This quarter as is normal quote unquote.
Normal in that should be sustainable. So these type of margin improvements could be consistent or held onto them.
Sure Good morning, Bobby I know, it's a great question.
I think it's sustainable and the reason for that.
Really what we have discussed over the past that you know.
Few quarters.
Since the beginning if you're really looking over here on a same store sales ex cigarettes, we continue to perform exactly in accordance to our strategy.
If you look at you know in Q3 2020 versus Q3, 2021 our concentration on cigarettes, it's actually down I mean right now the concentration that we are actually at 36% cigarette sales.
This 37.9, so the strategy work, which means that we are selling more basically I came over the center of the store and you know in particular, if you're looking on 90%.
Basically of our merchandize sales actually does it those are the ones that really drove the margin will be here. So there is no question that the minute you are considerably less on cigarettes.
And concentrate more on either project you know ex cigarettes. There is no question that the margin will expand and I think that's what you see over here and I'm expecting margin to continue to grow.
As we move forward over here.
Okay very good and then I guess also on maybe just touch on Opex and in where you guys are from the labor situation I know, we talked last time about some initiatives you're working on from the hiring standpoint, maybe just any updates around labor and and.
How youre managing the Opex expense side of that going forward would be helpful.
Sure Dan.
Do you like Zika.
Sure sure let me do that.
Our big if you look on a same store basis, the biggest increase for us and Opex by far was credit cards, obviously with the price of fuel going up.
It accounted for a big jump in Opex and we did have we did have.
Over a 5% jump.
Jumping opex for.
Salaries and wages, but that's a little bit lower than what we expected I mean, obviously, we do expect that opex will grow but it has not outpaced what we expected to do in this year, obviously, it's a tough labor market.
We know we're having to compete for.
For employees, but by far the biggest driver in Opex this quarter was credit card versus versus salaries and wages.
Okay, and Don maybe just remind us where we are on the same page that that your credit card fees that fall into store operating expenses on the consolidated income statement.
Yes, it does.
For management reporting, we don't do that but for GAAP reporting it it does fall at operating expenses.
Perfect yet we'll note that and then I guess, just lastly for me any any comments on October I mean, the fuel margins here. This quarter were impressively very strong despite kind of a rising oil environment, we've seen a little bit of compression in the opus data for October just curious kind of what you guys have seen over the last four years.
Five weeks.
From a fuel margin perspective.
Well, we can't really comment on October you know, we can only talk about that.
Everything related to Q3, but what we can comment is that if youre looking on what happened in Q3.
The same thing that you guys have been saying over here quarter. After quarter. We are very very analytical about going after you know of course you know.
Gross profit dollars.
And that's I think the the name of the game over here I mean this is what we are concentrating we are concentrating on increased profitability at the same time just wanted to touch you know you'll probably hear us.
We renegotiated three of our supply contract, which I represent around 30% of our guidelines.
And you know those things of course Airbus to English saw margin and at the same time be very competitive.
So that's what I can tell you all about our at least our gross profit dollars in our English and profitability related to basically to CPG.
You see the jump over here.
Perfect. That's helpful. I appreciate it and congrats on getting those renegotiations done best of luck in the fourth quarter.
Thank you very much Robby.
Our next question is from the line of Mark Astrachan with Stifel. Please proceed with your questions.
Yeah, Thanks, and good morning, everyone.
I guess, one one sort of directional follow up on the last line of questioning.
How do we think about the benefit if any in your merchandize margins from pricing you know I I guess I'm thinking about it in terms of whether you're raising list prices on product and stored offset your own rising.
Inflation pressures and then yeah. The suppliers are obviously, taking price up on just about everything so do you benefit from that as well I mean do they share some of that pricing with you all in and is that reflected in the merchandise margins as well.
Well it's a.
It's an interesting question Mark you know, yes, the supply are increasing prices and you know we are trying to be.
Very careful we think we're seeing prices you know we are actually working in a competing environment and this is something that we're facing over here.
I think as I said I think at the margin, it's not because of supply chain or just the increase of prices that's not related to the increase in margin. The engquist as margin is really related to the mix.
We are seeing will be here, we are just able to basically to to sell more products. That's cigarettes more projects more or the P. P. For example, if you're looking on Otp, which you all know that the otp margin, it's around 30% I mean, our ODP business was up seven 7% quarter over quarter.
And I think that's really the reason for the increase in margin, albeit concentrating less on cigarettes and be able to increase the basket on customers that are you know coming into the stores. So it's not necessarily because of just increasing prices.
Yes.
Mark one other thing to add on that you can look across the board I mean, we've talked about our frozen foods. The grab and go they know sales are through the roof, which are high margin Mark you know the sales are increasing.
Tremendously also in candy, so a lot of items, it's not just one thing we're doing it's a lot of strategies across the board, but as already said, we're being competitive on cigarettes, it's not that we're not being competitive, but we're seeing a lot more switchover to otp.
So we do think this is a C.
Sustainable push obviously, you never know what the future can hold but it's not it's not just trying to push up as much as we can because we still need to main competitive out there in the market.
Yes.
Oh.
One thing to comment Mark just one comment to mention I'll be here as you guys will remember for the past two quarters I've been talking about Theyre.
Adding 680, freezers and 525 grabbing go coolers I mean, if you're really looking at our same store sales just on grabbing goal in our same store sales are up 46, 1% with an increase of margin if you're looking on the frozen food ourselves are up 72, 5% so everything.
We've been talking about over the past two or three quarters.
Finally, now you actually see the results because as you can imagine you know it takes time to install them.
The one thing I can tell you with the supply chain issues and the whole nine yards, we were able to actually locate the project, bringing the product and installed the project.
And we see great resorts and of course, the increase of margin I mean, that's that's basically what we've been seeing over here.
And that just demonstrates that we are in the weird I mean, we have a great team of people over here that made sure that to reap all of the supply chain issue, we were able to before.
Yeah. That's helpful. I guess related to that to you you touched on it so the other sort of common theme, we keep hearing about beyond just inflation is supply chain challenges as well, so beverages candy et cetera, seemingly impacted did that have any impact on the business and related to that.
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Relationship that you have with your wholesale supplier now which has changed a little bit after the better. It is that helped as well in terms of offsetting some of those potential challenges.
You know first of all yes of course, you know the restructuring agreement with core Mark you know of course help us tremendously to increase margins, but I really think that the big thing over here is I always tell people that you know retail is detail.
And you know when everything is great you know everybody operating probably under you know when the same level when things are a little bit shaky over here, you'll see you know.
What kind of operator, we are you know we are in the weeds. We are thinking ahead of basically ahead of time and we are able to get those product installation you can build products and you know our team is working around the clock on the merchandising standpoint to accumulate standpoint, they're really working around the clock and you know that that's the reason you know you'll see those results.
Just demonstrate that we have a great operating team and a great marketing team will be here at the end I think merchandising and able to get the product. It's not easy I don't want to it sounds like everything is easy, but we are able to execute based on basically on the team that we've got to actually with us.
Yeah. Okay. Thank you and then just lastly on completely unrelated topic.
Okay Street relationship interesting beyond the piece relating to the acquisition overnight, but also.
The disclosure in the release about they had purchased and leased to U $150 million of real estate is there more opportunity to do that I guess you know what the other broader question is why didn't you get a reduction of rent versus whoever else is owning that is that because of the relationship because youre going to work with them going forward that theyre, giving you more favorable terms, maybe just talk about that as well as the opportunity for that in the future.
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First of all yes of course, you know given that given the size of the commitment that we got of course, you know better terms.
Given given the $1 billion commitment, but as you as you guys remember we.
We have all kind of rights of first refusal all kind of rights of first offer we have offered the opportunity to buy the real estate an option to buy the real estate then you know when we when we do those things.
I said, we're thinking ahead and you know the bigger you get the better term do you get at the end of today than what we were able to execute this quarter.
I would actually be focused REIT as you know we were able to take up on those that those option that we add from different sellers.
And we were able to buy the real estate for a better you know of course, a better cap rate and because of that we were able to save $2 $3 million in annual rent moving forward.
This is only on $150 million basic New York real estate they'll be here. So are we.
We are going to continue to execute upon that you know of course, we decided to take the big one is right away off the table, but this is of course continues to be an opportunity for us to reach out to some of the landlords and try to basically either by the properties from them or try to get better terms, but youre right on spot I mean in 10 of the day.
Some of them may decide that they want to sell them. Some of them may decide that they better just reduce the rent because we become.
Bigger and better.
Yes.
To add on to what I already said I mean, we knew this was in the works and obviously Couldnt mentioned until its final, but the other advantage of besides reducing the rent we actually got about property free and clear too. So it added to our total fee store base. So a total positive.
I think there were a lot of questions whenever I saw this you know you have this $1 billion commitment what are you going to do with it there is lots of things we can do with it and this is one of the way we can do possibly to impact the business.
Yes.
Just for your benefit the Mark we ended around 55 location.
With the transaction with the two transaction. He bulk street. We ended another 55 trend basically pieces of real estate to our real estate base right. Now in addition to that that we actually owned right now.
Debt at the company.
Got it very helpful. Thanks, guys.
Okay.
Sure. Thank you.
Thank you.
Reminder, if you'd like to ask a question today. Please press star one from your telephone keypad.
Our next question is from the line of Kelly Bania with BMO capital markets. Please proceed with your questions.
Hi, good morning, Thanks for taking our questions.
Just wanted to ask about same store sales, obviously a focus on.
On cigarettes and more on the higher margin categories, and maybe also some dynamics of cycling some some stronger cigarette.
Trends last year, just curious if you could talk a little bit about your outlook. There on the same store sales front should we expect a similar dynamic to continue for the next couple of quarters or even longer term.
With the emphasis on the cigarette category.
Sure Good morning Kelly.
The way I think the.
The way we are thinking about that as I said I mean is that our strategy was always to try to decrease.
The decrease to try to increase salaries ex cigarettes.
A loyalty card.
We enrolled over a year ago.
Because we knew that at the end of the day, when we do that and when we add the grab and go on to the frozen food and the USR in all of the things that the initiatives that we're doing over the past two quarters. We knew that obviously will be able to shift sales from cigarettes to a basically two other sales ex cigarettes I E.
We're going to continue to see this trend moving forward as I mentioned, we are right now, finishing a rollout both the rest of the reserves and grab and go and as we see a very very big increase over here in that same store sales.
We added the grab and go coolers and frozen food their freezers.
I think that we're going to we're going to continue to see over here and increase our sales ex cigarettes.
The next whatever is ahead of us that said that's my belief.
And Kelly just to reemphasize, what we've always said, we're very competitive on cigarettes is not that we're trying to say, we don't want to certify or we do want to sort of a buyer, but I mean, you've seen I mean, there have been numerous price increases this year theres talk of increasing the federal excise tax here some of that to come back but.
Obviously, it puts a crunch on the on the consumer's pocket book and you see the increase in Otp, we don't have.
I'm, just saying, okay. This person switched over but you see our increase in OTT sales versus cigarette. We just know that there's a category of cigarettes are declining. So we're trying to remain competitive to keep that that consumer coming in our store while at the same time, making sure that we're offering.
Their alternatives and otp products for them to have and also have other offerings that will be appealing for people to come into but by no means do we want to discourage the cigarette consumer from coming in our store, we want to be very price conscious about what we're offering out there, but at the same time, giving them more things to buy when they come in.
Okay.
Alright, that's very helpful. Also just wanted to ask again about gallons.
And how you think that.
Formed from a gallon perspective, maybe in your markets and how that compared to two peers, both maybe at retail and wholesale and just maybe help us understand.
Gallons on a pro forma basis relative to 2019, where do you stay at both both at retail and wholesale and when do you think youll get back to that 2019 level.
Alright.
Yeah.
I don't know that we'll ever get back to the 2019 levels. That's just our belief I mean, I think we've seen I call. It the the great returned to work sort of not happen again. This is just our belief.
<unk>, obviously seeing our wholesale base our wholesale dealers are are doing well and we believe that.
Obviously things like diesel will continue to do well. So that's really it can be seen in the future because you still have a big block of Av.
Workers, just not going to work so that's yet to be seen it's hard for us to project that but.
And no one can make a projection, but at least at least it's our belief that it's going to be tough to get back to that 2019 level unless we see people going back to the office and doing things like that which is still remained to be seen so as we talk about.
We're looking to optimize what we have again, while still being competitive in the markets. We are so it's really a it's really we're coming out of it.
100 year pandemic, where people thought they would be coming back coming back coming back and all of a sudden they are not coming back. So obviously, we're going to play in those markets and we're going to we're going to be there. The thing I'm really pleased about is how much fuel we're signing up on the wholesale side and they were increasing our gallon increasing.
And that's really the focus is that's where we can really grow our gallons.
That's a yet to be seen but I think until that issue of do people return to work gets addressed again, who knows about that that will really answer the question of 2019, but.
And my belief I don't know that you really will ever get there, but that's just my personal belief.
And Kelly just to just to be clear over here you know first of all you know that.
Basically our customer base in our store base, it's more our goal and secondary market. The second thing is that we are absolutely competitive I mean this is what we're seeing and this is what I've been telling from the beginning of the pandemic.
At the end of the day people are driving less buying less gallons, but you know the margin basically expand because of that I think that the minutes, we're going to start to see a shift in gallon increase we might be actually seeing a small decrease in our CPG.
C P G because of that but I think even the consumer today, it's really ease of use less confident about you know they they got the debt.
The store price as they used to be probably in 2019 in 2019 people that will drive an extra five miles just to basically grabbed five by Penny that's not what we see right now.
That's very helpful.
And just I know, it's maybe early for 'twenty two obviously.
Models stepping up next year, it's a big part of the plan as I understand it and just want to hear an update if possible about your expectation for that acceleration in remodels the cost of those remodels the equipment and just is that trajectory look on.
Path relative to your expectation.
Yes.
Yeah. So we are we are.
We are on target in terms of opening we are opening in the third store you guys remember last quarter I mentioned that we are in the process of opening the third store. This is a 5600 square foot store.
The off highway 77.
Between North and South Carolina this stores scheduled to open in the next.
Basically in the next couple of weeks.
So we are on target on that as I mentioned.
We are going to complete the <unk>.
<unk> stores that we mentioned.
We may have a slight delay of a I'll call. It a couple of months and again everything is just because we are learning a lot and we are priced engineering, but yeah.
In terms of the rest of the stores as I mentioned, we have 45 stores right. Now are that we are already planned for 2022. We also went ahead and older equipment to make sure that we would not have any supply chain issues, but it's really everything we're doing over here.
Purposely I mean, we want to make sure that when we priced engineering would be actually use those prototypes, we are going to be able to duplicate them.
In a very efficient way so so far as I said, you know nothings changed basically in terms of you know in terms of our planning over here.
Yeah, and just to add a little bit more on that.
I think where the concern in the market is for the supply chain. We don't have a we still believe that we'll be able to do this.
The question is going to be how the supply chain reacts over the next.
Two to three quarters I mean, obviously, that's a concern and we will have to monitor that but at the same time, we're able to look at what we're doing and I think as we said, we've got 45 sites already under engineering and design.
But you know you never know whats going to hold up in the supply chain as we go through so we'll have to we'll have to look at that as we go forward, but again, we think we look at this as this is a temporary issue.
Due to supply chain, but the whole concept itself is still very viable and we're pleased with what we've seen so far and we will.
We'll react to it as as as the supply chain allows us to but we're not slowing down because we're getting the designs done at least 45 of them right now.
Great. That's very helpful and just last one for me can we just have an update on.
How you would characterize staffing levels at your stores turnover and just just generally the wage environment and.
And how you feel about that going forward.
Well.
I can't comment on a turnover right now, but what I can say is that we are very competitive we are operating our stores, we're not closing stores.
Looking at some areas that people end up closing still earlier, you know we don't face those things.
We're just managing through through the storm over here.
There are areas that we had to offer $500 for people to sign in and work for five hours, if im sorry, $500 for $500. There are areas that we had to increase the $500 to $1000 in order to keep people basically in place. So you know, it's a competitive environment and I think we are managing very well over a year.
You know, making sure that our stores are open.
And again, if you asked me what's going to happen moving forward I think you know I think things will settle at the end of the day at the end of the day things as I've said, there is no different than the supply chain I. Just think that this is a temporary issue that everybody just facing right now and you know at some point.
Things will basically when you get relief over here.
Yes, Kelly I think I think the biggest thing that helped us through all of this was adding.
10, full time resources to do recruiting because what we found is that people have so many opportunities for offers is that we want to be able to make the offer on the spot and.
And I think if you wait too long to make an offer to somebody thats. When you lose them. So that has been a real plus for us by putting those resources in place we.
We did that back back early in the summer I think it's paid dividends for us so being able to interview and employee and offered him a job right. Then I think has made a big difference.
Yeah.
And just a just to comment on that that Kelly and remember that's one of the reason that we decided to go with a grab and go and frozen food and basically press fluids versus opening big kitchens over there that's exactly one of the reasons that we decided to go so because of that but we can operate our stores.
We've got a limited amount of basically up associates.
Thank you.
Thank you.
At this time, we've reached the end of the question and answer session and I will turn the call over to Ari Cutler for closing remarks.
Thank you our store participant on the call today I would.
I'd like to wish you a wonderful day.
This will conclude today's conference. Thank you for your participation you may now disconnect. Your lines at this time and have a wonderful day.