Q4 2022 Arko Corp. Earnings Call
Speaker 1: The to change.
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Speaker 1: F.
Speaker 2: Greetings and welcome to the ARCO Corp. 4th quarter in fiscal year 2022 earnings conference call. At this time, all participants are on a listen only mode. A brief question and answer session will follow the formal presentation. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker 2: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ross Parman, Vice President, Investor Relations. Thank you. Please go ahead.
Speaker 3: Thank you. Good morning and welcome to ARCO's fourth quarter in fiscal year 2022, Ernie's conference call and webcast.
Speaker 3: On today's call are already Kotler, Chairman, President, and Chief Executive Officer, and Don Bissell, Chief Financial Officer.
Speaker 3: Our earnings press release annual report on Form 10K for the year ended December 31, 2022 has filed with the SEC and our earnings presentation are available on our COS website.
Speaker 3: at arcocore.com.
Speaker 3: Before we begin, please note that all fourth quarter 2022 financial information is unaudited. During the course of this call, management may make forward-looking statements within the meeting of the Private Security's litigation reform act of 1995. These statements may be identified by the use of words such as will, may, expect,
Speaker 3: plan, intent, code, estimate, project, and similar references to future periods.
Speaker 3: These statements speak only as of today and 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.
Speaker 3: Please report to our press release or annual report on Form 10K for the fiscal year ended December 31, 2022, and our 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.
Speaker 3: Please note that on today's call, management will refer to non- GAAP financial measures, including same-store measures, divita, adjustity, divita, and free cash flow. While the company believes these non- GAAP financial measures provide useful information for investors.
Speaker 3: The presentation of this information is not intended to be considered an isolation or as a substitute for our financial information presented in accordance with GAP. Please refer to our earnings press release for reconciliation of our non- GAAP measures for the most directly comparable GAAP measures .
Speaker 3: I would also like to note that we're 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 for your advance and understanding. Now, I'd like to turn the call over to Ari.
Speaker 4: Thank you, Russ. Good morning, everyone, and thank you for joining us. Before we get started, I'm sure you all have heard the down-announced EWIT retire after a distinguished 42-year career.
Speaker 4: Done is a great partner and resource. As we reported, he will remain in the position for several more quarters, leading the finance team, while the search for his replacement is underway.
Speaker 4: Done's time with the company has been marked by significant growth and excellent performance in our business.
Speaker 4: In 2022 was another year of strong results and continued expansion.
Speaker 4: This results emphasize that at our core, our core is a retail convenience store operator. It is important to remember that the majority of our profits are generated in our stores.
Speaker 4: Our co-increased operating income by 18.9% to 33.7 million in Q4 2020-22 versus the prior year Ford quarter. Adjusted EBDA increased 24.1% compared to Q4 2021-72.4 million in Q4 2022.
Speaker 4: an increase 17.3% year-over-year to $301.1 million in 2022.
Speaker 4: Our balance is continued to be very strong. In Q4, the company recorded $69.5 million in net cash provided by operating activities, and $43.8 million in free cash flow. For the year, our puts generated $209.3 million in net cash provided by operating activities
Speaker 4: invest in many initiatives in our stores. Over the past four years, we have realigned and expand our marketing and merchandising team.
Speaker 4: Their strategic initiative has successfully led to continue growth-crafting expansion inside our stores Compared to 2020 merchandise contribution has grown by 23.4%
Speaker 4: According to IRI in 2022, total dollar sales in our stores outpace their markets, during the string of our favorable assortment, loyalty and marketing programs.
Speaker 4: This includes key product categories like beer, wine, package beverages, package sweet snacks, frozen foods, alternative snacks, and general merchant diet.
Speaker 4: Q4 merchandise margin increased 50 basis points to 30.5% from 30% in Q4 2021. Merchandise margin expanded by 110 basis points to 30.4% for full year 2022 compared to 29.3% in 2021.
Speaker 4: Both quarter, same-store merchant I've sell the excluding cigarettes increased 9.2% on a two-year stock basis. IRI data also shows that we maintain share in our competitive retailer market area including cigarettes and grew by 10 basis points excluding tobacco products.
Speaker 4: Both quarter 2022, same-store sales including cigarettes increased 1.2%. It is worth noting that the concentration of same-store cigarettes sales declined from 38.7% of in-store sales in Q4 2020 to 32.7% of in-store sales in Q4 2022.
Speaker 4: program in IR margin items like food service and dispense beverage categories. Our in-stores growth strategy is based on tree key pillars.
Speaker 4: The first pillar is to grow cells in core destination categories for data-driven decision that meet today's customer's needs.
Speaker 4: When we acquire new sites, we often add hundreds of items to the acquired stores. We focus on key merchandise that we know resonates with our customers.
Speaker 4: I will detail the benefits of this shortly in a brief case study of our Endymart acquisition.
Speaker 4: The second key pillar is using our fast-reward-lerty program to develop and strengthen the relationship with our customers. Our objective is to drive more trips inside stores while providing exceptional value.
Speaker 4: We ended the year with almost 1.3 million and Gold Reality members.
Speaker 4: Replease by the consumer response to our current loyalty initiatives. Lerti customers continue to incrementally grow their total spend over the course of the year. A loyalty marketing is apparently resonating with them. For example, our 99 cents coffee program for enrolled members has had a very strong result.
Speaker 4: Enroll members purchase over 741,000 more cops of coffee in 2022 than in 2021.
Speaker 4: We are in the process of rolling out our new loyalty app, which has many exciting new i-value features for the benefit of our existing and new loyalty customers.
Speaker 4: We are in the final stages of preparing our source for activation of our NULO LDIP and it will be available in the app source soon. Our goal is to increase new customer enrollment and announce customer engagement with real time information like fuel pricing and rewards balance.
Speaker 4: capitalizing on our partnership with third party services that provide delivery at over 1000 of our stores.
Speaker 4: We will also be able to make age-verified special offers to adult customers 21 years in order.
Speaker 4: Our third dealer is expanding our package and fresh food offering, including pizza, chicken, prepared sandwiches, and many other options.
Speaker 4: Sebauer and other QSR-like offerings are components of this pillar. Since establishing this franchise relationship, we now have 18 Sebauer locations.
Speaker 4: We continue to expand our food offering and implement variety of food options.
Speaker 4: And we are making progress in identifying food offering at the price point that will resonate with our customers and that we can use across our stores.
Speaker 4: Our goal is to increase margin, trips and average basket size.
Speaker 4: We know that we have long runways to significantly increase margin as we expand this important category to meet our customer needs.
Speaker 4: We believe that in our markets we can create a value proposition to position our stores as a food destination. Updating areas of our store with announced food and drink offerings has continued to work well for us. Units sales of Bintu Cup Coffee increased 7.2% in 2022.
Speaker 4: and our trending up. We believe that through continuous improvement in each pillar, our core convenience store business is well positioned to deliver great results.
Speaker 4: Turning to fuel, gross profit is the most important metric when analyzing our performance. We believe our strategy to maximize fuel gross profit while maintaining competitive pricing has consistently proven itself in a volatile market environment.
Speaker 4: We believe our strategy enables strong results as price decline as they have from their peak in June 2022 through some volatility through Q3 and Q4 and a total gallons in the market decline.
Speaker 4: We compete in fuel market by market using data driven approach based on a fuel strategy that we have also designed to attract customers into our stores.
Speaker 4: In 2022, we have held merchandise dollar share in our competitive retailer market areas while significantly improving fuel growth profit. This led to, on one hand, same store-gallon decreasing by 8.3% in Q4 compared to a 0.2% decline in the prior year of Q4 and for the year.
Speaker 4: same store gallon decline 8.1% compared to a 1.3% decline in 2021. On the other end retail fuel profitability grew to $104.3 million, a 16.3% increase compared to the $89.7 million in the fourth quarter of 2021.
Speaker 4: For the year, we increased retail fuel growth profits by 19 percent to $416.2 million compared to $349.9 million in 2021. We believe based on 2022 national fuel volumes that in our markets overall demand is likely to remain lower than in 2019.
Speaker 4: We also believe that sensor Golan is trapped really higher than it was in the past, given pressures across the operating environment.
Speaker 4: OPEX continue to increase the croaster industry. The labor market is still competitive and wage growth has been strong nationally.
Speaker 4: We believe our strategy is resilient across many price environments as our results have shown. Turning to M&A, Capital allocation is one of the many things and we always think about the best areas to deploy capital.
Speaker 4: We have proven track records of discipline and consistent growth. We believe that acquisition will continue to drive EBDA growth.
Speaker 4: Companies return on invested capital across our many acquisition, underscored that continue M&A is an effective use of capital. Our financial strength, financing ability and agreement with Oak Street continue to give us an advantage in our ability to move quickly and get deals done.
Speaker 4: Our balance sheet is strong with manageable depth and favorable interest rates.
Speaker 4: Our industry continue to be highly fragmented. As a result, the overall deal pipeline is still strong, and we expect to expand our core convenience store business.
Speaker 4: industry continue to be highly fragmented. As a result, the overall deal pipeline is still strong and we expect to expand our core convenience store business to our acquisition strategy.
Speaker 4: There are also opportunities to make a creative deal and acquire expertise in complementary areas that will grow the business. We believe our stores can grow their food offerings. If we believe there is an interesting opportunity or investment that can announce our stores and create unique value proposition for our customers, we will closely examine the opportunity. We are now...
Speaker 4: for highly equity acquisition in 2022, of which we already close to calls and pride. Before getting into further details, I'd like to illustrate how we drive growth in new acquisitions. I want to opt through the 2022 performance of our Endymarth acquisition that closed in November 2021. Quarter of a quarter, we monitor progress of all of our new acquisitions. We fully reset 36 stores.
Speaker 4: adding over 700 merchandise items. This is the value that we bring to our customers, increasing mix with Indomand items. We also implemented our fuel pricing system. For these numbers, I am comparing against seller provided trailing 12 month figures from May 2021 when we conducted our due diligence.
Speaker 4: Inso margin have increased 6.9% from 31.3% to 33.5%. Merchandise contribution has grown 10.8%.
Speaker 4: As of December 31st, 2022, we increased average center gallon by six cents. In the two full quarters following the reset, merchandise sales increased 7.6% compared to the two quarters prior to resets. Most importantly, although adding in approximately $6 million in rent to Oak Street, we've increased sole level EBIDAB by approximately 30% in just one year.
Speaker 4: The purchase multiple was reduced from about 1.3 times to one time and our return on investment is 96%. This case study underscores an important part of our strategy. In this highly competitive industry, being an effective capital allocator is essential. But capital allocation alone is not what makes our business successful.
Speaker 4: Execution in operation is what drives us forward. Our teams have been very effective at improving marketing, in-store mix, and offering to drive cells at our newly acquired stores.
Speaker 4: The virtues of our scale and the efficiencies that poses us by our scale allow us to complete market by market, store by store every day. We plan to undertake similar value added measures in the approximately 155 company operated convenience stores we expect to add to our network in the first up of this year, one monthly close the remaining two acquisitions announced in 2022.
Speaker 4: The transit energy group acquisition will add approximately 135 convenience stores and expand our southern retail territory into Alabama and Mississippi. We expect this transaction to close in the first quarter. The WTG acquisition is anticipated to close in the second quarter. This acquisition will significantly announce the company's footprint in the attractive Pyramid and Basin market with 24 company operated uncle convenience stores across West and Texas.
Speaker 4: The company would also acquire 57 apperatary, leaf-fueling CODLOP sites strategically located in large industrial areas in West Texas, and Southeast New Mexico, and 52 private CODLOP sites. These sites serve as a diverse base of customers. The W2G acquisition fits very well.
Speaker 4: In our business model and builds on the fleet fueling business, we acquired from calls in July 2022. We believe that fleet fueling is an excellent business and the timing of the calls acquisition and a rapid integration could not have been better. We realized strong cash flow because of fuel price volatility in the second half of 2022 since closing. The calls acquisition which closed on July 22, 2022 contribute incremental adjusted EBDA in 2022 of $20 million.
Speaker 4: This exceeds our expectation based on our modeling. We closed the price convenience-olding acquisition on December 6. This was our second deal for 2022. This strategic acquisition had a 31 convenience stores plus a new to industry store that broke round in July 2022. We have to expand our new England territory into mass assures.
Speaker 4: We're on pace with our integration efforts and look forward to adding value to the stores with a larger assortment and new promotions. In addition to this acquisition in 2022, we fully remodeled six stores and started the planning and engineering pace of an NDI store in Atlanta, Texas.
Speaker 4: We expect construction of that project to be completed in 2024. We are also expanding our EV network. The Pride Acquisition increase our total EV charging network with 18 charger install across five stores in Massachusetts.
Speaker 4: Importantly, prior to our acquisition, prior was awarded a number of grants to expand its EV charging capacity in Massachusetts, which has aggressive EV targets. We plan to put these grants to use to expand EV charges availability in these markets. As part of our overall strategy, we pursue grants and subsidies to cause our footprints to expand our EV charging capacity. We have six other active EV projects in various spaces of development on top of our chargers currently in place.
Speaker 4: in Mary's Veloio and Beards Run Michigan. We continue to identify potential opportunities to install EV charging across our footprints. Our goal is to offer EV drivers convenience and amenities they seek in charging destination away from their homes at areas where we identify sufficient potential demand. One more note. In December , your list are environmental, sustainability, social responsibility and corporate governance reports for the year 2021.
Speaker 4: We are currently working on the implementation of our sustainability work plans with a focus on long-term value creation. We've done, I would turn it over to Donna. Thank you, Ari, and thank you for the kind words. It's no secret that I'm a convenience for a fanatic. This is a great industry, and my colleagues and peers at ARCO who share my passion are the reasons I enjoy coming to work every day.
Speaker 3: This is a great company and a great company to work for. Our growth and strong performers culminating in the company's inclusion in the Fortune 500 List is a part of my professional life that I'll always be proud of.
Speaker 3: The company has continued to record excellent results. Our INSTIR performance continues as our numerous initiatives gain traction. We're making excellent progress with our integration capabilities which is great for the company. Our other segments have continued to generate stable, rateable cash flows that benefit our capital allocation.
Speaker 5: Our balance sheet continues to be strong. We have a very good liquidity position as well. As of December 31st, 2022, we had cash and cash equivalents of approximately $299 million. Our outstanding debt, excluding capital leases, was approximately $752 million, resulting in net debt of $453 million.
Speaker 5: We continue to realize excellent cash flow for the quarter net cash provided by operating activities was $69.5 million and $209.3 million for the year versus $39.6 million for the fourth quarter of 2021 and $159.2 million for the prior year.
Speaker 5: After the expected closings of the TEG and WTG acquisitions, there will be approximately $575 million remaining under our Oak Street agreement. Getting into results of our CommandStores, merchandise revenue for the fourth quarter of 2022 increased to $403.1 million versus $396.1 million in the prior year quarter.
Speaker 5: For the year, merchandise revenue increased nearly 2 percent to $1.6 to $5 billion from $1.62 billion in 2021. Margin percentage year over year increased by 110 basis points to 30.4 percent.
Speaker 5: Capital expenditures increased both the result of spending supporting our initiatives and other investments in our stores, including six full-storey models and other necessary upgrades. Total capital expenditures were approximately $98.6 million for the year ending December 31, 2022, which included the purchase of certainty properties, being the coffee equipment, upgrades to our fuel dispensers, and other investments in our stores. This is compared to net capital expenditures of $73 million for the prior year.
Speaker 5: which is composed of $226.2 million net of $152.9 million of proceeds paid by Oak Street for two transactions at Canada 4 as deemed sell-ease backs.
and the purchase of certain C properties. In fuel, we continue to believe that margins have moved structurally higher, given an interesting volume to point, increased credit card fees, higher operating expense, and cost of labor. We believe our strategy of managing margin and volume while maintaining competitive pricing is key to optimizing profitability as a growing company.
Retail fuel profitability, excluding intercom any charges for the fourth quarter of 2022, grew 16.3% to score, trailing $104.3 million. This was a $14.6 million increase versus Q4 2021. For the year, retail fuel profitability increased 19% to $416.2 million from $349.9 million in 2021. The company increased retail fuel margin to $4.4 for Gallon.
for the year compared to 33.7 cents for gallon in 2021. Fourth quarter, convenience store operating expenses increase $13.6 million dollars or 8.7 percent versus prior year. Due to incremental expenses, it relates to the prior acquisition and increased expenses at the same stores. Same store credit card fees for the quarter increase by $0.7 million or by 3.5 percent. While sourism wages increased by $7 million or by 11.5 percent, both compared to Q4 2021. For the year ended December 31st, 2022.
Store operating expenses increase $75.9 million or 12.8% as compared to the year-end of December 31, 2021. This was due to approximately $36 million of incremental expenses related to pride acquisitions.
and the 2021 acquisitions and an increased expense of the same stores, including $32 million of higher personnel costs for 14.2% and $10.4 million of higher credit card fees for 14.5% due to higher retail prices.
The increase in store operating expenses was partially offset by underperforming retail stores that we close or convert as independent dealers. Moving to wholesale for the year, wholesale fuel contribution, excluding intercoming charges, increased approximately $9.7 million. This was primarily due to a 20.2% increase in fuel margin since for gallon, which was partially offset by a 7.7% overall decline in volume. With gallons from fuel supply locations down 8.4% year-over-year.
For the quarter, wholesale fuel contribution, including intercoming charges, decreased $1.8 million. Last quarter, we discussed the rapid integration of quarrels, which closed on July 22nd. We're very pleased with this acquisition in business. This acquisition has pretty strong cash flow and the second half primarily because of fuel price volatility. The acquisition added just an even of $20 million for the year. We're very happy with the excellent work done by the highly skilled quarrel team. The fleet fueling business generated fuel revenues of approximately $1.8 million.
$149.9 million for the fourth quarter and $270.7 million for the year. Fuel conservation, excluding intercompany charges from the fleet fueling sites, was approximately $16.9 million for the quarter and $27.89 million for the year.
Few margins and cents for gallon excluding intercoming charges for the proprietary car locks was 53.9 cents for gallon for the fourth quarter and 7.8 cents for gallon at the third party car lock locations. For the year few margins and cents for gallon excluding intercoming charges was 48.4 cents for gallon at proprietary location at 6.5 cents for gallon at the third party car lock locations.
Net interest in other financial expenses for the full year decreased by $11.8 million versus the prior year to $59.4 million. Net interest in other financial expenses for the quarter were $16.3 million compared to $16.2 million for the prior year quarter. Net income for the quarter was $12.86 million versus $12.93 million from the prior year
net income for the year increased 21.1% to $72 million compared to $59.4 million for the prior year. Adjust the EBITDA with $72.4 million and increase the $14.1 million compared to the fourth quarter of 2021.
For the year, a justity net of incremental bonuses was $301.1 million. This number has increased 64.2% since 2020, showing the rapid pace of our progress. This has been another great year for the company. As a result of our strong results and desire to enhance returns for stockholders, our close board directors, the credit quarterly dividend, a three cents per share of common stock, to be paid on March 21, 2023, stockholders' record as a March 9th. 2020-23.
And now, I'll turn the call back over to Ari. Thanks, Don. I will close by saying that we believe that we have the right long-term strategy in place, as well as the execution capabilities to deliver growth for the long term. I want to thank the companies over 12,000 employees for their hard work and dedication. I believe that our excellent results for the quarter and for the year the year.
are a great tailwind as we start 2023 and mark a decade of rapid growth at the company. Now, you will take your questions. Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tunnel indicate your 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 may be necessary to pick up the handset before pressing the star keys. In the interest of time, we do ask you please limit yourself to one question and one follow-up. Once again, that is star one to register a question at this time. The first question today is coming from Bobby Griffin of Raymond James. Please go ahead. Good morning. This is Alfaundra Menes on for Bobby Griffin. Thank you.
As you remember in the past, we showed 38% return on our capital and the past and right now in this presentation, we're basically showing 59%. The worst can happen is that we go back to the 38% return on capital, which is still a great return on capital for us, but I don't think anything will basically change dramatically over here.
I think we're going to continue to grow to acquisition. And at the same time, we have all of the other opportunities that I described on the call, which include the PM inside the store. OK, that's very helpful. And then maybe secondly, for us, just touch on the cost environment in the box a little bit. Are you currently continuing to see significant European cost pressures or our store off-ex costs starting to behave a little bit better? I think the cost of up-ex start to actually settle a little bit. As you can see here over year, we have an increase of almost $75, $80 million increase in OPEX inside the stores.
which that's what by the way would draw the, you know, CPG or the gross profit dollars in, you know, outside the store, a little bit higher given the environment. I think we're going to see those things settle as, you know, as we enter into 2023, but I'm assuming that we're going to continue to see increase, maybe not significant as we saw in 2021 and 2022, but, you know, we still see some kind of increase in 2023. Okay, thank you so much, and best of luck here in 2023. Thank you for your time. Thank you. The next question is coming from hell. Hold it up, Barclays. Please go ahead.
Good morning. I guess two or three questions. The first one is I heard your comments on retail in large and being structurally higher just given the cost environment for independence, but they were still pretty high in the fourth And maybe you could just give us a range of where you thought they might be on a go-forward basis for the next year or two because 40 cents was pretty high. Sure. So I think the 40 cents, it's really demonstration of basically of our capability of increasing gross profit dollars. You know, I tell people in this environment, you know, I don't talk CPG anymore. I told gross profit dollars. As I mentioned earlier, and you know, we have a presentation out there. You know, OPEX are up 75 million dollars.
from basically from 2021. And I tell people the only way to pay for that, it's actually to increase the margin outside the store. That's the only way to pay. I mean, in order for you to pay $75 million increase in OPEX, you need to almost have 15% increase inside the store, which is not possible. It's just not possible. So I...
up just because all of those reasons. Everybody has, by the way, the same issues. It's not our current particular. It's actually everybody has the same issues. And I think given our size, we probably can be a little bit more flexible.
But as I said, I mean, one of the things that we see in Q4 and we demonstrate that not only that, you know, CPG was up and gross profit, basically outside of what was up, it didn't impact the sales inside the stores. As you can see, our same store sales ex-sigurate inside the store were up 4.1%. And we continue to see this trend, by the way, moving forward. And I think that just, you know, demonstrate that, you know, that CPG will continue to rise across the dollar outside the stores, continue to rise because of all of those reasons. Got it. And then how do you balance that with the fuel volume decline in the quarter going forward?
I mean, it's sort of like a tricky stabilization act, I think. Well, you know, it's a great question. And as I always said, you know, we believe that we have the right tools in place. And even that we believe we have the right tools in place, you know, we always try to find the sweet spot, you know, between losing gallons on one end and basically getting a margin. So yes, our gallons were down for the year.
you know, 8.1%, but if you're really looking on, you know, gross profit, you know, gross profit dollars, you see that gross profit dollars was almost 20%. So you have to find this sweet spot, and at the same time, you need to be very careful and making sure that you continue to be competitive.
I think that's one of the things that we see, and you're probably different than some others, but very similar to the small operators. 40% of our stores are operated in cities that have population of 20,000 people or less, and an addition of 20% is between 20 to 50,000. So we are in a lot of low locations, and our belief is that gallons are just not there. It's not that we lose 8% of the gallons, and someone else pick up the 8% of the gallons. That's not the case over there. We just think that people were driving less.
However, we are recycling right now, almost, we are in February right now, we're really recycling right now. The beginning of the work last year. And if you remember, the volatility of fuel prices started at the beginning of March 2022. And now when basically prices, at least they're down right now dramatically from what we saw last year, we start to see increasing gallons compared to last year because of that. Got it. And then my last question was, you made a reference in the script on M&A looking at a Json Cs or Json categories. I was wondering if you could give us an example of sort of what you were thinking that might be a creative to the core. Well, I mean core is of course.
company operated stores. That's our main core. I mean if you're really looking on our company, you know we continue to grow and continue to buy company operated stores you know 70% of our if you're really looking on our you know operating profits 76% of our business is basically come from our retail segment.
And as I mentioned, I mean, as we're going to continue to grow up, you know, now we have an also opportunity, which is a great opportunity for us. We have the Cardlook opportunity, which is an unbelievable opportunity for us. I mean, you see the results. I mean, we basically deliver in five months, we deliver the EBITDA that, you know, we basically under wrote to deliver for the poolier to the great year for us. And again, this is just 10.
Like I said, Jason, opportunity for us to continue to deliver a great cash flow, well at the same time, we're going to continue to concentrate on our retail business and company operated stores because this is where we see the majority of the profit coming from. And I think the end-ymart, the description about what we did in end-ymart, adding almost 700 assortment. And then the weird.
that those are bigger stores. The same thing goes to fuel. You know, we're going to use our same strategy that we use in NDMAR to use in company wide. We're going to continue to use those strategies. And, you know, I think, given our size right now, I think we're going to be able to, you know, deliver better and better results, whatever after quarter.
you know, given, you know, we implement our strategy over here. And there is a lot of opportunities that, again, I can see down for five hours and talking about all of those opportunities, especially food service. I mean, we believe food service in this environment, it's a great opportunity for us. When I talk food service, I'm talking more about pizza, grab and go, freezers, you know, we have opportunity to add 200 freezers in additional stores. We are adding a Bintou Cup coffee machine into the fried stores. You know, we're getting ready to close the TGA position.
And we're going to reset those doors. So again, we have a big runway over here ahead of us. Great. Thank you so much. I appreciate it. Appreciate the question. Thank you. The next question is coming from a lock to tell of Stephen. Please go ahead. Hi, hi, everyone. This is a lock to tell on the line from Mark Astro-Chan.
I wanted to follow up regarding in-sort merchandise. Can you talk about which categories are more or less elastic? How do you think about pricing as you move through 2023 and the potential benefit from higher promotional activity or just reduce pricing? Sure. First of all, I can maybe touch couple of categories that were basically, we saw a big increase or a very big increase.
You know, very nice increase over there. I mean, the first one of course is candy. I mean, everybody know that candy, you know, country-wide candy is up. So, a nice increasing candy. Frozen foods continue to be a big hit for us. As you guys remember from the beginning of 2021, we implemented over 700 freezers into our stores and continue to grow. I mean, this quarter, just this quarter, frozen foods was up 19.2%.
The same thing goes to package sweet snacks. I mean, over 14% increase, a pack bath continue to grow 4.7% increase. So, we believe that the big opportunity for us is really loyalty. And as we continue to grow, and as we continue to offer great, basically great commotions to our loyal customers, not only that they're basket increase, and they're coming more often. And that's I think would drive our profitability inside the stores. The one thing I want to touch, of course, is that, remember, we...
started 2020, Q4 2020, our same store sales cigarettes was around 38.9%, almost 39% and today the concentration of cigarettes inside our box, it's around 32.9%. This is a 6% difference, which means that we're able to increase the basket and sell 6% more of other products that their margin is probably two or three times better than the margin of cigarettes. And that's the focus of here. The focus is to continue to increase inside sales with high margin items.
which include the food service item and all of the other categories I just mentioned. We see it by the way, Q1 already. Q1, they inside cells, excluding cigarettes, continue to be very, very strong, similar to what we saw in Q4 2022. Gotcha. I'd a quick follow up on exit rates for margins. Just any commentary on how December was stacking up compared to November or October and whether that momentum or that level of margin has carried over.
into January and February . Any color on that would be great. Are you talking inside the store? No, I was referring a few margins. Oh, Field margin. Well, I can really comment about what happened in Q1. There is no question that Q4 was very, very strong Q compared to the rest of the year. The only thing I can tell you that nothing's significantly really changed. That's the one thing I can tell you. I think we saw maybe a little bit softened in Q1.
But that's happened by the way in Q1 2020 too as well. Just for everybody's memory, Q1 2022, the CPG was a little bit lower than Q4 2021. And we see the same thing over here. Remember, Q1 is always the queue that people drive last. Weather wise, it's not great to be outside.
But I don't think that this is going to demonstrate anything, you know, Q4 to Q1. I don't think it's really provide any kind of demonstration over here. The one thing I can tell you is that we see gallons picking up basically in February compared to basically prior year. That's one thing that we see.
think that this is going to demonstrate anything, you know, Q4 to Q1, I don't think it's really provide any kind of demonstration over here. The one thing I can tell you is that we see gallons speaking up basically in February compared to basically prior year. That's one thing that we see. Go ahead now, okay? Thanks. Thanks.
Thank you. Thank you. The next question is coming from Caru Martinson of Jeffries. Please go ahead. When you look at adding pizza, gravango, freezers and things of that like, is there a change in the kind of the capex philosophy or the investment needed in the boxes here? No, there is really no change. And you know, like everything else, usually when we make those changes and usually when we add those items inside the box, we don't view the same philosophy that we used on Return on Capital. I mean, and I'll give you an example. When we added the Binto Cup coffee machines to over 500 and almost 550 stores last year, we say, yes, Return on Capital is very important, but at the same time, this is a must. If you want to be in the business of selling coffee and you want to tell the market that you're selling coffee 24.
Basically 24 hours a day, seven days a week and you get the same fresh cup of coffee You need to make the investment because you assume that with that investment you assume that people gonna come in and not only You know you're gonna become a destination for coffee. They're gonna pick up some other items some bakery items because of that so as long as you have the item that will be actually told with coffee This is an investment. This something goes to pizza and the something goes to the rest of the food service item
You invest in freezers, you invest in grab and go, and the assumption is that the minute someone, you know, basically grab a sandwich, you're also going to grab a drink and maybe a chips with that.
And this is really the way we're thinking about that. How can we increase the basket, how we can increase the inside cell? And I call it functional remodel, which means that you actually need to invest in areas that you're going to impact some other areas within the stores.
Okay, and then how do we reconcile, you know, we're reading the journal and what have you and the headlines are the consumers pulling back, the consumers trading down to private label and yet you're seeing, you know, a 19% increase in food sales and you're seeing people shop the insides of your stores on that front. What's the disconnect that we're not, you know, not getting in your local markets? Well...
Given the market that I mentioned and given that as I said 40% of our stores are actually sitting in cities that are 20,000 population of 20,000 people or less, as you can imagine in those areas, the consumer is looking for value. The consumer is looking for value. There is no question about that. And given our size, and you're talking about an industry that 75% of the industry, almost 75%, 75% of the industry, it's really small chain with 50 store less. As you can imagine, very difficult for some of those small chain to implement the private label.
very difficult for some of those small chain to basically to bring value, you know, valuable items to the consumers. I think given our size. And our economy of scale that we have almost, you know, we have over 1400 tours going, you know, going soon to over 1500 tours. I think we have the size and the capability and the American Dyssyctiv, of course, that work around the clock to make sure that we bring valuable item to those basically to the consumer. And by the way, that's the reason I keep saying that that's the reason that Q4 was such a strong Q, you know, with other item other than cigarettes.
And I can be very pleased and tell you right now that the trend right now continues to be you know stronger than basically than Q4 when it comes to those categories. As long as you have the size and economy of scale and you have them, you know, the merchandising team that will solidify those products. I mean, this is what the consumer is looking for. Now, you're absolutely correct. The consumer is looking for value. The brand is not relevant anymore. The value is very, very important. Given, you know, basically what we are in the moment. Thank you very much. Appreciate it. Thank you. Thank you. Thank you. The next question is coming from William Reuter. A bank of America. Please go ahead.
Hi, you mentioned that the M&A pipeline continues to be strong. I guess is there anything you can share with us about the attributes in terms of how big these are? Are they the same kind of general size that the historical acquisitions have been? And I guess I'm talking on the retail side here. I think nothing really changed in terms of the size. I mean, it's the same size as you guys though. So we basically did four acquisition, three of them involved retail. So I don't think anything changed in terms of size. I think what we're seeing over here.
see right now, it's a lot of people that I don't want to say overpaid but maybe paid higher multiple as interest rates continue to rise. I think what we're going to see is that some of those folks are going to have to try to refinance so they're going to try to sell their businesses given that they're not going to be able to refinance in this interest rate environment. And that's my thing. And it's also become a little bit more difficult.
to operate a medium, smaller size chain versus what we saw in basically before the pandemic. Okay, and then that's helpful. And then just as one follow-up, you talk about how 60% of your stores are in relatively rural locations or smaller population locations. Historically, there have not been many large operators that have been building.
because the cost of construction is probably 40% higher than what we saw before we actually entered the pandemic. I don't see a lot of big, big stores being built in our markets at all. Now, this is not even something that I see over here that actually...
provide any kind of concern to us. Good to hear. Okay. Thank you. Thank you. Thank you. The next question is coming from Anthony Bonadillo. Wells Fargo, please go ahead. Thanks, guys. I'm in congrats, Don, on your retirement. So I just wanted to ask about acquisition synergies. And I think you guys illustrated a lot of the swell in the handy mark example when you're opening remarks. I think you gave something in the range of 27% of you to synergies on the transit acquisition. Obviously you're growing, see how it continues to help there. But are you finding that number is creeping higher over time as you guys evolve the model?
and refine your approach to things like prepared food, merchandising, and the loyalty program. And then how high could we see that go over time? Then I will let you take this. Then I deliver your unmute. We probably lost time. So Anthony, I can't provide guidance and what's going to happen in the future. The only thing I can say, and again, go back and refer to the NDMART acquisition or the Pride acquisition that we have out here, and this is acquisition that we already close. There is no question that given our size, economy scale matter, absolutely matter. But it's only not only just economy of scale, it's also, as I mentioned on the call, it's also execution.
In Andy Marks, those stores were there for over 100 years. This is a brand that we bought in November , and this is 101 year old brand. And those guys had the opportunity to basically to add products to merchandise stores. I think what we bring to the table over here, it's really experience. Experience merchandisers. Most of those small companies don't have merchandisers and marketing team that is actually sitting behind them. And they're really relying on the, I'll call it on the old seller. Given our size and given that we have the merchandising team and we have the marketing team behind the company, and you know when we come in in 36 stores, I mean think about it. Adding 700 items.
in Andy Marks, those stores were there for over 100 years. This is a brand that we bought in November , and this is 101-year-old brand. And those guys had the opportunity to basically to add products to merchandise stores. I think what we bring to the table over here, it's really experience. Experience merchandise, most of those small companies don't have merchandise stores and marketing team that is actually sitting behind them. And they're really relying on the, I'll call it, on the old seller. Given our size and given that we have the merchandise team and we have the marketing team behind the company, when we come in in 36 stores, I mean, think about it. Adding 700 items to the store.
I mean, this is huge. And you see the results. And by the way, the results are coming in a very short order. I can tell you all that we start to basically to work on the planogram of the stores around June . I mean, literally just around June . And within six months, you see the increase. I mean, we went from 31 points, basically, 5 to 33. So we actually added 200 basis points to the margin. And on the top of it, we actually saw an increase in sales, which was actually tremendous. And, you know, as you can see, we increased all of the limit by 30% over here. So I think the smaller the deal, I think the bigger opportunity. The mid size deal, I think the opportunities are going to be there. It's again, it's just we bring expertise and.
execution skills that some of the other companies just don't have given their size. Hey, Ari, can you hear me now? Yes. Yeah, so I thought I was off mute. One of the things I think that's important, Anthony, if you saw, we did with HandyMart. We're not waiting to get in to do the, like the resets and things like that. And obviously, you know, the bigger we get, the lower our cost is...
the more efficient and we're also looking not only just the store level we're also looking at the G&A structure as well too and and we're you know there's obviously more synergies to come and obviously we've now well-defined three different segments we're all operating on the same platform and I think there's more synergies to come it just comes naturally so I think we'll see that but the big focus really is to get there as soon as possible
and search and do these resets and realize these synergies quickly, which will just lead us to grow even more. So I think I don't want to give a percentage on it, but I think one of the things we, if you know, when we looked at the quarrels acquisition, we see their expectations with there, we see their expectations with Hanley Marta, we see their expectations with Empire. And I think we're at a point now where we've really gotten the appointment down. I won't say completely.
But now comes the fun part where we really can start focusing in on not just what do we do with synergies but on internal processes and how do we make that even better and make it easier for the operators so they can have more cuss for facing time and do things like that. So the synergy is not only with that with the...
with the acquired size but also with our own size for an organic standpoint will grow. Thank you. I'm showing no additional questions in Q. At this time, I'd like to turn the floor back over to Mr. Holtr for closing comments.
Thank you very much. First, I would like to thank you all for joining the call. Great question. A lot of questions this time, which is great. We had the hell of a quarter. We had the hell of a year. We grew our EBDA. Again, this is the second year that we are a second anniversary of being a public company over here. We grew EBDA from $250,000,000 last year to $301,000,000 this year.
And as you guys see, we have another two acquisition that we are getting ready to close. I think we continue to perform very, very well, continue to execute. And as I mentioned earlier, every time when we put numbers before us, our investors, we actually beat those numbers. So we're trying to be also conservative over here.
I'm looking forward for a great 2020-23. Thank you everybody for participating and have a great day. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your alliance at this time or log off the webcast and enjoy the rest of your day.