Arko Corp. Q1 2023 Earnings Call
[music].
Greetings and welcome to Arco Corp, first quarter 'twenty to 'twenty three financial results 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 I would now like to turn the conference over to your host Cross apartment. Thank you you may begin.
Thank you.
Good morning, and welcome to Arco's first quarter 2023 earnings conference call and webcast on today's car already Cutler, Chairman, President and Chief Executive Officer.
Don myself Chief Financial Officer.
Our earnings press release quarterly report on Form 10-Q for the first quarter of 2023 as filed with the SEC and our earnings presentation are available on Arcos website at Arco core dotcom.
Before we begin today.
Please note that all first quarter 2023 financial information is unaudited and during the course of this call management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 East.
These statements may be identified by the use of words, such as will May expect plan intend could estimate project.
Similar references to future periods. These.
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.
Please refer to our press release, our quarterly report on Form 10-Q for the quarter ended March 31, 2023, and our other filings with the SEC, including our annual report on Form 10-K for a detailed discussion of the risks that could cause actual results to differ.
For materially from those expressed or implied in any forward looking statements made today. Please.
Please note that 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. The presentation of this information is not intended to be considered in isolation or as the <unk>.
For our financial information presented in accordance with GAAP.
Please refer to our earnings press release for reconciliations of our non-GAAP measures to the most directly comparable GAAP measures.
I'd also like to note that we're conducting our call today from our respective remote locations as.
As 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 Ross good morning, everyone. We appreciate you joining the call yesterday, you may have seen two major announcements the company made that we believe show.
Well, we are positioned to continue executing our growth strategy well into the future.
Subsidiary GPM petroleum is upside its credit line by $300 million to 800 million dollar from syndicate of banks and we also extended the maturity until may of 'twenty 'twenty eight.
We also increased and extended the Companys program agreement with Oak Street, which can provide up to one 5 billion dollar purchase and lease real estate could you P M or its affiliates for September 30th 2024.
The aggregate ARPA currently has more than $2 billion in available capital for continued M&A activity, including cash lines of credit and the extended Ox Street program agreement.
We are focused on continuing our acquisition strategy to enhance the value for our stockholders.
Turning to our results. This was another strong quarter for higher merchandise contribution and acquisitions.
First quarter same store merchandise sales, excluding cigarettes grew seven 6%.
Store sales decreased by three 8% the.
The increase in same store sales was driven by continued strong performance in high margin destination categories.
Including that detail on these categories in our first quarter presentation on Oracle Corp Dotcom.
Some highlights of this destination categories included packaged beverages sales, which increased nine 6% Candy was up 18, 3% and beer increased six 2% and.
Another key add lines to grow in merchandising contribution dollars of $8 $1 million or seven 7% on a same store basis.
Merchandize margin grew 120 basis points to 37% this quarter compared to 29, 5% in Q1 2022.
We believe that these results show that our numerous marketing and merchandising initiatives are working resonating with customers and driving sales growth.
Higher merchandise contribution margin and our recent acquisition helped to offset lower fuel contribution and increased in store operating expenses, resulting in adjusted EBITDA of $47 $5 million for the quarter compared to $51 million in the prior year quarter, a decline of five 2%.
Total fuel contribution increased to $123.8 million compared to $112 $9 million in the prior year quarter, an increase of $10 9 million dollar.
On a same store basis, including legacy oldest Dennis sites total fuel contribution dollars were $95 2 million dollar, which declined $15.4 million compared to $110 $6 million in Q1, 2022 the fuel contribution was lower with the majority of this decline related to elevated.
Fuel margin in March 2022 at same store retail sites compared to March 2023.
TPG was 47.7 cents per gallon versus 37.3 cents per gallon in March 2023.
Was it driven by increase in fuel prices due in part to the invasion of Ukraine, We still believe that structurally higher margin would remain given increased operating pressures.
Going back to our strong new store performance I will now update you on our three key merchandising and marketing pillars.
Our first pillar is to grow sales and core destination categories.
Driven decision and a strong supplier partnerships.
Cigarettes are certainly a destination category, however, core destination categories. However, it refocused investment of resources, such as people space and capital.
These are packaged beverages beer candy salty snacks, sweet snacks and alternative snacks.
These categories drove 63% of our Q1 same store sales, excluding cigarettes, and 43% of our total same store sales.
Our customers expect and deserve.
Ross do you have the right assortment base and valuing these categories.
Same store sales in the six core categories grew by approximately 10% in Q1, 2023 although Q1 2022.
The margin rates in these categories grew 110 basis points in Q1 2023.
Over Q1 2022.
We continue to refine and drive the expansion of these categories across our company operated stores to ensure that we are offering our customers the right assortment and value proposition.
Our core criteria off our M&A strategy is to acquire chain, where we can add value Arco.
<unk> scale purchasing power in merchandising and marketing expertise has enabled the company to improve the performance of stores that repurchase by improving the product assortment product placement promotional events and loyalty.
One example of our ability to add value is that our 36th Andy Mart stores in North Carolina, which we acquired in November 2021.
As follow up detail, we shared on our last call. We continue to make progress in stores first quarter results at M. D Mart stores, whereas follows and are all Q1, 'twenty two 'twenty three compared to Q1 2022 our first full quarter of operations.
<unk> sales decreased six 7% and merchandise sales, excluding cigarettes increased 12, 2%.
<unk> margin increased 400 basis points to 33, 2% compared to 29, 2% in the prior year quarter.
That is of the six core destination categories I mentioned earlier it grew by 14.9%.
We are also encouraged by early results and the pride stores that we recently acquired and reset.
We believe we will have similar results at the T G stores.
Currently in the process of resetting.
Moving to the second pillar, our fast rewards loyalty program, we implemented a major new upgrade to our loyalty App that was launched March 29.
To develop and strong relationship with our customers and drive more trips, we've probably existing customers, while attracting new loyal customers.
We currently enjoy approximately $1 38.
And enrolled members.
Since the launch of the upgraded App the number of member enrolling each week has increased an average of approximately 30% compared to a prelaunch enrollment.
We are also excited to announce our.
Our 100 days of summer loyalty and Goldman adult for that start on May 17.
Customer who were involved with valid email address and phone number will be rewarded with $10 five box deliver through their new app wallet with these customers and they spend in our stores on participating categories. There.
We are very excited about these promotional offer as we know that enrolled marketable members make more trips and spend more in our stores than non enrolled members.
In fact in Q1 'twenty two 'twenty three are enrolled members made an average of almost six more trips per month versus not enrolled members.
In Q1, 2023 enrolled members spend on average approximately $68.50 more per month than non enrolled members. Additionally, the Q1 2023 enrolled members increased their average monthly spend by eight 2% compared to Q1 2020 tubes.
While early we are encouraged by engagement in the new app, including the redemption of our in App only hot deals as well as use of our new in App order and delivery functionality.
The third pillar is expanding our package and fresh food offerings, including pizza chicken and prepared foods and other options.
Same store franchise sales.
Sales across all brands decreased 24, 5% in the first quarter as compared to the prior year while.
While we have made great progress with our grab N go prepared foods frozen foods and a franchise partnership rates to Barbara Duncan we are still in the early stage of defining this strategy along with our assortment and price value proposition for the consumer and our go to market strategy.
Our goal is to become a destination for packaged preferreds and fresh foods and we look forward to providing further updates.
Our objective is to make continuous improvement the H biller and position our core convenience store business to continue delivering great results and exceeding our customers expectation.
Right now in the midst of our store operations team annual tried right.
We think of this as going through our stores for spring cleaning.
We do this every year, including visits and inspection, it's all of our stores. These events allow us to rally together and prepare for the 100 days of summer our biggest selling season and to ensure that we are accustomed to ready for the big selling season.
Switching gears to EV, we continued to make progress on electric vehicle charging.
At the end of Q1, our network included more than 50 charging ports with plans to add more charging capacity across the country.
Turning to M&A following the closing of quotes and fried acquisition in 'twenty 'twenty. Two we closed the T. G acquisition on March one 2023.
D. G added 135 convenience stores and expanded our starter and retail territory into Alabama, and Mississippi as well as the 192 dealer locations.
We are pleased with the results of this acquisition so far.
The W. T. G acquisition is anticipated to close in the second quarter. This acquisition will significantly enhance the company's footprint in attractive Western Texas.
Now let me briefly address our proposal to acquire a travel center of America, our intention and were consistent with our track record and a strategy that has been very successful and has made arco, an acquirer of choice transparency and open negotiation.
We believe our proposal as we'd been given an opportunity to perform customer with dealer Jan.
It provided immediate cash value to stockholders at significant premium to the next best offer with no financing contingencies.
And for the record.
Neither our proposal to ta or any other previous acquisition I've ever add financing contingencies.
Our repeated attempts to engage with T as management and board were met with Fyrom resistance.
Resulting in a more public conversation through press releases and filings rather than productive discussions.
We believe a wider group of investors now fully appreciate a rapidly arco can move to create the right condition for a deal. We appreciate Oak Street, and others moving very rapidly along with us.
We preserve cash and maintain flexible financing. So we can take advantage when the right opportunity arise.
Given our liquidity, we will continue to evaluate deals concentrating on return on capital consistent with our traditional disciplined approach.
We are also investing in our business, we are more committed than ever to driving long term sustainable inside sales growth expanding margin and gross profit dollars.
Before I hand, the call over to Don and given that we're not currently providing guidance I want to detail seasonality and reiterate our historical seasonal performance.
We believe that historical quarterly cadence.
Is an important factor to consider when evaluating our performance.
The first quarter historically is our least.
Active sales period.
While the third quarter is our strongest using an average of 2021 and 2020 to the first quarter contributes about 17% of overall adjusted EBITDA in the second quarter about 28%.
The third quarter has historically contributed about 32% and the fourth quarter about 23%.
I will now turn the call over to Don.
Thank you Ari the.
The company has continued to report excellent results our initiatives are clearly gaining traction the stable ratable cash flow from the wholesale of fleet fueling segment have enhanced our deal, making flexibility and augment further investments in our core convenience store business.
Our balance sheet continues to be strong and we currently have a very good liquidity position.
As of March 31, 2023, we had cash and cash equivalents of approximately $256 million.
Our outstanding debt, excluding capital leases was approximately $809 million, resulting in net debt of $553 million.
Additionally, we continue to realize excellent cash flow for the quarter net cash provided by operating activities was $15 $9 million versus $31 million for the first quarter of 2022.
This included an investment in working capital associated with the T G acquisition.
Getting into results for our convenience stores merchandise revenue for the first quarter of 2023 increased to $404 million versus $367 million in the prior year quarter merchandize margin increase quarter over quarter by 120 basis points to 37%.
Total capital expenditures were approximately $23 $4 million for the quarter this compared to capital expenditures of $20 $7 million in Q1 2022.
Retail fuel profitability, excluding intercompany charges for the first quarter of 2023 declined one 9% this quarter to $88 $1 million.
This was a $1 $7 million decline versus Q1 2022.
There was $11 $4 million decrease in same store fuel profits, excluding intercompany charges, primarily offset by $10 $8 million in fuel contribution from the T. G in prior acquisitions the.
The company maintained relatively strong retail fuel margin of $35.04 per gallon for Q1 2023 compared to 37 five cents per gallon in Q1 2022.
First quarter convenience store operating expenses increased $18 $9 million or 12, 1% versus the prior year quarter.
Due to $15 $9 million of expenses related to the T G and prior acquisitions and an increase in expenses at same stores, including approximately $6 million or nine 7% of higher personnel costs compared to Q1 2022.
The increase in store operating expenses was partially offset by underperforming retail stores that we closed or converted to dealers.
Moving to wholesale for the quarter wholesale fuel contribution excluding intercompany charges decreased approximately $1 $8 million.
The relatively new fleet fueling business generated fuel revenues of approximately $127 $5 million for the first quarter.
Fuel contribution excluding intercompany charges from the fleet fueling sites was approximately $13 8 million for the quarter.
Fuel margin per gallon, excluding intercompany charges for the proprietary car luck locations was $44.05 per gallon.
Net interest and other financial expenses for the first quarter decreased by two points or $4 million versus the prior year quarter to $13 $6 million.
Net loss for the quarter was $2 $5 million versus netting income of $2 $3 million in the prior year period.
Adjusted EBITDA was $47 $5 million compared to $50 1 million in the first quarter of 2022.
In the first quarter the company repurchased approximately 89000 shares of our common stock for total of approximately $700000.
There are approximately $10 $3 million remaining under our previously announced $50 million stock repurchase program.
Because of our continued results and desire to enhance returns for stockholders Arkose Board of directors declared a quarterly dividend of <unk> <unk> per share of common stock to be paid on June one 2023 to stockholders of record as of May 19th.
Then in 'twenty, three and now I'll turn the call back over to Ari.
Thanks Dawn.
I would close by saying that we believe 2023 will be another year of stroke performance and growth I want to thank the companies more than 13000 employees for their hard work and dedication.
Now we will take your question.
Yeah.
Thank you at this time, we'll be conducting a question and answer session.
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Our first question comes from Anthony <unk> with Wells Fargo. Please proceed with your question.
Yeah, Hey, good morning, guys. So just quickly on the Oak Street facility to start beyond the upsizing versus last year.
There anything else you can tell us about how the terms of the agreement differ from last year, and then anything you can tell us about the new cap rate.
Yes.
Good morning, Anthony.
This is a secret sauce I mean, the only thing I can say about that is that.
Every deal is going to be different right now.
Ended the program agreement in order to be attractive and asking what we hear.
And as we move along I'm, assuming it was going to be able to provide more information as soon as we start to transact, but we are not sharing at this point any other terms.
It can actually be competitive.
Understood and then on the fuel side of the business can you just talk about your latest thinking on the balance between achieving incremental per gallon gross profit versus potentially driving additional gallon volume and then in that context, just any color on your price gaps to peers and fuel versus how that's trended historically.
Sure. It's a it's a very good topic I'm very good question.
Maybe I will break it down a little bit by what happened in Q1.
Because the Q1 basically decline is really in March 2023.
Basically explained earlier, so we enter 2023 with a decrease of 8% eight 3% in January .
And as we continue to move along you know towards basically the cycling of the invasion of Ukraine. I mean, we saw a much less decrease in February for example that equals was only four 7% and as we entered March the March decrease was only four 5%. So we are going to be competitive as always we are always competitive.
Dave.
But what I think what we see over here is that they've been at the price of pure startup.
In March the unlimited price on average was 396 this year and beyond that if price was 329. So I think in this environment when the price of fuel is much lower than prior year.
I think you know we're going to have a little bit more flexibility over here I think people are going to drive more.
And as I said, we will continue to look for gross profit dollars, but at the same time being competitive and as you can see we always say that I mean, there is very little correlation if any between inside sales and basically an outside sales I mean, I believe margin continue to be high given that operating expenses are higher.
But again, we are making sure that we are a one truck competitive outside and very very competitive inside an empty grateful for them for the people to come in.
Thanks, sorry.
Of course, thank you.
Our next question is from Kelly Bania with BMO capital markets. Please proceed with your question.
Hi, good morning, Thanks for taking our questions.
Are you or Don I was just wondering if you could help us.
And maybe we missed it just the contribution from <unk> in the quarter and on an EBITDA basis, just trying to kind of back into what maybe was organic in terms of EBITDA for the quarter any help you can do there what it would be great.
Dan would you like to take it.
Sure sure Hi, Kelly good morning.
<unk> did not specific breakout.
Each year or our pride or quarles for that because again, it's only only one quarter of the.
Year over year, and I know, it's hard to do from organic models I think that the message that.
We wanted to pass on is look we had great merchandise results. We had a very very tough fuel margin in March that we were up against and basically because of our acquisitions with.
With Pride Quarles and T. G. We were able to offset that loss and fuel. So I think if you take anything away from this I think you know without specifically doing it.
We basically were able to keep our EBITDA very close to last year against all the headwinds we faced as we go forward, we will consider disclosing those numbers, but again the message to take away is we have this model that can weather these fuel up and downs and that these acquisitions help us balance that.
Year over year.
And just to add further just to finish the lines on this one we are $15 $4 million on gross profit dollar compared to prior year on a same store and.
As Don mentioned, we are only $2 6 million dollar on EBITDA as the prior year. So as you can see the $15.4 million was basically offset.
Inside sales and theatrical does acquisitions in desktop we basically finished the quarter.
Very close to the quarter last year.
Yeah.
Got it.
John you mentioned the seasonality.
Seasonality.
The pattern I guess historically or last few years are you.
And I'll say just in a very good kind of rough frame of reference for this year as well or what would be any other key seasons.
Seasonality items to keep in mind, given the volatility in fuel margins on the comparisons as well as the M&A that's still flowing through.
Sure sure. So again, we're not going to project what they are we tried to give that out so that so that you could again.
We're a relatively new public company and with a lot of acquisitions and things going on I mean, if you look at 'twenty, one and 'twenty two.
There there were acquisitions, but there werent any major things like an empire and like that it's more just to look at it at a historical past and provide you the historical provided historical information out to the public and.
I think what's interesting when you look at seasonality, it's not just it's not just sales volume. It's also how the different things happened for example in the summer your merchandize margins are higher because you're buying higher margin stuff.
Typically you'll see lower fuel margins in the first quarter and things like that the exception being last year. So again, we just wanted to just point that out and bring that to everyone's attention potential from a historical perspective, not just guidance and again I know with our acquisitions that sometimes it can be confusing.
But I think we've we've.
At least in my belief.
Sort of returned back to a more.
Normal pattern that we've seen but it's yet to be seen what happens as you know each year provides us all of them, but certainly the last two or three years have been have been kind of a unique but we think 'twenty, one and 'twenty two.
Then have probably more what we are used to see.
Okay. That's helpful. And then I just ask one more on the inside same store sales can you just give a little bit more color on the breakdown of traffic inflation.
Inflation items.
Items per basket, just really kind of unpack that same store sales figure craft little more yes, sure or do you want us to do you want me to.
Yes.
Okay.
Again.
We're continuing to see the same pattern as we've talked about before we're continuing to see.
Obviously people coming in and.
With less trips.
At a bigger basket and Thats also part of what we're trying to drive the loyalty too I mean, yes, there is inflation driven in there and obviously every time prices go up we try and.
Pass it on.
Most people do because you can tell looking just at our personnel expenses are very high but we're really focused on is what is it doing in a market where are we doing on the GP dollars. Because obviously, we could we could sell a lot of cigarettes really.
Both boost our sales and you can look at the at the increases come from from cigarettes. So it's really hard to break apart the inflation piece of it but we're focused on is already talked about is the key categories inside the store and we still think there's a lot of opportunity inside the store.
Doing some other things that we can we can unlock a lot of this and that's why we stay very very focused on I mean, all categories, but again on on the sales <unk> and making sure we extract as much as we can not only from new acquisitions, but also from our base.
And I would add Kelly a couple of points I think it's important.
For everybody to know on the <unk>.
First question that you asked I just wanted to point, the 47 cents versus the 37.
It's important for everybody to know that we don't anticipate 10 different quarter.
Quarter over quarter or month. After month. This is not something we anticipate it's really the invasion of Ukraine. We still all have decided in a big increase in March and as I said things settle its 37 basically March. So I think this is a one time event that we saw in March I don't anticipate those things that are happening on a regular basis.
This is something very important and that's the reason out of the 15.4 nearly $13 million really absent in March.
The decrease was offset by the acquisitions and then of course the inside sales. So I think that's comments number one number two.
Regarding to your question, if you're really looking and we describe it actually arcola. If you go to the Oracle Corp, and you look in our presentation for the months. We basically describe you know the increase in the core categories. There are six core categories and those six core categories basically.
Represent almost 60% of merchandise sales excluding cigarettes, I mean, Kennedy was up 18, 3% I mean Pac Bev nine 6% salty snacks sweet snacks.
All of those categories are a margin categories.
Why we were able actually to increase gross profit dollars from this category. The last thing I wanted to add is that all of the initiatives. We kept talking for example last year, we talked about adding 550 <unk> been two cup coffee machine to our stores. So just for everybody's reference if you're looking on our coffee business, our coffee business Q1 'twenty.
Three versus Q1, 'twenty, two it's up 133%, but if you're really looking on those 550 stores that we had been to cop coffee machines.
Coffee business over there by cops.
Cops basically that.
For 99 cents were up 208000 cops, it's 100 and almost 55% op based.
Basically compared to prior year. So I think all of the initiative and all of the things that <unk> put into play.
Not only working I mean, you'll see the results and deliver basically this gross per increase in gross profit dollars and this is what we believe all of those initiatives.
Actually made in 2022, I think now we're going to start to see basically the fruits for them, including the acquisition I mentioned, Andy bar that we ended the Iran. Approximately 700.
Item two the store just for everybody's benefit on Pride, which we just finished to reset the stores a couple of months ago. We added over 1000 items to pride and T. G, which we are in the process of resetting. We also an average adding another 1000 items. This is an increase of almost 20, 25% increase in items.
In the stores.
That belongs to core categories.
I think you guys understand where is our focus.
And what basically what we are able to achieve in a very short order.
Thanks, sorry, I'll get back in the queue.
Thank you.
Our next question is from Bobby Griffin with Raymond James. Please proceed with your question.
Good morning, guys. Thank you for taking my questions I guess first.
First I just wanted to talk and maybe unpack opex growth a little bit more so quarter actually even against tough comparisons had pretty good gross profit growth for opex up on a GAAP basis at least 17% year over year can you kind of talk about some of the drivers in that and the new acquisitions is bringing on a faster growth of Opex and is there any.
Opportunities to kind of control that or slow that growth going forward.
Yes.
So.
Great question, So, let me try and pick that apart okay.
So first of all let's look at let's look at.
At retail Opex, I mean, I think we talked about.
Most of that Opex, we went up about.
No.
A huge amount, but most of that was was taken if you just take out the the portion for T. J in price than it was $18 million on just on on retail we take out T. E. G. Emprise about $18 million and then you look at just labor was 6 million on same stores. So if you look at the rest of it would be a decrease in net do too.
Due to the stores that we converted to dealer and things like that but.
But also when you look at our labor increase Thats also a good sign too because one of the things we had versus last year, because we had a lot more open positions. So it's not so much as inflation, even though inflation is coming in it's also filling positions that were not filled so I think thats a sign a positive sign two going forward. When you look at when you look at G&A when.
You take off the expenses for the acquisitions and also the noncash.
Equity Award.
G&A is not increasing that much at all we still believe again with these acquisitions. What we wanted to do is bring them on and we've talked about from a synergy perspective that we wanted to make sure that they.
Operator, as they were and we still expect to get further synergies from these acquisitions. So a lot of this really is being driven by the acquisitions. Some of that's being driven by labor, but that labor I think the message to take away from this is not as much the labor rates going up more that we're filling positions that were not filled and that's true both in the store and also in G&A as well.
Don is it is that the comment about G&A should we look at the 357 and six and acquisition costs that were called out in the EBITDA bridge as impacting all those all hit inside the G&A line.
Those acquisition costs it hit inside that different item under other expenses. So so when you talk about things like.
Like when I talked about the stock comp expense I believe that's about $1.4 million that isn't within the G&A line. We've also got the acquisition expenses of the new business as we brought on two as well.
But again, what I'm talking about it for example, we had a maybe a.
Many of our competitors did huge issue in hiring people in the field I mean, because a lot of people in the field.
Because managers weren't available we're having to do double duty. So I think what you're also seeing as it is.
Making sure that we have the right amount of people and making sure. Those open positions are filled with again I want to go back and emphasize the point with those positions being filled it helps us execute better store level too. So and we've also added some resources to from a technology standpoint, which are going to help us be more efficient in the long run too. So so this is not like a linear growth. We're just keeps going.
We see more synergies definitely coming down the road and we anticipate those but there are also some noncash growth in there and there's also a cashless from acquisitions.
Okay I appreciate that detail and then I guess secondly for me and my last question Ari I mean, the tea acquisition was obviously a big potential acquisition that you guys looked at so maybe I was just hoping you could talk a little bit about your philosophy and the company's philosophy on on size of targets that you would look at it, especially now considering the new financing you've updated us and then.
Maybe put it in context of also you have an outstanding share repurchase program out there and the stock is you know at least in our view at a pretty compelling valuation just so how do you kind of.
The balance of those two aspects.
Yes, I think those two aspects are you know every one of them stand on its own.
We have enough liquidity right now to continue with share repurchase on one hand on the other end, we are going to value acquisition, probably not different than what we'd do before I mean, the travel center acquisition was a big acquisition. It was a great opportunity for us to double the size of this company.
You know double EBITDA and probably more than double EBITDA synergies, we probably were able to achieve a lot of synergies on the year, given our size and given their size and this is something that we focus I mean, we look on multiply.
And the multiples were just great and we felt that this is a great opportunity and that's the reason by the way, we approached them and try to pursue it because we felt that this is going to you know.
Making this company much bigger and much stronger so that was the approach.
Think anything really changing our approach Bobby we're going to continue to pursue small acquisition midsize acquisition large acquisition.
Given that we have the M&A team out there.
I don't think we are basically not paying attention to all of the acquisitions that are in the marketplace. We're going to continue to be disciplined we're going to continue to basically look on return on our capital to our shareholders.
So I don't really think anything changed over here as you mentioned the stock price.
My opinion is probably similar to yours I think the stock is cheap right now and we will actually evaluate that then you'll see what else that needs to be done in Ireland.
Okay I appreciate the details best of luck here in the second quarter.
Thank you very much Bobby I appreciate your question.
Our next question is from Mark <unk> with Stifel. Please proceed with your question.
Yeah, Hey, good morning, everyone.
I appreciate you don't give guidance I guess I'm curious how the quarter came in relative to your expectations. If there was anything.
It stood out through.
The totality of the results relative to what you thought three months ago.
Well, it's a tricky question marks good morning first of all because we are not providing guidance.
Difficult for me to answer I can tell you that the quarter didn't come.
No.
We're very close to our expectation, let me put it this way very close to our expectation not a big surprise and again I think that are you know we we didn't anticipate 47 cents I can tell you that we were not anticipating 47 again in demand for March.
So that was not a surprise to us.
We still believe that.
Margin CPG will continue to elevate and will continue to be high just because all of the other noise operating expenses and all being I and I think that we were able to.
Offsets the $15 million decrease over here that we didn't anticipate.
In terms of margin.
I think we were able to actually offset them with the acquisition that we had then with the strong inside sales.
We were actually able to do actually to perform over here.
Got it and then on the inside store.
<unk> sales.
So the core categories.
A highlight in the presentation I am curious if you could unpack how much pricing drove the.
Same store sales growth relative to volumes of those categories.
And how that potentially plays into margins, but then also as you start lapping the.
The significant inflation based pricing that a lot of these companies put into place starting a year ago or so at this point did that contribute to traffic increasing.
Or purchases where conversion of purchases within the store.
Well I can't give you the breakdown, but what I can say and I think that's.
That's going back and I'm and I'm using the coffee just because this is a great example, okay.
You know when I when I keep talking about the.
When I keep talking about the loyal members for example, and this is the reason why we're pushing so hard.
We flew a members you know we are going to implement this program in on.
On May 17, we are going to provide $10 for every customers, but will actually come to our stores enroll provide these email and telephone number there is a reason for that and I I I kept talking about the 99 cent increase I mean, when you sell 326.
Housing cops more which is a 133, 7% you obviously understand that.
So a lot of that is absolutely because of traffic because of loyal customers coming to our stores more often I mean, you can see it I mean loyal customers coming to our stores.
Six time more often than the non loyal customers. There is an increase in basket I mean their average purchase in Q1, which is the lowest SKU at $68.50.
And I think that's that's actually I think.
Explain.
The message about increase in other products and sales you know when you're talking about.
Increased oncology older is buying coffee.
You know, it's 130% more than the Colorado, they're the best coffee last year prior year, Yes, and Mark Let me follow up on that let me follow up on it well and already alright, well always thats correct, we cannot break it out but I can I can tell you that these kind of increases and we know when we talk internally, we think that again, it's driven by unit increase mostly yes, there's some.
But these are these are.
These are actions taken tactics taken to increase shelf space to put the right products and so we actually see more units going at inflation is there, but that's not the biggest part of it the biggest part really is more units moving off the shelf.
And just to finish this question Mark just to finish the question and you know we we specifically wanted to talk to you about the end of March.
This is just an example, because remember we are competing if you're really looking on our competition on this environment. In this industry 90, almost 100000 stores, a mom and pop a small change. So we took MD Martha as an example, because I remember we just we finished twenty-three acquisition closing.
Number 24, it sooner, but if youre looking on MD Martha acquisition.
Can we talk over I mean, we were able to increase gross margin I mean over here I'm on merchandise margin by 400 basis points since last year I mean, just if you're looking on our sales for example, okay. If you're looking just ourselves and Andy Martin.
Ourselves in all of those category grew 14, 9% this is not.
So Christ.
This is really a real increase in inside sales and I think all of those initiatives, but all of those tactics that we're using Dolby here, including all of our marketing initiatives and merchandising initiatives, they're actually growing so dramatically over here, especially in those small acquisition as I said, we are pride with 31 large location that we're just reset.
We have D. G 135 locations at finishing to reset right now I mean, we believe we'll see we'll continue to see big impact and we still have the acquisition that we just we just accomplished.
Got it okay and just lastly.
I'm curious given the volatility in the macro how.
That has impacted if at all.
M&A generally are there more or less the same number of targets out there bigger small or any sort of change relative to maybe 369 12 months ago.
I don't see any change actually see an increase.
And M&A activities and M&A opportunities.
We all see what happens to interest rates, we all see what he's up and he will be here.
And I, just think that the P&L given interest rate these higher I believe multiply.
Should actually decreased a little bit.
<unk>, a little bit and that's that's what we anticipate at least move.
Moving forward, but don't see any decrease whatsoever, I see that actually an increase on the other side because a lot of small chain with all of those things that you mentioned as I said and I.
Want to make sure no one taken for granted that we were able to achieve those inside sales growth an increase in margin of 120 basis points. Most of the small chain of not able as a matter of fact, they are actually going backwards, we stopped because they don't have the economy of scale and they don't have the capacity and they don't have the relationship with the suppliers. So when you don't have those capability.
You're basically.
Maybe even losing margin.
Given that you don't have economy of scale over here so they may not.
You start struggling I mean, the first thing you do is try to figure out how you exited the business.
I think Thats fair.
Yes, Yes, Mark Warner thing and I think and one thing we really didn't talk about is with with.
The renewal and upsize of our G. P. M. P agreement now to 2028 and our bonds that are due in 2029, we have now long term financing commitments that are not in the short term so theres no near term.
No.
Payments, we have to get over or whatever so.
And we've designed it this way also same thing that what we do with Oak Street. So I think that puts us in a really good position that our cash flow should remain very strong over the years to come with with no big.
Balloon payments that we have to make and Thats one of the reasons why we went early on <unk> to get that not only upsize, but also to get extended into 2028.
Got it thank you.
Thank you.
Our next question is from William Ruder with Bank of America. Please proceed with your question.
Hi, I have two so the first is on your merchandise comps were up.
I think this was mostly an inflation, although there was a comment.
Just a bit ago about units being up as well. So I just wanted a little bit of clarification, there and then to.
Historically, I think I view this as a pretty recession resistant category, where you may benefit from some trade down as much as you benefit from some consumers trading out.
Purchases entirely I guess, what are your thoughts on that.
So let me just.
So let me clarify my comment that I made earlier okay.
Yes, there is inflation and we see that and while we can't break it out we do know internally that we look at the key categories that we do see more units moving on the higher margin items. Okay. So it's not all inflation.
Because again one of our strategies is to make sure. Our stores are set with items that consumers want so I want to make sure.
The message gets across this is not all inflation. This is this is planned this is making sure that the higher margin items that were trying to get finished or items that we want consumers to buy is also more units moving as opposed to cigarettes, which we know the cigarette.
Smoker units are declining and the prices are going up I'm, sorry, I'll, let you go from there.
I don't know if that's a.
You can say exactly what I wanted to say that I don't.
I wanted to be clear. This is not inflation. This is al initiative and all of the things that we're doing but that's actually going to answer. Your second question, which is youre absolutely correct. We are a very resilient business. I mean, we are in a very very resilient industry.
This is probably the only industry one of the only industry that during 2000 8000 or nine.
Basically it didn't decrease we were not impacted you know during 2018 and then during inflation you see what is happening right now during inflation.
People are coming to our stores to buy the typical stuff that they're actually buying we are very essential business.
People that smoke going to continue to smoke if it's good or bad I don't know if they're going to continue to smoke regardless.
Anything goes to the beer category, which is a very big category and you'll see what is happening right now with salty snacks and what is happening with Kennedy I mean people are not going to stop to eat the small candy bar.
And then it doesn't matter what is happening with recession it'll be here I think that what's going to happen is that people are actually shifting.
From going to <unk> and restaurants into their local convenience stores in order to basically buy a sandwich.
And I think those are the areas of opportunities for us that we're going to continue to grow I mean, you know we have pizza located we're selling pizza de in 200 locations.
We have coffee in most of our locations being to copying over 550 location from a price standpoint, it's 99 cents for loyal members you can find copies a day for 99 cents for a lot of members and again when they come in and buy their coffee.
Grabbing some other things that they actually wanted.
Wanted to buy so I actually think our business in inflation should do much better than many other businesses out there.
Sorry, just one more for me you mentioned that you are seeing more M&A opportunities you referenced interest rates.
Does this mean that valuations of those opportunities are becoming more attractive and coming down or are valuations remaining where they've been over the last year.
You know.
It's difficult to answer because maybe for some people in our valuation in their mind continue to stay high.
To us I mean, we will continue to basically evaluate those acquisition on what is our return on capital. That's the way we're looking on them. So maybe from evaluation standpoint valuation didn't not changing a lot, but remember given our size today and are a common EMEA scale today and our purchasing power today, we probably are able to pay.
Lethal habits more than what we paid last year and what we paid maybe the year before and again this isn't driven just because of our size and just because of our capabilities. That's opposite with me. So I think the bigger we are I think it would give us opportunity to be a little bit more attractive versus some other small change that.
I don't have the economy of scale over here, but.
I think the.
Valuation did not change a lot, but again. This is just the beginning remember interest rates start to increase only last year.
It's 525 right now.
The last increase just recently so I don't think there is a lot of acquisitions out there and you know over the last three or four months.
And the one that that ban I think were you know relatively for a little bit lower valuation that we saw probably last year, but it's not dramatic I want to be very clear. This is not something dramatic that multiple went from 10 to five for example.
It's maybe.
Maybe a half of them will develop so that's what I basically I see over here.
Perfect. Thank you.
Thank you.
Our next question is from Hale Holden with Barclays. Please proceed with your question.
Hi, Good morning, Hi, 99 cents is an unbelievable appeal for a cup of coffee. So I just had two two questions. The first one on travel centers that's.
That's a slightly different model than your core.
Sort of a big 25 acre.
Truckstop lots and I was wondering as you think about M&A is there is there flexibility to contingent and flexibility to think about.
Actions.
Travel centers that might be a little bit outside of.
The core Aqua is now or should we think about you more on our core fixation.
Yeah. It's a type of center was really a unique opportunity but to be honest with you. There is only one travel center out there again, you have the big bylaws, the loved and some other big travel centers about not a lot not a lot I mean, there are very very unique company out there.
And we felt that this is a great opportunity.
Terms of fuel we are selling fewer we are in the field business, we are selling fuel.
If youre looking at on a revenue I mean, 60% of our revenue come from fuels. So.
That's not something different for us and I think the similarity and travel center is that 65% of their profit came from the inside sales inside sales and services very similar to us by the way if you're really looking on our business today around 61% came from the inside sales.
Basically I'm talking gross profit dollars were the growth most of the gross profit that dead restaurants over there, we actually felt dodds from basically expanding our foodservice offering that's might be an opportunity for us, but it's definitely a member we need 24 acquisitions. We closed on 23, and we can operate 500 square foot store and we can operate.
6000 square foot store, so I don't think that the business from an inside sales model I don't think the business are really different.
Again.
Size matter I mean, the size of this company was something that was very attractive for us. The multiple was very very attractive for us and that's why we pursued this.
And I don't think it's going to be different in the future. We are concentrating on our retail business. There is no question that the majority of our profits come from our retail business and we're going to continue to pursue any opportunity that is out there.
Okay.
The second question I had was on the.
On labor inflation.
Do you understand that that's from largely feeling.
M T.
Empty.
Open positions rather than actually wage inflation.
But that would suggest that's a little bit more structural as we go forward.
As your cost base and so I was wondering if you were thinking about that the right way or is this a little bit of a step up and leave.
Or as you go through this year until you can find a way to leverage it down yes.
Yes.
Yeah. So let me answer first it's what I said, it's a combination of both we still we still have wage inflation going on there from.
From competitors.
All different types of retail operations my comment was more of that it's not just straight wage inflation. It's it's a it's filling open positions just just to clarify.
Go ahead, and just to yeah, no no problem and just to maybe to a to a little bit to it remember we are operating and not in a vacuum I mean, if you'll come you can come to work for US and you can go to go work for the Guy across the street. So everybody basically are competing on the same store set, especially when you go.
Through location I mean, they can come to work for us. They can go across the street and work in the U S allocation across the street everybody have the same increase in utilities and insurance everybody have the same expense increase I don't think different enough at the end of the day. It doesn't matter how big we are at the end of the day the cost to operate a storage the cost to operate as store.
Period.
The good thing about the interest in our in basically in labor inside the stores is what do you exactly see we've been increasing inside the minutes you have more people working and more people basically filling position I can assure you that that's going to increase the profitability because that's going to increase the service that's going to increase the inside sales.
When you have one person working in a store you know he.
Also need to be on the register and you also need to help customers and you also need to fill the coolers.
During the day when you have two people in the store they can actually split the work and one of them make sure that you have the right products on the shelves. So and again. This is something that's almost every retailer is facing in America right now, especially in our industry I think the good thing is as I said that as we continue to see more positions filled.
We're going to see increase in sales just because of that.
Great. Thank you so much I appreciate it.
Thank you.
Our next question is from Kelly Bania with BMO capital markets. Please proceed with your question.
Okay.
Thanks.
Just wanted to fit one more here on gallons that's.
The commentary on it.
The cadence of gallons through the quarter. It was very helpful. But I was just wondering if you could kind of step back and as we think about gallons longer term, what what would be the <unk>.
In addition to the backdrop that would allow gallons to grow or stabilize and the declines and also you gave a lot of examples of the great work that youre doing inside the store from a margin and merchandising perspective, but as you make these acquisitions what are happening too gallons.
Where do you see gallons going forward for those acquisitions as well as the core tenant base.
Sure.
First of all thank you for coming back to Kelly for another question.
And you know since we're not providing guidance on what I tried to provide maybe a little bit more details on what we saw last year and I think maybe that's going to help you. So if you guys remember last year. It says that that's been almost a year ago last year in basically in April .
The unlimited price was $3 86.
We lost approximately seven 7% columns.
Price increase in June .
Two $4 70.
12, 7% in gallons last year.
Price continued to be high at the high for 424 in July between June and July .
Around $4 24, we were at 12, 6% down on gallons the mainland the price dropped to $3 64 in August we were down 8% and as the prices continue to decline we continued to see a much lower decline in basically in fuel prices. My theory is the following we.
Not operating on a major highways, we are operating in a lot of more locations the minute the price goes above $4.
People are driving people will walk through their convenience stores.
Or think twice before they actually drive thru convenience stores or to any place they leave leave the house.
Basically those basically prices so as long as the price of fuel continues to be in the trees and not go all the way up to 417 like we saw in June .
I believe that we are going to see a very.
Small decline compared to last year.
And again, it's all about also being not only competitive we also going to continue to concentrate on increase of gross profit dollars.
So I think the message Kelly over here is that it's all dependent on fuel prices and by the way that's going to impact the entire economy over here, it's not just our coal or convenience stores. The entire economy was down dramatically when price of fuel will actually exceed $5 on average.
Across the nation.
But again I believe.
Seeing what I see today, I believe that if oil prices and fuel prices continue to stay where they are today I actually think that we will not see a big drop.
Compared to prior year.
Thank you.
And I didn't answer your question is regarding to acquisition when we actually put them on our platform. We're using the same method that we actually use across the entire chain. So you know.
It's.
Something close to what we are putting those stores on costs. As you know this is the algorithm. So story that we put on unusually those guys do not have any kind of technology and we are measuring that and we're not making changes on the spot. We are measuring and we are seeing with the competition.
And then little by little we start to basically.
Who's our methodology over here, which is an increase in gross profit dollars as long as we continue to be competitive in the marketplace.
We have reached the end of the question and answer session I'd now like to turn the call back over to Ari Cutler for closing comments.
Thank you Robert and thank you everybody for participating this morning.
We're looking forward to seeing you guys in our stores.
Especially now when we are entering 100 days of summer. This is the driving season drive safe and be safe over there. Thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.