Q3 2024 Arko Corp Earnings Call
Good day, everyone and welcome to stay or go Corp, third quarter 'twenty 'twenty four earnings at this time, all participants are in a listen only mode.
Speaker Change: You will have an opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing the star and one on your telephone keypad.
Speaker Change: Please note. This call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Jordan Mann Senior Vice President of corporate strategy capital markets and Investor Relations. Please go ahead. Thank you good afternoon, and welcome to Arco's third quarter 2024 earnings conference call and web.
Speaker Change: Yes.
Speaker Change: On today's call are already collar, chairman, President and Chief Executive Officer, and Rob Jamba, Teo Executive Vice President and Chief Financial Officer.
Speaker Change: Our earnings press release, and quarterly report on Form 10-Q for the third quarter of 'twenty 'twenty four as filed with the SEC are available on our website at Www Dot Arco Corp Dotcom.
During our call today, unless otherwise stated management will make will compare results to the same period in 2023 before we begin. Please note that all third quarter 'twenty 'twenty four financial information is unaudited.
Speaker Change: Both within retail operation at store level.
Speaker Change: And to advancing our dealers they shouldn't initiative, which I would call very shortly.
Speaker Change: We along with other operators in our industry are seeing persistent pressure on consumers.
Speaker Change: They grapple with inflation and increased prices daily necessity with the cost of goods in fundamental categories like fuel and groceries.
Speaker Change: Up more than 20%.
Speaker Change: 20.
Speaker Change: Looking at our merchandise efforts, we are seeing a shift in purchasing behavior with a growing number of consumers prioritizing discounts and exploring multiple channels to find the best value.
Speaker Change: Traffic trends remain challenging throughout the quarter and we continue to focus on ways to deliver value to our customers through promotional, bundles and loyalty offers coming online as we move into the fourth quarter.
Speaker Change: As we look ahead to the balance of the year, we have value-oriented promotions coming online.
Speaker Change: Just to name a couple, we are offering our Tyson Chicken Sandwich Value Meal with a large fountain drink and chips for only $4.99, enabling our customers to have a full meal at a reasonable price.
Speaker Change: Additionally, we are offering customers the ability to grab a free Nathan hot dog with the purchase of any large fountain drink for only $1.99.
Speaker Change: These are just a couple of examples of the many promotions we are launching to provide much needed value to our customers.
Speaker Change: This promotion supports our strategies around both announcing our food service offering and our loyalty program.
Speaker Change: On food service, in the second quarter, we expanded the food service offering with Nathan's Famous Hot Dog, which are now available hot and ready in more than 500 of our retail stores across the country.
Speaker Change: You've seen strong customer response with same-store hot dog sales for the third quarter up more than 30%.
Speaker Change: We also continue to see positive results in the value-oriented pizza offering that we launched in the first quarter.
Speaker Change: Famestore non-franchise pizza sales in Q3 increased approximately 11.5% and units sold increased 23.1%.
Speaker Change: With respect to loyalty, we continue to grow the base of enrolled members in our loyalty program because of the value associated with being a member.
Speaker Change: Enrolled loyalty members spend an average of $110 per month, or 80% more than non-enrolled customers, and visit almost 8 times per month, or almost twice as often as non-enrolled customers.
Speaker Change: In focusing our efforts to continue enrollment and provide additional value to our customers just before the holidays, we kicked off yesterday the FAS Million Sweepstakes.
Speaker Change: For the remainder of the year, Fast Rewards members who purchase any of over 700 qualifying items will receive a scratch card at checkout that has prizes or coupons for items that can be redeemed at any of our retail stores.
Speaker Change: In addition to the instant prize portion of the sweepstakes, enrolled Fast Rewards members will also be entered into a drawing for a grand prize scratch card with the chance to win $1,000,000.
Speaker Change: Pulling back from near-term operations, I want to spend some time talking about more structural changes to our business that are part of the foundation we are building for the future.
Speaker Change: These such elements of our merchandising assortment are channel strategy and NTIs.
Speaker Change: First, on a merchandising assortment, it has been some time since we discussed with you all our cigarettes and tobacco offering.
Speaker Change: We are seeing the strength of our OTP assortment, which has been growing longer term, and has a contribution margin rate that is approximately 20 percentage points higher than our cigarettes category.
Speaker Change: Recognizing the demand-driven mix shifts across tobacco products, we have started to install new back bar fixtures allocating space to our OTP assortment.
Speaker Change: We expect to roll this new backbar installation to 1,000 stores by the end of the first quarter 2025 to support this growing category and expect OTP growth story to be positive.
Speaker Change: Given that approximately one out of two of our enrolled loyalty members are cigarettes or OTP consumers, we will be increasing our focus in 2025 on these customers and plan to provide them with additional value.
Speaker Change: Next, I'd like to share an update on our channel optimization efforts.
Speaker Change: <unk> into account future expected conversion of retail stores, we expect these initiatives to cumulatively benefit combined all the steel segment and the retail segment operating income by approximately $15 million to $20 million.
Speaker Change: We expect these conversion will lead to an economic uplift, while allowing us to increase our focus on the jewels of the retail portfolio and to prioritize future investments and dislocation.
Speaker Change: We believe that this will enable us to maximize the potential of all of our segments.
Speaker Change: We see tremendous opportunity with the work we are doing which we expect to compounded brief reduction of supporting G&A cost as we refine our retail footprint.
Speaker Change: Moving on I wanted to touch on another leg of our organic growth for Oracle or MTI.
Speaker Change: We markedly expanded our NPI pipeline.
With eight due to industry stores.
In the first quarter, we opened one of these Andy Marsh.
Andy Marsh: Door in Newport, North Carolina.
Andy Marsh: Delivering value and I quality shopping experience to the Newport community.
Andy Marsh: We are pleased with the performance of the store and have seen foodservice penetration over 20% at that location.
Andy Marsh: It has always been open in Q3.
Andy Marsh: The success.
Andy Marsh: There are supports the airports, we are putting into developing our foodservice offering.
Andy Marsh: The remaining new to industry stores in the pipeline, we expect to open three more by the end of the year. We've brought on over the course of 'twenty 'twenty five.
Andy Marsh: You will note that these pipeline represent a marked increase to our prior cadence of N P. I.
Andy Marsh: Which reflects our efforts to support the long term organic growth of our business.
Andy Marsh: Further we expect that our MPI program will play an essential role.
Andy Marsh: And our transformation plan and we look forward to discussing all of this in greater detail.
Andy Marsh: Upcoming Investor day.
Andy Marsh: Concurrent with this airports to support organic growth I wanted to give you an update on how you design pilots.
Andy Marsh: Our remodel program as part of our transformation plan.
Andy Marsh: To date, we have finalized store layout and merchandise assortment, including development of system wide branding.
Andy Marsh: Bar and not as foodservice offering.
Andy Marsh: We anticipate beginning pardon me things to implement the new design in our seven pilot stores in the fourth quarter and.
Andy Marsh: And to begin remodeling activity in early 'twenty 'twenty five.
Speaker Change: I will now turn the call over to Rob to review financial results for the third quarter.
Rob Jamba: And thoughts upon our guidance for the fourth quarter and full year.
Rob Jamba: Thank you Laurie good afternoon, everyone.
Rob Jamba: Before turning to third quarter 2024 results I want to reiterate that our reported results for adjusted EBITDA include the noncash portion of rent expense.
Rob Jamba: Consistent with the change in methodology, we articulated last quarter.
Rob Jamba: On this basis adjusted EBITDA was $78 8 million for the quarter compared to $87 3 million from the year ago period with the decrease caused primarily by lower retail fuel and merchandise contribution.
Rob Jamba: At the segment level, our retail segment contributed approximately $71 million in operating income compared to $81 5 million in the year ago period.
Rob Jamba: Adjusted operating income for the quarter was $85 1 million compared to $96 5 million in the year ago period.
Rob Jamba: Total retail merchandise sales were down approximately seven 3% for the quarter with merchandise contribution down 4.2% on margin rate expansion of 110 basis points.
Rob Jamba: Total retail fuel contribution was down three 4%.
Rob Jamba: With a five 9% gallon decline, partially offset by a margin increase of one cent per gallon.
Same store merchandise sales, excluding cigarettes were down five 7% versus the year ago period, while total same store merchandise sales were down seven 7%.
Rob Jamba: Same store transactions were down high single digits for the quarter, reflecting continued external headwinds.
Rob Jamba: The decline in transactions was partially offset by a low single digit increase in average dollar sale.
Rob Jamba: The impact of the sales decline was partially offset by continued same store margin rate expansion, which was up 100 basis points as compared to the year ago period.
Rob Jamba: Same store fuel contribution was down approximately four 3% for the quarter with the decline in gallons, partially offset by stronger year on year fuel margin per gallon.
Rob Jamba: Same store fuel gallon demand was down six 6% for the quarter, while fuel margin of 41.4 cents per gallon was up one cent per gallon from the year ago period.
Rob Jamba: Same store operating expenses were down approximately 1.4% for the quarter.
Rob Jamba: Moving on to our wholesale segment operating income was $8 2 million for the quarter compared to $10 million in the year ago period.
Rob Jamba: Adjusted operating income was $20 3 million for the quarter versus $22 6 million in the year ago period caused by a decline in gallons and lower fuel margin per gallon, which resulted primarily from reduced prompt pay discounts.
Rob Jamba: Fuel margin was 9.6 cents per gallon versus $10.05 per gallon in the year ago period.
Rob Jamba: Where our fleet segment operating income was $10 8 million for the quarter compared to $8 8 million in the year ago period.
Rob Jamba: Adjusted operating income was $12 6 million for the quarter versus $10 7 million in the year ago period with total gallons roughly flat to the prior year.
Rob Jamba: Increased segment operating income was driven by strong fuel margin performance, which was $43.05 per gallon for the quarter versus 38.4 cents per gallon in the year ago period.
Rob Jamba: Total company general and administrative expense for the quarter was $38 6 million versus $44 1 million in the year ago period with favor ability driven by lower stock based compensation expense and changes in year on year timing of incentive compensation accruals.
Rob Jamba: Net interest and other financial expenses for the quarter were $23 6 million compared to $14 6 million in the year ago period with the change caused primarily by fair value adjustments related to our warrants.
Rob Jamba: Net income for the quarter was $9 7 million compared to $21 5 million for the year ago period.
Rob Jamba: Please reference our press release for a detailed reconciliation from total company net income to adjusted EBITDA.
Rob Jamba: Turning to the balance sheet, excluding lease related financing liabilities, we ended the third quarter with $885 million in long term debt.
Rob Jamba: Apprised of our 2029 senior notes the outstanding balance under our capital one line and the remainder primarily related to real estate and equipment financing.
Rob Jamba: Our 140 million ABL remains completely undrawn as we continue to manage working capital needs from operating cash flow.
Rob Jamba: We maintained substantial liquidity of approximately $869 million, including $292 million in cash on hand at quarter end, along with remaining availability on our lines of credit.
Rob Jamba: Total capital expenditures for the quarter were $29 3 million.
Rob Jamba: Turning to our fourth quarter and full year guidance.
Rob Jamba: We expect our fourth quarter adjusted EBITDA to be in the range of 53 to 63 million.
Supporting assumptions include a low to mid single digit decline in same store sales.
Our mid single digit decline in retail gallon demand.
Rob Jamba: And our retail fuel margin of 38 cents per gallon on the lower end and 42 cents per gallon in the higher end of our guidance.
Rob Jamba: Our overall guide reflects expectations for EBITDA growth in our wholesale and fleet segments, driven by the accumulating benefits of our retail wholesale channel optimization work and continued strength in fuel margin in our fleet channel.
Rob Jamba: Our fourth quarter guidance translates to a full year 'twenty 'twenty four adjusted EBITDA range of $245 million to $255 million.
Rob Jamba: The midpoint of our revised EBITDA outlook is $5 million below our beginning of year guide, reflecting our reduced expectation for fourth quarter same store merchandise sales.
Speaker Change: And with that I'll hand, it back to Ara for closing remarks.
Ara: Thanks, Rob.
Ara: To wrap up I want to reiterate our concentration on adapting to the dynamic market landscape.
Ara: We remain focused in foodservice strategic store transformation and value driven initiative I want to thank the company's employees for their continued hard work over the quarter and the quarters to come.
Speaker Change: Thank you for joining.
Ara: Today's call.
Ara: We appreciate your ongoing support and look forward to enhancing shareholder value with that we will open it up for questions.
Speaker Change: At this time, if you would like to ask a question. Please press the star and what.
Speaker Change: You may remove yourself from the queue at any time by pressing star to once again that is star one if you would like to ask a question.
Speaker Change: Our first question from Bobby Griffin with Raymond James Your line is now open.
Bobby Griffin: Good afternoon, everybody. Thanks for taking my questions.
Bobby Griffin: So are you I guess first thing I want to talk about you talked a little bit about the seven store pilot that you guys are building out can you maybe provide a little bit more detail on the go to market strategy. There like what brands are going to be under what some of the other things that this pilot might include you know and if it's successful like with some of the timeline to roll out some of the big initiatives.
Bobby Griffin: To you know a larger base of the stores.
Speaker Change: Sure, Yes, no it's not a problem.
Speaker Change: So oh, just too to be you know so basically are to explain it very carefully it says this pilot.
Speaker Change: Very very crucial cross.
Speaker Change: In order to you know to make everything right over here.
Speaker Change: We actually hired a third party consultant.
Speaker Change: To make sure that not only do they try it. We also went and recruited a large group of people.
Speaker Change: To test our food to make sure that this is what the customer is looking for we got their feedback.
Speaker Change: And after we actually finished all of that.
Speaker Change: We're in a process right now well find out I think the store layout.
Speaker Change: And making sure we have the right merchandise assortment, including GAAP, you know developing a system wide branding for the amount of foodservice, we are coming up right now with our brand a brand name that will be attached.
Speaker Change: With the foodservice.
Speaker Change: We are not prepared to to actually disclose it at this time, we are actually working like that that would've caused that are immediately after we finish the layout, but the idea is really to start permits are in the next couple basically during the Q4 or are we going to actually go through permits and the idea is to start a imply.
Speaker Change: That being and start construction.
Speaker Change: At the beginning of Q1 'twenty 'twenty five.
Speaker Change: Assuming.
Speaker Change: Those seven stores Paolo.
Speaker Change: We'll actually be successful that's what we believe are we going to start to basically to add more and more stores in the region.
Speaker Change: That's where we're actually working on which is basically the stores around the Richmond market.
Speaker Change: Yeah.
Speaker Change: Okay and then on the details you can give about the otp and adding more back bar space have you guys done that in a subset of stores I'm, just trying to get a sense of like what the contribution of that updated backbar could be is there anything you can share there or is it still too early to be able to tell that.
Speaker Change: So yes, we started our cash.
Matt: And Matt I'll call it in.
Speaker Change: Many stores.
Speaker Change: Ah the tests were very successful at least received the result, we see that the minutes, we actually are.
Speaker Change: Investing in the back bar.
Speaker Change: You know, we're basically seeing the uplift people are actually moving from cigarettes to Oh T. P. A.
Speaker Change: And that's what's actually that's the reason why we are moving with the new features.
And we're rolling them out to 1000 stores and yeah. It was really to finish the installation like I said by the end of Q1 2025, we don't have to have you know we cannot provide at the moment you know resorts.
Still early but are you know its there there's no question that the cigarette consumers are shifting.
Speaker Change: Towards the Otp and now people are not basically I don't stop smoking. They are just moving to other tobacco product and you know our goal over here is to make sure that we have everything that you are looking for.
Speaker Change: In order to basically convert them from cigarettes consumption from cigarettes to.
Speaker Change: The projects you know the margin is much higher over there.
Speaker Change: This is where the industry is going.
Speaker Change: Dave you want to make sure that were out there we want to make sure that they are customers. You know just for your benefit. The you know we checked out and when he's talking about our enrolled members one out of two customers are actually tobacco consumer.
Speaker Change: So you're talking about you know more than 50% of our customers are actually either cigarette smokers or consuming other tobacco product that we see that there's a huge opportunity for us given that we can figure out that old P. P. You know, we're talking about almost 40% of ourselves.
Bobby Griffin: N O T P. Bobby represents about 10% total merchandize penetration. So it is it is significant.
Speaker Change: Okay. That's helpful and I guess I'm, focusing just kind of these questions on the merchandise side of things you know just given some of the trends we're seeing.
Speaker Change: Like if you unpack it by I know you guys operated.
Speaker Change: A handful are good bit of different brands and you're kind of in different regions. You got some rural exposure. Some urban exposure are you seeing anything from a regional difference our brand difference that can maybe point to some of the weakness or is it pretty unanimous across the chain in terms of like the negative seven seven comp we look at it that's not a big Delta.
Speaker Change: Across different areas of the country that you operate in.
Speaker Change: I will let Rob answer that but I just wanted to make sure that the brands that have nothing to do it different region, but it's not about the grand but it's Rob I'll, let you take this.
Rob Jamba: Nothing that we've seen specifically at the at the regional level. So I mean, there there are puts and takes point here a point there, but it is pretty broad broad based and that's why we you know we think it's more of a macro issue. We don't we don't see any significant pockets by region.
Speaker Change: Okay I'll jump back in the queue for now.
Speaker Change: One more thing Bobby just for your benefit I, just wanted to finish with something so.
Speaker Change: And earlier you know the pressure that we see on the consumer.
Speaker Change: It's basically you know.
Speaker Change: Its its countrywide, it's not bad now Jessica and specific area. Its a country wide pressure does that you know we stay on the consumer we figure you know this that they met across many industry, including <unk>. That's the reason we focused on mass that was excluding cigarettes sales, excluding cigarettes were down five 7%, but.
Speaker Change: At the end of the day you know our concentration in you know in this environment. Our concentration is to add more and more foodservice offering you know the margin is higher and you know even though our sales excluding cigarettes were five 7% down our margin was up 110 basis points and this is really the concentration you know all too.
Speaker Change: You know increase the margin increase profitability, while the trend.
Speaker Change: We're basically down during Q3 I can tell you that the current trend that plays up you know, it's a little bit more favorable than what we saw during Q3.
Speaker Change: And you know I'm very very bullish you know between Q4, all the way through 2025, I believe that I'm very optimistic about the outcome.
Speaker Change: You know moving forward.
Speaker Change: Okay. Thank you alright. Thank you everyone I'll jump back in the queue best of luck here in the fourth quarter.
Speaker Change: Thank you Bobby.
Speaker Change: Thanks, Bobby.
Speaker Change: Thank you we'll take our next question is from Kelly Bania with BMO capital markets. Your line is now open.
Speaker Change: Good evening, Thanks for taking our question.
Are you kind of just touched on that a little bit, but I was curious about your outlook for same store sales into the fourth quarter improving to that low to mid single digit area.
Speaker Change: Is that just due to comparisons it sounds like October maybe with a little bit better and then maybe you could just lupin, how kind of the hurricane activity affected the business.
Speaker Change: That's the board and in the quarter.
Speaker Change: Yeah, Kelly I'll I'll take that so you you were spot on October was markedly better than September. So you know still you know in the negative that's why your fourth quarter guide isn't that down low to mid single, but it was markedly better than September and where we're cautiously optimistic that Q3 was a bottom.
Speaker Change: In terms of the hurricane.
Speaker Change: Kind of hit US right at the end of the third quarter. So we only had about a couple of days in the third quarter and no material impact on the third quarter, obviously tons of human impact, but from us from a financial standpoint, no material impact for Q3 and the bulk of the stores are back on you know within a week. After that so we don't we don't see that being you know a hugely material for Q4.
Speaker Change: Got it and another question just on the promotional activity how would you characterize promotional activity across the board in the third quarter and.
Speaker Change: How do you feel about what you're getting from the vendors in terms of supporting that and what are you doing on your own from Arco funding of professional standpoint.
Speaker Change: Sure.
Speaker Change: So you know as I mentioned at the beginning of the quarter most of our promotional activity is.
Speaker Change: Is that being funded by.
Speaker Change: By defenders, 100%.
Speaker Change: We had tons of promotional activities in the third quarter I mentioned that I believe that on our last call. We have tons of Pep you know promotional activity.
Speaker Change: Everybody is suffering I mean, including our vendors and our vendors who want to make sure that they are selling more they are the same the same issues during Q3.
Speaker Change: They're all working we'd probably towards Q4 as I mentioned earlier, the fast that gilead fascinated wasn't very good success for a few years ago and given that we are at the fourth quarter. You know just before the holidays, we felt that we need to push really really hard our promotional activity to finish the year.
Speaker Change: That's why we launched yesterday that fast Amelia.
Speaker Change: To win the million dollar and you know as I said, we have 700 items and those seven.
Speaker Change:
Speaker Change: Are all being supported all of those promotions are being supported by a vendor and they are actually finding its 100% I mean, that's there is a big long jets for your benefit you know given I mentioned, all the P. P and given that at least one auto far two customers are either cigarette are customers of otp customers. We are launching a big otp promotion in.
Speaker Change: <unk>.
Speaker Change: To deliver a significant savings to our customers and of course to drive traffic Oh, we're talking about a promotion Ah.
Speaker Change: You know it's entirely funded by the supplier.
Speaker Change: And you know, we're talking about a $1 99 price tag.
Speaker Change: Which basically I'm saving of over $10 and on his promotion.
Speaker Change: Something very big and again, we're doing it just before the end of the year because we believe that this is the opportunity to push yourselves as we conclude the for the fourth quarter.
Speaker Change: Thank you wanted to just also.
Speaker Change: Oh.
Speaker Change: If I can say it one more and just wanted to ask about the store optimization is the message that we should take that it should be largely complete by the end of the fourth quarter or is this something that will be kind of more of an ongoing initiative as we kind of move through the year. So can you help us understand.
Speaker Change:
Just how you selected the stores and what made them the right candidates for this strategy.
Speaker Change: Sure. So the answer is we're gonna be completed with 100, approximately 150 stores.
By the end of the fourth quarter.
Speaker Change: When are we going to actually be die with those 150 stores, we are talking about a benefit of approximately <unk>.
Speaker Change:
Speaker Change: $8 5 million dollar.
You know between the segments. That's the benefit as I mentioned earlier, we're talking about total benefited golf anywhere between $15 million to $20 million.
Speaker Change: Prior to our G&A savings.
Speaker Change: To continue our waste out during basically are there first quarter all the way to the second quarter. I believe you know we are going to finish our you know.
Speaker Change: The majority of the majority of that but the big portion of them to 150 stores will be done by the end of <unk> before.
Speaker Change: Before the quarter.
And in just the way to think about that we're basically taking retail stores that we don't believe we don't believe there is much upside in investing in those stores, we don't see the return on capital on those stores.
Speaker Change: And we are shifting them towards the wholesale segment, which means that we're going to have a supply agreement with those that are with those operators, where you're going to collect rents from those operators.
Speaker Change: And at the end of the day, you just got to increase profitability at the Oh sales segment.
Speaker Change: And make more money than what those stores were actually making when they're actually aren't getting the retail segment.
Speaker Change: So that's the thought process behind that it's all about return on investment at the end of the day.
Speaker Change: And capital allocation.
Speaker Change: Got it and just one last one for me I think you mentioned same store operating expenses down 1.4%.
Speaker Change: Can you just talk about how you achieve that and if that's something that we can.
Speaker Change: Well, what do we can see some sustainable.
Declines in terms of the operating expenses there was there any factors impacting that for this quarter yeah.
Speaker Change: Yeah, I think Kelly from some of the same trends that are in places we have softer sales certainly where were right sizing the labor in the stores. So that we're not over investing there so.
Speaker Change: So again, that's a you know what the savings, but it's you know we'd rather have the sales to go with that but that's you know just conscious management of labor hours in the stores to flex down.
Speaker Change: Also have some benefits from the credit card fees on the lower sales and a lower gallons. That's also helping that so again, it's it's diligently ever management in the stores and in the combination of the credit card, that's primarily driving that down and in the fourth quarter guidance, you kind of expect that type of a trend to continue.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you and we'll take our next question from Anthony <unk>.
Speaker Change: Stereo with Wells Fargo. Your line is open.
Speaker Change: Yeah, Hey, guys. Thanks for taking our questions.
Speaker Change: So I wanted to ask about the Ntis and you guys are sort of expanding that pipeline a bit.
Speaker Change: With the eight new boxes. It seems like you got a bet on growth, but I would think it takes some time to sort of build that muscle internally I guess, how quickly do you think that sort of organic unit growth could ramp.
Speaker Change: How high could that gross go overtime.
Yeah.
Speaker Change: Yes, Anthony you're right.
Speaker Change: We are actually starting with no MTI or very little in the past you'd be going all the way through eight MTI in a very short order.
Speaker Change: H M T I Oh, we have one that just opened.
Speaker Change: We have another three that will open between now and the end of the year and we have another four that were going to complete during 2025, while we are working on those AT&T I as you can imagine we have already started working on the pipeline. So you know if we went from zero to a 100 from zero to almost.
Speaker Change: Hey in a very short order the idea would be that in the future.
Speaker Change: We are going to start to wrap this up I don't know the quantity at the moment I can't provide you quantitate the moment, but I can tell you that this is an area that we feel.
Speaker Change: It's an opportunity for us given given our liquidity given our footprint in the marketplace.
Speaker Change: And economy of scale of course, we believe we're going to be able to wrap it up you know at least you know, finishing what we have on the pipeline right now between now and the end of 2025, and then a ramp up during 2026.
Speaker Change: Got it that's helpful. And then I guess just thinking back historically you guys have been pretty acquisitive. How do you think about the return on capital doing it that way and opening organic boxes versus sort of a going out and acquiring more like you used to.
Speaker Change: I think it's just another opportunity just another way to allocate capital I mean, you know given our ability given what we have cash on hand, and giving our balance sheets right. Now we will actually continue both I mean, we are not stopping with acquisition at the moment you know Gary we just.
Speaker Change: Looking on what's the best way to do it.
Speaker Change: Basically to allocate their capital and what's the best return on investment for US you know the short term and in the long term.
Speaker Change: N P is of course require a lot of capital more than probably what we actually spend in acquisition by the end of the day. You know we are investing in areas that we see the opportunity for additional growth.
Speaker Change: From a population standpoint, then you know from the economy.
Speaker Change: Got it and just to squeeze one more in.
Speaker Change: I know you guys aren't giving guidance yet on 2025, but just any early thoughts there a high level puts and takes how youre thinking about the backdrop and sort of idiosyncratic drivers in the business as we're starting to model that.
Rob Jamba: Look I think Rob.
Speaker Change: Yeah look we're not going to share anything explicitly here today, but you know as you think about when we talk to you at Investor Day, we'll have more context over a multiyear period, but you know some of the some of the larger themes that are in place I mean, we've talked to you about the food the food penetration the initiative on that front. That's a that's an accretive area. We've had a track record of multiple years of margin rate accretion on the on the.
Speaker Change: Diving side, I think that's likely a trend that would continue over time, you know fuel gallons. You know this is probably a bit more of a macro that you know again, we're hopeful that as we mentioned the Q3 was a bottom and you know hopefully next year. This industry starts to pick up and you know we get into the secular growth pattern again, but you know it's.
Speaker Change: It's a you know we've had a pattern there and again some of the macro factors I think would be a driver in that front and we'll continue to you know.
Speaker Change: On the on the fuel side, Tim do you know do you optimize for for fuel contribution I mean, that's important to us it's a trend and again you should probably expect to see that sort of thing continue so I'm hopefully a little color there and again, we'll share more of the multi year view when we were together at Investor day.
Speaker Change: Understood.
Speaker Change: Finish and just to finish up.
Speaker Change: Can take into account as I mentioned in around $8 million gets funded project 150 stores that we're talking over here. This is something that we feel very very comfortable with that and as I mentioned earlier, you know moving into 2025, we see this oh transformation.
Speaker Change: <unk> stores from Brookdale to to all of them and as I said you know you can you can see over there between $15 million to $20 million going into 2025, I think those are really the two things that we feel very very comfortable because it's really shifting between one segment to another segment.
Speaker Change: And as I stated the volatility over there it's much much lower than you know concentrating on the same store sales.
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you we'll take our next question from Connor in for Neil.
Speaker Change: <unk> with Stifel. Your line is open.
Speaker Change: Hi, guys. Good afternoon, and thank you for taking my question.
Speaker Change: First I want to better understand trends and current customer traffic.
Speaker Change: With the declining gas prices are you seeing any more noticeable pick up in foot traffic into stores.
Speaker Change: Just trying to get a better understanding of the current conversion rate if there's any particular character category excuse me.
Speaker Change: Like energy drinks.
Speaker Change: Mentioned tobacco pizza Hotdogs that are driving our performance.
Speaker Change: So I'll start with the from a transaction standpoint. So it was you mentioned in the prepared remarks, you know transactions were down high single digit for the third quarter October was a was a couple of points better than that and again I think you know again, that's why we talked about earlier our same store sales are positioned where they were versus how we came out of the third quarter. So seeing some improvement.
Uh huh.
Speaker Change: One month and we've got two months to go but we have seen a little bit of a pick up on that front.
Speaker Change: I'm from an assortment standpoint, I don't think theres any specific call out other than you know we had you know a T. P was a very strong performer for the quarter I mean on a high single digit decline in transactions with T. P was almost flat.
Speaker Change: And on the other side cigarettes was a bit more challenging down double digits, but the rest of the assortment was sort of in a relative range of itself in that mid mid mid single digit decline.
Speaker Change: Gotcha Okay.
Speaker Change: That's helpful. Adam just.
Speaker Change: Just a quick follow up to that so I noticed that that sort of deal origination the expectations are I guess, the the total amount of stores expected or was.
Speaker Change: It was a higher amount can you kind of outlined the longer term strategic rationale and highlight how those figures into the vision for the business.
Speaker Change: They are targeting 150 dealer locations by the end of the year turned out all these figures in terms of benefits to the business.
Speaker Change: But can you can you just kind of highlight a little bit more of the motivation and harvest figures into the sort of long term vision for Rockwell.
Speaker Change: Sure.
Speaker Change: You know number one motivation of course is to concentrate as I mentioned on the Jewell asset to make sure that we are concentrating on areas that we see growth opportunities.
Speaker Change: You know we are today in.
Speaker Change: Approximately 30 different states you know between the wholesale and the retail segment.
Speaker Change: There are some areas that we feel that there.
There is not a lot of opportunities for us to grow there is not a lot of opportunities for us from that from a capital standpoint, and also invest money in some of those doors. We just don't see the return on investment.
And because of that we feel that some of those locations will be converted to and also location and remember at the end of the day, we're not selling the location right just leasing the location.
Speaker Change: To a third party to an operator dog, it's much smaller than us that may add some color some stores in the areas that we do business. So in the area that those stores are located.
Speaker Change: And he's got to pick up those doors, he's going to pay us rent and they're going to purchase fuel from us.
Speaker Change: Moving forward.
Speaker Change: And with that being said you know the transition between retail to wholesale.
Speaker Change: We're going to benefit us making more money.
Speaker Change: Moving those stores too just the different segments. So I think that's a purely from a profit standpoint, you know, we just model that and we just felt that areas that we just don't see that.
Speaker Change: Turning on investment in the future. We just so there's no need for us to invest in those doors that just translate them to all sort of segment that make more money on those doors. That's number one related to the rest of the business, which is over 1000 plus stores.
Speaker Change: You know, we just feel that those are the best stores in the best markets with the best population.
Speaker Change: We see a lot of future those stores at the end of the day investing in so it would serve as soon as I said foodservice is a huge opportunity for us in the future and we just figure out to be better off concentrate and spend money and invest money in the best stores of the portfolio.
Speaker Change: And Thats, what you are doing a simple as that it's purely operation wandering what really operation wanted to walk you know your guess.
Speaker Change: It's not about the quantity of the stores its really about the quality, we concentrate on the quality we concentrate on stores that we believe got tremendous amount of upside and opportunity and that's what we want to let that simple is that they make more money for our shareholders.
Speaker Change: Actually yeah. That's helpful. I mean, just as one final question. It sounds like that if you changed your expectations for return on investment you would be leaning further into dealer relation you know is there is it really I mean, if you consider the performance of some of these these better.
Speaker Change: Forming stores, if they're going to be underperforming in the future. You know would you anticipate that that utilization could be ramped up in future periods.
Speaker Change: I think we you know this process, it's not something that came up yesterday I mean this process. If there was a long term process. You know we started this process at the beginning of the year in January we brought an outside consulting firm to help us to evaluate those three segments that we have out there and.
Speaker Change: And we landed at the end of the day are on what other criteria that you know should work for us for the future.
Speaker Change: Obviously, the benefit of having an all cell we call. It all fell but it's really you know, we're just supplying fuel and making margin in between but you know the good thing about having those you know those different segments of the day that stores that we just don't see the upside of investing in those stores, where you can just.
Speaker Change: Convert them.
Speaker Change: So there are some segment than just make more money.
Speaker Change: That's basically the way to look on that Ah I don't anticipate converting as soon as we finish it. This transformation plan over here moving you know the stores that are already allocated to the basically to the dealer stores and move them to the ortho segment.
Speaker Change: We anticipate much more to come.
You know its always an opportunity if something changed but the I think the concentration will be basically how do we generate more dollars from the retail stores.
Speaker Change: But we have decided to keep but as I said that is that the.
Speaker Change: You know those decisions were made after months and months and months, well basically yogurt valuation to be clear.
Speaker Change: Okay.
Speaker Change: Got it. Thank you so much that's very helpful color.
Speaker Change: Thank you.
Speaker Change: Thank you we'll take our next question from Hale Holden with Barclays. Your line is now open.
Hale Holden: Hi, good afternoon, I just had.
Speaker Change: Two clarifications I guess.
Speaker Change: Are you the eight and a half million.
Speaker Change: <unk> is the <unk> run rate benefit by the end of the quarter.
Speaker Change: From the dealers patients, but there probably isn't a lot of I think to note for Q EBITDA number or am I not thinking about this correctly.
Speaker Change: You are correct I mean, they sent off it's been a full.
Speaker Change: It's basically on a run rate instead of 40 or run rate.
Given that are you know.
Speaker Change: We're talking about we just converted 51 location.
Speaker Change: You know you know between Q3 and.
Speaker Change: All the way up to the beginning of October we have.
Speaker Change: We just completed all of the additional 100 that I mentioned.
Speaker Change: As of today, we just completed an additional 48 stores. So we have another couple of months to go with another 50 stores I don't think it's going to be meaningful for Q4, but the way to think about it that's an add on a full year run rate you were talking about that $8 $5 million, that's the way to think about that.
Speaker Change: Right and so then I had.
Speaker Change: Got lost and one of the ways you answered an earlier question. So that's eight and a half as a full year run rate or was it annualize at 15 to 20 for 2025.
Speaker Change: He sent off it's only on the 150 convert basically conversion we're talking about 150 conversions that will be done by the end of the year. So you need to take into account that you know starting January one 2025, I wonder at 40 or you know just from those 150 stores you have $8 million benefit.
Speaker Change: Just from that.
Speaker Change: To to basically to that we have additional stores that they actually will come in.
Speaker Change: Digital conversion.
Speaker Change: Going into Q1, and Q2 2025, and you know what are you going to finish those conversion on a full year run rate its going to be between $15 million to $20 million.
Speaker Change: Great. Thank you that was so much that was very clear and the second question I had was.
Speaker Change: Are you guys kind of imply that we were at or very close to the trough and fuel volume declines and I was wondering what what's giving you confidence on that.
Speaker Change: I don't I don't think we were we were suggesting that we were you know pleased with what we saw in October and we were hoping that the Q3 was a trough I don't think there was a strong statements about the the fuel gallon demand anywhere certainly you know we're guiding down mid single for the fourth quarter right, which is in line with trends.
It turned out to Ari for larger larger thinking on on that longer term.
Speaker Change: And I just think listen there is you know we all know at the moment that the economy was suffering in Q3 suffering more than basically Q3 2023.
Speaker Change: We see some relief.
Speaker Change: Relief in Q4, we see some relief in Q4 and like I said I think the whole country is bullish on that 2025 and you know we're just working towards you know what everybody expect to happen in 2025, and I said I mean Q3 was that a rough quarter across every industry.
Speaker Change: And given that we see some relief.
Speaker Change: The industry, it's a very resilient industry.
Speaker Change: You're.
Speaker Change: You're all familiar with that.
Speaker Change: And I really really think that we are getting through the bottom of that.
Speaker Change: We are at the bottom maybe there is at least all the way to go but I really think that's worth touching the bottom right now and from here, we have expectation towards a better economy I think it's a big changeover here you know awfully price of fuel.
Speaker Change: Well it basically stay at the I'll call it week or $2.
Speaker Change: Range versus the $3 you know, we believe that they need at the price of fuel will stick to the $2.
Speaker Change:
Speaker Change: The price.
Speaker Change: Headline price I believe that people are going to start to drive more.
Speaker Change: That's always something that been again. This is of course subject to you know nothing bad happened over here that all of the sudden price of oil goes to $100. You know that's of course going to change my.
Speaker Change: My expectation over here, but you know assuming that.
Speaker Change: The economy.
Speaker Change: But basically you get a little bit better interest rate already down 50 basis points last month, and I mean today, another 25 basis points.
Speaker Change: I mean, I'm I'm very very bullish towards 2025 because of that.
Speaker Change: Great. Thank you so much I appreciate it fellas.
Speaker Change: Thank you so much.
Speaker Change: Thank you we have no further questions in the queue I'll turn the program back over to Ari Cutler for any additional or closing remarks.
Ari Cutler: Thank you very much Brittany.
Ari Cutler: And thank you everybody for joining us this afternoon almost evening.
Ari Cutler: Good evening and have a great holiday season coming.
Speaker Change: This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.
Speaker Change: [music].