Q2 2025 ARKO Corp Earnings Call
[music].
Greetings and welcome to our Coke Corp, second quarter 2025 earnings 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. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded its now my pleasure to introduce Jordan Mann Senior Vice President corporate strategy capital markets and Investor Relations. Thank you Sir you may begin.
Thank you good afternoon, and welcome to the Arco's second quarter 2025 earnings conference call and webcast.
On today's call are recover chairman, President and Chief Executive Officer, and Rob <unk> Executive Vice President and Chief Financial Officer.
Our earnings press release, and quarterly report on Form 10-Q for the second quarter of 2025 as filed with the SEC are available on <unk> website at Www Dot Arco Corp Dot com.
During our call today, unless otherwise stated management will compare results to the same period in 2024.
Before we begin please note that all second quarter 2025 financial information is unaudited.
During this call management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Please review the forward looking and cautionary statements section at the end of our second quarter 2025 earnings release for various factors that could cause actual results to differ materially from forward looking statements made during our call today.
Any forward looking statements made during this call reflect our current views with respect to future events and Orca was under no obligation to update or revise forward looking statements made on this call whether as a result of new information future events or otherwise except as required by law.
On this call management will share operating results on both a GAAP basis and on a non-GAAP basis descriptions of those non-GAAP financial measures that we use such as adjusted EBITDA and reconciliations of those measures to our results as reported in accordance with GAAP are detailed in our earnings release or in our quarterly report on form.
10-Q for the quarter ended June 32025.
Additionally, management will share profit measures for our individual business segments, along with fuel contribution, which is calculated as fuel revenue less fuel costs and exclude intercompany charges by your subsidiary G. P. M. P and now I would like to turn the call over to Ari.
Thank you Jordan and thank you all for joining.
Like many in our industry in the second quarter, we continued to navigate challenging microenvironment.
By geopolitical events persistent inflation mixed consumer sentiment and restrained personal consumption.
Through it all our team remained focused and executed with discipline.
Reflected by our financial performance this quarter with adjusted EBITDA above the midpoint of our guidance.
In this environment, we have seen more price sensitivity greater reliance on glass did you even offers and a continued movement towards value based purchasing.
We stayed grounded by focusing on execution merchandising discipline loyalty led engagement and controlling expenses, including smarter labor scheduling and tighter cost management at the store level.
We expanded merchandise margin by 80 basis points year over year, driven by category mix.
These promotions through the work our team is doing with our suppliers and our continued optimization of assortment true back by recess and loyalty target offers all while being responsive to evolving consumer needs.
We were pleased with the improved performance in most of our core categories and we believe performance reflects the effectiveness of our promotion.
Our focus on driving growth in key categories.
While the second quarter reflected many ongoing pressures we.
We saw consecutive improvement from May to June.
We are seeing further improvement as we entered the third quarter.
Related July early third quarter trends in both same store gallons and inside sellers have been more favorable than what we experienced in Q2 with same store sales growth for July excluding cigarettes up slightly year over year.
Total merchandise same store sales trends in July was three percentage points better than total merchandise same store sales for the second quarter.
Which was the best comp performance, we've seen in the last 18 months.
It's still early.
But we are encouraged by what we're seeing so far.
Our team remains focused on executing our core transformation strategy, which include advancing our deal origination program investing in our retail stores by bringing our new format store and our foodservice fast great brand to life.
In addition.
We are applying targeted promotions, both in stores and at the pump to deepen customer engagement.
Efforts are enabling us to navigate today's operating environment.
Positioning the business for sustainable long term growth.
<unk> remains a central component of our long term transformation plan.
We continue to focus on converting select company operated stores two dealer locations. While we believe the long term economics are more favorable for those stores under our wholesale segment.
Since launching this initiative last year to date, we have converted more than 300 stores and we currently have approximately 200 additional sites that we expect to convert under a letter of intent or contracts for conversion with a fee.
Older meaningful pipeline for conversion going ahead.
As previously disclosed when it's fully scaled we continue to expect these programs to deliver accumulative annualized operating income benefit of more than $20 million before G&A.
As our daily relation efforts continue.
We have indentified more than $10 million expected annual structural G&A savings as we fully scaled this program.
We continue to believe that by transitioning select stores to dealer locations, we are unlocking long term value.
We previously noted that our deal origination program will facilitate targeted capital investment in our re into our retail stores.
As part of this we are very excited to introduce our new format stores, which include the bold and innovative remodel designed to elevate the customer experience.
And better reflects our commitment to foodservice convenience efficiency and community connection.
We developed this new format over many months with our internal team and.
And outside consultants, including learning from customer focus groups.
This new format includes a complete remodel inside and outside the store and modernize layout and we have introduced a new food and beverage concept fast graves.
Which elevate our food and beverage offering to grow foodservice as a differentiator across our network.
We opened our first new format store on June 2015, Ashland, Virginia, and while it has only been open a short time, we are pleased with its initial performance.
Early results show outperformance in foodservice and dispense beverages as well as key categories like candy.
Packaged beverages and alternative snacks relative to the rest of our stores our second new format store opened this morning, and mechanics Ville Virginia.
Importantly, we have identified the next tranche of stores to be remodeled in the new format.
Focusing on improved customer experience and we foodservice as the focus which we believe is a critical area of opportunity for Oracle.
We are in various stages of engineering design and layout on this next tranche of stores.
Turning to our new to industry stores.
Last week, we opened our second new location this year.
These MTI in Kinston, North Carolina incorporates almost all elements of our new store formats.
We continued to advance the other ntis in our pipeline and have begun working on three more of these MTI stores.
We still are expected to open in the second half of 2025.
In addition to executing our deal origination program and remodel investments, we're beginning to see the positive momentum across other core initiative for this year.
This includes focusing on higher margin categories like otp.
And food and announcing our loyalty ecosystem to better engage customers are fueling America future campaign continues to engage customer.
And drive improved loyalty enrollment growth trips and basket size.
This program provides up to $2 per gallon and fewer discounts up to 'twenty Galanz Transalta loyalty members, who purchased qualifying in store items.
Average daily enrollment in our fast rewards program increased more than 50% from the period prior to the campaign.
When utilizing the fueling America's future promotions are involved loyalty members made an extra trip per month and spend on average more than 15% more than our typical enrolled loyalty members during the second quarter.
Importantly, we are seeing improved sales on our qualifying the items that are tied to our fueling America's future promotions.
Turning to our loyalty program as a whole during the quarter and ROI with fast rewards members spend on average approximately 50% more in the second quarter of 2025 and visited an average approximately three more trips per month compare to non members.
Overall, we added more than 38000, new members in the quarter, bringing total enrollment to approximately 235 million members up 10% from the end of Q2 last year.
These results underscore the effectiveness of our loyalty platform in an environment, where consumers are looking to stretch every dollar and this is why we continue to focus on enrollment initiatives like fueling America.
Our team is continuing to optimize promotional offers and sharpen messaging to drive even deeper engagement.
Diving deeper into otp, our stores are benefiting from expanded assortments.
Revised based allocation I value promotions, and a more effective visual merchandising strategy.
Which has been significantly improved by our Backbar refresh an incentive program for discrete and store managers.
Otp remains a key growth lever for install margin and customer engagement.
Over the quarter Otp was one of our top performing categories for same store sales growth and same store contribution growth.
Taking all our strategies as a whole there are guided by experienced leadership and brought to life every day by a dedicated operation team focused on enhancing the customer experience.
Turning to fuel industry wide demand remained soft in the second quarter with national retail fuel volumes down approximately 4% and our volumes reflected that trend while gallons declined our CPG margin increased compared to the prior year period, reflecting the benefit of our scale.
And our strategic pricing.
This margin performance helped offset some of the impact of lower volume on retail fuel contribution.
As I mentioned before we saw consecutive improvement in same store gallon growth from May to June and this improvement continued into July.
Our wholesale and fleet segments continued to perform well.
Combination of our deal origination program and robust fuel margin as compared to the prior year.
These two segments continue to provide stable and reliable cash flow for our business.
We continue to believe our stock is an attractive investment in the second quarter, we repurchased two 2 million shares we believe that our disciplined capital allocation strategy.
Aligned with strength of our transformation plan and consistent operational execution.
<unk> us well to deliver long term shareholder value.
I will now turn the call over to Rob to review financial results for the second quarter and review our thoughts for the third quarter and full year 2025.
Thank you Laurie good afternoon, everyone.
Turning to second quarter 2025 results adjusted EBITDA was $76 9 million for the quarter compared to $80 1 million in the year ago period with the decrease caused primarily by lower retail merchandise contribution.
At the segment level, our retail segment contributed operating income of approximately $80 4 million compared to $87 9 million in the year ago period.
Same store merchandise sales, excluding cigarettes were down 3% versus the year ago period, while total same store merchandise sales were down four 2%.
Same store merch margin rate was up approximately 50 basis points versus the prior year.
Same store fuel contribution was down approximately zero point $8 million with a six 5% decline in gallons, mostly offset by an increase of two six cents per gallon.
Same store fuel margin was <unk> 45 per gallon for the quarter.
Same store operating expenses were down approximately 0.8%.
Turning to our wholesale segment.
Operating income was $23 2 million for the quarter versus $21 3 million in the year ago period.
Fuel margin was $10 one per gallon versus $9 nine in the year ago period.
Gallons were up three 9% for the quarter driven by our channel optimization program, which contributed more than 19 million gallons for the quarter were almost 8% of total wholesale gallons.
Excluding channel optimization gallons were down approximately four 1% at comparable wholesale sites.
We continue to be pleased with the impact of our channel optimization program, which has driven approximately $4 5 million in incremental profit contribution for the first half of 2025.
As already mentioned, we continue to expect that at full maturity. This program will deliver in excess of $20 million in incremental operating income across our combined retail and wholesale segments.
This outlook excludes additional G&A efficiencies, we expect over time as we transition to a smaller retail segment footprint.
Moving on to our fleet segment operating income was $13 1 million for the quarter versus $13 7 million in the year ago period, with total gallons down six 8% to the prior year.
Fuel margin was very strong for the quarter at 49 cents per gallon up from $45 nine in the year ago period.
Total company general and administrative expense for the quarter was $40 7 million versus $42 4 million in the year ago period.
Net interest and other financial expenses for the quarter were $19 5 million compared to 21 4 million in the year ago period with the decrease primarily related to lower average interest rates in the second quarter of 2025 and higher interest income generated.
Net income for the quarter was $20 1 million compared to $14 1 million for the year ago period with the increase driven primarily by a noncash gain related to the exploration of a purchase option received in 2021.
Please reference our press release for a detailed reconciliation from total company net income to adjusted EBITDA.
Turning to the balance sheet, excluding lease related financing liabilities. We ended the second quarter with $916 4 million in long term debt.
We maintained substantial liquidity of approximately $875 million, including $294 million in cash on hand at quarter end, along with remaining availability on our lines of credit.
Total capital expenditures for the quarter were $45 3 million, which included the purchase of 22 fee properties at favorable terms.
Turning to third quarter guidance, we expect total company adjusted EBITDA to be in the range of $70 million to $80 million based on the following key segment assumptions.
First for our retail segment.
We expect our third quarter average retail store count to be approximately 220 sites.
On a per average store basis, we expect merchandise sales to be up mid single digits, reflecting the higher productivity of retail stores versus the year ago period.
Partially offset by same store merchandise sales performance, which has positioned down modestly.
Again on a per average store basis, we also expect gallons to be up mid single digits, reflecting the higher productivity of retain stores versus the year ago period, partially offset by same store gallon performance, which has positioned down low to mid single digits.
We are modeling total retail fuel margin in a range of $42 five to $44 five per gallon.
Where our wholesale segment, we expect mid to high teen percentage operating income growth in the third quarter driven by our ongoing channel optimization work.
And finally for our fleet segment, we expect third quarter operating income growth to be up low single digits with gallons roughly in line with the prior year on higher expected cents per gallon.
We are maintaining our full year total company adjusted EBITDA guidance in a range of $233 million to $253 million.
And with that I'll hand, it back to <unk> for closing remarks.
Thanks, Rob.
Proud of the way our team continues to deliver in the face of ongoing challenges.
We are deepening customer engagement, our promotional efforts are yielding results and were making progress on our transformation roadmap. We are entering the second half of the year with clear priorities and are focused on creating lasting value.
We'll now open it up to questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be.
Necessary to pick up your handset before pressing the star keys.
Our first question is from Bobby Griffin with Raymond James. Please proceed.
Good afternoon, everybody. Thanks for taking my questions.
I guess.
First for first for me I wanted to maybe dive into your comments on July pretty notable change there at least through the one month of the new quarter curious if you can unpack. It further on on what's maybe driving that industry trends versus the channel optimization some of the new programs coming on because to your point I don't think we've seen.
<unk> ex cigarette merchandise sales close to flat in a very long time, and even gallon seem to be getting a little bit better.
Yeah, good afternoon Bobby.
You are absolutely correct I mean, we saw improvement.
From basically from May to June June to July but.
It is probably the the best improvement we've been seeing over the past 18 months.
We don't know if this is.
Just because you know all of this started with something turnaround, but what I can tell you it's probably.
That I think that value and the messages that we're sending out there.
Fueling America.
I believe our offering our assortments our promotions are very very very strong and we see them driving.
Frequency I mention.
For example, the loyalty trip frequency. So just yeah, just to put dollars and cents.
We are talking about going from $73 83.
Two $110.
Which is almost 50% we're talking about trips up.
Most three trips.
Basically per month between loyal members Inagua members, we see an increase in customers purchasing.
The qualified product and fueling America's them as you can imagine all of those.
All of those that project a project that they have a higher margin and then I'll give you. An example, just something that we have.
She'll be promoting this this month.
If you buy two <unk> for $6, you get 50 cents off per gallon.
This is scheduled in M&A for example, I mean this is huge.
Another one if you buy Marlboro two packs of Marlboros 25 cents off per gallon so I.
I hope that.
This is a result of what we have been doing over the past few months, but this is absolutely. It was a very positive and of course, we are going to take it.
Absolutely. Thank you and then Rob maybe just switching gears to the channel optimization kind of a two part question I don't think you guys want to give a full number of how many stores. You think you can move the dealer, but maybe to help us think about it are you identifying more stores today than you maybe identified six months ago and if the program does run.
One through 26 do you have to wait until 'twenty six or do we have to wait until 'twenty six to see some of the G&A savings start to flow out or can that start to flow out earlier and you can view the program at scale sooner.
Yeah. Thanks, Thanks, Bobby So so no I think the program store list and as we said, we're not putting out the full number yet, but it's been defined for a good period of time now and it's just now about execution.
Repaired remarks, what is under contract and then there's a substantial amount still out there. So I think we know what that number is we know what that number is we're executing on it in terms of G&A savings now we already are seeing savings in G&A in the second quarter you can see the total G&A number was down.
That number is inclusive of a certain amount of the restructuring expense that it aims we are seeing it already so things that are directly related to stores field leadership. You know things are directly 101 related we're going to see real time things that are like prepaid annual software licenses, we will see when we get into 2026, so again that that pace of G&A will accelerate as we can.
But we are seeing some of it already.
To estimate where probably 25% to 30 33, maybe a third of the way through the first tranche of savings and I do believe that there's going to be more. So again. This is just the first tranche that we see and as we get deeper into the smaller footprint. We will continue to look for opportunities on that front.
Okay, and then lastly for me just Capex, the 22 fee properties and when we saw the absolute dollar number step up year over year meaningfully in and up sequentially. So any color just on how big of the 22 fee properties, we're in driving that and just thoughts on exactly kind of what that is for the business and help me understand that better.
You're referring to the 22 properties that we purchased.
Yeah, Yeah, just on the Capex.
Trying to understand I'm trying to kind of get out of run rate for core Capex and you had this quarter. It stepped up sequentially, but you also called out you purchased 22 properties, Yes, I'm just trying to better understand what's normal and what was part of that problem purpose.
Bobby that number for the for the property is about $22 million. So when we talked about at the beginning of the year, we kind of talked about the prior two years full year Capex was about $110 million to $115 million and while we don't provide guidance for Capex. If you back out that 20 ish $22 million from where you are you're kind of on that similar pace.
In the past two years. So again that was a those are opportunistic at good cap cap rates for us to buy and we look for those opportunities as they develop it that that is a kind of a onetime we financed it with empty. So again it doesn't impact our cash position.
Debt financing.
Perfect Yeah, that's exactly what I forget thanks. Thanks, Robyn Thanks, guys for the details best of luck here in <unk>.
Thanks, Bobby Thank you Bobby.
Our next question is from Daniela Googly marrow with capital one Securities. Please proceed.
Hi, everyone. Thank you for taking my question.
The first one.
Mentioned macro headwinds and shifts in consumer spending in the press release, but the July commentary was positive for us.
The guidance next quarter and the full year, what type of macro and consumer spending environment are you all assuming.
Just trying to get a sense.
What's kind of built in there for your assumption.
Yes, so as we've talked about in prepared remarks, we have the merchandise sales for the third quarter positioned same store sales position down modestly. So again. This is on higher productivity stores again, the stores, we're keeping higher productivity, but we do see again, a macro we are cautious and were at a negative modest modest same store.
Sales performance.
We're not talking about the fourth quarter, yet Daniel there as you know as we look sequentially on as already mentioned, we've seen since February with the exception of a little blip in May we've seen month on month sequential improvement in the comp sales trend on the merch side and so that.
That is a question in terms of does that continue going deeper into the back half of the year or does it stay where it is.
That's something again, we have a little more confidence in near term in Q3, because we've seen in July we see where we are right now fourth quarter, we're going to see as we get deeper into the third quarter, what that looks like and we don't we don't really guide the forward quarter.
At this point.
That's really helpful. I appreciate that color.
And then the second one is on the transformational plan.
We've seen it kind of drives down the site operating expenses line and I know labor is a big piece.
So that line, especially kind of when demand increases in the summer.
How have we has trended this summer versus last summer.
Not in the business.
Yes, we've seen consistent wage performance up you know in that 3% range and that's been consistent quarter on quarter for some time now since we got cleared the pandemic. So that's kind of a baseline.
Inflationary pressure that we're seeing about 3%.
So as you think about the operating expense itself being down the decreased hours as our field organization deals with lower topline demand, we do reduce hours and that is partially offset by the increased rate that we're seeing.
I appreciate that and then just as a follow up to that what you said.
As you continue through the transformation plan.
You kind of Youre going at kind of low hanging fruit. It feels like do you expect kind of less of a benefit and that kind of the later stores are taking out or how are you thinking about that.
Good morning, Ken.
I don't think we're expecting a lower benefit I mean, I don't know if you have a point of view on that I think each deal I know it depends on go ahead.
Yeah, Let me, let me jump in if you don't mind.
Correct expense associated with the stores that are ideal rising I mean, I'll give you. An example, when we feel the right 10 stores.
By definition you are.
Eliminating the discrete managers and this is just one example, okay we have.
People in the back office to do accounting work.
Let's call it the two pair 10 stores for example.
We have you know when you get to 80 stores, you're eliminating all of the stars in the regional manager. So again there is.
A lot of you know.
A lot of position.
With your operation So as you remove stores by definition, you're going to reduce G&A.
That's part of the outcome.
And alright, I think he's he's looking to tease out as we get deeper into the optimization program do we see the deals getting less.
Favorable.
I think I think there's no reason to expect that.
No no no no. We now now we are sharpening our pencil a as you know all the time I mean at the end of the day, if you think about it.
The plan that we put together over here.
Talking about 500 doors.
You know in around a year to 18 months I mean this is a you know this is a big project. This is a big project for Us and I think the reason.
We are moving forward very successfully is because we have the second segment, which is the wholesale segment.
Which help us tremendously over here.
But so far like I said, so far we are very very pleased with the traction.
And like my crops that we expect.
To continue to see benefit just ramping up further over the year.
Great. Thank you appreciate all the color.
Thank you.
Our next question is from Anthony <unk> with Wells Fargo. Please proceed.
Yeah, Hey, guys. Thanks for taking our questions. So.
So I wanted to start out with the steel margins I know you guys had another strong quarter.
On that front, but I think our industry has maybe been a little softer than one might think just given.
Breakeven dynamics and how soft gallons have been.
So can you guys just talk a little bit more about what youre seeing out there competitively on the fuel side.
And whether you've seen any change there as the years progressed.
I'll start and then I'll, let drop maybe finish with a summary remarks so.
If you're looking on the industry in Q2.
And the national demand was down 4%.
That's been Ashwin on demand I understand we were a little bit.
Down in the national demand, but we are very very competitive very very competitive.
Thank the software then.
The systems that we have in place, helping us to just to optimize and maximize growth.
Profit dollars over here.
Sure that we continue to be competitive and as you can see.
This particular quarter.
We were basically trending close to basically 45.
So I think we see an improvement in fuel margin.
We see so far in July.
Same thing goes to July.
Improvement month after month, but July.
We basically saw a decline.
Is basically off for what we saw in Q2, so not only that we were able to expand margin. We also see an improvement in map basically in fewer gallons decreased in July.
And we hope that that's going to be sustainable that's what we hope.
Okay Anthony.
Go ahead.
CPG can can pop significantly when theres volatility and I think we saw one month, specifically April in the second quarter, where we had a 7% increase year on year and that drove significant profitability into April and those things I mean, we're in an uncertain macro environment right now geopolitically everywhere and that those sorts of things those trends even though.
There could be some some pressure on gallons that uncertainty certainly can be supportive of higher CTG.
So it sounds like people sort of behaving rationally still.
Well I think people have the same issue as these trends if you are 4% or 6% you still have a trend down and I think when you have trimmed down people need to pay.
Guys are probably like everybody else need to pay their bills and in order to pay the bill is the only way to make it happen you need to increase margin and that's what we've been saying that the margin is up almost <unk>.
In Q2.
And we continue to see strong months strong margin going into July.
Very similar margin going into July so we expect that.
We expect that we hope that margins will stay strong for.
For the remaining quarters.
Okay. That's helpful.
And then I just wanted to touch on the Otp are all nicotine.
I think there was some rhetoric out of the FDA recently on an increased focus on the illicit market. So can you just talk a little bit more.
That's about what you're seeing in that category and just any thoughts on a potential crack down there and how you guys might be positioned to benefit from that.
Yeah. So if you remember Anthony at the beginning of the year I made the big remarks regarding to our back bar refresh.
And basically in many of our stores in almost 1000 stores.
They can just tell you dot the otp was a very very strong.
Basically category for US Q2, Otp was up two point basically two 6% and sales.
And at the same time.
Our margin was up 170 basis points. So this is a category that.
At least for us.
We are paying a lot of attention to this category and I think the.
Those crackdowns can only help us.
Against the competition.
Some of the competitors I can tell you I've been seeing that for a long period of time that some of the competitors.
Selling some illegal OTT.
Otp product.
We of course, selling all the illegal product.
And I think it's about time that we started to see some enforcement over there.
But.
Regardless like I said otp for US was a very successful story has been that we refresh the back bar from old variety.
And like I said, I mean, it's a big success and it's a big contributor to the gross profit dollars over here in Q2.
Thanks, Good morning, guys.
The OTT penetration is.
10% of the total assortment versus cigarettes in more than 26, 27% range, but the contribution margin from OTT was essentially equal to cigarettes. So as we continue to comp positive there, it's going to contribute more and more as we go forward. So really mitigates some of the downside with cigarettes, the structural decline of cigarettes.
Got it thanks guys.
Thank you.
Our next question is from Benjamin <unk> with BMO capital markets. Please proceed.
Okay.
Hey, everyone. This is.
Then on behalf of our PMO and <unk> and Kelly Dania, just wanted to circle back on the dealers.
And just try to understand.
Is it the pace of dealer additions going in line with the original plan I think you're targeting now more than 500 stores, but mentioned deal organizations are expected into 2026. So is the message that the total number is consistent with the long term.
Or with the prior communications, but is this maybe a slower pace also just trying to understand this.
This total number is that all part of the $20 million in savings target or should we expect you to update that savings.
As you guys get deeper into this.
I'll, let rob discuss the $20 million in debt basically.
Give you a mic.
Regarding to the pace, we are very pleased with the pace, but I'll, let rob jump in.
Yeah, then the.
The number that we shared in excess of $20 million is the fully executed programs. So while we haven't shared the total store count that is inclusive of all the stores, so again and <unk>.
Excess of $20 million, you should not expect us to be offset.
Dating that number that's consistent with what we're seeing so far in terms of run rate and that's where we expect to end up.
Yeah and regarding to the base.
Regarding to the pace as I mentioned earlier.
Just think about it's 500 stores and in.
In 18 months. This is an area to us I mean, it's growing in accordance to our plan like I said, we are very very pleased with that you know what sometimes take a little bit longer it's just getting licenses and putting everything in place I mean, we want to make sure that all of the dealers that are taking over some of those doors.
There are fully equipped.
And fully licensed.
We don't want to be in a position.
Forbid they're losing the license the losing sales you know for US. This is a long term play and we want to make sure that those guys continue to make money and we want to make sure that they get all of their licenses.
Sure.
To continue to operate from that from the minute that we stop operating.
Okay. That's great and then could you just provide some details.
On this new store format.
For.
The ntis and Remodels, how does this square footage compared to the average store in your portfolio and then what about the labor needed.
How many employees will run it versus your store average trying to understand the complexity of it versus.
With this new foodservice versus kind of the other store base around them.
Sure. So most of our we.
We opened the first one.
Last week last month last smartphone June 25th.
And this particular store, we did not change any of the square footage that was large enough store and over 3000 square foot. So we basically just added a beer cave and some other features.
Of course in addition to that all of the foodservice equipment over there we had a daily before so we just converted the daily to our new concept, we remodel the store from the inside and the outside.
So in this particular case, we did not add any square footage in the stores that we opened this morning.
We were able to add additional square footage.
Two the basically towards the original store.
So this is something that we did in terms of labor.
And he will share some picture later on but in terms of labor that we have a share labor model, which means we need one person literally to operate the foodservice the concept that you've put in place over here.
Oh, that's okay.
So then is it correct to assume that.
Or maybe I'll ask you this is <unk>.
What percentage of the remaining store base after you've gone through this deal organization do you think would would qualify for this kind of a full remodel.
Okay.
Well.
We are in a phase of structuring.
Structuring and engineering, but the stores that we're planning on keeping we believe that the majority of them.
Basically can fit we remember when we actually put this plan together, we put the plan together based on the fact that we have different type of stores different type of square footage.
And we wanted to make sure that we can customize.
And most of those doors, the foodservice concept that we put together.
So this is something but right now at the moment.
We are we already identified another tranche of basically old stores.
Approximately 25 stores that you already identified in the same geography.
We started we started there'll be hearing date, Virginia market into Richmond market.
And the plan is basically to finish the tranche and continue but.
We believe that the stores that we are planning on keeping as part of our retail segment.
We will be able to customize and the majority of those stores the foodservice concept and everything that we did in the last two stores. The last prototypes that we just the new format that we just opened last month in this morning.
Great. Thank you guys very much.
Which by the way that's one of the decision of dealer rising some of the stores that we didn't feel will fit.
With this concept or reduce that.
New format that we brought to market.
I think we lost Ben Thank you Ben.
Yeah.
Our next question is from Hale Holden with Barclays. Please proceed.
Hi, good afternoon.
Two on the other tobacco products.
I was wondering.
So you know I didn't hear those comments the beginning of the year and I was wondering where you are in the bar rollout and or how much you know.
More work you have to do to get sort of allocation space allocation to the product or if you were fully built out at this point.
We are fully on the stores that we are keeping a like I said, it's over it's around 1000 stores that we have out there.
<unk> already invested in finished I'll work on the back bar, we completed this project.
These projects was completed by the end of Q1.
Beginning of Q2, so we are you know.
We.
Done.
I was just a matter of adding additional assortment to add to the mix of the year.
Okay.
And then on the.
Does the store conversions are a band was just asking about.
Any thoughts on what would constitute a success in terms of.
Either.
Merchandise sales lift or same stores lift.
You know, maybe where the control of <unk>.
Sure.
First of all traffic.
One of the reasons behind that of course is making sure that we increase traffic.
That will turn to be an increase inside margin, because adding foodservice there'll be here by definition. The gross margin on foodservice is much higher.
Then basically.
What we said before.
No.
That for us will be increased foot traffic increase the basket size associated with that.
Expand our foodservice.
So far we get.
So far we get.
Very nice results I can tell you that the stores that we opened.
Just last month on June 25th jumped into muscle of July that was excluding.
Excluding cigarettes in that particular store.
<unk> are up 6%.
Compared to prior year so.
Yes.
That's for us so far we are very very pleased on what we're seeing over here.
Great.
This is some pictures in the next quarter deck, it's hard for me to see them from a satellite photos outside.
Yes, no problem.
We will do that.
Thank you.
We have reached the end of our question and answer session I would like to turn the conference back over to Ari for closing remarks.
Yes.
Thank you for joining everyone.
We are focused we are on truck.
And we are excited on what's ahead of us.
Have a great evening.
Thank you the Spokane conclude today's conference you may disconnect at this time and thank you for your participation.
Okay.
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