Arko Corp. Price & Performance (ARKO)

Any forward looking statements made during this call reflect our current views with respect future events. And Arco is 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 these measures to our results as reported in accordance with GAAP, are detailed in our earnings release or in our annual report on Form 10 ks for the year ended 12/31/2024. Additionally, management will share profit measures for our individual business segments along with fuel contribution. Which is calculated as fuel revenue less fuel cost and exclude intercompany charges by our subsidiary GPNP. Now, I would like to turn the call over to Ory.

Good afternoon.

Thank you for joining us. 2024 was a challenging year for the industry and both a challenging and pivotal year for us as a company. Despite the challenging macro environment characterized by persistent inflation and constrained consumer spending, we remain focused on executing the strategic initiative that we believe will position Arco for long term growth. We continue to work our transformation plan including the dealerization program while continuing to provide our customers with value through foodservice expansion of our other tobacco product category and targeted promotional strategies to announce customer engagement and loyalty. Overall, against backdrop external pressures and in a dynamic environment, we manage the business effectively and delivered results near the midpoint of our annual guidance. Reflecting our ability to adapt to market conditions and drive operational efficiencies while maintaining a strong focus on customer value and long term profitability. Over the course of 2024, we consistently observed a consumer who continue to struggle as well as evolving customers preferences including increasing demand for OTP and higher expectations for foodservice. In response to what we are seeing, we have made and continue to make investment to meet our customers' needs.

I will first touch upon the immediate value we seek to deliver to our customers. We continue to reward our loyalty customers through promotions and have kicked off 2025 with incredible inside stores promotions that provide value on merchandise but notably that leads to sizable discount on fuel. We recently launched our fueling America's future campaign offers allow customers to earn up to $2 off per gallon for up to 20 gallons when purchasing value promotions inside the stores.

This is not only provides relief to our customers, but importantly rewards our enrolled loyalty members which we believe will help grow our loyalty program. During the quarter, enrolled members spend an average of $104 per month which is nearly 60% more than non enrolled customers. Additionally, enrolled members visited our stores about three more times per month on average compared to non enrolled customers reinforcing the effectiveness of our loyalty strategy. Turning to cigarettes or OTP consumers. Over the quarter, we announced our OTP category by expanding promotional activity and leveraging strategic supply of partnership to drive market share gains. Our Backbar Refresh initiative has allowed us to improve space Product assortment to align with shifting consumer demand. As of the end of the fourth quarter, we completed more than 800 tobacco back bar refreshes and expect [indiscernible] 100 more in the coming weeks. Our strategy around OTP during the fourth quarter led to a 200 basis points improvement in gross margin for OTP further widening the gap between higher margin OTP and traditional Notably, OTP represented nearly half of our total Teva category contribution in the fourth quarter. Continuing with this momentum in the category, [indiscernible] the start of 2025, we have ramped up promotional activity in OTP and cigarettes, offering significant deals to customers to further drive sellers' momentum.

Additionally, while we are working towards receiving termics for our seven pilot stores that will include an enhanced food service offering We have seen strong customer response to the upgrades we have already made to our foodservice offerings reinforcing our focus on delivering value driven options. Our promotional efforts including frozen and hot pizza bakery, Nathan Famous Hotdogs and roller grill deals continue to gain traction. In fact, we have sold more than 600,000 pizza since launching our four ninety nine pizza special in Q1 twenty twenty four. We are refining our foodservice strategy to announce convenience quality, and profitability, driving trial and repeat purchases through targeted promotions and bundling [indiscernible] Turning to fuel. Although retail fuel volume declined for both the quarter and year, our pricing strategy helped preserve margin despite lower demand lower fuel costs and reduced price volatility a backdrop which normally put pressure on the ability to expand margin. Same store retail fuel gallons were down mid single digits for the fourth quarter and year while same store retail fuel margin was only down $0.11 in the fourth quarter as compared to the prior year period and up $0.07 per gallon for the full year. Lastly, over the quarter, we made meaningful progress on our dealerization as part of our broader transformation plan we are strategically converting select retail stores to dealer sites where we believe we can generate higher contribution dollars through ongoing fuel supply agreements and rental income rather than continue to operate these locations within our retail segment.

Our approach is centered on optimizing our portfolio allowing us to focus while leveraging our dealer network to enhance profitability across our entire platform. We exceeded our initial targets for dealerization having converted more than 150 retail stores to dealer sites in 2020 We expect to convert a meaningful number of additional stores over the course of 2025 with approximately 100 more stores to be converted by the end of the first quarter, Surpassing our conversion goal in 2024 is a testament to our team's focus and execution. Rob will provide more substance to the numbers later. However, we now expect our total dealerization program to generate an annualized benefit in excess $20,000,000 to combine wholesale and retail segment operating income with additional opportunity from G and A expense reduction. As we move into 2025, our focus remains on our strategic priorities while delivering value to both our customer and stakeholders. We deliver a disciplined approach to grow operational efficiencies and customer engagement initiative will position Aarco for long term success. With that, I will turn it over to Rob to discuss our financial results and our 2025 guidance. Thank you, Ari. Turning to the fourth quarter, total company adjusted EBITDA was $56,800,000 dollars compared to $61,800,000 for the year ago period.

With the decrease caused primarily by lower retail fuel and merchandise contribution. At the segment level, our Retail segment contributed approximately $62,900,000 in operating income compared to $72,300,000 for the year ago period. Same store merchandise sales excluding cigarettes down 2.1% versus the year ago period, while total same store merchandise sales were down 4.3%. Same store margin rate was relatively in line with the prior year. Same store fuel contribution was down 7.1% for the quarter caused by a decline in gallons, and lower year on year fuel margin per gallon. Same store fuel gallon demand was down 4.4% for the quarter, while fuel margin of $0.387 per gallon was down $0.11 per gallon from the year ago period, resulting from lower fuel costs and reduced price volatility this year.

Same store operating expenses were down approximately one point Moving on to our wholesale segment, Operating income was $20,000,000 for the quarter compared to $18,100,000 in the year ago period. With the increase primarily due to our channel optimization work.

Inclusive of channel optimization, gallons were relatively in line with the year ago period, Fuel margin was $0.093 per gallon for the quarter, up $0.03 per gallon to the year ago period. For our Fleet segment, operating income was $12,400,000 for the quarter, compared to $9,700,000 in the year ago period, with total gallons down 1% to the prior year. Increased segment operating income was driven by resilient fuel margin which was $0.452 per gallon for the quarter, versus $0.367 per gallon in the year ago period. Total company general and administrative expense for the quarter was $39,700,000 compared to $38,100,000 in the year ago period. With the increase primarily due to lower stock based compensation expense in the prior year period. Excluding the year on year change in stock based compensation, general and administrative expense was down 2% to the year ago period. Net interest and other finance expenses for the quarter were $19,700,000 compared to $22,900,000 in the year ago period. With change caused primarily by fair value adjustments related to our warrants. Net loss for the quarter was $2,300,000 compared to a net income of $1,100,000 for the year ago period. Please reference our press release for a detailed reconciliation from net income and loss to adjusted EBITDA.

Full year 2024 total company adjusted $248,900,000 versus $276,300,000 in the year ago period. And full year 2024 net income dollars versus $34,600,000 in the year ago period. Turning to the balance sheet, we have substantial liquidity of approximately $841,000,000 including $262,000,000 in cash on hand at quarter end along with remaining availability Our $140,000,000 ABL remains completely undrawn as we continue to manage working capital needs from operating cash flow. Excluding lease related financing liabilities, we ended the fourth quarter with $881,000,000 in long term debt, comprised of our twenty twenty nine senior notes, The outstanding balance on our Capital One line and the remainder primarily related to real estate and equipment financing. Total capital expenditures for the quarter were $36,100,000 With full year 2024 capital expenditures of $113,900,000 Turning to full year 2025. We expect total company adjusted EBITDA to be in the range of $233,000,000 to $253,000,000 assuming a retail dollars to $0.415 per gallon and mid teen percent operating profit growth in our wholesale segment driven by our ongoing channel optimization work. For the first quarter of twenty twenty five, we expect total company adjusted EBITDA to be in the range of $27,000,000 to $33,000,000 We expect our same store base will change materially as we move through 2025 due to our channel optimization work and that our retained retail stores will be more productive for both merchandise sales and gallons as compared to average performance per As a result, we have set up our retail guidance framework to walk you from Q1 twenty twenty four average per store performance to estimated Q1 twenty twenty five total Retail segment merchandise sales [indiscernible] Our retail segment guidance is supported by the following key assumptions.

We are estimating our Q1 twenty twenty five average retail store count to thirteen thirty nine stores, reflecting the impact of our ongoing channel optimization. Using Q1 twenty twenty four average per store performance as a base for Q1 twenty twenty five, expect an increase in productivity will partially offset a decline in same store sales, resulting in a low single digit decline in merchandise sales per average store compared to the year ago period. We expect merchandise margin rates to be generally in line with the year ago period. For fuel, we expect an increase in productivity will more than offset a decline in same store fuel gallons, resulting in a low single digit increase in gallons per average store compared to the year ago period. And we are assuming a retail fuel margin in the range $0.37 to $0.39 per gallon. Moving on to our Wholesale segment, we expect mid single digit operating income growth driven by our ongoing channel optimization work. And finally, for our fleet segment, we are expecting high single to low double digit operating income growth driven by expected resilient fuel margin per gallon. And with that, I'll hand it back to Ari for closing remarks.

Thanks, Rob.

I will close with some additional comments on our first quarter guidance headwinds from adverse weather By these challenges, our disciplined execution and ability to adapt helps minimize the impact. Seasonal softness in the first quarter is not unusual and we would rather navigate this weather related challenges now than during the peak summer month. With the weather we plan to continue to operate the business and control what we can control. Optimizing operations maintaining pricing discipline and delivering value to our customers. On a positive note, fuel margin was up $0.025 per gallon in January to the prior year demonstrating both the strength of our pricing strategy and the resilience of our business. As we wrap up, I want to reiterate our focus on adopting the dynamic market landscape. We remain committed to our dealerization program foodservice [indiscernible] store transformation and value driven initiatives. I'm optimistic about our strategies including Fueling America's Future campaign which reflects our commitment to making fuel more affordable while helping families and small businesses managing rising costs. We look forward to continue providing value driven discounts on key essentials to support the communities we serve. Finally, I want to thank our employees for their hard work and dedication this quarter and for taking care of our customers every day throughout the year.

With that, we will open it up Great. Thank you.

At this time, we'll be conducting a question and answer session. And our first question is from Bobby Griffin from Laden James. Good afternoon, everybody. Thanks for taking my questions. I wanted to first start on the 2025 guidance and midpoint implies it's down a little bit year over year with about a penny a so more in fuel margin. So can you just maybe help connect those dots because I know you got some of the dealerization savings starting to flow through, but I imagine there's some other cost pressures that you're dealing within the the business as well. So just trying to connect kind of going on there, those building building blocks.

Yes, Bobby, as you think about the full year, again, we're staying pretty high with the guidance right now. And as I mentioned in my prepared remarks, we're going to have a shifting same store as we go through. So the same store metrics we would normally give you at this time are going to be a little less relevant the base changes, which is why we're steering people to the average. So as I mentioned in the Q1 guide, we are exceeding a negative same store trend right now in gallons and and in merch sales. And again, I don't want to steer away from same store because the base is going to change, but you do know we are facing that. And that underlying that going to put some pressure. We are expecting things to improve as we go through the year, but we do see a negative trend right now. And I think as you've probably heard from others, January, February has had some significant weather impact and there's a bit of a drag starting the year off. So that's really what we're looking at. We do expect again those average store metrics we do expect those to improve as we go through the year.

And again on both on the merch side the gallon side.

Okay. That makes sense. And then maybe is there a building effect as we move through the year from the dealer And is there step function change of that savings as we enter 2026?

Yes. So you should expect I mean in the guidance, we we gave you the wholesale segment being up mid single for the first quarter and up mid teens for the year. So that is going to accrue as we go through as we get more and more stores. The cumulative impact is going to become greater and greater. And as Ari mentioned in his prepared remarks, we will start to see more G and A savings as we start to streamline the business for the new retail footprint. So that continue to accrue as we go through 'twenty five and there will be a wraparound into 2026.

Okay.

And then I want to maybe pivot appreciate all the details on the dealerization side of things. Can we maybe switch and talk about the stores that are left in the base? You still got a lot of stores there. Where are we in the remodel initiatives? I know you guys have done some stuff with the back bar.

But what else are some of the initiatives for 2025 to help kind of the existing or the remaining let's call it RemainCo of stores that are in the retail network during 2025.

Yes. As I mentioned, Bobby, earlier, I mean, we started a campaign called Fueling America's Future.

This campaign is supposed to take care of our customers given that everybody is feeling the pressure right now the microeconomic pressure the thought process is really to concentrate on those stores We are leveraging our strategic supplier partnership and we are going to target on promotional that basically will encourage our customers to buy fuel. In the past, the way we look on our business, in the past, usually you count on people that come into the pump and from the pump go inside the store. We're actually shifting gears over here and we are actually encouraging customers that's coming inside the store right now to buy fuel. I mean, we are going to provide with fueling America's future. We are going to provide up to $2 of 20 gallons. The average gallon per consumer is around nine to 11 and this is going to be equal to $40 saving on a gas fill up. And we're talking about every transaction you're going to be able to stack your basically your savings, which means that at the end of the day, you can visit our stores three, four times a week and all of a sudden end up with $40 savings on your next fill up.

And this is where we actually shifting most of our energy right now In addition to that, you just mentioned the back bar in 800 stores. We have another 100 stores that we are just getting ready to complete in the next few weeks.

But the idea is really to concentrate on OTP tobacco and fuel. If you think about that, one out of two customers coming to our stores is at least one out of two customers is a bulk of consumer. And this is where we see people actually basically concentrating right now.

And this is really going to be the promotional activity for 2025. Tobacco, and provides great promotional basically deals on tobacco and at the same time concentrate on fuel. To answer your question regarding to remodeling, we have the seven pilot stores that we actually talked about them. I mean, we are in a really at the end of the process of permits. Permits take a little longer, but we are actually finalizing the permit and we believe we're going to start construction in late March of at least two of those stores. So those are the things that we're doing in addition to, of course, foodservice and all of the other things that we spoke in the past. And I'm more than happy to elaborate.

Okay. And yes, Ari, I mean, if it's easier, we can go through it offline. But just the $2 off aspect of fuel maybe that's obviously a very big discount. So how does that translate into maintaining the profitability or actually driving further profits and EBITDA of this business? Is it the requirement of some type of inside the store purchases? Help us connect that because when we hear $2 off on a $4 or $5 gallon, it sounds very significant and there's a question maintaining the profitability level as well. [indiscernible] partnership and combination with our basically with our partners, which is basically our vendors It's not going to touch profitability. It's not going to decrease margin inside the store and it's not going to increase margin outside the store. As a matter of fact, we believe with this promotion, we believe we're going to be able to drive gallons. That's really what we're trying to do over here.

We're trying to drive Galon and combination between people that are coming to our stores today to buy every day essential products, but they are not purchasing fuel. Remember, we are operating in a lot of role [indiscernible] A lot of small towns, so many times customers that come to our stores are not necessarily buying fuel and vice versa. There are customers that just driving to the pump and they Arko not getting inside the stores. We believe with those promotions, we believe we're going to see some big correlation between the two. But to be clear, this is not going to in our guidance, we are not planning on reducing margin. Fuel margin or reducing margin inside the stores.

Okay. I appreciate the details. I'll turn it over to somebody else.

You for the time.

Thank you, Bobby.

Thanks, Bobby.

Next question is from Kelly Bania from BMO Capital Markets Arko.

Good evening. Thanks for taking our questions. I was wondering if you can just help us a little bit more understand the remaining retail stores here, given this shift with the dealerization? And just give us some insight into how those same store sales and gallons are trending for the remaining stores if you take out the two fifty cumulative stores that will be dealerized by the end of Q1. Just what's happening? We have some of the the disclosures from the release, but what is happening on a same store sales and same store gallon trend for the remaining stores?

Robbie, would you like to take it?

Sure. Yes, Kelly, those stores outperformed as you might expect the outperformed the balance of the company for Q3 or Q4, excuse me. And are outperforming Q1 quarter to date. So again, we're going to give it a little bit more run rate before we're calling out those trends, but they are higher still negative, but they are higher than the balance of the chain. And again, we're watching that and we would expect that to continue. And as I mentioned in my prepared remarks, these are more productive stores. So again, we're going to benefit from stores that are more competitive, able to drive business versus perhaps some of the macro trends that have been weighing on some of the less competitive stores?

And just to add to it, Kelly, that was from the get go. Was part of the transformation plan. Part of the transformation plan is to make sure that we are concentrating on the best stores We are concentrating on stores that we believe at the end of the day will actually we have some some organic growth potential and the stores that we just believe that mature or we don't see the increase in organic growth those are the stores that we're basically shifting to the wholesale segment.

Got it. Yes, that's helpful. So it sounds like they they are more productive, they are performing better, but they are still negative. So I'm just trying to understand the magnitude of the sequential improvement, if I'm hearing that right, on the merchandise comp front as we move through 2025, what you're expecting what you're seeing at a category level? Just trying to understand since we don't really have the comparison Right. And Kelly, that's one of the challenges again as we're talking about comp for same store sales, we want to steer you. We will still be providing same store detail, we'll be reporting it. But in terms of guiding it because we're not giving you the same store base, it's going to be in talking about right now, these more productive stores are offsetting that negative same store trend both for both for merch sales and for gallons, where again the average store you're modeling at the average store is going to be down low single digits in merchandise sales for the average store last year and they're going to be up low single digits even gallons per average store versus last year. And again, we will certainly be talking about same store but for modeling purposes, it's going to be easier for you to get to our numbers modeling it that way.

Okay. And you talked about the fueling America Future promotion. I guess, this is really kind of intended to help your customers but also to grow gallons. Where do you think what is in the plan with for 2025 with respect to gallons? I guess both at the retail side and the wholesale side because I think you talked about mid teens EBIT growth in wholesale. So what kind of gallon assumptions are or underlying the whole plan here.

Yes. So Kelly, we have not typically guided gallons on the wholesale side. And again, as you know, you're driving you have the metrics for the CPG for the various sites and the gallon growth.

If you think about the fourth quarter, just as a proxy, I can give you one data point on that. We had roughly 9,000,000 gallons in the fourth quarter that was related to channel optimization shifting to the wholesale channel. So that can give you an indication that at the level we're at right now ending the fourth quarter with 150 stores around 9,000,000 gallon shifting to that channel. So again as we add the extra 100 in Q1 and the modeling that you guys will do for what you're assuming for Q2, Q3, you can see that that's going to get significant?

And Kelly, just to add one comment, because I hear what you just said. Just want to make it clear, it's not only growing Galos, It's Growing Traffic. That's The Reason We Are Putting All Of Our Energy On Fueling America campaign with fuel. And at the same time, we are actually increasing the promotional activity very heavy on the tobacco and OTP inside the store. We started in Q4 We already saw the results in Q4. In Q4, we were able to increase the OTP margin by 200 basis points. I mean, we see that this is working. And this is where we actually concentrate right now. Tobacco and fuel, which we believe going to drive traffic outside the store and inside the store. Next question is from Anthony Bonadio from Wells Fargo Arko.

Yes. Hey, guys. Thanks for taking our questions. So I wanted to start out on fuel margins. The guidance range seems to suggest you're pretty constructive on the outlook for fuel margins in 25%. So can you just talk about the different assumptions underlying that? And how we should think about idiosyncratic contributions versus broader industry industry trends Just trying to better understand how you came up with that range?

Do you want to talk about any of the macro and I can talk about specific That's the macro. You can talk maybe about the guidance and then I'll talk about the macro.

Yes. So Anthony, as Ari mentioned, January was was nicely up to last year. And again, January was a softer month last year, but it was up nicely. As we look at the general dynamics of of the industry, we do continue to see wage increases and things on the operating expense side of the business as we continue to have same store traffic challenges that are not specific to us but other players as well from mom and pops in the space. This is one of the areas where we continue to see structural increases Again, we have it up modestly for the full year, but we do continue to see some of the trends that we seen from 'twenty three and 'twenty four moving into 'twenty five. So again, we're we Arko constructive on it based on our pricing strategies, based on what we expect to happen with competitive set. And again, we look at that as the lever that players are going to go to to offset some of the traffic challenges at least coming out of the first quarter?

Yes. And just to add to it, Anthony, as always, our strategy is to maximize fuel contribution dollars I know we're very robust on TPG from basically from a margin standpoint. The one thing I want to remind you and everybody, of course, is that we finished 2024 with an basically pipe percent decline. I mean that was based on, of course, published information from Opus We were 5% in 2024. We are hopeful that the price of fuel will start with a two not with a three. In some areas of the country, it starts three fifty two. I believe that the price of fuel will start with a $2 versus $3 I believe that we're going to see some gallons increase countrywide. That's my belief. And this is one of the reasons that we launched the fueling America's future campaign to go after gallons, to grab gallons and to make sure that we increase traffic inside the store. Even at least what we see from a microeconomic standpoint, we believe that this is going to be very important for our business, for our stores, in order to actually increase traffic.

Got it. That's helpful. And then just on same store OpEx, [indiscernible] that decreased 1.2% in the quarter, which is actually the third straight quarter of declines there. Can you just talk about the key drivers of that and just how you're thinking about the opportunity for further improvement there as we move into '25?

Sure, Anthony. So obviously, some of the expense reductions are a result to the top line reduction, right? So as we have lower top line, we're going to have less demand in the store for labors, for stores that are not on minimum coverage. We have lower credit card fees. Some of those lower traffic would be repair and maintenance, less wear and tear. I mean, some of those reductions are you would take an increase to see stronger sales Again, we're managing what we can control effectively. But again, as you go forward, you would love to see the same store sales turning positive and you'd to see a little bit of growth in the OpEx that would be driving more margin to the bottom line.

So again, we're managing Weed Control well. I think again, as we are looking at the first quarter and we're suggesting to you that our same store trends and gallons are down, expect we're going to be managing OpEx as best we can on that front as well as G and A expenses and that's the strength we're looking at right now. Obviously, we Arko expecting and we're modeling that things pick up as we move through the year. So again, we're just where we are right now with these negative trends.

And I believe Anthony, I believe by the way the negative trend my belief is that the majority of that is weather related. Just the share of benefits. I mean, you see what is happening in most of the country. And I think we've the promotions activity that we have and with the concentration on those two top categories on the I'm very, very optimistic going into 2025, especially as we move towards the spring, towards summer, one hundred days of summer starting in May. I mean, I'm very, very bullish on that. Our next question is from Mark Estrachan from Stifel. Yes.

Thanks. Afternoon, everybody. I guess maybe just to start on the commentary about weather. Any sense of just what kind of impact it had on your business around the industry in the first couple of months the year. And I guess maybe more broadly, the C store channel, if you look at a bunch of categories sold in the store seems to have started weakening kind of back half fourth quarter of twenty twenty three, so year now four to five quarters into just a generally weaker trend. We can see that there is a bit of a a shift in consumption of things into mass and grocery channels away from C stores. I guess I'm curious, one, as I said, just what the weather impact might be and two, on the other piece of it, just weather you think there's any impact on that shift from a consumer perspective in terms of just being spread thinner and trying to purchase things more in bulk, take home and instead of an immediate consumption? And then does that reverse as or if consumer environment improves? Yes, I'll jump directly into it. I think that consumer is basically feeling the pressure the microeconomic pressure, especially in the areas that we do business.

So I really believe it's related to the pressure to the inflation to the pressure on the consumer. And this is the reason, by the way, that we are concentrating, I said earlier, we are concentrating, Mark, on fuel and tobacco.

Because those two categories, if you think about it, between fuel and tobacco, those two categories represent probably 70% of our revenue. And this is the area that's going to bring traffic inside the store. We have very, very, very big promotion related just to those two categories because I don't think those two categories are declining. Yes, cigarettes declining, but you know what, OTP is picking up in exchange of cigarette decline. Fuel is declining. We saw what happened in 2024. So instead of just sitting on sideline, what we are doing, we're basically very, very active on those two fronts. And that's the reason when I when I brought Fueling America Future, we picked up to $2 oil gallon, we believe that's going to drive traffic, that's going to drive gallon. Which were hurt over the past basically few years. Related to the weather, I mean, you see what happened in weather. I mean, the weather in the January we had snowstorms in so many areas in the country that we usually don't see it. I mean, and we had another one in February. But as I said, I mean, that's I think as part of our guidance this is something that we take into account And I have to be honest with you, I prefer to have those weather issues during January, February, the weather whether doing having them during the So it's not something that we it's unexpected sometimes during this time of the year.

And Mark, we have been looking really aggressive baseline what that trend impact is and it has been so noisy even by region that it's difficult to establish a baseline. There have been so many weather events and they've been so broad and sustained, whether it's precipitation or whether it's temperature, it's very difficult for us to read the trend. That's why we do believe there's an impact, but quantifying it at this point has been challenging. And it's we're seven weeks in and it's been tough to read. There's been that much volatility with the with the daily performance. Got it. Okay. And then maybe just a clarification. So I guess I could be wrong thinking strategically, but I feel like historically when we've talked about focus on [indiscernible] margin versus fuel gallons, you've been focused more on margin and now it sounds like with the promotion you're implying that you're focusing more on gallons. Is there some shift within the company to do that?

No.

No, no, no, no.

So to be clear, Fueling America's future is really to drive [indiscernible] We are concentrating on traffic. We are not going to change. We always as I said, our strategy is to maximize fuel contribution dollars nothing is going to change over here? The idea with those promotions is we believe by definition, the minute give up to $2 off per gallon, we believe that you're going to be able to increase gallon just by doing that. But the real reason for that is really to get basically the traffic inside the store. Because in order for you to get those promotional to get those basically those discounts, those big discounts you need to get inside the store to get them. And we believe that's going to drive traffic inside the store.

Got it. Okay.

Thank you. Thank you.

Next question is from Crewe Martinson from Jefferies. When you look at the conversion of the retail stores, I mean, what do you think the core of these kind of higher performing stores is within that within that channel?

What do you mean the core of the IFRS?

So if we're averaging right now a little over 1,300 stores that will get down to like what do you think is the core that when you're done with the dealerization is that [indiscernible] a better improved, faster growing, retail channel Rob, would you like to take it? Yes. I think this is one that as we've talked about before, if you look at our Q4, dealer side was over 100 and we're guiding 400 on Q1. We're not sharing forward plans. In many part, we've got a number of counterparties and we've got internal targets that we have to make sure we are comfortable with before we release externally. We obviously are modeling our full year to have a certain count transition, but we are only sharing Q1. Again, you can make your own determinations, but some looking what Q4 is and Q1 is. I already mentioned that each to be a meaningful impact. So again, I'm going to leave that to your discretion to model yourself. But again, we do expect it to be meaningful. The organization is postured and pivoted to aggressively pursue that. And again, we'll be updating this on the core and giving you much more detail as we have it.

And I just want to be clear, it's not about the quantity, it's about the quality. Just to be clear. Quantity, we care less about the quantity, we care more about the quality. We are as part of our [indiscernible] the thought process is really we want to make sure that we keep stores that we have huge economy of scale. We see the opportunities to invest in those stores. We see huge opportunity to increase profitability in these stores. We see we're going to optimize our footprint and allocate resource for more efficiency. I mean, those are the things that we are doing over here. So at the end of the day, the stores that we would like to end up with are the stores that we see a huge upside for our sell By the way, the other stores are great stores. We are moving them to the wholesale segment just because we believe that some of those dealers are just great entrepreneurs that they can actually run those stores Terrific. We just feel that we need to spend our time and resources in areas that we see that we have huge organic growth opportunities over there. And that's what we're doing over here.

At the end of the day to increase profitability. The bottom line is we're going to increase profitability by actually shifting. And I think by the way, this is I think the unique thing about Arco that we are a little bit different than some others. When we bought Empire, four years ago, that was not exactly the plan, but I think that's the luxury right now that when we have over around 2,000 dealers today, we basically have 2,000 customers that are going to be customers for some of those stores Arko going to be dealers for some of those stores that we control at the end of the day. And I think that's the unique place that we Arko sitting right now.

And when you think about optimizing that footprint, is it exiting certain regions or is it more just kind of a or potentially adding to more regions or is it more going by on a store by store basis?

We are going store by store basis. The end of the day, I mean, of course, if we have one store that we feel this is like an unbelievable store that got huge potential of growth, but next to it, there are three stores that do not have the potential growth that we see over there. Obviously, we're going to have to exit this region. So yes, we are concentrating on regions, we are concentrating on states, we are concentrating on areas that we see opportunity for growth. I mean, we see we're looking on I can go on and on and we're looking on demographic, we're looking on population, we're looking what app and what increase what happened in the Arko, but it's really store by store basis. I mean the analysis that we started last year part of our transformation plan It's literally by store.

Thank you very much. Appreciate it.

Absolutely. Thank you.

Next question is from Hel Holden from Barclays Arko. Please go ahead. Good afternoon.

I have two questions. The first one is, just holistically, if I think about your guidance the EBITDA guidance for the year, the midpoint is 02/4824.

So I'm trying to figure out how to bridge to the $20,000,000 in dealerization savings that you expect to get over time? And why perhaps we're not seeing that flow through into the annual EBITDA guide Sure. I'll take that one. So as you think about the $20,000,000 again, that's an annualized run rate. As you know, we Arko we'll start to start to annualize the activity in Q3 of twenty twenty four from the start of this program, right? So we are not likely to be at steady state until later in 2025, possibly 2026, but like that is when the run rate would be achieved. So we are, as I mentioned in prepared remarks, our wholesale profitability was up $2,000,000 in the fourth quarter due to the channel optimization work. So if you translate that out at the current level of run rate, you'd get that $8,000,000 to $8,500,000 that we talked about last quarter. For the stores that were done at the end of the fourth quarter. The stores are being done right now. We've got another 100. As I mentioned, there's more to come. So you will not be at the analyst run rate until you're far deeper into 2025.

And that's the reason you're not seeing the full $20,000,000 accrue in 2020 Okay.

So maybe another way to think about it is, what would the I mean, how do I think about an apples to apples number? Because you guys have a lot of moving parts, I'm trying to figure out what the apples to apples number is. Yes. I mean, how do I think about an apples to apples number because you guys have a lot of moving parts. I'm trying to obviously absolute EBITDA is lower, but it does feel like [indiscernible] Maybe resulting in lower EBITDA or is it just that we think the trends are going to be lower from what I should assume? No, it's not. It's certainly accretive. It's definitely not drive it's an accretive I think what you if you can look at 2024 versus 2023, and look at the same store performance metrics for merchandising and gallons, you can pretty quickly get yourself to a place that says, if I'm negative, pick a number. Negative low single digit same store sales or same store gallons. Again, I'm not guiding you on stores. I'm just saying if you're negative, you should be able to do the math that says what does my same store business do and what is it?

What's the organic decrease there?

What we're doing here is a bridge to optimize the channels, right, to provide some buoyancy to the P and L that's going to offset some of those trends that have been in place for a while. As we transition to more of that. You already talked about activating the core customer and transitioning into that longer term food and the store remodel program. That's the strategy. So you should be thinking about this as purely an accretive program for channel optimization, offsetting some of the same trends. And again, if you do the math from 23% to 24%, you should be able to get to a place that says what is the underlying same store business doing understanding that same store base is going to be moving significantly quarter by quarter. Got it.

And then just to add one more thing, just to add one more thing. As I mentioned earlier, I mentioned meaningful number of stores are going to be converted.

So at the end of the day, it's also about timing.

Just to be clear.

It's all about timing. If we're going to be able to move quickly, things might change.

But we're trying to be careful over here.

Got it. And then the way we're kind of penciling out is you should be free cash flow positive, although I don't really have a CapEx number with the new stores that you're planning to build. So I just wanted to make sure that as you go through this transition, you kind of expect to be free cash flow positive for the year in 2025?

Yes. So we don't give guidance on CapEx but if you look at Q4 twenty twenty four versus Q4 twenty twenty twenty three and full year 2024 versus full year 2023, you'll find those numbers were relatively consistent. And I think it's reasonable for you to assume that some of those some of the spend in 2024 related to EMV compliance, things related to a accretive electric vehicle programs that were available prior administration, some of those spending dollars will be reallocated towards some of those more strategic, the store remodel program, things of that nature. Again, just looking at history, 2023 and 2024 CapEx very much in line with itself. And I think it's reasonable for you to assume positive cash build based on if you model that view.

You're welcome. Thank you. Next question is from William Reeder from Bank of America.

Hi. I think I only have one Given the new dealerization program, is this pretty much a strategy which you are moving forward with? Regard to the external environment, meaning are you still evaluating other alternatives whether they be acquisitions or divestitures? To all of those of large numbers of stores or of all the retail stores would more transformative transactions potentially still be on the table?

Absolutely. Absolutely. Nothing changes. As I mentioned, this transformation plan is something that we started in the middle of Last year, And what we're doing right now, we're basically executing. We starting the dealerization program around third quarter. Last year, And we're just basically continuing accordance to our plan right now. But yes, nothing is off the table. Mean, we are going to evaluate everything based on return on investment, of course, and if it's a great opportunity that become available, absolutely. We have the team available. We have the liquidity. And M and A is also part of our plan over here.

So I guess that would imply that both directions that I just described, which is either a larger acquisition or alternatively a sale of a huge majority or a bunch of stores at a time, both of those would still be on the table, is that right? Besides the second piece, on the table right now, we don't have the second We have a piece that we have on the table right now is dealerization making sure that we continue with our transformation plan, And if there is a large acquisition, we will be more than happy to look into it absolutely. Got it.

Okay.

That's all from me. The rest of the world will already ask. Thank you.

Thank you.

This concludes the question and answer session.

To turn the floor back to management for any closing comments. Okay. Thank you very much, operator.

Thank you very much, everybody, for participating. I I had a lot of questions from you guys regarding to fueling America future And I really hope that you guys are going to visit our stores and explore the opportunities. I we are providing up to $2 off a gallon, up to 20 gallons, dollars 40 off per fill up and it's a great opportunity for you guys to visit our stores. In the meantime, have a good evening. Thank you.

It's you again for your participation.