ARKO Corp. Q1 FY2024 Earnings Call

Greetings. Welcome to the Arko Corp. first quarter 2024 earnings conference call. Please note this conference is being recorded. I will now turn the conference over to Jordan Mann, Senior Vice President of Corporate Strategy, Capital Markets and Investor Relations. Thank you. You may begin.

Thank you. Good morning and welcome to Arko’s first quarter 2024 earnings conference call and webcast. On today’s call are Arie Kotler, Chairman, President, and Chief Executive Officer, and Rob Giammatteo, Executive Vice President and Chief Financial Officer. Our earnings press release and quarterly report on Form 10-Q for the first quarter of 2024, as filed with the SEC, are available on Arko’s website at www.arkocorp.com. During our call today, unless otherwise stated, management will compare results to the same period in 2023. Before we begin, please note that all first quarter 2024 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 first quarter 2024 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during the call today. Any forward-looking statements made during this call reflect our current views with respect to future events, and Arko 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. On this call, management will share operating results on both a GAAP and non-GAAP basis. Descriptions of those non-GAAP financial measures that we use, such as operating income as adjusted, adjusted EBITDA, and reconciliations for 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 March 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 costs, excluding intercompany charges by GPMP. And now, I would like to turn the call over to Arie.

Thank you, Jordan, and thank you all for joining us this afternoon. We performed as we expected during the first quarter and remain focused on managing our controllable in this challenging microenvironment. While performance trends that we shared in February improved modestly throughout March, we continue to see a hesitant consumer adjusting to persisting inflationary pressure. We are aggressively positioning ourselves to navigate these near-term headwinds, as we continue to believe in the longer-term opportunities offered by the resilient convenience store industry. We believe that the operational announcements that we are implementing will not only help to guide us through this microeconomic environment but will also lay the foundation for the multi-year transformation plan we are developing to accelerate organic growth. Turning to the first quarter 2024 performance, we generated $36.6 million in adjusted EBITDA, which was above the implied midpoint of the range we shared on our last call. Although same-store merchandise sales declined compared to the strong prior year quarter, they were up 4.6% on a two-year stack, excluding cigarettes. Additionally, our ongoing efforts to enhance assortment mix drove significant merchandise margin rate expansion, which offset the decline in same-store merchandise sales, delivering meaningful merchandise contribution growth over the prior year period. We also made progress on all three of our merchandising pillars, with continued growth of our fast reward loyalty program, acceleration in our core destination merchandising categories, and expansion of our food offering. We expect these efforts to drive traffic to our stores and improve profitability, but these pillars will remain central to our merchandise strategy. I would like to spend more time on this call to focus on the larger structural changes we are initiating. We have been an aggressive acquirer over the last ten years, closing on 26 acquisitions to build scale. We bolstered our core retail segment with additional lines of complementary businesses in the form of our wholesale and fleet fueling segments. Since going public in 2020 through March 31, 2024, we have added on a net basis, 210 retail stores, 219 wholesale sites, and 296 cardlock locations. Additionally, over the last three years, we converted more than 40 retail stores to our wholesale network. Coming off this period of rapid acquisition-driven expansion, it is now time to aggressively focus on accelerating organic growth. We intend to execute this next stage in our strategy by refining our value proposition into one that resonates more clearly with our customers while leveraging our unique multi-segment operating model. I would now like to provide some color on our developing multi-year transformation plan we referenced on our last conference call, which will be fully shared during our Investor Day later this year, with more details provided in between. Earlier this year, we kicked off a holistic performance review of our business to evaluate the significant opportunity we believe exists within our retail store network. We are in the process of developing a plan with a more aggressive and targeted allocation of capital towards strategic subsegments of our retail stores. We expect that this investment will support our efforts to grow share in expanding markets and maintain our competitive positioning in more stable markets. In this context, we are working with a nationally recognized consulting firm to develop and pilot different options for a 360-degree offering for our customers. We will leverage what we learn about our customers to help us enhance our customer value proposition, along with the design and operations of our stores, with significant focus on food service. The pilot will focus on five to seven stores within one of our regions, with the goal of a regionwide rollout before ultimately expanding across our retail footprint. The end result will be selectively and methodically making meaningful investments in our store base to drive traffic and improve profitability. Finishing up on capital allocation, we are advancing the construction of the three new stores that we mentioned on our last conference call. We expect new store initiatives will become increasingly important as we work to navigate competitive dynamics. Concurrently, we are focused on both our pricing and procurement strategies across our retail stores to support ongoing merchandise margin rate growth. We believe there are opportunities to optimize pricing to drive top-line growth, and we are evaluating zone pricing capabilities to match pricing strategies with the needs of different customer segments. On the procurement side, we are working on sourcing strategies to leverage our scale to improve cost of goods. Together with more aggressive and focused capital investment in strategic subsegments of our stores, we believe we are creating a more competitive retail network. We also plan to more fully leverage our unique business model, specifically our wholesale segment, which has matured nicely since our Empire acquisition in 2020. As we review our portfolio of retail stores, we have identified a meaningful number of locations that we believe will deliver more profitability as dealer sites within our wholesale segment than by continuing to operate as retail sites. Converting these stores to dealer sites at scale offers the opportunity to significantly reduce site operating expenses and corporate G&A. This more aggressive approach to dealer site conversion is currently underway, and we expect to provide updates on a quarterly basis moving forward. Before I hand off to Rob, I want to address the installment payments for the acquisition of the TEG assets that closed in March 2023, as I believe there was confusion around a registration of shares and subsequent repurchase. Full details can be found in our public filings, but the bottom line is, we satisfied the $50 million deferred purchase price originally provided for in the purchase agreement for a total of $36.5 million. To elaborate, in accordance with the purchase agreement, on February 12, 2024, we were required to notify the TEG seller whether we would pay the first $25 million installment payment in shares or in cash. Our closing share price that day was $8.36, and we elected to pay in shares to create additional liquidity in the stock while preserving cash for strategic investment. On March 1st, we issued 3.4 million shares to TEG at the price per share of $7.31, which was based on a 10-day volume-weighted average calculation, in accordance with the formula in our purchase agreement. However, we continued to experience a decline in our stock price over the following weeks. Given our confidence in our business, as well as the long-term opportunity before us, we repurchased these shares on March 26 for $5.66 per share, or a payment of approximately $19.3 million. Concurrently, we reached an agreement with the TEG seller to satisfy the second $25 million installment payment originally due in March 2025, for a reduced price of $17.2 million. I'm happy to take questions after our prepared remarks if any of that remains unclear, but we believe we were able to capitalize on an opportunity to deliver value to our stockholders. On that note, we continue to believe our share price does not fully reflect the underlying value of our business. During the quarter, we repurchased 4.8 million shares for a total of $28.3 million under our existing $100 million stock repurchase program. Today, I'm pleased to announce that the board has approved an expansion of our repurchase program to allow the repurchase of up to $125 million of our common stock. I'd like to finish by thanking the team here for all of their work. I will now turn the call over to Rob to review financial results for the first quarter and touch upon our thinking on the second quarter and full year 2024.

Thank you, Arie. Good afternoon, everyone. Jumping right into first quarter 2024 results. As Arie referenced earlier, total company adjusted EBITDA was $36.6 million for the quarter, above the implied midpoint of the range provided on our last call. This compares to adjusted EBITDA of $47.5 million from the year ago period, with the variance driven by lower fuel contribution, regulatory statewide elimination of Virginia gaming income, and increases in same-store operating expenses. At the segment level, our retail segment contributed approximately $33.8 million in operating income compared to $41.6 million in the year ago period. Adjusted operating income for the quarter was $46.5 million compared to $54.1 million in the year ago period. Total retail merchandise sales and merchandise contribution were up approximately 3.6% and 9.7%, respectively, with merchandise contribution benefiting from significant rate expansion of 180 basis points. Retail segment fuel gallons and fuel contribution were up 2.6% and 5.5%, respectively, compared to the year ago period. Increases in merchandise sales and fuel gallons were driven by acquisitions that closed in 2023, which contributed $3.4 million in retail segment adjusted operating income for the quarter. Same-store merchandise sales, excluding cigarettes, were down 3% versus the year ago period, while total same-store merchandise sales were down 4.1%. Despite the sales decline, same-store merchandise contribution was up modestly compared to the year ago period, reflecting continued strong underlying margin rate expansion of over 150 basis points. Same-store fuel contribution was down approximately $2.8 million for the quarter, with the decline in gallons partially offset by stronger year-on-year fuel margin per gallon. Same-store fuel gallon demand was down 6.7% for the quarter compared to national OPIS, which was down 5.9%. Fuel margin of 37 cents per gallon was up 1.3 cents per gallon from the year ago period, and improved sequentially throughout the quarter, reaching 38.1 cents per gallon for the month of March. Same-store operating expenses were up 3.3% for the quarter, with the increase related to hourly wage rate growth, accelerated repair and maintenance, and elevated workers' comp claims related to Q1 events. Moving on to our wholesale segment, operating income was $7 million for the quarter compared to $7.6 million in the prior year period. Adjusted operating income was $18.3 million for the quarter versus $18.6 million in the year ago period, with total gallons up 1.7%, driven by acquisitions. Gallon growth was partially offset by a lower fuel margin per gallon of 9.2 cents per gallon, which was down 0.4 cents per gallon from the year ago period. For our fleet segment, operating income was $8 million for the quarter compared to $8.4 million in the prior year period. Adjusted operating income was $9.8 million for the quarter versus $10 million in the year ago period, with total gallons up 12.3%, driven by the WTG acquisition. Gallon growth was offset by fuel margin performance, which, while healthy at 38 cents per gallon, faced a challenging comparison to prior year performance of 42.4 cents per gallon, where we had significantly elevated diesel margins. Total company general and administrative expenses for the quarter were $42.2 million versus $40.4 million in the year ago period, with the year-on-year increase primarily related to acquisitions that closed in 2023, along with consulting support for the development of our multi-year transformation plan. Net interest and other financial expenses for the quarter were $2.5 million, compared to $13.6 million in the year ago period. The significant year-on-year reduction was driven by the lower valuation of warrants related to the current Arko share price, along with the retirement of our remaining TEG purchase obligation on the favorable terms that Arie referenced earlier. Net loss for the quarter was $0.6 million, compared to $2.5 million for the year ago period. Please reference our press release for a detailed reconciliation from total company net loss to adjusted EBITDA. Turning to the balance sheet, excluding lease-related financing liabilities, we ended the first quarter with $885 million in long-term debt comprised of our 2029 senior notes, the outstanding balance on our Capital One line, and the remainder primarily related to real estate and equipment financing. Our $140 million asset-based line remains completely undrawn as we manage working capital needs from operating cash flow. We maintain substantial liquidity of approximately $764 million, including $184 million in cash on hand at quarter-end, along with remaining availability on our lines of credit. Of this total liquidity, approximately $425 million is attached to our Capital One line, which is reserved for M&A activity. Together with our outstanding Oak Street commitment of almost $1.5 billion, we remain comfortable that our balance sheet has more than adequate flexibility to support both ongoing organic growth initiatives and M&A. Including investment capital, total capital expenditures for the quarter were $29.2 million. Turning to forward guidance, for our second quarter we expect total company adjusted EBITDA to be in a range of $70 million to $77 million. And for full-year 2024, we are maintaining our full-year guidance range for total company adjusted EBITDA in the range of $250 million to $290 million. As referenced in our most recent earnings call, our full-year earnings outlook corresponds to an average retail fuel margin of 36 cents per gallon on the lower end and 40 cents per gallon on the higher end of our guidance range for the year-to-go period. With that, I'll hand it back to Arie for closing remarks.

Thanks, Rob. I'd like to close out the call by emphasizing a few key points discussed on this call that will inform the framework of our strategy going forward. Over the past decade, our focus has been acquisitive as we have scaled to become one of the leaders in the convenience store industry. We now believe it is the right time to leverage our unique multi-segment operating model to more fully unlock the embedded value within our retail store network. We are committed to further driving shareholder value by improving the organic growth and profitability of our business, and we look forward to sharing our strategic transformation plan during our Investor Day later this year. With that, we will open it up to questions.

Thank you. Our first question comes from Bobby Griffin with Raymond James.

Yes, good afternoon, everyone. Thanks for taking my questions. Arie, I first wanted to talk a little bit about the merchandise comps of negative 3% ex the cigarettes. Can you talk a little bit about what you're seeing from your customer? I know there's a lot of moving parts right now in the economy, but is some of the weakness here trade-down among items, smaller basket sizing? Anything there that you're seeing kind of across different geographies to help us kind of gather kind of what's going on from the core customer?

Sure. I'll elaborate a little bit, and then I'll let Rob jump in. But I think everybody sees that since Q4 going all the way to Q1, even though Q1 is probably the lowest quarter, we see the microeconomic challenge. We see the inflation pressure, especially in markets that we do business, which involve low income. So, yes, people are trading down. Price of fuel, by the way, doesn't help us as well. The increase in the price of fuel has an impact on their purchasing habits. So, I think people are spending less money, and I think that's one of the reasons that we emphasize over here. If you're looking at our two-year stack, our two-year stack is 4.6% excluding cigarettes. The reason I continue talking about excluding cigarettes is because when we sell the high-margin items, as you can see here, we managed to finish the quarter with a minus 3%, excluding cigarettes, but we were able to increase margins on a same-store basis by 150 basis points. We were basically able to increase margin company-wide by 180 basis points from 30.7 last quarter to 32.5. And as you can see here, despite the decrease in sales, we were able to compensate for that by selling high-margin items. I think people are smoking less, but with the value proposition and all the initiatives that marketing is issuing here, especially the $4.99 pizza that we just launched in January, show you that it is bringing more people in the door in terms of increasing sales of high-margin items. And that's the reason I keep saying this industry is very resilient. We see right now softness across the retail industry, but again, I think this happens every few years, and we just need to navigate these challenges while ensuring we continue to bring valuable promotions for our customers. I can tell you that this is the one thing that our team is constantly working on, especially as we approach the 100 days of summer. The number of valuable promotions we have ready right now for the 100 days of summer is unprecedented in my career.

Yes, Bobby, I’d just add on. I didn't see anything significant between the categories. I think it's a transaction issue where transactions are down. So, I think it's more of a macro issue that we're seeing versus assortment.

Okay. And then, I mean, we talked last time, maybe just kind of how you guys are thinking about it as it plays out through the year, just trying to maintain the stacks? I mean, that was kind of the last conversation we had about some of these aspects, or anything you can share about April and early May trends.

Yes, I think April looked a lot like Q1 as it started off in the first couple of weeks, and then we saw it start to inflect a little bit and turn more positive in the second half. So, I think that we're seeing some acceleration off of what the trend was weaker in Q1. But again, it was somewhat of a tale of two months, with a weaker first half and a bit stronger back half. We're still watching it closely. As you might imagine, the next 30 days, we're going to be in the peak selling season. We'll know a lot more at that point, but at this moment, we feel okay with how we've got the rest of the year positioned.

All right, that's helpful. And then lastly, Rob, just trying to unpack the guidance a little bit. I obviously haven't had the time to flow it through the model yet and come up with new numbers, but like, is there something offsetting some of the fuel margin? Because EBITDA came in at least below our model for Q2, and the retail side of cents per gallon is in line with kind of what we're speaking. So, I'm thinking maybe there's more pressures inside OpEx, or is there any other offsets that are worth calling out as we kind of clean up the Q2 numbers for ourselves?

Yes. Look, what I shared, Bobby, for the full year at the last call, we said that the Q2 through Q4 gallons would be down 5%. We base that number on the fiscal 2023 results, that longer-term trend. Our year-to-go period, we are basing on that flat two-year stack. We are putting, to Arie's point, a lot more promotional activity behind the pizza program to drive sampling, and we believe that's going to have a meaningful impact in the second and third quarter. We did share that for the year, we expect the retail cents per gallon midpoint to be down one cent from 2023, and we are modeling increased merchandise margin rate for the rest of the year Q2 through Q4, albeit at a slightly lower rate than what we saw in the first quarter. So, not a lot's changed from what we talked about in the fourth quarter call back in February. So, maybe we'll chat offline on some of the other questions.

Yes, I guess, just what's the op - any major change in OpEx environment? I guess that's what I was getting at.

No. OpEx, we’re modeling OpEx and total company G&A up low single digits for the year.

And that's the same as we talked about. Okay, perfect. That’s helpful. I was just trying to unpack those things. I appreciate the details. Best of luck here in the second quarter.

Our next question comes from Anthony Bonadio with Wells Fargo.

Yes. Hey guys. So, sort of piggybacking on Bobby's question on guidance, I wanted to dig in on the gas margin guidance a little bit. Can you just talk about maybe what you're seeing so far in the quarter that's getting you to that Q2 $0.37 to $0.40 per gallon range? And then given that's a little more constructive of late, just like looking at industry data, I guess why is that $0.36 to $0.40 still the right number for the year? Just any updated thoughts on how you're thinking about margin dynamics would be helpful.

Yes, look, I think if I could predict it, I'd be in a different place. But I think, look, we were going up against last year which saw significant acceleration in the second and third quarter. Specifically, we were up against a $0.40 and a $0.41 cents per gallon in the second and third quarter. So, we do expect and we're modeling things to expand from where we were in the first quarter. We've seen some encouraging things recently with rack to retail where we think it's a higher level of support than the first quarter. But we're expecting, as I mentioned, $0.01 down from last year, the midpoint being $0.01 down from last year. You can look at what last year ran, which was $0.40.3, $0.41.2, and $0.39.5 in the second, third, and fourth quarter. So, that's kind of how we're looking at things.

And by the way, Anthony, I think the important thing to remember is our strategy. Our strategy basically didn't change. We were able to capture an extra 1.3 cents per gallon on same-store going from 35.7 to $0.37 per gallon. Company-wide, 36.4 versus the 35.4. So, we were able to capture an extra penny here company-wide while trending very, very close to the OPIS national average. We’re going to continue to try and capture margin and continue to be very competitive, of course.

Okay, got it. That's helpful. And then I just wanted to ask about inside margins a little more. It looks like Q1 was a new record on inside margins. Can you just maybe dig in a little bit on some of the underlying drivers there, and then how you're thinking about the ability to sustain that expansion as we model the rest of the year?

We're not providing details, as you know, about exactly how we got the margin. I think the most important thing to say is that with cigarette decline, as I mentioned, it's basically a continuation of core categories. I kept talking about the $4.99 pizza, which is a very valuable item. We are selling high-margin items more than cigarettes. I think this is what drives the margin here. And remember, we kept talking about food service concentration. We just started. Pizza was just the beginning. We are getting ready to launch Nathan’s hot dog into our stores. We were able to add 105 bakery items to additional stores. So, as long as we continue to add more high-margin items—and that's what we're doing—we are focused on this, and that's what's going to drive the margin up.

And Anthony, just to be clear, we don't expect that level of margin accretion in the forward quarters. We're not modeling that at least, but we're continuing to drive, to Arie's point, the food service penetration, which we think is a significant opportunity for us versus where we think the industry is.

Understood. Thanks, guys.

Our next question comes from Ben Wood with BMO Capital Markets.

Hey, thank you for taking our questions here. Wanted to follow up a little bit on the inside of the store trends, but specifically with the pizza rollout from last quarter. Any color you can share at this point, any sales lift you're seeing, incremental labor or shrink? We'll start there.

We don't see any incremental labor at the moment. We just launched the pizza in January, right before the football season. We're very happy with the results so far. This pizza program is growing to become a strong category since we launched it. It's an excellent offer to our customers. And like I said, we are going to use this pizza program for the 100 days of summer. To elaborate, I mean, we're talking about high-value promotions like when you buy two 12-pack of Pepsi, you're going to get a free pizza. All those promotions are being supported by the CPG company that are assisting us here. The goal is really to drive and drive more pizza sales with all the high-margin items that we see across that. And I believe that as we see more inflationary pressure, I believe that this will become a very big seller for us moving forward.

Okay, that’s helpful. And then switching gears a little bit, can you just walk us through the thought process behind converting some of your retail sites into dealer sites in just a little bit more depth? Any color on the magnitude? I know you said it was meaningful, but are there specific markets or banners you can share at this point? And then just trying to get a sense for maybe what the spread is between the performance at some of your retail sites, but what were some of the benchmarks you guys used to address which sites you would convert versus which sites you would retain in the fleet?

Sure. First of all, just maybe for a high level, just to mention that this is not something new that we actually did. This is something we used to do in the past. As I mentioned earlier, we converted less performing stores in some geographies that are less attractive for us where we don't have scale. So, this is something that has been done in the past. The goal, and this is something I mentioned on the last call, is really to drive organic growth and invest in our best stores and concentrate on the best stores in our fleet. So, as part of our transformation plan, we have hired a reputable consulting firm to help us with this. We've been working with them for the past few months. The purpose is to challenge our fleet, to learn a little more about the markets that we are stronger in some locations and maybe weaker in others. We don't have the scale in some markets. The idea is really to take some of the stores, and we have identified some stores that are performing less than others. We're not sure if there is a lot of upside in some of those stores to invest money because I don't believe that the return on capital is going to be there. Given that we have the wholesale platform here, that gives us an advantage. Remember, we have 1,800 customers; every one of those customers become a potential dealer. The idea is to go ahead and dealerize some of those stores, as we did in the past. We are able to reduce operating expenses because of that, we are able to reduce G&A because of that, and at the end of the day, we are just going to make more money running them as wholesale locations versus retail locations. Remember, we are still going to keep the fuel volume because the stores will still be under our control. We are just going to have a long-term arrangement with some of those dealers. While we are maintaining the scale over here, we haven't determined the amount of stores at the moment, but what we are planning to do is provide updates on a quarterly basis on how many stores we decided to dealerize and what the impact is because of that.

Thank you. I appreciate all the color.

Our next question comes from Karru Martinson with Jefferies.

Good afternoon. When you talked about optimizing pricing to drive top-line, zone pricing, what's the impact that you're looking for, both on the top margin and also on the gross margin line?

Yes, so thanks for the question. We’re not sharing that level of detail today. That's going to be more as we get into the Investor Day. But certainly, you can understand there's a lot of work being done to match customer segments with pricing in various stores. The work that's been done that Arie was talking about has included a lot of detailed customer market research in terms of what type of customer matches with our brand promise, our brand delivery, and trying to understand again where we can be perhaps more aggressive on pricing and where we need to be less aggressive for lower segment customers. So, it's something we think is a significant opportunity fleet-wide, and we think it is going to resonate more with our customers, especially those cost-sensitive ones impacted in the inflationary environment. More to come as we get to Investor Day; we plan to dive into this more specifically.

Okay. But that is built into the guidance that you have for the year, correct?

No. So, that's something that—it's a capability. So, as Arie mentioned, the transformation involves quite a bit of capabilities. That would be one of the capabilities, part of the transformation program.

Okay. And then just on the share buyback authorization, just so I'm clear, it looked like you had about $1 million left on the original $100 million. So, is the $125 million a brand new program, or is it that $25 million expansion from the original $100 million?

It's a $25 million expansion.

Okay. Thank you very much. Appreciate it. Thank you very much, guys. Our next question comes from Hal Holden with Barclays.

Hey, afternoon. I had two questions. The first one is, when you convert retail stores to dealer sites while maintaining the wholesale relationship, does that result in a cash inflow to the company, or is it just simply a reduction in G&A expense?

It's both. I mean, first of all, you increase profitability. When you do something like that, you are able to increase profitability because you don’t carry the operating expense. You don’t carry the G&A. So, it basically will increase profitability and, of course, the cash flow.

And many times, there may be key money attached to it as well. So, it’s favorable across the board.

Right. So, that's kind of what I was asking then. There can be like a key payment back to you in some cases.

Sure. At the end of the day, just to be clear, I know that the vast majority of that, we're not selling the business. I mean, we’re still basically either collecting rent or basically, in some cases, we may have a consignment arrangement where we’re actually going to split basically some of the profit related to fuel.

Okay. And my second question was, as you guys think about this small trial that you're doing for the new store format that's going to grow, is the expectation that you'd fund that out of operating cash flow, or would we see you potentially increase borrowing to accelerate it?

I think we have plenty of liquidity right now. You're probably going to see us using operating cash flow for that. I mean, that’s the deal.

Our next question comes from Mark Astrachan with Stifel.

Yes, thanks. Afternoon, guys. Wanted to just ask a bit more on the in-store sales, how you're seeing traffic versus ticket, any sort of changes there in what potentially is driving a little bit of the softness? That's the first question.

Yes. So, Mark, we're seeing— as I mentioned earlier, transactions are down. Again, it's been offset a little bit by average ticket on the upside, but transactions have been the driving force on the downside.

Is that materially different over the last—I guess, the last two quarters versus maybe prior three or four quarters in order of magnitude?

You're going to have to forgive me for that one for being new in terms of, we just put some of the analytics in place. So, that could be something we can follow up on for you.

Okay. And then maybe just a bigger picture question. If you could remind us just on how the food service sales, so the prepared stuff in-store tends to respond in a tougher macro environment where the consumer is maybe squeezing a little bit more out of their dollars.

Well, I think that's the reason we are offering value here. I mean, that's the reason we are concentrating on pizza. That's the reason we are concentrating on hot dogs. That's the reason we are concentrating on bakery items. We're really trying to provide value to our customers, bundling for our customers. I mean, that's the reason I mentioned, for example—today, if you go to our stores, you can pick up a two-liter Pepsi with a pizza for $5.99. This is a great value for our customers. I think that’s really what we have to drive here, because people are looking for those opportunities. People are actually coming to our stores because of that. Remember, we have the loyalty members, over 2 million members that getting those valuable promotions every day. And this is what drives those people into our stores. I can say that in this quarter, we basically saw that the average enrolled loyalty transaction size was 34% greater than the non-enrolled members. And I think those promotions were driving them into our stores and keeping them there.

Got it. And just lastly, within your markets, I mean, maybe focus on just the markets where you're more concentrated. How do you think you fared versus some of your competitors from a fuel gallon consumption standpoint? And I ask it in part wondering whether you're seeing a bit of shift away from retailers that are offering a little bit more value from a gas standpoint. Does that restrict the number of folks that go into the stores if those locations maybe are part of bigger retailers? Is there a bit of a share shift towards grocery and more traditional means of grocery shopping compared to prepared foods? Anything you could sort of offer there would be helpful.

So, I'll give you a high-level answer on that. I think that in many, many markets that we operate in, we are actually the grocer in rural areas. So, there is no question that people are looking for better pricing. But that’s the reason I mentioned OPIS national average was down 5.9%, and we were down 6.7%, very close to OPIS. The gallons were just not there. The idea is, and we actually see the other way around that we believe that the more people coming into our stores to get those valuable promotions, there is a good chance that they're going to shop outside. We are trying to tie the food sales, the inside sales to great promotions. For example, we are working with our CPG company that every time you buy a product inside the store, you get some cents off on gallons. I just think that some of the largest operators, again, without mentioning names, they're trying to mitigate the decline by very aggressive pricing. But I can just tell you that the very aggressive pricing is going to sacrifice their fuel contribution dollars. This is significant, by the way, and we just don't see any reason to do that because we see what the demand is not there, and when the demand is not there, just to lower prices and make less money, you know, Mark, that was never our motto.

Got it. That’s helpful. Thank you.

We have no further questions in the queue at this time. I would now like to turn the call back over to today's presenters for any additional or closing remarks.

Thank you very much, Operator. Thank you all for joining the call. By the way, great questions today. Given that it's after five o'clock, we’re trying to give as much insight as we can into our performance to help investors understand our compelling growth story here. I can tell you that we have a big plan ahead of us. We have a lot of initiatives ahead of us during this year. We are heading towards 100 days of summer, which is our best season. We're looking forward to talking to you all again in the next quarter. Have a great afternoon, everybody.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.