Arko Corp. (ARKO) Q2 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to Arko’s Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my please to introduce your host, Chris Mandeville, Managing Director of Investor Relations at ICR. Thank you. You may begin.

Thank you. Good morning, and welcome to Arko’s second quarter fiscal year 2021 earnings conference call and webcast. On today’s call are Arie Kotler, Chairman, President and Chief Executive Officer; and Don Bassell, Chief Financial Officer. By now everyone should have access to the company’s earnings press release that was filed with the SEC this morning, and is also available on the Investor Relations section of Arko’s website at www.arkocorp.com. Before we begin, please note that all second quarter 2021 financial information is unaudited. And during the course of this call management may make forward-looking statements within the means of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words such as will, may, expect, plan, intend, could, estimate and similar references to future periods. These statements speak only as of today based on management’s current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today’s press release, the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Expect as required by federal securities laws Arko does not undertake to publicly update or revise any forward-looking statements subsequent to the date made as a result of new information, future events, changing circumstances, or for any other reason. Please note on today’s call management will refer to non-GAAP financial measures, including same-store measures, EBITDA and adjusted EBITDA. While the company believes the non-GAAP financial measures provide useful information for investors, the presentation of this information does not intend it to be considered in isolation or the substitute for the financial information presented in accordance with GAAP. Please refer to today’s press release for reconciliations of our non-GAAP measures to the most directly comparable GAAP measures. I would also like to note that we are conducting our call today from our respective remote locations as such there may be brief delays, crosstalk or other minor technical issues during this call. We thank you in advance for your patience and understanding. And now, I would like to turn the call over to Arie.

Thank you, Chris and Good morning everyone. On today’s call, I will briefly review our financial highlights for the quarter ended June 30, 2021 and provide an update on our business. Don would then review our financial results in more detail before we take your questions. I would like to start by thanking our over 10,000 associates companywide for rising the occasion and once again, continuing to execute in a challenging environment, brought on by COVID-19 and several other dynamics. Let’s review a few of these challenges and how we successfully navigate them. To start much like the rest of the economy, we are experiencing a very tight labor market. To address this, we have implemented several hiring initiatives, including $500 sign on bonuses, fast rewards points to existing associates, overtime hours and job fairs along with hiring an additional team of 10 full-time recruiters. Next was the colonial pipeline cyber attack, which disrupted fuel supply in the Southeast for several days and continued shortage of transportation drivers. Our fuel logistics team leverage our strong fuel supplier and transportation partnerships to minimize disruptions, successfully secure supply and continue to manage supply efficiently on an ongoing basis. Supply chain disruption in store merchandise was also persistent related to continue driver and labor shortages as well as lack of availability in certain raw material. However, the marketing department also leverage a strong supplier partnership and conducted regular supply chain calls with our top suppliers. Solutions included extended delivery times, project substitution and inventory build-up to ensure we met our customer’s needs. Lastly, there’s COVID-19. When it comes to the pandemic, the top priority is the safety of our associates and customers. To that end, we continue to encourage and educate our associates on the importance of getting vaccinated. As a new variant of the virus continued to spread, we are ready and prepared with PPE supplies, such as masks, sanitizers and wipes to meet the needs of customers and our employees. In spite of these challenges, once again, our business model proved resilient and we are very pleased to report strong results for the second quarter of 2021. Our adjusted EBITDA was $75.7 million for the quarter versus $68.5 million up over 10% versus the prior year period, supported by strong results in overall profitability of our Empire acquisition, which is currently exceeding our expectation along with continued in-store sales and margin growth. We experienced another quarter of merchandise margin expansion of 140 basis points and a solid 2.4% increase in same-store merchandise sales. Importantly, we realized further sequential acceleration in our two-year stack to 7.4% from 6.2% for same-store merchandise sales, excluding cigarettes our results are even more impressive with same-store sales of 4.3% and 10.2% on a one and two-year basis. Additionally, we have an increase in same-store sales of higher margin other tobacco products of 6.3% from the prior year with a category margin increase of 170 basis points, which is in line with market trends of cigarettes consumer converting to other tobacco products. Let me now add some color to the three key drivers of our insight sales and margin. The first one is process improvement. We have implemented new processes to include annual category reviews, annual top to top suppliers meetings, annual planogram reset to ensure new items execution and additional marketing resources to ensure all categories are receiving the appropriate amount of attention. The second one was consumer facing initiative, having grown through acquisition is granting select opportunities for growth and we are in the process of executing them. They include adding approximately 525 grab-n-go coolers and 650 freezers frozen food, revise fountain assortment in over 250 stores, expanding our partnership with DoorDash, which is now available at 684 sites, including 84 sites in Virginia that now deliver beer and expanded OTP offering and a non-value food offering and assortment driven by process improvements. And the third one of course, it’s supplier partnership. In May we extended and restructured our Core-Mark wholesale supply agreement. This is particularly impactful as the agreement aligned our sales growth and profitability incentives. In addition, we awarded Core-Mark 190 additional stores allowing us to consolidate down to two wholesalers. Retail gallons sold dropped 27% compared to a year ago, reflected continued increase in consumer mobility as we are now in the summer driving season and the economy as a whole as received an increase in vaccinations. On a same-store basis gallons were up 11.9%. And despite a fairly considerable run-up in fuel prices throughout the quarter, our fuel margin was quite resilient having come in at $34.03 per gallon for retail. Switching gears to our longer-term strategic growth initiative. Beginning with M&A, we have an aggressive yet disciplined M&A strategy as our priority is deploying capital at very attractive returns. We have many M&A opportunities in the pipeline that we are actively exploring. And I look forward to talking about this in the future. The Empire acquisition we closed in October 2020 is outperforming our expectations. We have been very pleased with the acquisition from both synergies and growth perspective, as we’ve managed to renegotiate three major fuel contracts and add 52 net new dealers since we closed, with 19 of those coming just in the second quarter alone. Our recent acquisition of 60 convenience stores under the highly regarded brand ExpressStop in Michigan and Ohio closed during the quarter and added over $26 million in revenues and $800,000 in net income for the quarter. This is a high quality operation and a brand well regarded within the communities to which it services. On a remodel and new store prototype initiative, as stated previously, we believe that we have significant embedded opportunity to optimize our store base and invest capital prudently through remodeling stores. We open up second remodel site at the end of the second quarter. And while very early, we are pleased with the preliminary results. Among other upgrades, the new sites include the following features, new interior and exterior design, newly incorporated store daily featuring fried chicken, pizza and hot grab-n-go inclusive of breakfast and snacking items, bean to cup coffee machine with a selection of always fresh coffee, the walk-in beer cave featuring easy access to a large variety of cold beer, craft beer and Seltzer offering. And of course we expended the fountain assortment featuring 16 flavor in chewy ice. Our third site, which is a Rise and Rebuild is expected to open within the next two months. This site will be a 5,600 square foot travel center, nearly two times larger than our average store with 26 fueling position located on six acres of land in Rock Hill, South Carolina, just off Interstate I77. Two additional sites have completed the design phase and are in the permitting process. Construction on those sites is planned to begin by the end of the third quarter. Three additional sites are in the design phase and we'll be moving to permitting shortly. Planning for 2022 has already begun, including the addition of resources to increase the scale and pace of remodels. Lastly, we have our fas REWARDS loyalty program. As a reminder, we relaunch a loyalty program last November with the focus being developed lasting customer relationship and positively influence consumer behavior by driving incremental drips and increase in basket size. We are currently enrolling approximately 5,000 new fas REWARDS members each week, and now having access to 480,000 enrolled members before we communicate on a regular basis. And I'm excited to share with you some of our early results. Since relaunch, our enrolled customers are visiting our stores over four times more often than non-loyal customers and their average spend per trip is two time larger. In conclusion, I'm very pleased that we are continuing to demonstrate our strengths and capabilities as we navigate through a constantly changing consumer environment. I hope you are as excited as I am about our multiple growth opportunities, which we believe positioned as well for the future. I would like now to turn the call over to Don who will walk you through our financial results.

Thanks, Arie. It's great to be speaking with you all today about our strong second quarter results. Total revenue excluding fuel was $449 million, a 10.4% increase from the prior year period. This will result of strong same-store merchandise sales growth of 2.4% on top of 5% growth in the prior year period and the ExpressStop and Empire acquisitions, which contributed 9.6% of the overall 10.4% increase. This was partially offset by a decrease from underperforming sites that were either closed or converted to dealer operated sites. Merchandise margin dollars increased by $15.3 million versus the prior year, while margin expanded approximately 140 basis points to 28.7% largely due to a lower reliance on cigarettes and higher contribution from packaged beverage, other tobacco products and other center store items. The ExpressStop and Empire acquisitions contributed $10.1 million while same-store has increased by $6.9 million, which was offset by sites that we are closed or converted to dealer operated sites. Retail fuel profitability, excluding intercompany charges for the quarter increased $2.2 million or 2.5%. On increased volume, a function of our 11.9% increase in same-store fuel volumes as well as ExpressStop and Empire’s contribution offset by reduction in fuel margin, $34.03 per gallon versus a record setting $42.05 per gallon from the prior year. For the second quarter of 2021, wholesale fuel profitability, excluding intercompany charges increased approximately $20.9 million compared to the prior year period with the majority coming from the Empire acquisition, which contributed approximately $20.6 million of the growth. Fuel contribution from non-consignment agent locations grew by $11.7 million compared to the prior year due to a $207 million gallon increase in fuel volume. Fuel margin cents per gallon for these locations increased $0.02 versus the second quarter of 2020 due to increase in the prompt pay discount on fuel invoices related to the increased cost of fuel. Fuel contribution from consignment agent locations grew $9.2 million compared to the prior year due to an increase in volume of 37 million gallons, although fuel margin cents per gallon declined $4.07 versus a record setting $30.01 per gallon from the prior year. Second quarter store operating expenses increased $28.6 million or 22.7% versus prior year, primarily due to approximately $20 million of incremental expenses related to the ExpressStop and Empire acquisitions. General and administrative expenses increased $11.3 million or 55.2% for the quarter as compared to the prior year, primarily due to expenses associated with the ExpressStop and Empire acquisitions, annual wage increases and incentive accruals and stock compensation expenses. Net interest and other financial expenses decreased by $0.5 million to $12 million in the quarter, primarily due to favorable fair value adjustments of $2.3 million and lower foreign currency losses, which were partially offset by higher interest expense from incremental debt in 2021. Second quarter net income was $25.5 million compared to $21.9 million for the prior year. Incremental earnings in the second quarter related to strong results from the Empire acquisition, coupled with strong same-store merchandise margin, with partial offsets coming from higher expenses, including depreciation related to acquisitions, minority interest was almost eliminated versus prior year, primarily as a result of the merger in late December 2020. Adjusted EBITDA was $75.7 million, an increase of $7.2 million or 10.5% compared to the second quarter of 2020. Higher same-store merchandise margin contribution and $22 million from the Empire acquisition were partially offset by the previously mentioned reduced fuel margin as well as higher credit card fees. Our balance sheet remains strong, on June 30, the company's total liquidity was approximately $509 million consisting of cash and cash equivalents of $229.4 million plus $31.8 million of restricted investments and approximately $248 million of unused availability under our lines of credit. Outstanding debt was $685.7 million resulting in net debt of $424.5 million. For the first six months of 2021, net cash provided by operating activities was $59 million versus $101.9 million for the first six months of 2020. The decrease was primarily due to working capital changes related to higher fuel costs and increased volumes. In addition, there were approximately $7.9 million higher tax payments, $11.9 million of higher net interest payments, including $5.2 million related to the early redemption of Israeli Bonds. Operating cash flow was also impacted by approximately $13.6 million of incentive payments. 2020 included favorable working capital adjustment of approximately $16 million, which went away in Q3 2020. Capital expenditures were $32.6 million for the six months ended June 30, 2021 compared to $20.5 million for the prior year period. We ended the quarter with 1,381 retail sites and 1,647 wholesale sites. I am very proud of the dedication of our team and the profitable growth momentum, the business demonstrated by our strong financial results as we continue our journey is one of the largest and most successful convenience operators in the country. And with that, I'll turn it back over to Arie.

Thank you, Don. We are excited to continue the strong execution against our priority as we drive growth and increase shareholder value. Thanks for joining the call today and your interest in Arko. I will now turn it over to the operator for questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Bobby Griffin with Raymond James. Please proceed with your question.

Good morning, thank you for taking my questions and congrats on a strong quarter. Arie, I guess first I want to unpack the merchandise margin performance a little bit more, pretty impressive growth year-over-year. Can you maybe dive into a little bit more details of what's driving the expansion of merchandise margin and then more importantly, what opportunities do you see going forward over kind of the next one or two years for where merchandise margin could go? Is it possible that works its way into the low-30s like some of your peers?

Sure. I'm going to answer that. So as I mentioned on the call, the excess cigarette numbers came very, very strong. We are at 4.3%, same-store sales at cigarettes. And as you can see, the margin – the high margin comes from pack bev come from grab-n-go. For example, our grab-n-go same-store sales are up 51.3% compared to last year. And the margin increase from 31.4% to 37.8%. That's just one example. The other example is same-store sales on frozen foods that I mentioned. I've been talking about adding freezers all along. And again, we are at 43.7% with a margin increase from 30.9% to 35.4%. So as we continue to move from cigarettes our percentage of cigarette sales continue to come down and we see an increase on merchandise sales that's going to continue to drive the margin up substantially same thing, by the way, it goes to nicotine. We keep talking about the OTP and as you can imagine as consumer stop using – stop buying cigarettes, I mean, they're moving to other type of nicotine. And I mentioned that know, we saw an increase of over 6.3% of other tobacco products with a margin increase of even better 170 basis points. And yes, I think that – I think we're going to continue to see that as we move along, because I remember last year, a lot of people were pantry loaded cigarettes and beer during this time period. So the more people that are out there, more people are going to continue so basically purchase merchandise inside the store at the center of the store from much higher margin.

Okay. And then what about on – I understand there are still a very tiny base only a few of them done. But what about on the remodel stores, like what are the merchandise margins look like there versus kind of the core average? The company average is it's significantly higher. If there's any color to help us understand as those become a bigger and bigger part of the mix of your stores, what the potential margin upside could be inside those stores?

Yes. As you know, we really too early in our second store just opened six weeks ago. It's a little bit too early, but I think the mix within the store, as I mentioned, I mean, we added all of the items that I mentioned earlier are basically high margin items. I mean, we talked about the food, for example, the foodservice. So we added that grab-n-go, we added pizza, we added fried chicken. Those are really high margin items that added to the stores. We added more assortment of fountain drinks. We extended, of course the beer cave, all of those things that I mentioned are much higher margin than basically what we see for the rest of the store. So there is no question that we more – the more so store we going to continue to remodel the most features like this, we're going to continue to add to the stores. There was no question that we expect the margin to expand because of that.

Okay. And then how many, you mentioned that the plans were good for 2022, but do you have a number you can share on how many remodels you might be able to get done in 2022? Or you’re targeting?

We don't have the final number at the moment. But this is something that we are working on right now.

Okay. And I guess lastly, for me you called out labor in the prepared remarks and understanding of the tight labor environment for everybody right now, has it hindered results at all? Is it more just a challenge that you're working through, have you had to cut store hours or anything like that for us to keep in mind?

Sure. We are not different than any other retailer, as you can imagine. And as you guys remember, I've been mentioning it from the beginning of our calls, the one thing that's where our different priorities from the rest is that we were not fully involved in foodservice. And we decided to shift gears towards grab-n-go and frozen foods when less labor intense is required on this one. This is our business. I mean, we have the challenges like everybody else, and we continue to work through those challenges. Yes, we did reduce the hours in around 75 stores, but again, the hours were reduced just because we felt that in those particular stores, the third shifts, I'm talking about after 11 o'clock at night, we just felt that there is really no reason to keep those stores open from a profitability standpoint. We always look on profitability. And this is really what we did over here. Other than that, we continue to work through all of those issues and we just, we know how to manage our business. This is what we're doing.

And let me just add on Arie’s point about the reduced hours. They're not significant. We're trying to shave them like in the morning and the evening, and we're even in the process of starting to restore those hours now. So I think, they're being done strategically where it makes sense where we're having problems, but it wasn't like cutting out massive hours. It was just being done where we had particular issues. And we're already in the process of restoring some of those stores that we cut the hours on.

Understand. I appreciate the details best of luck here in the second half.

Thank you. Our next question comes from Kelly Bania with BMO Capital. Please proceed with your question.

Good morning. Thanks for taking our questions. Just had a couple here first, just the comment about the integration of wholesale. I think running ahead of expectations, maybe just wondering if you could elaborate a little bit more on what you're seeing there and just your expectations now for wholesale and Empire. Now that you've had a little more time under the belt?

Sure. Don, would you like to take this?

Sure. I'd be happy to. Kelly, I think the biggest thing that we found is number one, I obviously, when we look at total gallons, where we're signing up a lot more accounts you heard Arie talk about 52 new accounts since inception. I mean, we've got very aggressive team on the ground assigning them up. So that's really been helping us as the additional fuel volume. Obviously, we've benefited from the higher margin levels than we anticipated. But I think the biggest boost that we found out of all of this is just, what we thought would be true, is proven to be true plus more is that we've got a very aggressive team on the ground. That's bringing out a lot of new business.

Perfect. And in terms of gallons – or, sorry, go ahead.

Just to add, Kelly. Just to add. I mentioned the three – I mentioned the three supply contracts that we were able to negotiate. Remember those things are going across. They're not going only on the wholesale business they're actually going to impact also the retail business. And as you can see, we came with a very high CPG margin for the quarter, so just to note that as well. This is only…

And good point, Arie, I’m sorry, I left that out. And I want to point one thing out that is ongoing too. It's not just the – we've gotten done what we think we expected to get done, but as we know agreements expire and this will be ongoing. So I think between the combination of the gallons, and again, as Arie mentioned, which is very important to be, that was our plan to go out and aggressively negotiated, and we've got the target of what we thought we would get done. This isn't a thing that will keep on giving us benefits going forward as we go agreements that come up for closer exploration.

Okay. That's very helpful, I guess, maybe just to follow-up on the retail business, I guess one would you attribute that sequential acceleration and fuel margins to the supply contracts or anything else? I know it's always hard to know, but I guess what would you attribute that sequential exploration? And then can you also just talk about gallons on the retail side and how those are coming in line with your expectation and maybe where we are on a gallon standpoint versus 2019 kind of on a pro forma basis with everything?

Sure. So let me start, I'll let Don answer the second piece of your question. But let me start with basically, with the gallons. As your understanding of profitability is something that we are always laser focused. We want to make sure that while we focus on profitability, we're not losing gallons because of that. We are managing the gallons market-by-market region-by-region. And as we look at demand over there, here we just there are some pockets that we see opportunities, and as we see opportunities that to keep margin it. I said over $0.30 basically range. I mean, this is something that we continue to do on a daily basis. And as I said, at the end of the day, there is no question that people are driving less, people are working from home more and we don't have the same mobility that we saw probably in 2019. And because of that, we are trying to go at least after the margin in areas that we think we can. I will let maybe Don answer the second piece of the question.

Sure. So Kelly, on a gallon basis, we're not back 2019 levels, I mean, obviously we saw a nice increase but I think again, it's a different story by area. I don't know that we'll in the short term get back to the 2019 levels. I think we're experiencing a new reality, especially with the new variant out there. I think companies have now put off going back to work plans. People are changing habits, but I think what we're doing is as Arie talked about is for us, it's maintained the volumes that we're – they're steadily growing and have been pretty stable, but we're also trying to maximize the gross profit out of that. So we're very competitive out there. We're not outside of the balance of the market. But we're not – who knows if we'll get back to 2019 levels, we're not there yet, but we are growing.

Yes. I just want to add one more thing just to finish the sentence on this one. I think I mentioned it probably the beginning of 2021. I mentioned that right now we see a tight labor environment and when you have tight labor environment, there is no question that a lot of the comps that actually are more involved with foodservice and given that you have shrink labor which means that a lot of people are not able to continue to get the same results that they get within the stores. The area that we're going to see probably and extension will probably be outside the store, which is the fuel margin. And this is something that we've been seeing for the past 15 months as you know.

Great. That's very helpful. Just also wanted to ask on the labor, just obviously a big topic maybe can you just help us understand where turnover is and can you quantify the impact of maybe the sign-on bonuses and costs that you're kind of maybe hopefully dealing with on a transitory basis?

Sure. So, at the moment we are not commenting on turnover numbers, at the moment, but one thing I can tell you is that, we actually see an increase in basically we are adding more people than we term. We have more people that are being hired than the numbers of the people that actually turn over here, the $500 bonus, of course this is something that we measure for the past few weeks and it's been working when I say it's been working is basically, you know, when you, when you hire those people, in order for them to get the $500, they need to stay periods of time within our basically within our stores. And we see that a lot of those people are actually staying and keeping their job. In addition to that, the other thing is really making sure that we have enough recruiters to hire people, the applications are coming in and especially now we feel that – and we see that in the last couple of weeks, and I think we're going to see more there is almost 7.5 million people that at least for the time being their unemployment benefits are going to expire by the end of August, beginning of September. We believe we're going to see – basically an application. Volume is coming in, and this is the reason that we hire all of those recruiters. We want to make sure that the store people are working at the store and they're not focusing on hiring. And because of that, we did our HR department and edit those recruiters to make sure that they're actually dealing with the day-to-day hiring versus in the past, the store manager was just dealing with that. We want to make sure that we take it away from the store manager and he can focus on the store and on his customers.

Yes. And Kelly, one of the things that we’ve been able to do, that’s been very successful is make that hiring decision and offer on the spot. So, because the market’s so fluid and people are getting so many offers, so we’re able to interview, make that hiring decision, give that offer right then. One of the things we found is, if you’re taking more than a day or so to get back to the employee, they’ve already got another job. So I think that’s been very critical. And as we’ve talked about, since that $500 bonus has come into effect, we’re really tracking net hires because that’s really important to us. Are we increasing the labor force? So I think we have – it was an uphill battle and I think we’re now on – still walled issue, we’re on the downside of that hill.

Great. That’s very helpful. And then just last one for me. In terms of the remodels, I mean, it’s really expected to kind of ramp more aggressively next year, but just any update on the costs that you’re seeing for materials or just the overall outlook for remodels and pace there that you’ve provided in the past. Just any change in the expectations there.

There are no changes in expectation. I just want to remind everyone over here that we decided to do 10 stores this year not because of a lack of basic pays or lack of basic availability. We decided to do that because we want to make sure that we measure the right concept. So what we’re dealing over the past few months is really, we’re making sure we have the right concept in place. And then we’re basically going to increase the pace over here. And this is what we’re doing. We throw just for your benefit. In the last couple of stores, we really put everything that you can imagine within the store. And we try to test all kinds of concept to make sure that this is the right concept. So I think we’re getting very close to make some decisions about that, about what’s like the final concept on that. And the minute we have the final concept, I think we’re going to be able to start to increase basically the pace of the year.

Thank you. [Operator Instructions] Our next question comes from the line of Luke Lemoine with Capital One Securities. Please proceed with your question.

Hey, good morning, Arie and Don. Really good quarter. Just curious was the colonial pipeline impact your results, and any way you could maybe quantify the impact?

I don’t think the colonial pipeline actually impacts the results. If you remember, it was a week of some issues in the Southeast. But remember, we are very well diversified. When – I know it was all over the news and people are running even in Florida, which is not impacted by the colonial pipeline. People are just running all over the place just to gas station, to fill gas. And I think it was more panic buying more than anything else. Again, we were given our size and given that we are the diversified, we were able to use our connection and our contacts within our logistic department. We were able to bring projects from some other states that we do business just next to the Southeast. But I don’t think there is any major impact that happened during this quarter because that’s the challenge that we had to deal with probably for two weeks during the first few days of the cyber attack. And then, following that again, the problem of getting project and making more product available to our stores. But I don’t think that was something so impactful.

Yes. And to follow-up Luke, I mean, essentially what happened. If there wasn’t in the news, I don’t think there wasn’t as big of a problem, essentially all the inventory transferred out of tanks and the people’s cars. So there were huge spikes in sales when those announcements came out. And then, once everything calmed down, I think net-net, it really didn’t have an impact, but it was just – really, if you think about it, it was just a shift of fuel which actually helped us. Because, when you convert over to summer fuels, you have to turn your tank. So in a lot of ways, it helped us turn our tanks over. But I think the news panic caused more issues than anything else. And people were just topping off tanks and panic buying. So again, it was an incident that concerned us, but I don’t think it had major results.

Yes. The shortage came because all of the sudden, if you’re selling x amount of gallons on a daily basis, all of a sudden you’ve got 300% increase in sales during this time. So it doesn’t matter. I mean, you cannot fill the tanks and expect 300% increase in a very short order. That’s usually what happened. And this is similar to what we see during hurricane season, when a hurricane actually hit, that’s usually what we see over there.

Got it. Thanks so much.

Thank you. Our next question is coming from the line of Mark Astrachan with Stifel. Please proceed with your question.

Thanks and good morning, everyone. Wanted to ask firstly about just the retail fuel margin and just how to broadly think about that. The numbers, obviously bounced around a bit, it remains pretty good across the industry. Anything that we should be thinking about or keeping in mind as relates to your business specifically, relative to kind of what we’re seeing more broadly?

No. I think as I said earlier, I think that at the end of the day, we are competing with the rest of the markets. We are in line with the rest of the market. And as I said, I think that the more people that rely on basically inside sales, the inside high margin items like food service, the more people rely on that and they can get those results back to the 2019 numbers. I think that’s margin going to continue to expand outside. And again, I don’t have a crystal ball. Of course, I don’t know what’s going to happen next month. But the only thing I say is that this is something that been going on for the past 15 months. And again, we don’t expect that to stop anytime soon.

Okay. And switching over to store acquisitions, I appreciate the earlier commentary on the opportunities out there. Any sense of pace of acquisitions going forward, I mean, to the extent that you can talk about it? I feel like it’s been maybe a little bit slower out of the gate than history. And so, if there’s a lot of opportunities out there then should we be expecting that to accelerate from where we are?

Sure. Just to answer your comment. I don’t think it’s slower. I think that it’s consistent. We do two to three acquisitions a year. This is something that we’ve been mentioning all along. We already finished the first one, we finished the first one already in May. We continue to basically to grow through acquisition. Remember, we mentioned adding just 19 contracts or sell contracts during this quarter. So I think the other thing that you need to take into account over here is basically that now when we have the wholesale business as well, we target – we have a 20% target return. If the target comes from increasing wholesale account versus just retail account, I mean, we of course, going after that. I mean, we are trying to be very, very careful. I mean, it’s not just doing acquisition, it’s doing the acquisition and continue to – actually continue to deploy our capital and receive the returns that we saw in the past. I don’t think we’re going to have any slowdown. I don’t expect any slowdown at least from what you actually guys saw in the past.

Right. And Mark, also to add on, I think Arie said this in the past. I mean, the pipeline has been very robust. So obviously there’s things, deals we’re looking at all the time. There’s no shortage of deals. There’s no shortage of deals that we’re working on. Like I said, there’s more to come down the road as some of these become as we finish them and get through and see if we’re the successful bidder and finish all the due diligence. So there’s no shortage of deals out there. And I think the environment given a lot of things has not slowed that down at all.

Yes. And I just want to mention, given that we have a lot of liquidity over here and given that we are very liquid doesn’t mean that we need to do deals that do not make sense. I mean, we are not going to change our strategy. I mean, we have a high basically return of investment threshold, and we’re going to continue to basically fuel this threshold to benefit us. And this is something to take into account. We will not do crazy deals just to make deals. We will do the right deals and continue to basically to provide the return that we actually show all along.

Got it. Okay. And I guess just lastly, and then a follow-up to that other question. So on the remodels, I think some competitors have commented on just supply chain challenges, labor shortages. Any thoughts there, especially if you think about ramping the remodel pace into 2022 anything that would prevent that from happening near-term? And then on – back on the deals, just to follow-up there. What is it about some of the deals that you’re looking at that you’re passing on? Are there any sort of big picture things that maybe aren’t working out return profiles, et cetera?

Yes. So let me basically start with the remodel. I don’t think with the remodel, we’re going to basically nothing is going to slow us down. I mean, we have the same challenges like everybody else. But again, I don’t see any reason to believe that things will slow down. Again, we’re no different than the others. However, as I mentioned we need to make sure that we have the right concept. And all along from what I said, we’re going to do the first 10 stores, not because of challenges or because of pace or because of we don’t have the capability of doing that. As I said, we want to make sure that we see at least 20% return on investment on the concept and those things take some time. And as you can see, we did two stores so far. The second one was just opened with broad concept just opened six weeks ago. We’re getting ready to test another concept, which is a 5,600-square foot store. It’s a travel – like a travel center, it’s more travel center. And again, it’s a big store, it’s a different concept. So the minute we actually refined all of those concepts and sign off and make sure that this concept is the concept that we feel comfortable that’s going to drive us into the future. I mean, we’re going to actually start to pace them. So I don’t think we’re going to have any slow down other than making sure we have the right concept. That’s regarding to this. Regarding to acquisition, without basically mentioning names or anything like that, I can tell you that every deal in the market we are participating, or I believe at least every deal in the market, we are participating, we are being invited to almost everything that we see over here. One of the problems we saw at the beginning of the year is that a lot of people believe that the Speedway 7-Eleven deal that was done for almost 40 multiple, people believe that they’ve got to get those numbers. And again, this is not something that we are willing to pay. This is not the return on investment that we are willing to basically to go after. So I don’t think that – we’re not passing on anything other than we are submitting our bills. And given that the environment, interest rate is very, very low right now, fuel margins are very, very high compared to the past. And I think people are not taking this into account. And I can tell you Mark that in the past – we saw that in the past, people – you have one year that people just didn’t take this into account. And when the word settle, all of the sudden, again, without mentioning names, it was acquisition that closed for a very high double digit multiple, and few years later, those guys ended up selling the stores for a much lower multiple, because they couldn’t basically carry the expense, couldn’t carry the debt. And I think this is something that we’re going to see over here and moving forward. And because of that, we want to make sure that, we are liquid and we are ready to execute on every opportunity that actually meets our threshold.

Yes. Mark, I wanted to add one thing onto the first question you had. There are components of remodels, which will go in many of our stores that we’re taking advantage of when we see opportunities to buy supplies of them that we’re going after and buying them. So we are taking advantage of that and not sitting back and saying, whatever. So we have had several cases where we’ve gone out and bought certain equipment that we know we’re going to need, whether we remodel it, or whether we’re just going to put in our existing stores as part of a marketing program. So we are doing that proactively.

Yes. And basically by the way, this is being said also for acquisition Mark, just for your benefit. Everybody know that there is some shortage in computers, EMV stats and things like that. And like I mentioned, we’re doing the same thing over here. I mean, we know that we are – this is basically our DNA, acquisition is part of our DNA. And we make sure that we keep enough supply in place to make sure that when the opportunity basically happened. We are not able to close because of short of supply. So we are actually keeping more inventory basically at the moment.

Okay, great. Thanks all.

Thank you. We have reached the end of our question-and-answer session. So I’d like to pass the floor back over to Arie for additional closing comments.

Thank you very much. Thank you everybody for participating. Just before we end over here, I’d like to say that our thoughts are really with those affected by the virus in the U.S. around the globe. I want to make sure everybody try to keep safe. I mean, this variant is really contagious and we need to make sure that everybody just keeping safe over here. Thank you for participating and goodbye.

Ladies and gentlemen, this does conclude today’s teleconference and webcast. Once again, we thank you for your participation and you may disconnect your lines at this time.