Q1 2024 Arko Corp. Earnings Call

Participants

Arie Kotler; Chairman of the Board, President, Chief Executive Officer; Arko Corp.

Robert Giammatteo; Chief Financial Officer, Executive Vice President; Arko Corp.

Bobby Griffin; Analyst; Raymond James

Anthony Bonadio; Analyst; Wells Fargo

Ben Wood; Analyst; BMO Capital Markets

Karru Martinson; Analyst; Jefferies

Hale Holden; Analyst; Barclays Capital, Inc.

Mark Astrachan; Analyst; Stifel

Presentation

Operator

Thank you. Good afternoon, and welcome to ARKO's First Quarter 2024 Earnings Conference Call and Webcast. On today's call are Rick Cutler, Chairman, President and Chief Executive Officer, and Robb 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 w. w. w. dot ARKO corp.com.
During our call today, unless otherwise stated, management will compare results to the same period in 2023.
Before we begin, please note that our 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 Argo 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 on a non-GAAP basis. Descriptions of those non-GAAP financial measures that we use, such as operating income as adjusted and adjusted EBITDA and reconciliations for those measures to our results as reported in accordance with GAAP are detailed in our earnings release four in our quarterly report on Form 10 Q for the quarter ended March 31st, 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 and exclude inter-company charges by GPMP. And now I would like to turn the call over to Ari.

Arie Kotler

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 macro environment for performance trends that we shared in February improved modestly throughout March. We continue to see as IT and consumer adjusting to processing inflationary pressures, 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 operation on announcement that we are implementing will not only help to guide us through this microeconomic environment, but will also lay the foundation for the multiyear 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 modest 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 Rewards loyalty program, acceleration on our core destination merchandising categories and expansion of our food offerings. We expect these efforts to drive traffic to our stores and to improve profitability. But these pillars will remain central to our merchandise strategy. I would like to utilize more time on this call to focus on the larger structural changes we are initiating.
We have been an aggressive acquirer over the last 10 years closing on 26 acquisitions to build scale. We bolstered our core retail segment with additional line of complementary businesses in the form of our ourselves and fleet fueling segments. Since going public in 2020 through March 31st, 2024, we have added on a net basis to 110 retail stores, 219 or cell 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, 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 more clearly resonates with our customers while leveraging our unique multi-segment operating model.
I would now like to give some color on our developing multiyear 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, and we are in the process of developing a plan with 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.
With respect to this work, 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 a significant focus on foodservice pilot will focus on five to seven stores within one of our regions with the goal of a region-wide rollout before ultimately an expansion, of course, our retail footprint, the end result will be selectively and methodically make meaningful investment 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 NTI.s will become increasingly important as we work to navigate competitive dynamics from currently, 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 capability 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 the more aggressive and focused capital investments and strategic sub-segments 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 sites, 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 payment for acquisition of the TG. asset that closed in March of 2023. As I believe there was confusion around registration of shares and subsequent repurchase. Full details can be found in our public filings. But the bottom line is we satisfy the $15 million deferred purchase price originally provided for in the purchase agreement for a total of $36.5 million. We'll elaborate in accordance with the purchase agreement on February 12th, 2024. We were required to notify the TG. 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 into stock while preserving cash for strategic investments.
On March first, we issued $3.4 million shares to TG at the price per share of $7.31, which was based on a 10-day We rough calculation in accordance with the formula in our purchase agreement however, we continue 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 25th for $5.66 per share for a payment of approximately $19.3 million. From currently, we reached an agreement with the TG 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 with any of that remains unclear, but we believe we were able to capitalize on an opportunity to deliver value to our stockholders. For 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 our 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 hard work. I would 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.

Robert Giammatteo

Thank you, Ari, and good afternoon, everyone. Jumping right into first quarter 2024 results. As already 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 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 a 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 Opus, which was down 5.9%.
Fuel margin of 37 CPG. was up 1.3 CPG. from the year ago period and improved sequentially throughout the quarter, reaching 38.1 CPG. 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 lower fuel margin per gallon of 9.2 CPG., which was down 0.4 CPG. 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 CPG. faced a challenging comparison to prior year performance of 42.4 CPG., where we had significantly elevated diesel margins.
Total Company, general and administrative expenses for the quarter was $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 multiyear 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 retirement of our remaining TG. purchase obligations on the favorable terms that are I 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 ABL 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 our ongoing organic growth initiatives and M&A, including investment capital, total capital expenditures for the quarter, we're $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 CPG. on the lower end and 40 CPG. on the higher end of our guidance range for the year to go period. With that, I'll hand it back to Ari for closing remarks.

Arie Kotler

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.

Question and Answer Session

Operator

(Operator Instructions) Bobby Griffin, Raymond James.

Bobby Griffin

Good afternoon, everyone. Thanks for taking my questions. Probably Aria, I first wanted to talk a little bit about the merchandise comps of negative 3% extra cigarettes. Can you talk a little bit about what you're seeing from your customer. And there's a lot of moving parts right now in the economy, but some of the weakness here, trade down among items on 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?

Arie Kotler

So I'll elaborate a little bit. And then I'll let Rob maybe jump in. But I think everybody see the U.S. In, say Q4 going all the way to Q1, even though Q1 is probably the lowest Q2 off, Pito, we see the macroeconomic challenge. We see the inflation pressure, especially in markets that, you know, we do business in or was involved low income. And so yes, people are trending down. Price of fuel by the way doesn't help us as well the increase basically in price of fuel.
That's another actually, I think that actually impact their purchasing habits so I think people are spending less money. And I think that's one of the reason that we actually emphasize over here are, you know, if you're looking on our two year stack or two year stack, it's actually 4.6% excluding cigarettes. The reason I keep talking about excluding cigarettes, because the minute we are selling the I call it the high margin items. And as you can see over here, we were able to actually to finish the quarter, we have basically a minus 3% excluding cigarettes, but we were able to increase margin on a same-store basis by 150 basis points.
I mean, we basically were able to increase margin company-wide by 180 basis points from 30.7% last quarter to 32.5%. And as you can see over here, the decrease in sales, we were able to basically compensate for that in selling marginal items. So I think people are smoking less, but I think with the value proposition and one of the initiatives that marketing is issuing over here, especially the 499 pizza that we just launched in January show you that that's basically bring more people in the door in terms of increasing basically sellers of high margin items.
And, you know, that's the reason I keep saying this industry is very resilient. I mean, we see right now softness across It's across the retail industry. But again, I think this is something that happened. You know every few years, and we just need to, you know, domestically too, I'm going to actually talk to the challenge and make sure that we continue to bring valuable promotions for our customers. And I can tell you that this is the one thing that our team constantly working on, especially now going into 100 days of summer. I mean the amount of valuable promotion that we have already right now for 100 days of summer. I don't think I ever saw anything like this in my career.

Robert Giammatteo

And Bobby, I would 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.

Bobby Griffin

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

Robert Giammatteo

Yes, I think look, April looked a lot like Q1 has started off the first couple of weeks and then we saw it start to inflect a little bit in turn, turned 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 kind of a <unk> tailed two months with weaker in the first half and a little bit stronger in the back half. So we're still watching it closely, as you might imagine, the next 30 days we're going to be the peak selling season.
We'll know a lot more at that point.
But at this point, we feel okay with where we've got the rest of the year positioned.

Bobby Griffin

That's helpful. And then lastly, Rob, just trying to unpack the guidance a little bit. I obviously have a lot of time to flow it all through the model you and some of the numbers, but likes the is there something offsetting some of the fuel margin because the EBITDA came in at least below our model for Q2?
In the retail side, a cents per gallon is in line with kind of what we're speaking. So I'm thinking maybe there's is there more pressures inside OpEx? Or is there some any other offsets that are worth calling out as we've kind of cleaned up the 2Q numbers for ourselves?
Yes.

Robert Giammatteo

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% trade. We base that on the fiscal 23, our results that longer-term trend on our year-to-go period, we are basing on that debt flat two year stack. We are putting doors 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, and I did share that for the year. We expect the retail CPG midpoint to be down one CPG. from 2023. And we are modeling increased merch margin rate, the rest of the way, a Q2 through Q4, albeit at a slightly lower rate than what we saw in the first quarter. So I'm not a lot's changed from what we talked about in the first in the first of the fourth quarter call back in February. So maybe we'll chat offline on some of the other the other questions.

Bobby Griffin

Yes.
I guess I guess is what's the up is any major change in OpEx environment?

Robert Giammatteo

I guess now as good as we're remodeling OpEx and total company G&A up low single digits for the year. And that's you're saying that your target.

Bobby Griffin

Okay, perfect. That's helpful. I was just trying to unpack those things. I appreciate the detail and best of luck here in the second quarter.

Robert Giammatteo

Thanks, Bobby.

Operator

Anthony Bonadio, Wells Fargo.

Anthony Bonadio

Yes, hey, guys. So sort of piggybacking on Bobby's question on guidance. I wanted to dig in on 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 $0.4 per gallon or range? And then given that's a little more constructive of late, like looking at industry data, and 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.

Robert Giammatteo

Look, I think if I could predict predict that I'd be in a different place. But I think look, we are coming up against last year, which saw significant acceleration in the second and third quarter. Specifically, we were up against the $0.40 and $0.41 CPG 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 and we've seen some encouraging things recently with rack to retail, where we think it's a higher higher level supported than the first quarter, but we're expecting it to be, as I mentioned, $0.01 down the midpoint being $0.01 down to last year. And you can look at last year ran around $40.3, $41.2 and $39.5 in the second, third and fourth quarter. So that's kind of how we're looking at things and by the way.

Arie Kotler

And Tony, I think, you know, the one thing to remember is our strategy, our strategy basically didn't change. We were able to capture an extra $0.013 per gallon or same-store going from that $0.357 to $0.37 per gallon company-wide $0.364 versus $0.354. So we were able to capture an extra penny over here company-wide Well, basically trending very, very close to you know, to the basically to the Opus national average over years. So we're going to continue to try and capture margin and continue to be very competitive, of course.

Anthony Bonadio

Okay. That's helpful. And then I just wanted to ask about inside margins a little more on 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?

Arie Kotler

We're not providing details, as you know about, you know, exactly how we go to market. I think the most important thing to say is that with cigarette decline, as I mentioned, it's basically continuation of core categories. I kept talking about the 499 pizza, which is a very, very valuable item. And we're basically selling a high margin item more than cigarettes and I think that's what would drive the margin over here. And remember, you know, we kept talking about foodservice concentration.
We just started. We just started. Pizza were just there was just the beginning, you know, we are getting ready to now launch the nation than eight and hotdogs into our stores. We were able to add 105 bakery items to additional store. So as long as we continue to add more and more high margin items, and that's what we're doing, and that's what we're focused on here. That's what's going to drive basically the margin up.

Robert Giammatteo

And to me that just to be clear, we don't expect that level of accretion in the forward quarters. We're not modeling that at least, but we're continuing to drive to always point to drive the foodservice penetration, which we think is significant opportunity for us versus where we think the industry has.

Anthony Bonadio

Understood. Thanks, guys.

Robert Giammatteo

Thank you.

Arie Kotler

Thank you.

Operator

Ben Wood, BMO Capital.

Ben Wood

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

Arie Kotler

We don't see any incremental labor at the moment? You know, we just like I said, we launched the pizza in January, the third week of January. We launched the feature just before the football. Basically, we're very happy with the we basically with the results so far, our P&O this pizza program grown to become a very strong category since we launched it. It's a great offer to our customers.
And like I said, we're going to use this basically the pizza program we're going to use for 100 days of summer. And just to elaborate I mean we are talking about very high value promotions. For example, when you buy a 12 pack of Pepsi two packs, a 12 pack of Pepsi, you're going to get basically a free pizza. And all of those promotions are being supported by the CPG company that are supporting us over here. So the idea is really to drive and drive and drive and drive more pizza sales with all of the high margin items that we see across that. And I believe that the more inflationary pressure we see over the year, I believe that's going to become a very big sell for us moving forward.

Ben Wood

Okay. That's that's helpful. And then switching gears a little bit, can you walk us through the thought process behind converting some of your retail sites into dealer sites and just a little bit more depth, any color on the magnitude? I know 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 which sites and you would convert versus which sites you would you would retain in the fleet capture that.

Arie Kotler

First of all, I just maybe for high-level, just to basically mentioned that, you know, this is not something new that we actually do. This is something we used to do in the past. As I mentioned earlier, we converted in the past the less performing stores in some geographies that are less attractive for us. So we don't have scale. So this is something that was done in the past. I think what you know, the goal and this is something I mentioned on the last call. The goal is really to drive organic growth and invest in our best stores and concentrate on the best stores in our fleet are You know?
So as part of our transformation plan, we basically hire a consulting firm, a very reputable consulting firm to help us. You know, we've been dealing working with them over the past few years a few months. And over the past few months, you know, the idea is really for them to challenge us to challenge our fleet to learn a little bit more about the markets that we have.
You know, we are stronger in some markets and maybe we carry a little bit in some other markets where we don't have the scale in some markets. So the idea really is to take some of the stores and we identify some of them some of the stores that are basically performing less than the other. We are not sure that 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. And given that we have the wholesale platform over here and it does provide us an advantage.
And remember, we have 1800 customers. Every one of those customers becoming potential dealer. The idea is really to go ahead and deliver some of those stores as we did in the past, we're going to be able to basically reduce operating expenses because of that we're going to be able to reduce G&A because of that and at the end of the day, we're just going to make more money running them as also location versus retail location. Remember, we're going to still keep the basically the food, the fuel volume because the store is still under our control, we're going to keep the fuel volume is just going to be a long-term arrangement with some of those dealers. And while we actually keeping the scale of the year.
We didn't determine the amount of stores at the moment, but you know what we are planning on doing on a quarterly basis. We're going to update you guys on how many stores we decided to dollarize and what's basically the impact because of that.

Ben Wood

Thank you. I appreciate all the color.

Arie Kotler

Of course. Thank you, Ben.

Operator

Karru Martinson, Jefferies.

Karru Martinson

Good afternoon. When you talk 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?

Robert Giammatteo

Yes, thanks for the question. We're not sharing that level of detail today. That's going to be more when we get into the Investor Day. But certainly you can understand there's a lot of folks who do this matching customer segments and the pricing in the various stores. So the work that's been done that I was talking about has a lot of detailed customer market research done in terms of what type of customer, how does that match with our with our brand promise our brand delivery in China understand again where we can be perhaps more aggressive on pricing where we need to be a little less and understand a lower, a lower segment customer.
So it's going to be it's something we think is a significant opportunity for the rock slide. And we think it's going to make more sense to resonate with our customers, especially the more cost sensitive and who are being impacted in the inflationary environment. So more to come as we get to Investor Day, that's going to be one of the one of the items we're going to be diving into.

Karru Martinson

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

Robert Giammatteo

It's not so that or something of the capability so as Ari mentioned, the transformation, there's quite a bit of capabilities that would be one of the capabilities part of the transformation program.

Karru Martinson

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

Arie Kotler

It's a $25 million expansion.

Karru Martinson

Okay.
Thank you very much. Appreciate it.

Robert Giammatteo

Thank you very much, guys.

Arie Kotler

Thank you.

Operator

Hale Holden, Barclays.

Hale Holden

That afternoon. I had two questions. The first one is when you flip retail stores to dealer rise them and maintain the wholesale relationship, does that result in a cash inflow to the Company or just simply a reduction in G&A expense?

Arie Kotler

It's both. I mean, first of all you increased profitability. When you do when you do something like that, you know, you're able to increase profitability because you don't have that -- you don't carry the operating expense you don't carry the G&A. So it's basically will increase profitability and increase, of course, the cash flow here.

Robert Giammatteo

And in many times or maybe key money attached to it also. So it's it's a favorable cost.

Hale Holden

Correct. So that's kind of what I was asking. There can be like a key payment back to you in some churns.

Arie Kotler

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

Hale Holden

Okay. My second question was as you guys think about this small trial that you're doing for the the new store format that's going to grow is the expectation that you fund that operating cash flow or will we see you potentially increased borrowing to accelerate it?

Arie Kotler

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

Hale Holden

Okay, great. Thank you very much.

Arie Kotler

Thank you.

Operator

Mark Astrachan, Stifel.

Mark Astrachan

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

Robert Giammatteo

So market we're seeing, as I mentioned earlier, transactions are down. And again, that's been offset a little bit by average ticket on the upside. But the trade transactions have been the driving force on the downside.

Mark Astrachan

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

Robert Giammatteo

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. All of that could be something we can follow up on for you.

Mark Astrachan

And then maybe just a bigger picture question, if you can remind us just on how the foodservice sales so the prepared stuff in store, it tends to respond in a tougher macro environment where the consumer is maybe squeezing a little bit more out of their dollars?

Arie Kotler

Well, I think that's the reason our B&O we are basically offering value of here. I mean, that's the reason we are concentrating on pizza. That's the reason we are concentrating on hotdogs. That's the reason we are concentrating on bakery items. We're really trying to provide, you know, chicken forgot, of course, the famous chicken. We're really trying to provide value to our customers and bundle to our customers.
I mean, that's the reason I mentioned for example, the today, for example, if you go to our stores are you can pick up at two liter at Pepsi where pizza for $5.99, I mean this is a great value for our customers. And I think that's really what we have to drive over here because people are looking for basically 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 every day, those basically those valuable promotions, and this will drive those people into our stores and we keep seeing that. We've been talking about that, but we keep seeing data. If you're looking on that just in this quarter, we basically saw that the the average enrolled loyalty transaction sides were at 34% greater than the non enrolled members. And I think those promotions basically were driving them into our stores.

Mark Astrachan

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.
Yes, wondering whether you're seeing a bit of shift away from retailers, which are offering a little bit more value from a gas standpoint is X and strip number of folks to go into the stores. It does and locations, maybe you are part of bigger retailers. Is there a bit of a share shift towards grocery and kind of a more traditional means of grocery shopping compared to Prepared Foods? And anything you can sort of offer there would be helpful.

Arie Kotler

So I'll give you a high-level answer on that. Okay. I think that in many, many markets that we operate are actually rural areas where we are the fact that we are actually the grocer. So there is no question that people are looking for better pricing. There's no question about it, but that's the reason I as I mentioned earlier, Opus national average was 5.9% down and we were minus 6.7, very close to opening the gun owners were just not there.
And 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 promotion, there is a good chance that they're actually going to go outside. We are trying to tie by the way the food sales, the inside sales to integrate promotion. I mean, for example, we are working with our CPG company that every time you buy a product inside the store you get some sense of gallons over there. So I just think that our P&O that some of the larger operator, you know, again without mentioning any names, they're trying to basically mitigate the decline by very aggressive pricing. But I can just tell you that the very aggressive pricing are going to sacrifice their fuel contribution dollars.
And this is significantly by the way.
And we just don't see any reason to do that because we see what basically 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 since you know us.

Mark Astrachan

Got it.
That's helpful.

Arie Kotler

Thank you.

Operator

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.

Arie Kotler

Thank you very much, operator, and thank you all of you guys for joining the call and have a great questions.
Really great questions today, given that it's after five o'clock, you know what we are trying to do over here, we're trying to give as much insight as we can into our performance to help investors understand our compelling growth story over here, I can tell you that we have have a big plan ahead of us. We have a lot of initiatives ahead of us during this year. We are heading towards the 100 day of summer, which is basically our best season and we're looking forward that to talk to you guys again in the next quarter ever. Great afternoon, everybody.

Operator

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