Arko Corp. (ARKO) 2021 Q2 法說會逐字稿

Greetings, and welcome to the ARKO Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure 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 in the Investor Relations section of ARKO's website 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, are 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.

Except 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 these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a 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, cross-stock or other minor technical issues during this call. We thank you in advance through 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 will 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 company-wide prizing 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 this 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 going to existing associates, overtime hours and job fairs, along with hiring an additional team of 10 full-time recruiters.

Next was the Colonial Pipeline cyberattack, which disrupted fuel supply in the Southeast for several days and continued shortage of transportation drivers. Our fuel logistics team leveraged our strong fuel supplier and transportation partnerships to minimize disruption, successfully secure supply and continue to manage supply efficiently on an ongoing basis. Supply chain disruption in store merchandise was also persistent related to continued driver and labor shortages as well as lack of availability in certain raw materials.

However, the marketing department also leveraged our strong supplier partnerships and conducted regular supply chain calls with our top suppliers. Solutions included extended delivery times product substitutions and inventory buildup to ensure we meet our customers' 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. Importantly, we realized further sequential acceleration in our 2-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% and on a 1- and 2-year basis. Additionally, we have an increase in same-store sales of higher-margin other tobacco projects of 6.3% from the prior year with a category margin increase of 170 basis points which is in line with market trends of cigarette consumer converting to other tobacco products.

Let me now add some color to the 3 key drivers of our inside sales and margin. The first 1 is process improvement. We have implemented new processes to include annual category reviews, annual top-to-top suppliers meeting, annual planogram resets to ensure new items execution and additional marketing resources to ensure all categories are receiving the appropriate amount of attention.

The second 1 was consumer-facing initiative, having grown through acquisition, each brand does select opportunities for growth, and we are in the process of executing them. They include adding approximately 525 grab-and-go coolers and 650 freezers frozen food, revised pontine 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 announced value food offering and enhanced assortment driven by process improvements.

And the third one, of course, is supplier partnership. In May, we extended and restructured our Core-Mark 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 2 wholesalers. Retail gallon sold were up 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 has 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 gear to our longer-term strategic growth initiatives. Beginning with M&A. We have an aggressive yet disciplined M&A strategy as our priority is deploying capital at a very attractive return. 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 3 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 reach its 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 opened our 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 fry chicken, pizza and hot grab & go, inclusive of breakfast and snacking items, bean-to-cup coffee machine with a selection of always fresh coffee, a walk-in beer cave featuring easy access to a large variety of cold beer, craft beer and seltzer offering. And of course, we expanded the pontine assortment featuring 16 flavor and.

Our third site, which is a raise and rebuild is expected to open within the next 2 months. These sites will be a 5,600 square foot travel centers, nearly 2x larger than our average store with 26 fueling positions located on 6 acres of land in Rockhill, South Carolina just off Interstate I-77.

2 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. The 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 relaunched our loyalty from last November with the focus being developed lasting customer relationship and positively influence consumer behavior by driving incremental trips and increase in basket size.

We are currently enrolling approximately 5,000 new fas REWARDS members each week and now have in excess of 480,000 enrolled members with whom we communicate on a regular basis, and I'm excited to share with you some of our early results.

Since we launched our enrolled customers are visiting our stores over 4x more often than nonloyal customers, and their average spend per trip is 2x larger.

In conclusion, I'm very pleased that we are continuing to demonstrate our strength 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 position us 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 was a 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 stores 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 a reduction in fuel margin. $0.343 per gallon versus a record-setting $0.425 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 $0.47 versus a record setting $0.301 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, 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 were 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 6 months of 2021, net cash provided by operating activities was $59 million versus $101.9 million for the first 6 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 of 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 6 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 of the business, demonstrated by our strong financial results as we continue our journey as 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?

(Operator Instructions) Our first question comes from Bobby Griffin with Raymond James.

Congrats on a strong quarter. All right. 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 1 or 2 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 will answer that. So as I mentioned and as I mentioned on the call, the ex cigarette numbers came very, very strong. We are at 43% same-store sales and cigarettes. And as you can see, the margin -- the high margin comes from come from grab-and-go, for example, our grab-and-go same-store sales are up 51.3% compared to last year, and the margin increased from 31.4% to 37.8%. That's just 1 example.

The other example is same-store sales on frozen food that I mentioned. I've been talking about adding freezers all along. And again, we are up 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.

The same thing, by the way, 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. 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 remember, last year, a lot of people were pantry-loaded cigarettes and beer during this time period. So the more people that are out, the more people are going to continue to basically purchase merchandise inside the stores, the central of the store a much higher margin.

Okay. And then what about -- and I understand they're 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 significantly higher. Is there 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, it's really too early. In our second store just opened 6 weeks ago. It's a little bit too early, but I think 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 food service.

So we added grab-and-go. We added pizza. We added fry chicken. Those are really high-margin margin items. -- that we added to the stores. We added more assortment of fountain drinks. We extended, of course, the beer came all of those things that I mentioned are much higher margin than basically what we see for the rest of the stores. So there is no question that the more so we're going to continue to remodel, the more features like this, we're going to continue to add to the stores. There is no question that we expect the margin to expand because of that.

Okay. And then how many -- you mentioned the plans look 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 it's a 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. So it's -- 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 1 thing that we are different probably from the rest is that we were not fully involved in food service, and we decided to shift gears towards grab-and-go and frozen food when less labor intensity 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 hours in around 75 stores. But again, the hours were reduced just because we felt that in those particular stores, the third shift, I'm talking about after 11:00 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 -- but this is really what we did over here. Other than that, we continue to work through all of those issues. And we know how to manage our business. This is what we're doing

And let me just add on to 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 trying 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.

Our next question comes from Kelly Bania with BMO Capital.

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 on the debt?

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, obviously, when we look at total gallons, where we're signing up a lot more accounts. You heard already talk about 52 new accounts since inception.

I mean we've got a very aggressive team on the ground, signing them up. So that's really been helping us is the additional fuel volume. Obviously, we 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. It's proving to be true plus more is that we've got a very aggressive team on the ground that's bringing on a lot of new business.

Perfect. And in terms of all galloon. Sorry, go ahead.

Just to add, Kelly, just to add. I mentioned the 3 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 CPG margin for the quarter. So just to note that as well.

Good point, Arie. Sorry, I left that out. And I want to .1 thing out. That is ongoing, too. It's not just the -- we've gotten done what we think we we expect it 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 already mentioned, which is very important, 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 we'll keep on giving us benefits going forward as we go through agreements that come up for closer to exploration.

Okay. That's very helpful. I guess maybe just a follow-up on the retail business. I guess, one, would you attribute that sequential acceleration in 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 the question, but let me start with basically with the gallons. So as you understand, profitability is something that we are always laser-focused. And 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, we just -- there are some pockets that we see opportunities.

And as we see opportunities that -- to keep margin it 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 up to 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 to 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 as already talked about, is for us, it's maintained the volumes that were -- they are 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 bounds of the market. But we're not -- who knows if we get back to 2019 levels. We're not there yet, but we are growing.

Yes. I just want to add 1 more thing just to finish the sentence on this one. I think I mentioned that probably the beginning of 2021. I mentioned that. Right now, we see a tight labor environment. And when you have a tight labor environment, there is no question that a lot of the comps that actually are more involved with food service. And given that you have shrinking labor, which means that a lot of people are not able to continue to get the same result that they get within the stores. The area that we're going to see probably an expansion 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 could 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 1 thing I can tell you is that we actually see an increase in basically, we hire more people than return. We have more people that 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 we've been working in basically when you hire those people in order for them to get to $500 they need to stay a period 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 you 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 will -- we believe we're going to see a very high basically an application volume 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 added those recruiters to make sure that they're actually dealing with a day-to-day hiring. We said 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 its 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 is so fluid and people are getting so many offers. So we're able to interview, make that hiring decision give that offer right then because one of the things we found is if you're taking more in a day or so to get back to the employee, they've a got on our job. So I think that's been very critical. And as was talked about, since that $500 bonus has come to 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 uphill battle, and I think we're now on still while an issue, we're on the downside of that hill.

Great. That's very helpful. And then just last 1 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 cost 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 is that we decided to do 10 stores this year, not because of a lack of basically pay or lack of basically availability. We decided to do that because we want to make sure that we measure the right concept. So what we're doing 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 retain the store, and we try to test all kind 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.

(Operator Instructions) Our next question comes from the line of Luke Lemoine with Capital One Securities.

Really good quarter. Just curious, was the Colonial pipeline impact noticeable in your results? And is there any way you could maybe quantify the impact?

I don't think the Colonial pipeline actually impact 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 are 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 is more panic for buying more than anything else. Again, we were -- given our size and given that we are diversified, we were able to use our connection in our contacts within our logistics department.

We were able to bring products 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. It was just a challenge that we had to deal with probably for 2 weeks during the first few days of the cyberattack and then following that, again, the problem of getting product and making more products 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. I mean if there wasn't in the news, I don't think they were in as big of a problem. Essentially, all the inventory transferred out of tanks into people's cars. So there were huge spikes in sales when those announcements came out. And then once everything came down, I think net-net, it really didn't have an impact. But it's 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 instant that concern us, but I don't think it made results.

The shortage came because all of a 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 just -- you cannot fill the tank and expect 300% increase in a very short order. That usually would happen. And this is similar to what we see during hurricane season, when hurricane actually hit. I mean that's usually what we see over there.

Our next question is coming from the line of Mark Astrachan with Stifel.

I wanted to ask firstly about just the the retail fuel margin and just how to broadly think about that, the numbers obviously bounced around a bit, remains pretty good across the industry. Anything that we should be thinking about or keeping in mind as it 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 market. 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, inside the 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 margin is 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'd say is that this is something that's 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 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 comments, I don't think it's slower. I think that is consistent. We do 2 to 3 acquisitions a year. This is something that we've been mentioning all along. We already finished the first one. We finished the first 1 already in May. We continue to basically to go through acquisition. Remember, we mentioned adding just 19 contracts or sale contract during this quarter.

So I think the other thing that you need to take into account of here is basically that now when we have the wholesale business as well, we target -- we have a 20% target return. And if the target comes from increasing wholesale accounts versus just retail accounts. I mean we're, 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 return 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 I already said this in the past. I mean, the pipeline has been very robust. So obviously, there's things deals where we're looking at all the time. There's no shortage 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 for 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, it 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 use 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 deal 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 as 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 some 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 about 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 not different than the other, however. As I mentioned, we need to make sure that we have the right concept. And all along from the getgo I said, we're going to do first 10 stores, not because of challenges or because of face or because of we don't have the capability of doing that. As I said, we want to make sure that we see a click 20% return on investment on the concept. And those things take some time.

I mean, as you can see, we did 2 stores so far. The second 1 we just opened with a broad concept just opened 6 weeks ago. We're getting ready to test another concept. This is a 5,600 square foot store travel like a travel center, small 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 all sign off and make sure that this concept is a country that we feel comfortable that's going to drive us to the future, I mean, we're going to actually start to pay them. So I don't think we're going to get any slowdown 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. The -- one of the problems we saw at the beginning of the year is that a lot of people believe that the Speedway 7/11 deal that was done for almost 14 multiple people believe that they're going 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 bids. And given that the environment, interest rate is very, very low right now. Fuel margin are very, 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 1 year that people just didn't take this into account. And when the word settles, all of a sudden. And again, without mentioning names, this was the acquisition that closed for very high double-digit multiple.

And a few years later, those guys end up selling the stores for much lower multiple because they couldn't basically carry the expense, couldn't carry into debt. And I think this is something that we're going to see over here 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 meet our threshold.

Mark, I want to add 1 thing on to 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 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 this -- 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 sets and things like that, like Don mentioned, I mean we're doing the same thing over here. I mean, we know that we are -- this is basically our DNA acquisition. It's 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.

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. I just -- before we end over here, I'd like to say that our thoughts are really in 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, it's 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.