ARKO's Fuel Margins Face A Demand Test After A 43% Stock Slide

ARKO heads into its third-quarter report with an odd split between its stock and its estimates. Shares have lost about 43% since the last report, trading near $3.85, just above the post-earnings low of $3.77 and far below the 200-day moving average of roughly $6.01. Yet analysts still expect earnings per share of $0.12, up 20% from $0.10 a year ago. Either the market is pricing in a deterioration the estimates have not caught up with, or the selloff has outrun the fundamentals. This report should show which.

The Street is looking for revenue of about $2.02 billion, flat with last year and well below the $2.35 billion booked last quarter, when pump prices ran above $4 a gallon in parts of the spring. Flat sales point to the theme ARKO has relied on all year: profit growth driven by margin rather than volume. Management reaffirmed full-year adjusted EBITDA guidance of $245 million to $265 million, a range unchanged since it was first issued. With $123 million earned in the first half, the outlook implies second-half EBITDA of roughly $122 million to $142 million. Management acknowledged that this means a year-over-year decline, so the key question is where in that span the third quarter lands, not whether it beats a growth target.

Fuel margin is the main support for the thesis. Retail same-store fuel margin rose from 44.5 cents a gallon late last year to 48.7 cents in the second quarter, and the full-year range was raised to 45.5 to 47.5 cents from an initial 41.5 to 43.5 cents. Margins near the top of that band, or above it, would confirm that ARKO's pricing discipline holds even as fuel costs swing. A sharp drop toward the low end would undercut the main offset to weaker traffic. The fleet fueling business also needs a look after its margin slipped to 46.9 cents from 49.3 cents. Merchandise margin, which reached 34.7% on dealerization, vendor-funded promotions and food service, is the other margin support to check.

Demand is where last quarter's story turned. Same-store gallons fell 5.7% after a 3.2% decline the quarter before, and merchandise sales excluding cigarettes slipped back into negative territory after the first quarter's improvement. Management's tone changed with them, moving from talk of momentum to warnings about historically weak consumer sentiment and too much uncertainty. Stabilizing gallon trends would ease concerns, as would early evidence that the Ten Cent Tuesdays loyalty promotion, which lifted enrolled Tuesday gallons by double digits, can support broader traffic. Cost pressures matter too. Higher credit card fees cost $3.3 million last quarter, and tighter SNAP eligibility shaved about 75 basis points off same-store sales. If fuel prices eased, as the revenue estimate suggests, card fees should become less of a burden.

The pending USPP acquisition by the wholesale arm, roughly $205 million for about $30 million of annual EBITDA and 280 million additional gallons, offers a growth story that does not depend on the convenience store shopper. An update on timing toward a close later in 2026 and on integration plans would help, especially given ARKO's roughly $1 billion of liquidity and its recent discounted note buyback.

Sentiment has moved to modestly bullish from bearish heading into the prior report, a sign that some investors think the selloff went too far. Even so, the central issue is whether margin strength can keep absorbing weak volumes. If fuel and merchandise margins hold and the full-year EBITDA range survives intact, the stock's collapse will look overdone. Another leg down in gallons combined with softer margins would suggest the market's skepticism was justified.

This earnings preview was originally published on Earnings Whispers.

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