ARKO Corp.

Greetings, welcome to ARCO Corp's second quarter 2025 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone's require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jordan Mann, Senior Vice President, Corporate Strategy, Capital Markets and Investor Relations. Thank you, sir, you may begin.

Thank you, good afternoon and welcome to ARCO's second quarter 2025 earnings conference call and webcast. On today's call are Ari Kotler, Chairman, President and Chief Executive Officer and Rob Giammatteo, Executive Vice President and Chief Financial Officer. Our earnings press release and quarterly report on form 10Q for the second quarter of 2025 as filed for the SEC are available on ARCO's website at .arcocorp.com. During our call today, unless otherwise stated, management will compare results to the same period in 2024. Before we begin, please note that all second quarter 2025 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 statement section at the end of our second quarter 2025 earnings release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Any forward-looking statements made during this call reflect our current views with respect to future events and ARCO 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, except as required by law. On this call, management will share operating results on both a GAAP basis and on a non-GAAP basis. Descriptions of those non-GAAP financial measures that we use, such as adjusted EBITDA, and reconciliations of those measures to our results as reported in accordance with GAAP are detailed in our earnings release or in our quarterly report on form 10Q for the quarter ended June 30, 2025. 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 our subsidiary, GPMP. And now I would like to turn the call over to Ari.

Thank you, Jordan, and thank you all for joining. Like many in our industry, in the second quarter, we continue to navigate challenging microenvironment marked by geopolitical events, persistent inflation, mixed consumer sentiment, and restrained personal consumption. Through it all, our team remains focused and executed with discipline as reflected by our financial performance this quarter with adjusted EBITDA above the midpoint of our guidance. In this environment, we have seen more price sensitivity, greater reliance on loyalty-driven offers, and continued movement towards value-based purchasing. We stayed grounded by focusing on execution, merchandising discipline, loyalty-led engagement, and controlling expenses, including smarter labor scheduling and tighter cost management at the store level. We expanded merchandise margin by 80 basis points year over year, driven by category mix, effective promotions through the work our team is doing with our suppliers, and our continued optimization of assortment through back bar resets and loyalty target offers, all while being responsive to evolving consumer needs. We were pleased with improved performance in most of our core categories, and we believe performance reflects the effectiveness of our promotion and our focus on driving growth in key categories. While the second quarter reflected many ongoing pressures, we saw consecutive improvements from May to June, and we are seeing further improvement as we enter the third quarter. Relay July, early third quarter trends in both same-store gallons and inside sales have been more favorable than what we experienced in Q2, with same-store sales grow for July, excluding cigarettes up slightly year over year. Total merchandise same-store sales trend in July was three percentage points better than total merchandise same-store sales for the second quarter, which was the best comp performance we've seen in the last 18 months. It's still early, but we are encouraged by what we're seeing so far. Our team remained focused on executing our co-transformation strategy, which include advancing our dealerization program, investing in our retail stores by bringing our new format store, and our food service fast-grade brand to life. In addition, we are applying targeted promotions both in stores and at the pump to deepen customer engagement. These efforts are enabling us to navigate today's operating environment while positioning the business for sustainable long-term growth. Dealerization remain a central component of our long-term transformation plan. We continue to focus on converting select company-operated stores to dealer locations, where we believe the long-term economics are more favorable for those stores under our wholesale segment. Since launching this initiative last year, to date, we have converted more than 300 stores, and we currently have approximately 200 additional sites that we expect to convert under letter of intent or contract for conversion, with a further meaningful pipeline for conversion ahead. As previously disclosed, once fully scaled, we continue to expect this program to deliver a cumulative annualized operating income benefit of more than $20 million before GNA. As our dealerization efforts continue, we have identified more than $10 million in expected annual structural GNA savings as we fully scale this program. We continue to believe that by transitioning select stores to dealer locations, we are unlocking long-term value. We previously noted that our dealerization program will facilitate targeted capital investment into our retail stores. As part of this, we are very excited to introduce a new form of stores, which include a bold and innovative remodeled design to elevate the customer experience and better reflect our commitment to food service, convenience, efficiency, and community connection. We developed this new format over many months with our internal team and outside consultants, including learning from customer focus groups. This new format includes a complete remodel inside and outside the store, a modernized layout, and we have introduced a new food and beverage concept Fast Craves, which elevates our food and beverage offering to grow food service as a differentiator across our network. We opened our first new format store on June 25th in Ashland, Virginia, and while it has only been open a short time, we are pleased with its initial performance. Early results show outperformance in food service and dispensed beverages, as well as key categories like candy, packaged beverages, and alternative snacks relative to the rest of our stores. Our second new format store opened this morning in Mechanicsville, Virginia. Importantly, we have identified the next tranche of stores to be remodeled in the new format, focusing on improved customer experience and with food service as a focus, which we believe is a critical area of opportunity for ALCO. We are in various stages of engineering designs and layout on this next tranche of stores. Turning to our new to industry stores, last week we opened our second new location this year. This NTI in Kingston, North Carolina, incorporates almost all elements of our new store format. We continue to advance the other NTIs in our pipeline and have begun working on three more of these NTI stores. Of which two are expected to open in the second half of 2025. In addition to executing our dealerization program and remodeling investments, we're beginning to see the positive momentum across other core initiatives for this year. This includes focusing on high margin categories like OTP and food and enhancing our loyalty ecosystem to better engage customers. Our Fueling America Future campaign continues to engage customer and drive improved loyalty enrollment growth, trip and basket size. This program provides up to $2 per gallon and fuel discounts up to 20 gallons to enroll loyalty members who purchase qualifying in-store items. Average daily enrollment in our Fast Rewards program increased more than 50% from the period prior to the campaign. When utilizing the Fueling America Future promotions, our enrolled loyalty members made an extra trip per month and spend on average more than 15% more than our typical enrolled loyalty member during the second quarter. Importantly, we are seeing improved sales on our qualifying items that are tied to our Fueling America Future promotions. Turning to our loyalty program as a whole, during the quarter, enrolled Fast Rewards members spend on average approximately 50% more in the second quarter of 2025 and visited an average approximately three more trips per month compared to non-members. Overall, we added more than 38,000 new members in the quarter, bringing total enrollment to approximately 2.35 million members up 10% from the end of Q2 last year. These results underscore the effectiveness of our loyalty platform in an environment where consumers are looking to stretch every dollar and this is why we continue to focus on enrollment initiatives like Fueling America. Our team is continuing to optimize promotional offers and sharpen messaging to drive even deeper engagement. Diving deeper into OTP, our stores are benefiting from expand assortments, revised space allocation, high value promotions and a more effective visual merchandising strategy which has been significantly improved by our Backbar Refresh and Incentive Program for Discrete and Store Managers. OTP remains a key growth lever for install margin and customer engagement. Over the quarter, OTP was one of our top performing categories for same store sales growth and same store contribution growth. Taking all our strategies as a whole, they are guided by experienced leadership and brought to life every day by a dedicated operation team focused on announcing the customer experience. Turning to fuel, industry-wide demand remained soft in the second quarter with national retail fuel volumes down approximately 4% and our volume reflected that trend. While gallons declined, our CPG margin increased compared to the prior year period reflecting the benefit of our scale and our strategic pricing. This margin performance helped offset some of the impact of lower volume on retail fuel contribution. As I mentioned before, we saw consecutive improvement in same store gallon growth from May to June and this improvement continued into July. Our wholesale and fleet segments continue to perform through a combination of our dealerization program and robust fuel margin as compared to the prior year. These two segments continue to provide stable and reliable cash flow for our business. We continue to believe our stock is an attractive investment. In the second quarter, we repurchased 2.2 million shares. We believe that our disciplined capital allocation strategy aligned with strength of our transformation plan and consistent operational execution position us well to deliver long-term shareholder value. I will now turn the call over to Rob to review financial results for the second quarter and review our thoughts for the third quarter and full year 2025.

Thank you, Ari. Good afternoon, everyone. Turning to second quarter 2025 results, adjusted EBITDA was 76.9 million for the quarter compared to 80.1 million in the year ago period with the decrease caused primarily by lower retail merchandise contribution. At the segment level, our retail segment contributed operating income of approximately 80.4 million compared to 87.9 million in the year ago period. Same store merchandise sales excluding cigarettes were down 3% versus the year ago period while total same store merchandise sales were down 4.2%. Same store margin rate was up approximately 50 basis points versus the prior year. Same store fuel contribution was down approximately 0.8 million with a .5% decline in gallons mostly offset by an increase of 2.6 cents per gallon. Same store fuel margin was 45 cents per gallon for the quarter. Same store operating expenses were down approximately 0.8%. Turning to our wholesale segment, operating income was 23.2 million for the quarter versus 21.3 million in the year ago period. Fuel margin was 10.1 cents per gallon versus 9.9 in the year ago period. Gallons were up .9% for the quarter driven by our channel optimization program which contributed more than 19 million gallons for the quarter or almost 8% of total wholesale gallons. Excluding channel optimization, gallons were down approximately .1% at comparable wholesale sites. We continue to be pleased with the impact of our channel optimization program which has driven approximately 4.5 million in incremental profit contribution for the first half of 2025. As Ari mentioned, we continue to expect that at full maturity, this program will deliver in excess of 20 million in incremental operating income across our combined retail and wholesale segments. This outlook excludes additional GNA efficiencies we expect over time as we transition to a smaller retail segment footprint. Moving on to our fleet segment, operating income was 13.1 million for the quarter versus 13.7 million in the year ago period with total gallons down .8% to the prior year. Fuel margin was very strong for the quarter at 49 cents per gallon up from 45.9 in the year ago period. Total company, general and administrative expense for the quarter was 40.7 million versus 42.4 million in the year ago period. Net interest and other financial expenses for the quarter were 19.5 million compared to 21.4 million in the year ago period with a decrease primarily related to lower average interest rates in the second quarter of 2025 and higher interest income generated. Net income for the quarter was 20.1 million compared to 14.1 million for the year ago period with the increase driven primarily by a non-cash gain related to the expiration of a purchase option received in 2021. Please reference our press release for a detailed reconciliation from total company net income to adjusted EBITDA. Turning to the balance sheet, excluding lease-related financing liabilities, we ended the second quarter with 916.4 million in long-term debt. We maintained substantial liquidity of approximately 875 million, including 294 million in cash on hand at quarter end along with remaining availability on our lines of credit. Total capital expenditures for the quarter were 45.3 million, which included the purchase of 22 fee properties at favorable terms. Turning to third quarter guidance, we expect total company adjusted EBITDA to be in the range of 70 to 80 million based on the following key segment assumptions.

First,

for our retail segment, we expect our third quarter average retail store account to be approximately 1,220 sites. On a per average store basis, we expect merchandise sales to be up mid-single digits, reflecting the higher productivity of retained stores versus the year-ago period, partially offset by same-store merchandise sales performance, which is positioned down modestly. Again, on a per average store basis, we also expect gallons to be up mid-single digits, reflecting the higher productivity of retained stores versus the year-ago period, partially offset by same-store gallon performance, which is positioned down low to mid-single digits. We are modeling total retail fuel margin in a range of 42.5 to 44.5 cents per gallon. For our wholesale segment, we expect -to-high teen percentage operating income growth in the third quarter, driven by our ongoing channel optimization work. And finally, for our fleet segment, we expect third quarter operating income growth to be up low-single digits, with gallons roughly in line with the prior year on higher expected cents per gallon. We are maintaining our full-year total company adjusted EBITDA guidance in a range of 233 to 253 million. And with that, I'll hand it back to Ari for closing remarks.

Thanks, Rob. I'm proud of the way our team continues to deliver in the face of ongoing challenges. We're deepening customer engagement, our promotional efforts, our yielding results, and we're making progress on our transformation roadmap. We are entering the second half of the year with clear priorities and a focus on creating lasting value. We will now open it up to questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Bobby Griffin with Raymond James. Please proceed.

Good afternoon, everybody. Thanks for taking my questions. I guess Ari, first for me, I wanted to maybe dive into your comments on July. Pretty notable change there, at least through the one month of the new quarter. Curious if you can unpack it further on what's maybe driving that industry trends versus the channel optimization, some of the new programs coming on, because to your point, I don't think we've seen X figure at merchandise sales close to flat in a very long time, and even gallons seem to be getting a little bit better.

Yep, good afternoon, Bobby. Yeah, you are absolutely correct. I mean, we saw improvement from basically from May to June, June to July, but this is probably the, you know, the best improvement we've been seeing over the past 18 months. You know, we don't know if this is, just because all of a sudden something turned around, but what I can tell you is probably that I think the value and the messages that we're sending out there with Fuelling America, I believe our offering, our sourcements, our promotions are very, very, very strong. We see them driving trip frequency. I mentioned, for example, the loyalty trip frequency. So, you know, just to put dollars and cents, you know, we've been talking about going from $73.83 to $110, which is almost 50%. We're talking about trips up, you know, almost three trips, you know, basically per month between loyal members and non-loyal members. We see an increase in customers purchasing, you know, the qualified product of Fuelling America. And as you can imagine, all of those, you know, all of those products are products that have a higher margin. And I'll give an example, just something, you know, that we're actually promoting this month. If you buy, you know, two candies for $6, you get 50 cents all per gallon. I mean, this you know, Skittles and M&M, for example. I mean, this is huge. You know, another one, you know, if you buy Marlboro, two packs of Marlboro, 25 cents all per gallon. So, you know, I hope that, you know, this is a result of what we've been doing over the past few months. But this is absolutely was very positive. And of course, we're going to take it.

Absolutely. Thank you. And then Rob, maybe just switching gears to the channel optimization, kind of a two-part question. I don't think you guys want to give a full number of how many stores you think you can move to dealer, but maybe to help us think about it. Are you identifying more stores today than you maybe identified six months ago? And if the program does run through 26, do you have to wait until 26 or do we have to wait until 26 to see some of the G&A savings start to flow out or can that start to flow out earlier? And you could view the program at scale sooner.

Yeah, thanks, Bobby. So, no, I think the program store list, as we said, we're not, you know, putting out the full number yet, but it's been defined for a good period of time now. And it's now about execution and, you know, already had this prepared to marks what is under contract. And then there's a substantial amount still after. So I think we know what that number is. We've known what that number is. We're executing on it in terms of G&A savings. Now, we already are seeing savings in G&A in the second quarter. You can see the total G&A number was down. That number is inclusive of a certain amount of the restructuring expense that is in. So we are seeing it already. So things that are directly related to stores, you know, field leadership, you know, things that are directly -to-one related, we're going to see real-time things that are like, you know, prepaid annual software licenses. We will see when we get into 2026. So again, that pace of G&A will accelerate as we continue, but we are seeing some of it already. I would estimate we're probably 25% to 30, 33, you know, maybe a third of the way through the first tranche of savings. And I do believe that there's going to be more. So again, this is just the first tranche that we see. And as we get deeper into the smaller footprint, we will continue to look for opportunities on that front.

Okay. And then lastly, for me, just CapEx, the 22 fee properties, I mean, we saw the absolute dollar number step up year over year meaningfully and up sequentially. So any color just on how big of the 22 fee properties were and driving that and just thoughts on exactly kind of what that is for the business and help me understand that better.

Are you referring to the 22 properties that we purchased?

Yeah. Yeah, just so you had the CapEx and, you know, I'm just trying to understand, I'm trying to kind of get at a run rate for core CapEx and you had this quarter, it stepped up sequentially, but you also called out, you purchased 22 properties. Yes. So just trying to better understand what's normal and what was part of that property purchase.

Bobby, that number for the properties is about $22 million. So, you know, when we talked about at the beginning of the year, we kind of talked about the prior two years, full year at CapEx was about 110 to $115 million. And while we don't provide guidance for CapEx, if you back out that 20 ish, $22 million from where you are, you're kind of on that similar pace in the past two years. So again, that was, you know, those are opportunistic at good cap rates for us to buy and we look for those opportunities as they develop. But that is a kind of a one time we financed it with M&T. So again, it doesn't impact our cash position. We offset that with financing.

Perfect. Yeah, that's exactly what I was looking at. Thanks. Thanks, Robin. Thanks guys for the details. Best of luck here in 3Q. Thanks, Bobby.

Thank you, Google email with Capital One Securities. Please proceed.

Hi, everyone. Thank you for taking my question. The first one, you all mentioned macro headwinds and shifting consumer spending in the press release, but the July commentary was positive for the guidance next quarter in the full year. What type of macro and consumer spending environment are you all assuming? Just trying to get a sense of what's kind of built in there for your assumption.

Yeah. So as we talked about in prepared remarks, we have the merchandise sales for the third quarter position, same store sales positioned down modestly. So again, this is on higher productivity stores. Again, the stores were keeping higher productivity, but we do see again, a macro, we are cautious and we're at a negative, you know, modest same store sales performance. We're not talking about the fourth quarter yet, Daniel. There's, you know, as we look sequentially on, as Ari mentioned, you know, we've seen since February, with the exception of a little blip in May, we've seen month on month sequential improvement in the comp sales trend on the merge side. And so, you know, that is a question in terms of does that continue going deeper into the back half of the year or does it stay where it is? That's something, again, we have a little more confidence, you know, near term in Q3, because we've seen July, you know, we see where we are right now. Fourth quarter, you know, we're going to see as we get deeper into the third quarter, what that looks like. And we don't really guide the forward quarter at this point. That's

really helpful. I appreciate that color. And then the second one is on the transformational plan. We've seen it kind of drive down the site operating expenses line. And I know labor is a big piece of that line, especially kind of with demand increases in the summer. How have wages trended this summer versus last summer kind of when thinking about the business?

Yeah, we've seen consistent wage performance up, you know, in that 3% range. And that's been consistent quarter on quarter for some time now since we got clear of the pandemic. So that's kind of a, you know, baseline, you know, inflationary pressure that we're seeing about 3%. So as you think about the operating expense itself being down, you know, the decreased hours as our field organization deals with, you know, lower top line demand, we do reduce hours. And that is, you know, partially offset by the increased rate that we're

seeing.

Appreciate

that. And then just as a follow up to that, what you said, as you continue through the transformation plan, you kind of you're going at kind of low hanging fruit, it feels like do you expect kind of less of a benefit as the kind of the later stores are taking out? Or how are you thinking about that?

I don't think we're expecting a lower benefit. I mean, I don't know if you have a point of view on that. I think, you know, each deal depends on go ahead.

Yeah, let me let me jump in. If you don't mind. I listen there is a direct expense associated with the stores that you're dealerizing. I mean, I'll give an example when we dealerize 10 stores, you know, by definition, you are eliminating discrete managers. And this is just one example. Okay, we have, you know, we have people in the back office to do accounting work, you know, let's call it the two per 10 stores, for example, we have, you know, when you get to 80 stores, you know, you're eliminating all of the sudden the regional managers. So again, there is a lot of, you know, a lot of position directly with the operation. So as you remove stores, by definition, you're going to reduce DNA. You know, that's that's part of the outcome.

And all right, I think he's looking to tease out as we get deeper into the optimization program, do we see the deals getting less favorable? So again, I think, I think we there's no reason to expect that.

Right? No, no, no, no, we know, we are sharpening our pencils, you know, all the time. I mean, at the end of the day, if you think about it, you know, the plan that we put together over here, and we're talking about 500 stores, you know, in around, you know, a year to 18 months, I mean, this is, you know, this is a big project. This is a big project for us. And I think the reason, you know, we are, you know, moving forward, you know, very successfully is because we have the second segment, which is the also segment, which helped us tremendously over here. But so far, like I said, so far, we are very, very pleased with the traction. And like, you know, like Rob said, I mean, we expect that, you know, to continue to see benefit just ramping up further over here.

Great. Thank you. Appreciate all the color.

Thank you.

Our next question is from Anthony Benadio with Wells Fargo. Please proceed.

Yeah. Hey, guys. Thanks for taking our questions. So I wanted to start out with fuel margins. I know you guys had another strong quarter on that front, but I think industry data has maybe been a little softer than one might think, just given breakeven dynamics and how soft gallons have been. So can you guys just talk a little bit more about what you're seeing out there competitively on the fuel side and whether you've seen any change there as years progressed?

I'll start and then I'll let Rob maybe finish with some remarks. So, you know, if you're looking on the industry in Q2, I know the national demand was down 4%. That's the national demand. I understand, you know, we were a little bit, you know, down than the national demand. We are very, very competitive, very, very competitive. I think the software then, you know, the system that we have in place helping us to, you know, just to optimize and maximize gross profit dollars over here, making sure that we continue to be competitive. And as you can see, you know, this particular quarter, we were basically trending close to, you know, to basically 45 cents. So I think we see an improvement in fuel margin. You know, we see so far July, you know, the same thing goes to July. You know, we saw improvement month after month, but July, we basically saw a decline that is basically half of what we saw in Q2. So not only that, you know, we were able to expand margin, we also see an improvement in, you know, basically in fuel gallons, a decrease in July. And, you know, we hope that that's going to be sustainable. That's what we hope.

Okay, Anthony, you know, the CPG, you know, can pop significantly, you know, when there's volatility. And I think, you know, we saw, you know, one month, specifically April, the second quarter, where we had a seven cent increase year on year, and that drove significant profitability into April. And those things, I mean, we're in an uncertain macro environment right now, geopolitically everywhere. And that those sorts of things, those trends, even though there could be some pressure on gallons, that uncertainty certainly can be supportive of higher CPG.

That sounds like people sort of behaving rationally still.

Well, I think people have the same issues with trends. You know, if you are 4% or 6%, you still have a trend down. And I think when you have trend down, people need to pay, you know, the smaller guys are probably, you know, like everybody else need to pay their bills. And in order to pay the bills, the only way to make it happen, you need to, you know, increase margin. And that's what we've been seeing. I mean, listen, the margin is up almost three and a half cents in Q2. And we continue to see strong margin going into July, very similar margin going into July. So, you know, we expect that, you know, we expect or we hope that margin will stay strong for the remaining quarters.

Okay, that's helpful. And then I just wanted to touch on OTP or Alt Nicotine. I think there was some rhetoric out of the FDA recently on increased focus on the illicit market. So, can you just talk a little bit more about what you're seeing in that category? And just any thoughts on a potential crack down there and how you guys might be positioned to benefit from that?

Yeah, so if you remember, Anthony, at the beginning of the year, I made a big remarks regarding to our back bar refresh in basically in many of our stores in, you know, almost a thousand stores. Since that, I can just tell you that OTP was a very, very strong, basically category for us in Q2. OTP was up two point, basically .6% in sales. And at the same time, our margin was up 170 basis points. So this is a category that, you know, at least for us, you know, we are paying a lot of attention to this category. And I think the, you know, those crackdowns can only help us, you know, against competition. Some of the competitors, I can tell you, I've been seeing that for a long period of time, that some of the competitors, you know, selling some illegal OTP products. We, of course, you know, selling only illegal products. And I think it's about time that we start to see some enforcement over there. But, you know, regardless, like I said, OTP for us was a very successful story since we refreshed the back bar or from Ovariety. And like I said, I mean, it's a big success and it's a big contributor to the gross profit dollars over here in Q2.

And thank you so much. The OTP penetration is, you know, 10% of the total assortment versus cigarettes in more than 26, 27% range. But the contribution margin from OTP was essentially equal to cigarettes. So as we continue to composite it there, you know, it's going to contribute more and more as we go forward to really mitigate some of the downside with cigarettes, the structural decline in cigarettes.

Got it. Thanks, guys. Thank you.

Our next question is from Benjamin Wood with BMO Capital Markets. Please proceed.

Hey, everyone.

This is Ben on behalf of BMO and Kelly Bainia. Just wanted to circle back on the dealerization and just try to understand, is the pace of dealerization going in line with the original plan? I think you're targeting now more than 500 stores, but mentioned dealerizations are expected into 2026. So is the message that the total number is consistent with the long term or with the prior communications, but is this maybe a slower pace? Also, just trying to understand is this total number, is that all part of the 20 millions in savings target or should we expect you to update that savings as you guys get deeper into this?

I'll let Rob discuss the 20 million dollars and then I basically, you know, give you my two cents regarding to the pace. We are very pleased with the pace, but I'll let Rob jump in.

Yeah, Ben, the number that we shared in excess of 20 million dollars is the fully executed program. While we haven't shared the total store count, that is inclusive of all the stores. Again, in excess of 20 million, but you should not expect us to be updating that number. That's consistent with what we're seeing so far in terms of run rates and that's what we expect to end up.

Yeah, and regarding to the pace, Ben, regarding to the pace, as I mentioned earlier, just think about it's 500 stores in 18 months. This is unheard of. I mean, it's going in accordance to our plan. Like I said, we are very, very pleased with that. You know, what sometimes take a little bit longer is just getting licenses and putting everything in place. I mean, we want to make sure that all of the dealers that are taking over some of those stores, they are fully equipped and fully licensed. You know, we don't want to be in a position that, God forbid, they're losing the license and they're losing sales. You know, for us, this is a long-term play and we want to make sure that those guys continue to make money and we want to make sure that they get all of their licenses in order to continue to operate from the minute that we stop operating.

Okay, that's great. And then could you just provide some details on this new store format for the NTIs and remodels? How does the square footage compare to the average store in your portfolio? And then what about the labor needed? You know, how many employees will run it versus your store average? Trying to understand the complexity of it versus with this new food service versus kind of the other store base you're running. Sure.

So most of, you know, we opened the first one last week, sorry, last month, last month on June 25th. In this particular store, we did not change any of the square footage that was a large enough store, over 3,000 square foot. So we basically just added the beer cave and some other features in a, you know, of course, in addition to that, all of the food service equipment. Over there, we had a deli before. So we just converted the deli to our new concept. We, you know, remodeled the store from the inside and the outside. So in this particular case, we did not add any square footage. In the store that we opened this morning, we were able to add additional square footage to the, basically to the original store. So this is something that we did. In terms of labor, and, you know, we'll share some pictures later on, but in terms of labor, we have a shared labor model, which means we need one person, literally, to operate the food service concept that we put in place over here.

Oh, that's okay. That's super helpful. So then is it kind of correct to assume that, or maybe I'll ask you this, is what percentage of the remaining store base after you've gone through this de-olarization do you think would qualify for this kind of full remodel?

Well, the, you know, we are in a phase of, you know, structuring and engineering, but the stores that we are planning on keeping, we believe that the majority of them basically can fit. You know, remember when we actually put this plan together, we put the plan together based on the fact that we have different type of stores, different type of square footage, and we want to make sure that, you know, we can customize in most of those stores the food service concept that we put together. So this is something, but right now at the moment, you know, we are, we already identified another tranche of basically of stores. It's approximately 25 stores that we already identified in, you know, in the same geography that, you know, that we started. We started over here in the Virginia market, in the Richmond market, and, you know, the plan is basically to finish this tranche and continue. But again, we believe that the stores that we are planning on keeping as part of our retail segment, we will be able to customize in the majority of those stores the food service concept and everything that we did in the last two stores, the last prototype that we just, the new format that we just opened last month and this morning. Great. Thank you guys very much. Which, by the way, that was one of the decisions of dealerizing, you know, some of the stores that we didn't fill will fit with this concept or with this, you know, new format that we brought to market. I think we lost Ben. Thank you, Ben.

Thank you, Ben. Our next question is from Hale Holden with Barclays. Please proceed.

Hi, good afternoon. I just had two on other tobacco products. I was wondering, you know, I did hear those comments at the beginning of the year and I was wondering where you are in the bar rollout and or how much, you know, more work you had to do to get the allocation, space allocation to the product or if you were fully built out at this point.

So, we are fully on the stores that we are keeping and like I said, it's over, it's around a thousand stores that we have out there. We already invested and finished our work on the back part. We completed this project. This project was completed by the end of Q1, beginning of Q2, so we are, you know, we, we're done. It's just a matter of adding additional assortment to the mix over here.

Okay. And then on the, the store conversions that Ben was just asking you about, any thoughts, Ari, on what constitutes a success in terms of either merchandise sales lift or same stores lift versus, you know, maybe where the control group is?

Sure. You know, first of all, traffic, you know, the, you know, one of the reasons behind it, of course, is making sure that we increase traffic. Success will turn to be an increased inside margin because, you know, adding food service over here, you know, by definition, the gross margin on food service is much higher than basically what, you know, what we saw before. So, you know, the success for us will be increased food traffic, increase the basket size associated with that, you know, expand our food service. So far we get, you know, so far we get, you know, very nice results. I can tell you that the store that we opened just last, last month on June 25th, you know, just in the month of July, sales excluding cigarettes in that particular store are up 6% compared to prior year. So, you know, that's, that's for us so far. We are very, very pleased on what we're seeing over here.

Great. I'd love to see some pictures in the next quarter deck. It's hard for me to see them from the satellite photos outside.

Yes, no problem. Thank you. We'll do that. Thank you. Thank you.

We have reached the end of our question and answer session. I would like to turn the conference back over to Ari for closing remarks.

Thank you for joining everyone. You know, we are focused, we are on track, and we are excited on what's ahead of us. Have a great evening.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.