Operational Improvements And Retail Momentum Will Drive Recovery And Narrow Market Discount

Key Takeaways

• New store formats and digital loyalty initiatives are increasing customer visits, spend per trip, and overall merchandise revenue, supporting margin and earnings growth.
  
• Dealerization, channel optimization, and focus on high-margin retail categories are driving cost savings, operational efficiency, and long-term resilience despite industry challenges.
  
• Arko faces persistent top-line and margin pressures from declining fuel and merchandise volumes, shifting consumer preferences, inflation, and heavy dependence on effective strategic execution.

Catalysts

Through its subsidiary, operates a chain of convenience stores in the United States.

• Rapid scaling and positive early results from new store formats focused on foodservice and enhanced customer experience are expected to increase foot traffic and boost basket size, directly supporting higher merchandise revenue and net margins as consumer demand shifts toward convenience and quick-service meals.
  
• Significant growth in digital loyalty program enrollment, coupled with targeted promotions (such as "Fueling America's Future"), is driving greater trip frequency and higher per-visit spend, indicating strengthened customer retention and ongoing revenue growth, with operational leverage to improve earnings over time.
  
• Ongoing dealerization program is unlocking $20+ million in annualized operating income and at least $10 million in structural G&A savings, promoting higher net margins and earnings stability as a leaner retail footprint emerges.
  
• Channel optimization initiatives in wholesale operations are delivering incremental fuel profits and mid
• to high-teen operating income growth, enabling Arko to better navigate industry-wide fuel volume headwinds and to realize long-term revenue resilience.
  
• Expansion into high-margin categories like OTP (Other Tobacco Products) with improved merchandising and execution, supported by potential regulatory enforcement against illicit competitors, is expected to further lift gross margins and mitigate declines in legacy categories, supporting long-term margin improvement.

Arko Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Arko's revenue will decrease by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.1% today to 0.2% in 3 years time.
• Analysts expect earnings to reach $15.7 million (and earnings per share of $0.14) by about September 2028, up from $9.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $21.3 million in earnings, and the most bearish expecting $900.0 thousand.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.0x on those 2028 earnings, down from 62.2x today. This future PE is greater than the current PE for the US Specialty Retail industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 2.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Arko Future Earnings Per Share Growth

Risks

• Arko continues to experience year-over-year declines in same-store merchandise sales (down 4.2%) and same-store fuel gallons (down 6.5%) amid a tough macro backdrop, suggesting a sustained pressure on top-line revenue growth that may not be fully offset by margin improvements or promotions.
  
• The company's positive performance in higher-margin categories like tobacco (OTP) and foodservice is offset by long-term consumer shifts toward healthier lifestyles and tightening regulations on tobacco and alternative nicotine products, posing ongoing risks to both non-fuel merchandise sales and gross margin growth.
  
• Arko's heavy reliance on fuel volumes-as evidenced by ongoing declines in retail and fleet segment gallons, only partially offset by occasional spikes in per-gallon margin-makes it vulnerable to the secular decline in gasoline demand from the accelerating adoption of electric vehicles and increased fuel efficiency, directly threatening long-term revenue and profitability.
  
• While the transformation strategy (dealerization, remodels, loyalty) is generating early savings and engagement, its long-term success depends on effective execution across a patchwork of store formats and acquired brands; any missteps or integration issues could limit SG&A efficiency gains and stall anticipated net margin improvements.
  
• Persistent inflation, wage pressures (noted 3% annualized increases), and macro uncertainty continue to create cost headwinds; if consumer sentiment does not sustainably improve, Arko may struggle to defend earnings growth and face further pressure on operating margins despite cost control efforts.

Valuation

• The analysts have a consensus price target of $6.625 for Arko based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.0, and the most bearish reporting a price target of just $4.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.7 billion, earnings will come to $15.7 million, and it would be trading on a PE ratio of 62.0x, assuming you use a discount rate of 12.3%.
• Given the current share price of $5.0, the analyst price target of $6.62 is 24.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.