Stifel Downgrades ARKO As Sales Struggle Amid Volatile Conditions

Stifel analyst Mark Astrachan downgraded the shares of ARKO Corp ARKO from Buy to Hold and lowered the price target from $8.5 to $7.5.

ARKO reported fourth-quarter results with adjusted EBITDA and revenue below consensus expectations.

Merchandise margin grew by 10 basis points to 33.0% in fourth-quarter, compared to 32.9% last year. However, total merchandise contribution dropped 8.1% year-over-year due to lower same-store contributions and underperforming retail locations, said the analyst.

Same-store merchandise contribution fell 4.5%, driven by weaker performance in core categories like cigarettes, though this was partially offset by stronger sales in other tobacco products.

Cigarettes, a key driver of foot traffic, contributed to a 2.2% decline in sales, which was worse than in first-half of 2024.

ARKO's merchandise sales have underperformed compared to peers, impacted by a tough consumer environment and adverse weather conditions in early 2025, noted the analyst.

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To boost in-store sales and mobility, ARKO has focused on enhancing engagement through its REWARDS loyalty program.

Membership grew by approximately 13%, reaching 2.3 million members, who spend nearly 60% more per transaction and visit stores nearly three times more frequently than non-members.

While fuel margins are expected to remain elevated, larger retailers are capturing a growing share of U.S. gasoline consumption.

The company is focused on optimizing channels by converting underperforming retail stores into dealer sites, with 153 conversions in 2024 and about 100 more expected in 2025.

Once completed, these changes will provide an annualized benefit of over $20 million. While trends are expected to improve, they will remain volatile due to macroeconomic uncertainty and the ongoing business transformation.

In the near term, the analyst anticipates only few catalysts for ARKO. Astrachan’s rating is based on a unique business model with significant scale and purchasing power, but the company faces challenges due to fluctuating channel trends, macroeconomic instability and ongoing business transformation.

Price Action: ARKO shares are trading lower by 33.75% at $4.81 at the last check Thursday.

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