Yesway, Inc. (YSWY) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. I'm Bonnie Herzog and thanks so much for joining us today. It's a pleasure to introduce our next speakers. So with us today, we have Yesway's Chairman, President and CEO, Tom Trkla; as well as CFO and Treasurer, Ericka Ayles. First and foremost, I'd like to congratulate you both on the recent and successful IPO of Yesway, we can only imagine how much work went into that from year-end, and I'm sure you're both happy to have that process wrapped up. So congrats. And then for background for all of you, Yesway, it was established in 2015. It's the 15th largest convenience store operator in the U.S. with 450 stores. And they are the proud owner of the famous Allsup's Burrito following their acquisition of that company back in 2019. Yesway was really is one of the fastest-growing convenience store operators, and they just recently posted very strong Q2 results, which included EBITDA guidance range. Now before we begin, I'm just going to -- the company wanted me to note that today's discussion may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about its business and the environment in which it operates. For a more detailed discussion of risks, please see its final prospectus dated April 21, '26, and as filed with the SEC on April 23, 2026 and other filings with the SEC. So any forward-looking statements represent the company's outlook as of today, and the company disclaims any obligation to update these statements, except as may be required by law. Okay, now that's out of the way. So I wanted to kind of kick things off, and I thought it might be helpful since you've been public for a couple of quarters now, a lot of people in the room might not be as familiar with you on your business. So could you maybe take a minute to introduce yourselves or maybe your background? And then ultimately, what led you to this stage today as a public company?

Sure. Thank you, and thank you for having us, and thank you all. It's a pleasure to be here. We're a bit unique because we sought this business out, we birthed it within a private equity platform. I started Brookwood, which is a private equity firm, about 33 years ago, and we had the good fortune of selling our entire portfolio before the crash of '08, and then took a couple of years off, and I really was looking for businesses that were recession-resistant, but also could benefit from what I call our acumens, our use of data-driven decision-making, our use of technology. We looked at about 300 businesses, chose the C-Store business looked at about 400 to 500 of our competitors and then picked a geography, and then basically because we're private equity raised the money. So we actually raised about $820 million. And as Bonnie said, we're the fastest growing. We now have 450 stores. We're in nine states. And -- but basically, we chose it and ironic, we were just talking about this in a lot of the meetings today and last week, the one of the things we were looking for was businesses that it didn't depend on where you were in the world with regard to interest rates or price of oil, what's going on in the Middle East or who's in the White House. And where the individual investor -- or excuse me, the individual consumer didn't care about those things. And I used the term gobsmacked, if you guys heard that term from Britain. But we started the business got hit by a pandemic and then the aftermath and put what, $8 trillion of liquidity in the marketplace, then now the war in Iran. And as Ericka will tell you when she speaks if you look at our inside sales and look at our transactions and every year, they just creep up a little by little. And so what we kind of concluded after all the work and all the research and all of the -- getting the business started and kicking it off and growing it was the individual consumer doesn't really change his or her behavior. If your morning routine is to spend $10 on a burrito and a cup of coffee. And so then we basically picked the part of the country. We are very fortunate. We are very selective about where we picked in terms of the country. We didn't want to compete with Wawa, Rutter's, and Cumberland Farms in every corner. We understood the impact of fuel margin on EBITDA growth. So we chose Midwest. We actually correlated states that had and did not have minimum wage legislation, kind of the regulatory things that affects your business and then picked it and grow it. Our first acquisition, as Bonnie said, was in 2015, a 10-store portfolio in Iowa, and then culminating we did 27 M&A deals to grow it with the Allsup's transaction, which is a 305-store portfolio in November of 2019. So in summary, we chose the business. We chose the location -- and looking back now 10.5, 11 years later, we kind of proved our original thesis in terms of the consumer and the business itself. So we've been very pleased. And going public is a whole different story. And a whole arduous process where you're largely dependent upon markets and bankers and things you can't control. And probably the best advice I gave my internal team is markets mean revert, run your business well, markets will come back to you. If you run your business well, you get rewarded for it. And so yes, it was a pain to go public. And yes, it took a lot of time. I will say this, though, Bonnie, we spent the beauty of these conferences, you guys come to us in a room. When you're doing a road show, you have to get into the car and drive all over New York and Boston and other place. So we actually like this trail because it is a lot better. So hopefully, that's a good predicate for our business.

Yes. We'll sort of on that point, thinking about your business because I've known you for a few years now, Tom and Ericka. Can you maybe frame for us the industry and some of the drivers of growth that you see for your business?

Certainly. I think the first and most important thing is it's an essential retail business, okay? You're locationally bound. Most people come to C-stores who live 5 miles from the C-store. And so you sell things, you are convenient. And that gives it a leg up. And probably most of you know this, but about 85% of all fuel, you know, especially sold in the country is sold in gas stations with convenience stores. So we have something that Jeff Bezos can't deliver, okay? You have to come to our store to get fuel and you really can't deliver coffee and some other things. So you have that location. I grew up on the west side of Chicago, my parents took us to an old Sinclair station where they gave out the dinosaurs and then we go and get their brakes fixed and put the car up on a lift. You don't see that anymore. So the real estate itself, which is some of the best real estate in the country, that even was ahead of Ray Kroc and Mcdonald's and a lot of the fast food chains changed, the nature of what use that real estate changed, okay? And now it's basically moving into foodservice. So like others, and if you know Allsup's, we're one of three that are known as destination foodservice chains in the country. We sell 24 million deep fried burritos. Actually, we sell more -- I know Darren sells 46 million pizzas in 3,200. So we actually sell more items per store than Wawa and Casey's. So we'll lock on that. But we sell 24 million burritos. And so the biggest thing is that we're convenient. The second is foodservice basically as a destination as a convenience store, which we're certainly benefiting from. And third, which is probably the most significant driver of EBITDA is something that we call it Deus Ex Machina, for those who remember your Latin, the gift of Gods, which is fuel margin. Minimum wage legislation has pushed up prices. And so the individual operator needs to have higher price. So you have almost a doubling of the breakeven cost of fuel since we got in the industry. And so that's a gift. We take it, but we're all benefiting from them. I think you know that in spades right now as well.

I did want to touch on that because clearly, it's a key topic, and as you mentioned, one of the key drivers of your EBITDA. There's been debate about the sustainability of the industry's margins. I do think there's a structural change in the industry as you kind of just touched on. So I think I understand that, but maybe touch on this for us, how sustainable you think these stronger fuel margins are? And then how should we think about them in the current environment, given where oil is moving higher and God knows even higher?

I'm going to have Ericka, if that's okay. She's answering all the meeting. So I'm going to let her do it.

Sure. So there's a couple of pieces to that question. I think just first and foremost, we do subscribe to the belief that structurally, we are in a higher CPG environment, both prior to the Iran conflict in this period of extreme volatility that we were in during the second quarter. And then how does that get rightsized going forward? So Tom touched on the idea of the smaller individual operators. So those more on the akin to mom-and-pop ownership. There are very few levers that they have available to them to cover their operating costs. So those smaller operators maybe don't have a loyalty platform to augment inside sales and profitability, they may not have access to the same group of vendor funding that the larger players have access to. So they're really limited in how they can cover those outsized inflationary pressures. If you look at CPG over history, it actually tracks very nicely with inflation. There's obviously periods of volatility within that, but we do think that -- certainly, if you look back even just prior to the Iran conflict, now we're in 3 quarters in what has been some robust inflation. So we do anticipate when we think about where the fuel margins go from here. We would expect, like we are hearing from many investors and many folks in the industry to level set somewhere higher or at a minimum equal to where we started.

And that's really a function, Ericka, of the volatility that we're expecting to see and the continuation of that?

It's hard to understand how the supply chain rightsizes itself in the near term, right? So we would anticipate some level of volatility to continue. The big question is how much and for how long, right? So we would certainly anticipate that happening. But even absent that, we would expect inflation in and of itself to continue to push CPG.

Yes. It's one of the hardest things I have to do as an analyst is trying to forecast fuel margins. And then maybe touch on how you think your fuel business is advantaged versus peers. I imagine we've talked about this a lot. It's just thinking about diesel and the portion of your fuel that is diesel, which I think is helping to drive the outsized margins as well.

Sure. Yes. we have definitely leaned into the diesel side of our business. So if you think about our geography in West Texas and New Mexico, et cetera, there is quite a bit of truck traffic, as you can imagine. We've leaned into the diesel side of the business. So for those of you not familiar, that generally comes with a higher margin than over gasoline, really just a simple equation of supply and demand with diesel. There is less diesel made. And so that has certainly helped us. From a CPG perspective, we generally are beating. If you think about OPIS and our geography in the broader market, we're generally beating them on which is terrific. The other piece that we're seeing and really seeing it play out right now in this current environment is that diesel customer is absolutely less impacted by the street price of that diesel. So generally, they're passing that along to their customers and then that is diffused out through the economy versus that direct relationship with the end consumer on the gasoline side. So we're seeing that certainly as a tailwind for us, in particular, in this environment.

We also made a conscious choice to lead into it. As Ericka said, we've commanded historically up to $0.14 and it was disclosed in our S-1 at $0.05. So there's always been that spread of delta where you make more. We actually have one of the highest percentages of diesel to total fuel of any C-store chain that's not Love's or Pilot. So we're about 38% right now. And our new builds of which there are 92 new stores we've built in the past few years, those are all coming in over 40%. So the weighted average of our portfolio should inch up as well in terms of its percentage of diesel. But obviously, we're doing it because it makes more money. Our geography makes sense for it, but we've made a conscious effort to basically own the land, buy land next door, put in high-flow diesel lanes to command -- to take advantage of that opportunity.

And then sticking with fuel, I wanted to talk about fuel volume. During Q2, you reported same-store volumes that were quite impressive. They were up 1.4%, while July, I believe same-store fuel volumes were also positive. So I just want to understand how you're able to manage balancing really both volume, fuel volumes and then the impressive fuel margins, especially in this difficult operating environment.

Sure. So a couple of things. On the portfolio in general. So diesel, again, we're continuing to see that benefit on the diesel customer. We are also seeing some of the new-to-industry stores continuing to ramp at a much higher clip than our legacy portfolio. So many of them are coming to market. They're coming into our comp set on following that 12 months. So month 13, they're in our comp set, but we're seeing them continue to mature. So that certainly helps. It's a nice tailwind. For the legacy portfolio, we've taken an interest in really using data to make sure that we have -- we call it our pump health initiative. So we're using data. I'll give you just a small example where our FP&A team has started analyzing the start and stop time of every single one of our fuel transactions to try to identify what are slow pumps. It seems very simple and rudimentary, but I can tell you it's incredibly impactful the speed of that transaction. We've all been at a convenience store where we're filling up with gasoline, and it's taking too long and we say, get it, we'll come back later. Oftentimes, that's not met with a complaint from a customer. So our store manager may not even be aware that we have a slow pump. So that's given us opportunities to reinvest back into the portfolio. With pump upgrades it may be as simple as we need to inform and get data in front of the operators, that this particular fueling station needs to be check, filters need to be changed out more often. It could be as simple as that. But it's -- that's just a small example of things we've been doing in our own portfolio. We've also added diesel or done fuel expansions where we've been able.

Makes the difference. And then that -- thinking about the conversion, as you're getting the traffic, consumers filling up, how have your conversion rate been inside the store? Because I did want to touch on inside sales because what I've seen from the broader industry, given all the pressures on the consumer, you have seen inside sales trend lower just because of the macro and the low-income consumer. But I think about your inside sales and what you've been reporting, what are you seeing in terms of recently the conversion traffic trends? What are you doing to kind of increase traffic into your store?

Sure. So what we've seen from a conversion rate perspective, we certainly see on the fuel side of the business, folks in a high-price environment coming more often. That doesn't often -- that doesn't always translate on a one-for-one conversion. So the rate may have shifted slightly. But not seeing any meaningful movement. If you look at some of the Nielsen data out there in our particular geography, most of our region is actually down on a same-store basis. and we've remained positive. So what we see, a few things, again, leaning on that diesel customer, what we can see in our loyalty platform is that pro-driver tier of our loyalty platform, those customers are spending 3x the amount inside the store than our base tier loyalty customer. So that has certainly been meaningful. And again, those new to industry stores continuing to mature has certainly helped as a tailwind as well.

And the only thing I would add is it really does help to have a destination foodservice platform. People will come to our store to eat food. And so the other thing too, which we're finding out -- which we've held a sacrosanct. We acquired Allsup's. Allsup's is a 7-year-old chain close to Mexico, world-famous burrito. And we have not touched that price. And so I was telling Ericka just before I got into plane last night, I saw my first L Catterton subway ad on TV, and they're all up to the $6 to $7 loyalty package meal, and we're at $4.99. So we're already known as a value shop. So we also believe that, that has a correlation in terms of our inside sales. So people will come to us more because we're already known as value shop. And all of our strategic price analysis and increases have not touched the burrito. So we're not touching that. Everyone else is in search of getting down to a number we're already at, and we understand that in our market. We're also primarily loaded moderate income consumers in our marketplace. So it matters a lot. So we attribute that to a reason why we have good inside sales even in this high inflationary environment. There are so many positive ones when others don't. And Ericka is right. You look at the Nielsen data and the Circana data, we're clearly taking market share. And I think that's another thing we talk about internally as a driver.

Yes. No, that's helpful. And maybe frame for us because certainly, I wanted to talk about the iconic Allsup's Burrito, and I did taste it. It's good. Frame for us how much more runway you have for rolling that out? And then I know -- I think you've talked about maybe entering into some other foodservice items. How have you supplemented that burrito?

It's a great question. One of the things about us that is juxtaposed to our brethren is our industry basically has moved very heavy into the QSR heavy made-to-order food market. We did the opposite. I had a chef and I had a test kitchen, and we wanted to ideate the next shredded lettuce hoagie sub from Wawa. And when we bought the burrito, we shut it all down and made that our platform and centerpiece. We're a frozen to fried platform. One of the things you may not know about us, Bonnie does, but we have the best labor model. Let me avoid absolutes. We have one of the best labor models -- my late father would have killed me if I said that, even though I think it's true. We can run a store at 2.6 employees per shift. We can actually run an entire shift, including serving food with 1 employee. Our entire foodservice operation, including cash wrap with registers is 300 square feet. So we went the other way. We understand the impact of minimum wage on margins, obviously affecting everything in -- everything you analyze right now, whether you're a grocery store or whether you're a QSR or whether a restaurants is affected by high-minimum wage. So we are -- we expand -- what we say about foodservice ideation is at the margin. So we're looking at pizza, we're looking at other things. Our third best-selling thing right now behind the burrito are chicken nuggets. So we'll have the basics. We have a grab-and-go fresh sandwich, protein, hard boiled egg section, a small one because of where we are. But we're not going to become Texas Best or Rutter's or Casey's in terms of full -- because that would lower our model. We also gives us greater white space. I can buy a smaller store for 1,000 square feet and put an entire foodservice operation in there, most of our competitors can't. So we are -- like I said, we hold that sacrosanct. We sell 24 million burritos right now, 41 million proprietary foodservice items, all frozen and fried. And if you ever look at our stores, where all rectangles with the center cashwrap, two to three registers upfront, and we can store it, try it and put it in cases all within a thin square footage.

And you touched on this, and that's a good point. So to some extent, you're also rationalizing some SKUs, I believe, and then maybe go back to the pricing. Remind me, have you implemented some pricing or limited pricing on the burrito? And if so, have you seen that, that has been sticking because it's still very affordable.

Yes. Let me handle the first part, which is we are doing -- we're probably about 2/3 done with what I call SKU rationalization. When you acquire 27 chains like we did, you acquire all their price books you acquire all their distributors and you have to basically do -- and you do it in 5 years, you have to do it quickly. So we're just about done with all that integration right now, including SKU optimization, getting rid of stuff you don't sell. Two of our items account for 50% of all that we sell in the foodservice. So we're cutting back things. This is not new. This is Dave's. This is Chick-fil-A, they want you to buy what they want to sell you. So we're doing menu optimization and SKU optimization as well. As to the second point, I'll let Ericka answer.

Yes. So as far as where we could go from here, I would think that the first place is we are never going to change that burrito. And what I mean by change a burrito is the burrito platform, right? Our beef and bean burrito is by far our biggest seller, and we will never touch that. So we -- the way we think about it is how do we augment that, right? I think there's opportunities for add-ons, which will be hopefully a really strong addition to somebody coming in for a burrito and a cold dispense. Tom has talked about, our -- one of our top sellers is chicken nuggets. So how do we get into augmenting there. But as we mentioned, it's really about at the margin, right? Understanding that the beauty of the simplicity in what we do from the vast majority of our food being frozen to fried to customer is not something we're going to...

Yes. And to your second question, we had one small price increase to the burrito years ago in response to a vendor increase, but it's all formulaic and algorithmic. We have not taken any proactive price increase and don't plan to.

Okay. On that top item we certainly in foodservice, and in total, done some pricing adjustments to, but as I mentioned, not on that top.

Okay. And then sticking inside the store, private label. Can you outline how meaningful your private label business is? And then maybe how you expect your private label business to trend over time?

Sure. So on the private label for the categories in which we participate, so that would exclude things like cigarettes and those categories, it's about 9% of inside sales. So fairly strong there. As Tom mentioned on the SKU rationalization, that's something we constantly look at where we can add new categories. The other thing that we would look to do is where can we be the sole source. So again, just another easy example would be things like motor fluid, windshield washer fluid, where it's a very ubiquitous item and we can stop selling the national brand. That's not going to play when you think about chips and salty snacks, obviously, in many categories. But we do think that there is some opportunities on those sort of outside categories.