Yesway, Inc. (YSWY) Earnings Call Transcript

I would like to turn the call over to Russ Pfeiffer, Vice President of Financial Planning.

Thank you, Operator. On today's call are Thomas Trkla, Chairman, President, and Chief Executive Officer, and Erica Ailes, Chief Financial Officer. Before we begin, a reminder that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Forward-looking statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate. These statements involve known and unknown risks, uncertainties, and other factors that could cause our actual results, performance, or achievements to differ materially from what is expressed or implied. These risks include, but are not limited to, volatility in global oil supplies and prices, general economic conditions, our ability to execute our growth strategy, and changes in consumer demand and fuel consumption trends. For a more detailed discussion of risks, please see our final prospectus dated April 21, 2026, as filed with the SEC on April 23, 2026, and our other filings with the SEC. Our forward-looking statements made on this call represent our outlook as of today, November 12, 2026, and we disclaim any obligation to update these statements, except as may be required by law. In addition, during this conference call, we will refer to certain non-GAAP financial measures, including adjusted EBITDA and store contribution. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are included in our third quarter 2026 earnings press release, which was issued earlier this morning and is available on the investor relations section of our website. A replay of today's call will also be available on the same website shortly after we conclude the Q&A session. And with that, I'd like to turn the call over to Thomas Trkla.

Good morning and thank you for joining us. We delivered another exceptional quarter building on our strong performance in the first half of 2026. I want to begin by thanking the many thousands of employees across Yesway and Allsup's whose hard work and dedication make these results possible. Their commitment to our customers, our communities, and one another is at the heart of our success, and I'm deeply grateful for all that they do. Our continued momentum reflects our deliberate geographic focus, differentiated fuel offerings, significant diesel exposure, destination foodservice platform, and disciplined operating execution. Together, these strengths help us deepen customer loyalty and attract new customers, supporting continued growth in fuel volumes, inside merchandise sales, and market share. Our third quarter results demonstrate that progress. Same-store inside merchandise sales increased 1.9% year-over-year, marking our 19th quarter of growth in the past 20 quarters. Same-store fuel gallons sold increased 1.1% year-over-year, our fifth consecutive quarter of growth, and once again, according to OPUS data, outperformed volume trends in our core markets. Total fuel margin cents per gallon increased 14.3% year-over-year to 46.1 cents, remaining well above historical levels. Adjusted EBITDA increased 8.6% to $60 million. We achieved these results in a challenging consumer environment marked by elevated fuel prices and continued inflationary pressure. While we remain mindful of the headwinds facing our customers, the resilience of our business gives us confidence in reiterating our full-year outlook. Our growth strategy remains focused on three priorities: new store development, initiatives that strengthen our existing operations, and selective acquisitions. Across each, we are committed to allocating capital where we believe it can generate the greatest long-term value. Beginning with new store development, we have now built 95 stores since 2020 through our new-to-industry development and raise-and-rebuild programs. We believe that experience, combined with our real estate expertise, helps us identify the markets, sites, and store formats with the greatest potential to generate attractive store-level returns. In the third quarter, we opened two new stores, including our first location in Arizona. In October, we opened our second Arizona store, bringing our total year-to-date new store openings to five. Our entry into Arizona is an important milestone as we extend our operating model into attractive adjacent markets. We are encouraged by the initial customer response, which supports our belief that our foodservice and fuel offerings are well-suited to the state's rural and suburban communities. Arizona remains a key development priority, and we continue to advance the pipeline of new locations in the state. As we expand into new markets, we are also focused on strengthening our position in the markets we already serve. Yesway and Allsup's are strong, complementary brands, each with deep roots in the communities we serve. In Texas, Allsup's has earned an enduring following across generations of customers. We are in the process of converting our 24 Yesway stores in Texas to the Allsup's brand. We believe these conversions will allow us to build on the strong local recognition and customer loyalty while bringing greater consistency to our operations across the state. We expect to complete the conversions by the end of Q1 2027. We remain committed to our two-brand strategy and plan to continue operating our other 26 Yesway stores. Turning to our existing operations, our teams continue to find practical ways to improve how we run the business. Our efficient store layouts and labor model remain important strengths, and we are advancing initiatives that support faster, more informed decisions across fuel, pricing, staffing, and merchandising, including pump health and performance monitoring and ongoing SKU rationalization and optimization. Foodservice remains one of our most important traffic drivers and competitive differentiators. The iconic Allsup's burrito is the cornerstone of that offering, with 24 million sold annually. Its enduring popularity reflects the connection customers have with Allsup's and the loyalty our teams have helped build over many years. Our approach to foodservice innovation remains disciplined. We are focused on extending the strength of our offering with products that resonate with customers and offer real value while preserving the efficient labor model that is an important advantage for our stores. The third component of our growth strategy is selective value-accretive M&A. We continue to strengthen our team and build a pipeline of opportunities, positioning us to act when we identify transactions that meet our strategic and financial objectives. Disciplined capital allocation supports each of these priorities. During the quarter, we completed the sale of our Iowa and Kansas stores, enabling us to redeploy capital towards opportunities we believe offer higher returns, including continued new store developments in our core markets. Strong fuel margins have also supported significant cash generation, giving us greater financial flexibility to pursue organic growth and selective acquisitions while maintaining our strong balance sheet. Overall, this third quarter provides further evidence of the strength and resilience of our business. We are growing inside merchandise sales and fuel gallons, benefiting from our differentiated diesel exposure, and concentrating our investment in the markets where we see the greatest potential. We are proud of what our team has accomplished and recognize that continued success requires us to earn our customers' loyalty every day. Our focus remains on serving them well, supporting our employees, and executing consistently to create lasting value for our shareholders. With that, I will turn the call over to Erica for a more detailed review of our third quarter results and full-year financial outlook.

Thanks, Tom, and good morning, everyone. We delivered another solid quarter with continued same-store growth across inside merchandise and fuel gallons, as well as fuel profitability and adjusted EBITDA. Starting with inside merchandise, inside merchandise sales increased to a record $246 million, representing growth of 4% year-over-year or 1.9% on a same-store basis. On a two-year stack basis, same-store inside merchandise sales increased 3.5%, demonstrating the consistency of our performance, even in a challenging consumer environment. Results benefited from strong performance over the Labor Day holiday and favorable weather during the quarter, particularly in September. Basket growth remained positive during the quarter, and despite elevated fuel prices, we have not seen a meaningful impact on merchandise spending or evidence of significant consumer trade-down. According to Nielsen data, we continue to gain share in both merchandise sales and units, reinforcing the strength of our value proposition and customer loyalty. We maintained healthy inside margins during the quarter with total inside merchandise margin of 35.1%, broadly consistent with 35.2% in the prior year. The benefit from our pricing actions was offset by higher diesel surcharges during the quarter, the majority of which ended in early October. Turning to fuel, sales were $713 million, up 51.6% year-over-year. Fuel margin was 46.1 cents per gallon compared with 40.3 cents per gallon in the third quarter last year. This increase in margin was supported by our structural advantages in diesel and the benefits of elevated fuel price volatility during the quarter. Gasoline volatility was relatively stable through much of the quarter, while diesel volatility picked up in September before moderating slightly in October. Despite the recent moderation, our significant diesel exposure continues to support attractive fuel margin economics. Same-store fuel gallons sold increased 1.1% year-over-year despite elevated retail prices. Importantly, this represents 3.8% growth on a two-year stack, demonstrating the consistency of our fuel gallons sold performance. We believe our gallon performance this quarter is a testament to both the attractiveness of our customer base and the success of our investments in fuel capacity and pump performance. Across the existing store base, we continue to upgrade dispensers and add capacity where demand supports it. These investments are designed to support market share gains and attract attractive returns over time. Our deliberate focus on diesel remains an important part of that positioning. Diesel continues to represent 38% of total fuel volumes, compared with a market average of 27%. Our diesel mix is meaningfully higher than that of many traditional convenience retailers, reflecting our rural and suburban footprint and presence along commercial and regional transportation routes and our intentional focus on increasing diesel gallons across our footprint. Our focus on the diesel platform also benefits in-store merchandise sales as fleet drivers purchase more than three times as much inside the store on average as our typical loyalty customer. We achieved total same-store fuel and inside merchandise gross profit growth of 7.9% year-over-year, with same-store fuel gross profit and same-store inside merchandise gross profit increasing 16.4% and 1.4%, respectively, from the prior year. We remained focused on managing store-level expenses. Same-store operating expenses increased 8.9% year-over-year, primarily driven by credit card fees, which accounted for approximately 56% of this increase. More broadly, we continue to focus on disciplined store-level execution, maintaining high operating standards while delivering a strong customer experience. Through standardized processes, employee training, and technology investments, we have enhanced labor productivity across our store base, enabling select locations to operate with a single employee during non-peak hours. As a result, same-store labor hours declined 1.3% in the third quarter, marking the sixth consecutive quarter of year-over-year improvement. We are pleased with the efficiencies we have achieved to date and expect labor hours to remain relatively stable going forward. Store contribution was $77 million, up 9.2% year-over-year. The increase was primarily driven by higher same-store contribution from stronger fuel margin and inside merchandise margin, along with incremental contribution from new stores. Net income was $25 million compared with $16 million in the prior year. Adjusted EBITDA increased 8.6% year-over-year to $60 million, reflecting similar drivers as store contribution. As Tom mentioned, this strong performance gives us confidence in achieving the full-year outlook, which I will touch on shortly. We ended the quarter with 423 stores following the opening of two new locations and the sale of 29 stores in Iowa and Kansas. As Tom highlighted, the divestiture unlocks capital that can be redeployed toward higher-return opportunities, including the development of new-to-industry stores in our core markets. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $105 million and approximately $150 million of borrowing capacity available under the revolver, of which $3 million is committed to undrawn letters of credit, providing us with total available liquidity of $252 million. Total debt, including financing obligations and finance lease obligations, at the end of Q3 was $608 million. Net cash provided by operating activities was $66 million compared with $54 million in the prior year. Capital expenditures totaled approximately $37 million compared with $11 million in the prior year. As we've discussed, in 2026, we deliberately prioritized strengthening the balance sheet and have now fully repaid our revolver. Turning to our outlook, our full-year expectations reflect our strong year-to-date performance and current expectations for the remainder of the year. We are reaffirming our 2026 outlook across all measures: adjusted EBITDA of $235 million to $245 million, same-store inside merchandise sales growth of 1.25% to 3.25%, capital expenditures of $85 million to $95 million, and new store openings of six to eight stores in 2026. With respect to fuel margin, while we do not provide a forecast given the inherent volatility in fuel markets, our adjusted EBITDA outlook assumes fourth-quarter fuel margin normalizes to levels we saw prior to the developments in the Middle East. To the extent fuel margins remain above that level, it could provide potential upside to our current outlook. As we look to the fourth quarter, our expectations remain consistent with those entering the year. This includes a comp against a particularly strong fourth quarter last year, which was driven by favorable weather, early benefits from our pricing actions, and strong fuel gallon growth from our fuel expansions and dispenser upgrades. It is also important to note the typical seasonal decline we see in the fourth quarter. That said, we remain encouraged by the underlying trends in the business and the momentum we have carried through October, reinforcing our confidence in achieving our outlook and finishing the year strong. Overall, we are pleased with our performance through the first nine months of 2026 and remain confident in the significant growth opportunity ahead for Yesway. We continue to generate strong cash flow, invest strategically in the business, and maintain the financial flexibility to capitalize on opportunities that we believe will drive sustainable growth and long-term shareholder value. And with that, I'll turn the call back over to Tom for closing remarks.

Thank you very much, Erica. To close, we are excited to report another quarter of solid performance reinforcing the momentum in our business. We remain focused on executing our strategy, investing in attractive growth opportunities across our core markets, and continuing to strengthen the Yesway platform. We believe these priorities position us well to deliver profitable growth and long-term value for our shareholders. Thank you again for joining us today.

[Operator Instructions] Our first question comes from Robert Griffin with Raymond James.

First, I just wanted to ask, on the five stores that you've opened so far in 2026, how are those ramping up compared to the build class, I guess, in 2025? Are we still seeing the very strong rapid ramp-up in those in the new markets of Arizona and New Mexico?

Good morning, Bobby. This is Erica. Good question. We are seeing similar trends to the builds that we've opened in 2026 that we have seen with our previous new builds, so a nice quick ramp. We're very pleased with the performance of those assets.

Okay. And then maybe, Tom, for you, I think last time we talked, we were talking a little bit about SKU rationalization and maybe even some menu innovation kind of in the works within the Allsup's concept. Any update there on how that's progressed and what that looks like going into 2027?

Sure, thank you, Bobby. It's going very well. We expect to complete our foodservice SKU rationalization by year-end, and that's basically cutting back on things that aren't our top sellers and becoming more efficient, and that's going very, very well. We are knee-deep right now in merchandising SKU rationalization, and that's also part and parcel of how we're looking at that with regard to our smaller format stores, which we've talked about as well. So we should have SKU rationalization done by year-end on our foodservice platform, and like I said, we're making great headway right now with regard to SKU rationalization on merch within the stores.

Thank you. I appreciate the details. Best of luck here in Q4.

Our next question comes from Kelly Bania with BMO Capital Markets.

Tom or Erica, I was wondering if you could just talk a little bit more about consumer behavior. I think you mentioned no meaningful impact really from the elevated fuel environment or evidence of trade-down and momentum through October, but can you just add any more color on category trends inside the store as well as the driver of the in-store merchandise gross margin and how that played out relative to your expectations?

Good morning. This is Erica. Happy to field that question. As far as categories, there are three categories in particular that were strong performers in the quarter: packaged beverage, which has been a strong performer for us all year—I do call out some great performance in carbonated, energy, and sports drinks; general merchandise, which has really been driven by some resets and some of the product selections that the team have brought in being higher price points, which has flown to the bottom line, which has been great; and then the third category being candy and snacks, namely candy in the quarter, which was particularly strong. As far as margin, I think I mentioned in the remarks earlier, we did have some excess fuel surcharges hit margin in the quarter. Almost all of those have stopped in October, which has been great to see, and so that was a slight impact there as well. Then I think as I mentioned, the incremental basket has grown in the quarter, so the majority of that increase on the top line is driven by sales and an increase in sales per unit.

Not sure if you can comment on this yet ahead of kind of more guidance for 2027, but just any color that you can share on how that pipeline of stores and the cadence of openings is shaping up for 2027, any comment on first-half, second-half weighting, and just how you feel about that pipeline?

Sure, thank you, Kelly. We feel very good about, as we said, Erica reconfirmed our guidance for this year's 6 to 8 stores. We feel very good about that. And as we've talked before, with the excess cash, we're looking at ramping up land that we can build on for future stores, and so we feel very good about the 130 stores and reconfirm that guidance as well. We expect to give guidance on 2027 builds in our next earnings call, but it's too premature right now, but I can reaffirm that we feel very good about 130 stores in our model.

Our next question comes from Thomas Palmer with JPMorgan.

I wanted to maybe just clarify a comment earlier on the diesel surcharges just to make sure I understood kind of how this flowed through. When we look at the third quarter and kind of the step-down in inside margin, is there a chance that the third quarter is going to be a little bit more of a step-down? Is the diesel surcharge what that's referring to? And if that's right, is the idea that we should see maybe more of a rebound in margin, more to first-half levels as we look forward?

Thanks for the question and an opportunity to clarify. You are correct. The fuel surcharges did hit in Q3 in particular. As I mentioned, the majority of those have stopped in October, so if that continues, that will be a positive impact on margin for the fourth quarter.

Okay. And then, and I apologize if I missed this, I was trying to scan a live transcript, the assumption that fuel normalizes in the quarter—what does quarter-to-date look like?

Sure. We certainly don't want to get into reporting on a monthly basis, but what we are seeing is volatility for diesel, which certainly picked up in September and then moderated slightly in October, but still remains at elevated levels in October. So the guidance that we put out does anticipate for the fourth quarter a normalization back to pre-conflict levels. Again, to the extent that these elevated margins continue, that would be an upside to the fourth quarter.

Our next question comes from Simeon Gutman with Morgan Stanley.

Hey, Tom. Hey, Erica. My first question, Erica: you touched on this a bit. Is the customer making a trade-off on inside sales given some of the higher prices that they're paying outside? It doesn't look like it is, but curious if there's part of the basket or an item that they may be trading down or opting for or economizing.

Good question. We're actually not seeing any trading down in the stores. So, unlike previous periods where we have seen a trade down slightly in national brands to maybe more private label, we're not actually seeing any meaningful product mix shift in the portfolio, which has been really great to see. We've even looked at whether there has been trade-downs in packs to singles, as we think about sort of even the beer category and 12-packs to six-packs, and we're just not seeing that. So we feel very good about the consumer in particular, as well as the unit gains that we've been able to see from Nielsen data in our geography.

Then a follow-up is on CPG. You mentioned some moderation into the fourth quarter. If you think about past Q4 and into 2027, do we give back what we earned last year? Does industry normalize at a higher level, or could industry even normalize at an even higher level than where we were, call it, pre-crude spike?

Sure, good question. Specific to Yesway, typically, if you look historically at our Q4, we have generally slightly lower fuel margin in the fourth quarter, which comes with the seasonality of our business. That being said, Q4 of 2025, I believe, was about 44.3 cents, which was incredibly strong for a fourth quarter number. That being said, as you're aware, we continue to invest capital in areas that continue to shore up our structural differentiated platform as it relates to diesel. So, throughout this time of the conflict, we've been taking action to maintain as much of that margin as possible. Again, that being said, we do expect some level of normalization.

Our next question comes from Bonnie Herzog with Goldman Sachs.

I just had first maybe a quick follow-up question on inside sales. You did maintain your same-store merchandise guidance, but that does imply a pretty wide range for Q4. So just trying to get a sense of that and maybe what's a realistic expectation?

Yes, I think it's a great question and a fair question. Our guidance is, again, just on an annual basis, and we didn't see anything or any meaningful shift in activity to warrant any change to that annual guidance. What I will say is we are seeing that Q3 momentum so far flow into the fourth quarter. Guidance for Q4 is consistent with our expectations coming into the year. There are no new concerns on the consumer. We are certainly not expecting any significant increase in that expectation. I would say nothing out of the ordinary that we're expecting for the fourth quarter, if that helps.