TravelCenters of America's (AMEX: TA) stock is running out of fuel and some investors are calling for the heads of those responsible. The company posted a higher-than-expected loss of $4.68 per share compared to street expectations of a $1.13 loss. Management blamed the increase on tough economic conditions, but the real reason can be traced back through the company's history.

TravelCenters' problems began when it was acquired by Hospitality Properties Trust back in September 2007. Just a few months later, Hospitality Trust spun-off the operating division of TravelCenters while keeping the real estate to lease back to the new entity. Many investors didn't see it, but the problems had already begun. The landlord became the owner of the new entity, which should raise the conflict of interest flag.

According to TravelCenters' S-1/A filing: "We, [TravelCenters], were formed for the benefit of Hospitality Trust and not for our own benefit. Our formation allows Hospitality Trust to acquire and retain ownership of 146 travel centers without adverse tax consequences to Hospitality Trust. Because we were formed to benefit Hospitality Trust, some of our contractual relationships and the terms of our initial business operations may provide more benefits to Hospitality Trust than to us."

This shocking conflict of interest only became increasingly apparent as time progressed. TravelCenters stock began trading at $30 per share and quickly rose to a higher of around $45 before it began its rapid decent. The powerful combination of costly rents, rising expenses, and a failure to build sales of the higher-margin products and services sparked a landslide that culminated with Tuesday's hugely-disappointing earnings announcement, after which TA shares plummeted an additional 42% (in just one day) and closed at just $3.50.

So, what was behind the huge earnings miss? Well, management began taking action to diversify its revenues and turn itself around, and TA acquired a significant competitor, PETRO - but they did it at the wrong time. Part of the process forced them to integrate operations and re-train employees, which resulted in a substantial one-time expenses and increases in labor costs. These cost increases came at a time when revenues were also sharply lower thanks to higher oil prices and lower trucking traffic. Combined, these factors led to a huge loss during the most recent quarter that caught many investors off-guard.

TA's failure to diversity its revenues past low-margin fuel and into high-margin convenience store products has resulted in substantial pressure on its profit margins. Convenience store competitors like The Pantry (NDAQ: PTRY) and Casey's General Stores (NDAQ: CASY) have clearly shown that earnings can be increased with higher-margin convenience stores items if they are upsold for fuel customers. TA's management has yet to make a signficant move to upsell to its customers, which is yet another issue that led to the steady erosion in its financials.

In the end, perhaps the new CEO without relevant experience in trucking and retail along with a dedication to supporting Hospitality Trust should never have been trusted in the first place. Remember, TA was “formed to benefit Hospitality Trust.” It just goes to show how important it is to read the fine print before investing!

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