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[timhyma]

Pantry may start blending more ethanol?

We are currently testing the ethanol blend in several locations and expect to begin rolling it out across our store base in the months ahead. However, we would caution everyone that we are pursuing this as much for defensive purposes as for offensive.

In the current price differentials between ethanol and gasoline in the marketplace, we expect competitors will be exploring ethanol blending as well and we don’t want to be at a competitive disadvantage.

http://seekingalpha.com/article/54417-the-pantry-f4q07-qtr-end-9-27-07-earnings-call-transcript?source=yahoo

Karen Holland - Lehman Brothers

Of course. Turning over to your comments on ethanol, looking at the price differential, I know you said that -- I’m sure a lot of your competitors are also going to be going out and buying the ethanol blend. You don’t believe that there would be any benefit that would come from being able to buy 10% or so of the product at a considerable discount, as far as how it would impact the margins?

Peter J. Sodini

I think there is absolutely a significant benefit for buying ethanol because of the price differential with gasoline. We also assume that some of our other competitors also have good mathematical facility and will probably be doing the same thing.

In the Southeast, because of the pipeline, because of the fact that ethanol can’t travel up the pipeline, so it has to come in either over the water or on rail, the logistics are not well developed here, and thus you haven’t seen -- I think what you will see is a transitional movement to ethanol blends over the next probably 12 or 14 months.

If we were the only one doing it, we would say that it would be a boom to our earnings but the facts are others are getting into it and we all will get into it because the 10% blend right now with the ethanol pricing is extremely attractive.

So we weren’t trying to play down the impact of it, but more to be conservative as to the [inaudible] impact because quite frankly, we don’t know. We don’t know what other people’s plans are, what their transition plans are. We know what ours are at the moment and we will continue to phase it in. I think by within a year we’ll have it in a high percentage if not all of our stores.

Karen Holland - Lehman Brothers

And would that be going just for the private label gasoline that you sell?

Peter J. Sodini

No, I think if you look at ethanol in other markets throughout the U.S., you’ll find that all the brands go to the -- in this case, 10% blending and they are all again in varying stages of transitioning to that so that they can do the injection at their terminals and then offer a 10% ethanol blend to their consumers. I think unbranded will have it as well as brand, and the question is timing as to sort of who gets to third base first.

Karen Holland - Lehman Brothers

And you all wouldn’t actually be doing the blending yourself, you actually would just be buying the blended product, so you wouldn’t have to actually build out any infrastructure, it would just be a matter of changing --

Peter J. Sodini

I wouldn’t assume the latter, that we wouldn’t be -- we wouldn’t be building any material infrastructure. It does not require a material infrastructure to blended ethanol, but there are some terminals that we will be doing our own blending, yes. But the capital requirements to support that is not a material item, and we may well only end up with someone partnering with us in that enterprise.

Frank G. Paci

And there is some R&M expense in converting a station to ethanol, but that will typically run through our gas margin and ultimately be offset by any kind of benefits from that, so --

Peter J. Sodini

Very quickly offset, I mean in some cases, for instance, on a high volume location, probably a couple, three [days] cover, will cover about $2,400 a store to clean up tanks and get them prepped for the ethanol.

We have had ethanol mandated in the Richmond market. We don’t have a lot of stores there but we’ve been in that market with ethanol, E10 blend for now going on two years. We think we know it. It’s not a particularly difficult item to, or risky item to handle and we’ve had virtually no problems with it in Richmond. We would expect no problems with it in the remainder of our chain, say for the normal transition type of problems we have in getting into the category.

Karen Holland - Lehman Brothers

Okay, great. I’ll past it on to someone else and get back in the queue. Thanks so much..........

.........Karen Short - Friedman, Billings, Ramsey

Okay, so how many stores do you think might be offering the E10 by the end of the year, by ’08?

Peter J. Sodini

By the end of fiscal ’08?

Karen Short - Friedman, Billings, Ramsey

Yes.

Peter J. Sodini

I don’t want to be evasive, but let me answer it this way; as many as we can get done and transitioned, and as rapidly as we can do it. But as I said, the logistics in this part of the country are not well developed on ethanol and it is a bit more cumbersome, although it is moving rapidly because of the opportunity and the fact that big oil has generally lagged in the Southeast in terms of ethanol converted into any of their terminals -- they are in process but they are behind -- we’ve seen a lot of entrepreneurial verve out there and new business start-ups and everybody and their brother seems to be a broker on ethanol.

So you have to ferret through that process and get somebody that’s reliable, somebody that’s large, but we’re going to do as many conversions as we can get done.