Pantry Inc fka PTRY

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The Pantry Announces Second Quarter Financial Results
The Pantry, Inc. (NASDAQ:PTRY), the leading independently operated convenience store chain in the southeastern U.S., today announced financial results for its second fiscal quarter ended March 27, 2008.

Total revenues for the second quarter of fiscal 2008 were approximately $2.0 billion, a 39.9% increase from the corresponding period a year ago. The net loss for the quarter was $5.1 million, or $0.23 per share, compared with net income of $8.4 million, or $0.36 per share, for the corresponding period a year ago. EBITDA for the second quarter of fiscal 2008 was $40.1 million, compared with $51.0 million a year ago.

As previously announced, results for the quarter include $0.23 per share in realized and mark-to-market losses on gasoline hedging positions. Results for last year’s second quarter included a net one-time benefit of approximately $0.09 per share, primarily from an insurance settlement. After excluding one-time items in both years, the Company was at a nominal net loss and produced $48.5 million in EBITDA in the second quarter of fiscal 2008 versus $0.27 in earnings per share and EBITDA of $47.5 million in the second quarter last year.

Merchandise revenues for the second quarter were up 5.4% overall, but down 3.4% on a comparable store basis. The merchandise gross margin was 37.5%, compared with 37.7% in the corresponding period last year and 37.0% in the first quarter of fiscal 2008. Total merchandise gross profit for the quarter was $142.5 million, a 4.6% increase from the corresponding period a year ago.

Retail gasoline gallons sold in the quarter increased 9.4% overall, but declined 3.4% on a comparable store basis. Retail gasoline revenues rose 48.4%. The average retail price per gallon was $3.10, up 35.4% from $2.29 a year ago. The retail gross margin per gallon was 9.0 cents, compared with 11.5 cents a year ago. Excluding the hedging loss, the retail gas margin in the quarter was 10.6 cents per gallon, which is higher than the Company’s second quarter retail gas margin in four of the last six years, despite the significant rise in crude oil prices this year.

The Company continued to manage expenses well in the second quarter. Average operating expenses per store were essentially flat year on year despite higher utility costs. General and administrative costs increased $1.7 million from the second quarter of 2007, but were down $1.8 million excluding a one-time net benefit of $3.5 million reported in the prior year quarter. The Company achieved the reduction in expenses despite operating an average of 104 additional stores in this year’s second quarter.

For the first six months of fiscal 2008, total revenues were approximately $4.0 billion, a 41.5% increase from the first half of fiscal 2007. The net loss for the first six months of the year was $1.8 million, or $0.08 per share, compared with net income of $8.5 million, or $0.37 per share, in the corresponding period last year. EBITDA for the first half of fiscal 2008 was $93.7 million, up 8.5% from $86.3 million in the first half of fiscal 2007. Excluding the hedging loss, net income for the first half of fiscal 2008 was $3.0 million and EBITDA was $102.1 million, with a retail gasoline margin of 10.6 cents per gallon this year versus 10.1 cents per gallon in the first half of last year.

Chairman and Chief Executive Officer Peter J. Sodini said, “The continued rise of crude oil prices and the current soft retail environment have resulted in challenging operating conditions so far this year. We have continued to focus on improving our productivity, as evidenced by our expense management performance, and plan to keep a tight rein on the business until market conditions improve. To that end, we have reduced our fiscal 2008 net capital expenditure target by another $20 million, to approximately $90 million, and are suspending any additional acquisition activity for the remainder of this calendar year. We also do not have any plans to repurchase stock at this time. We expect these actions to contribute significant additional free cash flow in the second half of the year as our business ramps up during the peak summer season.”

The Company has exited all of its gasoline hedging positions and has no plans to pursue any further gasoline hedging activities at this time. Mr. Sodini said, “Clearly our gasoline hedging program did not perform as we had expected. We are now out of all of our positions and expect to take an additional after-tax charge of approximately $900 thousand, or $0.04 per share, in the third quarter.”

With respect to the balance sheet, the Company had substantial liquidity at the end of the quarter, consisting of un-drawn availability and cash on hand. Subsequent to the end of the second quarter of fiscal 2008 the Company exercised the delayed draw option under its credit facility, which allowed the Company to add $100 million to its term loan with the same attractive pricing and other terms as the existing term loan. While the delayed draw was not necessary to meet immediate needs, the Company exercised this option due to the facility’s favorable terms, including pricing of LIBOR plus 175 basis points, which would otherwise have been unavailable after May 15, 2008. The Company used the proceeds to repay outstanding indebtedness on its revolving credit facility and to provide additional liquidity. After reflecting the impact of the delayed draw, the Company will have approximately $129 million of cash on hand and $145 million available under its revolving credit agreement. The company is currently, and expects to remain, in compliance with all of the applicable debt covenants under its outstanding instruments.

The Company remains comfortable with the fiscal 2008 guidance ranges provided last month.

Conference Call

Interested parties are invited to listen to the second quarter earnings conference call scheduled for Tuesday, May 6, 2008 at 10:00 a.m. Eastern Time. The call will be broadcast live over the Internet and will be accessible at www.thepantry.com or www.companyboardroom.com. An online archive will be available immediately following the call and will be accessible until May 13, 2008.

Use of Non-GAAP Measures