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    The Pantry Opens up to Acquisitions

    Fourth quarter and fiscal 2008 results show liquidity to make strategic fill-in purchases.

    SANFORD, N.C. -- It was a long time coming, but The Pantry Inc.’s strong fourth quarter and fiscal year results allow it to resume its acquisition strategy after a two-quarter abstinence.

    "We had a pretty good final quarter to conclude an unprecedented year, particularly from the perspective of cost volatility. Despite the incredibly challenging environment, we closed our fiscal 2008 on a strong note," Chairman and CEO Peter J. Sodini said during a conference call with investors. "Given our current outlook for a relatively strong first quarter as well, we have decided to begin looking at selected acquisition opportunities again."

    He continued, stating there are many potential opportunities to grow through "accretive ‘tuck in’ acquisitions" that complement its existing base in the Southeast. "We believe the market is ripe for further consolidation. We will, however, be selective in considering opportunities, and any potential deal would have to meet specific criteria, particularly a level of earnings above accretion," he said.

    However, don’t expect the company to purchase a large amount of stores anytime soon.

    "By saying we are now interested, we don’t want to convey we are out there looking for 700-, 800-store acquisitions," he said. "We are looking at individual stores or pockets of stores that fit into our existing markets where we have critical mass."

    In addition, the company plans to build 14 new stores in fiscal 2009.

    For the fourth quarter and year ended Sept. 25, The Pantry generated revenues of approximately $2.5 billion, a 24.5 percent increase from the corresponding period a year ago. Net income jumped to $22.9 million, from $5.6 million in last year’s fourth quarter, the company stated. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the fourth quarter were nearly 50 percent higher than a year prior, reaching $87.4 million from $58.5 million.

    The fiscal 2008 results were also respectable, with total revenues increasing more than 30 percent to $9 billion, from $6.9 billion in fiscal 2007. Net income reached $31.8 million, up 18.9 percent from $26.7 million a year prior. EBITDA for fiscal 2008 rose 15.5 percent to $247.2 million from $214 million in fiscal 2007, according to the company.

    While the overall fourth quarter results were promising, the retailer saw merchandise revenues decline 0.7 percent overall and fall 2.5 percent on a comparable-store basis for the fourth quarter. Total merchandise gross profit for the quarter was $149.7 million, down 7 percent from the corresponding period a year ago, the company stated.

    Meanwhile, retail gasoline gallons sold during the fourth quarter of 2008 fell 4.7 percent overall and declined 6.8 percent on a comparable store basis. Gasoline revenues, though, rose 33.1 percent due to a 39.5 percent jump in average retail price per gallon, to $3.85. Sodini said during the conference call that the chain’s markets have been hit harder in terms of a reduction in miles driven than other areas of the U.S.

    The full-year results were stronger, with merchandise revenues totaling approximately $1.64 billion, up 3.9 percent overall and total merchandise gross profit for fiscal 2008 rose 1.6 percent to $595.1 million, according to the company, In addition, retail gasoline gallons sold for the year rose 3.5 percent overall to approximately 2.1 billion, but were down 4.4 percent on a comparable store basis.

    Sodini attributed lower figures to the impact of record oil and gas prices during fiscal 2008. "We experienced unprecedented and nearly continuous increases in oil and gasoline prices for the first three quarters of this year, which adversely affected our gas volumes, merchandise sales and put significant pressure on our gas margins," he said.

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