The Pantry to Remodel 10 Percent of Its Stores Each Year

CARY, N.C. -- The Pantry Inc. will begin to remodel 10 percent of its stores every year, President and CEO Dennis G. Hatchell revealed during the company's earnings conference call today.

Hatchell added that the goal of the remodels will be to improve its merchandise and foodservice programs, as well as create a better overall experience for its customers.

Included in the improved foodservice programs will be the addition of more quick-service restaurants [QSRs] the chief executive said. The Pantry now has 227 QSRs operating in its stores, 138 of which are Subway locations.

"Subway has been the brand of preference for us," said Hatchell. "Subway continues to do well for us. But we don't want to oversaturate the market. So [with the remodels], we will consider other alternatives if necessary."

The CEO added that the parent of Kangaroo Express stores will begin with remodels of its best performing stores and work its way down.

On a related topic, The Pantry said it was "continuing to divest stores that don't meet our expectations." As of the end of its 2012 fiscal third quarter, The Pantry operated 1,589 locations, following the closing of 19 stores in its latest quarter. The company expects to operate 1,575 stores by the end of this calendar year.

As for competitive landscape, Wawa's opening of Florida stores has been the biggest recent changes in The Pantry's operating area. According to Hatchell, about 15 Kangaroo Express stores are affected by Wawa's move. However, "We're looking at ways to respond to it," he said.

During its fiscal third quarter, The Pantry earned $14.8 million, compared to a $19 million profit last year. Comparable same-store merchandise sales increased 3.6 percent vs. the same period last year.

The one area of in-store sales weakness belonged to the tobacco category. "The cigarette part of our business was challenging," Hatchell said, "due to many manufacturer cost increases."

In-store traffic was down by 2 percent vs. the same period last year, but basket size increased by 6 percent during The Pantry's 2012 third quarter. "Our sales associates did a good job to make sure people who came in for Roo Cup refills bought more items while in store," noted Hatchell. "It's great momentum to build on."

Regarding fuel, The Pantry's gross profit in its latest quarter declined by 16.3 percent compared to the same period a year ago. But Hatchell said he was excited about a new supply agreement struck in June with Valero Corp., after a similar deal with Chevron Corp. expired.

"We look forward to introducing Valero fuels to our customers," he said.

The company is also investing in technology solutions, such as price optimization software, to improve its fuel results, according to Hatchell.

Hatchell also noted that the search for a new company CFO was ongoing. "Our goal is to pick the right person and not worry about how long it takes," he said.

Former Pantry CFO Mark Bierley left the company on May 25 to accept a job in Michigan.