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    The Pantry Reports Better Sales, Income

    Merchandise revenues are up, but gallons sold fall during the second quarter.

    SANFORD, N.C. -- The second quarter of 2009 was better than the first, as The Pantry Inc. saw its merchandise revenues for the quarter ending March 26 grow 2.4 percent overall, and 1.3 percent on a comparable store basis from last year’s performance.

    The operator of 1,647 convenience stores in 11 states, under the Kangaroo Express and other banners, recorded a merchandise gross margin of 37.2 percent, down from 37.5 percent a year ago, but up significantly from 35.5 percent in the first quarter. Total merchandise gross profit for the quarter was $144.8 million, up 1.6 percent from the corresponding period a year ago.

    Retail gasoline gallons sold in the quarter declined 4.9 percent overall and 6.4 percent on a comparable store basis. Excluding diesel gallons, comparable store gallons sold were down 4.4 percent. Total gasoline revenues fell 44.2 percent, primarily reflecting a 40.6 percent decline in the average retail price per gallon, to $1.84. The retail gross margin per gallon was 11.2 cents, compared with 9 cents a year ago. Total gasoline gross profit for the quarter was $55.4 million, up 18.1 percent from last year’s second quarter.

    "We are pleased to report solid second-quarter operating results in the face of a continued challenging retail environment," said Pantry Chairman and CEO Peter J. Sodini. "In our merchandise business, comparable sales and gross margins both showed sequential improvement from the first quarter. While gasoline gallons remained soft, our gas margin was relatively strong for the second quarter, historically the seasonal low point of our fiscal year. The results also benefited from our ongoing expense reduction initiatives."

    Net income for the quarter was $6.3 million, compared with a net loss of $5.1 million in last year’s second quarter. EBITDA was $49.8 million, compared with $40.1 million a year ago. Net cash provided by operating activities was $18 million, compared with $4.9 million in last year’s second quarter. Results for the quarter include $0.18 per share in gains on the extinguishment of debt, reflecting the repurchase of $26 million in principal amount of the company’s outstanding bonds at a discount. Results for last year's second quarter included $0.23 per share in losses on gasoline hedging positions.

    For the first six months of fiscal 2009, net income was $45.8 million, compared with a net loss of $1.8 million in the corresponding period last year. EBITDA for the first half of fiscal 2009 was $161.6 million, up 72.6 percent from $93.7 million in the first half of fiscal 2008. Net cash provided by operating activities was $106.9 million, compared with $31.2 million in the first half of fiscal 2008, the retailer reported.

    During the second quarter, the c-store operator repurchased $26 million in principal amount of its outstanding debt for an aggregate purchase price of approximately $19 million, resulting in a pre-tax gain of $6.7 million for the quarter.

    Year-to-date, the company has reduced its outstanding debt and lease finance obligations by $53.1 million, while also increasing its cash on hand by $26 million. At the end of the second quarter, the company had cash and cash equivalents of $242.8 million and an additional $145 million available under its revolving credit facility.

    Additionally, the company agreed to acquire 40 convenience stores from Herndon Oil, primarily in the Mobile, Ala. market. The acquisition, which is subject to regulatory approvals and other customary closing conditions, is expected to close in the second half of fiscal 2009.

    "We believe the repurchase of outstanding bonds at a discount and the pending acquisition both represent high-return investments on behalf of our shareholders and are key steps forward in executing our balanced strategy of reducing debt while growing the business," Sodini said.

    The company also provided updated guidance ranges for its expected fiscal 2009 performance. The new ranges include the expected impact of the recently enacted federal excise tax increase on cigarettes to support the State Children’s Health Insurance Program (SCHIP). The Pantry now expects to see 2009 merchandise revenues of $1.62 billion to $1.66 billion; retail gasoline sales of 2.02 billion gallons to 2.05 billion gallons; merchandise gross margin of 35.4 percent to 36 percent; and retail gasoline gross margin of 14 cents per gallon to 15.5 cents per gallon.

    Store operating and general and administrative expenses are expected to reach $617 million to $623 million for the year. Also expected are depreciation and amortization of $105 million to $107 million, and interest expense of $83 million to $85 million. These ranges do not account for the impact of the pending acquisition or any other potential acquisition, the company stated in its earnings release.

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