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    Pantry Slows Acquisition Pace

    Announcement comes with the report on one of the most active quarters in the company's history.

    SANFORD, N.C. -- During The Pantry's second-quarter results conference call with investors, chairman and CEO Peter J. Sodini revealed the company will be slowing its rate of acquisitions for the next two quarters.

    "With everything we've already done this year, it's reasonable to assume that the bar has been raised somewhat -- at least for the next couple of quarters -- in terms of the criteria we need to meet before we go ahead with [acquisitions]. We are not going to stop looking and talking with people, and we absolutely have the financial capacity to do more deals, but our preference would be clearly to slow the pace down for a while," Sodini said.

    The markets the company operates in are still active, and the company is still "looking at a lot of product and also in the process of screening out a lot of product," he added.

    The second quarter for the company saw acquisitions reach 120 stores, with the largest being the 66-location Petro Express deal completed earlier this month. The second quarter was one of the fastest quarters the company has seen in some time, according to Dan Kelly, CFO of The Pantry. Seven new-build stores have been opened so far this year, and the company plans to open another 11, to bring that number to 18, to complement the acquisitions in the markets the company operates and "fill in" those areas, Sodini said.

    The break will not last long, however. For 2008 and after, the company will give acquisition growth a "much higher priority" than organic new store growth, Sodini said.

    The recent acquisitions "truly enhanced long-term earnings power of the company … we're better positioned than ever to be a convenience store leader in the Southeast and have the financial ability to continue building our store base over time," he concluded.

    The acquisitions also had an impact on the company's second quarter results.

    Operating, general and administrative expenses increased 16 percent compared to a year ago, due to integration of newly acquired stores, professional and consulting fees and certain store variable expenses, the company stated.

    Total revenues for the company's second quarter increased 10.7 percent from the year-ago quarter to $1.5 billion. Net income totaled $8.4 million, down from the $9.2 million seen a year ago.

    "We are disappointed with our bottom line for the second quarter, which primarily reflects the unprecedented concentration of acquisition-related activity during the period," said Sodini in a written statement. "However, we are pleased with the continued solid performance of our merchandise operations in the quarter, despite sluggish retail sales trends in several of our key regional markets."

    Merchandise revenues rose 11.7 percent overall and 2.7 percent on a comparable store basis. Merchandise gross margin reached 37.7 percent and total merchandise gross profits increased 12.1 percent, to $136.2 million.

    As a result, the company is lowering its guidance for fiscal 2007 earnings per share to $2.30 to $2.40.

    "Although we almost certainly will fall short of last year's unusually strong results, we have made significant strategic progress this year, strengthening our position as the Southeast’' leading convenience store operator and enhancing our longer-term earnings power," Sodini said.

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