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SANFORD, N.C. -- The third fiscal quarter of 2007 for The Pantry Inc., operator of more than 16,000 convenience stores based here, saw earnings below the comparable year period, as lower margins affected earnings.
While total revenues increased 24.8 percent to approximately $2.1 billion during the quarter, net income fell to $12.6 million, compared to the $20.3 million seen a year ago.
"Although there were some encouraging developments ... this was clearly another challenging quarter for the Pantry. Overall our net income and earnings per share were well below a year ago, at the time was due to lower gasoline margins and the above average a year ago, and costs incurred in the recently completed refinancing," said chairman and CEO Peter J. Sodini.
The results for the third quarter of fiscal 2007 also include a charge of approximately $0.06 per share for deferred financing costs, associated with the company's refinancing of its credit facilities.
For the third quarter, merchandise revenues increased 15.8 percent and 1.9 percent on a comparable store basis. Merchandise gross margin was 36.6 percent, dipping slightly from the 37.4 percent seen in the year-ago period. The fall was attributed to the impact of newly acquired stores, which generally have margins below the company average, the company stated.
Retail gasoline gallons sold in the quarter increased 19.9 percent and 1 percent on a comparable store basis. While retail gasoline revenues rose 24.5 percent, retail gross margin per gallon was 12.8 cents, compared with 14.1 cents a year ago.
For the third quarter, gasoline margins were "very much in line with historical norms for this quarter, but was substantially lower than the 0.14 cent margins seen a year ago," Sodini said.
However, no prediction could be made for the future gasoline margins: "As it is painfully obvious based on last year and the year before, it is very difficult to even forecast quarterly gasoline margins with any degree of certainty and confidence," he said.
"We believe our results for the quarter at the store level represent a respectful performance in the face of a very tough retail environment," said Sodini, noting that comparable store sales and gas gallons sold are "solid numbers in our current environment, especially considering our mix of regional marketing areas."
"In Florida, where we have our largest concentration of stores and across the Gulf Coast in Alabama and Mississippi, consumer spending in general has been relatively soft this year. Partly due to tough comparisons with post Hurricane Katrina activity a year ago and partly, we believe due to the downturn in the housing sector."
During the quarter, the company completed the integration of all its acquired stores, including the 66 Petro Express convenience stores it acquired earlier this year. To date all stores are operating within the range of the company's initial expectations, Sodini said.
In addition, The Pantry also signed fuel supply agreements with Chevron to provide branded fuel to the Petro Express locations. "Under that agreement we are currently in the process of converting all the Petro Express stores to Chevron stores with the Texaco brand, which enjoys excellent brand recognition in the Carolinas."
To date, the company has completed 19 conversions, Sodini said, noting he plans to have all the stores rebranded by the early part of November.
So far in 2007, The Pantry acquired 152 convenience stores, exceeding the 113 stores acquired in fiscal 2006. The company also opened eight new, large format stores in the first three quarters, and expects to open approximately 16 for the full year.
The company continued its acquisition slowdown during the quarter.
"We will not, however, cease looking at opportunities, but they would have to be very, very attractive from the standpoint of accretion and compelling from a strategic perspective," Sodini concluded.