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    Pantry's Q3 Net Income Sees Big Drop

    Merchandise revenues holding steady, gasoline revenues drop 41 percent.

    CARY, N.C. -- Convenience store operator The Pantry Inc. reported its net income for its third fiscal quarter dropped to $43,000, compared with $10.7 million during the period last year, as merchandise and gasoline gross profits slipped.

    "During the quarter we experienced a weak gas margin due to a sharp rise in wholesale gasoline costs," Chairman and CEO Peter J. Sodini said. "While our retail gas margin was below average for the quarter, the year-to-date margin was still strong at 15.3 cents per gallon and we believe we remain on target for a full-year gas margin well above our long-term average and in line with our previous guidance.

    "Third-quarter results were also affected by the ongoing economic softness in our markets and by higher tobacco excise taxes."

    The independent Southeastern convenience store chain, whose quarter ended June 25, 2009, reported earnings before interest, taxes, depreciation and amortization of $48 million, compared to $66.1 million a year ago. Net cash provided by operating activities was $41 million, compared with $60 million in the third quarter fiscal 2008.

    Merchandise revenues for the quarter were up 0.5 percent overall and 0.2 percent on a comparable store basis from a year ago. Merchandise gross margin was 35 percent, down from 36.5 percent a year ago, primarily due to increased taxes on cigarettes and other tobacco products. Total merchandise gross profit for the quarter was $151.1 million, down 3.5 percent from the corresponding period a year ago.

    Retail gasoline gallons sold in the quarter were up 0.3 percent overall and down 0.5 percent on a comparable store basis. Excluding diesel gallons, comparable store gallons sold increased 1.4 percent from a year ago.

    Still, total gasoline revenues fell 41.2 percent, primarily due to a 40.4-percent year-over-year decline in the average retail price per gallon, to $2.21. The retail gross margin per gallon was 9.3 cents, compared with 10.7 cents a year ago. Total gasoline gross profit for the quarter was $50 million, down 13 percent from a year ago.

    Total store operating and general and administrative expenses (G&A) were $153.2 million, up 3.3 percent from the prior year. However, store operating expenses of $125.4 million were down 0.6 percent from a year ago.

    During the quarter, the company completed the acquisition of 38 c-stores from Herndon Oil Corp.

    The company has $215.4 million in cash on hand and approximately $143 million in available capacity under its revolving credit facilities.

    "Our strong cash flow from operations during the first nine months of fiscal 2009 has enabled us to acquire 41 stores for $48 million and to reduce our debt and lease financing obligations by $52 million without a significant change in our cash position," Sodini noted.

    The company provided updated guidance ranges for its expected fiscal 2009 performance that include the impact of acquired stores as well as recent increases in state tobacco taxes in Florida and Mississippi. The Pantry forecast merchandise revenues of $1.65 billion to $1.66 billion; retail gasoline sales of 2.06 billion to 2.07 billion gallons; merchandise gross margin of 35.4 percent to 35.7 percent and retail gasoline gross margin of 14.4 cents to 15.4 cents per gallon.

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