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SANFORD, N.C. -- The Pantry Inc., the leading convenience store operator in the southeastern United States, today announced financial results for its fourth quarter and fiscal year ended Sept. 25, 2003, that were in line with its recently increased guidance.
For the fourth quarter of fiscal 2003, the company's net income was $6.3 million, up significantly from $1.4 million in the corresponding period last year. EBITDA for the quarter was $36.9 million, a 24.2-percent increase from $29.7 million a year ago. The Company defines EBITDA as earnings before interest, taxes, depreciation, amortization, and cumulative effect of change in accounting principles.
Gross profit for the fourth quarter was $136.7 million, a 9.5-percent increase from $124.8 million a year ago, reflecting comparable store increases in merchandise sales and gasoline gallons, as well as improved profitability in both parts of the business. Merchandise sales, which continue to account for about two-thirds of the company's total gross profit, rose 2.4 percent on a comparable-store basis, the company's eighth consecutive quarterly increase. The merchandise gross margin for the quarter was 34.7 percent, up 120 basis points from 33.5 percent a year ago. The improvement reflects the impact of cigarette deflation as well as benefits from the company's merchandise reset initiative launched last year and its ongoing programs to upgrade and enhance the profitability of its product mix across all merchandise categories.
Comparable-store gasoline gallons for the quarter rose 3.1 percent, representing the company's largest quarterly increase of the fiscal year. The average retail price of gasoline was up 12.7 percent from a year ago, and the gross margin per gallon of 12.0 cents was significantly improved from 10.1 cents in last year's fourth quarter. Primarily reflecting the higher average gasoline price, The Pantry's total revenues for the quarter were $740.5 million, a 9.8-percent increase from $674.5 million a year earlier.
President and CEO Peter J. Sodini commented, "Our improving financial performance reflects the cumulative benefits of our focus on store operations over the last few years, as well as several specific initiatives that significantly enhanced results for the fourth quarter and full fiscal year. Through our comprehensive merchandise reset program, launched in fiscal 2002 and completed last spring, we fine-tuned product assortments, upgraded our presentation in key categories and rationalized store layouts, boosting store sales and merchandise margins. Our new gasoline branding and supply agreements, developed after extensive research and announced last March, consolidated our supply relationships with BP Amoco, Citgo and Chevron, resulting in significant immediate cost savings. In addition, continued improvements in our proprietary Gasoline Pricing System, along with more favorable market dynamics during fiscal 2003, have helped us increase our average gasoline margin."
As of Sept. 25, 2003, the Company had completed the gasoline conversions and/or image upgrades related to the branding and supply agreements at a total of 173 locations, including 68 stores to BP Amoco, 40 stores to Citgo and 65 stores to the Kangaroo private-label format. All of these stores have also been converted to Kangaroo Express branding for their merchandise operations. Over the next two years, a total of approximately 1,000 stores will be converted to Kangaroo Express on the merchandise side and converted and/or reimaged to BP Amoco, Citgo or Kangaroo on the gasoline side, providing The Pantry with a much more consistent brand identity across its regional markets.
Sodini added, "From a strategic standpoint, the highlight of the quarter clearly was our acquisition of 138 Golden Gallon convenience stores from Ahold USA, which we announced in August and completed last month. Golden Gallon's high-volume stores and very attractive mix of locations in Tennessee and Georgia represent an excellent fit with our existing store base. Moreover, the financial impact of the transaction is compelling, as just over half of the $187-million purchase price was funded through a sale/leaseback transaction, and we see the potential for $8 to $10 million of synergies within two years. Nearly half that amount should be realized almost immediately, and we believe the acquisition will be significantly accretive in fiscal 2004, with a net positive contribution to our earnings per share of 40 to 45 cents. The integration of all back-office and store systems and initial training of personnel has already been completed. Additionally, the remerchandising of the interior of the stores is on schedule to be completed by Nov. 21."
"With the addition of Golden Gallon, we believe The Pantry's financial performance will be by far its best ever in fiscal 2004," he said.