COUNTDOWN to Pantry Board Meeting (7 Days)

Retailer focuses on QSR strategy, argues for "measured expansion"

The Pantry board election

Editor's Note: Over the next week, CSP will post regular updates in the proxy battle brewing between executives at The Pantry and a “dissident” investor group that wants to shake up the retailer’s board of directors.

CARY, N.C. -- In its ongoing effort to counter the reports of several proxy advisory services that support a "dissident" investors group and to make its case in favor of its current board and strategy, The Pantry Inc. sent another letter to stockholders today in response to what it calls the "ill-informed arguments" made by Concerned Pantry Shareholders (CPS).

The Pantry, owner and operator of the Kangaroo Express convenience store chain, and CPS are painting very different portraits of the convenience store chain's financial history and management track record, as well as the potential for future performance, leading into the company's March 13, 2014, annual meeting of stockholders.

CPS is led by JCP Investment Management LLC, Houston, and Lone Star Value Management LLC, Greenwich, Conn.

The latest letter said that CPS "has undertaken an aggressive campaign of misinformation, and put forward an empty plan that illustrates a fundamental lack of understanding of our business, in an effort to put its director nominees on The Pantry's board. We believe the election of the dissident nominees would disrupt the ongoing progress your board and management team are making on the company's strategic plan. It is important for us to set the record straight with respect to the inaccurate statements made by the dissident group, in order to ensure that stockholders have all the facts when making this important decision about the future of their investment.

"The dissident group's 'plan' to enhance stockholder value presents no new ideas to create stockholder value and reflects a limited understanding of the company's business."

Much of the contention involves the quick-service restaurant (QSR) component of the business.

"The company's board and management team have clearly communicated and are actively implementing a QSR plan to drive stockholder value," The Pantry letter said. "Contrary to the uninformed insistence of the dissident group, The Pantry's QSR rollout plan is not constrained by capital. Your board and management have studied QSR market dynamics carefully and know that the optimal strategy for success is not an 'urgent-build plan,' but a measured expansion with top-tier QSR partners, taking into account market and brand availability, construction costs and store size. The company has 223 QSRs in place today and is targeting 20 new QSRs in 2014, with 40 to 50 new QSRs per year thereafter. In total, The Pantry has identified over 500 additional sites for potential QSR expansion.

"The performance of the company's existing QSRs indicate that this strategy is working. QSR comps have steadily improved over the last four quarters.

"Moving forward, the board and management team will continue to pursue this QSR opportunity in a thoughtful way that will best enhance stockholder value. The board's expertise and significant experience in retail and convenience store operations is far more relevant to this undertaking than the purported knowledge base of the dissident group's nominees."

It continued, "The dissident group has not put forth any new ideas with respect to QSRs. The dissident group's 'plan' is not a plan at all, but a naïve exhortation for 'faster' execution of our current strategy without any understanding of how to do so successfully. In fact, the one concrete suggestion that the dissident group does make is to 'hire outside professionals,' which is difficult to reconcile with the dissident group's claim that its nominees 'have significant experience in QSR, restaurant and specialty retail operations.’ "

Click here for more details on The Pantry's other arguments countering CPS' claims.

As of Jan. 30, 2014, The Pantry, based in Cary, N.C., operated 1,537 stores in 13 states under select banners, including its primary operating banner Kangaroo Express.

Part of CSP's 2014 Convenience Top 101 retailers