SANFORD, N.C. -- The Pantry Inc. said that it expects its gasoline gross margin and earnings per share for the fiscal year ending Sept. 27, 2007, to be below its previous targets. And in an effort to reduce expenses, the company has implemented a restructuring program that includes laying off an undisclosed number of employees.
While we certainly regret the human impact of our restructuring program, we realized we had to be more proactive in the current challenging environment to ensure that we can deliver the leverage we need on our operating, general [image-nocss] and administrative expenses, said Chairman and CEO Peter J. Sodini.
Based on preliminary data, the company said it expects its retail gasoline gross margin for the fourth fiscal quarter to be between 10.0 cents and 10.5 cents per gallon, bringing its fiscal year 2007 retail gasoline margin to approximately 10.9 cents per gallon, substantially below the approximately 11.5 cents per gallon that was previously expected. As a result, the company expects its earnings per share for the fourth quarter and the full fiscal year to also be below previous expectations.
Our merchandise business turned in a solid fourth quarter, with comparable sales above targeted levels and merchandise gross margins improved from the third quarter; however, we have not seen the seasonal improvement in gasoline gross margins that we have usually experienced after Labor Day, Said Sodini. To the contrary, our gas margins have declined this month, reflecting increased oil and gasoline prices, tight supplies and scattered refinery shutdowns.
And in an effort to reduce operating, general and administrative expenses, The Pantry has implemented a restructuring program aimed at reducing expenses by at least $6 million in fiscal 2008, which will necessitate a one-time charge in the fourth quarter of fiscal 2007.
Consistent with the practice of other convenience store operators, the company said it will no longer provide earnings per share guidance, but instead will provide greater detail about its expectations for a variety of key operating metrics.
The company provided additional details regarding its fiscal 2008 outlook. In view of the current near-record oil prices and volatile gas margins, it is broadening its target range for retail gasoline margins in fiscal 2008 to between 11 and 13 cents per gallon. Excluding potential acquisitions, the company expects merchandise sales to grow about 10% to approximately $1.7 billion and retail gasoline gallons to grow about 11% to approximately 2.3 billion gallons. These estimates reflect the full-year impact of 2007 acquisitions and targeted comparable store increases in merchandise sales and gasoline gallons sold of approximately 3% and 1%, respectively. The merchandise gross margin is expected to be about 37%.
It expects operating, general and administrative expenses as a percent of merchandise sales plus retail gasoline gallons, but not including wholesale gasoline gallons, to improve from approximately 16.5% in fiscal 2007 to approximately 16.1% in fiscal 2008.
In addition, the company has repurchased about 693,000 shares pursuant to its previously announced share repurchase plan.
Based in Sanford, N.C., The Pantry had revenues for fiscal 2006 of approximately $6 billion. As of Sept. 20, 2007, the company operated 1,645 stores in 11 states under several banners, including Kangaroo Express, its primary operating banner.
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