"I want to emphasize that our planned operating-expense reductions will not affect the Program Fresh rollout," said president and CEO Terry Marks, referring to the chain's year-old foodservice initiative. "We have now [remodeled] over 130 stores [for Program Fresh] in Raleigh and Charlotte [image-nocss] and remain confident of completing at least 400 by the end of 2011."(Click here for previous CSP Daily News coverage of The Pantry's Program Fresh.)Program Fresh was a bright spot in The Pantry's first-quarter earnings report, which was otherwise peppered with red ink.
"Program Fresh continues to outperform expectations in the first quarter with a rate of merchandise sales growth that exceeded like-stores by mid-single digits," Marks said on an earnings conference call with analysts.
Elsewhere, however, "our fiscal first quarter saw a deceleration of merchandise sales growth and a very challenging fuel-margin environment," Marks said. "Combined, these factors led to quarterly results that were, in a word, disappointing."
In the first quarter, The Pantry saw a net loss of $12.2 million. While total merchandise revenue was up 0.5% and up 1.3% on a comparable-store basis, retail fuel gallons sold were down 6.0% overall and down 5.2% in comparable stores.For complete earnings results, see related story elsewhere in this issue of CSP Daily News.
Much of the trouble came in December when rough weather hit the Southeast.
"With respect to inside sales, the quarter began in line with expectations as October comparable store merchandise sales grew 5%, continuing the robust performance we had experienced in the preceding fiscal fourth quarter," Marks said. "As we had anticipated, our rate of growth slowed in November as we hurdled prior year growth of nearly 8%.
"December's performance, however, was well below expectations, which we attribute largely to the unusually heavy snow and ice experienced throughout the Southeast, particularly over the final three weeks, which drove a comparable store sales decline of 1.3% for the month."
Through the first five weeks of the second quarter, The Pantry has seen merchandise-sales growth at a rate roughly in line with fullfirst-quarter growth level, he added, leading the chain to develop some "expense reductions...to ensure in-store profit growth."
"We are quickly taking actions to respond to our current business challenges," Marks said. "These actions are directly informed by our experience in the first quarter, but of equal importance, they also reflect an awareness of the quarterly earnings volatility that is inherent in our business due to gasoline price fluctuation."
He added, "Consequently, we are ensuring that our response is executed in a manner that reflects this expectation and does not compromise our commitment to investing in Program Fresh, our core foodservice initiative and a requirement to increasing profitability and shareholder value over time."
The results of the actions were reflected in The Pantry's change of fiscal guidance for full-year 2011: Total merchandise sales lowered to between $1.8 billion and $1.84 billion. Total retail fuel sales lowered to 1.98 billion and 2.05 billion gallons. Average fuel margin lowered to between 11.5 and 13.5 cents per gallon. Capital expenditures lowered to be between $105 million and $115 million. Based in Cary, N.C., The Pantry is the leading independently operated convenience store chain in the southeastern United States and one of the largest independently operated convenience store chains in the country. As of February 7, 2011, the company operated 1,662 stores in 13 states under select banners, including Kangaroo Express, its primary operating banner.
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