CARY, N.C. -- With little same-store sales improvement to report in the fourth quarter of its 2011 fiscal year compared to the previous year, The Pantry Inc. convenience store chain is rethinking its pricing strategy on gasoline and cigarettes.
Comparable-store merchandise revenue decreased 0.8%, according to the company, as fuel gross profit increased modestly, up to $64.4 million compared to $61.9 million a year ago. Fuel gross profit was $58.1 million in the prior year period.
The results came as The Pantry attempted to grow margin at the pump and tested several cigarette-pricing strategies in light of Altria's Marlboro Leadership Price (MLP) program.
"Our strategy for most of 2010 and 2011 was our optimize gross margins in fuel," said interim CEO Edwin Holman during an earnings call with analysts yesterday. "As a result, we were not competitive in selective markets and stores, and it had a negative effect to topline sales."
For the near future, The Pantry will enact a more aggressive pricing strategy that it is hopeful will drive more traffic into its stores, increasing same-store sales.
"As we look forward to 2012, we are taking a more conservative view, especially in cigarette and fuel margins to better position us in the marketplace and gain back market share for long-term success," Holman said.
For the quarter, net income was $3.3 million, or 15 cents per share, compared to net income of $8.5 million or 38 cents per share, in last year's fourth quarter. (The fiscal 2010 quarter and year amounts presented included 14 and 53 weeks, respectively, one more week than the comparable periods of fiscal 2011.)
Adjusted EBITDA was $64.4 million, compared to $66.8 million a year ago. Adjusted EBITDA was $61.9 million in the prior year period, excluding the estimated impact of the 14th week.
Merchandise gross margin was 33.8%, compared to 34.4% a year ago.
Fuel gross profit was $64.4 million, compared to $61.9 million a year ago. Fuel gross profit was $58.1 million in the prior year period, excluding the estimated impact of the 14th week.
For fiscal-year 2011, net income was $9.8 million or 44 cents per diluted share, compared to a net loss of $165.6 million or $7.42 per share last year.
Adjusted EBITDA was $231.7 million, compared to $239.8 million in fiscal 2010. Adjusted EBITDA was $234.9 million in the prior year period, excluding the estimated impact of the 53rd week.
Merchandise gross margin was 33.9% compared to 33.8% in fiscal 2010.
Fuel gross profit was $257.1 million, compared to $264.7 million a year ago. Fuel gross profit was $260.8 in the prior year period, excluding the estimated impact of the 53rd week.
Net cash provided by operating activities was $178.7 million compared to $154.8 million in fiscal 2010.
Long-term debt, net of cash, was $533.4 million at the end of the fourth quarter, decreasing $25.3 million from the end of fiscal 2010. As a result of its cash flow performance in fiscal 2011, the company is required to make a prepayment of $27.6 million to its senior lenders during the first quarter of fiscal 2012.
"We delivered $64.4 million of Adjusted EBITDA in the fourth quarter of fiscal 2011, an estimated $2.5 million increase on a comparable-week basis; however, actions are needed to improve our comparable-store sales performance. Accordingly, fiscal 2012 represents an important transitional period for the company, as we focus on a pricing strategy that is intended to improve merchandise sales growth and align our gasoline volume with industry trends," said Holman.
Comparable-store merchandise sales in the fourth quarter decreased 0.8% in total and increased 0.6%, excluding cigarettes. Total merchandise gross profit for the quarter was $157.7 million, a decrease of 8.6% from the fourth quarter a year ago.
For the full year, comparable-store revenue increased 0.2% and 0.9% excluding cigarettes. Total merchandise gross profit for fiscal 2011 was $603.2 million, down 0.7% from a year ago.
Retail fuel gallons sold in the fourth quarter decreased 13.3% overall and 8.3% on a comparable store basis from last year's fourth quarter. Fuel gross profit for the fourth quarter increased 4.0% compared to the same period a year ago, primarily due to an increase in retail fuel margin per gallon to $0.135 compared to $0.112.
For the full year, retail fuel gallons sold were approximately 1.89 billion, down 7.7% overall and 7.4% on a comparable store basis from fiscal year 2010.
Headquartered 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 c-store chains in the country. As of December 9, 2011, the company operated 1,627 stores in 13 states under select banners, including Kangaroo Express, its primary operating banner.
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