SANFORD, N.C. -- Shocked by a $5 million loss, an increasingly rough economy and an unsuccessful hedging effort, The Pantry froze all merger and acquisition activity a year ago and vowed to tighten its financial ship. This week, with the nation firmly entrenched in a recession, The Pantry returns to form with record quarterly financial results, $254.8 million in the bank and a renewed effort to keep an eye on spending like never before.
"In view of the current challenging retailing environment, we're exploring all opportunities to increase the efficiency within our business," [image-nocss] chairman and CEO Peter Sodini said during a first-quarter earnings call with analysts. "Over the past 45 days, we've gone through every line item on the P&L. [The cost cutting] relates to all items, from reducing subscriptions to magazines to looking at reorganizing our business to run more efficiently. It runs the entire gamut.
"By increasing our efficiency and improving our balance sheet, we believe we are positioning our business to prosper when the economy turns around."
In its quarterly report, The Pantry announced net income for the quarter of $39.4 million, or $1.77 per share on a diluted basis, up sharply from $3.2 million, or $0.15 per share, in last year's first quarter. EBITDA was $111.9 million, a 109% increase from $53.6 million a year ago. Net cash provided by operating activities was $89.0 million, compared with $26.4 million in last year's first quarter.
"We're pleased to report today a record quarter in terms of earnings per share, EBITDA and operating cash flow," Sodini said. "These strong results primarily reflect the exceptional declines during the quarter in oil and gasoline prices, which enhanced our gasoline gross margin. We are pleased to have generated significant cash flow for the quarter, which enabled us to further strengthen our liquidity position."
The company ended the quarter with $254.8 million in cash and cash equivalents, up from $217.2 million at the end of the prior quarter.
"We are pleased with the increase in cash, as at the same time, we also reduced our debt by $26.1 million and spent $26 million on capital improvements this quarter," said CFO Frank Paci.
Sodini added, "While having a substantial amount of cash puts us in an enviable position, it also raises the question of what we'll do with the cash. In the current credit environment, we will first ensure that we have adequate liquidity to navigate the headwinds of the economy. We continue to evaluate our options and have taken into conservative approach."
Beyond that, Sodini said the company may pay off some outstanding debt or buy back bonds, essentially refusing to suggest any acquisitions are in the works. In fact, in fiscal 2009, the company intends to open only four new stores and could close as many as 20.
"Right now we're not planning a lot of new stores, depending on what happens in the market and what's available from an acquisition standpoint," said Berry Epley, vice president and corporate controller.
Merchandise revenues for the first quarter were down 1.3% overall and 3% on a comparable-store basis from last year's first quarter. The merchandise gross margin was 35.5%, compared with 37% a year ago. Total merchandise gross profit for the quarter was $138.7 million, down 5.2% from the corresponding period a year ago.
Retail gasoline gallons sold in the quarter declined 5% overall and 7.2% on a comparable store basis. Total gasoline revenues fell 21.5%, in part reflecting a 16.8% decrease in the average retail price per gallon, to $2.43. Total gasoline gross profit for the quarter was $130.1 million, up sharply from $56.2 million a year ago with retail gross margin of 25.8 cents per gallon vs.10.6 cents per gallon last year.
The company also announced the following updated guidance ranges for its expected fiscal 2009 performance (excluding potential acquisitions):
Merchandise revenues: $1.60 billion to $1.63 billion. Retail gasoline sales: 2 billion to 2.05 billion gallons. Merchandise gross margin: 36% to 36.3%. Retail gasoline gross margin: 14 cents to 16 cents per gallon. Store operating and general and administrative expenses: $615 million to $625 million. Depreciation and amortization: $105 million to $108 million. Interest expense: $85 million to $88 million. Based in Sanford, N.C., The Pantry is a leading independently operated convenience-store chain in the southeastern United States and one of the largest independently operated c-store chains in the country, with revenues for fiscal 2008 of approximately $9 billion. As of Feb. 3, 2009, the company operated 1,648 stores in 11 states under select banners, including Kangaroo Express, its primary operating banner.
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