In the second quarter of fiscal 2010 the Cary, N.C.-based company recorded a $162 million after-tax impairment charge to writedown goodwill.
President and CEO Terrance M. Marks said, "In view of the unusually cold and wet conditions experienced throughout our markets in the quarter, I am pleased we were able to deliver an earnings result in line with our expectations, excluding the charges. I want to emphasize that the goodwill impairment charge does not have any effect on our operations, liquidity or debt covenants and in no way is an indicator of our business outlook and strategy to build long-term shareholder value."
He continued, "Our second-quarter operating results reflect sequential improvement in merchandise margin and a heightened executional focus on fuel gross profit contribution. As the quarter ended, we saw improved merchandise sales performance and we are encouraged that this trend has continued into the third quarter. In addition, our cash position remains strong at $179 million, and we continue to make progress on our key strategic initiatives."
(See related story,"Independent Opportunities. The Pantry will sell off 80 properties across 11 states in the Southeast," in this issue of CSP Daily News.)
Total merchandise gross profit for the quarter was $138.2 million, down 4.6% from a year ago but up 1.4% from the first fiscal quarter. Merchandise revenues for the second quarter increased 5.1% overall and 3.6% on a comparable store basis from the corresponding period last year. The merchandise gross margin was 33.8%, down from 37.2% a year ago but improved 120 basis points sequentially from 32.6% in the first quarter of fiscal 2010. Merchandise gross profit a year ago benefited from an unusually high cigarette margin in advance of the federal excise tax increase.
Total fuel gross profit for the quarter was $65.7 million, up 18.5% from a year ago. Retail fuel gallons sold in the second quarter decreased 5% overall and 7.5% on a comparable store basis, in part reflecting weakness in miles driven in the company's markets, which on a weighted average basis were down 3.0% in the January-February period. Retail fuel revenue increased 38.5%, driven by a 46.2% increase in the average retail price per gallon to $2.69 from $1.84 in last year's second quarter.
Total store operating and general and administrative expenses for the quarter were $156.9 million, up $6.4 million versus a year ago. This increase includes the $3.1 million pre-tax charge related to the class action legal settlement.
Depreciation and amortization expense was $30.6 million, an increase of $4.3 million from the prior year. This increase includes $2.4 million in excess depreciation related to the acceleration on the assets related to the Chevron withdrawal from some of the company's marketing territories and the replacement of certain assets to meet credit-card compliance requirements.
As of May 3, 2010, The Pantry operated 1,647 stores in 11 southeastern states under select banners, including Kangaroo Express, its primary operating banner. The Pantry's stores offer a broad selection of merchandise, as well as fuel and other ancillary services designed to appeal to the convenience needs of its customers.
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