CARY, N.C. -- The Pantry Inc.'s president and CEO Dennis Hatchell briefly used the occasion of the company's first-quarter fiscal 2014 earnings call to reiterate his endorsement of Thomas W. "Tad" Dickson, former CEO of Harris Teeter Supermarkets Inc., as a nominee to the convenience retailer's board of directors.
The nomination comes as a group of investors seeking a change in management has put up its own slate of three board nominees that it believes can better guide the company.
But industry observers expecting further discussion of the situation were disappointed. Hatchell did not take or receive questions on the board takeover attempt, which will play out at The Pantry's 2014 Annual Meeting of the Stockholders on March 13.
"If elected, Tad will bring to The Pantry nearly two decades of operational and management experience in the supermarket industry, including more than 15 years as a public company director. Tad's significant executive retail experience in the southeastern United States makes him highly qualified to serve on our board, and we look forward to benefiting from his insights going forward," Hatchell volunteered at the outset of the call.
He and other company leadership have rejected the qualifications of the directors nominated by Concerned Pantry Shareholders (CPS), a group led by JCP Investment Management LLC and Lone Star Value Management LLC, which together own nearly 2% of The Pantry shares.
CPS said The Pantry leadership has failed to hire someone within the convenience channel to an executive position, instead appointing mainly grocery industry executives to lead the convenience store chain.
Hatchell also talked about the weather. In answer to an analyst's question, he said, "We have all kinds of supply interruption with both our merchandise and our fuel because of road closures all across the Southeast [because of winter storms bringing snow to areas not accustomed to dealing with severe winter weather]. We've got … eight stores as of [Thursday] morning that could not open because we couldn't get employees--or roads open to them--to the stores. It's a big impact the storm has on us across the Southeast."
Instead of elaborating on the upcoming board election, he used the call more traditionally to discuss the company's performance for its fiscal first quarter ended Dec. 26, 2013.
It reported a net loss of $5.1 compared to a net loss of $3.1 million in last year's first quarter. Adjusted EBITDA was $42.4 million, down from $48.9 million a year ago.
Comparable store merchandise revenue increased 3.5%. Merchandise gross margin decreased to 33.5% from 34.3% in the prior-year quarter driven by promotional activity and sales mix.
Fuel gross profit was $48.7 million, compared to $49.2 million a year ago as comparable-store fuel gallons sold declined 4%. This was partially offset by retail fuel margin per gallon increasing $0.004 over the prior-year quarter to $0.118.
"We are obviously not satisfied with our fuel comp results, and we are working to improve our volume one market at a time with competitive and consistent pricing," Hatchell said.
Store operating and general and administrative expenses were $154 million compared to $147.2 million a year ago, as The Pantry upgraded its stores and incurred "significant" upfront training costs to support staffing realignment related to the Affordable Care Act.
"We gained further momentum in merchandise sales during the first quarter as comparable sales grew 3.5%, our strongest result since the third quarter of fiscal year 2012," said Hatchell. "Our 4.1% increase in sales per customer drove this growth as inside customer traffic levels stabilized. These encouraging results were supported by continued progress upgrading our store base. During the first quarter, we opened one new store, completed 28 remodels and added four new QSRs."
Concerning acquisitions, Hatchell said, "We've had several presented to us, and we're analyzing all of those. And basically, any others that don't fit into our market strategy and our approach strategy, we're not entertaining going after those. So that limits, obviously, how many are available. But we do have several in our current markets that are of interest. They're not very large, but they're of interest to us."
As of Jan. 30, 2014, the Cary, N.C., company operated 1,537 stores in 13 states under select banners, including Kangaroo Express, its primary operating banner. Its stores offer a broad selection of merchandise, fuel and ancillary products and services designed to appeal to the convenience needs of consumers, including fuel, car-care products and services, tobacco products, beer, soft drinks, self-service fast food and beverages, publications, dairy products, groceries, health and beauty aids, money orders and other services. In all states, except Alabama and Mississippi, it also sells lottery products. As of Dec. 26, 2013, it operated 221 quick-service restaurants and 252 of its stores included car wash facilities. It sells self-service fuel at 1,526 locations, of which 1,024 sell fuel under major oil company brand names including BP, CITGO, ConocoPhillips, ExxonMobil, Marathon, Shell and Valero.
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