SANFORD, N.C. -- What a difference three months can make. In November, when Peter Sodini, chairman and CEO of The Pantry, reported the company's fourth-quarter 2006 results, he crowed, We are pleased with our record earnings for the quarter and the year.
Yesterday, on a conference call to report first-quarter 2007 results, Sodini opened his comments with a grimmer tone: The first quarter was a terrible quarter.
With gasoline pricing stable calm during October and November, The Pantry reported average gasoline margins of 8.6 cents [image-nocss] per gallon (cpg) for the quarter, well below the average 12.8 cpg for the 12 months ending December 31, and dramatically down from the 21.2 cpg the company saw the previous year in the wake of Hurricane Katrina.
This quarter's primary highlight [was] what we believe to be the lowest quarterly gas margins in the past 12 years, Sodini said. We feel this historical anomaly was spawned by an absence of volatility in the commodity market and is unlikely to be replicated in the near-term.
To compensate of a regular basis, Sodini said he and his team focus our time and energy more on executing our strategies for steadily growing our merchandise business and expanding [our] store base both organically and through acquisitions rather than try to beat the gasoline system.
We try not to focus too much internally on short-term cycles in the gasoline business, he said. Of course we did the best we can to optimize our gasoline profitability using technology as well as our proprietary gasoline system. But on a day-to-day basis, we have to play the cards the way they're dealt in the gasoline business, and to a large extent, our margins are dictated by the market place.
CFO Dan Kelly said the company still projects the average gasoline margin for the full year to be approximately 12.5 cpg.
On the bright side, Sodini reported, From a strategic standpoint, it was actually one of the most productive quarters in the company's history as we negotiated the acquisition of more than 130 convenience stores. In addition, it's not just the number of stores, it's also the quality of facilities and the real estate.
He pointed to the purchase of 66 Petro Express stores in the Charlotte, N.C., area as a prime example. Those sites have an average parcel size of approximately 1.5 acres, he said. In fact, the strength of Petro Express is the reason why we generally have not focused on growing in Charlotte, until now.
The company has now acquired or agreed to acquire 133 convenience stores in fiscal 2007, more than the 113 acquired during the full 2006 fiscal year. The largest transactions, in addition to the Petro Express purchase, include 24 Sun Stop stores in Florida, Georgia and Alabama; and 16 Angler's Mini-Mart stores in the Charleston, South Carolina market.
Total revenues for The Pantry the first quarter were approximately $1.4 billion, a 5% increase from last year's first quarter. Net income was $125,000, or cent per share on a diluted basis, compared with $33 million, or $1.45 per share, a year ago.
Merchandise revenues for the quarter rose 10.3% from a year ago, and were up 1.9% on a comparable store basis. The merchandise gross margin was 37.6%, a 10 basis point improvement from last year's first quarter. Total merchandise gross profits for the quarter were $131.3 million, a 10.6% increase from a year ago.
Total gallons sold in the quarter increased 14.0% from a year ago, and were up 2.0% on a comparable store gasoline gallons basis. Gasoline revenues rose 3.3%, despite a 9.4% decline in the average retail price per gallon, to $2.21. The gross margin per gallon was 8.6 cents, compared with 21.2 cents a year ago. Gasoline gross profit for the quarter totaled $40.2 million, compared with $86.6 million in last year's first quarter.
As we expected, our first-quarter results were significantly affected by unusually low gasoline margins relative to our historical seasonal trends, especially compared with very strong gas margins a year ago, Sodini said in a press release. In addition, we faced difficult comparisons in both merchandise and gasoline sales with the post-Hurricane Katrina period a year ago in the Gulf Coast region. We are pleased to report that gasoline margins and comparable store revenue trends improved at the end of the first quarter, and the improvement has carried over so far in our second quarter.
Sodini concluded, Including approximately 18 cents of accretion related to the acquisitions we have announced or completed so far this year, we now expect our fiscal 2007 earnings per share to be between $2.75 and $2.90. This guidance range incorporates the assumption that gasoline margins will be more in line with historical trends over the balance of the year. Longer term, we remain focused on consistently growing our merchandise business, optimizing gasoline profits, and strategically expanding the store base to leverage our strong regional market share across the Southeast.
With headquarters in Sanford, 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, with revenues for fiscal 2006 of approximately $6 billion. As of Jan. 18, 2006, the company operated 1,524 stores in 11 states under select banners, including Kangaroo Express, its primary operating banner.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.