"While weather clearly impacted our results, we believe other factors contributed to the slowing of our sales momentum," said president and CEO Terry Marks during an earnings conference call with analysts this week, "including rising prices at the pump, and the economic well-being of our core shopper."[image-nocss]
The result, as reported in yesterday's CSP Daily News (click here to view the coverage), was a list of operating expense reductions "to ensure in-store profit growth." But before getting to that point, The Pantry needed to nail down what was part of a reasonable business cycle and what was an outright change in consumer behavior and required action.
Regarding gasoline prices, Marks noted, "Over the 13-week fiscal first quarter beginning in October, our average unleaded gasoline retail price per gallon increased approximately 15% and crossed the psychologically important $3 threshold in many of our locations by the end of December."
This increase was significant in the Southeast, and particularly in Florida and South Carolina.
"While nationally there are some indications that the broader, macro-economy may be improving, many of our markets in the Southeast continue to see declining housing values and consequently, a lack of construction activity, traditionally the primary engine of regional job growth," Marks said. "Building-permit issuances in our markets, a key leading indicator of construction activity, further softened in the fiscal first quarter after initially moving into negative territory upon the conclusion of the first-time homebuyers' tax credit last summer."
Together, the continued tough economy and increasing gas prices took their toll on The Pantry.
"While weather conditions affect everyone similarly, rising fuel prices have the greatest impact on that segment of the population that is struggling most to make ends meet, a characteristic that defines the convenience retail channel's core shopper," Marks said.
Still, Marks noted the cyclical nature and volatility of gasoline pricing and margins.
"We are quickly taking actions to respond to our current business challenges. These actions are directly informed by our experience in the first quarter, but of equal importance, they also reflect an awareness of the quarterly earnings volatility that is inherent in our business due to gasoline price fluctuation," he said.
"While low fuel margins, such as those we experienced in the first quarter, exacerbate an already challenging business environment, history shows that margins tend to normalize over the course of the full year. Consequently, we are ensuring that our response is executed in a manner that reflects this expectation and does not compromise our commitment to investing in Program Fresh, our core foodservice initiative and a requirement to increasing profitability and shareholder value over time."
Based 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 convenience store chains in the country. As of February 7, 2011, the company operated 1,662 stores in 13 states under select banners, including Kangaroo Express, its primary operating banner.
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