SANFORD, N.C. -- A week after The Pantry reassured investors it was on track with its projected annual income, additional information has revealed a stock-price plunge precipitated by a hedge fund that was trying to sell more than 300,000 shares of Pantry stock.
The chain's stock, which has lost about 80% of its value over the past year, began tumbling Wednesday morning, seemingly with no explanation, reported The News & Observer. Company officials called the Nasdaq stock market to see what was happening, according to the report. They learned that a hedge fund was trying to sell more [image-nocss] than 300,000 shares at once, CEO Peter Sodini said.
He said he will not know which hedge fund dumped the stock until later this month, and that he does not know of any event or announcement that would have triggered the sale. "We call investors, and we talk to analysts regularly," he said. "There was no call that came in that should have spawned this."
On Wednesday, the stock fluctuated from its opening value of $10.10 down to $8.81 before settling at $9.06 when the markets closed, the report said.
Because The Pantry has been hurt by volatile fuel markets, an unsuccessful fuel hedging strategy and rising credit card fees, executives decided to issue a statement saying that the company's finances are stable. The company said that "it remains comfortable with its most recent financial performance guidance ranges for fiscal 2008."
It added, "The company continues to expect merchandise and retail gasoline sales for fiscal 2008 to be within the ranges of $1.6 to $1.7 billion and 2.1 to 2.2 billion gallons, respectively. The merchandise gross profit margin is expected to be approximately 37%, with a retail gasoline margin between 10 and 12 cents per gallon. The company also continues to expect that fiscal 2008 store operating and general and administrative expenses will be at the low end of the previously announced range of $615 to $630 million. In addition, while earnings per share for the fiscal third quarter ending June 26, 2008, are expected to be below the corresponding period a year ago, the company expects third quarter earnings per share to exceed the current First Call consensus estimate of [23 cents]. The company is currently, and expects to remain, in compliance with all of its applicable debt covenants."
Analysts participating in a Thomson Financial poll said they were expecting profit of 23 cents per share for the quarter that will end this month. William Blair analyst Mark Miller raised his third-quarter estimate for the company on the news. "While customer traffic remains soft, management continues to hit its operating expense targets," Miller wrote in a report cited by the newspaper.
Putting out a midquarter announcement such as this is unusual but not unprecedented, said Jim Verdonik, a securities lawyer with Ward and Smith of Raleigh. "Given what people are saying about the effect of the high prices of gasoline on consumer buying habits...I could see why they would think they should be giving reassurance," he told the paper. "The hedge fund was being motivated by general economic conditions."
Still, Verdonik said, companies should be careful about setting a precedent by offering midquarter updates. "People come to expect that you're going to put out advisories," he said. "If you don't, then you leave yourself open to people saying, 'All these other times they told us, and now they didn't'."
On Thursday, The Pantry's efforts appeared to have paid off, said the News & Observer. Its stock rose 96 cents to close at $10.02.The Pantry's stock closed at $9.40 a share yesterday.
Meanwhile, Sodini, said credit card fees are "the most frustrating element of expense we've got in our business," according to the paper.
The chain has seen credit-card fees rise by 32% so far this year. Since The Pantry's fiscal year began in October, the company has laid out $27.3 million for processing credit-card transactions, said the report.
Sodini said it is only getting worse. Now that gasoline prices are so high, even more people use credit cards to pay for fuel because they are short on cash. And with gasoline prices now hovering around $4 a gallon, The Pantry pays 1.69% of each sale to the credit card processor. The more the gasoline costs, the higher the fee The Pantry pays.
Making it worse, more people are buying partial tanks instead of filling up. That does not affect the number of gallons sold, because most of those people just fill up more frequently. But the Pantry is charged a 15-cent flat fee for each swipe of a credit card on top of that 1.69%.
"That's what's absolutely killing us," Sodini said.
Still, The Pantry probably will not begin offering discounts to customers paying cash, Sodini said. "A lot of people don't walk around with $40 in their pocket," he said. "It sounds good, but it is very confusing. You have people who don't understand demanding to know why Joe gets to buy his gas at a discount.... Then the people who use the Visa card or the MasterCard are probably going to come assault our store manager.... It's the worst of all worlds."
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Headquartered in Sanford, N.C., The Pantry had revenues for fiscal 2007 of approximately $6.9 billion. As of June 16, 2008, it operated 1,660 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.