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The Pantry on Wall Street

CFO Paci outlines layoffs, actions taken to trim $6 million off company's bottom line

NEW YORK -- Less than three weeks after announcing plans to scale back its middle-management staff as part of an effort to trim costs by $6 million, The Pantry CFO Frank Paci was in front of Wall Street analysts stating the company's case and explaining why the layoff of about 60 employees will ultimately be good for the company.

We took a layer [of management] out of the field, Paci said during the 2007 Wachovia Consumer Growth Conference on Wednesday. Typically when you do thatyou end up getting rid of your worse managers.

That, of course, added more work to other managers' plates, but Paci said there are benefits to that, as well. We expanded the scope for the store management so, as an example, we had eight stores for the district manager. We've taken that up to 10 [stores], he said. So you have a broader span, but you have less managers. By taking a layer out, he added, the corporate message travels faster and more clearly to the field.

Paci also explained why the cutbacks were necessary, again pinning most of the blame on poor gasoline margins in the company's fiscal 2007, which ended at the end of September.

2007 was a tough gasoline-margin year, he said. Gas margin tends to be difficult in periods of rising energy costs because there tends to be somewhat of a lag between when your costs go up and when that actually gets passed on to the customers at the pumps.

He noted that during the year, crude oil prices increased from $55 a barrel in January to more than $80 a barrel by the end of summer.

What really happened [to The Pantry] is in September [2006] you had great gas margins because costs fell, [and] this year, you had oil prices hitting record highs, he said. So it really comes down to a matter of five or six weeks in terms of impacting that margin.

A four-year trend shows The Pantry's average per-gallon gasoline margins rising for two years12.0 cents in 2004, 14.2 cents in 2005 and 15.8 cents in 2006then plummeting in 2007 to 10.9 cents per gallon.

I get a lot of questions about what's happened to this business structurally. Has something changed? he said. I think it's part of the normal cycle.

Paci also outlined other actions the company has taken to ease the bottom line, including:

Instituting a process of discipline, where we're reviewing on a regular basis the major expense categories and trying to see what opportunities we have. Changing the entire fueling system to prepay as opposed to post-pay because we were experiencing an increase in drive offs. Updating POS equipment, which we think long term will give us more efficiencies in the business.

Based in Sanford, N.C., The Pantry is an independently operated convenience store operator in the southeastern United States and one of the largest independently operated c-store chains in the country, with revenues for fiscal 2006 of approximately $6 billion. As of June 28, 2007, the company operated 1,642 stores in 11 states.

In the past year, The Pantry's stock price has dropped from a 52-week high of $62.35 to around $27 a share this week.

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