The Pantry: Couldn't Stand the Weather

Chill in the air dampens store traffic, gasoline volume

CARY, N.C. -- "The second quarter was, to say the least, very interesting and challenging," The Pantry CEO Dennis Hatchell began an earnings conference call May 7. "We believe our second-quarter same-store traffic decline of 4.6% was mainly caused by weather as we experienced considerably colder temperatures in our market area, accompanied by more significant winter storm activity than in 2012."

With the decrease in traffic came a 2% decline in comparable-store merchandise revenue and a 7.9% decline in retail fuel gallons, Hatchell reported. "We believe this decline in retail fuel gallons was driven by a loss of traffic, as our competitive position relative to the markets we operate in remains generally consistent."

(For a complete earnings report, see story on CSPnet.com and in CSP Daily News.)

The company's chain of Kangaroo Express convenience stores did benefit from a decline in fuel costs in the second half of the quarter, resulting in stronger than expected fuel margins of 11.7 cents per gallon (after credit-card fees) compared with 9.6 cents a year ago.

"From a gross-profit standpoint, the volume decrease was more than offset by a significant improvement in margin per gallon," said Clyde Preslar, senior vice president and chief financial officer.

In recent months, The Pantry has acknowledged a rethinking of its fuel pricing strategy, opting to sacrifice a couple of cents in margin to maintain volume. Regardless, the cold weather and other factors took a toll during the quarter.

"This year's March temperatures across our marketing area averaged 15 degrees colder than March of 2012." Hatchell said. "In addition, the economic uncertainty, the higher payroll taxes and the lack of consumer confidence were also factors.

"We are [not] using this as an excuse for these results," he added. "Our goal is to improve our business and drive both top and bottom line growth. We are confident that we have the correct initiatives in place to accomplish this, and as we execute on these initiatives, we will show the kind of progress everyone expects."

Based in Cary, N.C., The Pantry is a leading independently operated convenience store chain in the southeastern United States and one of the largest independently operated convenience store chains in the country. The company operates 1,567 stores in 13 states under select banners, including Kangaroo Express, its primary operating banner.

For more on The Pantry's retailing strategy, see the May issue of CSP magazine.

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