The [image-nocss] first-quarter fiscal 2010 results include pre-tax impairment charges of $32.6 million or 90 cents per share. The year-over-year comparison was particularly challenging due to the exceptional fuel margin of 25.8 cents per gallon in first-quarter fiscal 2009, the company said.
Merchandise revenues for the first quarter increased 7% overall and 5.2% on a comparable store basis from the corresponding period last year. The merchandise gross margin was 32.6%, compared with 35.5% a year ago, primarily reflecting reduced margins on cigarettes and other tobacco products due to last year's tax increases, a mix shift toward tobacco products and lower margins in the grocery category. Total merchandise gross profit for the quarter was $136.3 million, down 2% from a year ago.
Retail fuel gallons sold in the first quarter increased 3.7% overall and 0.8% on a comparable store basis. Retail fuel revenue increased 6.2%, in part reflecting a 3.7% increase in the average retail price per gallon to $2.52 from $2.43 in last year's first quarter. Total fuel gross profit for the quarter was $57.3 million, down 56% from a year ago.
Total store operating and general and administrative expenses for the quarter were $153.2 million, down 2.2% from a year ago.
The company made strategic decisions that resulted in impairment charges during first-quarter fiscal 2010. First, the company decided that it would begin phasing out the Petro Express brand and replacing it with the Kangaroo Express brand. Petro Express was acquired as part of the April 2007 acquisition of 66 stores in the Charlotte, N.C., area.
"The majority of the Petro Express locations currently offer branded fuel supplied by Chevron," president and CEO Terrance M. Marks said during the company's earnings call. "Chevron recently announced plans to withdraw from the North Carolina market, and that will require a rebranding of the fuel court, as well."
The decision to phase out the Petro Express brand resulted in a pre-tax impairment charge of $21.3 million to write off the value assigned to the brand name at the time of the acquisition.
In addition, the company evaluated the pipeline of potential future store sites and identified certain land parcels it no longer intends to develop resulting in a reduction in carrying value.
Finally, the company conducted its regular evaluation of operating stores and determined that the expected performance of certain stores required a reduction in carrying value. These evaluations resulted in pre-tax impairment charges of approximately $11.4 million.
"Our first-quarter operating results were adversely affected by below-average fuel margins and soft grocery margins," said Marks in the company's earnings release. "We are taking steps which we expect to improve our grocery margin in the coming quarter. Despite our loss for the first quarter, we generated positive cash flow from operations. We have also made progress on our key strategic initiatives. This includes opening six nationally branded quick-service restaurants, raising standards to help ensure a fast, friendly and clean customer experience and investing in information systems to strengthen our store management capabilities."
The company said that it believes its liquidity position remains "excellent," with $180 million in cash on hand and approximately $142 million in available capacity under its revolving credit facilities as of Dec. 24, 2009.
The Pantry is reiterating its previously disclosed guidance ranges for its expected performance (excluding potential acquisitions) in fiscal 2010, which is a 53-week fiscal year ending Sept. 30, 2010 (high / low): Merchandise Sales ($ billions): $1.76 / $1.82. Retail Fuel Gallons (billions): 2.17 / 2.22. Merchandise Gross Margin: 33.0% / 34.5%. Retail Fuel Margin per Gallon: 11 cents / 13 cents. Headquartered 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 c-store chains in the country. As of Feb. 2, 2010, the company operated 1,655 stores in 11 states under select banners, including Kangaroo Express, its primary operating banner.
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