NEW YORK -- Six weeks after putting a hold on its typically robust acquisition strategy, The Pantry is far from hanging up its desire to be an industry consolidator. "[We] believe that this industry offers long-term growth and consolidation opportunities that we're well-positioned to capture," company CFO Frank Paci said yesterday during a presentation at the William Blair & Co. Growth Stock Conference.
"In our core markets in Florida, South Carolina, North Carolina and Tennessee…we have 10% or less of the marketplace in the number of units that we have vs. the number of units [image-nocss] that are actually in that marketplace. And in all of those markets, more than 50% of the units are still run by single-store operators," he said. "So we think this high degree of fragmentation provides a continued opportunity for us to consolidate within the marketplace."
In early May, The Pantry, which has built much of its 1,650-store portfolio through acquisition, announced it would suspend "any additional acquisition activity for the remainder of this calendar year."
Paci said yesterday, that's just one of the ways The Pantry, which was dealt several difficult quarters in its financial reports over the past two years, is working to get back on track in rough economic times. Other efforts he outlined included:
• Increasing promotional activities.
• Implementing programs to reduce overhead and store-level costs.
• Accelerating its roll out of ethanol fuel.
• Giving up petroleum hedging completely.
• Delaying any share repurchases.
Noting that The Pantry has $129 million available in cash, $250 million available in revolving loans and $145 in letters of credit, Paci said, "The market is challenging out there. Over the long term, we think we're well-positioned within our business area to continue to use the advantages that our scale gives us and to consolidate the marketplace."
Mark Miller, the consumer analyst at William Blair & Co., New York, who introduced Paci at the conference, agreed. "Once this conundrum of high oil [prices] and weakening economy, once that is resolved," he said, "there's potential for a lot higher profit in this business. Getting past this quarter is really the key point."
At presstime yesterday, The Pantry's stock price stood below $10 a share.
Meanwhile, The Pantry announced yesterday that it remains comfortable with its most recent financial performance guidance ranges for fiscal 2008 and expects third-quarter earnings per share to exceed First Call consensus estimates.
The company continues to expect merchandise and retail gasoline sales for fiscal 2008 to be within the ranges of $1.6 billion 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.
Sanford, N.C.-based The Pantry Inc. 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, with revenues for fiscal 2007 of approximately $6.9 billion. As of June 16, 2008, the company operated 1,660 stores in 11 states, mainly under the Kangaroo Express banner.Click hereto view the webcast.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.