CARY, N.C. -- Proprietary foodservice was a "bright spot," as well as improved cigarette traffic, The Pantry Inc.'s president and CEO Dennis G. Hatchell said during the convenience store chain's fiscal third-quarter conference call on Wednesday.
"We are continuing to build our proprietary foodservice offering, and increasing the overall mix of our foodservice as a percent of merchandise sales is a major focus," he said, citing the addition of grills and expanded condiment programs to additional Kangaroo Express c-stores.
Proprietary foodservice comps were up 3.2%, and quick-service restaurant (QSR) sales grew 7.7% on a comparable-store basis, which included opening new QSRs in existing stores.
"We are increasingly realizing benefits in our customer traffic from improved price position on cigarettes and the attachment sales they generate," he added.
He conceded, however, that dispensed beverage sales "were not as strong as planned and our merchandising team is developing programs to stimulate sales in this high potential category. We further developed our beverage merchandising with the introduction of frozen, noncarbonated beverages, as well as frozen and iced coffee. We expanded the number of immediate consumption beverage coolers and continue to innovate in alcoholic beverages as we increase the number of flavored malt beverages. … Our promotional activities increased with our Buy More Save More beverage program, and we introduced several $1 Roo deal programs to increase impulse purchases."
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For its fiscal third quarter ended June 26, 2014, The Pantry reported net income was $14 million, compared to net income of $5.9 million in last year's third quarter.
Comparable-store merchandise revenue increased 2.3%. Merchandise gross margin improved to 33.9% from 33.8%.
Fuel gross profit increased to $54.9 million from $53.8 million a year ago as retail fuel margin per gallon increased to12.9 cents from 12.3 cents in the prior-year quarter. Comparable-store fuel gallons sold declined 2.3%.
"Our solid third-quarter results reflect continuing progress as we grew merchandise and fuel gross profit while controlling expenses," Hatchell said. "Improved merchandising effectiveness drove a 2.3% increase in comparable-store merchandise sales, with sales per customer up 3.9%. Overall fuel performance was also encouraging as our balanced approach led to further sequential quarterly improvement in comparable-store fuel gallons sold. Our team is focused on achieving strong fourth-quarter results and positioning the company for further growth in fiscal 2015."
Hatchell detailed how the stores achieved that improved effectiveness. "We put a lot of emphasis on our team members out in the stores this quarter on asking them to really pay attention to the impulse sales items that are available to the customer and tie those in with the Roo Cup," he said. "We had some nice sales contests for the folks and our merchandising team sourced an awful lot of really effective impulse items. So between the team members being excited about some sales contests and having the right mix out there for this quarter, it worked really nice."
Store portfolio activity during the quarter included rebuilding one store--replacing an older store with a new, large-format store--adding four new quick-service restaurants (QSRs) and closing seven stores.
"We are positioning ourselves to be lined up to do eight to 10 new units in fiscal 2015," he said. "We would continue to close stores at the rate that [we] have seen in recent years."
Hatchell said that the company's acquisition strategy has not changed. "We are focusing on studying markets, and so if there is an acquisition to be made, it would be small; it would be store a group of stores that happen to be within a market that helps strengthen the strongest markets that we have," he said. "Otherwise, we are going to pay attention to remodels and new store growth.
Concerning the competitive landscape and intensity, he said, "We continue to see new store openings from some very good competitors--Sheetz, Wawa and [QuikTrip]--and they are continuing to expand, but it doesn't feel like its any faster or slower. We think they all will be coming at the same pace as we had both predicted and are anticipating with our store reaction. We prefer they didn't do it, but it's unchanged, and they are good competitors."
Rather than talk about the competition, Hatchell stayed focus on The Pantry.
"We know who our customers are; we are staying very focused in taking care of them," he said. "We think that there is a position for us in the marketplace. We obviously pay attention to the new competitors in the marketplace, but we are not trying to be them. We think there is plenty of room for us to get our share, and that's what we stay focused on. So we know what's happening in the marketplace, but we still need to be The Pantry, and we keep our stores very local, [providing] what our particular customers are looking for."
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 c-store chains in the country. As of July 30, 2014, the company operated 1,525 stores in 13 states under select banners, including Kangaroo Express, its primary operating banner.
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