The Pantry Halts Acquisitions

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The Pantry Halts Acquisitions

SANFORD, N.C. -- In the face of record crude oil prices and a tough retail environment, The Pantry Inc. announced in its second quarter earnings statement that it has decided to stop any additional acquisitions for the rest of the year, and exit all of its gasoline hedging activities with no plans to pursue any further hedging at this time.

"We have continued to focus on improving our productivity, as evidenced by our expense management performance, and plan to keep a tight rein on the business until market conditions improve," Chairman and Chief Executive Officer Peter J. Sodini said in a statement before the call. "To that end, we have reduced our fiscal 2008 net capital expenditure target by another $20 million, to approximately $90 million, and are suspending any additional acquisition activity for the remainder of this calendar year. We also do not have any plans to repurchase stock at this time. We expect these actions to contribute significant additional free cash flow in the second half of the year as our business ramps up during the peak summer season."

He added: "Clearly our gasoline hedging program did not perform as we had expected. We are now out of all of our positions and expect to take an additional after-tax charge of approximately $900 thousand in the third quarter."

In the conference call, Sodini and his executive team detailed the company's second-quarter financial results, which underscored forward momentum despite challenges.

"Currently we're facing a tough retail environment which in our case it is magnified by the challenging conditions in the gasoline market," Sodini said during the call.

In a released report, the company's total revenues for the second quarter of fiscal 2008 were approximately $2 billion, a 39.9 percent increase from the same period last year. The net loss for the quarter was $5.1 million, compared with net income of $8.4 million for the same time period last year.

Merchandise revenues for the second quarter were up 5.4 percent overall, but down 3.4 percent on a comparable store basis, the report stated.

"Rising prices are taking a bite out of consumers' disposal income and it is impacting demand for both gasoline and merchandise in our stores," Sodini said in the conference call, adding that both segments are down 3 percent.

The company's retail gasoline gallons sales increased 9.4 percent overall, but declined 3.4 percent on a comparable store basis, while retail gasoline revenues rose 48.4 percent. Excluding the hedging loss, the retail gas margin in the quarter was 10.6 cents per gallon, higher than The Pantry's second-quarter retail gas margin in four of the last six years, the report stated.

"Retail gas margins were obviously hurt by the rising trend in energy costs and increased credit card fees up one cent per gallon from a year ago," Sodini said during the conference call.

Even with a turbulent quarter, the company managed expenses well averaging operating expenses per store were essentially flat year over year despite higher utility costs. Despite operating an average of 104 additional stores in this year’s second quarter, the company achieved the reduction in expenses.

In other company news, The Pantry is rolling out Retalix StorePoint, Retalix Fuel and Retalix HQ-Convenience software operating platforms to more than 1,600 retail locations, after finishing a pilot of the systems.

"We needed a consistent, unified technology platform across all of our stores, through which we could manage our various fuel brands and foodservice operations, have easy access to centralized data, ensure PCI compliance and enhance customer service," Ed Collupy, vice president of information services for The Pantry, said in a released statement. "The breadth of the Retalix solution enables us to go from one end of our business to the other with a robust, flexible and synchronized set of software modules that will carry us well into the future."

Retalix StorePoint solution runs on IBM SurePOS 500 hardware and includes integrated forecourt automation for both gas and commercial fuel, Electronic Payment Software (EPS) for support of branded fuels from, BP, Chevron, CITGO and ExxonMobil, along with foodservice, cash and inventory management modules.

"C-store leaders like The Pantry are seeking solutions that amplify convenience for their customers and simplify processes for their employees," Ray Carlin, executive vice president of Retalix USA, said in a statement. "The Retalix solution increases employee effectiveness, enhances the customer experience and enables future growth."

For more information on The Pantry's Information Services department, including its leader, Ed Collupy, who was recently named CSNews Top Tech Executive, see the May 5, 2008, issue of Convenience Store News, or visit the In Print section of CSNews Online by clicking here.