The Pantry Profits Climb

SANFORD, N.C. -- Reimaging of its gasoline program and in-store remerchandising, including further promotion of its proprietary beverage and foodservice line, are bolstering performance at The Pantry Inc., the Southeast market's largest convenience chain, with 1,271 units.

The publicly traded chain, which only a few years ago headlined a bevy of rollup companies, reported net income of $6.1 million for the third quarter compared to $4.1 million for the year-ago quarter.

"We are very pleased with our third quarter performance and believe that these improvements are the result of several important gasoline and merchandising initiatives," Pete Sodini, The Pantry Inc.'s president and chief executive said today during a conference call with trade press and Wall Street analysts.

Sodini, who was joined by chief financial officer Dan Kelly and senior vice president Steve Ferreira, said cigarette profits were hurt by aggressive price promotions, but added that the loss revenue was offset by buy-downs. He also said inclement spring weather, especially in the Carolinas, dampened sales in specific markets.

Nonetheless, the company was keyed by unusually strong gasoline margins, which surged to 13.3 cents a gallon compared to 11.1 cents in the third quarter of fiscal 2002. And customers responded positively to in-store upgrades. "We've got to improve margin mix in these stores," Sodini said. "You put your best offerings at the front of your store."

The investment in in-store imaging and product selection includes the company's touted Celeste beverage line, which features six SKUs of water and four soft-drink flavors. "Our Celeste water is doing extremely well," Sodini said. "And we think there is a place for the Celeste soft drinks" to complement Coca-Cola and Pepsi.

Perhaps the most prominent change in The Pantry's vast network is on the forecourt, where the company is consolidating its multiple brands. Earlier this year, The Pantry entered into agreements with BP and CITGO, of which the latter is also supplying the private label Kangaroo fuel brand. To date, the company has reimaged 79 locations, including 38 to BP and 41 to Kangaroo. All told, the chain plans to convert or reimage 900 locations over the next 12 to 18 months.

During a question-and-answer period, Sodini played down the threat of big boxes and supermarkets selling gasoline, with the exception of the Wal-Mart/Murphy Oil combination, which he said has forced The Pantry to eat some margin in select markets.

"We would rather not have them in the game. They degrade margins," he said of Wal-Mart.

"[But] going unbranded in gasoline makes a lot of sense," he continued referring to the company's private label strategy. "We continue to be better postured. We will always have competition, and we and others have got to learn to adjust."

In other news, The Pantry said its board elected Paul Brunswick to serve as director of the company. Brunswick will also serve as chairman of the audit committee. He replaces William Webster, who retired from the company. "Paul brings a combination of broad base experience as a senior financial officer with several public companies coupled with retail industry knowledge," Sodini said.