News Column

The Pantry Announces Second Quarter Fiscal 2014 Results

May 1, 2014

CARY, N.C., May 1, 2014 (GLOBE NEWSWIRE) -- The Pantry, Inc. (Nasdaq:PTRY), a leading independently operated convenience store chain in the southeastern U.S., today announced financial results for its fiscal second quarter ended March 27, 2014.

Second Quarter Summary:

• Net loss was $10.3 million or $0.45 per share. This compares to net loss of $6.9 million or $0.30 per share in last year's second quarter. Excluding the impact of impairment charges, net loss for the second quarter of fiscal 2014 was $9.8 million, or $0.43 per share, compared to net loss of $6.3 million, or $0.28 per share, in the prior year (see reconciliation below).• Adjusted EBITDA was $36.2 million, down from $39.1 million a year ago (see reconciliation below).• Comparable store merchandise revenue increased 2.3% even though challenging weather conditions constrained customer traffic.• Merchandise gross margin improved to 34.0% from 33.7% in the prior year quarter as packaged beverage and food service mix increased as a percent of merchandise sales.• Fuel gross profit declined to $42.6 million from $48.4 million a year ago as wholesale fuel costs increased during much of the quarter putting pressure on fuel margins. Retail fuel margin per gallon decreased $0.01 from the prior year quarter to $0.107 per gallon. Comparable store fuel gallons were down 3.2% and were also negatively impacted by weather during the quarter.• Store operating and general and administrative expenses were $151.1 million compared to $150.5 million a year ago. Second quarter 2014 expenses included $1.0 million in proxy contest costs related to our annual stockholders meeting held on March 13, 2014.• Our effective tax rate for the second quarter of fiscal 2014 was 31.3% compared to 49.0% in the second quarter of fiscal 2013.• Q2 store portfolio activity included completing seven remodels, adding three new QSRs and closing four stores.

President and Chief Executive Officer Dennis G. Hatchell said, "We were encouraged with our second quarter results even though they were affected by unfavorable weather. Improved merchandising effectiveness drove a 3.6% increase in merchandise sales per customer as well as the 2.3% merchandise comparable store sales growth for the quarter. Despite continued progress inside our stores, lower fuel margins caused the year-over-year decline in Adjusted EBITDA. We remain focused on unlocking the company's potential as we build on the positive inside sales results and continue our efforts to improve fuel performance."

Fiscal 2014 Outlook

The Company announced the following guidance ranges for its expected performance in fiscal 2014, which is a 52-week fiscal year: 

 Q3 FY13Q3 FY14 Guidance(1)FY13FY14 Guidance(1)
 ActualLowHighActualLowHigh
             
Merchandise sales ($B)$0.477$0.480$0.490$1.80$1.82$1.85
             
Merchandise gross margin 33.8% 34.0% 34.5% 34.0% 33.8% 34.2%
             
Retail fuel gallons (B) 0.432 0.412 0.422 1.71 1.63 1.66
             
Retail fuel margin per gallon$0.123$0.100$0.130$0.115$0.105$0.125
             
Store operating and general and administrative expenses ($M)$149$155$158$609$614$624
             
Depreciation & amortization ($M)$29$28$29$118$112$117
             
Effective corporate tax rate 54.9% 33.0% 35.0% 65.8% 32.0% 34.0%
             
Interest expense ($M)$22$21$22$89$83$85
             
Capital expenditures, net ($M)$20$23$26$85$90$100
 
(1) Fiscal 2014 guidance assumes closure of approximately 30 stores

 


Conference Call

Interested parties are invited to listen to the second quarter earnings conference call scheduled for Thursday, May 1, 2014 at 8:30 a.m. Eastern Time. The call will be broadcast live over the Internet and will be accessible through the Investors section of the Company's website at www.thepantry.com. A slide presentation for the conference call will also be available for download at the investor section of the Company's website. An online archive will be available immediately following the call and will be accessible for 30 days.

Use of Non-GAAP Measures

Adjusted EBITDA

Adjusted EBITDA is defined by the Company as net income (loss) before interest expense, gain/loss on extinguishment of debt, income taxes, impairment charges and depreciation and amortization. Adjusted EBITDA is not a measure of operating performance or liquidity under generally accepted accounting principles in the United States of America ("GAAP") and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. The Company has included information concerning Adjusted EBITDA because it believes investors find this information useful as a reflection of the resources available for strategic opportunities including, among others, to invest in the Company's business, make strategic acquisitions and to service debt. Management also uses Adjusted EBITDA to review the performance of the Company's business directly resulting from its retail operations and for budgeting and compensation targets. Adjusted EBITDA does not include impairment of long-lived assets and other charges. The Company excluded the effect of impairment losses because it believes that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of its remaining assets. Adjusted EBITDA does not include gain/loss on extinguishment of debt because it represents financing activities and is not indicative of the ongoing performance of the Company's remaining stores.

Net Income and Net Income Per Share Excluding Certain Items

In addition to net income and net income per share presented in accordance with GAAP, the Company has also presented net income and net income per share for the three months ended March 27, 2014 excluding the after-tax impact of non-cash charges related to impairment. Management believes that investors find this information useful as a reflection of the Company's underlying operating performance and that this information facilitates comparisons between the Company and other companies in its industry. Management uses these measures as part of its preparation of operating plans, budgets and forecasts and in its assessment of the Company's historical performance.

Additional Information Regarding Non-GAAP Measures

Any measure that excludes interest expense, gain/loss on extinguishment of debt, depreciation and amortization, impairment charges, or income taxes has material limitations because the Company uses debt and lease financing in order to finance its operations and acquisitions, uses capital and intangible assets in its business and must pay income taxes as a necessary element of its operations. Due to these limitations, the Company uses non-GAAP measures in addition to and in conjunction with results and cash flows presented in accordance with GAAP. The Company strongly encourages investors to review its consolidated financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not standardized, the measures referenced above, each as defined by the Company, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare the Company's use of these measures with non-GAAP financial measures having the same or similar names used by other companies.

About The Pantry

Headquartered in Cary, North Carolina, 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. As of May 1, 2014, the Company operated 1,534 stores in thirteen states under select banners, including Kangaroo Express®, its primary operating banner. The Pantry's stores offer a broad selection of merchandise, as well as fuel and other ancillary services designed to appeal to the convenience needs of its customers.

Safe Harbor Statement

Statements made by the Company in this press release relating to future plans, events, or financial condition or performance are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by the use of words such as "expect," "plan," "anticipate," "intend," "outlook," "guidance," "believes," "should," "target," "goal," "forecast," "will," "may" or words of similar meaning. Forward-looking statements are likely to address matters such as the Company's anticipated financial condition and performance, including sales, expenses, margins, tax rates, capital expenditures, profits, cash flows, liquidity and debt levels, as well as our pricing and merchandising strategies and their anticipated impact and our intentions with respect to acquisitions, the construction of new stores, including additional quick service restaurants, and the remodeling of our existing stores. These forward-looking statements are based on the Company's current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward-looking statements. Any number of factors could affect actual results and events, including, without limitation; the Company's ability to enhance its operating performance through its in-store initiatives and its store remodel program; fluctuations in domestic and global petroleum and fuel markets; realizing expected benefits from the Company's fuel supply agreements; changes in the competitive landscape of the convenience store industry, including fuel stations and other non-traditional retailers located in the Company's markets; the effect of national and regional economic conditions on the convenience store industry and the Company's markets; the global financial crisis and uncertainty in global economic conditions; wholesale cost increases of, and tax increases on, tobacco products; the effect of regional weather conditions and climate change on customer traffic and spending; legal, technological, political and scientific developments regarding climate change; financial difficulties of suppliers, including the Company's principal suppliers of fuel and merchandise, and their ability to continue to supply its stores; the Company's financial leverage and debt covenants; a disruption of our IT systems or a failure to protect sensitive customer, employee or vendor data; the ability of the Company to identify suitable new store sites and acquisition targets and to take advantage of expected synergies in connection with acquisitions; the actual operating results of new or acquired stores; the ability of the Company to divest non-core assets; environmental risks associated with selling petroleum products; and governmental laws and regulations, including those relating to the environment and the impact of mandated health care laws. These and other risk factors are discussed in the Company's Annual Report on Form 10-K and in its other filings with the Securities and Exchange Commission. In addition, the forward-looking statements included in this press release are based on the Company's estimates and plans as of May 1, 2014. While the Company may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so.

 
The Pantry, Inc.
Unaudited Condensed Consolidated Statements of Operations and Selected Financial Data
(In thousands, except per share and per gallon amounts, margin data and store count)
 
 Three Months EndedSix Months Ended
 March 27,March 28,March 27,March 28,
 2014201320142013
Revenues:        
Merchandise$ 426,082$ 418,949$ 866,862$ 847,797
Fuel 1,341,119 1,473,268 2,704,418 2,959,627
Total revenues 1,767,201 1,892,217 3,571,280 3,807,424
Costs and operating expenses:        
Merchandise cost of goods sold 281,323 277,803 574,324 559,758
Fuel cost of goods sold 1,298,569 1,424,829 2,613,186 2,862,020
Store operating 125,463 125,257 253,532 248,533
General and administrative 25,678 25,215 51,655 49,101
Impairment charges 907 880 1,736 3,179
Depreciation and amortization 28,956 29,538 57,635 58,124
Total costs and operating expenses 1,760,896 1,883,522 3,552,068 3,780,715
Income from operations 6,305 8,695 19,212 26,709
Other expenses:        
Interest expense 21,311 22,158 42,683 45,259
Total other expenses 21,311 22,158 42,683 45,259
Loss before income taxes (15,006) (13,463) (23,471) (18,550)
Income tax benefit (4,698) (6,598) (8,019) (8,628)
Net loss$ (10,308)$ (6,865)$ (15,452)$ (9,922)
         
Loss per diluted share:        
Loss per diluted share$ (0.45)$ (0.30)$ (0.68)$ (0.44)
Weighted average and potential dilutive shares outstanding 22,859 22,666 22,825 22,641
         
Selected financial data:        
Adjusted EBITDA$ 36,168$ 39,113$ 78,583$ 88,012
Payments made for lease finance obligations$ 13,142$ 12,754$ 26,478$25,642
Merchandise gross profit$ 144,759$ 141,146$ 292,538$ 288,039
Merchandise margin 34.0% 33.7% 33.7% 34.0%
Retail fuel data:        
Gallons 393,483 407,923 802,146 834,947
Margin per gallon (1)$ 0.107$ 0.117$ 0.113$ 0.116
Retail price per gallon$ 3.35$ 3.55$ 3.32$ 3.48
Total fuel gross profit$ 42,550$ 48,439$ 91,232$ 97,607
         
Comparable store data:        
Merchandise sales % 2.3% (2.0)% 2.9% 0.1%
Retail fuel gallons % (3.2)% (7.9)% (3.6)% (6.3)%
         
Number of stores:        
End of period 1,534 1,568 1,534 1,568
Weighted-average store count 1,537 1,571 1,540 1,572
 
(1) Fuel margin per gallon represents fuel revenue less cost of product and expenses associated with credit card processing fees and repairs and maintenance on fuel equipment. Fuel margin per gallon as presented may not be comparable to similarly titled measures reported by other companies.

 

The Pantry, Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)
     
 March 27,

 2014
September 26,

 2013
ASSETS    
Cash and cash equivalents$ 9,694$ 57,168
Receivables 64,442 64,936
Inventories 145,724 132,229
Prepaid expenses and other current assets 21,420 19,120
Deferred income taxes 15,637 18,698
Total current assets 256,917 292,151
     
Property and equipment, net 889,010 902,796
Goodwill and other intangible assets 440,801 440,982
Other noncurrent assets 80,094 79,297
Total assets$ 1,666,822$ 1,715,226
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current maturities of long-term debt$ 2,550$ 2,550
Current maturities of lease finance obligations 11,004 11,018
Accounts payable 154,196 153,693
Other accrued liabilities 99,451 114,400
Total current liabilities 267,201 281,661
     
Long-term debt 497,321 498,414
Lease finance obligations 428,177 434,022
Deferred income taxes 48,485 59,182
Deferred vendor rebates 8,040 10,152
Other noncurrent liabilities 108,208 108,096
Total shareholders' equity 309,390 323,699
Total liabilities and shareholders' equity$ 1,666,822$ 1,715,226
     
The Pantry, Inc.
Reconciliation of Non-GAAP Financial Measures
(In thousands)
         
 Three Months EndedSix Months Ended
 March 27,March 28,March 27,March 28,
 2014201320142013
         
Adjusted EBITDA$ 36,168$ 39,113$ 78,583$ 88,012
Impairment charges (907) (880) (1,736) (3,179)
Interest expense (21,311) (22,158) (42,683) (45,259)
Depreciation and amortization (28,956) (29,538) (57,635) (58,124)
Income tax benefit 4,698 6,598 8,019 8,628
Net loss$ (10,308)$ (6,865)$ (15,452)$ (9,922)
         
Adjusted EBITDA$ 36,168$ 39,113$ 78,583$ 88,012
Interest expense (21,311) (22,158) (42,683) (45,259)
Income tax benefit 4,698 6,598 8,019 8,628
Stock-based compensation expense 805 873 1,729 1,725
Changes in operating assets and liabilities (13,978) (20,199) (27,054) (31,207)
Benefit for deferred income taxes (4,778) (6,475) (7,761) (8,477)
Other 1,320 1,424 2,724 2,773
Net cash provided (used) by operating activities$ 2,924$ (824)$ 13,557$ 16,195
         
Additions to property and equipment, net$ (22,480)$ (16,988)$ (52,225)$ (35,358)
Acquisitions of businesses, net (502) (502)
Net cash used in investing activities$ (22,480)$ (17,490)$ (52,225)$ (35,860)
         
Net cash provided (used) in financing activities$ (3,256)$ 2,940$ (8,806)$ (60,519)
         
Net decrease in cash$ (22,812)$ (15,374)$ (47,474)$ (80,184)
         
         
 Three Months Ended
 March 27, 2014March 28, 2013
 Pre TaxAfter TaxEPSPre TaxAfter TaxEPS
Loss, as reported$ (15,006)$ (10,308)$ (0.45)$ (13,463)$ (6,865)$ (0.30)
Impairment charges 907 557 0.02 880 538 0.02
Loss, as adjusted$ (14,099)$ (9,751)$ (0.43)$ (12,583)$ (6,327)$ (0.28)
             
             
 Six Months Ended
 March 27, 2014March 28, 2013
 Pre TaxAfter TaxEPSPre TaxAfter TaxEPS
Loss, as reported$ (23,471)$ (15,452)$ (0.68)$ (18,550)$ (9,922)$ (0.44)
Impairment charges 1,736 1,066 0.05 3,179 1,944 0.09
Loss, as adjusted$ (21,735)$ (14,386)$ (0.63)$ (15,371)$ (7,978)$ (0.35)

CONTACT: Andrew Hinton (919) 774-6700

Source: The Pantry, Inc.


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