The Pantry Announces First Quarter Fiscal 2013 Results

The Pantry Announces First Quarter Fiscal 2013 Results

CARY, N.C.--(BUSINESS WIRE)-- The Pantry, Inc. (NAS: PTRY) , a leading independently operated convenience store chain in the southeastern U.S., today announced financial results for its fiscal first quarter ended December 27, 2012.

First Quarter Summary:

  • Net loss was $3.1 million or $0.14 per share. This compares to a net loss of $2.9 million or $0.13 per share in last year's first quarter. Excluding the impact of impairment charges, net loss for the first quarter of fiscal 2013 improved to $1.7 million or $0.08 per share, compared to net loss per share of $0.11 in the prior year (see reconciliation below).

  • Adjusted EBITDA increased $5.1 million to $48.9 million, compared to $43.8 million a year ago.

  • Fuel gross profit was $49.2 million, compared to $55.9 million a year ago; retail fuel margin per gallon was $0.114 compared to $0.122 a year ago; comparable store fuel gallons sold decreased 4.8%.

  • Comparable store merchandise revenue increased 2.2%; excluding cigarettes,comparable store merchandise revenue increased 4.6%.

  • Merchandise gross margin was 34.3%, compared to 33.2% a year ago.

  • Store operating and general and administrative expenses were $147.2 million, compared to $154.4 million a year ago.

  • Net cash provided by operating activities was $17.0 million, an increase of $10.3 million over the prior year quarter.

  • Long-term debt was reduced by $60.8 million in the first quarter of Fiscal 2013 and has now been reduced by $200.4 million since December 2011. The Company believes its liquidity position will allow it to continue to execute its core strategic initiatives given the $24.4 million in cash on hand and $129.9 million in available capacity under its revolving credit facilities as of December 27, 2012.


President and Chief Executive Officer Dennis G. Hatchell said, "We improved adjusted EBITDA to $49 million in the first fiscal quarter of 2013, which is an increase of 12% from the same quarter a year ago. This improvement over the prior year quarter is a reflection of our team's continued focus on improving merchandise sales and margins and controlling expenses. This was achieved despite lower fuel volume and margins compared to the same period a year ago."

Mr. Hatchell continued by saying, "We are also excited to have Clyde Preslar joining our team as Senior Vice President and Chief Financial Officer. Clyde's fifteen years of experience as a public company CFO and his work in the consumer goods space make him a great fit for the Pantry and we are convinced that he will make significant contributions to the Pantry realizing its strategic initiatives."

Fiscal 2013 Outlook

The Company announced the following guidance ranges for its expected performance in fiscal 2013, which is a 52-week fiscal year:

Q2 FY12

Q2 FY13 Guidance

FY12

FY13 Guidance

Actual

Low

High

Actual

Low

High

Merchandise sales ($B)(1)

$0.435

$0.426

$0.436

$1.81

$1.83

$1.87

Merchandise gross margin

33.4%

34.0%

34.5%

33.7%

33.8%

34.2%

Retail fuel gallons (B)(1)

0.448

0.415

0.425

1.81

1.68

1.74

Retail fuel margin per gallon

$0.096

$0.080

$0.100

$0.115

$0.105

$0.125

Store operating and general and administrative
expenses ($M)

$150

$148

$152

$610

$607

$619

Depreciation & amortization ($M)

$29

$29

$30

$120

$115

$120

Interest expense ($M) (2)

$20

$22

$23

$84

$89

$92

Capital expenditures, net ($M)

$14

$17

$20

$55

$80

$95

(1) Fiscal 2013 guidance assumes closure of 35-40 stores
(2) Excludes loss on extinguishment of debt

Conference Call

Interested parties are invited to listen to the first quarter earnings conference call scheduled for Tuesday, February 5, 2013 at 8:30 a.m. Eastern Time. The call will be broadcast live over the Internet and will be accessible through either the Investors section of the Company's website at www.thepantry.com or www.companyboardroom.com. 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, net, 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 December 27, 2012 excluding the after-tax impact of non-cash charges related to impairment and loss on extinguishment of debt. 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 February 5, 2013, the Company operated 1,571 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 sales, expenses, margins, tax rates, capital expenditures, profits, cash flows, liquidity and debt levels, as well as our pricing strategies and their anticipated impact and our expectations relating to the costs and benefits of our merchandising and store remodel initiatives. 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 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 February 5, 2013. 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 Ended

December 27, 2012

December 29, 2011

(13 weeks)

(13 weeks)

Revenues:

Merchandise

$

428,848

$

428,356

Fuel

1,486,359

1,534,620

Total revenues

1,915,207

1,962,976

Costs and operating expenses:

Merchandise cost of goods sold

281,955

286,147

Fuel cost of goods sold

1,437,191

1,478,710

Store operating

123,276

128,869

General and administrative

23,886

25,494

Impairment charges

2,299

522

Depreciation and amortization

28,586

27,366

Total costs and operating expenses

1,897,193

1,947,108

Income from operations

18,014

15,868

Other expenses:

Loss on extinguishment of debt

-

82

Interest expense, net

23,101

21,348

Total other expenses

23,101

21,430

Loss before income taxes

(5,087)

(5,562)

Income tax benefit

2,030

2,633

Net loss

$

(3,057)

$

(2,929)

Loss per share:

Loss per share

$

(0.14)

$

(0.13)

Shares outstanding

22,615

22,516

Selected financial data:

Adjusted EBITDA

$

48,899

$

43,756

Payments made for lease finance obligations

$

12,887

$

12,699

Merchandise gross profit

$

146,893

$

142,209

Merchandise margin

34.3%

33.2%

Retail fuel data:

Gallons

427,024

455,241

Margin per gallon (1)

$

0.114

$

0.122

Retail price per gallon

$

3.42

$

3.32

Total fuel gross profit

$

49,168

$

55,910

Comparable store data:

Merchandise sales %

2.2%

2.0%

Fuel gallons %

-4.8%

-7.4%

Number of stores:

End of period

1,572

1,624

Weighted-average store count

1,574

1,635

(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)

December 27, 2012

September 27, 2012

ASSETS

Cash and cash equivalents

$

24,365

$

89,175

Receivables, net

66,248

80,014

Inventories

131,548

137,376

Prepaid expenses and other current assets

22,684

21,734

Deferred income taxes

18,166

17,376

Total current assets

263,011

345,675

Property and equipment, net

921,296

935,841

Goodwill and other intangible assets

440,918

441,070

Other noncurrent assets

77,559

76,954

Total assets

$

1,702,784

$

1,799,540

LIABILITIES AND SHAREHOLDERS' EQUITY

Current maturities of long-term debt

$

2,585

$

62,840

Current maturities of lease finance obligations

10,972

10,947

Accounts payable

137,828

155,008

Other accrued liabilities

109,443

121,760

Total current liabilities

260,828

350,555

Long-term debt

500,054

500,600

Lease finance obligations

440,180

443,020

Deferred income taxes

61,615

62,766

Deferred vendor rebates

11,125

11,886

Other noncurrent liabilities

106,835

106,162

Total shareholders' equity

322,147

324,551

Total liabilities and shareholders' equity

$

1,702,784

$

1,799,540

The Pantry, Inc.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

Three Months Ended

December 27, 2012

December 29, 2011

Adjusted EBITDA

$

48,899

$

43,756

Impairment charges

(2,299)

(522)

Loss on debt extinguishment

-

(82)

Interest expense, net

(23,101)

(21,348)

Depreciation and amortization

(28,586)

(27,366)

Income tax benefit

2,030

2,633

Net loss

$

(3,057)

$

(2,929)

Adjusted EBITDA

$

48,899

$

43,756

Loss on debt extinguishment

-

(82)

Interest expense, net

(23,101)

(21,348)

Income tax benefit

2,030

2,633

Stock-based compensation expense

852

918

Changes in operating assets and liabilities

(11,008)

(18,767)

Benefit for deferred income taxes

(2,002)

(3,127)

Other

1,349

2,708

Net cash provided by operating activities

$

17,019

$

6,691

Additions to property and equipment, net

(18,370)

(22,355)

Net cash used in investing activities

$

(18,370)

$

(22,355)

Net cash used in financing activities

$

(63,459)

$

(47