EX-99.1 2 dex991.htm PRESS RELEASE Press release

Exhibit 99.1

 

    Contact: Dan Kelly

July 22, 2004

   (919) 774-6700

 

 

THE PANTRY REPORTS RECORD THIRD-QUARTER RESULTS

 

AND RAISES FISCAL 2004 GUIDANCE

 

Net income and EPS up sharply from a year ago

 

Sanford, North Carolina, July 22, 2004—The Pantry, Inc. (NASDAQ: PTRY), the leading independently operated convenience store chain in the southeastern U.S., today announced financial results for its third fiscal quarter and nine months ended June 24, 2004.

 

The Company’s total revenues for the quarter were $935.9 million, a 31.5% increase from $711.5 million in the corresponding period last year. Net income for the quarter more than doubled to $13.7 million from $6.1 million a year ago, while diluted earnings per share were $0.66, a 100% increase from $0.33 in last year’s third quarter. The third quarter of fiscal 2003 included approximately $1.8 million (net of tax benefit of $1.1 million) of early debt extinguishment costs. Excluding those charges, net income for the third quarter of fiscal 2003 was $7.9 million, or $0.43 per share.

 

President and Chief Executive Officer Peter J. Sodini said, “We are very pleased with our record third-quarter financial results. Given the timing of our Golden Gallon acquisition last October, our refinancing transactions during the second fiscal quarter, and the seasonality of our business, this quarter was the first one in which we believe the full benefits of these transactions and management’s initiatives are clearly apparent. At the same time, we continue to achieve solid results from our core convenience store operations, including the gasoline segment of our business, despite a challenging gasoline market environment.”

 

Merchandise revenues for the quarter increased 3.5% on a comparable store basis, the Company’s 12th consecutive quarterly gain, and rose 14.6% overall. The merchandise gross margin was 33.4%, down slightly from 33.5% a year ago, due to increased promotional activity. Total merchandise gross profits for the quarter were $101.1 million, a 14.2% increase from last year’s third quarter. Commission income for the quarter was $8.2 million, up 26.0% from a year ago, partially due to increased revenues as a result of the new Tennessee state lottery.

 

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Mr. Sodini continued, “Our merchandise and commission businesses, which again accounted for more than 70% of the Company’s total gross profits, continue to generate steady growth and consistent profitability. We believe our efforts to systematically fine-tune and upgrade our merchandise offerings over the last two years have enabled our stores to better meet consumers’ convenience needs, enhancing our competitiveness. Many of these programs are ongoing, as we work to further strengthen our leading regional market positions.”

 

Comparable store gasoline gallons for the quarter rose 0.2%, with total gallons sold up 13.7%. The average retail price per gallon was $1.82, a 24.7% increase from a year ago, contributing to a 41.8% increase in gasoline revenues. The gross margin per gallon was 13.0 cents, compared with 13.3 cents in last year’s third quarter. Gasoline gross profits for the quarter totaled $44.5 million, up 11.0% from a year ago.

 

Mr. Sodini said, “The downward trend in gasoline costs in June enabled us to more than offset relatively soft results in April and May, and to achieve an overall gasoline margin for the quarter somewhat above our earlier expectations. In part, this performance reflects our gasoline pricing and inventory management technologies, as well as the benefits of consolidating our gasoline supply relationships last year.”

 

During the quarter, the Company made further progress with its gasoline brand conversion and re-imaging programs. As of June 24, 2004, re-imaging had been completed at 425 locations, out of approximately 1,000 locations targeted for completion by the end of fiscal 2005. The stores are being converted (or re-imaged) to BP®, Citgo® or the Company’s Kangaroo® private label brand for their gasoline operations, and to Kangaroo ExpressSM branding for their merchandise operations.

 

For the first nine months of fiscal 2004, net income was $4.5 million, or $0.22 per share, compared with net income before cumulative effect of change in accounting principle of $8.7 million, or $0.47 per share, for the corresponding period last year. Reported results for the fiscal 2004 period include early debt extinguishment costs of approximately $14.2 million (net of tax benefit of $8.9 million) related to the debt refinancing, as well as approximately $0.8 million (net of tax benefit of $0.5 million) in expenses related to the Company’s secondary stock offering in January. In addition, there was duplicate interest expense on two issues of senior subordinated notes, for a one-month period when both were outstanding, of approximately $1.0 million (net of

 

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tax benefit of $0.7 million). Net income for the year to date excluding these financing-related items was $20.6 million, or $1.00 per share. For the first nine months of fiscal 2003, the Company incurred early debt extinguishment costs of approximately $1.8 million (net of tax benefit of $1.1 million). Net income before cumulative effect of change in accounting principle for the first nine months of fiscal 2003 excluding this item was $10.4 million, or $0.57 per share.

 

Excluding the unusual items described above, the Company currently expects its fiscal 2004 diluted earnings per share to be in a range between $1.58 and $1.63, compared to the previous guidance range of between $1.48 and $1.58. In fiscal 2003, net income per share before cumulative effect of change in accounting principle was $0.82. Fiscal 2004 is a 53-week fiscal year, with the extra week falling in the fourth fiscal quarter. The Company now expects that diluted earnings per share for fiscal 2004 will be in a range of $0.80 to $0.85.

 

Mr. Sodini concluded, “We expect our earnings per share for the fourth quarter of fiscal 2004 to nearly double the prior year level. With the substantial improvement in our operating performance, our increased financial flexibility, and the demonstrated benefits of integrating acquisitions, we look forward to capitalizing more fully on our strong market position in the Southeast over the next few years.”

 

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Conference Call

 

Interested parties are invited to listen to the third quarter earnings conference call scheduled for Thursday, July 22, 2004 at 10:00 a.m. Eastern Daylight Time. The call will be broadcast live over the Internet and is accessible at www.thepantry.com or www.companyboardroom.com. An online archive will be available immediately following the call and will be accessible until July 29, 2004.

 

Use of Non-GAAP Measures

 

EBITDA is not a measure of operating performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data. We have included information concerning EBITDA as one measure of our cash flow and historical ability to service debt and because we believe investors find this information useful as it reflects the resources available for strategic opportunities including, among others, to invest in the business, make strategic acquisitions and to service debt. EBITDA as defined may not be comparable to similarly titled measures reported by other companies.

 

We use net income, net income before cumulative effect and earnings per share, each excluding certain unusual expense items, to evaluate our operations. Management believes this presentation is appropriate and enables investors to compare more accurately our ongoing financial performance over the periods presented. The information regarding net income, net income before cumulative effect and earnings per share, each excluding certain unusual expense items, as presented here may not be comparable to similarly titled measures reported by other companies.

 

About The Pantry

 

Headquartered in Sanford, North Carolina, The Pantry, Inc. is the leading independently operated convenience store chain in the southeastern United States and one of the largest independently operated convenience store chains in the country, with net sales for fiscal 2003 of approximately $2.8 billion. As of June 24, 2004, the Company operated 1,367 stores in ten states under a number of banners including The Pantry®, Kangaroo ExpressSM, Golden Gallon® and Lil Champ Food Store®. The Pantry’s stores offer a broad selection of merchandise, as well as gasoline and other ancillary services designed to appeal to the convenience needs of its customers.

 

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Safe Harbor Statement

 

Statements made by the Company in this press release relating to future plans, events, or financial performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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: whether our ongoing merchandise and gasoline initiatives, our increased financial flexibility, improvements in our operating performance and future acquisitions will further strengthen or improve our current market positions; fluctuations in domestic and global petroleum and gasoline markets; changes in the competitive landscape of the convenience store industry, including gasoline 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 markets we serve; the effect of regional weather conditions on customer traffic; financial difficulties of suppliers, including our principal suppliers of gas and merchandise; environmental risks associated with selling petroleum products; governmental regulations, including those regulating the environment; and acts of war or terrorist activity. These and other risk factors are discussed in the Company’s Annual Report on Form 10-K, as amended, 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 July 22, 2004. 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.

 

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The Pantry, Inc.  
Unaudited Consolidated Statements of Operations and Selected Financial Data  
(In thousands, except per share and per gallon amounts, margin data and store count)  
     Quarter Ended
     Nine Months Ended
  
     June 24,     June 26,     June 24,     June 26,  
     2004
     2003
     2004
     2003
  

Revenues:

                                 

Merchandise

    $ 302,301     $ 263,890     $ 842,122     $ 741,130  

Gasoline

      625,448       441,093       1,616,021       1,274,745  

Commissions

      8,155       6,472       23,485       20,001  
    
 
 
 

Total revenues

      935,904       711,455       2,481,628       2,035,876  

Cost of sales:

                                 

Merchandise

      201,201       175,388       557,692       495,360  

Gasoline

      580,993       401,050       1,496,887       1,166,379  
    
 
 
 

Total cost of sales

      782,194       576,438       2,054,579       1,661,739  

Gross profit

      153,710       135,017       427,049       374,137  

Operating expenses:

                                 

Operating, general and administrative

      109,252       95,945       319,820       281,409  

Depreciation and amortization

      13,578       14,314       41,183       39,919  
    
 
 
 

Total operating expenses

      122,830       110,259       361,003       321,328  

Income from operations

      30,880       24,758       66,046       52,809  

Other income (expense):

                                 

Loss on extinguishment of debt

      —         (2,888 )     (23,087 )     (2,888 )

Interest expense

      (9,128 )     (12,372 )     (36,438 )     (37,187 )

Miscellaneous

      482       396       845       1,337  
    
 
 
 

Total other expense

      (8,646 )     (14,864 )     (58,680 )     (38,738 )

Income before income taxes

      22,234       9,894       7,366       14,071  

Income tax expense

      (8,560 )     (3,809 )     (2,836 )     (5,419 )
    
 
 
 

Net income before cumulative effect

      13,674       6,085       4,530       8,652  

Cumulative effect of change in accounting principle

      —         —         —         (3,482 )
    
 
 
 

Net income

    $ 13,674     $ 6,085     $ 4,530     $ 5,170  
    
 
 
 

Earnings per share:

                                 

Net income per diluted share

    $ 0.66     $ 0.33     $ 0.22     $ 0.28  

Net income per diluted share before cumulative effect

    $ 0.66     $ 0.33     $ 0.22     $ 0.47  

Diluted shares outstanding

      20,709       18,450       20,600       18,300  

Selected financial data:

                                 

EBITDA

    $ 44,940     $ 39,468     $ 108,074     $ 94,065  

Net cash provided by operating activities

    $ 57,632     $ 32,984     $ 65,044     $ 34,549  

Merchandise gross profit

    $ 101,100     $ 88,502     $ 284,430     $ 245,770  

Merchandise margin

      33.4 %     33.5 %     33.8 %     33.2 %

Gasoline gallons

      342,818       301,473       990,203       862,436  

Gasoline gross profit

    $ 44,455     $ 40,043     $ 119,134     $ 108,366  

Gasoline margin per gallon (1)

    $ 0.1297     $ 0.1328     $ 0.1203     $ 0.1257  

Gasoline retail per gallon

    $ 1.82     $ 1.46     $ 1.63     $ 1.48  

Comparable store data:

                                 

Merchandise sales %

      3.5 %     0.5 %     3.2 %     2.0 %

Gasoline gallons %

      0.2 %     0.6 %     1.6 %     -0.2 %

Number of stores:

                                 

End of period

      1,367       1,271       1,367       1,271  

Weighted-average store count

      1,371       1,272       1,370       1,278  

Notes:

                                 

(1)    Gasoline margin per gallon represents gasoline revenue less cost of product and expenses associated with credit card processing fees and repairs and maintenance on gasoline equipment. Gasoline margin per gallon as presented may not be comparable to similarly titled measures reported by other companies.

        

 

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The Pantry, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

     June 24, 2004
    September 25, 2003

Assets

              

Cash and cash equivalents

    $ 103,364    $ 72,901

Receivables, net

      37,009      30,423

Inventories

      96,043      84,156

Other current assets

    $ 18,792    $ 12,673
    
  

Total current assets

    $ 255,208    $ 200,153
    
  

Property and equipment, net

      405,372      400,609

Goodwill, net

      338,649      278,629

Other

      35,740      34,774
    
  

Total assets

    $ 1,034,969    $ 914,165
    
  

Liabilities and shareholders’ equity

              

Current maturities of long-term debt

    $ 12,030    $ 27,558

Current maturities of capital lease obligations

      1,375      1,375

Accounts payable

      106,294      78,885

Other accrued liabilities

    $ 64,390    $ 4,881
    
  

Total current liabilities

    $ 184,089    $ 182,699
    
  

Long-term debt

      583,018      470,011

Environmental expenses

      13,886      13,823

Deferred income taxes

      52,852      50,015

Deferred revenue

      32,154      37,251

Capital lease obligations

      14,769      15,779

Other

      16,290      15,922

Total shareholders’ equity

    $ 137,911    $ 128,665
    
  

Total liabilities and shareholders’ equity

    $ 1,034,969    $ 914,165
    
  

 

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The Pantry, Inc.

Reconciliation of Non-GAAP Financial Measures

(In thousands)

 

     Quarter Ended
     Nine Months Ended
  
    

June 24,

2004

    

June 26,

2003

    

June 24,

2004

    

June 26,

2003

  

EBITDA

    $ 44,940     $ 39,468     $ 108,074     $ 94,065  

Interest expense and loss on extinguishment of debt

      (9,128 )     (15,260 )     (59,525 )     (40,075 )

Adjustments to reconcile net income to net cash provided by operating activities (other than depreciation and amortization, income taxes and cumulative effect of change in accounting principle)

      (711 )     3,490       24,682       5,585  

Changes in operating assets and liabilities, net:

                                 

Assets

      (2,441 )     5,051       (7,850 )     4,407  

Liabilities

      24,972       235       (337 )     (29,433 )
    
 
 
 

Net cash provided by operating activities

    $ 57,632     $ 32,984     $ 65,044     $ 34,549  
    
 
 
 

 

     Nine Months Ended
     June 24,
2004
    EPS
    June 26,
2003
    EPS

Net income before cumulative effect of change in accounting principle

    $ 4,530    $ 0.22    $ 8,652    $ 0.47

Financing related charges, net of tax:

                            

Loss on extinguishment of debt

      14,199      0.69      1,776      0.10

Secondary stock offering expenses

      800      0.04      —        —  

Duplicate interest, senior subordinated notes

      1,046      0.05      —        —  
    
  
  
  

Net income, excluding financing related charges

    $ 20,574    $ 1.00    $ 10,428    $ 0.57
    
  
  
  
        
        
     Fiscal Year 2004—Guidance Range
     Net Income
    EPS
    Net Income
    EPS

Net income

    $ 16,500    $ 0.80    $ 17,500    $ 0.85

Financing related charges, net of tax:

                            

Loss on extinguishment of debt

      14,199      0.69      14,199      0.69

Secondary stock offering expenses

      800      0.04      800      0.04

Duplicate interest, senior subordinated notes

      1,046      0.05      1,046      0.05
    
  
  
  

Net income, excluding financing related charges

    $ 32,544    $ 1.58    $ 33,544    $ 1.63
    
  
  
  

 

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