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The Pantry, Inc. (PTRY)

Q4 2008 Earnings Call

November 20, 2008 10:00 am ET


Barry Epley – VP & Corporate Controller

Peter Sodini – President & CEO

Frank Paci – SVR & CFO

Steve Ferreira – SVP of Admin.


Brian Hunt - Wachovia

John Heinbockel - Goldman Sachs

Mark Miller – William Blair

Karen Howland – Barclays Capital

Ben Brownlow - Morgan Keegan

Anthony Lebiedzinski - Sidoti & Company

Unidentified Analyst – Lord Abbott



Welcome to the fourth quarter 2008 The Pantry, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Barry Epley, Vice President, and Corporate Controller.

Barry Epley

Good morning everyone, thank you for joining us. As you know, earlier today we announced financial results for our fourth quarter and full 2008 fiscal year. If anyone does not have a copy of the release and would like one faxed or emailed to them, please contact Selby Kewin in our office at 919-774-6700 extension 7002 and she will see that you get what you need.

Before we begin today, I would like to point out that certain comments made during this call might be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995.

Generally speaking, comments regarding the company or management’s beliefs, expectations, targets, goals, plans, outlook, or predictions of the future are forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by these forward-looking statements. These risks and uncertainties are detailed in The Pantry’s filings with the SEC and in our earnings release issued this morning. We refer you to the SEC’s website or our site at for these and other documents.

We also will discuss certain non-GAAP financial measures today that we believe are helpful to a full understanding of our financial condition. Certain of these non-GAAP financial measures were also included in the press release that we issued this morning.

We therefore refer to our press release posted on our website which includes a presentation and reconciliation of each non-GAAP financial measure to the most directly comparable financial measure included in the press release and an explanation of why we believe these measures provide useful information to our investors and how they are used by management.

With us today are The Pantry’s Chairman and CEO, Peter Sodini, Frank Paci, our CFO, and Steve Ferreira, our Senior Vice President of Business Development.

I will now turn the call over to Peter.

Peter Sodini

Thank you Barry and good morning to everyone. We had a pretty good final quarter to conclude and unprecedented year particularly from the perspective of cost volatility. Despite this incredibly challenging environment we closed off fiscal 2008 on a strong note with fourth quarter earnings per share of $1.03, up sharply from $0.25 a year ago.

EBITDA for the quarter was $87.4 million, up 49% from last year’s fourth quarter. For the full year, EPS was $1.43 compared with $1.17 in fiscal 2007 and our EBITDA was $247 million, a 15% increase.

As alluded to earlier we experienced unprecedented and nearly continuous increases in oil and gasoline prices for the first three quarters of this year which has virtually effected our gas and merchandise sales and put significant pressure on gas margins.

As you know oil prices peaked in July, and by our fiscal year end this [fell] more then 27% which had a positive impact on our fourth quarter gasoline margin. As a result we were able to achieve a gasoline margin for the full year of 12.4% per gallon in line with our long-term annual average.

While gas prices reversed course and began to drop in July, versus the comparable quarter from a year ago and up 3% from Q3 average, higher gasoline prices and the slowing economy led to decreased amounts driven in the fourth quarter.

Barrel data shows that many of the states where we operate have been among the hardest hit in the US in terms of miles driven. In August for example the government estimates that miles driven on a national basis was down 5.6% compared to the comparable period a year ago.

In September the government estimates and this is the most recent data, the government estimates that miles driven in the US was down 4.4%. Just to give you a flavor for some of the detail, looking at our key states in our geography the numbers are the following.

Florida for September, down 5.6%, Tennessee down 7.3%, Alabama down 6.2%, North Carolina down 6.1%, South Carolina, a highpoint, down 8.4%, and Georgia down 5.4%, for a composite of approximately 6.5%.

This significant drop in mileage driven coupled with the storm impact in selected states caused our gasoline comps to be down 6.8% for the quarter. Obviously there’s considerable uncertainty in the economic environment and it remains to be seen how gasoline demand will shake out over the months ahead.

We believe we should receive some benefit from the significant decline we seen in gas prices but the overall economy clearly continues to weaken. We remain optimistic that we will see improvement in gasoline comps as we move through the year but there is a chance that frightened consumers could continue to keep gasoline demand low.

On the merchandise side we’re encouraged that comp store merchandise sales for the fourth quarter were down only 2.5% which matched our performance in the third quarter. We think that’s a pretty good performance in light of the softening economy and the further decline in our gas comps.

We achieve these results particularly through increased promotional activity which had some impact on our merchandise gross margin. Frank will get into details on that in a few minutes.

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