The Pantry, Inc. (PTRY)

PTRY 
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Exchange: NASDAQ
Industry: Consumer Durables
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The Pantry (PTRY)

Q4 2012 Earnings Call

February 05, 2013 08:30 AM ET

Executives

Berry Epley - Vice President and Corporate Controller

Dennis Hatchell - President and CEO

Analysts

Bryan Hunt - Wells Fargo Securities

Ben Brownlow - Raymond James

Ronald Bookbinder - The Benchmark Company

Anthony Lebiedzinski - Sidoti & Company

Presentation

Operator

Good day ladies and gentlemen and welcome to the Q1, 2013, The Pantry Inc. earnings conference call. My name is Sue and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions). As a reminder this call is being recorded for replay purposes. I would like to turn the call over to Berry Epley, Vice President Controller. Please proceed sir.

Berry Epley

Good morning everyone and thank you for joining us. Earlier this morning we announced financial results for our first quarter fiscal 2013. I would like to point out that certain statements made during this call may be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Generally speaking, comments regarding the company are management's beliefs, expectations, targets, goals, plans, outlook, guidance 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 thepantry.com 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 measures were also included in the press release we issued this morning. We therefore refer you to our press release posted on our website, which includes 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.

Also with us on the call today is The Pantry's President and CEO Dennis Hatchell. I will now turn the call over to Dennis.

Dennis Hatchell

Thanks Berry. Good morning everyone. This morning we reported first quarter results where we generated $49 million of adjusted EBITDA, a $5 million improvement over the prior year. Our merchandise comparable store sales increased 2.2%. All of our major categories inside the store, except cigarettes showed positive comps versus last year with especially strong results on our food service programs.

We are continuing to develop new offering to offset the challenges we faced on the cigarette portion of our business. When you exclude the negative comps on cigarettes, our comparable source sales improved 4.6%. This strong performance is highlighted by the significant improvement over prior year of adjusted EBITDA excluding fuel gross profit. Our team has maintained its focus on managing OSG&A costs. We reduced OSG&A as a percent of merchandise sales by 1.7% over the prior year. This improvement saved us approximately $7.4 million for the quarter.

During the quarter, wholesale fuel prices initially declined rapidly for few weeks and then increased dramatically during the last couple of weeks of the quarter. As normally occurs, retail prices in our market did not keep pace with these cost changes and that exerted significant pressure on our margins. We are pleased that we’re making good progress rolling out our pricing system which will help us respond to the changing marketplace and it will be completed in quarter two.

During the quarter, we continue to make progress on other parts of our strategic initiatives in particular our lifestyle merchandizing program continues to grow. We have now identified nine different lifestyles local merchandizing needs. We are currently installing three of the nine. Hispanic is now in 130 locations, colleges in 120 locations and the Beach is installed in 47 locations. The early results of this initiative are positive and we are pleased with the progress we are making. We have plans to add another 56 Hispanic locations in the month of February and we will continue to rapidly add more locations to all the lifestyles as we remodel or reset our stores.

In regards to capital, we currently have more than 60 projects started including remodels, QSRs and new stores. We completed four remodel stores during the month of December and we are pleased with how the stores look as result of the remodeled effort and we just recently held grand openings for these locations.

With each remodel project, we continue to learn and are improving the process to minimize operational disruption or making each remodel effective as possible. We believe all our initiatives will provide us both growth and profit that will overtime, minimize the effect of the declining cigarette category and the impact of a volatile fuel market.

Before I transition the call back to Berry, I would like to take a moment to recognize Clyde Preslar our new SVP and Chief Financial Officer. Clyde is a proven leader, ideally suited for the Pantry with more than 15 years of financial leadership experience as a Chief Financial Officer. Clyde has extensive breadth of financial experience including financial leadership in the consumer goods arena and an exceptional track record of financial management, planning and corporate development. In addition, Clyde has deep roots in North Carolina having received his graduate degree at Elon University and an MBA from Wake Forest University. Clyde has shared with me, he is excited to have the opportunity to be living and working in his home state again.

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