The Pantry, Inc. (Nasdaq:PTRY), a leading independently operated
convenience store chain in the southeastern U.S., today announced
financial results for its fiscal first quarter ended December 25,
2014.
First Quarter Summary:
- As previously announced, on December 18, 2014, The Pantry, Inc.
entered into an agreement and plan of merger under which, subject
to the satisfaction of certain conditions, Alimentation Couche-Tard
Inc. (TSX:ATD.A) (TSX:ATD.B) will acquire The Pantry, Inc. in an
all-cash transaction valued at $36.75 per share, with a total
enterprise value of approximately $1.7 billion including debt
assumed. See additional information below.
- Net income was $18.9 million or $0.81 per diluted
share. This compares to net loss of $5.1 million or $0.23 per
diluted share in last year's first quarter. Excluding the
impact of impairment charges, net income for the first quarter of
fiscal 2015 was $19.6 million, or $0.84 per diluted share, compared
to net loss of $4.6 million, or $0.20 per diluted share, in the
prior year (see reconciliation below).
- Adjusted EBITDA was $78.0 million, up from $42.4 million a year
ago (see reconciliation below).
- Comparable store merchandise revenue increased 3.6% as
merchandise gross margin improved to 33.8% from 33.5%.
- Comparable store retail fuel gallons sold increased 3.7% as
retail fuel margin per gallon increased to $0.182 from $0.118 in
the prior year quarter.
- Store operating and general and administrative expenses were
$152.0 million compared to $154.0 million a year ago. The
first quarter of fiscal 2015 includes a $4.2 million gain
recognized in connection with proceeds received from a class action
settlement fund which was partially offset by $2.7 million in costs
related to the merger agreement announced on December 18, 2014
between the Company and Alimentation Couche-Tard Inc.
- The effective tax rate for the first quarter of fiscal 2015 was
37.9% compared to 39.2% in the first quarter of fiscal 2014.
President and Chief Executive Officer Dennis G. Hatchell said,
"Our strong first quarter results reflect continuing progress as we
grew merchandise and fuel gross profit while controlling
expenses. Improved merchandising effectiveness drove a 3.6%
increase in comparable store merchandise sales, and a 5.0% increase
in sales per customer. Fuel gross profit and comparable store
fuel volumes improved significantly as we benefited from our focus
on fuel price management and a continued decline in fuel
costs. Our team is focused on addressing transition matters
under the merger agreement we reached in late December with
Alimentation Couche-Tard Inc."
Additional Information on the Merger with
Couche-Tard
As previously reported, on December 18, 2014, we entered into an
Agreement and Plan of Merger (the "Merger Agreement") with
Couche-Tard U.S. Inc. ("Couche-Tard") and CT-US Acquisition Corp.
("Merger Sub"). Pursuant to the Merger Agreement and subject to the
satisfaction or waiver of the conditions set forth therein, Merger
Sub will be merged with and into The Pantry, with The Pantry
continuing as the surviving company and a wholly owned subsidiary
of Couche-Tard (the "Merger"). On January 12, 2015, we filed a
preliminary proxy statement in connection with a special meeting of
our stockholders to seek approval and adoption of the Merger
Agreement and the Merger.
In connection with the proposed transaction, The Pantry has
filed a preliminary proxy statement concerning the proposed
transaction with the Securities and Exchange Commission ("SEC").
The Pantry will provide the definitive proxy statement to its
stockholders. Investors and stockholders are urged to read the
proxy statement and any other relevant documents filed with the SEC
when they become available, as well as any amendments or
supplements to those documents, because they will contain important
information about the transaction. Investors and stockholders will
be able to obtain a copy of the proxy statement as well as other
filings containing information about The Pantry free of charge at
the SEC's Web Site at http://www.sec.gov. In addition, the proxy
statement, the SEC filings that will be incorporated by reference
in the proxy statement and the other documents filed with the SEC
by The Pantry may be obtained free of charge from The Pantry's
Investor Relations page on its corporate website at
http://www.thepantry.com.
The Pantry and its directors, executive officers, and certain
other members of management and employees may be deemed to be
participants in the solicitation of proxies in favor of the
proposed transaction from the stockholders of The Pantry.
Information about the directors and executive officers of The
Pantry is set forth in The Pantry's Annual Report on Form 10-K for
the year ended September 25, 2014, as amended on January 23, 2015.
Additional information regarding participants in the proxy
solicitation may be obtained by reading the proxy statement
regarding the proposed transaction.
Withdrawal of Guidance and Conference Call
Due to the pending merger with Couche-Tard, The Pantry is no
longer issuing financial guidance and is withdrawing the previous
financial guidance for fiscal 2015 issued on December 9,
2014. The Pantry will not host a first quarter earnings
conference call.
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 December 25,
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
January 29, 2015, the Company operated 1,509 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, the remodeling of our existing stores
and store closures. 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.
The following factors, among others, could cause actual results
and events to differ materially from those expressed or implied in
the forward-looking statements: (1) the occurrence of any event,
change or other circumstances that could give rise to the
termination of the merger agreement; (2) the inability to complete
the transactions contemplated by the merger agreement due to the
failure to obtain the required stockholder approval; (3) the
inability to satisfy the other conditions specified in the merger
agreement, including, without limitation, the receipt of necessary
governmental or regulatory approvals required to complete the
transactions contemplated by the merger agreement; (4) the risk
that the proposed transactions disrupt current plans and
operations, increase operating costs and the potential difficulties
in customer loss and employee retention as a result of the
announcement and consummation of such transactions; (5) the outcome
of any legal proceedings that may be instituted against the
companies following announcement of the merger agreement and
transactions contemplated therein; and (6) the possibility that the
companies may be adversely affected by other economic, business,
and/or competitive factors.
Any number of other factors could affect actual results and
events, including, without limitation; the Company's ability to
enhance its operating performance through its in-store initiatives,
store remodel programs and the addition of new equipment and
products to existing stores; 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 SEC.
In addition, the forward-looking statements included in this press
release are based on the Company's estimates and plans as of
January 29, 2015. 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 25, |
December 26, |
|
2014 |
2013 |
Revenues: |
|
|
Merchandise |
$ 451,962 |
$ 440,780 |
Fuel |
1,224,874 |
1,363,299 |
Total revenues |
1,676,836 |
1,804,079 |
Costs and operating
expenses: |
|
|
Merchandise cost of goods
sold |
299,193 |
293,001 |
Fuel cost of goods sold |
1,147,645 |
1,314,617 |
Store operating |
126,739 |
128,069 |
General and administrative |
25,305 |
25,977 |
Impairment charges |
1,115 |
829 |
Depreciation and
amortization |
25,282 |
28,679 |
Total costs and operating
expenses |
1,625,279 |
1,791,172 |
Income from operations |
51,557 |
12,907 |
Interest expense |
21,075 |
21,372 |
Income (loss) before income
taxes |
30,482 |
(8,465) |
Income tax expense
(benefit) |
11,541 |
(3,321) |
Net income
(loss) |
$ 18,941 |
$ (5,144) |
|
|
|
Income (loss) per diluted
share: |
|
|
Income (loss) per diluted
share |
$ 0.81 |
$ (0.23) |
Weighted average and potential
dilutive shares outstanding |
23,275 |
22,791 |
|
|
|
Selected financial
data: |
|
|
Adjusted EBITDA |
$ 77,954 |
$ 42,415 |
Payments made for lease finance
obligations |
$ 13,288 |
$ 13,336 |
Merchandise gross profit |
$ 152,769 |
$ 147,779 |
Merchandise margin |
33.8% |
33.5% |
Retail fuel data: |
|
|
Gallons |
421,562 |
408,663 |
Margin per gallon (1) |
$ 0.182 |
$ 0.118 |
Retail price per gallon |
$ 2.87 |
$ 3.28 |
Total fuel gross profit |
$ 77,229 |
$ 48,682 |
|
|
|
Comparable store data: |
|
|
Merchandise sales % |
3.6% |
3.5% |
Retail fuel gallons % |
3.7% |
(4.0)% |
|
|
|
Number of stores: |
|
|
End of period |
1,511 |
1,538 |
Weighted-average store
count |
1,515 |
1,544 |
|
|
|
(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 25, |
September 25, |
|
2014 |
2014 |
ASSETS |
|
|
Cash and cash equivalents |
$ 123,003 |
$ 81,652 |
Receivables |
67,164 |
65,666 |
Inventories |
113,256 |
133,904 |
Prepaid expenses and other current
assets |
14,527 |
17,593 |
Deferred income taxes |
22,895 |
35,836 |
Total current assets |
340,845 |
334,651 |
|
|
|
Property and equipment, net |
862,356 |
873,197 |
Goodwill and other intangible assets |
440,544 |
440,628 |
Other noncurrent assets |
84,538 |
85,278 |
Total assets |
$ 1,728,283 |
$ 1,733,754 |
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
Current maturities of long-term debt |
$ 2,715 |
$ 2,715 |
Current maturities of lease finance
obligations |
11,302 |
11,555 |
Accounts payable |
133,978 |
149,388 |
Other accrued liabilities |
100,995 |
104,617 |
Total current liabilities |
248,990 |
268,275 |
|
|
|
Long-term debt |
495,517 |
496,063 |
Lease finance obligations |
420,551 |
423,073 |
Deferred income taxes |
81,530 |
83,545 |
Deferred vendor rebates |
8,496 |
8,629 |
Other noncurrent liabilities |
114,475 |
114,712 |
Total shareholders' equity |
358,724 |
339,457 |
Total liabilities and shareholders'
equity |
$ 1,728,283 |
$ 1,733,754 |
|
The Pantry,
Inc. |
Reconciliation of
Non-GAAP Financial Measures |
(In thousands) |
|
|
|
|
Three Months
Ended |
|
December 25, |
December 26, |
|
2014 |
2013 |
|
|
|
Adjusted EBITDA |
$ 77,954 |
$ 42,415 |
Impairment charges |
(1,115) |
(829) |
Interest expense |
(21,075) |
(21,372) |
Depreciation and amortization |
(25,282) |
(28,679) |
Income tax (expense) benefit |
(11,541) |
3,321 |
Net income (loss) |
$ 18,941 |
$ (5,144) |
|
|
|
Adjusted EBITDA |
$ 77,954 |
$ 42,415 |
Interest expense |
(21,075) |
(21,372) |
Income tax (expense) benefit |
(11,541) |
3,321 |
Stock-based compensation expense |
1,054 |
924 |
Changes in operating assets and
liabilities |
3,147 |
(13,076) |
Benefit (provision) for deferred income
taxes |
11,567 |
(2,983) |
Other |
528 |
1,404 |
Net cash provided by operating
activities |
$ 61,634 |
$ 10,633 |
|
|
|
Additions to property and equipment, net |
$ (16,067) |
$ (29,745) |
Other |
(1,673) |
— |
Net cash used in investing activities |
$ (17,740) |
$ (29,745) |
|
|
|
Net cash used in financing activities |
$ (2,543) |
$ (5,550) |
|
|
|
Net increase (decrease) in cash |
$ 41,351 |
$ (24,662) |
|
|
|
Three Months
Ended |
|
December 25,
2014 |
December 26, 2013 |
|
Pre Tax |
After Tax |
EPS |
Pre Tax |
After Tax |
EPS |
Income (loss), as reported |
$ 30,482 |
$ 18,941 |
$ 0.81 |
$ (8,465) |
$ (5,144) |
$ (0.23) |
Impairment charges |
1,115 |
684 |
0.03 |
829 |
509 |
0.02 |
Income (loss), as adjusted |
$ 31,597 |
$ 19,625 |
$ 0.84 |
$ (7,636) |
$ (4,635) |
$ 0.20 |
CONTACT: Clyde Preslar
(919) 774-6700
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