The Pantry reports net loss but beats Wall Street estimates

The Pantry reported a net loss in the first quarter, but its results beat Wall Street estimates as improved sales of store merchandise helped offset a decline in fuel sales.

Excluding the impact of impairment charges, The Pantry’s net loss for the quarter was $1.7 million, or 8 cents per share, compared to a loss of 11 cents per share in the first quarter last year. The consensus among analysts who cover the Cary company was a loss of 11 cents per share.

The Pantry has 1,571 stores throughout the Southeast, primarily under the Kangaroo Express brand. Comparable store merchandise sales at the company’s stores increased 2.2 percent while gross margin was 34.3 percent, up from 33.2 percent a year ago.

The company has been tailoring some of its stores to appeal to local audiences, such as beach or college towns or Hispanic communities. The company has installed such merchandise at 297 stores so far.

“They’ve got some momentum on the re-merchandising initiatives that they’ve been doing targeting individual lifestyles,” said Wells Fargo Securities analyst Bryan Hunt. He noted that 75 percent of The Pantry’s profit in the quarter came from merchandise sales, a sign of how convenience stores are capturing a growing share of retail food sales.

“If they can hold the line on fuel profitability the trend is in place with some of the initiatives they have plus the overall consumer behavior ... that the business should continue to grow nicely,” Hunt said. “We are confident in the direction they’re going.”

Fuel gross profit was $49.2 million in the quarter, compared with $55.9 million a year ago. Ben Brownlow, an analyst with Raymond James, said the company was hurt by the fact that fuel demand has been particularly weak in the Carolinas and Florida. The Pantry recently put in place a new pricing system to better react to price changes, which Brownlow said should help with profitability going forward.
“It’s a tool, but it’s not an entire solution,” he said. “You’re still kind of fighting weak demand trends.”

The Pantry shares closed Tuesday at $12.80, up 37 cents. The stock is up 6 percent this year.