Business

July 30, 2014

The Pantry shares surge after Q3 earnings beat estimates

The Pantry's shares jumped 15 percent Wednesday after the Cary convenience store chain reported third-quarter earnings that beat Wall Street estimates.

The Pantry’s shares jumped 15 percent Wednesday after the Cary convenience store chain reported third-quarter earnings that beat Wall Street estimates.

Net income for the third quarter was $14 million, or 61 cents per diluted share, compared to $5.9 million, or 26 cents per diluted share, in the same quarter last year. That handily beat the 33.5 cents per share that was the consensus among analysts who cover the company, according to Bloomberg.

The Pantry operates 1,525 convenience stores in the Southeast, mostly under the Kangaroo Express brand. The company is working to offset declining fuel sales by bolstering its merchandising revenue, which increased 2.3 percent in the third quarter compared to the same period last year.

In addition to upgrading its food and drink options, The Pantry is attempting to improve customer traffic by renovating stores and adding in-store quick-service restaurants, such as Subway. In the third quarter, the company renovated one store, added four quick-store restaurants and closed seven locations.

CEO Dennis Hatchell said on a conference call with analysts that the company plans to accelerate the introduction of restaurants and continue to close under-performing stores. Hatchell said the remodeling of stores has been paused and will resume in the next fiscal year.

“This avoids the store disruptions during these peak months and it also allows us to focus on optimizing the returns on remodels that we’ve completed over the last 12 months,” he said.

The Pantry has been hurt in recent years by sluggish fuel sales in the Southeast. But the profit margin on fuel beat expectations in the third quarter, said John R. Lawrence, an analyst at Stephens who has a hold rating on the stock.

Fuel sales were slightly higher this quarter than in the third quarter of the 2013 fiscal year, but are 5.6 percent lower for the year to date.

“They’re sort of changing the strategy, spending a little bit more,” Lawrence said of the company’s turnaround strategy. “The industry is seeing larger boxes where you can put this food service and they’re following it and it seems to be working.”

The Pantry shares closed Wednesday at $17.60, up $2.01. The stock is up 5 percent this year.

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