The Pantry Announces Third Quarter Financial Results

SANFORD, N.C.--(Business Wire)--
The Pantry, Inc. (NASDAQ:PTRY), the leading independently operated
convenience store chain in the southeastern U.S., today announced
financial results for its third fiscal quarter ended June 26, 2008.

Total revenues for the quarter were approximately $2.5 billion, up
20.1% from the corresponding period a year ago. Net income was $10.7
million, or $0.48 per share on a diluted basis, compared with $12.6
million, or $0.55 per share, in last year's third quarter. EBITDA for
the quarter was $66.1 million, compared with $69.1 million a year ago
and $40.1 million in the second quarter of fiscal 2008.

Merchandise revenues for the third quarter declined 0.4% overall
and 2.5% on a comparable store basis from last year's third quarter.
The merchandise gross margin was 36.5%, down 10 basis points from the
prior year. Total merchandise gross profit for the quarter was $156.6
million, a 0.7% decrease from the corresponding period a year ago.

Retail gasoline gallons sold in the quarter were down 2.5% overall
and 5.2% on a comparable store basis. Retail gasoline revenues rose
26.4%, reflecting a 29.6% increase in the average retail price per
gallon to $3.72. The retail gross margin per gallon was 10.7 cents,
compared with 12.8 cents a year ago.

The Company continued to manage expenses well during the quarter.
Store operating expenses were down $6.4 million, or 4.8%, from a year
ago, benefiting from a $4.2 million reduction in the Company's
insurance reserves, reflecting its favorable claims experience.
General and administrative expenses declined $4.8 million, or 17.6%,
primarily as a result of the restructuring completed last year.

Results for the third quarter include a charge of $0.04 per share
related to the Company's gasoline hedging positions, which have all
been closed. Results for the third quarter of fiscal 2007 included a
charge of $0.06 per share for deferred financing costs in connection
with a debt refinancing.

For the first nine months of fiscal 2008, total revenues were
approximately $6.5 billion, a 32.5% increase from the corresponding
period a year ago. Net income for the nine-month period was $8.8
million, or $0.40 per share, compared with $21.1 million, or $0.92 per
share, a year ago. EBITDA was $159.8 million, up 2.8% from $155.5
million in the first nine months of fiscal 2007.

Chairman and Chief Executive Officer Peter J. Sodini said,
"Operating conditions remained challenging in the third quarter, with
a series of new record highs for crude oil prices and a continued soft
retail environment. In this context, we are pleased with the
sequential improvement in our results from the second quarter despite
the current market conditions. Our results benefited from our
continued focus on maximizing gasoline gross profits and on expense
management. With our suspension of acquisition activity and share
repurchases for at least the balance of the calendar year, and our
substantial reduction in non-essential capital expenditures, we
continue to expect that we will generate free cash flows in the months
ahead, even if there is no significant change in the current
macroeconomic environment. Longer term, we believe that the Company
remains well-positioned to leverage its strong market position in the
Southeast over the years ahead."

As of June 26, 2008, the Company had approximately $162 million of
cash and short-term investments, with an additional $142 million
available under its revolving credit facility. The Company is
currently, and expects to remain, in compliance with all of the
applicable debt covenants under its outstanding instruments.

The Company is also updating its fiscal 2008 guidance ranges.
Merchandise revenues are now expected to be between $1.62 billion and
$1.65 billion, while retail gasoline sales are expected to be
approximately 2.1 billion gallons. The merchandise gross margin is
expected to be between 36.8% and 37.0%, with a retail gasoline gross
margin between 10 and 12 cents per gallon. The Company now expects
that fiscal 2008 store operating and general and administrative
expenses will be between $605 million and $610 million, down from its
previous guidance of between $615 million and $630 million.

Conference Call

Interested parties are invited to listen to the third quarter
earnings conference call scheduled for Thursday, July 31, 2008 at
10:00 a.m. Eastern Time. The call will be broadcast live over the
Internet and will be accessible at www.thepantry.com or
www.companyboardroom.com. An online archive will be available
immediately following the call and will be accessible until August 7,
2008.

Use of Non-GAAP Measures

EBITDA is defined by the Company as net income before interest
expense, net, loss on extinguishment of debt, income taxes and
depreciation and amortization. Adjusted EBITDA includes the lease
payments the Company makes under its lease finance obligations as a
reduction to EBITDA. EBITDA and Adjusted EBITDA are not measures of
operating performance or liquidity under accounting principles
generally accepted in the United States of America ("GAAP") and should
not be considered as substitutes for net income, cash flows from
operating activities or other income or cash flow statement data. The
Company has included information concerning EBITDA and 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
EBITDA and Adjusted EBITDA to review the performance of the Company's
business directly resulting from its retail operations and for
budgeting and field operations compensation targets.

In accordance with GAAP, certain of the Company's leases,
including all of its sale-leaseback arrangements, are accounted for as
lease finance obligations. As a result, payments made under these
lease arrangements are accounted for as interest expense and a
reduction of the principal amounts outstanding under the Company's
lease finance obligations. By including in Adjusted EBITDA the amounts
the Company pays under its lease finance obligations, the Company is
able to present such payments as operating costs instead of financing
costs. The Company believes that this presentation helps investors
better understand its operating performance relative to other
companies that do not account for their leases as lease finance
obligations.

Any measure that excludes interest expense, loss on extinguishment
of debt, depreciation and amortization or income taxes has material
limitations because the Company uses debt and lease financing in order
to finance its operations and its acquisitions, it uses capital and
intangible assets in its business and the payment of income taxes is a
necessary element of its operations. Due to these limitations, the
Company uses EBITDA and Adjusted EBITDA only in addition to and in
conjunction with results 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, EBITDA
and Adjusted EBITDA, 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
EBITDA and Adjusted EBITDA with non-GAAP financial measures having the
same or similar names used by other companies.

About The Pantry

Headquartered in Sanford, North Carolina, The Pantry, Inc. is the
leading independently operated convenience store chain in the
southeastern United States and one of the largest independently
operated convenience store chains in the country, with revenues for
fiscal 2007 of approximately $6.9 billion. As of July 24, 2008, the
Company operated 1,659 stores in eleven states under select banners,
including Kangaroo Express, its primary operating banner. The
Company's stores offer a broad selection of merchandise, as well as
gasoline 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 performance are "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. 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. Any number of factors could affect actual
results and events, including, without limitation: the ability of the
Company to take advantage of expected synergies in connection with
acquisitions; the actual operating results of stores acquired; the
ability of the Company to integrate acquisitions into its operations;
fluctuations in domestic and global petroleum and gasoline markets;
realizing expected benefits from the Company's fuel supply agreements;
changes in the competitive landscape of the convenience store
industry, including gasoline 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 effect of regional weather conditions on
customer traffic; financial difficulties of suppliers, including the
Company's principal suppliers of gasoline and merchandise, and their
ability to continue to supply its stores; environmental risks
associated with selling petroleum products; and governmental
regulations, including those relating to the environment. These and
other risk factors are discussed in the Company's Annual Report on
Form 10-K and in its other filings with the Securities and Exchange
Commission. In addition, the forward-looking statements included in
this press release are based on the Company's estimates and plans as
of July 31, 2008. 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.

-0-
*T
The Pantry, Inc.
Unaudited Consolidated Statements of Operations and Selected Financial
Data
(In thousands, except per share and per gallon amounts, margin data
and store count)

Quarter Ended Nine Months Ended
----------------------- -----------------------
June 26, June 28, June 26, June 28,
2008 2007 2008 2007
----------- ----------- ----------- -----------
(13 weeks) (13 weeks) (39 weeks) (39 weeks)
Revenues:
Merchandise $ 429,193 $ 430,971 $1,204,849 $1,141,064
Gasoline 2,037,050 1,622,860 5,276,674 3,749,985
----------- ----------- ----------- -----------
Total revenues 2,466,243 2,053,831 6,481,523 4,891,049

Costs and operating
expenses:
Merchandise costs of
goods sold 272,577 273,317 759,372 715,889
Gasoline cost of
goods sold 1,979,527 1,552,066 5,116,055 3,584,185
Store operating 126,092 132,516 379,068 366,359
General and
administrative 22,218 26,968 67,985 69,645
Depreciation and
amortization 27,268 25,762 80,679 68,845
----------- ----------- ----------- -----------
Total costs and
operating
expenses 2,427,682 2,010,629 6,403,159 4,804,923

Income from operations 38,561 43,202 78,364 86,126

Other income
(expense):
Loss on
extinguishment of
debt -- (2,212) -- (2,212)
Interest expense, net (21,775) (20,386) (65,255) (49,461)
Miscellaneous 288 176 750 516
----------- ----------- ----------- -----------
Total other
expense (21,487) (22,422) (64,505) (51,157)

Income before income
taxes 17,074 20,780 13,859 34,969

Income tax expense (6,406) (8,135) (5,021) (13,839)
----------- ----------- ----------- -----------

Net income $ 10,668 $ 12,645 $ 8,838 $ 21,130
----------- ----------- ----------- -----------

Earnings per share:
Net income per
diluted share $ 0.48 0.55 $ 0.40 $ 0.92
Diluted shares
outstanding 22,214 22,992 22,243 22,956

Selected financial
data:
EBITDA $ 66,117 $ 69,140 $ 159,793 $ 155,487
Adjusted EBITDA $ 54,667 $ 58,623 $ 125,572 $ 130,931
Merchandise gross
profit $ 156,616 $ 157,654 $ 445,477 $ 425,175
Merchandise margin 36.5% 36.6% 37.0% 37.3%
Retail gasoline data:
Gallons 532,195 546,012 1,575,799 1,479,307
Margin per gallon
(1) $ 0.1068 $ 0.1282 $ 0.1008 $ 0.1111
Retail price per
gallon $ 3.72 $ 2.87 $ 3.25 $ 2.48
Wholesale gasoline
data:
Gallons 16,716 24,783 52,966 36,855
Margin per gallon
(1) $ 0.0403 $ 0.0320 $ 0.0326 $ 0.0393
Total gasoline gross
profit $ 57,523 $ 70,794 $ 160,619 $ 165,800

Comparable store data:
Merchandise sales % -2.5% 1.9% -1.7% 2.1%
Gasoline gallons % -5.2% 1.0% -3.7% 1.3%

Number of stores:
End of period 1,660 1,642 1,660 1,642
Weighted-average
store count 1,659 1,632 1,649 1,556

Notes:
(1) Gasoline margin per gallon represents gasoline revenue less cost
of product and expenses associated with credit card processing fees
and repairs and maintenance on gasoline equipment. Gasoline margin
per gallon as presented may not be comparable to similarly titled
measures reported by other companies.
*T

-0-
*T
The Pantry, Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands)

June 26, Sept. 27,
2008 2007
----------------------------

Assets
Cash and cash equivalents $ 161,865 $ 71,503
Receivables, net 111,963 84,445
Inventories 177,435 169,647
Other current assets 28,311 25,256
------------- -------------
Total current assets 479,574 350,851
------------- -------------

Property and equipment, net 1,000,475 1,025,226
Goodwill, net 627,586 584,336
Other 66,505 69,026
------------- -------------

Total assets $ 2,174,140 $ 2,029,439
------------- -------------

Liabilities and shareholders' equity
Current maturities of long-term debt $ 4,539 $ 3,541
Short-term borrowings
Current maturities of lease finance
obligations 5,356 5,348
Short-term debt
Accounts payable 213,027 192,228
Other accrued liabilities 119,917 115,840
------------- -------------
Total current liabilities 342,839 316,957
------------- -------------

Long-term debt 843,096 746,749
Lease finance obligations 456,441 452,609
Deferred income taxes 79,918 74,667
Deferred vendor rebates 23,207 23,937
Other 63,554 60,692
Total shareholders' equity 365,085 353,828
------------- -------------

Total liabilities and shareholders'
equity $ 2,174,140 $ 2,029,439
------------- -------------
*T

-0-
*T

The Pantry, Inc.
Reconciliation of Non-GAAP Financial Measures
(In thousands)

Quarter Ended Nine Months Ended
June 26, June 28, June 26, June 28,
2008 2007 2008 2007
--------- ---------- ---------- ----------

Adjusted EBITDA $ 54,667 $ 58,623 $ 125,572 $ 130,931
Payments made for lease
finance obligations 11,450 10,517 34,221 24,556
--------- ---------- ---------- ----------
EBITDA 66,117 69,140 159,793 155,487
Interest expense, net and
loss on extinguishment of
debt (21,775) (22,598) (65,255) (51,673)
Depreciation and
amortization (27,268) (25,762) (80,679) (68,845)
Income tax expense (6,406) (8,135) (5,021) (13,839)
--------- ---------- ---------- ----------
Net income $ 10,668 $ 12,645 $ 8,838 $ 21,130
--------- ---------- ---------- ----------

Adjusted EBITDA $ 54,667 $ 58,623 $ 125,572 $ 130,931
Payments made for lease
finance obligations 11,450 10,517 34,221 24,556
--------- ---------- ---------- ----------
EBITDA 66,117 69,140 159,793 155,487
Interest expense, net (21,775) (20,386) (65,255) (49,461)
Income tax expense (6,406) (8,135) (5,021) (13,839)
Non-cash stock based
compensation 808 903 2,545 2,729
Changes in operating assets
and liabilities 12,064 855 (9,589) (7,595)
Other 9,199 3,318 8,766 4,941
--------- ---------- ---------- ----------
Net cash provided by
operating activities $ 60,007 $ 45,695 $ 91,239 $ 92,262
--------- ---------- ---------- ----------

Net cash used in investing
activities $(24,914) $(346,290) $(102,469) $(480,813)
--------- ---------- ---------- ----------

Net cash provided by
financing activities $ 77,857 $ 313,688 $ 101,592 $ 346,299
--------- ---------- ---------- ----------
*T

The Pantry, Inc.
Frank Paci, 919-774-6700

Copyright Business Wire 2008