The Pantry, Inc. (PTRY) is trimming its fat and hoarding its cash in order to thrive in the challenging economic climate. The company surprised on estimates in the last quarter by 71.43%. The Pantry is trading at 9.6x forward earnings.

Company Description

The Pantry operates 1,644 convenience stores in the 11 southeastern states, with 80% operating under the banner of Kangaroo Express.

The company, headquartered in Sanford, NC, offers a big selection of merchandise including hot and cold beverages, snacks, fast food, tobacco products, and gasoline.

Revenues Jump 20.1% in the Third Quarter

On July 31, the Pantry released its third quarter earnings and surprised on estimates by 71.43%. Net income was $10.7 million, or 48 cents per share, compared or $12.6 million, or 55 cents a year ago.

Revenues rose 20.1% to $2.5 billion from a year ago.

With the challenging economic conditions, the company did see merchandise revenues fall 0.4% and comparable store sales fall 2.5% from a year ago. Retail gasoline revenues rose 26.4% from the third quarter 2007 as price per gallon climbed 29.6% to $3.72.

The Pantry is still slashing expenses. Store operating expenses fell 4.8% to $6.4 million from a year ago. Administrative expenses also declined 17.6%.

Outlook

The company sees a challenging environment ahead but continues to expect that it will generate free cash flows in the months ahead, even if there is no significant change in the current economic environment. As of June 26, The Pantry had approximately $162 million of cash and short-term investments, with an additional $142 million available under its revolving credit facility.

The Pantry is looking longer term and feels it is well-positioned to leverage its strong market position in the Southeast.

For Fiscal 2008, merchandise revenues are expected between $1.62 billion and $1.65 billion. Retail gasoline sales should come in around 2.1 billion gallons.

Consensus Estimates Rise for Fiscal 2008

Covering analysts are optimistic about the remainder of the year. Fourth quarter estimates are up 10 cents to 56 cents in the last 30 days. For the full year, estimates also rose 10 cents to 95 cents.

Value Fundamentals

The Pantry is a Zacks #1 Rank (Strong Buy) stock. Its forward P/E is 9.67 and the price-to-book is 0.95. The company has an outstanding five year average return on equity (ROE) of 21.03%. PTRY reports fourth quarter earnings on Oct 23.

Content Courtesy: Zacks Investment Research

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