The Pantry Reports Record Second-Quarter Earnings and Increases Annual

    Business Editors/Food/Beverage Editors

    SANFORD, N.C.--(BUSINESS WIRE)--April 28, 2005--The Pantry, Inc. (NASDAQ: PTRY), the leading independently operated convenience store chain in the southeastern U.S., today announced financial results for its second fiscal quarter ended March 31, 2005.
    Revenues for the second quarter totaled $945.8 million, a 20.3% increase from $786.4 million in the corresponding period a year ago. Net income for the quarter was $3.8 million, or $0.18 per diluted share, compared with a net loss on a GAAP basis of $14.1 million, or $0.71 per share, in last year's second quarter. Results for the year-ago period included $0.72 per share in early debt extinguishment costs, as well as $0.02 per share in expenses related to a secondary stock offering. In addition, there was duplicate interest expense of $0.05 per share on two issues of senior subordinated notes for a one-month period when both were outstanding. Net income excluding these financing-related items for the second quarter of fiscal 2004 was $1.6 million, or $0.08 per share; net income and earnings per share in the fiscal 2005 period were more than double the adjusted results for the year-ago quarter.
    President and Chief Executive Officer Peter J. Sodini said, "We are pleased to report record earnings and comparable store volumes above our expectations for this seasonally weak period, which were achieved despite the dramatic escalation in gasoline costs during the quarter. Operating momentum in our core stores has continued to accelerate - in terms of both merchandise sales and gasoline gallons sold in comparable stores. We believe this reflects the impact of our store conversion and rebranding programs, as well as our continued focus on expanding higher-margin merchandise categories such as private label products and food service. In addition, our earnings continue to benefit from a reduction in interest expense following last year's debt refinancing."
    Merchandise revenue for the quarter was up 6.6% on a comparable store basis. The merchandise gross margin of 37.2% increased 40 basis points from a year ago. Total merchandise gross profits rose 6.3% to $105.7 million, and accounted for approximately 76% of the Company's total gross profits. Comparable store gasoline gallons increased 7.7% from a year ago. Gasoline revenues were up 28.1%, partly due to a 19.4% increase in the average retail price per gallon, to $1.91. The gross margin per gallon was 9.9 cents, compared with 10.5 cents in last year's second quarter. Excluding the impact of the increase in credit card fees, gasoline margins per gallon were flat from a year ago. Gasoline gross profits for the quarter totaled $34.1 million, up 1.1% from a year ago.
    During the quarter, the Company announced the acquisition of D & D Oil Co., Inc., which operated 53 Cowboys convenience stores, with two additional stores under construction and seven potential development sites. Located mostly in Georgia and Alabama, the Cowboys chain generated approximately $320 million in revenue in 2004. The acquisition closed on April 21, 2005, and is expected to be immediately accretive to the Company's earnings per share.
    "Successfully negotiating the Cowboys acquisition was clearly the strategic highlight of our second fiscal quarter," Mr. Sodini said. "The transaction complements our existing store base in the Southeast extremely well, and provides us with many attractive, newer locations that generate high average volumes in both gasoline and merchandise."
    Also during the quarter, the Company completed gasoline and merchandise brand conversions or image upgrades at an additional 126 stores. That brought the total completed as of March 31, 2005, to 860 stores out of approximately 1,100 stores targeted for conversion or reimaging under one of three gasoline brands - BP(R)/Amoco(R), Citgo(R) or the Company's own Kangaroo(R) private label brand. All of these stores' merchandise operations are also being remodeled and rebranded under the Kangaroo Express(SM) banner.
    For the first six months of fiscal 2005, net income was $15.9 million, or $0.75 per diluted share, compared with a net loss of $9.1 million, or $0.48 per share, in the first half of fiscal 2004. Results for the year-ago period included the financing related expenses described above, as well as an additional $0.02 per share incurred in the first quarter of that year. Excluding these items, net income for the first half of fiscal 2004 was $6.9 million, or $0.36 per share, and earnings for the first six months of the current year were more than double the year-earlier results. EBITDA for the first half of fiscal 2005 was $73.1 million, a 15.8% increase from a year ago.
    Mr. Sodini concluded, "Given our strong first-half results and the recent addition of the high-volume Cowboys stores, we now believe our earnings per share for fiscal 2005 are likely to fall in a range between $2.05 and $2.15, above our previous expectations. Longer term, The Pantry remains well-positioned to capitalize on its leading market positions across the Southeast, with solid momentum in our core operations and the financial resources to continue growing through strategic acquisitions."

    Conference Call

    Interested parties are invited to listen to the second quarter earnings conference call scheduled for Thursday, April 28, 2005 at 10:00 a.m. Eastern Time. The call will be broadcast live over the Internet and is accessible at www.thepantry.com or www.companyboardroom.com. An online archive will be available immediately following the call and will be accessible until May 5, 2005.

    Use of Non-GAAP Measures

    EBITDA is not a measure of operating performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data. We have included information concerning EBITDA as one measure of our cash flow and historical ability to service debt and because we believe investors find this information useful as it reflects the resources available for strategic opportunities including, among others, to invest in the business, make strategic acquisitions and to service debt. EBITDA as defined may not be comparable to similarly titled measures reported by other companies.
    We use net income and earnings per share, each excluding certain unusual expense items, to evaluate our operations. Management believes this presentation is appropriate and enables investors to compare more accurately our ongoing financial performance over the periods presented. The information regarding net income and earnings per share, each excluding certain unusual expense items, as presented here may not be comparable to similarly titled measures reported 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 net sales for fiscal 2004 of approximately $3.5 billion. As of March 31, 2005, the Company operated 1,345 stores in 10 states under a number of banners including Kangaroo ExpressSM, The Pantry(R), Golden Gallon(R), and Lil Champ Food Store(R). The Pantry'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 the acquisition of D&D Oil Co., Inc.; the actual operating results of the stores acquired in the D&D Oil Co., Inc. transaction; fluctuations in domestic and global petroleum and gasoline markets, 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 markets we serve; the effect of regional weather conditions on customer traffic; financial difficulties of suppliers, including our principal suppliers of gas and merchandise; environmental risks associated with selling petroleum products; governmental regulations, including those regulating the environment; and acts of war or terrorist activity. 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 April 28, 2005. 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 Consolidated Statements of Operations and Selected Financial Data (In thousands, except per share and per gallon amounts, margin data and store count)

Quarter Ended Six Months Ended --------------------------- --------------------- March 31, March 25, March 31, March 25, 2005 2004 2005 2004 --------------- ----------- ---------- ---------- (13 weeks) (13 weeks) (26 weeks) (26 weeks) Revenues: Merchandise $284,289 $270,073 $571,356 $540,222 Gasoline 661,471 516,280 1,315,947 990,572 --------------- ----------- ---------- ---------- Total revenues 945,760 786,353 1,887,303 1,530,794

Cost of sales: Merchandise 178,557 170,587 361,532 341,562 Gasoline 627,351 482,539 1,231,940 915,895 --------------- ----------- ---------- ---------- Total cost of sales 805,908 653,126 1,593,472 1,257,457

Gross profit 139,852 133,227 293,831 273,337

Operating expenses: Operating, general and administrative 110,569 105,443 221,839 210,570 Depreciation and amortization 14,214 13,533 2 8,600 27,608 --------------- ----------- ---------- ---------- Total operating expenses 124,783 118,976 250,439 238,178

Income from operations 15,069 14,251 43,392 35,159

Other income (expense): Loss on extinguishment of debt - (23,087) - (23,087) Interest expense (9,618) (14,166) (18,604) (27,307) Miscellaneous 682 105 1,104 367 --------------- ----------- ---------- ---------- Total other expense (8,936) (37,148) (17,500) (50,027)

Income (loss) before income taxes 6,133 (22,897) 25,892 (14,868)

Income tax benefit (expense) (2,361) 8,815 (9,968) 5,723 --------------- ----------- ---------- ---------- Net income (loss) $3,772 $(14,082) $15,924 $(9,145) --------------- ----------- ---------- ----------

Earnings (loss) per share: Net income (loss) per diluted share $0.18 $(0.71) $0.75 $(0.48) Diluted shares outstanding 21,520 19,799 21,302 19,103

Selected financial data: EBITDA $29,965 $27,889 $73,096 $63,134 Net cash provided by operating activities $10,738 $6,210 $26,879 $7,412 Merchandise gross profit $105,732 $99,486 $209,824 $198,660 Merchandise margin 37.2% 36.8% 3 6.7% 36.8% Gasoline gallons 346,152 321,805 686,796 647,385 Gasoline gross profit $34,120 $33,741 $84,007 $74,677 Gasoline margin per gallon (1) $0.0986 $0.1048 $0.1223 $0.1154 Gasoline retail per gallon $1.91 $1.60 $1.92 $1.53

Comparable store data: Merchandise sales % 6.6% 3.4% 6.2% 2.9% Gasoline gallons % 7.7% 1.2% 5.9% 2.3%

Number of stores: End of period 1,345 1,374 1,345 1,374 Weighted-average store count 1,348 1,380 1,351 1,370

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.

The Pantry, Inc. Unaudited Condensed Consolidated Balance Sheets (In thousands)

March 31, 2005 September 30, 2004 -------------------------------------

Assets Cash and cash equivalents $104,777 $108,048 Receivables, net 41,723 43,664 Inventories 96,852 95,228 Other current assets 33,844 26,892 ----------------------------------- Total current assets 277,196 273,832 -----------------------------------

Property and equipment, net 403,999 411,501 Goodwill, net 341,898 341,652 Other 3 8,685 35,155 -----------------------------------

Total assets $1,061,778 $1,062,140 ===================================

Liabilities and shareholders' equity Current maturities of long-term debt $16,025 $16,029 Current maturities of capital lease obligations 1,197 1,197 Accounts payable 110,504 121,151 Other accrued liabilities 60,278 72,581 ----------------------------------- Total current liabilities 188,004 210,958 -----------------------------------

Long-term debt 543,000 551,010 Environmental expenses 15,098 14,051 Deferred income taxes 68,651 63,257 Deferred revenue 33,501 35,051 Capital lease obligations 13,969 14,582 Other 23,056 21,045 Total shareholders' equity 176,499 152,186 -----------------------------------

Total liabilities and shareholders' equity $1,061,778 $1,062,140 ===================================

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

March 31, March 25, March 31, March 25, 2005 2004 2005 2004 --------- --------- --------- --------- EBITDA $29,965 $ 27,889 $ 73,096 $ 63,134

Interest expense and loss on extinguishment of debt (9,618) (37,253) (18,604) (50,394) Adjustments to reconcile net income (loss) to net cash provided by operating activities (other than depreciation and amortization and provision for deferred income taxes) 1,040 24,499 739 25,390

Changes in operating assets and liabilities, net: Assets (9,284) (4,756) (6,443) (5,409) Liabilities (1,365) (4,169) (21,909) (25,309) --------- -------- -------- -------- Net cash provided by operating activities $10,738 $ 6,210 $ 26,879 $ 7,412 --------- -------- -------- --------

--30--TS/ch*

CONTACT: The Pantry, Inc. Dan Kelly, 919-774-6700

KEYWORD: NORTH CAROLINA INDUSTRY KEYWORD: SUPERMARKETS RESTAURANTS CONSUMER/HOUSEHOLD FOODS/BEVERAGES RETAIL EARNINGS CONFERENCE CALLS SOURCE: The Pantry, Inc.

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