The Pantry, Inc.
William Blair and Company
Growth Stock Conference
      June 19, 2008
Safe Harbor Statement

      Some of the statements in this presentation constitute “forward-looking
 statements” within t...
Our Business
  Leading independently operated
  convenience store chain in the
  Southeast and 3rd largest in the U.S.

  ...
Key Investment Highlights

  Leading market positions in attractive Southeastern markets

  Significant scale advantages v...
Attractive Industry Fundamentals

                                                                                        ...
Leading Convenience Store Retailer Concentrated in
the Southeastern United States

1,659 Stores Located in Eleven Southeas...
Key Markets Possess Highly Attractive Growth
Characteristics

            Core Markets Projected to Experience Rapid Growt...
Strong Track Record of Top Line Growth…

            Merchandise Revenue                                                  ...
…And Substantial EBITDA Generation

                               Gross Profit                                           ...
Strong Growth in Merchandise Sales Per Store

                                   Improved Store Portfolio and Stronger Con...
Consistently Strong Merchandise Margins

                               Superior Merchandise offering leads to above avera...
Proprietary Merchandise and Food Service Concepts
Drive Revenue and Margins

             Celeste                     Cand...
QSR Food Service Offering Differentiates Our
Stores and Drives Traffic and Margins

             We Currently Operate 234 ...
Gasoline Strategy Maximizes Fuel Gross Profit Dollars

                            We Balance Average Gallons Sold per Sto...
Unprecedented Inflation in Recent Oil and Gas Prices
                                    $150.00                          ...
Gasoline CPG Can Be Volatile on a Quarterly Basis…

        Recent Margins Impacted by Higher Credit Card Fees and Repairs...
…But Annual CPG Tends to Remain Relatively Stable

                                      Annual Net CPG Typically Ranges f...
Recent Macroeconomic Factors Negatively Impacting
Our Sector

             Extremely Challenging Operating Environment Ind...
What are We Doing to Manage This Challenging
Environment?

  Promotional activity to drive                    Bolstering l...
Focus on Reducing Operating Expenses

  Initiative Maximizes Operating Expense Leverage and Better Positions Us for
      ...
Update on Ethanol Roll-out

  Introduced ethanol-blended products
  in 2007
      Lower-cost alternative versus 100%
     ...
Lease Finance Obligations Cause Valuation and
Leverage Confusion

       Adjusting EBITDA by Treating Sale-Leasebacks as O...
Meaningful Liquidity / Financial Flexibility


        Meaningful liquidity
                  $129 million in cash-on-hand...
Fiscal 2008 Financial Outlook

   Full Year Impact of 2007 Acquisitions Should Drive Significant Revenue Growth in 2008;
 ...
Key Investment Highlights

  Leading market positions in attractive Southeastern markets

  Significant scale advantages v...
Reconciliation of Non-GAAP Measures

                                 Adjusted EBITDA/EBITDA Reconciled to Net Income


  ...
Reconciliation of Non-GAAP Measures

                                  Adjusted EBITDA/EBITDA Reconciled to Cash Flows

  ...
The Pantry, Inc.
William Blair and Company
Growth Stock Conference
      June 19, 2008
            27
Upcoming SlideShare
Loading in...5
×

pantry wb992v4

148

Published on

Published in: Economy & Finance, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
148
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
1
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

pantry wb992v4

  1. 1. The Pantry, Inc. William Blair and Company Growth Stock Conference June 19, 2008
  2. 2. Safe Harbor Statement Some of the statements in this presentation constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than those of historical facts included herein, including those related to the company’s financial outlook, goals, business strategy, projected plans and objectives of management for future operations and liquidity, are forward-looking statements. These forward-looking statements are based on the company’s plans and expectations and involve a number of risks and uncertainties that could cause actual results to vary materially from the results and events anticipated or implied by such forward- looking statements. Please refer to the company’s Annual Report on Form 10-K and its other filings with the SEC for a discussion of significant risk factors applicable to the company. In addition, the forward-looking statements included in this presentation are based on the company’s estimates and plans as of the date of this presentation. 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. 1
  3. 3. Our Business Leading independently operated convenience store chain in the Southeast and 3rd largest in the U.S. Over 1,650 stores located across 11 states Primarily branded Kangaroo Express Last twelve months as of March 27, 2008 sales of $8.1 billion and LTM EBITDA of $221.4 million Stores offer a broad selection of merchandise, motor fuel and food service offerings designed to meet convenience needs of consumers 2
  4. 4. Key Investment Highlights Leading market positions in attractive Southeastern markets Significant scale advantages vs. primary competitors Benefiting from consumer trends toward convenience formats Leveraging infrastructure to drive profitability Sector growth and consolidation potential Strong Cash Flow Generation to Reinvest in Our Business, De-lever and Drive Earnings Growth 3
  5. 5. Attractive Industry Fundamentals U.S. C-Store Sales and Growth (1) C- Large and rapidly growing sector cted roje 6.8% ($ in Billions) Defensive growth characteristics P $727 R= CAG $700 .8% 600 R = 11 $524 l CAG R = 7.1% Increasing consumer demand for $475 ica Histor 500 CAG Total Historical $160 $395 $145 400 e r $337 smaller-box, fill-in convenience In-Sto $283 $290 $132 $269 300 $234 $116 $186 $109 shopping $174 $112 $166 $104 200 $154 $100 $364 $330 $86 $81 $263 $77 $75 $221 100 $181 $171 $165 $134 $100 $89 $93 $79 0 Relative to hypermarkets, large 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2011E supermarkets, etc. Gasoline In Store 5-Year In-Store Sales CAGR vs. Other Sectors (1)(2) In- Increasing amount of food consumed away from home and on 7.4% the run 6.0% 6.0% 6.0% Highly fragmented market with 2.9% ample consolidation opportunities (1.3%) Co venience Drug Sto res Restaurants To tal Retail Gro cery Disco unt _____________________ Sto res Sto res Department (1) Source: NACS 2007 NACS State of the Industry Report and Retail Forward, Inc. Sto res (2) Source: Retail Forward, Inc. CAGR for 5-year period from 2001-2006. 4
  6. 6. Leading Convenience Store Retailer Concentrated in the Southeastern United States 1,659 Stores Located in Eleven Southeastern States Indiana Indiana Arlington Arlington Indianapolis Indianapolis Covington Covington Hampton Hampton Richmond Richmond Frankfort Norfolk Norfolk Frankfort Virginia Virginia Chesapeake Chesapeake Kentucky Kentucky PA0021GM_1.WOR Bowling Green Bowling Green Durham Durham Paducah Paducah Raleigh Raleigh North Carolina North Carolina Nashville Nashville Tennessee Tennessee Columbia Columbia Wilmington Wilmington South South NY0010DP_1.WOR Carolina Carolina Atlanta Atlanta Mississippi Mississippi Georgia Georgia Clinton Clinton Montgomery Montgomery Vicksburg Vicksburg Meridian Meridian Alabama Alabama Jackson Jackson Jacksonville Jacksonville Louisiana Louisiana Tallahassee Tallahassee Daytona Beach Daytona Beach Gulfport Gulfport Baton Rouge Baton Rouge Orlando Orlando St. Petersburg St. Petersburg Tampa Tampa Pantry Store Locations Florida Florida Boca Raton Boca Raton Miami Miami _____________________ Note: Map as of fiscal year ended September 27, 2007. 5
  7. 7. Key Markets Possess Highly Attractive Growth Characteristics Core Markets Projected to Experience Rapid Growth Throughout Next Several Years; High Degree of Fragmentation Provides Continued Consolidation Opportunities Population Growth CAGRs (2005-2015) Market Fragmentation 25.0% Florida North Carolina 21.1% (7,356 stores) (5,447 stores) Pantry 20.0 Pantry >50 Store Operators >50 Store 14% 7% 6% 1 Store Operators 1 Store Operators Operators 31% 15.0% 2-50 Store 21% Operators 15.0 54% 58% 9% 2-50 Store Operators 9.5% 9.1% 9.0% 10.0 South Carolina Tennessee (2,872 stores) (3,697 stores) 5.0 Pantry Pantry >50 Store >50 Store Operators Operators 17% 10% 3% 1 Store 1 Store 17% Operators 0.0 Operators Florida North South Tennessee U.S. 21% 2-50 Store 20% Carolina Carolina 2-50 Store 52% 60% Operators Operators Pantry Stores: 457 387 281 104 1,659 _____________________ Note: Pantry’s store counts as of quarter ended March 27, 2008. Source: U.S. Census Bureau and 2007 NACS State of the Industry Report. 6
  8. 8. Strong Track Record of Top Line Growth… Merchandise Revenue Retail Gas Gallons Sold Total Revenue ($ in mm) (Gallons in mm) ($ in mm) $9,000 2,500 $2,000 % 5.9 2 7= 5.0% $8,089 % 11.8 =1 ’0 ’07 2,143 7= – – ’0 ’03 8,000 ’03 03 – $1,642 R R’ 2,033 CAG GR CAG $1,576 CA $6,911 2,000 7,000 1,758 1,500 $1,386 $5,962 $1,229 6,000 1,497 $1,170 1,500 1,372 5,000 $4,429 $1,010 1,161 1,000 $3,493 4,000 1,000 $2,750 3,000 500 2,000 500 1,000 0 0 0 2003 2004 2005 2006 2007 LTM 2003 2004 2005 2006 2007 LTM 2003 2004 2005 2006 2007 LTM Fiscal Year Fiscal Year Fiscal Year _____________________ Note: Fiscal year ends in September. Last twelve months as of March 27, 2008. 7
  9. 9. …And Substantial EBITDA Generation Gross Profit Reported EBITDA ($ in mm) ($ in mm) ’03-’07 $900 $300 $840 CAGR $279 $811 $779 800 250 $233 11.6% $221 $663 700 $225 $214 $214 $281 $591 600 200 $173 $511 $214 $165 500 $136 150 $145 400 $607 12.5% 300 100 $586 $518 $425 $449 200 $366 50 100 0 0 2003 2004 2005 2006 2007 LTM 2003 2004 2005 2006 2007 LTM Fiscal Year Fiscal Year Merchandise Gasoline _____________________ Note: Fiscal year ends in September. Last twelve months as of March 27, 2008. 8
  10. 10. Strong Growth in Merchandise Sales Per Store Improved Store Portfolio and Stronger Consumer Offering Driving Increased Average Merchandise Sales per Store Average Merchandise Sales per Store ($ in Thousands) % 7: 6.0 ’03-’0 CAGR $1,000 $999 $1,000 $954 950 $898 900 $857 850 $792 800 750 700 2003 2004 2005 2006 2007 LTM Fiscal Year Stores 1,258 1,361 1,400 1,493 1,644 1,659 _____________________ Note: Fiscal year ends in September. Last twelve months for the quarter ending March 27, 2008. 9
  11. 11. Consistently Strong Merchandise Margins Superior Merchandise offering leads to above average margins Merchandise Gross Margin Proprietary branded offerings 40.0% 37.4% 37.2% 37.0% 36.6% 36.3% 36.2% Private label products in high velocity 35.0 categories Industry Avg.(1): 29.3% 30.0 Selective expansion of nationally branded quick service restaurants (QSRs) 25.0 Leveraging scale with merchandise vendors 20.0 2003 2004 2005 2006 2007 LTM Fiscal Year Merch. Comps 2.1% 3.4% 5.3% 4.9% 2.3% N/A _____________________ Note: Fiscal year ends in September. Last twelve months for the quarter ending March 27, 2008. (1) Industry average for 2006 based on the 2007 NACS State of the Industry Report. 10
  12. 12. Proprietary Merchandise and Food Service Concepts Drive Revenue and Margins Celeste Candy Lane Bean Street Coffee Grilling Depot & Chill Zone 11
  13. 13. QSR Food Service Offering Differentiates Our Stores and Drives Traffic and Margins We Currently Operate 234 Nationally Branded and Proprietary Quick Service Restaurants 12
  14. 14. Gasoline Strategy Maximizes Fuel Gross Profit Dollars We Balance Average Gallons Sold per Store and Gasoline Margins to Maximize Overall Gross Profit Dollars Gasoline Gross Profit $ Average Gallons Sold per Store (Gallons in Thousands) ($ in mm) % % 11. 6 8 .3 ’07 = ’07 = – – 1,400 R ’03 $300 R ’03 $281 CAG CAG 1,323 1,306 1,300 $239 250 1,242 $225 $214 1,200 200 1,118 $165 1,100 $145 1,026 150 1,000 941 100 900 50 800 700 0 2003 2004 2005 2006 2007 LTM 2003 2004 2005 2006 2007 LTM Fiscal Year Fiscal Year CPG (1) Comps 0.7% 2.0% 4.7% 3.1% 1.0% N/A 12.5¢ 12.0¢ 14.3¢ 15.9¢ 10.9¢ 11.1¢ _____________________ Note: Fiscal year ends in September. Last twelve months for the quarter ending March 27, 2008. (1) Net of credit card fees and repairs and maintenance. Last twelve months excludes 1.6¢ hedging loss in Q2 ’08. 13
  15. 15. Unprecedented Inflation in Recent Oil and Gas Prices $150.00 $5.00 $138.54 $119.75 125.00 4.00 Avg. Crude Oil Price per Barrel $97.59 +25% in last 3 mos. 100.00 $90.61 Avg. Retail Price per Gasoline Gallon $75.13 $60.13 $70.95 $70.89 $60.74 75.00 3.00 $65.44 $63.34 $63.82 $58.74 $53.58 $50.03 50.00 2.00 25.00 1.00 0.00 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3TD Current FY2005 FY2006 FY2008 FY2007 Avg. Crude Oil Price per Barrel Avg. Retail Price per Gasoline Gallon Note: Fiscal year ends in September. As of June 6, 2008. Source: FactSet. Average futures price per barrel of light sweet crude and national average retail price per gasoline gallon. 14
  16. 16. Gasoline CPG Can Be Volatile on a Quarterly Basis… Recent Margins Impacted by Higher Credit Card Fees and Repairs and Maintenance Expense, and a 1.6¢ Loss on Fuel Hedging Activity in Q2 Our Quarterly Retail Gasoline CPG (Net of Credit Card Fees and Repairs and Maintenance) 22.5¢ 21.2¢ 19.4¢ 20.0 17.3¢ 17.5 14.6¢ 15.0 14.0¢ 12.8¢ 12.3¢ 12.5 11.4¢ 11.1¢ 10.6¢ 10.6¢ 10.5¢ 9.9¢ 10.0 1.6¢ Hedging 8.6¢ Loss 9.0¢ 7.5 5.0 (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY2005 FY2006 FY2007 FY2008 (1) Net CPG Hedging Loss _____________________ Note: Fiscal year ends September. (1) Includes 1.6¢ per gallon loss on hedging operations. 15
  17. 17. …But Annual CPG Tends to Remain Relatively Stable Annual Net CPG Typically Ranges from 11¢ - 13¢ 20.0¢ 17.0 15.9¢ 14.3¢ 13.4¢ 14.0 13.2¢ 12.8¢ 12.3¢ 12.5¢ 12.5¢ 12.0¢ 10.9¢ 10.4¢ 11.0 8.0 5.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Fiscal Year _____________________ Note: Fiscal year ends in September. Shaded area represents average historical CPG range. CPG is net of credit card fees and repairs and maintenance 16
  18. 18. Recent Macroeconomic Factors Negatively Impacting Our Sector Extremely Challenging Operating Environment Industry-Wide Supply / demand dynamics driving oil and gas prices to all-time highs Higher gasoline prices impacting consumers’ disposable income and demand for gasoline and convenience merchandise Lower disposable income also leading to decreased recreational travel East Coast resort areas especially impacted Florida market hard hit by the downturn in the housing market, softer construction activity 17
  19. 19. What are We Doing to Manage This Challenging Environment? Promotional activity to drive Bolstering liquidity by accessing traffic delayed draw on term loan Reducing store level and Temporarily suspending overhead costs acquisition activity until calendar year-end Accelerating ethanol roll-out Reducing non-essential capex Discontinuing fuel hedging strategy Temporarily suspending share repurchases Collectively, These Actions Should Better Leverage Our Operating Model and Help Stabilize Results Given the Challenging Environment 18
  20. 20. Focus on Reducing Operating Expenses Initiative Maximizes Operating Expense Leverage and Better Positions Us for Profitable Growth as Market Conditions Improve Reorganized field management structure to streamline operations Improved overall quality / efficiency of staffing Improved store-level controllable expenses Reduced bad check expense Lowered cash over and short by moving to prepaid on gasoline Tangible financial results achieved, more expected throughout year Achieved flat average per store expenses in Q2 despite higher utility costs Reduced corporate overhead spend despite an additional 104 stores Lowered FY ’08 OG&A guidance by $13mm - $18mm in January, current run-rate tracking at low-end of $615mm - $630mm range 19
  21. 21. Update on Ethanol Roll-out Introduced ethanol-blended products in 2007 Lower-cost alternative versus 100% gasoline Ethanol blending tax credit received Environmental benefits Currently, approximately 59% of our locations offer ethanol products Reduced chain-wide cost per gallon by $0.01 in most recent quarter By the end of fiscal 2008, ~66% of locations will offer ethanol Chain-wide costs per gallon benefit of approximately $0.02 Ultimate effect on margin will be determined by competitive forces 20
  22. 22. Lease Finance Obligations Cause Valuation and Leverage Confusion Adjusting EBITDA by Treating Sale-Leasebacks as Operating Leases and Subtracting Sale- Leaseback Rent Allows for Better Comparison to Other Retailers Reported Adjustments Adjusted Balance sheet Data as of 3/27/08 (1) Total Debt (ex. Lease Finance Obligations) $848 $848 Cash ($129) ($129) Net Debt (ex. Lease Finance Obligations) $719 $719 Lease Finance Obligations $463 ($463) – Total Net Debt $1,182 ($463) $719 Market Cap 6/6/08 $252 $252 Enterprise Value $1,434 ($463) $971 LTM EBITDA as of 3/27/08 $221 ($45) $177 EV / EBITDA Multiple 6.5x 5.5x Total Net Debt/EBITDA 5.3x 4.1x _____________________ (1) Reflects $100 million of delayed term loan, with proceeds used to paydown revolver and increase cash. 21
  23. 23. Meaningful Liquidity / Financial Flexibility Meaningful liquidity $129 million in cash-on-hand (pro forma for term loan delayed draw) $250 million revolver – $0 drawn, over $145 million available after LOCs Long-term debt profile; earliest maturity is the convertible debt in 2012 Covenant-light bank facility – financial flexibility (1) 6.5x Adj. Net Debt / EBITDAR Leverage – Currently 5.7x 2.25x Interest Coverage – Currently 2.68x _____________________ (1) Per credit facility covenant calculations (8x rent methodology). 22
  24. 24. Fiscal 2008 Financial Outlook Full Year Impact of 2007 Acquisitions Should Drive Significant Revenue Growth in 2008; Continuing Discipline on Expenses Should Lower OG&A and Drive Earnings Merchandise sales to grow to $1.6 - $1.7 billion Merchandise gross margin to be about 37% Retail gasoline gallons sold to be 2.1 - 2.2 billion gallons Retail gasoline margins targeted at between 10 and 12 cents per gallon Operating, general and administrative expenses expected to be at the low end of the previously announced range of $615 - $630 million Capital expenditure plans reduced by $40 million to $90 million 23
  25. 25. Key Investment Highlights Leading market positions in attractive Southeastern markets Significant scale advantages vs. primary competitors Benefiting from consumer trends toward convenience formats Leveraging infrastructure to drive profitability Sector growth and consolidation potential Strong Cash Flow Generation to Reinvest in Our Business, De-lever and Drive Earnings Growth 24
  26. 26. Reconciliation of Non-GAAP Measures Adjusted EBITDA/EBITDA Reconciled to Net Income LTM ($ in mm) Mar-08 2007 2006 2005 2004 2003 Adjusted EBITDA $ 177 $ 178 $ 254 $ 189 $ 150 $ 127 Payments made for lease finance obligations 45 36 25 24 23 13 Cumulative effect adjustment - - - - - (3) Reported EBITDA $ 221 $ 214 $ 279 $ 214 $ 173 $ 136 Interest expense, net and loss on extinguishment of debt 89 74 56 54 87 60 Depreciation and amortization 106 96 76 64 61 56 Provision for income taxes 10 17 57 37 9 9 Net income $ 16 $ 27 $ 89 $ 58 $ 16 $ 11 _____________________ Note: Fiscal year ends in September. Last twelve months as of March 27, 2008. 25
  27. 27. Reconciliation of Non-GAAP Measures Adjusted EBITDA/EBITDA Reconciled to Cash Flows TTM ($ in mm) Mar-08 2007 2006 2005 2004 2003 Adjusted EBITDA $ 177 $ 178 $ 254 $ 189 $ 150 $ 127 Payments made for lease finance obligations 45 36 25 24 23 13 Cumulative effect adjustment - - - - - (3) Reported EBITDA $ 221 $ 214 $ 279 $ 214 $ 173 $ 136 Interest expense, net and loss on extinguishment of debt (89) (74) (56) (54) (87) (60) Provision for income taxes (10) (17) (57) (37) (9) (9) Non-cash stock based compensation 4 4 3 - - - Changes in operating assets and liabilities (5) 8 (13) (7) 0 (20) Non-cash loss on extinguishment of debt 2 2 2 - 23 3 Other 2 4 (3) 19 17 19 Net cash provided by operating activities $ 125 $ 141 $ 154 $ 134 $ 117 $ 69 Net cash used in investing activities $ (472) $ (529) $ (219) $ (166) $ (227) $ (24) Net cash provided by financing activities $ 330 $ 339 $ 74 $ 36 $ 145 $ (14) _____________________ Note: Fiscal year ends in September. Last twelve months as of March 27, 2008. 26
  28. 28. The Pantry, Inc. William Blair and Company Growth Stock Conference June 19, 2008 27
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×