Pantry (PTRY) 8-K The Pantry Announces Second Quarter Financial Results

Exhibit 99.1

For Immediate Release Contact: Frank Paci

May 5, 2009 (919) 774-6700

THE PANTRY ANNOUNCES SECOND QUARTER FINANCIAL RESULTS

Sanford, North Carolina, May 5, 2009 - 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 26, 2009.

Net income for the quarter was $6.3 million, or $0.28 per share on a diluted basis, compared with a net loss of $5.1 million, or $0.23 per share, in last year’s second quarter. EBITDA was $49.8 million, compared with $40.1 million a year ago. Net cash provided by operating activities was $18.0 million, compared with $4.9 million in last year’s second quarter. Results for the quarter include $0.18 per share in gains on the extinguishment of debt, reflecting the repurchase of $26 million in principal amount of the Company's outstanding bonds at a discount. Results for last year’s second quarter included $0.23 per share in losses on gasoline hedging positions.

Merchandise revenues for the second quarter were up 2.4% overall and 1.3% on a comparable store basis from last year’s second quarter. The merchandise gross margin was 37.2%, down from 37.5% a year ago but up significantly from 35.5% in the first quarter. Total merchandise gross profit for the quarter was $144.8 million, up 1.6% from the corresponding period a year ago.

Retail gasoline gallons sold in the quarter declined 4.9% overall and 6.4% on a comparable store basis. Excluding diesel gallons, comparable store gallons sold were down 4.4%. Total gasoline revenues fell 44.2%, primarily reflecting a 40.6% decline in the average retail price per gallon, to $1.84. The retail gross margin per gallon was 11.2 cents, compared with 9.0 cents a year ago. Total gasoline gross profit for the quarter was $55.4 million, up 18.1% from last year’s second quarter.

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Chairman and Chief Executive Officer Peter J. Sodini said, “We are pleased to report solid second quarter operating results in the face of a continued challenging retail environment. In our merchandise business, comparable sales and gross margins both showed sequential improvement from the first quarter. While gasoline gallons remained soft, our gas margin was relatively strong for the second quarter – historically, the seasonal low point of our fiscal year. The results also benefited from our ongoing expense reduction initiatives.”

For the first six months of fiscal 2009, net income was $45.8 million, or $2.06 per share, compared with a net loss of $1.8 million, or $0.08 per share, in the corresponding period last year. EBITDA for the first half of fiscal 2009 was $161.6 million, up 72.6% from $93.7 million in the first half of fiscal 2008. Net cash provided by operating activities was $106.9 million, compared with $31.2 million in the first half of fiscal 2008.

As previously announced, during the second quarter, the Company repurchased $26 million in principal amount of its outstanding debt for an aggregate purchase price of approximately $19 million, resulting in a pre-tax gain of $6.7 million for the quarter. Year-to-date, the Company has reduced its outstanding debt and lease finance obligations by $53.1 million, while also increasing its cash on hand by $26 million. At the end of the second quarter, the Company had cash and cash equivalents of $242.8 million and an additional $145 million available under its revolving credit facility.

Additionally, the Company agreed to acquire 40 convenience stores, primarily in the Mobile, Alabama market. The acquisition, which is subject to regulatory approvals and other customary closing conditions, is expected to close in the second half of fiscal 2009.

Mr. Sodini commented, “We believe the repurchase of outstanding bonds at a discount and the pending acquisition both represent high-return investments on behalf of our shareholders and are key steps forward in executing our balanced strategy of reducing debt while growing the business.”

The Company is also providing updated guidance ranges for its expected fiscal 2009 performance. The new ranges include the expected impact of the recently enacted federal excise tax increase on cigarettes to support the State Children’s Health Insurance Program:

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• Merchandise revenues – $1.62 billion to $1.66 billion;

• Retail gasoline sales – 2.02 billion to 2.05 billion gallons;

• Merchandise gross margin – 35.4% to 36.0%;

• Retail gasoline gross margin – 14 cents to 15.5 cents per gallon;

• Store operating and general and administrative expenses – $617 million to $623 million;

• Depreciation & amortization - $105 million to $107 million;

• Interest expense – $83 million to $85 million.

These ranges do not account for the impact of the pending acquisition or any other potential acquisition.

Conference Call

Interested parties are invited to listen to the second quarter earnings conference call scheduled for Tuesday, May 5, 2009 at 10:00 a.m. Eastern Time. The call will be broadcast live over the Internet and will be accessible at www.thepantry.com and www.companyboardroom.com. An online archive will be available immediately following the call and will be accessible until May 12, 2009.

Use of Non-GAAP Measures

EBITDA and Adjusted EBITDA

EBITDA is defined by the Company as net income before interest expense, net, gain/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.

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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 and cash flows presented in accordance with GAAP.

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. As of March 26, 2009, the Company operated 1,647 stores in eleven states under select banners, including Kangaroo Express®, its primary operating banner. 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

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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 identify, acquire and 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 current global financial crisis and uncertainty in global economic conditions; wholesale cost increases of, and tax increases on, tobacco products; 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; the Company’s financial leverage and debt covenants; environmental risks associated with selling petroleum products; and governmental laws and 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 May 5, 2009. 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.

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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
	March26, 2009			March27, 2008			March26, 2009			March27, 2008
	(13 weeks)			(13 weeks)			(26 weeks)			(26 weeks)
Revenues:
Merchandise	$	389,397		$	380,276		$	779,513		$	775,656
Gasoline		924,240			1,656,703			2,166,605			3,239,624
Total revenues		1,313,637			2,036,979			2,946,118			4,015,280
Costs and operating expenses:
Merchandise cost of goods sold		244,585			237,778			496,020			486,795
Gasoline cost of goods sold		868,801			1,609,764			1,981,025			3,136,528
Store operating		126,677			126,838			257,284			252,976
General and administrative		23,877			22,793			50,362			45,767
Depreciation and amortization		26,273			26,769			53,155			53,411
Total costs and operating expenses		1,290,213			2,023,942			2,837,846			3,975,477
Income from operations		23,424			13,037			108,272			39,803
Other income (expense):
Gain on extinguishment of debt		6,693			—			7,163			—
Interest expense, net		(20,883	)		(21,873	)		(42,395	)		(43,480	)
Miscellaneous		56			272			217			462
Total other expense		(14,134	)		(21,601	)		(35,015	)		(43,018	)
(Loss) income before income taxes		9,290			(8,564	)		73,257			(3,215	)
Income tax benefit (expense)		(2,952	)		3,485			(27,481	)		1,385
Net (loss) income	$	6,338		$	(5,079	)	$	45,776		$	(1,830	)
(Loss) earnings per share:
Net (loss) per diluted shares	$	0.28		$	(0.23	)	$	2.06		$	(0.08	)
Diluted shares outstanding		22,248			22,205			22,241			22,200
Selected financial data:
EBITDA	$	49,753		$	40,078		$	161,644		$	93,676
Adjusted EBITDA	$	37,975		$	28,579		$	138,155		$	70,905
Merchandise gross profit	$	144,812		$	142,498		$	283,494		$	288,861
Merchandise margin		37.2	%		37.5	%		36.4	%		37.2	%
Retail gasoline data:
Gallons		492,245			517,421			991,918			1,043,604
Margin per gallon (1)	$	0.1120		$	0.0899		$	0.1857		$	0.0978
Retail price per gallon	$	1.84		$	3.10		$	2.14		$	3.01
Wholesale gasoline data:
Gallons		11,677			18,155			25,128			36,250
Margin per gallon (1)	$	0.0244		$	0.0245		$	0.0551		$	0.0291
Total gasoline gross profit	$	55,439		$	46,939		$	185,580		$	103,096
Comparable store data:
Merchandise sales %		1.3	%		-3.4	%		-0.9	%		-1.3	%
Gasoline gallons %		-6.4	%		-3.4	%		-6.9	%		-3.1	%
Number of stores:
End of period		1,647			1,659			1,647			1,659
Weighted-average store count		1,648			1,644			1,650			1,644

 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.

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The Pantry, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

	March 26, 2009		September25, 2008
Assets
Cash and cash equivalents	$	242,768	$	217,188
Receivables,net		71,779		109,050
Inventories		116,373		132,248
Other current assets		30,383		27,551
Total current assets		461,303		486,037
Property and equipment, net		973,312		990,916
Goodwill		627,662		627,653
Other noncurrent assets		60,610		64,124
Total assets	$	2,122,887	$	2,168,730
Liabilities and shareholders' equity
Current maturities of long-term debt	$	4,315	$	27,385
Current maturities of lease finance obligations		5,615		5,322
Accounts payable		132,759		171,216
Other accrued liabilities		109,291		121,154
Total current liabilities		251,980		325,077
Long-term debt		790,099		819,115
Lease finance obligations		458,392		459,711
Deferred income taxes		96,971		90,708
Deferred vendor rebates		19,443		20,875
Other		68,788		63,385
Total shareholders’ equity		437,214		389,859
Total liabilities and shareholders’ equity	$	2,122,887	$	2,168,730

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The Pantry, Inc.
Reconciliation of Non-GAAP Financial Measures
(In thousands)
	Quarter Ended						Six Months Ended
	March 26, 2009			March 27, 2008			March 26, 2009			March 27, 2008
Adjusted EBITDA	$	37,975		$	28,579		$	138,155		$	70,905
Payments made for lease finance obligations		11,778			11,499			23,489			22,771
EBITDA		49,753			40,078			161,644			93,676
Gain on extinguishment of debt		6,693			—			7,163			—
Interest expense, net		(20,883	)		(21,873	)		(42,395	)		(43,480	)
Depreciation and amortization		(26,273	)		(26,769	)		(53,155	)		(53,411	)
Income tax (expense) benefit		(2,952	)		3,485			(27,481	)		1,385
Net income (loss)	$	6,338		$	(5,079	)	$	45,776		$	(1,830	)
Adjusted EBITDA	$	37,975		$	28,579		$	138,155		$	70,905
Payments made for lease finance obligations		11,778			11,499			23,489			22,771
EBITDA		49,753			40,078			161,644			93,676
Gain on extinguishment of debt		6,693			—			7,163			—
Interest expense, net		(20,883	)		(21,873	)		(42,395	)		(43,480	)
Income tax (expense) benefit		(2,952	)		3,485			(27,481	)		1,385
Stock-based compensation		988			860			3,759			1,737
Changes in operating assets and liabilities		(17,527	)		(15,568	)		(365	)		(21,653	)
Other		1,879			(2,120	)		4,579			(433	)
Net cash provided by operating activities	$	17,951		$	4,862		$	106,904		$	31,232
Net cash used in investing activities	$	(10,127	)	$	(38,753	)	$	(35,518	)	$	(77,555	)
Net cash (used in) provided by financing activities	$	(19,834	)	$	25,276		$	(45,806	)	$	23,735

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