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TMFDeej (97.62)

Can new management restock The Pantry



June 21, 2010 – Comments (4) | RELATED TICKERS: PTRY.DL , CCE


I've seen convenience store operator The Pantry (PTRY) mentioned as an undervalued stock numerous times in the past.  After peaking at a high of around $67 back in May 2006, the company's stock has steadily fallen to the $14.50 level that it sits at today.


Barron's latest weekly small-cap column contained an good write-up on the company: Next: More Marriages of Convenience.

The part of the article that I found the most interesting was not its central theme that The Pantry might be a takeover target.  I don't buy companies just because someone might buy them out or because as an analyst at William Blair & Co says "It's one of the retail sectors that hasn't consolidated, relative to the others that we cover."  Trying to guess what company will get bought up is too much like throwing darts for my taste.  

Of course, now that I've said this The Pantry will probably get taken out at a huge premium tomorrow :).

If I buy stock in a company that's cheap enough there should be a good chance that someone will buy it out anyhow.  I'll never complain about a quick short-term gain, but lots of times investors would actually have been better off if the company that they owned was not bought out from under them before its true value could be realized by Mr. Market anyhow.

The part of the article that caught my eye was that PTRY has a relatively new management team that is making changes.  The replacement of ineffective CEO with a better one is the sort of thing that can really unlock value in a company.  

In September 2009, The Pantry hired Terrance Marks as its new CEO.  Mr. Marks was formerly the CEO of another company that I am currently long in CAPS, Coca-Cola Enterprises (CCE).

The new CEO is currently rolling out a number of initiatives that he believes will help improve earnings, including improving the company's coffee and sandwich offerings, attempting to price the company's gasoline more efficiently, and attempting to get a better handle on consumer trends (whatever that means...I would guess it means stocking the proper items in stores).

The process of implementing these changes will likely be slow.  PTRY has stated that it hopes to replace the glass coffee pots that it currently uses with new higher quality urns and to add new refrigeration cases that will hold high margin sandwiches and fruit at 100 of its 1,649 stores by the end of the year.

If PTRY's previous CEO is was as bad as the performance of the company's stock, then there should be lots of opportunities for Mr. Marks to cut costs as well.

Not only is help on the way in the form of new management, but The Pantry's earnings aren't nearly as bad as they appear at first glance.  In May,  PTRY reported a shocking quarterly loss of $7.44/share.  Of that loss, $162 million was a non-cash charge for the write-down of goodwill. After backing out special items, which I normally hate to do but non-cash charges are the exception, PTRY was about break even.  

Now this stock certainly is not without risks.  First of all, The Pantry has a ton of debt...$1.2 billion compared to a market cap of only $330 million.  Furthermore, there's no guarantee that its new management will be more effective than the previous regime.  

I'm do not plan to purchase stock in The Pantry in real life, it has too much debt for my taste and I prefer companies that pay dividends, but I am adding it today to my CAPS portfolio at around $14.50/share.  You might be able to get a better price than that if you wait a day or two until the Barron's pop fades.


P.S. Kangaroo is The Pantry's main brand name for the convenience stores that it operates in the Southeastern U.S., not just some cool logo that I came across and wanted to share :). 

4 Comments – Post Your Own

#1) On June 21, 2010 at 3:06 PM, PhulishMortal (< 20) wrote:

Kangaroo is The Pantry's main brand name for the convenience stores that it operates in the Southeastern U.S., . . .

 Cool.  I had wondered why I never see any Pantry stores around here (South Carolina) any more.  


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#2) On June 21, 2010 at 4:12 PM, Tastylunch (28.63) wrote:

Cool nice write up Deej!

PTRY is one that I often see on Piotroski screens.  Their margins are so thin that a small improvemnet could improve results dramatically.

or vice versa of course.

I guess the big issue they have now is Oil/Gas commodity prices. Oil dropping from 150 to 30 and recession level foottraffic really hurt them quite a bit. As long as they can maintain their fuel volume slightly rising Oil prices should actually be beneficial...

>>and attempting to get a better handle on consumer trends (whatever that means...I would guess it means stocking the proper items in stores).

That was my take as well. Although I assume it could also be applied to location as well.

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#3) On June 21, 2010 at 4:57 PM, TMFDeej (97.62) wrote:

Thanks Tasty.  The Barron's piece was actually pretty good.  I've read other articles lately which imply that impulse purchases of snack foods at convenience stores have increased lately.  If true, such a trend would be a positive for The Pantry as well.  That's where the real money at gas stations is made, in selling the junk inside.  Margins on gasoline are terrible.


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#4) On June 30, 2010 at 2:36 PM, Aargon (< 20) wrote:

As a customer of the pantry the bottom line comes down to my growing complaints in the recent years. Store management is at best ignorant of customer desires and wants. Team members are too busy with personal phone calls or simply ignoring customers. Complaints about behavior is handled by the local store manager and not resolved. High demand items like fountain coke run out frequently. Sorry but as a consumer of this brand it simply sucks. Until top management realizes this and corrects store performance i will take my business to competitors like "On the run"

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