Investors might have cleaned out The Pantry.

• Author: Speizer, Irwin
• Position: Money Matters - Column

In early 2002, The Pantry Inc. was in trouble. It was losing money in the competitive convenience-store business. Its stock was selling for about what a bag of beef jerky costs. Investors were losing their ardor for The Pantry's larder.

And the stock kept falling--below $2, below $1, selling for 83 cents on Oct. 7, 2002. But by then, changes were under way that would make The Pantry stock a rare convenience-store bargain. Anyone who bought in at the bottom and hung on saw its value multiplied by 28 at the end of November 2003. Financial advisers preach that individual investors shouldn't try to time the market. The Pantry shows what can happen when timing works.

Based in Sanford, The Pantry has about 1,400 stores across the Southeast. It spent the 1990s growing through acquisitions, which boosted debt from $100 million in 1997 to $560 million in 2001. When the economy slumped, so did The Pantry. It made $14 million in fiscal 2000 and lost $2.7 million in 2001.

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The company began an overhaul in 2002, closing troubled stores and renovating or rebuilding most of the rest under a new name, Kangaroo. It added inventory- and sales-tracking software to help manage expenses and merchandising and introduced higher-margin private-label coffee, soda and other items. It negotiated gasoline contracts to launch its own discount brand, which boosted gas sales. The increased customer traffic helped food sales. Stock-price gains accelerated after it restructured debt in April, which should save more than $100 million through 2007.

The Pantry made $1.8 million in 2002, despite its awful start, and profits soared in fiscal 2003, which ended Sept. 25. Net income hit $11.5 million, up 539%, and earnings per share were 63 cents. So the company went shopping again. In October, it bought the 138-store Golden Gallon chain in Tennessee and Georgia from Ahold USA, the American arm of the Dutch company that owns Bi-Lo grocery stores, for $187 million.

Some analysts see good times ahead. "We believe the sales and margin improvements of fiscal 2003 should carry into fiscal 2004," Bryan Hunt of Wachovia Securities said in November. The Pantry predicts EPS of $1.30 to $1.40 in 2004. The Thomson Financial First Call analyst consensus is $1.19. But don't expect a repeat of its 2003 stock performance. With a price of about $23, no dividend and a price-earnings ratio of 62.1 at the end of November, The Pantry might have little left in its cupboard for new...