Should You Pull In to This Convenience Store Chain?

Isn't it amazing how price sensitive we all are when it comes to buying gas? We choose one gas station over another for the smallest of price differences. When we go inside, though, we happily pay three or more times as much for drinks and snacks as we would pay at the grocery store. The Pantry (NASDAQ: PTRY  ) continues to capitalize on this like never before. Judging from the earnings reports of CST Brands (NYSE: CST  ) and TravelCenters of America (NYSE: TA  ) , it doesn't look like The Pantry's results are going to slow down either any time soon.

The Pantry results
The Pantry reported fiscal fourth-quarter results on Dec. 10. Same-store sales for merchandise increased 2%. Gross profit from fuel jumped 8.6% to $47.8 million while gross profit from merchandise inched up 0.4% to $163.2 million. Adjusted net income swung from a $2.0 million loss to a $1.4 million profit or $0.06 per share.

CEO Dennis Hatchell stated that merchandise sales are gaining momentum going into 2014. He credited this to the success of certain sales initiatives. Some of these include store remodels, reviews of the individual markets where stores are located, and merchandising. These initiatives are starting to bear fruit. Last quarter, the company saw a 3.3% improvement in merchandise sales on a per-customer basis. The Pantry also closed 18 stores that didn't fit within its profitability targets.

In the conference call, CFO Clyde Preslar mentioned that The Pantry is already seeing a 3% rise in sales for the quarter to date. He believes the company is "gaining momentum" from there going forward. Hatchell gave some details about merchandising. He explained it was all about tailoring the individual stores based on local tastes and preferences. This is in addition to adding healthier items, product placements, remodels, and "fundamental stuff that need to go on outside the store." On average, The Pantry sees sales pick up with each remodel.

Analysts on average expect fiscal 2014 to show $0.70 in EPS and fiscal 2015 to show $1.05 in EPS. If the company achieves this, it would be quite impressive growth of 50% and a P/E of roughly 15 at the time of this writing. What about the other guys?

Making a pit stop at CST Brands
CST Brands describes itself as "one of the largest independent retailers of motor fuels and convenience merchandise in North America." In its most recent quarterly report, adjusted net income shot up 79.2% to $43 million or $0.57 per share. Analysts expect CST Brands to report $2.12 in earnings per share for 2014 and $2.19 in earnings per share for 2015; this equates to growth of 3%. It's not bad, but its expected growth is not exceptional. CST Brands trades at a forward 2015 P/E of roughly 15. This is just like The Pantry, but CST Brands has far lower growth prospects.

Pulling over for TravelCenters of America
TravelCenters of America's results can be a bit messy due to an acquisition and other charges that are in the mix. Still, the company last quarter reported a solid net income of $15.8 million or $0.53 per share. TravelCenters of America's overall revenue increased 1.4%, but the more-important merchandise sales jumped 7.7% to $391 million. CEO Thomas O'Brien sees profitable growth ahead both organically and from potential acquisitions. Analysts expect EPS of $1.07 in 2014 compared to $0.46 in 2013, though the growth has more to do with overcoming temporary charges. TravelCenters of America trades at a forward P/E of 8, just under half that of CST Brands and The Pantry.

Foolish final thoughts
In terms of forward P/E, TravelCenters of America is the cheapest of the bunch, but this may be due to concerns regarding the reliability of analyst forecasts. Meanwhile, Fools may want to put The Pantry on their watch lists for 2014 and beyond. The company is proving successful at executing on its detailed, strategic plan for growth and this point, coupled with a reasonable P/E ratio, makes it certainly worth a closer look.  

The death of the gas station?
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