The Pantry Announces Record Third-Quarter Financial Results; Restating Financial Statements for Sale-Leaseback Transactions; Raises Low End of Fiscal 2005 EPS Guidance Range, Now Targets $2.10-$2.15

Revenues for the third quarter were $1,166.5 million, up 25.7%from $928.3 million in the corresponding period a year ago. Net incomewas $16.7 million, a 25.9% increase from $13.2 million in last year'sthird quarter. Diluted earnings per share were $0.75, up 17.1% from$0.64 a year ago.

"Operating performance in our core stores remained strong in thethird quarter, with solid growth in comparable store merchandise salesand gasoline gallons sold, as well as a substantial increase in ourmerchandise gross margin," said Peter J. Sodini, President and ChiefExecutive Officer. "These results reflect the positive impact of ourstore conversion and rebranding programs, as well as our increasedfocus on higher-margin merchandise categories such as food service andprivate label products."

Merchandise revenue for the quarter increased 7.0% overall and4.1% on a comparable store basis. The merchandise gross margin of36.6% was up 50 basis points from last year's third quarter. Totalmerchandise gross profits rose 8.5% to $118.6 million, and againaccounted for more than 70% of the Company's total gross profits.Comparable store gasoline gallons increased 5.6% from a year ago, andtotal gallons sold rose 15.2%. Gasoline revenues were up 34.7%, partlydue to a 17.0% increase in the average retail price per gallon, to$2.13. The gross margin per gallon was 12.3 cents, compared with 13.0cents in last year's third quarter. Gasoline gross profits for thequarter totaled $48.4 million, up 9.0% from a year ago.

During the third fiscal quarter, the Company completed theacquisition of 53 Cowboys convenience stores located mostly in Georgiaand Alabama. In addition, it announced a definitive agreement toacquire 23 convenience stores in Virginia that are currently operatingunder the Sentry Food Mart banner. That acquisition is expected toclose in the fourth fiscal quarter. Mr. Sodini commented, "Both ofthese transactions are excellent examples of our strategy of focusingon tuck-in acquisitions that leverage our existing market presenceacross the Southeast, and both are expected to be immediatelyaccretive to our earnings per share."

For the nine-month period, total revenues were approximately $3.1billion, up 24.2% from the corresponding period last year. Net incomefor the nine months was $32.5 million, or $1.50 per diluted share, upsharply from $3.2 million, or $0.16 per share, a year ago. Net incomefor the first nine months of fiscal 2004 included $0.69 per share inearly debt extinguishment costs, as well as $0.04 per share inexpenses related to a secondary stock offering. In addition, there wasduplicate interest expense of $0.05 per share on two issues of seniorsubordinated notes for a one-month period when both were outstanding.Net income excluding these financing-related items for the first ninemonths of fiscal 2004 was $19.3 million, or $0.93 per share. EBITDAfor the first nine months of fiscal 2005 was $141.1 million, a 15.6%increase from a year ago.

Mr. Sodini said, "We are pleased with the year-to-date performanceof our core business and with the two outstanding acquisitions we havenegotiated. We are improving our guidance for the year and now targetdiluted earnings per share for the full fiscal year in a range between$2.10 and $2.15, after giving effect to the restatement describedbelow. This is up from our previously targeted range of $2.05 to$2.15."

Impact of Restatement

The Company also announced today that it intends to restatecertain of its prior period financial statements to correct itsaccounting for transactions that it characterized as sale-leasebacktransactions. This change is the result of the determination by theCompany in consultation with its independent registered publicaccountants that such transactions must be accounted for as financingtransactions rather than sale-leaseback transactions. The change willnot affect the Company's cash flow and will have a minimal impact onearnings per share and retained earnings. The restatementrecharacterizes the transactions as financing transactions, with theassets and related financing obligation carried on the balance sheet.As a result, approximately $177 million in additional debt will berecorded as of June 30, 2005, with a similar increase in assets. Whilethe Company is in compliance with all of the financial ratio covenantsof the loan agreement under its credit facilities, the increase indebt will put it in default because of provisions that limit theCompany's ability to incur additional indebtedness. The Companycurrently is in the process of obtaining an amendment to the loanagreement. Based on its discussions with lenders, the Company expectsto enter into an amendment in the first half of August that would putit in compliance with the agreement and obtain any necessary waivers.The Company also is taking steps to address the impact of therestatement on other financing arrangements where there may be abreach and anticipates no material consequences arising from them.

The expected annual impact of the restatements on the Company'spreviously reported diluted earnings per share for fiscal years 1999(the earliest year affected by the restatement) to 2003 ranges fromapproximately $0.01 to $0.03. The Company expects the restatement toreduce fiscal 2004 net income and diluted earnings per share byapproximately $1.7 million and $0.08, respectively. For the first ninemonths of fiscal 2005, the impact is partially offset by reversingcertain straight-line rent charges recorded earlier in the year,resulting in a decrease in net income of approximately $400,000, or$0.02 per share.

During the third fiscal quarter, the Company's independentregistered public accountants advised management that they werereviewing the accounting the Company had previously applied tosale-leaseback transactions - which the registered public accountantshad previously considered in their periodic audits and reviews.Certain technical issues were identified that had the potential tocause certain of these transactions to not qualify for sale-leasebackaccounting treatment. One of these issues impacts almost all of theCompany's previously reported sale-leaseback transactions - whetherthe retention by the Company of ownership of underground fuel storagetanks represents a continuing involvement in the leased property thatprecludes treating these leases as operating leases pursuant tosale-leaseback accounting rules. Although generally acceptedaccounting principles on this topic are not clear, the Company hasconcluded at this time that a restatement is appropriate.

The Company had previously believed that its sale-leasebackaccounting treatment was appropriate under Generally AcceptedAccounting Principles ("GAAP"). The Company is unaware of any evidencethat these restatements are due to any intentional noncompliance withGAAP by the Company. However, after further review of variousinterpretations of these technical accounting matters and discussionswith its independent registered public accountants, the Company hasconcluded that the restatements were appropriate. The preliminaryresults announced in this release utilize the accounting treatmentwhich will be reflected in the restatement of our historical financialstatements. Because the restatement is not yet completed, the expectedimpact of the restatement contained herein is preliminary and subjectto a final review by management and the audit committee and the auditor review by our independent registered public accountants. Whilethere can be no assurance, in light of the straightforward nature ofthe restatement, the Company believes that these final reviews oraudit will not result in any significant change to the preliminaryimpact contained herein.

Conference Call

Interested parties are invited to listen to the third quarterearnings conference call scheduled for Thursday, July 28, 2005 at10:00 a.m. Eastern Time. The call will be broadcast live over theInternet and is accessible at www.thepantry.com orwww.companyboardroom.com. An online archive will be availableimmediately following the call and will be accessible until August 4,2005.

Use of Non-GAAP Measures

EBITDA is not a measure of operating performance under accountingprinciples generally accepted in the United States of America, andshould not be considered as a substitute for net income, cash flowsfrom operating activities and other income or cash flow statementdata. We have included information concerning EBITDA as one measure ofour cash flow and historical ability to service debt and because webelieve investors find this information useful as it reflects theresources available for strategic opportunities including, amongothers, to invest in the business, make strategic acquisitions and toservice debt. EBITDA as defined may not be comparable to similarlytitled measures reported by other companies.

About The Pantry

Headquartered in Sanford, North Carolina, The Pantry, Inc. is theleading independently operated convenience store chain in thesoutheastern United States and one of the largest independentlyoperated convenience store chains in the country, with net sales forfiscal 2004 of approximately $3.5 billion. As of June 30, 2005, theCompany operated 1,386 stores in 11 states under a number of bannersincluding Kangaroo Express(SM), The Pantry(R), Golden Gallon(R),Cowboys and Lil Champ Food Store(R). The Pantry's stores offer a broadselection of merchandise, as well as gasoline and other ancillaryservices designed to appeal to the convenience needs of its customers.

Safe Harbor Statement

Statements made by the Company in this press release relating tofuture plans, events, or financial performance are "forward-lookingstatements" within the meaning of the Private Securities LitigationReform Act of 1995. These forward-looking statements are based on theCompany's current plans and expectations and involve a number of risksand uncertainties that could cause actual results and events to varymaterially from the results and events anticipated or implied by suchforward-looking statements. Any number of factors could affect actualresults and events, including, without limitation: the risk that we donot enter into the anticipated amendment with our lenders to cure thedefault created by the restatement or obtain any necessary waivers ofdefault from any of our financing sources; the risk that our abilityto finance future transactions could be adversely affected; the riskthat we do not amend our reports to reflect the restatement within thecure period provided under our senior subordinated notes (which wouldgive rise to the holders' right to accelerate our debt and declare itdue); and the risk that the preliminary financial impact of therestatement contained herein and the current preliminary resultscontained in the related press release will be different when therestatement is finalized and reported; the ability of the Company totake advantage of expected synergies in connection with acquisitions;the actual operating results of stores acquired; fluctuations indomestic and global petroleum and gasoline markets, changes in thecompetitive landscape of the convenience store industry, includinggasoline stations and other non-traditional retailers located in theCompany's markets; the effect of national and regional economicconditions on the convenience store industry and the markets we serve;the effect of regional weather conditions on customer traffic;financial difficulties of suppliers, including our principal suppliersof gas and merchandise; environmental risks associated with sellingpetroleum products; governmental regulations, including thoseregulating the environment; and acts of war or terrorist activity.Additional information will be contained in the Company's CurrentReport on Form 8-K to be filed with the Securities and ExchangeCommission today. These and other risk factors are discussed in theCompany's Annual Report on Form 10-K, and in its other filings withthe Securities and Exchange Commission. In addition, theforward-looking statements included in this press release are based onthe Company's estimates and plans as of July 28, 2005. While theCompany may elect to update these forward-looking statements at somepoint in the future, it specifically disclaims any obligation to doso.

The Unaudited Selected Financial Data Table provided belowutilizes the accounting treatment which will be reflected in therestatement of our historical financial statements. Because therestatement is not yet completed, the expected impact of therestatement on the historical financial data relied on to prepare suchinformation is preliminary and subject to a final review by managementand the audit committee and the audit or review by our independentregistered public accountants.

The Pantry, Inc.
Unaudited Selected
Financial Data
(In thousands, except per share and per gallon amounts,
margin data and store count)

Quarter Nine Months
Ended Ended
--------------------- ---------------------
June 30, June 24, June 30, June 24,
2005 2004 2005 2004
---------- ---------- ---------- ----------
(13 weeks) (13 weeks) (39 weeks) (39 weeks)
(as restated) (as restated)

Revenues:
Merchandise $324,041 $302,879 $895,397 $843,101
Gasoline 842,415 625,448 2,158,362 1,616,020
---------- ---------- ---------- ----------
Total revenues 1,166,456 928,327 3,053,759 2,459,121

Cost of sales:
Merchandise 205,467 193,624 566,999 535,186
Gasoline 793,968 580,993 2,025,908 1,496,888
---------- ---------- ---------- ----------
Total cost of sales 999,435 774,617 2,592,907 2,032,074

Gross profit 167,021 153,710 460,852 427,047

Net income $16,660 $13,229 $32,532 $3,213
---------- ---------- ---------- ----------

Earnings per share:
Net income per diluted
share $0.75 $0.64 $1.50 $0.16
Diluted shares outstanding 22,264 20,709 21,653 20,600

Selected financial data:
EBITDA $57,042 $49,776 $141,122 $122,058
Net cash provided by
operating activities $53,467 $56,744 $80,871 $64,621
Merchandise gross profit $118,574 $109,255 $328,398 $307,915
Merchandise margin 36.6% 36.1% 36.7% 36.5%
Gasoline gallons 395,021 342,818 1,081,817 990,203
Gasoline gross profit $48,447 $44,455 $132,454 $119,132
Gasoline margin per gallon
(1) $0.1226 $0.1297 $0.1224 $0.1203
Gasoline retail per gallon $2.13 $1.82 $2.00 $1.63

Comparable store data:
Merchandise sales % 4.1% 3.9% 5.5% 3.3%
Gasoline gallons % 5.6% 0.2% 5.5% 1.6%

Number of stores:
End of period 1,386 1,367 1,386 1,367
Weighted-average store
count 1,377 1,371 1,360 1,370


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.


The Reconciliation of Non-GAAP Financial Measures provided below
utilizes the accounting treatment which will be reflected in the
restatement of our historical financial statements. Because the
restatement is not yet completed, the expected impact of the
restatement on the historical financial data relied on to prepare such
information is preliminary and subject to a final review by management
and the audit committee and the audit or review by our independent
registered public accountants.


The Pantry, Inc.
Reconciliation of Non-GAAP
Financial Measures
(In thousands)

Quarter Nine Months
Ended Ended
June 30, June 24, June 30, June 24,
2005 2004 2005 2004
-------- ----------- --------- -----------
(as restated) (as restated)

EBITDA $57,042 $49,766 $141,122 $122,058

Interest expense and loss
on extinguishment of debt (14,052) (13,605) (41,628) (72,560)
Adjustments to reconcile
net income to net cash
provided by operating
activities (other than
depreciation and amortization
and provision
for deferred income taxes) 785 (711) 1,521 24,682

Changes in operating assets
and liabilities, net:
Assets (14,080) (3,614) (20,523) (9,023)
Liabilities 23,772 24,908 379 (536)

-------- ----------- --------- -----------
Net cash provided by
operating activities $53,467 $56,744 $80,871 $64,621
-------- ----------- --------- -----------


Nine Months Ended
June 30, EPS
2004
----------------

Net income $3,213 $0.16

Financing related charges, net of income
taxes:
Loss on extinguishment of debt 14,199 0.69
Secondary stock offering expenses 800 0.04
Duplicate interest, senior subordinated notes 1,046 0.05
----------------
Net income, excluding financing related
charges $19,258 $0.93
================