In the woodshed…

December 13, 2006

woodshed.jpegLate yesterday, fast-growing convenience store chain Pantry (PTRY) filed its 10-K that mentioned — almost in passing — that it was now the subject of a formal SEC investigation. The formal investigation is related to the massive restatement that Pantry announced on July 28, 2005 over the way the company accounted for sale-leaseback accounting dating back to 1999. That restatement led to an informal investigation that the company first disclosed in last year’s 10-K.

Since then, several comment letters have flown back and forth between the company and the SEC, although the most recent letter said that the SEC had "no further comments at this time". Clearly, the operative words here were "at this time" since sometime in November — the company never gives a date, nor did it file an 8-K — it received word that the SEC had launched a formal investigation. It’s not clear what happened between late July and sometime in November to change the mood at the SEC. But on Nov. 16, when Pantry announced "record" earnings (side note: any time the company uses record in the headline, it’s usually worth paying closer attention to and not because it’s good news), its stock declined by more than 10%.

As for yesterday’s K, Pantry doesn’t provide much detail on the formal investigation. Indeed, it’s only mentioned twice in the 100-plus page filing.  

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