SANFORD, N.C. – Plunging gasoline prices and an associated decline in profit margin per gallon hammered earnings for The Pantry convenience store chain.

Pantry (NASDAQ: PTRY) reported earnings of just a penny a share, or $125,000, on revenues of $1.4 billion for the first quarter of its fiscal 2007. Most of its stores operate under the Kangaroo brand.

Wall Street analysts polled by Thomson Financial had predicted profits of 18 cents per share on revenues of $1.39 billion.

However, traders did not punish the stock. Pantry shares actually closed up on Thursday at $50.75 after opening at $48.86.

Revenues did increase 5 percent over the same quarter in 2006, and gasoline sales actually climbed 14 percent, but much of that gain was linked to an increase in the number of stores the chain owns. Gasoline revenues increased 3.3 percent. The price of gasoline weas down more than 9 percent to an average price of $2.21, and The Pantry said its gross margin per gallon of gasoline sold dropped to 8.6 cents from 21.2 cents.

Merchandise sales increased 10 percent.

“As we expected, our first quarter results were significantly affected by unusually low gasoline margins relative to our historical seasonal trends, especially compared with very strong gas margins a year ago,” Pantry Chairman and Chief Executive Officer Peter J. Sodini said. “In addition, we faced difficult comparisons in both merchandise and gasoline sales with the post-Hurricane Katrina period a year ago in the Gulf Coast region. We are pleased to report that gasoline margins and comparable store revenue trends improved at the end of the first quarter, and the improvement has carried over so far in our second quarter.”

The Pantry’s rapid growth continued in the quarter. The chain agreed to buy an additional 133 stores, up from 113 that it purchased in all of 2006.