Tops Posts Q3 Same-store Sales Dip
Tops Holding Corp., the parent of Williamsville, N.Y.-based Tops Markets LLC, reported net sales for the 12-week third quarter of fiscal 2012 ended Oct. 6 of $538.4 million, with gasoline sales increasing 6.9 percent to $50.9 million. The grocer’s results included about one week of sales from the 21 upstate New York and Vermont supermarkets it acquired during the quarter from GU Markets LLC for $27.4 million. Tops additionally generated $79.5 million in cash from operations during the 40-week period ended Oct. 6, a 54.5 percent increase from the year-ago period.
“In the third quarter, we executed on many of our initiatives by effectively controlling our expenses and making strategic investments in store upgrades to improve the customer experience,” noted Tops president and CEO Frank Curci. “We also continued to drive customer loyalty with our gas rewards program, which saw a measurable increase in participation.”
Curci went on to call the recent acquisition “a natural fit to our strong existing store portfolio [that] creates opportunities with a new supermarket base while requiring minimal incremental administrative expenses.”
Although Tops’ net sales were consistent with those of the third quarter of fiscal 2011, inside sales of $487.5 million were down 0.7 percent, or $3.4 million, from the 2011 third quarter, reflecting a 1.3 percent decrease in same-store sales and the impact of the sale or closure of five of the company’s acquired Penn Traffic supermarkets during the second half of 2011 and early January 2012. Tops largely attributed the same-store sales decline to a significant drop in pharmacy sales because of the recent conversion of certain drugs from name brand only to having generic equivalents.
The increase in gas sales in the third quarter was due to a 5.2 percent rise in the number of gallons sold, primarily because Tops had opened six new fuel stations since August 2011. Further, gas sales reflected a 1.6 percent increase in the retail price per gallon.
Gross profit for the third quarter was $149.9 million, or 27.8 percent of net sales, versus $152.9 million, or 28.4 percent of net sales, last year. Tops explained that the 60-basis point decrease in margin was mainly because of higher customer participation in its fuel rewards program, as well as lower gasoline margins.
Total operating expenses dipped to $131.4 million, from $132.2 million in the third quarter of 2011, due to Tops’ ongoing cost containment initiatives and lower utility costs. These factors were largely offset, however, by a rise in wages, salaries and benefits following ratification of new union agreements during 2011, the company explained. Operating income for the third quarter was $18.4 million, or 3.4 percent of net sales, down from $20.7 million, or 3.9 percent of net sales, in the year-ago period, while net income for the quarter fell to $4.7 million, from $6.4 million in the 2011 third quarter.
“We believe we have the right strategies, structure and talent in place to succeed in our markets,” said Tops SVP and CFO Rick Mills. “We continue to identify additional opportunities to improve efficiencies that will drive operating performance well into the future and translate into sustainable growth with strengthened margins and strong cash generation capabilities.”
For the 40-week period ended Oct. 6, net sales were $1.81 billion, down $10.2 million, or 0.6 percent, from last year. Inside sales declined 1.3 percent, or $21.1 million, to $1.64 billion, which Tops attributed to the aforementioned sale or closure of five Penn Traffic supermarkets, while same-store sales dipped 0.7 percent, mainly because of the earlier cited shift to generic pharmacy drug sales. Gas sales went up 6.9 percent to $169 million in the 40-week period, because of a 4.3 percent increase in the number of gallons sold, which the grocer noted was primarily driven by seven new fuel stations since July 2011, and a 2.5 percent increase in the retail price per gallon.
Gross profit was relatively consistent at $510.1 million in the 40-week period. As a percentage of net sales, gross margin improved to 28.3 percent over the year-ago period. Operating income for the 40-week period rose to $61.3 million from $53.2 million last year, largely because a $5.6 million decrease in utility costs and $2.8 million of impairment charges related to the sale of four supermarkets recorded in the prior-year period, according to Tops.
Capital expenditures came to $24.9 million and $37.3 million for the first 40-weeks of fiscal 2012 and 2011, respectively, and were mostly related to store remodels, Tops noted, adding that it expected to invest $35 million to $40 million in cap ex during the next 12 months.
“We believe our strategic investments have strongly positioned Tops for both short-term and long-term success,” observed Curci. “As we expand our footprint and increase our number of Tops Xpress and fueling stations, we will continue to strengthen our brand by providing our customers with an exceptional, value-added, one-stop shopping experience.”
Tops operates 145 corporate supermarkets under the Tops, GU Family Markets, Grand Union and Bryants banners, with an additional five supermarkets operated by franchisees. With over 13,000 associates, the grocer has stores in upstate New York, northern Pennsylvania and Vermont.