Tops’ Q2 Sales Up Slightly

Tops Holding Corp., the parent of Northeastern grocery store chain Tops Markets LLC, has reported net sales for its 12-week second quarter of fiscal 2012, which ended July 14, of $562.4 million, a slight increase over the year-ago period’s $559.5 million, while same-store sales edged up 1.6 percent.

“This was a strong quarter for Tops, with improved margins, sharply higher profitability and strong cash generation,” said Frank Curci, president and CEO of Williamsville, N.Y.-based Tops. “We are encouraged by our current trends and expect to build on this momentum throughout the remainder of the year as we continue promotional and marketing initiatives tailored to meet the shopping needs of our customers.”

Last month, the grocer revealed an agreement with GU Markets LLC, an affiliate of Keene, N.H.-based C&S Wholesale Grocers Inc., to buy 21 supermarkets in upstate New York and Vermont. The cash transaction is expected to close this fall. According to Curci, “We believe this transaction is a natural strategic complement to our current footprint, and given our successful integration of the former Penn Traffic supermarkets, we are confident in our ability to seamlessly integrate these 21 supermarkets.”

Inside sales of $509.1 million were up 0.3 percent, or $1.7 million, from last year, reflecting a 1.6 percent same-store sales rise, which Tops attributed mainly to the timing of the Easter holiday and its Monopoly marketing promotion. Inside sales were adversely affected by a considerable drop in pharmacy sales, largely due to the recent conversion of certain drugs from brand-only to generic. Inside sales were also hurt by the sale or closure of five of Tops’ acquired Penn Traffic supermarkets during the second half of 2011 and early January 2012.

Gasoline sales went up 2.1 percent, or $1.1 million, to $53.2 million in the second quarter of 2012 from last year, because of a 5.5 percent increase in the number of gallons sold, which the company said was mainly due to the addition of five new fuel stations since July 2011. This gain was partially offset by a 3.2 percent decrease in the retail price per gallon.

Gross profit for the second quarter was $160.3 million, compared with $155.0 million in the year-ago period. Total operating expenses fell 2.4 percent, or $3.3 million, to $136.8 million, compared with the second quarter of 2011, mainly because of a $1.9 million decrease in utility costs and a $1.9 million impairment recognized during the year-ago period related to three acquired Penn Traffic supermarkets sold to Hometown Markets. Tops also benefited from its ongoing cost containment efforts.

Operating income for the quarter was $23.6 million, or 4.2 percent of net sales, up significantly from last year’s $14.9 million, or 2.7 percent of net sales. Net income for the second quarter improved to $9.5 million from net income of $0.3 million in the year-ago period.

“We continue to execute several strategic initiatives to position the company to achieve sustainable and profitable sales growth over the long term,” said Tops SVP and CFO Rick Mills. “We managed our promotional activity and merchandising efforts and continued to implement operational efficiencies in this uncertain economic environment, driving improvements in both gross and operating margin.”

For the 28-week period ended July 14, net sales were $1.27 billion, down $10.0 million, or 0.8 percent, from $1.28 billion in the year-ago period. Year-to-date inside sales dipped 1.5 percent, or $17.7 million, to $1.15 billion, reflecting the sale or closure of five Penn Traffic supermarkets noted above. Inside sales were negatively affected by the decline in pharmacy sales mentioned above. Gas sales grew 6.9 percent to $118.1 million in the year-to-date period because of 3.9 percent increase in the number of gallons sold, largely the result of the aforementioned five new fuel stations, and a 2.9 percent increase in the retail price per gallon.

Gross profit edged up 0.8 percent to $360.2 million in the 2012 year-to-date period, and was 28.4 percent as a percentage of net sales. Operating income for the 28-week period of fiscal 2012 rose to $42.9 million from $32.5 million last year as lower utility costs and benefits from Tops’ cost containment initiatives took effect. Net income for the year-to-date period improved $11.9 million to $10.1 million, versus a net loss of $1.8 million last year.

Year-to-date capital expenditures of $15.2 million were lower compared with the year-ago period, mainly due to timing. The grocer expects to invest $35 million to $40 million in cap ex over the next 12 months.

“As we move through the remainder of the year, we will manage expected inflation in key categories as efficiently as possible, while being mindful of consumers who are particularly cost-conscious in the current economic environment,” observed Curci. “We are confident that we can continue to offer our customers better quality, service and value.”

With more than 12,000 associates Tops operates 125 corporate full-service supermarkets, with an additional five franchise supermarkets.