Tops Ups Sales, Profits in Q4, FY 2011
Tops Holding Corp., the parent company of Tops Markets LLC, posted fourth-quarter net sales for the 12-week period ended Dec. 31, 2011, of $540.1 million, an increase of $9.3 million from the year-ago period. Inside sales were $494.0 million in the quarter, up $1.0 million from the same period in the prior year.
Tops attributed the 0.8 percent increase in same-store sales to higher traffic in newly renovated stores, increased basket size from brand loyalty and the opening of two new supermarkets during 2011, partially offset by the effect of the sale or closure of four stores subject to a divestiture order from the Federal Trade Commission (FTC).
Gasoline sales rose $8.3 million, or 21.9 percent, to $46.1 million in the fourth quarter, reflecting a 15.8 percent increase in the retail price per gallon and a 5.3 percent increase in the number of gallons sold. Tops said that the greater amount gallons sold was because of the four gas stations that it had opened since the 2010 fourth quarter.
Gross profit for the fourth quarter grew $8.5 million, or 6.0 percent, to $150.9 million from the year-ago period. Excluding the impact of noncash LIFO inventory valuation adjustments, gross margin improved 90 basis points to 28.0 percent in the fourth quarter of 2011, from 27.1 percent in the fourth quarter of 2010. According to Tops, the improvement was because of its price optimization efforts, in addition to a higher percentage of private label merchandise sales, partially offset by a higher proportion of gas sales versus inside sales, as gas sales generally occur at lower gross-margin rates.
Total operating expenses fell 3.9 percent to $135.3 million, compared with $140.7 million last year. The decrease was mainly attributable to the company’s ongoing cost containment and operating efficiencies, as well as $2.2 million of integration costs related to the Penn Traffic acquisition, which occurred in the 2010 fourth quarter. As a result, operating income rose to $15.6 million, or 2.9 percent of net sales, from $1.7 million, or 0.3 percent of net sales, in the year-ago period.
“We demonstrated in 2011 that we have the team in place fully capable of executing our strategy,” noted Frank Curci, president and CEO of Williamsville, N.Y.-based Tops. “Our results capitalize on the strength of our brand and our ability to grow through innovative merchandising and marketing while maintaining disciplined cost management. The successful integration of the acquired Penn Traffic stores under the Tops banner and those newly renovated stores have resulted in an increase in foot traffic.”
Fiscal 2011 net sales for the 52-week period ended Dec. 31, 2011 were $2.36 billion, up $98.0 million, or 4.3 percent, versus the $2.26 billion reported for fiscal 2010. Tops attributed the results to a 1.4 percent increase in same-store sales, the operation of the acquired and retained Penn Traffic supermarkets for four extra weeks, and incremental inside sales associated with new stores opened since 2010. These factors were partially offset by the impact of the sale or closure of 28 of the acquired Penn Traffic stores during 2010 and 2011. Year-over-year gas sales rose 36.1 percent.
Gross profit grew 4.3 percent to $661.1 million in fiscal 2011, and was 28.1 percent of net sales, consistent with fiscal 2010, despite the higher proportion of gas sales, which generally occur at lower gross margin rates.
Total operating expenses in fiscal 2011 plunged $30.7 million, or 4.9 percent, to $592.3 million, which Tops said was because of $28.5 million in costs incurred in fiscal 2010 associated with the Penn Traffic acquisition and integration, as well as the grocer’s successful cost containment programs.
Operating income for the fiscal year was $68.8 million, or 2.9 percent of net sales, compared with $10.6 million, or 0.5 percent of net sales, in fiscal 2010.
Net income for fiscal 2011 was $5.8 million, compared with a net loss of $27.0 million last year. Fiscal 2010 included a benefit of $15.7 million from the bargain purchase of the acquired Penn Traffic stores, along with a $9.0 million income tax benefit due to a $10.3 million reversal of valuation allowance because of recording a deferred tax liability that resulted from the bargain purchase.
“Our operating income increased more than 540 percent this year, which was a direct result of our ability to successfully integrate Penn Traffic into the Tops business model while effectively maintaining cost discipline and implementing operating efficiencies throughout our organization,” said SVP and CFO Rick Mills. “As a result, we have enhanced our cash-generating capability, strengthened our balance sheet and positioned the company for future expansion.”
To date, Tops has retained 50 of the 79 acquired Penn Traffic supermarkets. Store remodels and fuel expansion accounted for a large part of the $45.6 million in 2011 cap ex. Capital spending in fiscal 2010 was $49.7 million.
Employing 12,500 associates, Tops Markets LLC operates 124 corporate full-service supermarkets and has an additional five franchise supermarkets. in upstate New York and northern Pennsylvania.