Tops Sees Slightly Higher Q1 Inside Sales
Tops Holding II Corp., the indirect parent of Tops Markets, LLC, inside sales of 678.1 million for the first quarter of 2016 ended April 23, a $1.4 million increase from the year-ago period.
According to the company, this result reflects the $16.6 million incremental contribution from six acquired and new supermarkets opened since May 2015, but was partially offset by a $2.4 million decrease in sales Tops attributed to the 27 in-store pharmacies it closed in January 2015.
Same-store sales, excluding the closed in-store pharmacies and franchise revenue, dipped 1.5 percent in the first quarter because of food cost deflation in certain categories, mainly meat and dairy, along with competitive pressure to respond with lower prices. Further, Tops’ fuel sales were adversely affected by a 22 percent decline in the average retail price paid per gallon, and so were $35.6 million in the first quarter, a decrease of $10.5 million, or 22.8 percent, from last year. As of April 23, the company operated 52 corporate fuel stations.
Overall, Tops’ first-quarter net sales were down $9.1 million, or 1.3 percent, to $713.7 million.
“We continued to perform well, given the strong deflationary headwinds that persist to affect supermarket operators industrywide,” noted Tops Chairman and CEO Frank Curci. “Inside sales were up slightly in the quarter and adjusted EBITDA, which excludes nonrecurring items, increased almost 5 percent. More importantly, Tops’ market share remains very strong, as we have recently achieved some of our best results in several years, with gains in our leading markets. We added one supermarket, in Westfield, Pa., during the quarter and opened another location, in Sanborn, N.Y., in late April. Both locations are performing exceptionally well in their smaller footprints.”
Added Curci: “While we do not see food cost deflation abating significantly in the near future, our strong market share positions us very well to capitalize when the recent macroeconomic challenges begin to recede. We continue to employ marketing initiatives that increase customer loyalty and drive traffic, including our popular Price-Lock guarantee program and the return of our Monopoly promotion in the second quarter. We are also in the process of relaunching our private label program, with redesigned packaging, new marketing programs and increased offerings in natural and organic categories, which should contribute positively to gross margin. These initiatives, combined with fill-in acquisitions to our supermarket portfolio and continued effective cost controls, are expected to mitigate the challenge of food cost deflation.”
Additional Results
Gross profit for the first quarter was $215.1 million, or 30.1 percent of net sales, a 40-basis-points increase from the 2015 first quarter. Tops attributed the margin improvement to product mix, given the smaller proportion of lower-margin fuel sales, and $2.2 million in incremental savings associated with the amendment of certain operating terms of its agreement with Keene, N.H.-based C&S Wholesale Grocers Inc., which took effect in April. Although fuel profitability in the first quarter of 2016 was stable in spite of growing commodity costs, unusual profitability during year-ago period led to a $2.4 million decline in period-over-period fuel gross profit.
Total operating expenses came to $204.7 million, a $12.4 million rise from the $192.4 logged last year. Most of the variance was due to the favorable impact of an $11 million gain from the sale of pharmacy scripts and inventory during the 2015 period, according to Tops. Other major factors cited by the company as driving operating expenses in the quarter included lower selling and general expenses as a result of decreased utility costs, in part due to warmer-than-normal weather in the 2016 first quarter; higher administrative expenses; higher rent expenses due to new supermarket and fuel locations opened since May 2015; and increased depreciation expense related to capital investments made in 2015 and 2016
Operating income for the 2016 first quarter was $10.3 million, compared with $22.1 million in the year-ago period, which included the $11 million gain from the of the pharmacy assets.
Williamsville, N.Y.-based Tops Markets LLC operates 165 corporate full-service supermarkets, 164 under the Tops banner and one under the Orchard Fresh banner, with another five supermarkets operated by franchisees under the Tops banner. With locations in upstate New York, northern Pennsylvania and Vermont, the grocer employs about 14,200 associates.