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    Tops Moves From Loss to Gain in Q1

    Disciplined cost management drove operating margin up 2.7%

    Tops Holding Corp., the parent company of Tops Markets LLC, reported that net income for the first quarter of its fiscal 2012 ended April 21 improved to $0.7 million, from a net loss of $2.1 million in the 2011 first quarter. Still, net sales of $704 million for the first quarter of fiscal 2012 were down slightly from the $717.3 million posted in the year-ago period, and first-quarter inside sales of $639.5 million were down 2.9 percent, or $19.4 million, from last year, which the Williamsville, N.Y.-based company said reflected a 2.0 percent dip in same-store sales combined with the effect of a reduction in year-over-year store count.

    Tops attributed the same-store sales decline largely to the timing of its “Monopoly” promotion and the Easter holiday. Another factor was the sale or closure of five acquired Penn Traffic supermarkets that generated net sales of $12.3 million during the 2011 first quarter, partly offset by the opening of two new supermarkets in March and September 2011.

    “We had a strong first- quarter highlighted by our improved operating margin and net income,” noted Tops president and CEO Frank Curci. “We believe our differentiated go-to-market strategy continues to resonate with our customers, and we remain focused on delivering improved value to strengthen our customer loyalty and meet the specific needs of each community we serve.”

    Gasoline sales rose 11.2 percent, or $6.5 million, to $64.9 million in the first quarter of 2012 compared with the year-ago period, because of an 8.4 percent increase in the retail price per gallon and a 2.6 percent increase in the number of gallons sold, mainly as a result of four new fuel stations added since July 2011, the grocer said.

    Gross profit for the first quarter of fiscal 2012 was $199.9 million compared with $202.4 million last year. Tops experienced a change in LIFO inventory valuation adjustments from income of $0.7 million during the first quarter of 2011 to expense of $2.2 million during the first quarter of 2012. Excluding the impact of non-cash LIFO adjustments, gross margin rose 60 basis points to 28.7 percent in the first quarter of 2012, from 28.1 percent in the year-ago period. Tops attributed this improvement to a continuation of pricing improvements made in 2011 and promotional spending changes, as well as cost deflation in dairy commodities, although these factors were partly offset by a higher proportion of gasoline sales versus inside sales, since gas sales generally occur at lower gross margin rates.

    Total operating expenses dropped 2.3 percent or $4.2 million, to $180.6 million versus the first quarter of 2011, primarily because of a $2.3 million decrease in utility costs and the impact of the Tops’ ongoing cost containment initiatives, the company said. As a result, operating income grew to $19.3 million, or 2.7 percent of net sales, from $17.6 million, or 2.4 percent of net sales, last year.

    “Despite the impact of the non-cash LIFO inventory valuation adjustments, our efforts to focus on ongoing efficiency initiatives drove the improvement in gross and operating margins,” said SVP and CFO Rick Mills. “We will continue to identify additional opportunities to improve our operations that will enhance our cash-generating capabilities and strengthen our balance sheet to better position the company for continued growth.”

    Cash provided by operating activities during the first quarter of 2012 was $18.8 million, a decrease from $22.3 million from the first quarter of 2011 because of changes in working capital, partly offset by the earnings increase. Capital expenditures for the first quarter of 2012 came to $9.4 million, compared with $17.0 million in the year-ago period, and went mostly to store remodels. Tops expects to invest $35 million to $40 million in cap ex during 2012.

    Employing about 12,100 associates in upstate New York and northern Pennsylvania, Tops operates 124 corporate full-service supermarkets with an additional five franchise supermarkets, in addition to pharmacy services and 39 offered fuel centers.

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