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    Tops Posts Q2 Sales, Operating Profit

    Grocer intends to up its cap ex budget

    Tops Holding Corp., the Williamsville, N.Y.-based parent of Tops Markets LLC, reported a net sales increase of $17.7 million, or 3.3 percent, from $541.8 million for the 12-week second quarter ended July 16. Inside sales were $507.4 million in quarter, up $0.4 million, or 0.1 percent, from the year-ago period. Tops attributed this increase to the contribution of new supermarkets opened since August 2010, a contribution largely offset by a 1.0 percent decrease in same-store sales because of the timing of the Easter holiday. Additionally, the grocer saw an increased trend of customers trading down to lower-priced merchandise, including private label products, during this period.

    Gas sales increased $17.3 million, or 49.6 percent, to $52.1 million in the second quarter, reflecting a 35.4 percent increase in the retail price per gallon. Further, there was a 10.5 percent rise in the number of gallons sold, primarily because of the rollout of three more Tops fuel stations since June 2010.

    “We had a strong quarter, with sales growth and sharply higher profitability, in spite of a difficult and volatile operating environment,” noted Frank Curci, president and CEO of Tops, which operates 125 corporate full-service supermarkets and five franchise supermarkets, employing about 12,600 associates. “We continue to grow in the markets we serve in upstate New York and northern Pennsylvania by attracting new customers with our merchandising, while actively taking steps to build loyalty and basket size with our existing customers. We have successfully integrated the acquired Penn Traffic stores under the Tops banner and are enjoying a continued rebound in traffic in those newly renovated stores. Lastly, we are pleased with the growth from the new fuel stations added to our network.”

    Gross profit for the quarter grew 2.9 percent to $155.0 million, from $150.6 million last year, reflecting the increase in sales and lower distribution costs. Operating income for the quarter was $14.9 million, or 2.7 percent of net sales, a sharp increase from the $5.4 million, or 1.0 percent of net sales, logged in the year-ago period. Net income in the quarter was $0.3 million, compared with a net loss of $8.9 million last year.

    “We generated a significant improvement in our operating income on modest sales growth, clear evidence of the progress we have made gaining synergies from the Penn Traffic acquisition, lowering our cost structure and improving productivity,” said Tops SVP and CFO Rick Mills. We continue to identify additional opportunities to improve operating efficiencies that will enhance our cash-generating capability, which will strengthen our balance sheet and better position the company for future growth.”

    For the 28-week first half of 2011 ended July 16, net sales were $1.28 billion, a rise of $69.9 million, or 5.8 percent, from $1.21 billion last year. Inside sales grew 3.1 percent because of a 1.4 percent increase in same-store sales, the operation of the acquired Penn Traffic supermarkets for four futher weeks, and two new supermarkets opened since August 2010. Gas sales soared 45.6 percent in the first half of 2011 over the year-ago period.

    Gross profit increased 3.8 percent to $357.3 million in the first half of 2011, and was 28.0 percent as a percentage of net sales. Total operating expenses in the first half of 2011 fell 5.0 percent to $324.9 million. The first half of fiscal 2010 was affected by $21.2 million in costs related to the Penn Traffic acquisition and integration, the company explained. Operating income in the first half of fiscal 2011 rose to $32.5 million, up from $2.5 million last year.

    Regarding the 2010 FTC proposed order requiring Tops to sell seven of the retained supermarkets that were purchased from Penn Traffic, at the end of June 2011 the FTC approved a modified final order requiring the sale of the stores and the retention of a divestiture trustee to market the supermarkets subject to the final order. At the same time, the FTC approved Tops’ application to sell three of these supermarkets to Hometown Markets, transactions that closed in late July and early August.

    The grocer posted capital expenditures for the first half of fiscal 2011 of $25.9 million, versus $19.1 million for the year-ago period, an outlay primarily related to store remodels. Tops expects to invest about $40 million in cap ex over the next 12 months.

    “Keeping our stores fresh and new for our customers is an integral part of our strategy, and we will remodel and refresh about 15 stores this year,” said Curci. “We are also opening a new location later in the year. Even though we are operating in a difficult economic environment, we continue to invest in our stores and people to solidify our position in each of our markets.”

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