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Tops Holding Corp., the Williamsville, N.Y.-based parent of Tops Markets LLC, reported net sales for its 12-week third quarter ended Oct. 8 of $538.6 million, an increase of $18.7 million, or 3.6 percent, from the $519.9 million posted in the year-ago period.
Inside sales were $491.0 million in the fiscal 2011 third quarter, up $7.5 million, or 1.5 percent, vs. the same period last year. Tops attributed the increase to a 2.1 percent rise in same-store sales, partly offset by a net decline in store count.
Gasoline sales grew $11.3 million, or 31.1 percent, to $47.6 million in the fiscal 2011 third quarter. According to Tops, this growth was because of a 35.1 percent increase in the retail price of gasoline, partly offset by a 3.0 percent decrease in gallons sold as a result of the timing of promotional gas rewards redemption weeks.
“Our strategy to provide our customers with a wide variety of choices and great savings opportunities combined with the successful integration of our Penn traffic acquisition and our focus on operating efficiencies drove our solid sales growth and dramatic increase in operating income in the quarter,” noted Tops President and CEO Frank Curci. “Our business continues to improve and customers are responding to our various merchandising initiatives, as well as our store remodel program. Gasoline sales also remain strong, with our gas rewards program contributing to brand loyalty and customer retention.”
Gross profit for the quarter went up 4.1 percent to $152.9 million, from $146.9 million last year, as a result of higher sales. Gross profit margin on inside sales benefited from higher private label merchandise sales, while last year’s gross profit margin was adversely affected by promotional activities connected with the rebranding and grand reopenings of several stores acquired from Penn Traffic.
Total operating expenses for the quarter fell $8.3 million, or 5.9 percent, to $132.2 million, compared with $140.5 million in the year-ago period. Last year’s quarter included about $4.9 million in costs associated with the integration and promotion of the converted Penn Traffic stores. Operating income for the quarter was $20.7 million, or 3.9 percent of net sales, a sharp increase from the $6.4 million, or 1.2 percent of net sales, posted last year.
“We more than tripled our operating income year-over-year, which we believe demonstrates our ability to successfully acquire, rebrand and integrate acquired operations of the magnitude of Penn Traffic; with 51 Penn Traffic stores being members of the Tops family as of Nov. 21, 2011,” said SVP and CFO Rick Mills. “Concurrently, we effectively expanded and upgraded our organic base of stores and added additional gasoline service stations. We have implemented initiatives that improve operating efficiency and have focused on cost containment. Also, in the quarter, we successfully finalized labor contracts covering the majority of our workforce on terms consistent with our strategy for growth.”
For the 40-week year-to-date period ended Oct. 8, net sales were $1.82 billion, an increase of $88.7 million, or 5.1 percent, over the $1.73 billion reported last year. Inside sales grew 2.6 percent, reflecting a 1.6% increase in same-store sales combined with the operation of the acquired Penn Traffic locations for four additional weeks. Gas sales rose 40.9 percent in the year-to-date period because of higher retail prices and the rollout of six new fuel stations since April 2010.
Gross profit increased 3.9 percent to $510.3 million in the 2011 year-to-date period. Tops attributed the rise to the higher proportion of gasoline sales versus inside sales, as gasoline sales occur at lower margin rates. Operating income in the 40-week period of fiscal 2011 grew to $53.2 million, compared with $8.9 million last year as the result of more normalized operating expenses and careful cost discipline. Net income for the year-to-date period was $4.6 million versus a $13.2 million loss in the year-ago period.
Capital expenditures were $11.4 million in the third quarter and $37.3 million for the first 40-weeks of fiscal 2011, versus $15.2 million and $34.3 million for the respective 2010 periods. Tops expects cap ex, primarily consisting store upgrades, renovations and ongoing maintenance requirements, of between $40 million and $45 million for fiscal 2011.
“Consumer buying habits have clearly changed since the recession,” observed Curci. “The increased trend of customers trading down to lower-priced merchandise, including private label products, continues. Importantly, we have seen consumers responding well to our special savings promotions such as bulk sales and grouped-items deals. As part of our focus on continually improving the customer experience in our stores, we remain on track for the planned remodel of 15 locations this year. Despite the difficult operating environment, investing in our stores is a key component of our strategy, and we believe that such improvements will lead to gains in market share.”
Added Curci: “In addition to organic growth, we continue to evaluate acquisition opportunities within, or contiguous to, our existing footprint. We recently closed on the acquisition of a single store in the Rochester, N.Y., region that helps to fill in our footprint in that market area, and the initial reception from customers has been strong.”
Employing about 12,600 associates, Tops operates 125 corporate supermarkets and an additional five franchise stores in upstate New York and northern Pennsylvania.