Tops cuts losses in 2Q; deflation dings comps

Tops Group Holdings said Thursday that better gross margins helped to reduce losses during the fiscal second quarter, while same-store sales slid by 1.1% due to product price deflation.

The Williamsville, N.Y.-based operator of Tops Markets said inside sales increased by 1.9% to $555 million during the quarter, which ended July 16. Net sales were up 0.6% to $590 million, reflecting a 16.3% decrease in gasoline dollar sales triggered by lower per-gallon prices. Gross profit as a percent of sales was up 80 basis points to 29.8%, largely due to the smaller proportion of lower margin fuel sales in the mix. Distribution costs were down 16.6% to $9.6 million, primarily due to a $1.7 million decrease in self-insured workers’ compensation claims expense.

Tops said the sales increase was due largely to the addition of seven new and acquired supermarkets opened since May 2015, contributing $12.8 million of incremental sales. Same store sales declined 1.1% largely due to food cost deflation in certain categories, including meat and dairy, combined with competitive pressure to respond with lower prices.

A $2.9 million loss in the quarter was down from a $37.5 million loss in the second quarter of last year, due to higher inside sales and gross margin, combined with $34.5 million of debt extinguishment costs during the prior year quarter related to a debt refinancing.

“We delivered solid performance in the quarter as higher margin sales and strong cost control drove a 6% increase in adjusted EBITDA,” Frank Curci, Tops chairman and CEO, said in a release. “Along with the rest of the supermarket industry, we continue to be challenged by food cost deflation, particularly in meat and dairy categories, which drove a small decline in same stores sales in the quarter. Despite those persistent headwinds, we continue to improve Tops’ earnings power through our growth as our net loss improved 92% and the adjusted EBITDA improvement was our third consecutive quarter-over-quarter increase.”