Tops Holdings Corp. turned a modest profit during the second quarter as strengthening sales and improved productivity helped offset rising food prices.
Frank Curci, Tops' president and chief executive officer, said the supermarket chain had a "strong quarter," with improved profitability and a 3 percent increase in overall sales.
Curci said the improvement occurred "in spite of a difficult and volatile operating environment" that saw consumers shift more of their purchases to lower-cost private-label merchandise.
"Consumers remain cautious," Curci said during a conference call Tuesday.
That caution and the shift to private-label products, combined with the traditionally slow week after Easter falling during the second quarter this year (it was in the first quarter last year), led to a 1 percent dip in sales at stores open at least a year.
The economy and the volatility in the financial markets "have definitely affected the shopping behavior of our customers," said Rick Mills, Tops' senior vice president and chief financial officer.
Even so, Tops earned $293,000 during the second quarter, which was a significant improvement from its $8.9 million loss during the same period last year and continued the supermarket chain's steady earnings improvement.
Total sales rose to $560 million from $542 million, with grocery and merchandise revenues essentially holding steady, while gasoline sales jumped by 50 percent because of higher gas prices and the opening of three new fueling stations in the past year.
Sales of private-label products grew 5 percent.
"We're seeing a lot of trade-down to private label," said Kevin Darrington, Tops' chief operating officer.
Tops plans to spend about $40 million this year on store improvements. Major remodeling projects at eight stores, including five former Penn Traffic stores, will cost $1 million to $3 million apiece. Smaller-scale projects, costing up to $1 million, are planned at several other stores. In all, Tops plans upgrades at 15 or more of its stores this year.
Curci said he was pleased with the results from Tops remodeling work at former Penn Traffic stores, where sales typically have jumped by 15 to 25 percent upon completion. "We're seeing good sales increases, good return on investment," he said.
He also said the company was pleased with the smaller format store that Tops opened in March on Harlem Road in Cheektowaga. The 27,000-square-foot store is half the size of a conventional Tops Market and uses a design that Tops executives believe could help the chain grow.
Curci said the store "was profitable right off the bat" and has been averaging weekly sales of about $10 per square foot. "We think, with these smaller formats, there's a lot of opportunity for growth," he said.
Curci said Tops received $2.2 million from the federally mandated sale of its stores in Ithaca, Cortland and Sayre, Pa., to Hometown Markets, offset by a $1.9 million impairment charge. "Not a great position to be in, to have to sell stores like that," Curci said.
Four other Tops stores, including one in Lockport, have been placed with the Food Partners LLC, which is acting as an independent divestiture trustee under the terms of a July agreement between Tops and the Federal Trade Commission.