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Tops getting back on financial track in bankruptcy

Tops Markets grocery business keeps getting a little stronger in bankruptcy.

The supermarket chain's core grocery business was profitable for the second straight month during May and now has been profitable during the first three months since the company filed for bankruptcy in late February.

Those operating results are encouraging for Tops, since they indicate that its base supermarket operations can be viable now that they have been freed from the $80 million in annual interest payments that the debt-strapped company had to bear in 2017, before it began trying to restructure its business in bankruptcy.

But the operating profits aren't huge – totaling $2.1 million during the three-month period that ran from late February to late May – and they leave out more than $40 million in bankruptcy, restructuring and interest expenses. Add in those expenses and Tops had a $39 million loss since its February bankruptcy filing.

Still, the new financial statements filed by Tops with the U.S. Bankruptcy Court – its third monthly report about the chain's business since the bankruptcy filing – show that Tops' core grocery business has been profitable for two straight months, which is a big turnaround from the $80 million loss that the company absorbed in 2017.

The financial information that Tops disclosed, however, is limited in scope and doesn't provide a way to compare the company's performance this year with how it did during the same period last year – vital information that investors use to evaluate the sales and profits of publicly traded companies.

Even so, the financial information shows that May was Tops' best month yet since the bankruptcy filing, with the company's operating profit reaching $2.6 million during the four-week period. Tops said its sales reached $187 million during the period that ran from April 22 to May 19, slightly exceeding its $184.5 million in operating expenses.

But bankruptcy is an expensive process, and Tops also continues to absorb additional expenses associated with its attempt to restructure. Those costs totaled nearly $41 million during the three months since Tops made its bankruptcy filing. Those expenses wiped out Tops' $2.1 million operating profit during that period, leading to a net loss of $38.6 million since February.

Those bankruptcy expenses included $6 million in fees that it paid to its lawyers and financial consultants through the end of April. Those legal and financial advisers also have billed Tops for another $3.1 million in expenses that hadn't been paid by the end of April.

Tops executives hope to use the bankruptcy process to get its bond holders to agree to swap much of the company's debt for an equity stake in the restructured company. It also struck a deal last month, pending court and union approval, that would resolve a pension dispute involving nearly 700 workers represented by the Teamsters union at its Lancaster warehouse that could have cost the company more than $180 million over 20 years.

Instead, Tops' portion of the settlement will require a $4 million payment to a new retirement account for those workers. That money will come from funds Tops had earmarked for a controversial plan to pay bonuses to its five highest-ranking executives but agreed to scrap as part of the pension settlement.

Tops also is moving ahead with a plan to close "a few" underperforming stores, although it has not said how many supermarkets could be closed or where they are located.

Tops has said "the vast majority" of its 169 stores "are already sustainable profit centers, showing strong sales numbers" and offering the potential to generate strong cash flow in the coming years. But nearly one of every eight Tops stores — 21 in all — is a drain on the company's cash flow, according to the company's bankruptcy filing in February.

Those underperforming stores have a greater chance of being closed, unless the company can find ways to improve sales there or significantly reduce costs. Tops' real estate consultant already has struck deals to reduce lease payments at nearly 20 of its stores and is working on others. Tops is asking the bankruptcy court to allow it to review the leases at all of its stores as part of its search for further savings.

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