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Tops Markets shows more signs of improvement in bankruptcy

Tops Markets' grocery business continues to strengthen a bit as it moves through the bankruptcy process.

The supermarket chain's core grocery business had its most profitable month yet during June and now has reported an operating profit for three straight months, according to new documents filed with the U.S. Bankruptcy Court.

The slow strengthening of Tops' grocery business is a positive sign for the company, which filed for bankruptcy in late February and has been working to restructure its business ever since.

Most significantly, the modest operating profit is a sign that Tops' core supermarket operations can be viable now that the company has 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.

Yet the operating profits aren't huge. Tops' operating profits during its first four months of bankruptcy averaged out to be about a penny for every dollar of sales.

Tops' financial reports also indicate that its profitability has slowly, but steadily, improved. Its operating profits averaged about 2 cents for every dollar in sales during the latest one-month reporting period, which ran from mid-May to mid-June.

The operating profits also leave out more than $47 million in bankruptcy, restructuring and interest expenses. Add in those expenses and Tops had a $40.4 million loss since its February bankruptcy filing.
The financial information that Tops disclosed also 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 June was Tops' best month yet since the bankruptcy filing, with the company's operating profit reaching $4.6 million during the four-week period. Tops said its sales reached $199 million during the period that ran from May 20 to June 16, slightly exceeding its $194.2 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 more than $47 million during the first four months since Tops made its bankruptcy filing. Those expenses wiped out Tops' $7 million operating profit during that period, leading to a net loss of $40.4 million since February.

Those bankruptcy expenses included $6 million in fees that it paid to its lawyers and financial consultants. Those legal and financial advisers also have billed Tops for another $6.3 million in expenses that hadn't been paid by the end of May.

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 received court approval last month for a deal it struck to 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 β€” 21 in all β€” was 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 now wants to review the leases at all of its stores as part of its search for further savings.

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