Melt butter in 12-inch skillet over medium-high heat. Add tomatoes, onion, sugar, tomato paste, and 1/2 teaspoon salt and cook until tomatoes are dry and lightly browned, 8 to 10 minutes. Stir in flour and cook for 1 minute. Slowly whisk in 1 cup broth, scraping up any brown bits; transfer to slow cooker.
Stir remaining 2 cups broth, reserved tomato juice, and bay leaves into slow cooker. Cover and cook until tomatoes begin to break down, 4 to 6 hours on low.
Discard bay leaves. Working in batches, puree soup in blender until smooth, then transfer to large saucepan. Stir in milk, sherry, and cayenne and add additional chicken broth as needed to adjust soup consistency. Reheat soup over medium-low heat until hot. Season with salt and pepper to taste and serve.