PriceSmart, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended August 31, 2021. The filing also highlights the fourth quarter; comparable-sales figures use the 13 weeks ended August 29, 2021. Amounts are U.S. dollars unless noted.
Business context and reporting period
PriceSmart operates membership warehouse clubs across Central America, the Caribbean and Colombia. At year-end it had 47 clubs in 13 markets, including the U.S. Virgin Islands. Its model combines merchandise sales with membership fees and expanding online, curbside-pickup and delivery services. The company planned three club openings in fiscal 2022, which would bring the network to 50.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $3,619.9 million | $3,329.2 million |
| Net merchandise sales | $3,465.4 million | $3,191.8 million |
| Merchandise gross margin | 16.0% | 14.7% |
| Operating income | $158.0 million | $122.5 million |
| Net income attributable to PriceSmart | $98.0 million | $78.1 million |
| Diluted EPS | $3.18 | $2.55 |
| Operating cash flow | $127.2 million | $259.3 million |
| Capital expenditures for property and equipment | $113.2 million | $100.3 million |
Annual total revenue rose 8.7%, merchandise sales 8.6%, and comparable merchandise sales 5.8%. Net merchandise sales growth reflected a 4.8% increase in average ticket and 3.6% growth in transactions. Foreign-exchange movements reduced reported merchandise sales by approximately $76.3 million, or 2.4%.
At August 31, 2021, cash and cash equivalents were $202.1 million, restricted cash was $13.4 million, and short-term investments were $50.2 million. Current assets were $697.2 million and current liabilities $533.6 million. Short-term borrowings were zero; long-term debt, including its current portion, was $129.5 million. Operating lease liabilities totaled $137.8 million.
Fourth-quarter highlights
- Total revenue increased 12.2% and net merchandise sales increased 12.7% year over year; comparable merchandise sales rose 10.3%.
- Membership income was $14.6 million, up 11.2%. Merchandise gross margin was 15.9%, up 80 basis points.
- Operating income was $32.5 million, up 12.0%. Net income attributable to PriceSmart was $19.5 million, or $0.63 per diluted share, compared with $20.1 million, or $0.65, in the prior-year quarter.
- The quarter included a $1.4 million net currency loss, versus a $1.1 million gain a year earlier; the effective tax rate rose to 35.5% from 28.2%.
Material changes versus the prior comparable period
- FY2021 operating income increased 29.0%, and attributable net income rose to $98.0 million from $78.1 million. The improvement included higher merchandise gross margin; SG&A also increased to 13.4% of revenue from 13.0%.
- Operating cash flow fell to $127.2 million from $259.3 million, primarily reflecting higher inventory and a smaller net cash benefit from accounts payable. Year-end inventory increased to $389.7 million from $309.5 million.
- Cash, cash equivalents and restricted cash declined to $215.5 million from $303.8 million. Financing cash flow shifted from $75.6 million provided to $95.1 million used, including repayment of short-term borrowings.
- Membership accounts increased 7.2% to 1.67 million, and the reported trailing 12-month renewal rate was 89.6%, compared with 80.5% a year earlier.
- Segment results varied: Central America net merchandise sales rose 11.3%, Colombia 15.1%, and the Caribbean 1.1%. Trinidad sales were constrained by U.S.-dollar illiquidity and COVID-related restrictions.
Outlook, management commentary, risks and unusual items
- Outlook: No numeric revenue or earnings guidance is provided. Management expected freight and supply-chain pressures, including container, port and trucking constraints, to continue through fiscal 2022. It planned three club openings in Guatemala, Colombia and Jamaica, and continued investment in technology, omni-channel services and distribution.
- COVID-19: Government restrictions, changing consumer behavior, operating precautions and supply interruptions continued to affect markets. Management emphasized employee and Member safety, supply-chain flexibility, digital shopping and use of data analytics.
- Currency and liquidity: Approximately 78% of FY2021 merchandise sales were in currencies other than the U.S. dollar. Trinidad continued to face restricted access to U.S. dollars, limiting imports and creating currency and funding exposure. Trinidad-held local-currency cash and investments measured $52.9 million; a hypothetical 20% devaluation would reduce their reported U.S.-dollar value by about $10.6 million. Barbados also had $12.4 million of local-currency cash not readily convertible for general company use.
- Costs and competition: Higher freight costs, wage and operating costs, inflation, currency movements, supply disruptions and stronger online or retail competition could pressure sales and margins. Management said pricing actions and distribution flexibility helped mitigate some cost pressures.
- Tax and contingencies: The company reported $31.6 million of VAT receivables and $30.4 million of income-tax receivables. Recovery of some amounts is uncertain or subject to government processes and disputes. The auditor identified tax receivables and contingencies as a critical audit matter. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
- Unusual subsequent event: In October 2021, after fiscal year-end, PriceSmart sold Aeropost’s legacy package-forwarding and marketplace operations while retaining selected technology and personnel. The company expected no material impact on FY2022 results.
- Capital returns and controls: The company paid $0.70 per share in FY2021 dividends and anticipated continuing semi-annual dividends, subject to Board approval and business conditions. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether operating cash flow recovers as inventory normalizes, and how capital spending for new clubs and distribution capacity is funded.
- Whether Trinidad’s U.S.-dollar liquidity constraints ease, and the resulting effects on imports, sales, currency exposure and financing costs; also monitor restricted or less-liquid cash elsewhere.
- Whether freight and other cost inflation can be passed through without weakening demand or gross margins.
- Whether membership growth and renewal rates remain durable as pandemic conditions and shopping patterns change.
- Progress, opening timing and returns from the three planned fiscal 2022 clubs and ongoing digital and omni-channel investments.
- Recoverability and timing of disputed or delayed tax receivables, including the amounts highlighted as an audit focus.
- Terms and financial effects of the October 2021 Aeropost divestiture and the company’s retained technology transition.