PriceSmart, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended August 31, 2022. This is an annual filing, not a standalone fourth-quarter report. The company operated 50 membership warehouse clubs across Central America, the Caribbean and Colombia, plus a U.S. buying and distribution business.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $4.066 billion | $3.620 billion | +12.3% |
| Net merchandise sales | $3.945 billion | $3.465 billion | +13.8% |
| Operating income | $167.1 million | $158.0 million | +5.7% |
| Net income attributable to PriceSmart | $104.5 million | $98.0 million | +6.7% |
| Diluted EPS | $3.38 | $3.18 | +6.3% |
| Operating cash flow | $121.8 million | $127.2 million | Down $5.3 million |
- Merchandise gross margin was 15.3%, down 70 basis points. Total revenue margin was 16.8%, down 100 basis points; operating margin was 4.1%, versus 4.4%.
- Net interest expense was $9.6 million, up from $2.4 million, primarily due to increased Trinidad borrowing and lower capitalized interest. Other expense, net, was $3.2 million, including $7.4 million of currency-conversion transaction costs, partially offset by the Aeropost sale gain.
- Cash, cash equivalents and restricted cash totaled $251.4 million; short-term investments were $11.2 million. Current assets were $773.6 million and current liabilities $579.5 million.
- Long-term debt, including current maturities, was $137.3 million; short-term borrowings were $10.6 million. Operating lease liabilities totaled $126.0 million and are separate from debt. The company reported $155.3 million available under short-term credit facilities.
- Capital expenditures were $120.7 million. Operating cash flow less property and equipment additions was approximately $1.2 million. Inventory rose to $464.4 million from $389.7 million.
- Membership income increased 8.7% to $60.9 million. Membership accounts rose 5.5% to 1.76 million, while the trailing 12-month renewal rate eased to 88.9% from 89.6%.
Fourth-quarter information disclosed
The filing reports fourth-quarter highlights for the 14 weeks ended September 4, 2022. Total revenue increased 12.3%, merchandise sales rose 13.6%, and comparable sales increased 9.2%. Membership income was $15.6 million. Operating income was $39.0 million, up 20.0%; net income attributable to PriceSmart was $23.3 million, or $0.75 per diluted share, versus $19.5 million, or $0.63, in the prior-year quarter. Merchandise gross margin was 15.5%, down 40 basis points. Currency movements reduced quarterly merchandise sales by 2.9% overall.
Material changes and management commentary
- Sales growth reflected 10.4% more transactions and a 3.1% increase in average ticket, as well as three net additional clubs. Comparable merchandise sales rose 10.4% for the 53-week fiscal-year comparison; currency movements reduced reported comparable sales growth by 2.2%.
- Currency movements reduced FY2022 reported merchandise sales by approximately $78.6 million. Colombia and Costa Rica were notable sources of currency pressure. In Colombia, the peso’s continued depreciation was also weighing on reported sales after year-end.
- Supply-chain disruption, inflation, freight and fuel costs, and uneven consumer demand affected operations. Excess discretionary merchandise led to unusually high markdowns, particularly in the third quarter, and contributed to lower annual gross margin. Management said shipping costs and on-time shipments from Asia improved gradually in the fourth quarter.
- The October 2021 sale of Aeropost’s legacy marketplace and package-forwarding businesses sharply reduced other revenue. PriceSmart retained selected technology and personnel for its own digital and omnichannel efforts; the sale generated a $2.7 million pretax gain.
- Management plans to open clubs in San Miguel, El Salvador, in spring 2023 and Medellín, Colombia, in summer 2023. It also plans to expand distribution capacity, audiology and pharmacy services, private-label offerings, and online capabilities. No quantified earnings or revenue guidance was provided.
- Private-label penetration increased to 24.7% of merchandise sales from 22.1%. The company expects continued investment in talent and technology, which may weigh on near-term results.
Risks, contingencies and unusual items
- Foreign exchange and Trinidad liquidity: About 78% of merchandise sales were denominated in non-U.S. currencies, and 48.6% of sales comprised products purchased in U.S. dollars and sold in other currencies. Trinidad’s limited access to U.S. dollars remains a risk. Its local-currency cash and investments were valued at $25.0 million; the company also reported an $80.3 million net U.S.-dollar and other foreign-currency monetary asset position there.
- Tax uncertainty: The company had $32.1 million of income-tax receivables and $36.4 million of VAT receivables, with recovery timing and outcomes uncertain in some jurisdictions. The independent auditor identified tax receivables and contingencies as a critical audit matter.
- Aeropost claim: The buyer and Aeropost alleged inaccurate or incomplete cybersecurity and IT representations and sought damages related to alleged cyberattacks. The notice suggested losses could exceed $3 million; contractual liability for the specified representations is capped at $4 million. PriceSmart said a loss was not probable or reasonably estimable and recorded no liability.
- Other principal risks include inflation and cost increases, supply-chain disruption, political instability, competition and e-commerce execution, natural disasters, cybersecurity, and tax or regulatory changes. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
- The board declared $0.86 per share in FY2022 dividends and management anticipated continued semiannual dividends, subject to board approval and capital needs. The company has no stock repurchase program; reported share repurchases were for employee tax withholding.
Most important facts for investors to verify
- Whether sales growth and margins remain resilient as markdowns, inflation, freight costs and currency effects evolve.
- Progress on the two planned club openings, distribution investments and their funding requirements.
- Trinidad’s ability to convert local currency and the effect of exchange rates on sales, cash balances and earnings.
- Recoverability and timing of income-tax and VAT receivables, and developments in related tax disputes.
- Any updates to the Aeropost cybersecurity claim, including potential exposure under the $4 million contractual cap.
- Operating cash generation relative to capital expenditures, debt maturities, dividends and the planned growth program.