PriceSmart, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended November 30, 2021, compared with the three months ended November 30, 2020, unless otherwise noted. Amounts below are in U.S. dollars.
Business context
PriceSmart operates membership warehouse clubs in Central America, the Caribbean and Colombia. At quarter-end it had 49 clubs in 12 countries and one U.S. territory, versus 46 a year earlier. The company’s strategy includes club and distribution expansion, membership value, and e-commerce and technology development. It expected to open its 50th club, in Portmore, Jamaica, in April 2022.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 | Change / context |
|---|---|---|---|
| Total revenue | $975.4 million | $877.4 million | Up 11.2% |
| Net merchandise sales | $944.0 million | $838.4 million | Up 12.6%; comparable sales up 9.4% |
| Membership income | $14.8 million | $13.3 million | Up 11.2%; member accounts grew 7.0% |
| Operating income | $46.0 million | $44.5 million | Up 3.3%; operating margin was 4.7% of revenue, versus 5.1% |
| Net income attributable to PriceSmart | $30.5 million | $27.7 million | Up 10.0% |
| Diluted earnings per share | $0.98 | $0.90 | Up 8.9% |
| Merchandise gross margin | 16.0% | 16.1% | Down 10 basis points |
| Total revenue margin | 17.4% | 18.0% | Down 60 basis points |
| Net cash used in operating activities | $13.3 million | $17.8 million | Improved by $4.4 million; inventory investment was a major use of cash |
| Capital expenditures | $29.7 million cash additions | $21.2 million | Segment disclosure reports $34.1 million of capital expenditures, net |
Financial position and liquidity
At November 30, 2021, cash and cash equivalents were $176.1 million, short-term investments were $39.2 million, and restricted cash totaled $16.5 million. Cash, cash equivalents and restricted cash together were $192.6 million, down from $215.5 million at August 31, 2021. Merchandise inventory rose to $500.8 million from $389.7 million at fiscal year-end; management attributed this to sales needs and precautionary buying amid supply shortages.
Total assets were $1.79 billion and total liabilities were $847.2 million. Long-term debt, including current maturities, was $127.4 million; short-term borrowings were $5.0 million. The company reported $126.0 million available under short-term credit facilities and compliance with debt covenants. Current assets of $782.4 million exceeded current liabilities of $594.2 million.
Material changes and unusual items
- Net merchandise sales rose on an 11.3% increase in transactions and a 1.2% increase in average ticket, with three additional clubs versus the prior-year quarter. Comparable sales growth was strongest in Central America; Trinidad remained challenged and Colombia comparable sales declined.
- Currency movements reduced reported merchandise sales by approximately $8.4 million, or 1.0%. Foreign currency translation generated an $8.1 million other comprehensive loss; foreign currency transaction losses were $1.9 million.
- PriceSmart sold Aeropost’s legacy marketplace and package-forwarding operations in October 2021, retaining key technology and personnel. The sale produced a $2.7 million pretax gain, but the disposal also reduced other revenue and included write-offs of goodwill and intangibles.
- The effective tax rate increased to 34.1% from 32.9%, primarily reflecting changes in uncertain tax positions.
Outlook, risks and contingencies
The filing provides no quantified revenue or earnings guidance. Management said it expects pandemic-related conditions and supply-chain disruptions to continue through fiscal 2022, while pursuing club growth, distribution capacity, technology and e-commerce initiatives. It anticipates continued investment in technology and employee development at comparable levels as a percentage of revenue.
Key risks include foreign-exchange volatility and limited access to U.S. dollars in Trinidad and Barbados, supply-chain and freight constraints, COVID-19-related uncertainty, political and economic instability, competition, cybersecurity, and recovery of tax receivables from governments. PriceSmart held $37.1 million of VAT receivables and $31.5 million of income tax receivables; it recorded no allowance against these balances, while acknowledging that recovery is not assured. The company reported no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors.
Subsequent to quarter-end, a Trinidad subsidiary entered a four-year, $25.0 million U.S.-dollar loan indexed to Trinidad currency, at a fixed 7.7% rate. The company said this transaction would provide U.S.-dollar funds while locking in conversion of Trinidad-dollar repayments at the December 2021 rates.
Important facts for investors to verify
- Whether elevated inventory converts into sales without materially increasing markdowns, shrink or working-capital needs.
- How Trinidad and Barbados currency illiquidity, the new Trinidad loan and any currency devaluation affect cash availability, earnings and reported equity.
- Whether gross and operating margins stabilize as supply, freight and product costs evolve and the Aeropost business exits comparisons.
- The recoverability and timing of VAT and income tax receivables, including the balances subject to unclear refund processes or tax disputes.
- Progress and costs for the planned Jamaica club opening and other expansion, alongside capital spending and debt repayment needs.