PriceSmart, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended May 31, 2021. Unless noted otherwise, amounts are in U.S. dollars.
Business context
PriceSmart operated 47 membership warehouse clubs in 12 countries and one U.S. territory, compared with 45 clubs a year earlier. It also operated its Aeropost package-forwarding and marketplace business. Click & Go curbside pickup and delivery was available in all 13 warehouse-club markets.
Financial performance
| Metric | Three months ended May 31, 2021 | Nine months ended May 31, 2021 |
|---|---|---|
| Total revenue | $895.3 million; up 11.9% | $2,710.3 million; up 7.6% |
| Net merchandise sales | $857.5 million; up 11.6% | $2,594.3 million; up 7.3% |
| Operating income | $36.0 million; up 50.4% | $125.6 million; up 34.3% |
| Net income attributable to PriceSmart | $22.5 million, or $0.73 diluted EPS | $78.5 million, or $2.55 diluted EPS |
| Merchandise gross margin | 15.9%, up 2.0 percentage points | 16.0%, up 1.5 percentage points |
| Operating margin | 4.0%, versus 3.0% | 4.6%, versus 3.7% |
Quarterly comparable sales increased 8.8%; nine-month comparable sales increased 4.3%. Foreign-exchange movements reduced reported merchandise sales by 1.6% for the quarter and 2.7% year to date. Quarterly membership income rose 5.9% to $14.3 million; nine-month membership income was essentially flat at $41.4 million. The trailing 12-month membership renewal rate was 87.6%, versus 82.5% a year earlier.
SG&A increased to 13.7% of revenue for the quarter from 12.9%, and to 13.2% year to date from 12.8%. Management cited costs at newer clubs and continued investments in technology, talent acquisition, and employee development. The quarterly effective tax rate declined to 30.9% from 38.0%, primarily due to greater foreign tax-credit benefits.
Cash flow, debt and liquidity
For the nine months, operating cash flow was $80.0 million, down from $174.1 million. Management attributed the decline mainly to higher inventory and lower accounts payable, partly offset by increased earnings. Investing cash outflow was $94.0 million, including $73.4 million of property and equipment additions. Financing cash outflow was $89.0 million, versus $101.5 million of inflow a year earlier. Cash, cash equivalents and restricted cash decreased $105.3 million to $198.4 million.
At May 31, cash and cash equivalents were $190.7 million and short-term investments were $67.1 million. Short-term borrowings were zero, down from $65.1 million at August 31, 2020. Long-term debt, including its current portion, was $121.8 million, compared with approximately $132.0 million at fiscal year-end. The company reported $130.9 million available under short-term credit facilities and compliance with debt covenants.
The company declared a $0.70-per-share dividend, paid $0.35 in February and scheduled the remaining $0.35 for August 31, 2021. Management anticipated semi-annual dividends but said future declarations and amounts remained subject to board review and business needs.
Changes, outlook and risks
- Improved merchandise margins and higher sales supported stronger operating income and earnings. Currency translation continued to weigh on reported sales.
- COVID-19 restrictions, including limits on operating hours, customer access and non-essential sales, remained variable across markets. Management noted ongoing uncertainty in demand, employment, supply chains and local economies.
- Trinidad faced persistent U.S.-dollar illiquidity, import constraints and COVID-related restrictions. Comparable sales there fell 21.8% in the quarter; management expected the headwinds to continue into the fiscal fourth quarter. A hypothetical 20% Trinidad-dollar devaluation would reduce the U.S.-dollar value of the subsidiary’s local-currency cash and investments by approximately $15.3 million. Barbados also faced difficulty converting local currency to U.S. dollars.
- Colombia’s civil unrest disrupted economic activity during the quarter. Currency volatility, political instability, natural disasters, competition, cybersecurity, supply interruptions and pandemic-related effects were among the broader risks identified.
- Management expected to open clubs in Guatemala City and Bucaramanga in the first quarter of fiscal 2022 and Portmore, Jamaica, in the third quarter of fiscal 2022. No quantified earnings or revenue guidance was provided.
- Tax recoveries are a judgment-sensitive exposure: the company reported $29.4 million of VAT receivables and $29.6 million of income-tax receivables, with no allowances recorded. Management said recovery processes in some jurisdictions are unclear or may take years; full recovery is not assured.
- Management reported no material change in risk factors, no material effect from legal proceedings expected based on currently available information, and effective disclosure controls at the reasonable-assurance level.
Key facts for investors to verify
- Whether Trinidad and Barbados currency-conversion constraints, import limits and any exchange-rate changes affect sales, cash availability or reported earnings.
- Whether higher inventory converts into sales and operating cash flow, and how vendor payment terms evolve.
- Progress, timing, capital spending and ramp-up economics for the three planned club openings.
- Recovery timing and collectability of VAT and income-tax receivables, particularly disputed or complex claims.
- Whether improved sales and merchandise margins persist as pandemic restrictions, foreign-exchange movements and SG&A investment change.
- Future dividend decisions and the company’s capital needs amid continued expansion and pandemic uncertainty.