Business context and reporting period
PriceSmart, Inc. operates membership warehouse clubs in Central America, the Caribbean and Colombia, plus a cross-border shipping and online marketplace business under Aeropost. This Form 10-K covers the fiscal year ended August 31, 2020; the fourth quarter ended August 31, 2020. PriceSmart operated 46 clubs at year-end, compared with 43 a year earlier.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $3.329 billion | $3.224 billion |
| Net merchandise sales | $3.192 billion | $3.092 billion |
| Operating income | $122.5 million | $115.2 million |
| Net income attributable to PriceSmart | $78.1 million | $73.2 million |
| Diluted EPS | $2.55 | $2.40 |
| Merchandise gross margin | 14.7% | 14.3% |
| Operating cash flow | $259.3 million | $170.3 million |
| Cash, cash equivalents and restricted cash | $303.8 million | $106.2 million |
Short-term investments were $46.5 million at year-end. Short-term borrowings were $65.1 million and long-term debt, including current maturities, was $132.0 million. The company spent $100.3 million on property and equipment; net cash used in investing activities was $131.2 million. Cash dividends paid were $21.5 million, equivalent to $0.70 per share declared for the year.
Material changes versus the prior comparable period
- Full-year revenue increased 3.3%, operating income 6.3%, and net income attributable to PriceSmart 6.7%. Merchandise gross margin improved 40 basis points to 14.7%.
- Comparable merchandise sales declined 1.5% for the year. Average ticket rose 9.5%, but transactions fell 5.7%, reflecting COVID-related restrictions and reduced club traffic. Currency movements reduced reported merchandise sales by about $61.9 million, or 2.1%.
- Membership income increased 4.5% to $54.5 million, but year-end member accounts fell 4.7% to 1.56 million and the trailing 12-month renewal rate declined to 80.5% from 85.7%.
- Fourth-quarter revenue rose 1.2% year over year and net merchandise sales rose 0.5%, while comparable sales fell 4.0%. Fourth-quarter operating income declined 9.3% to $29.0 million and net income attributable to PriceSmart was $20.1 million, or $0.65 per diluted share, versus $20.7 million, or $0.67, a year earlier.
- Operating cash flow increased substantially, helped by working-capital changes, including lower inventory and extended vendor payment terms during the pandemic. The company also increased borrowings to preserve liquidity.
Outlook, management commentary, risks and unusual items
- COVID-19 caused temporary club closures, reduced hours and capacity, limits on customer access, changes in product mix, lower business-member purchases and intermittent supply disruptions. The company said pandemic duration and economic effects remained uncertain.
- Management said operating cash flow, cash on hand and access to capital markets were expected to be sufficient for anticipated operating needs, seasonal inventory, capital spending, dividends and other financing requirements. This is not a quantified earnings or revenue forecast; the filing provides no clear numerical financial guidance.
- Click & Go curbside pickup was available in all 13 markets by year-end; delivery was available in six and expanded into additional markets in early fiscal 2021. E-commerce represented approximately 3.6% of fourth-quarter net merchandise sales.
- The company opened a smaller-format club in Liberia, Costa Rica, in June 2020, and expected to open a club in Bogota, Colombia, in December 2020. Timing for projects in Bucaramanga, Guatemala City and Jamaica remained under evaluation.
- Trinidad currency convertibility worsened. The Trinidad subsidiary held approximately $79.6 million of Trinidad-dollar cash and investments, measured in U.S. dollars. Management estimated a hypothetical 20% devaluation could reduce that balance’s U.S.-dollar value by approximately $15.9 million; shipment limits and price increases could also weigh on Trinidad sales and profitability.
- Tax recoverability is a significant judgment area: the company reported $27.6 million of VAT receivables and $31.1 million of income tax receivables. Some refunds and tax interpretations are disputed or subject to unclear local processes; the auditor identified tax receivables and contingencies as a critical audit matter.
- A securities class action against the company and certain current and former officers remained pending, with a motion to dismiss under advisement. The company said it believed the claims were without merit and intended to defend itself.
- Annual dividends were $0.70 per share. Management anticipated continuing semi-annual dividends, subject to Board discretion and review of pandemic effects and capital needs.
Most important facts for investors to verify
- Whether lower traffic and renewal rates recover, and how membership trends affect future membership income.
- How much operating cash flow depended on temporary vendor payment extensions and whether those terms have normalized.
- Trinidad-dollar convertibility, the value and liquidity of local cash and investments, and any resulting currency or shipment effects.
- Recoverability and timing of VAT and income tax receivables, including any changes to reserves or government disputes.
- Execution, cost and profitability of Click & Go, planned club openings and other capital projects; also monitor debt, lease obligations and dividend decisions.