PRICESMART INC annual report, FY2023

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Business context and reporting period

PriceSmart, Inc. operates membership warehouse clubs across Central America, the Caribbean and Colombia. This Form 10-K covers the fiscal year ended August 31, 2023; the filing also reports fourth-quarter results. The company had 51 clubs at fiscal year-end and opened its tenth Colombian club in Medellín in September 2023, bringing the count to 52.

Financial performance and liquidity

  • Fiscal 2023 revenue: Total revenue was $4.412 billion, up 8.5%. Net merchandise sales were $4.301 billion, up 9.0%; constant-currency sales growth was 8.3%. Comparable sales rose 7.1% reported and 6.3% at constant currency.
  • Profit and margins: Gross margin on merchandise sales was $678.4 million, or 15.8% of sales, up 50 basis points. Total revenue margin was 17.2%, versus 16.8%. Operating income was $184.5 million, up 10.4%; net income attributable to PriceSmart was $109.2 million, or $3.50 per diluted share, versus $104.5 million, or $3.38. Adjusted EBITDA, a non-GAAP measure, was $275.7 million versus $234.9 million.
  • Cash flow: Operating cash flow was $257.3 million, compared with $121.8 million. Investing activities used $222.1 million, including higher capital spending and purchases of short-term investments; property and equipment additions were $142.5 million. Financing activities used $41.1 million. Cash, cash equivalents and restricted cash totaled $252.2 million at year-end.
  • Debt and liquidity: Short-term borrowings were $8.7 million and long-term debt was $139.7 million, including $20.2 million current. Short-term investments totaled $91.1 million. The company reported $157.6 million available under its short-term facilities; facility renewals and availability remain relevant considerations.
  • Membership and shareholder returns: Membership income increased 8.5% to $66.0 million; accounts rose 2.5% to 1.81 million. The trailing renewal rate fell to 86.9% from 88.9%. Fiscal 2023 dividends were $0.92 per share. The company completed a $75 million repurchase program after year-end, buying approximately 1.007 million shares.

Material changes versus the prior comparable period

Annual sales growth was driven by a 3.6% increase in transactions and a 5.2% increase in average ticket. Central America sales rose 12.1% and Caribbean sales rose 9.8%; Colombia sales declined 8.3% in reported dollars, although constant-currency sales increased 5.0%. Currency translation added 0.7 percentage points to consolidated annual sales growth, while Colombia currency effects were a substantial headwind.

Annual SG&A rose 11.8% to $574.8 million and increased to 13.0% of revenue from 12.6%. Operating income nevertheless increased, supported in part by improved merchandise margins, lower markdowns and lower freight and handling costs. Other expense worsened to $15.3 million from $10.6 million, primarily due to foreign-currency losses; net interest expense also increased.

In the fourth quarter, total revenue increased 9.5% and merchandise sales rose 10.0%; comparable sales increased 8.8% reported and 5.2% at constant currency. Operating income declined 17.5% to $32.1 million, and net income fell to $15.4 million, or $0.49 per diluted share, from $23.3 million, or $0.75. Adjusted EBITDA was $57.2 million versus $56.6 million.

Outlook, management commentary, risks and unusual items

  • Management identifies club remodeling and expansion, greater membership value, and online, digital and technology capabilities as principal growth priorities. Planned openings included Escuintla, Guatemala, in November 2023 and Santa Ana, El Salvador, in early 2024. The company also plans to raise membership fees by $5 in most markets on a staggered basis during fiscal 2024. No specific earnings or revenue guidance is provided.
  • Fiscal 2023 included a $7.2 million charge to settle an alternative minimum tax dispute, and the company said AMT-related costs negatively affected annual net income by $9.2 million, or $0.30 per diluted share. The settlement includes paying the higher of the minimum tax or tax based on taxable income going forward in that market.
  • The company recorded $5.7 million of impairment and closure costs after deciding to seek a buyer for its Trinidad sustainable-packaging plant, where management found economic feasibility challenging. CEO departure costs were $7.7 million. Other unusual items included $2.3 million of VAT receivables written off after unfavorable court rulings and $2.8 million of Aeropost-related write-offs.
  • Key risks include foreign-exchange volatility and restricted access to U.S. dollars. At year-end, approximately $19.6 million of Honduran lempira cash was not readily convertible for general company use; Trinidad also faces currency-conversion constraints. Inflation, higher costs, political unrest and roadblocks, import and supply-chain disruptions, competition, cybersecurity and technology execution, and tax disputes may affect results.
  • Tax recoverability warrants attention: year-end income-tax receivables were $36.9 million and VAT receivables were $38.8 million. The auditor identified tax receivables and contingencies as a critical audit matter. Management believes remaining balances are recoverable, but refunds and disputes can take years. The company reported effective disclosure controls and effective internal control over financial reporting, with an unqualified auditor opinion.
  • Management expects to continue semiannual dividends, subject to board approval and capital needs. The company said it does not expect to continue repurchases or adopt a new program at this time.

Important facts for investors to verify

  • Review constant-currency and reported sales trends by market, particularly the recovery or further weakening of the Colombian peso and the effects of Costa Rican currency appreciation.
  • Assess whether membership growth and renewal rates stabilize, and whether planned fee increases affect retention and spending.
  • Track recovery, timing and potential further reserves for tax and VAT receivables, as well as future AMT payments and tax disputes.
  • Monitor cash conversion and capital spending alongside debt maturities, facility renewals, and the convertibility of cash held in Trinidad and Honduras.
  • Check the execution, cost and timing of planned club openings, remodels, distribution investments and technology upgrades.
  • Interpret adjusted net income and adjusted EBITDA alongside GAAP results; the filing cautions that non-GAAP measures may not be comparable across companies.