PriceSmart, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended February 28, 2022; financial statements are unaudited. PriceSmart operates membership warehouse clubs and related services across Central America, the Caribbean and Colombia, with 49 clubs in 12 countries and one U.S. territory at quarter-end, versus 47 a year earlier.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Total revenue | $1,038.6 million, +10.8% | $2,013.9 million, +11.0% |
| Net merchandise sales | $1,011.9 million, +12.6% | $1,955.9 million, +12.6% |
| Membership income | $15.1 million, +9.2% | $29.9 million, +10.2% |
| Operating income | $48.3 million, +7.4%; 4.7% of revenue | $94.3 million, +5.4%; 4.7% of revenue |
| Net income attributable to PriceSmart | $31.5 million vs. $28.2 million | $62.0 million vs. $56.0 million |
| Diluted earnings per share | $1.03 vs. $0.92 | $2.01 vs. $1.82 |
| Merchandise gross margin | 15.6%, down 0.4 percentage points | 15.8%, down 0.2 percentage points |
Comparable merchandise sales rose 10.3% for the 13-week quarter and 9.9% for the 26-week period. Currency movements reduced reported merchandise sales growth by 3.0% and 2.0%, respectively. Transactions drove most of the sales increase; average ticket rose 0.9% for the quarter. The company’s trailing 12-month membership renewal rate was 89.8%, versus 81.5% a year earlier.
Cash flow, balance sheet and debt
- Operating cash flow was negative $7.9 million for the six months, compared with positive $29.7 million a year earlier. The principal drivers included an $80.6 million inventory increase and higher prepaid and tax assets.
- Investing cash outflow was $30.5 million, including $60.5 million of property and equipment additions. Financing provided $17.8 million. Cash, cash equivalents and restricted cash declined $20.6 million to $194.9 million; short-term investments were $26.9 million.
- At February 28, cash and cash equivalents were $178.7 million; current assets were $741.3 million and current liabilities $560.6 million. Inventory was $470.3 million, up from $389.7 million at August 31, 2021.
- Short-term borrowings were $15.3 million and long-term debt totaled $148.8 million, or $164.2 million combined. Long-term debt maturities include $28.8 million due within 12 months. The company reported covenant compliance. Operating lease liabilities totaled $129.4 million.
- Stockholders’ equity was $953.9 million. The company declared a $0.86-per-share dividend, split into two $0.43 payments; the second was payable in August 2022.
Changes, outlook and risks
- Revenue growth was accompanied by lower margins: management attributed the quarterly merchandise margin decline to reduced pricing premiums intended to offset COVID-related costs and higher markdowns. Supply-chain disruption, freight costs and product availability remained challenges.
- Aeropost’s legacy marketplace and package-forwarding operations were sold in October 2021. The disposal reduced other revenue versus the prior year; a $2.7 million pretax gain was recorded in the first quarter. PriceSmart retained selected technology and personnel.
- Management planned to open a second Jamaica club in Portmore in April 2022 and a second Medellín, Colombia club in summer 2023, and said it intended to continue or accelerate club growth over the next three to five years. No specific financial guidance was provided.
- COVID-19 effects, supply-chain uncertainty, inflationary costs, foreign exchange volatility, political and economic conditions, competition, and cybersecurity were identified as risks. Trinidad’s U.S.-dollar illiquidity remains significant: local-currency cash and investments were about $35.5 million. Management illustrated that a hypothetical 20% Trinidad-dollar devaluation could reduce their U.S.-dollar value by about $7.1 million, while separately producing an estimated $11.7 million gain on net U.S.-dollar monetary assets.
- VAT receivables included $11.9 million in a country without a clearly defined refund process; total VAT receivables were $39.5 million and income tax receivables $32.2 million. No recovery allowances were recorded, though the filing cautions that recovery is not assured. Construction-service commitments were $24.3 million; three land purchase agreements could require $13.2 million in cash.
- Management stated that ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Investor verification priorities
- Track whether higher inventory converts into sales and operating cash flow, and whether working-capital needs persist.
- Monitor merchandise and total revenue margins against freight, supply-chain, markdown and pricing pressures.
- Assess Trinidad currency convertibility, related transaction costs, currency exposure and the effect of exchange-rate changes.
- Verify recovery and timing of VAT and income tax receivables, including amounts subject to unclear processes or disputes.
- Check progress, capital spending and returns from planned club and distribution-center expansion; the filing provides no quantitative earnings or revenue guidance.