PriceSmart, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended February 28, 2023; comparisons are with the corresponding 2022 periods. Amounts are in U.S. dollars unless stated otherwise.
Business context
PriceSmart operates membership warehouse clubs in Central America, the Caribbean and Colombia, with U.S. operations supporting purchasing and distribution. At quarter-end, it operated 50 clubs in 12 countries and the U.S. Virgin Islands, and reported nearly 1.8 million membership accounts. It plans four additional clubs in 2023–early 2024, subject to execution and timing.
Financial results and liquidity
| Metric | Three months ended Feb. 28, 2023 | Six months ended Feb. 28, 2023 |
|---|---|---|
| Total revenue | $1,142.2 million, up 10.0% | $2,197.0 million, up 9.1% |
| Net merchandise sales | $1,116.0 million, up 10.3% | $2,141.5 million, up 9.5% |
| Comparable merchandise sales | Up 8.5% | Up 6.8% |
| Merchandise gross margin | 16.0%, up 0.4 percentage points | 16.1%, up 0.3 percentage points |
| Operating income | $53.8 million, up 11.3%; 4.7% of revenue | $109.3 million, up 15.9%; 5.0% of revenue |
| Net income attributable to PriceSmart | $31.3 million; diluted EPS $1.02 | $64.3 million; diluted EPS $2.07 |
| Adjusted net income, non-GAAP | $38.5 million; adjusted diluted EPS $1.25 | $71.4 million; adjusted diluted EPS $2.30 |
Quarterly net income and diluted EPS were slightly below the prior-year $31.5 million and $1.03. Six-month net income rose from $62.0 million and diluted EPS from $2.01. The non-GAAP adjusted figures exclude CEO separation costs and, for the prior-year six-month comparison, the Aeropost sale gain.
Membership income rose 7.3% in the quarter and 7.4% for six months. Comparable sales growth was strongest in Central America; Colombia sales declined, reflecting peso devaluation and difficult economic conditions. Quarterly sales growth also reflected more transactions and higher average ticket.
For the six months, operating cash flow was $116.7 million, compared with a $7.9 million use of cash in 2022. Investing activities used $96.1 million, including $53.0 million of property and equipment additions; financing activities used $3.1 million. Cash, cash equivalents and restricted cash increased to $280.6 million. Short-term investments were $54.3 million.
At February 28, cash and cash equivalents were $260.9 million; current assets were $836.8 million and current liabilities $586.6 million. Debt comprised $10.1 million of short-term borrowings and $153.8 million of long-term debt, including current maturities. The company reported compliance with debt covenants. Operating lease liabilities totaled approximately $120.5 million, separately from debt.
Material changes and unusual items
- A $7.7 million one-time CEO separation charge was recorded in the quarter, including approximately $4.2 million of non-cash equity-award costs. Management reported an after-tax EPS impact of $0.23. Interim CEO Robert E. Price elected not to receive compensation; management expects quarterly savings during his interim tenure, partly subject to other executive salary changes.
- Other expense was $5.3 million for the quarter and $9.9 million for six months, primarily reflecting foreign-exchange losses. Six-month net currency losses included losses associated with revaluation of monetary balances and conversion of Trinidad dollars.
- Net interest expense increased to $2.8 million for the quarter and $5.6 million for six months, primarily due to higher rates and increased long-term borrowings.
- Foreign exchange reduced consolidated merchandise sales by 0.2% for the quarter and 1.2% for six months; the impact in Colombia was substantially more adverse, partly offset by currency appreciation in some other markets.
Outlook, risks and contingencies
The filing provides no numerical earnings or revenue guidance. Management expects merchandise gross margin rates to decline in the third and fourth quarters versus the first half, citing the end of the COVID premium, a lower Trinidad foreign-exchange premium and anticipated margin pressure in Colombia. In Colombia, the company is holding prices on selected high-volume imported items despite higher costs to limit the burden on members.
Expansion plans include clubs in San Miguel, El Salvador (expected May 2023); Medellín, Colombia and Escuintla, Guatemala (expected in 2023); and Santa Ana, El Salvador (expected early 2024). The company continues investment in club improvements, distribution, membership value and digital and online capabilities. These are plans, not guaranteed outcomes.
Key exposures include inflation, supply-chain conditions, local-currency volatility, political and weather disruptions, and limited access to U.S. dollars in Trinidad. The company held $14.7 million of Trinidad-dollar cash and investments at quarter-end and described ongoing challenges converting local currency into tradeable currencies. It also reported $35.9 million of VAT receivables and $34.7 million of income-tax receivables; recovery timing can extend from months to years, and no allowance was recorded. Management said it believes recovery is more likely than not, but acknowledged no assurance.
In a dispute arising from the Aeropost sale, the buyer alleged cybersecurity-related losses estimated at $2.9 million and separately alleged approximately $0.3 million of losses concerning employee classification. The agreement caps potential liability for the referenced representation-and-warranty claims at $4.0 million. PriceSmart is defending the claims and recorded no accrual, concluding a loss was not probable and not reasonably estimable. The company stated ordinary-course legal matters are not expected to materially affect its financial position, results or liquidity.
The former CEO resigned effective February 3, 2023; the filing identifies leadership-transition and retention risks. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Colombia’s currency, sales and deliberate pricing actions lead to the anticipated margin pressure, and whether management’s second-half margin outlook changes.
- Whether comparable-sales growth, membership-account growth and renewal rates sustain momentum; the reported trailing 12-month renewal rate was 88.0%, versus 89.8% a year earlier.
- Progress, costs and opening dates for the four planned clubs, alongside capital spending and debt maturities.
- Trinidad’s ability to convert local currency and the timing and collectability of tax and VAT receivables.
- Developments in the Aeropost claims and the CEO succession process, including any additional costs or operational effects.