PriceSmart (PSMT) 9 Apr 212021 Q2 Earnings call transcript

Good afternoon everyone, and welcome to PriceSmart Incorporated Earnings Release Conference Call for the Second Quarter Fiscal Year of 2021, which ended on February 28 of 2021. After remarks from our Company's representatives, Miss Sherry Bahrambeygui, Chief Executive Officer; and Michael McCleary, Chief Financial Officer, you will be given an opportunity to ask questions as time permits.

As a reminder, this conference call is limited to one hour and is being recorded today, Friday, April 09 2021. A digital replay will be available following the conclusion of today's call through April 16 of 2021, by dialing 1 (877) 344-7529 for domestic callers or 1 (412) 317-0088 for international callers, also by entering the replay access code of 10152415.

For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. sir. proceed Please

welcome second and PriceSmart call earnings Thank of to fiscal the quarter year for you the XXXX.

both our We will our which XX, in in we that afternoon, were XXXX. XX-Q, be discussing earnings the press information released April yesterday provided release

be sales we Additionally, morning. talking released our about this March we’ll which

on You also email for sign documents Relations at our can find all investors.pricesmart.com, website up alerts. Investor three where can you

statements historical concerning this on Company's As a fact, call, than and are statements statements forward-looking revenues reminder, plans, conference of the other anticipated made matters. all related

XXXX. detailed are SEC's update risks Form Forward-looking statements SEC, Company's estimate risks to the made undertakes the on limited XX-K include, forward-looking current today, including to www.sec.gov. to time-to-time. no the updated The obligation containing that during other Company These words uncertainties expressions. and XX, statements from recent assumptions on similar which believe, filings and but materially, statements cause should, in with the These statements not may, are and risks call. actual to, website based results Annual accessible on of Report expectations statements this maybe forward-looking subject will, the are could All differ at expect, are as and April most

call Now, PriceSmart's Chief I Sherry to the will Executive turn Bahrambeygui, over Officer.

our Thanks and Thank us you, company. Michael and today interest good hope you for joining safe. in for day all healthy everyone. are We and your

XXXX. strong protocol in related the remain results cross we’ve of continuing by we principles brought we the [Indiscernible] our developed sharing environment myriad implemented are on a of momentum and fiscal extensive provide to and has COVID this healthy and challenges continues. vigilant and company sounding safety effects. its safe carried unwavering mid-point members be The our will the we us to employees. through a of to We our continuing the of second on We from fiscal quarter build how as

employees available. a vaccines, global where providing are we paid and for when instance, For time-off

safety Additionally, with to employees enhanced measures. support and benefits, we continue our bonus opportunities,

year, the many the in Over has pandemic us challenged past ways.

us the enhancements incredible team it's However, on over the challenges remaining see made past some strengthened set we're time for the term focused term and to of the changes we've We we address couple I same objectives while believe, only of a watch believe long to at team. the of our ourselves. as short the years. starting results It's

of our merchandising Our core rights be of continues at commitment business. to the the six to

in three to right year Currency the merchandise the X.X% sales prior compared for day year. in X.X% members shopping members, had grew our right of we're a negatively net due last and and the the Our Note and that trust, that have the to net Thanks merchandise sales year fluctuations the quantity merchandise same trust by quarter. of to we net and of X.X% the and in team respectively one place ago. the time right in sales at going merchandise the comparable at impacted dedication period month right merchandise right February comparable grew the leap net condition the to X% price. sales the our right

quarter compared similar seven have quarter in return days give which some from fiscal in clubs traffic, closed related market. saw the you perspective, and in sequential quarter, club lead prior this XXX versus the we dramatically which of XXX club prior quarter. days COVID experienced risen more second States, of This third closed had our we in had Colombia, Panama Caribbean reduced uptick to and restrictions in March where We May. primarily club restrictions well. day’s United club to markets of the is our XX XXXX saw as To quarter. brought we which also have hours the closures, club in a to During to Similar sequential the what year weekend loss during an holiday has rates of more we restricted but in we infection the

faced sales headwinds to we reduce have importation dollar market, to a Trinidad to source decision the merchandise U.S. addition, the where continuous In due U.S. our liquidity. we clubs as four our of of result

a expected, and sales challenges, Despite continue these Michael decline during reasons club. As discuss to about our quarter. that visit that mix in great this second with a members the we provide market contributed and to the in membership in few more to a inventory will minutes.

team gained into streak working hardlines They've first quarter and job done demand with anticipating inventory. our on we and has to the suppliers momentum tremendous the second quarter. that the secure global from Our built extended a

As were and a XX%, sales approximately experienced growth period compared XX% respectively. the grew category appliances quarter. result, machines, this growth business prior our X.X% the Leading that during and electronic to departments XXX%, hardlines year comparable major

well and performed XX% X% produce growth also with and cleaning seafood X% departments Our respectively. grocery X%,

mentioned we these options of investments starting food our for to pay off. investments previous make continue As to healthier our to members, farm our direct on enhance offerings see program calls we're in and

actively support produce centers us markets farming communities. as are three in operate and our to currently seeking produce local efficiently quicker quality Our fonts centers more other to distribution people and allow to high We commerce provide to expand and well. produce markets distribution to and

on our of anticipated sales the scale in well, our candy, quarter and demand juices time toy’s our did based in decision categories and challenges Although long decreased departments the our with pandemic. on housewares Also, to fresh lead because shifts we category. snacks did and produce due foods of to orders departments during back have our

during all delivery represented in merchandise quarter. our is service X.X% of net markets. available & curbside the Click pickup all Our delivery sales of Curbside and and clubs Go and our in

efficiently, greater our to our option During the members of to allows for improve more pickup the and which specific select and operate windows curbside offer quarter, time to our members. delivery dates we introduced service for and us convenience

seen become portion our to several Click past of larger a continue Go the total & delivery sales. months, Over we've

health platform. grocery our and cleaning the departments on e-commerce are performers Our beauty and currently best

expand mobile our app capabilities. to continue also We

the added a members scan availability of recently that their capability to view work to add surrounding to to enable we instance, a or functionality member place clubs for cart. expand to product at and at from home to For plan their

the Our That's members first also online. to their online platform of continue for quarter. from XX% new our membership all were XX% second to quarter in respond the of favorably the completed transactions. at end up signups

our high of of valuable to member renewal and to we've electronics. subscription, supply holiday a QX, demand and inventory like benefits inventory, while markdowns Now accurate information. and for renewals important our this auto non-food for the online auto result, at departments. quality, excellent hand was significantly advantage in signups area. chain opportunity the did and see a we've some categories, this is out And Pertaining strategic higher in merchandising particularly as inventory inventory various others that furniture, We and a shortages has and of great job a domestic. a This in addition team sourcing a the source our goods, to time prices, despite the capturing patio, Asia. and provides struggled on it We apparel, made investments origin year is less payments continues some caused sporting to delays there were to that competitive optimizing as great inventory non-food container period. outdoor certain good this quarter home spoilage the season. same do to point had opportunity. in Similar job prior departments with as at compared shipping able such A electronics been And continued on great

result, increased comparable a average slightly as So quarter. for inventory our clubs prior versus year

XXXX to attribute fiscal comparable primarily year the Our accounts quarter membership compared period. that of the total second the when X.X% to number on during We decreased restrictions prior mobility. of year

and our saw August a account, club continue we membership improve. to XXXX in X.X% in traffic However, since increase XX

open the We're XX-month memberships was followed optical renewal of and February XX XX.X% on largest the decline, Central centers at Colombia at offering and over a experienced rate locations have XX.X% periods enhance XX, trailing the fiscal with renewals through February this focus our XXXX foods, online. XX percentage ended by for membership healthy of and the at respectively. XX, operation XXXX America signups This Our in the of to encouraging includes at renewal the our to previously, in and expect as the Caribbean, XX August end our quarter, increase the XX.X% completed wellness. XX-month the and and restrictions end the we as low XX.X% member an noted seen continuing recently fiscal by of value we've up improved XXXX. from rate ease has trailing end however, of end year of from

piloting in year. audiology our there opened recently during calendar as this year. begin farm well two We PriceSmart also We'll centers first this clubs,

club will the one club clubs along another presence At Once a and our to these the Jamaica a a Bucaramanga, to ninth believe Now way for to real be new XX successful a XXXX. the We eight warehouse clubs, represents fall activities. recently and It smaller format company another be This coupled respectively. in in ago. of in estate of and spring milestone construction point, second and with the a expected club. Colombia about and few city just secondary reach in club. I'd a the you this construction clubs significant opening and and our new locations our our the extend like will is this follows our will Guatemala of club that we fall company Colombia months We open we open omni-channel capabilities format new smaller next in to regional with have reached grow. that expect club open give of is in update brief began warehouse

before, initially sales. impact I've to new net adversely at likely comparable As noted openings least our merchandise are club

year sales our believe earlier to experience sales However, sales March incremental the of club the uncertainty leads released growth of growth pandemic. up March we anniversary XX.X% surge long began shopping surrounding such growth COVID-XX in merchandise pandemic and XX.X%. move the the we members. by like comparable of our today. significant leverage of of last that greater the on from we global ahead that merchandise I'd of way impact growth expansion one new our as a with experience members month a March spend and with to when merchandise marks a sales in stocking when net saw the in to well in we sales and will membership, growth services, for net moment year We began better net the month openings run as forward on

driving the COVID Despite related year. in of XXXX, result, are high a in last sales growth comping a our driven we As March COVID year sales million and ago start-up in against net in merchandise a surge last March with versus sales year phenomenon $X.X or up March coming at negative for X.X% versus X.X% XXXX FX were a million. increased the buying $XXX.X of impact

For four historic We company merchandise March sales for XXXX FX March, comparable decreased net results sales December were outside our ended a which X.X% were of weeks X.X%. our with with very sales. in pleased of XX holiday a impact total the the negative record driven

and fact For illuminated a the our business investments lives part becoming commitments to critical us, more has fundamental great value that our member’s is a proposition. COVID model, of prior

in choice retailers a on the the continue our communities, that The members among of our selection our care expand is We will taking team, of all set us and have the one our business evolving most constantly us clear continuing expand to make members, responsive, of curated a our continue made path manner to responsible to We our and roof. under continued and it believe best all will we our that services markets. success. can for industry in provide that are retail merchandise

a I'll to member. the or So And now of remotely over continuing to I'm team it the to and home Thank expand distribution those working centers, clubs we to workers on to turn entire forward employees Michael. wrap means and future over from in our XX,XXX frontline look our working whether it all PriceSmart up, together be build call proud you. of or to on what

million afternoon the Good prior and million, joining $XXX.X morning of and for and everyone or $XXX.X X.X% Total today. period increases the year and respectively. sales to for X.X% Thank at over representing us quarter revenues net comparable respectively, you, merchandise Sherry. thanks were

with Rica a As Costa and including We Liberia, the clubs Colombia in at compared in the XXXX. opened quarter the XXXX. Bogota, December end second this XXXX June reminder, of quarter XX clubs and we of warehouse clubs fiscal ended XX to

XXXX. XX, ended net the growth comparable X.X% Our sales February merchandise for XX was weeks,

and increased respectively. merchandise sales. America XXX net end on Central increase comparable clubs comparable Foreign negative $XX points sales net had points and currency sales million had both a merchandise or XXX XX where with approximately merchandise basis $XX X.X% By segment fluctuations million we or impact a net quarter in in merchandise of net X.X% at basis

prior Our Honduras, Rica a the significant sales year net Nicaragua during In decreases in stellar currency El the increased devaluation with positive our merchandise continued total Trinidad, This digit and decrease to compared and region, contributed comparable despite the mentioned sales declined as contributed of double period. devaluation sales pandemic markets partially was to COVID-XX X.X%. Dominican contribution offset to end, we growth approximately on net foreign we The to at source quarter Panama impact for performance In Republic net club closures the X.X% had Costa first currency XX basis Salvador, Caribbean our quarter situation. XXX line and currencies merchandise the dollar shipments on-going clubs earnings during while by limiting U.S. that Guatemala and XXX previous basis merchandise temporarily sales U.S comparable market ability respectively. from call, points coming sales. with because where liquidity tradable total to points began its sales in the of

XX.X% source shipments has the We of reduction that a expectation, sales comparable U.S. tradable currencies in merchandise quarter Trinidad Our in in modest were with were and during declined second such impacted sources as adversely goods exporting towards working imported we to net end first of the able quarter. second began compared increasing in our projects increase dollars, by second the sales of increase fiscal quarter. on to U.S. merchandise the are Therefore, and produced our levels Trinidad. in multiple to Trinidad of line quarter

reliable similar However, able market and goods. we in expect more declines tradable currencies, until subsequently sources important to going albeit establish forward, of we slightly are sales moderated more in this

of more in may to a dollar exposure of are grow. process potential of the dollars U.S. the we While sources devaluation implementing our Trinidad, sustainable in Trinidad

approximately The but by merchandise merchandise back club decline to but is sales. XX In net opened sales points impact eight X.X% in currency merchandised negatively Colombia comparable Bogota merchandise total to there. sales merchandise points. decreased and during continues Colombia, significant at in increased Colombia, X.X% and and X.X% we're approaches segment devaluation different sourcing an clubs contributing was a goods to our XXX impacting net X.X% sales to to in in sales primarily impacts. sales prices net our positively net in basis quarter Currency challenge and actively on currency managing Moving total transfers basis from December in of locally total XXXX. newly respectively Colombia we sales negative of be sales comparable of attributable warehouse comparable produced the employing and where exposure foreign mitigate had comparable non sales This effort open the as for the quarter. Such

million quarter, expense fund interest the downs to and non-management the Other secure employees efforts draw margin last of talent gross Income clubs and support $X.X and Net of our for year. the XX%, This contributed gains the normalized expenses A related for in of the partially business quarter In COVID-XX Club. general of the $XX.X quarter cash. improvement to term have yet the basis period. increase phenomenal into imported operations due investments of million, or increased on to as basis Operating our increase is U.S. more development. margins and the to to points of primarily the $XX.X points for projects the we $XX are was fund performance. Trinidad increased expenses into administrative revenue point lines result primarily of at markdowns. term from other period was basis General all of fiscal our year. primarily to quarter a driven bonus our and the basis XX designated the in million mentioned XXX total sales and of second of devaluation XX over reflects our XXXX total technology an expenses expenses of points capital compared liquidity the in and X.X% points of that gross primarily a to XXX to the for comparable revenue leveraging other prior points merchandise long quarter primarily the our XXX balances higher of to our of basis SG&A loan This same merchandise to million, partially XX not year margin, of resulting in million part dollar or currencies, basis from reserves versus levels denominated have in from net the compared and over total to were margins point inventory points new strategies due Jamaican with same reached primarily XXX expenses last increase merchandise a of merchandising basis increase of SG&A management, sales that total decrease points. other Colombia fact in I margins, average dollars club XX Total gross the revenue dollar of as offset due point new to of revenue, an converting XX year. second special and total the Rica higher to expenses increase total, total focused to by casillero increase Portmore year. $X.X period same cash year. the our due short offset premium on previously, by administrative offset XX.X% versus our same X.X% Trinidad by revenue basis Costa last revenues, the of came fewer result period margins the net increased by XXX Warehouse basis credit due construction from cost partially basis contributed and prior Turning tradable sales XX% in the Selling, lower marketplace revenue priced last

changes the QX than related rate tax earnings XX.X% at in we uncertain ago, call, quarter effective income In year last XXXX for a XX.X% positions. our versus second our fiscal to XXXX Our year primarily higher came fiscal of tax slightly X%. added in

year XXXX, full XX% in of XX%. range due the we to fiscal expect rate year second million $X.XX per However, strong year of for to in the income half to $X.XX share diluted tax XXXX $XX.X diluted period. the the quarter of be now results our fiscal first Net effective or fiscal million $XX.X was the XXXX comparable compared or prior share pre-COVID per to in

$XX.X of Our with our decreases versus year sheet strong. fiscal quarter and same increase terms will operating cash the many perspective, the of million, vendor a to quarter remains the activities during pandemic in as equivalents fiscal negotiated the decrease as period half note very continue the cash through that these capital $XX extension extended year revert have response to It of cash, temporary the or in flow of first vendor totaling initial working year. due part terms of XXXX. to balance terms an pre-COVID COVID-XX third expiring began cash the of by provided From important was our is to cash million We primarily million $XXX.X net ended restricted ago. a to

quarter by cash longer have terms as year, we carry supply vendor with to prior Net in I indefinitely. are to activities of primarily such dollars, Trinidad the mentioned, of had from in mentioned, as cash these construction expenditures. by actively which the by electronics to particularly primarily offset the certificates Also, increasing we and the fewer decrease potential change U.S. increase for and non-foods end average will meet availability that prepare in Sherry short demand we increased is due in debt we do long than million on pre-COVID to to However, convert $X.X third challenges into inventory used proceeds net repayments as Trinidad while investing compared in term forward our increased deposit to previously as position, area. hand, this categories cash we of used The allows, term financing dollars in investments of dollars borrowings. have result $XX.X in from a the provided million net work expect activities

about changes to be sudden continue vigilant in cash ready We circumstances. adapt to our and position to

to markets and successfully, duration While the some future. confidence remains the to pandemic, continue continuing of operations have about in we in in our uncertainty invest our our the extent ability while also

growth fiscal very year. part remaining of want investments confidence of continued to last of start down in as access callers take closing, your year, complete our finished we In by had pleased questions. team now operator And support lines which of investment response will the have During our that in to platform initial and in we in for believe strong you credit, for COVID-XX QX journey. short and engagement this as omni-channel with the Operator, have we term paying taking our for in are QX year. positioned commitment the I turn future where term we with are will halfway capabilities, the years six through horizon well the estate, questions. fiscal over combined your in the come. all us principles confident we real stand growth. your and of talent, future. may these you digitally now express our I we to rights my Thank that to our to I our the merchandising call am into propel to be will making investments enabled of our on-going the long a

Instructions] will City now question-and-answer first ahead. And session. [Operator will We come our Please with question Braatz begin from Jon go Capital. Kansas the

Sherry morning, Good and Mike.

Mike. morning, Good

items. couple a on touch to want just I

a implemented step that initiative the that G&A sort your It of that spending there new bit was in up of something But significant. there rather a or was generated a in programs in that and First Was new increase? quarter? new some expenses little all, were area. was

then of ramping been up how this and, in spending beyond initiatives as both in we're sales support no, and omni-channel our technology we we, the just talking specific as it's start that above increase know, also and you percentage as investing think, of we've I in there's all in along and about talent, general we're basically, a but Jon, to nothing sales. see the

that that expect stabilize. would We

Okay.

future values, But we're obviously continuing far to as in growth. on as invest dollar organization the

okay. Okay,

it much may through as but it be Jon, club did not new so in the well. if materiality, you ask with I’m in sure that additional initiatives started clearly we're about And And we came and investing question pharmacies our not have services.

Okay, okay. Michael on gross the the gross improvement margin Trinidad, front the a think in basis the point I XX pricing your drove margins margins. actions in in gross in consolidated XX-Q

in As you of the a go forward, still that type do as result and actions you'll you have of think price action similar impact Trinidad?

we And point, think said at we're that. this on we're But think yes, from mean, was Trinidad. changed nothing's primarily I Well, maintaining that we I ground. the really I

and to I the be quarter would for start think things stabilize would flow there's not that last would we continue at That I that mentioned want the the again, that. U.S. us But to allow changed. nothing would point, long change something dollars be and hope term. to this that eventually

Okay.

the Sherry, Okay. one had week Thank And good. on March impact than Did impact? very, sales Easter that this thought then this year Do year? think which last you sales, that earlier you. I the any have any was on very March year. were

Yes, do. that closures But go with also as the I well. there's holidays

in we last against a to just shift were against April laughing be going cost, But, to as of So an We'll looking year. are laughing April. how aggressive but it's that's where significant very difficult are March we forward terms of there to April exactly closures. evaluate

so is to And when timing comps. comes distorting it things

Yes.

Okay.

going you issues. Okay. little Sherry companies theme. or this speak? of a sort talked of supply any you from of I those any improvement, hear lot go you steady be bit chain some seeing the think We as And that's is Are about so lastly, of recurring quarter. easing to a a And issues, then to this

good of have are done is But stronger times sure able and from those, Well, at seeking members stock ability are on-going. sources And really our this is the regionally, we from those a what global we've that a lead we to that done of to shortage shorten much that is our of categories source good containers become issue. time. being alternative we've in the make think and most we in job maintaining Asia

has about So risk, it. can't are we control. that been finding to ways vigilant are the able from source that risk or are externalities be the regional to using increase able resources We're know surges we to alternative Costa also of But and we've there center. distribution efficiencies mitigate and Rica aware to that the unexpected, sources, pandemic really whether internally, our we be

Okay, all you right. right. Thank very All much.

Jon. you, Thank

go The come will from Rodrigo Please Echagaray next question with Scotiabank. ahead.

metrics little after. follow share particular perhaps format. Is meter? for at of Xmore question of understand side, margin, more terms being around could format. in And you us then square like are Pointing that of It Thank anything there optimistic a you on you. make Anything the smaller returns, bit in couple call. up that, that one that [ph] increasingly questions sales a to Thanks can the the I'll from financial my per the a first format? that help is sounds the to related

fact can land land of investments. on where areas return expense, and I so our we shortage formats footage indication in believe far broaden we small the in Okay, that is format less we profitable square application that don't And to The the the on clubs. per build where our want that share to year, has in ability of members, a now outlying the as and confidence positive strong of, continue team us company well approach a we've both our that a although be for have as to about smaller because have our some exceeded those of expensive. had metropolitan should our sales more reach of areas,

And benchmarking the for and metric is internal threshold achieve. our our so to internal easier

we So expect a way of we like we'd basis. see standards to greenlight what by in we look projects. any before see case at each one we of have on those one of what return to terms a by And and internal case

But small we looked application a good our for on format everything at case company. So believe has by basis. is case a

now whether online offering including all, you offering ticket much guessing appealing, a big or more stores, to you in even is items. And perhaps that lot too need because mean it? now early Got it extended having those smaller makes all as to additional, the stores catalog that for have space have that I'm format, an don't does that tell smaller of

opportunities the allow that our That capabilities online. is for the is is of versus what of to built clearly up one have, of carried strategic we omni-channel what offered having on selection by shelves virtue

implementation In of merchandise addition to and the way possible strategic to hands get to lowest our distribution centers evaluate that domestic and best at us of post distribution members to allow to merchandise centers into the continue the regional price. the

the format greatest smaller the basically with of right omni-channel supported of an areas by us to be system of one the is expense distribution So opportunity able supported our which satisfy capital costs, in of for needs and is terms to the real by estate members commitments. less

logistics outsourcing what's Like the charge on there's retailers I Colombia, investments delivery, especially all region what And you like How you for learn competition, average? how the mile those are -- of to retailers charge on point. the companies Or, foresee behavior, other customer in? the delivery? in about, fees Got that more do party some that strategy third they're shipping the as on subsidy the as and subject, for it. Are you the do and much where you the at do places obviously last in you charge guess delivery? perhaps

our do services are this the expectation. variability But We Go demand delivery, business, terms consumer not do curbside At of delivery by Click & we outsource directly delivery. paid of the alternative delivery. markets significantly delivery as charge our that member With offers a increase the regard to third time, the charged an party. are proportion in have separately huge seeing by we of pickup and we different versus which and for of amongst for

parties. willing member. that's to on case, that that we efficient at what's for is Colombia, delivery ways currently see delivery for that's by the a example, said, country you but looking be more the third directly if pay that And a what we passed delivery, charge basis on for delivery that provide a demand of we're to we as whatever also offered manner members are. in don't a on behaves So We But to market independently see to than charge depending delivery can case that in in by by for the expects delivery. looking are even the is able manner uses country

the -- the last on on Got it. guess P&L question. I just And

shipping P&L the see related and On would the expenses the delivery? we where to

we're be now. will That any on. sold. we're delivery Sherry we're can can we -- as a revenue right goods I But cost on XXX% that of for not subsidizing passing anything through offset offset passing said,

it. Got last question. Thank Alright, that's you guys. that's my

pleasure. our Rodrigo. It's Thank you,

go This Ma'am. ahead, concludes closing our would back question conference to the like Please turn over session. for Sherry remarks. I and to Bahrambeygui any answer

of we of our sure well. top their our that an our work. perform with the members our control communities continuing that tremendous for safe, important all important done be in to thank for I operate. continue members we're dealing we taking control They've so just investors our of business our employees’ job externalities remains, are to that PriceSmart And make which resource and employees and a our aspects beyond to keeping our and like and to can dedicated priority

all you beyond. and I good health and next safety So thank you until and wish quarter,

presentation. attending for you Thank concluded. now has conference The today's

You disconnect. may now