PriceSmart (PSMT), which is known as the Costco (COST) of Central America and the Caribbean, is trading lower today (-7%) after reporting Q2 (Feb) earnings results last night. To provide some background, PriceSmart is headquartered in San Diego but it operates US-style membership shopping warehouse clubs (very similar to Costco) in Latin America and the Caribbean.
PriceSmart currently operates 39 warehouse clubs in 12 countries (seven in Colombia; six in Costa Rica; five in Panama; four in Trinidad; three each in Guatemala, the Dominican Republic and Honduras; two each in El Salvador and Nicaragua; and one each in Aruba, Barbados, Jamaica and the US Virgin Islands).
PriceSmart's membership club model is similar in many respects to US clubs like Costco and Sam's, with some differences, including a smaller store size (50,000 to 75,000 sq. ft.) to align with the size of the markets it serves, lower membership fees which average around $25 and its merchandise is tailored to local preferences. PriceSmart believes it is well positioned to profit from the growth in developing markets due to its purchasing power and experience with membership warehouse clubs in these areas. Its typical no-frills warehouse club-type buildings are located primarily in urban areas to take advantage of dense populations and relatively higher levels of disposable income.
Its warehouse clubs sell basic high quality consumer goods at low prices to individuals and businesses. Approximately 15% of sales are to wholesale customers such as restaurants, hotels, convenience stores, and bakeries. PriceSmart sells Hardlines (electronics, office supplies, appliances), Groceries (food, detergent, wine, health & beauty) and Fresh Food (chicken, meat, fruits, vegetables). The product in its stores is typically sourced half and half from US/international sources and from locally sourced merchandise.
Its members tend to be on the higher end of the income scale and renewal rates are equivalent with major US club operators. Also, a highly efficient distribution system for US product importation helps to keep costs down (PSMT recently expanded into a new distribution center in the Miami area). A big reason PSMT has been doing well is that it's dominating its space. It's the largest player in its space by far, which provides economies of scale, and there is a lack of worthy competition as the major US club operators do not have a heavy presence in the company's markets.
Turning to the FebQ earnings results, EPS came in at $0.90 which was up from $0.85 in the year ago period and it was a bit better than market expectations. Revenue rose 2.0% year/year to $793.3 mln, which was slightly below market expectations. In terms of same store sales, PSMT reported today that March comps came in at +2.9%. The company had already released data for previous months: February +2.6%, January +0.2%, December +3.1%. So the March comps were pretty decent compared to recent months.
Overall, it was a decent but not great quarter for PSMT. The company is known for providing little color in their press release so investors will not get much detail until the call starts at noon ET. However, in early February, the company announced that it plans to construct a new warehouse club in Santa Ana, Costa Rica. This will be PSMT's seventh store in this country and its 40th store overall. It has a planned opening date in the fall of 2017.
PSMT also announced back then that it acquired a new 330,000 square-foot distribution center located in Medley, Florida (near Miami). The expansion and configuration of PriceSmart's new facility enables the company to better serve its growing customer base in Central America, the Caribbean, and Colombia. In addition to the new building, PriceSmart will retain 102,000 sq ft of space from its currently occupied leased building also located in Medley, where it will continue to operate a recently expanded refrigerated and frozen distribution facility. PriceSmart will relocate its local administrative office and distribution center for dry goods into the new, larger and more efficient building and sublease approximately 260,000 sq ft at its current facility.
In sum, with the stock down today, it seems that investors had been hoping for better FebQ results. The numbers were not that bad, so perhaps there is some disappointment in the March comps number. Earlier this week, Costco reported impressive March comps of +6%, which caused the stock to trade higher. So maybe investors were expecting a bigger March number. Also, PSMT's stock price has been trending higher the past two months, up about 10%, so maybe investors were expecting a better result overall.