PriceSmart (PSMT), which is known as the Costco (COST) of Central America and the Caribbean, is trading lower today (-7%) after reporting Q1 (Nov) 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 40 warehouse clubs in 12 countries (seven each in Colombia and 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 NovQ earnings results, EPS came in at $0.74 which was below the $0.82 earned in the year ago period and it was a good bit below market expectations. Total revenue rose 3.7% year/year to $767.1 mln, which was slightly above market expectations. Membership income rose 5.7% YoY to $12.38 mln.
In terms of same store sales, PSMT reported today that December comps came in at +6.4%. The company had already released data for previous months: November +2.7%, October +1%, September +2.8%. So the December comps were quite good compared to recent months.
PSMT is a bit odd in terms of their reporting because they provide monthly same store comps, which is very helpful and becoming more rare among retailers. However, they provide no revenue or EPS guidance for upcoming quarters or years. Also, there is little analyst coverage so there are not many estimates available. All this makes PSMT's earnings reports a bit unpredictable. Also, 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.
In sum, the stock is down in early trading as that EPS number was a good bit lower than market expectations. Mitigating that to some degree was a very impressive December same store comp at +6.4%. It's just one month, but that is a good start for its Q2 (Feb) reporting period.