Is PriceSmart Still a Smart Buy?

What do earnings signal for PriceSmart?

Feb 12, 2014 at 2:12PM

During its latest quarter, warehouse club PriceSmart (NASDAQ:PSMT) wasn't able to grow its earnings as it has done before. But its recent January results portray a brighter picture once again. Does this make the company a valuable buy? Let's look at the company and analyze it alongside Costco Wholesale (NASDAQ:COST) and Sam's Club, Wal-Mart Stores' (NYSE:WMT) warehouse segment.

What's cooking at PriceSmart?
In the first quarter, PriceSmart's earnings per share grew to $0.71 from $0.66 in the same quarter last year. But earnings missed the Zacks consensus estimate of $0.74 per share. Compared to previous quarters, this period saw relatively slow growth in sales and margins, which pressured the company's earnings.

Comparable-store sales grew by a healthy 7.9%, but this growth rate was much slower than anticipated. Analysts had grown accustomed to same-store sales growth of more than 9%, which the company had consistently delivered in the past. Total revenue stood at $605.6 million, increasing more than 13% from last year's revenue of $535.3 million. Net warehouse club sales jumped by 12.5%, largely attributable to Latin America and the Caribbean, which witnessed sales growth of 14.2% and 9%, respectively. Apart from the Caribbean, Trinidad and Aruba also contributed to the results.

During the quarter, the company's membership increased by 12% to a total of 1,120 million members. Additionally, the company was able to retain 85% of its members. Revenue earned from memberships rose 20.8% to $9.2 million.

PriceSmart's January results show that the company's net sales increased 11.5% to $193.5 million. For the five months ended Jan. 31, net sales jumped by 11.9%. Same-store sales for the month grew 8.4% in comparison to the year-ago quarter, proving once again that the company is continuously expanding its market share.

PriceSmart still has its eyes set on the lucrative Central American market. During the quarter, the company opened its sixth warehouse in Costa Rica and made significant progress in constructing its second warehouse in Southern Tegucigalpa, Honduras, which is expected to start operations by May. PriceSmart also purchased land in Pereira, Colombia where it has plans of opening a store by late 2014.  

According to consensus estimates, PriceSmart is expected to earn $3.16 during its fiscal year 2014. On the sales front, analysts' expectations stand at approximately $2.6 billion.

PriceSmart's high price-to-earnings ratio shows that the company is much more expensive than its rivals Costco and Wal-Mart. But again, this high price is justified to some extent, as PriceSmart's stock has given a year-over-year return of 22%. It has also seen sales growth of more than 13%, which is far better than its competitors. However, PriceSmart is still somewhat expensive at this moment.


The warehouse club Costco offers a large range of merchandise at heavy discounts in order to cater to budget-conscious customers perturbed by the economy. The company holds a sizable market share, with more than 650 warehouses worldwide.

In the fiscal first quarter, Costco's sales increased by 5% to about $24.5 billion, missing Reuters' expectations of $25.3 billion. Earnings per share grew to $0.96 from $0.95 in the year-ago quarter, falling short of the $1.02 Reuters estimate. Weak earnings were due to an increase in operating costs and selling, general, and administrative expenses, which increased by 5.5% and 7.2%, respectively. However, the company is still in-line with its long-term goals, as its memberships are still growing thanks to huge discounts offered by its stores.

Wal-Mart's Sam's Club is struggling these days amid global economic headwinds. In the most recent quarter, Sam's Club contributed $14.1 billion in sales to Wal-Mart. Comparable-store sales for the warehouse chain grew by 1.1%; the Reuters estimate was for a 1.3% increase. In addition to high operating costs, severe weather conditions in the US also affected income during the quarter.

Wal-Mart is laying-off about 2,300 employees at Sam's Club to curb its operating costs. Furthermore, Wal-Mart has also lowered its full-year same-store sales guidance (excluding fuel) for the warehouse to 2%.

Final thoughts
PriceSmart's latest quarterly earnings couldn't keep up the momentum, as it missed analysts' expectations by a small margin. However, its robust sales suggest that the company is still capturing more market share. A healthy number of new members signed up and there was a solid membership renewal rate.

Same-stores sales for the month of January jumped once again, showing that the company still has a strong foothold in the retail market. PriceSmart is quite effectively growing across the Central American region with new store openings, which signals that the company is confident about its future prospects.

All in all, PriceSmart still seems to be heading in the right direction, but it is slightly overpriced at this stage. Therefore, I believe this isn't the ideal time to buy the stock.

Are there any ideal retail investments out there?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.


Zahid Waheed has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale and PriceSmart. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information