International warehouse club PriceSmart (PSMT +3.26%) kicked off its 2018 fiscal year with an earnings report that included steady sales growth and healthy membership trends even as rising costs sent net income lower.
Here's how the headline results from the report released this week stacked up against the prior-year period:
|
Metric |
Q1 2018 |
Q1 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$767.1 million |
$739.6 million |
4% |
|
Net income |
$22.5 million |
$24.9 million |
(10%) |
|
Earnings per share |
$0.74 |
$0.82 |
(10%) |
Data source: PriceSmart.
What happened this quarter?
PriceSmart benefited from a continued rebound in its Colombian market in the quarter, and from improvements in the weak selling environments in Barbados and Trinidad, which had been a drag on results in previous quarters.
Image source: Getty Images.
Highlights of the period include:
- Comparable-store sales gains inched up to 2.2% from 1.9% in the previous quarter. PriceSmart's comps have increased by roughly 2% in each of the last four quarters.
- The retailer's Colombian segment grew by double digits thanks to improving market conditions and a steady currency. Its Caribbean segment also contributed strong growth as its warehouse on the U.S. Virgin Islands beat many rivals in reopening following destructive hurricanes that moved through the area in September.
- Membership fee income rose 5.7% as PriceSmart's subscriber base increased by 3% and average prices, boosted by an increase in the Colombian membership rate, ticked up. Renewal rates held steady at 87%.
- Gross profit margin slipped to 14.5% of sales from what management described as an "unusually high" mark of 15% in the prior-year period.
- Expenses rose as a percentage of sales as the company dealt with challenges brought on by hurricanes Irma and Maria while allocating more resources toward building up its digital sales channel.
- As a result of the lower gross profit margin and increased costs, operating margin fell to 4.3% of sales from 5.2%, leading to a 10% decline in net income.
What management had to say
In a 10-Q filing, PriceSmart's executive team described improving conditions in many of their key markets. "Panama sales were essentially flat," management said, "but all other Central American countries recorded positive growth in warehouse sales for the three-month period."
"Our Caribbean segment showed improvement," they continued "while Trinidad, our largest market in the segment, was essentially flat. This was an improvement from negative sales growth experienced in each of the prior four quarters."
As for the Colombian segment, management said they have seen "continued sales growth in all of our warehouse clubs in Colombia" and they noted that customer traffic in these stores spiked higher by 12% during the quarter.
Looking forward
PriceSmart's current fiscal quarter is off to a strong start, with comps jumping 4% in the important month of December. The healthy expansion suggests a continuing rebound across important markets like Columbia and Trinidad that might finally speed its growth pace up from the 2% rate shareholders have seen for over a year.
Meanwhile, investors can expect a large, non-cash expense to reduce profits in the second quarter. Because of recent tax law changes, PriceSmart believes it will need to take a significant one-time charge on its accumulated foreign profits to account for the lower U.S. corporate tax rate. The new law should ultimately reduce the retailer's tax liability, but its immediate effect on the books won't be positive.
