Investors have been cautiously optimistic about the turnaround plan that new CEO Sherry Bahrambeygui and her executive team have in place for PriceSmart (NASDAQ:PSMT). In late October, the international warehouse club reported decent results for the fourth quarter of fiscal 2019, posting modest growth in sales and operating earnings. The retailer hopes to start seeing concrete benefits from its investments in its stores during the new fiscal year, even as its newest warehouse launches eat into sales metrics at more-established stores.
With those big-picture trends in mind, let's look at a few metrics to watch when PriceSmart reports its fiscal first-quarter results on Jan. 9.
The rebound question
PriceSmart posted a 2% increase in revenue in the last fiscal year, but that growth came entirely from growing its store base rather than better results at existing locations. Comparable-store sales inched lower, falling by 0.6%, compared with a 2.3% increase a year earlier.
The good news is that comps inched back into positive territory during the fiscal fourth quarter. Furthermore, growth continued during the first three months of fiscal 2020, with comp sales up 1% and net merchandise sales up 4.2% year over year. This is a key reason why investors have bid PriceSmart's stock higher over the last few months. Shareholders will be following management's comments for confirmation that this encouraging uptick continued into December.
Supporting this sales rebound, PriceSmart has spent the past year improving key aspects of its shopping experience, including merchandise selection, ancillary service offerings like optical care, and employee training. On the other hand, comps will be unusually pressured this year by five new warehouse locations that PriceSmart opened in existing markets, which will inevitably siphon some sales away from its more-established stores.
Executives also warned back in October that competition is spiking in the U.S. Virgin Islands. Thursday's report may help investors understand whether the chain could overcome these challenges to post a third consecutive comp sales increase in the current quarter.
As a warehouse retailer, PriceSmart gets most of its annual profits from membership fees rather than product markups. To keep those fees rising at a healthy clip, the chain needs to succeed at building its base of loyal shoppers while also pushing more of these customers toward its premium subscriber tiers.
Wins on both these points pushed membership income up to $13.4 million in the final quarter of fiscal 2019 from $12.9 million a year earlier. PriceSmart got help here from a membership base that's growing at a 2.5% annual pace and by a 62% spike in its platinum membership program. Look for Bahrambeygui and her team to update investors on both of these key metrics this week.
PriceSmart doesn't issue short-term sales guidance, but the company will comment this week on how well the peak holiday shopping period went relative to management's expectations.
Those demand trends will give investors a good idea about whether to expect a modest acceleration of growth in fiscal 2020, or to brace for a second straight year of comp sales declines. Until more clarity develops on which of these scenarios is playing out, Wall Street will likely stay cautious about PriceSmart's stock.