PriceSmart (PSMT -0.91%) last week announced first-quarter results that kept the warehouse retailer on pace to achieve modest sales and profit growth in fiscal 2020. Yet management is even more encouraged by improvements in metrics such as membership renewal rates, which support long-term revenue gains. This good news more than offsets the few expected headwinds that executives are predicting over the next year.
In a conference call with Wall Street analysts, CEO Sherry Bahrambeygui and her team detailed the biggest of those positive and negative issues for 2020. Below are a few highlights from that presentation.
Image source: Getty Images.
Short-term pressures
These four [recently launched] clubs in addition to the four new clubs announced for the upcoming 2020 calendar year are likely to transfer some sales from existing more mature clubs, especially in the near term [but] we believe that the addition of new clubs in densely populated urban environments improves the member experience.
–- Bahrambeygui
PriceSmart's 4% sales increase had more to do with its rising base of warehouses than with expanding sales at existing locations. In fact, comparable-store sales inched higher by 1% to barely remain in positive territory. Management noted strength in categories like fresh food and groceries and explained that demand was heathy across its markets in the Caribbean, Colombia, and Central America.
On the other hand, the consumer business saw weaker growth in its electronics and home furnishings departments. Comps overall were also pressured by the fact that new store openings have occurred in proximity to established locations, leading to some transferring of sales from older to newer warehouses.
Spending money
We remain committed to making our clubs a positive and exciting place to shop. We work hard to keep our clubs up to date and safe by investing in remodels and sales floor expansions where and when needed. Last year we expanded two clubs. In addition, we improved food preparation and fresh areas as well as added solar panels and parking lot canopies to various clubs.
-- Bahrambeygui
PriceSmart notched higher gross profit margins and rising membership income. Detracting from those improvements was an uptick in adjusted expenses, which executives tied to increased investment in the store base. The chain refreshed several clubs over the past year and is currently rolling out other costly upgrades such as online purchasing options across its Spanish-speaking store base. These moves might pressure earnings in the short term in exchange for better market share over time.
The rebound plan is working
We believe that our renewed [customer] focus ... is driving improved merchandise assortments and is enhancing our members' shopping experience, resulting in improved membership renewal rates.
-- CFO Michael McCleary
The bottom-line takeaway is that the rebound plan appears to be working. Yes, sales growth is modest and expenses are elevated. But PriceSmart's expansion pace is accelerating and customers are reacting positively to the many changes they're seeing both in stores and online. Investors might struggle to see much of an impact on the top or bottom lines today from these moves.
Yet management says the chain's renewal rate is a strong indicator of future growth. Members are now renewing at an 86.1% rate compared to 85% a year ago, after all. Those happier customers should reward PriceSmart with more store visits and increased average spending in 2020, assuming no major economic disruption in its often-volatile international markets.
