Week to date, shares of PriceSmart (PSMT 1.50%) were up 13% as of 11:11 a.m. on Friday, according to data provided by S&P Global Market Intelligence. The company reported another strong quarter on Monday, with solid sales growth and membership renewal rates at its warehouse clubs.
Inflation continued to put pressure on customer demand, but management has been successful passing these higher costs on to consumers. Sales increased by 8.6% year over year but would have risen a few more percentage points if not for a negative impact from currency translation. Comparable merchandise sales also jumped 5%.
However, earnings per share grew slower than sales, up 7.1%. While PriceSmart experienced easing supply chain disruptions and shipping costs during the quarter, input costs, including labor and packaging, continued to rise. Average selling prices were up 10.3%, which helped offset higher costs, but that also contributed to a 4.4% decrease in items per basket.
Overall, it was a solid quarter considering the economic challenges. PriceSmart is moving forward with plans to open its third warehouse club in El Salvador, as well as another club opening in Medellin, Columbia. This will bring its total footprint to 52 stores spanning 12 countries.
Management is focused on finding ways to improve efficiency and profitability over time by matching the size of its clubs to the sales volume levels across different market locations.
Considering PriceSmart's solid execution, growth, and opportunities to further improve margins, the stock looks like a tempting buy at the current price-to-earnings ratio of 18.6 based on forward earnings estimates, which is a discount to the market average multiple of 20.7.