It's not often that a growth company misses earnings expectations and still manages to wow Wall Street. PriceSmart
I'll tell you why the company continues to be one of my top stocks for 2012 and why analysts are suddenly upbeat about the company's prospects. After that I'll offer you access to a report detailing three American companies that can offer you safe exposure to the world's emerging markets.
Just the numbers
When it came to missing earnings-per-share expectations, the analysts were primarily to blame. PriceSmart has telegraphed its moves recently -- most importantly the decision to implement razor-thin margins in an attempt to drive traffic.
So when the company beat revenue expectations by almost $10 million but somehow missed on earnings, it was clear that some of the models being used were off. And while it's impressive to see the company grow revenue by 22.3% over the past year, when taken in the context of revenue growth over the past five years, you can see how impressive that feat really is. It's not as if the company was simply doing better than a dismal showing 12 months ago -- these were some tough comparisons!
Source: YCharts. Does not include most recent revenue numbers.
But anyone involved in retail knows that companies can easily pad their revenue growth simply by expanding and opening more stores. With PriceSmart, however, that's not the case, as there were only two new stores that opened in the previous year. Take a look at same-store sales, and you'll see why the company's strategy to drive traffic is clearly working.
Same-Store Sales Growth
Sources: PriceSmart conference call, investor relations.
As good as the revenue numbers were, I doubt that alone helped account for the company's 5% move last week. PriceSmart also detailed plans to continue expansion into South America.
The company's flagship store in Baranquilla, Colombia, has been a resounding success, and PriceSmart is doubling down on this venture, announcing intentions to open up two more stores in the country -- both in the city of Cali. It also announced intentions to open a record sixth store in Costa Rica in 2013.
These moves are absolutely crucial. Back in 2004, the company attempted to move into Mexico by opening two stores there. Wal-Mart
Though Wal-Mart currently has a stranglehold on Brazil, there's still much of South America and its growing economies up for grabs.
In an attempt to win those economies, PriceSmart is tearing a page right out of former parent company Costco's playbook. Costco has been able to compete with -- and beat -- Wal-Mart and its Sam's Club by focusing on providing the best value proposition possible to its customers.
Listening to CEO Jose Luis Laparte on the company's conference call last week, it was as if he was channeling former Costco CEO Jim Senegal: "We constantly seek to find ways to keep reducing our prices ... by passing along the benefits of our company's improved buying and operating efficiencies." And he should know a thing or two about how to beat out Wal-Mart, as he worked for Wal-Mart de Mexico (OTC: WMMVY.PK) for more than 14 years before coming to PriceSmart.
Clearly, it's not hard to tell how I feel about PriceSmart. I've put my own money and my All-Star CAPS profile behind the company. I think it's worth exploring if you're looking for exposure to emerging markets.
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The Motley Fool owns shares of Costco Wholesale and Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of PriceSmart, Wal-Mart Stores, and Costco Wholesale and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy.