International warehouse club PriceSmart (NASDAQ:PSMT) posted quarterly earnings results on Thursday evening. For the second quarter in a row, the retailer managed to beat Wall Street's revenue target while booking surprisingly weak profits. Here are the headline numbers from the announcement:
- Revenue rose 11%, to $750 million
- Net income shrunk 12%, to $25 million
- Warehouse count rose by four, to 36 locations
Analysts had been looking for a weaker sales showing of $741 million -- along with a much stronger profit outcome. Wall Street saw earnings improving by $0.05 per share from last year's $0.93 per-share haul. Instead, profit fell by $0.11, to $0.82 per share.
Currency issues pinched profit this quarter
That drop was powered by a devaluation of the Colombian peso against the U.S. dollar. Management said that the peso's unfavorable move was responsible for cleaving $0.16 out of per-share profit in the quarter. "The rest of the Company performed well...with growth in sales and membership income, and higher operating profit," said CEO Jose Luis Laparte in a press release accompanying the results. In fact, remove Colombia, and the rest of the business posted a $0.05 per-share profit gain, management said, which would have been right in line with expectations.
However, currency swings represent more than just a paper loss for PriceSmart. In addition to that translation pinch, the company has to pay higher local prices for the goods it imports. And that can cause market share problems, because PriceSmart is more dependent on imported products than many of its competitors.
The company doesn't have much control over this issue, either. As Laparte explained in a conference call with investors in January, the exact way a huge currency swing affects business is hard to predict, but "all we can do is keep working hard for our members and be there to offer the best possible price on our merchandise."
Strong start for the third quarter
The good news is that PriceSmart logged strong comparable-store sales gains to start the current quarter. Comps rose by 7.3% in March. That marked the third-straight month of improvement since December's 0.3% letdown.
Some of that jump is likely due to PriceSmart raising prices in response to the higher cost of its products. Still, the solid start to the third quarter puts the company in good shape to meet the 10% sales gain that investors are expecting for the full fiscal year. But it's also clear that currency swings aren't done wreaking havoc on the retailer's books. Profit growth will be harder to achieve in this environment.
PriceSmart executives plan to hold a conference call at noon on Friday, April 9, to discuss the results in more detail.