Please ensure Javascript is enabled for purposes of website accessibility

Why PriceSmart Inc.'s Stock Rose 12% in June

By Demitri Kalogeropoulos - Jul 7, 2015 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Was it a meaningful movement, or just noise?

What: PriceSmart's (PSMT 3.42%) stock rose by 12% in June, according to S&P Capital IQ data. The increase pushed shares into positive territory for the year: PriceSmart is now up 1% so far in 2015 and 2% over the past 52 weeks.

PSMT Chart

PSMT data by YCharts

So what: The Costco-type wholesale retailer, which operates 36 warehouses throughout Latin America and the Caribbean, announced in early June that net sales increased by a hefty 14% in May. That boost was driven by three additional warehouses in its store footprint (all located in Colombia) as compared to the prior year. But PriceSmart also enjoyed a 4.6% sales gain at existing shops. May's comps were a solid improvement over April's 0.2% figure, and over the 2.4% comps it posted for the full second quarter.

Overall, Wall Street sees PriceSmart booking 12% higher sales for its fiscal third quarter, when it announces earnings results on July 9. Revenue will probably rise to $688 million, compared with $615 million in the year-ago period.

Now what: Investors shouldn't expect that sales gain to power much in the way of higher profits, though. In fact, analysts see PriceSmart logging $0.72 per share in earnings, just 3% above last year's haul. The earnings target is down substantially from the $0.82 per share Wall Street was targeting just 90 days ago. 

Results will probably be pinched again by currency devaluations against the U.S. dollar. Changes in the Colombian peso cleaved $0.16 out of per-share earnings last quarter, and the currency hasn't regained strength since then. 

While PriceSmart can't control foreign exchange swings, it can improve operations by lowering its costs, passing those savings on to customers, and gaining market share through lower prices and a better shopper experience. CEO Jose Luis Laparte told shareholders in April that the company was focused on "working hard for our members to offer the best possible price on our merchandise."

Progress toward that goal will show up as improvements in the metrics of comps growth, membership income, and operating profit. That's why investors should watch those figures rather than focus on the nosier headline profit and revenue numbers when PriceSmart posts quarterly results later this week.

Demitrios Kalogeropoulos owns shares of Apple and Costco Wholesale. The Motley Fool recommends Apple, Costco Wholesale, and PriceSmart. The Motley Fool owns shares of Apple and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

PriceSmart, Inc. Stock Quote
PriceSmart, Inc.
PSMT
$65.83 (3.42%) $2.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.