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PriceSmart Inc. Grows Despite Currency Challenges

By Demitri Kalogeropoulos – Jan 9, 2016 at 10:19AM

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The South American warehouse club's latest monthly sales data also points to gains on the way in the current quarter.

Warehouse retailer PriceSmart (PSMT 0.74%) posted quarterly earnings results on Jan. 7 that showed steady sales and profit growth -- along with continuing challenges from currency swings in the Colombian market. Here's how the headline numbers stacked up against the prior-year period:

The raw numbers

 

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$691 million

$636 million

9%

Net Income

$24 million

$21 million

14%

EPS

$0.78

$0.68

15%

Data source: PriceSmart's financial filings.

What happened with PriceSmart this quarter?
The company, which operates Costco (COST 2.09%)-style warehouse clubs across Latin America and the Caribbean, managed solid profit growth even as the profitability ticked lower. Highlights of the quarter include:

  • Revenue rose 9%, slowing from the prior quarter's 13% jump.
  • PriceSmart counted 38 warehouse stores in operation, up from 36 a year ago.
  • Membership income improved by 13% to $11.5 million, or just below the 15% pace set over the last four quarters.
  • Operating margin fell slightly, dipping to 5.5% of sales from 5.9%.
  • Pre-opening expenses dove to $300,000 from $3 million as PriceSmart opened just one new warehouse store in the quarter, compared to three in the prior-year period.
  • December comparable-store sales were up 1.3%, an improvement over the 0.5% gain in November.

What management had to say
Management cited currency issues as a major headwind continuing to hold back sales growth. The 1.3% comps gain for December, for example, rises to 3.6% if you exclude the data for the chain's three stores in Colombia, where sales results were hit hard by the sharp devaluation of the Colombian peso.

Swings in that currency have been a major drag on PriceSmart's operations lately, pushing sales growth, profitability, and membership income lower. But executives continue to see Colombia as a great long-term market for its warehouse clubs. "We're still optimistic about our opportunity in that country," CEO Jose Luis Laparte said in a recent conference call with investors. In the meantime, the retailer has stepped up its efforts to source more products locally so that it can lower costs in the market.

Looking forward
The 3.6% currency-adjusted comps gain in December represents a solid improvement over the 2.2% November rise. That suggests customer traffic growth is strong even if the improvement is currently being overwhelmed by foreign exchange issues.

PriceSmart can't do much about currency swings, so it's focusing on improving its merchandising and supply chain so that it can continue to lower prices and thus improve the shopping experience for its members. Those initiatives are paying dividends, as evidenced by the 2-percentage-point uptick in PriceSmart's subscriber renewal rate -- to 86%, or just slightly below Costco's 88% global renewal rate.

Demitrios Kalogeropoulos owns shares of COST. The Motley Fool owns shares of and recommends COST. The Motley Fool recommends PSMT. 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.

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Stocks Mentioned

PriceSmart, Inc. Stock Quote
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