Q4 2019 Earnings Call
I would like to join for price Mark.
Leasehold and operator will be with you shortly.
Welcome to chorus call leasehold and operator will be with you shortly.
Of course coach CODI like to join.
Hi already in your name please.
First name debuted last name brands.
And your company.
Our euro <unk> era.
Thank you all joining the call is being recorded.
Thank you.
And 1% respectively.
In total.
The foreign currency fluctuations negatively affected our total sales growth by 2.7%.
With regard to membership we finished the quarter with approximately 1.6 million accounts, which is a 2.5% increase fiscal year to date.
Membership income was up by 4.2% during the quarter ended 12 months renewal rate at the end of August increased to 85.7% versus 85% in the comparable period last year.
Total gross margins this quarter increased to 17.2% front of 16.3% in Q4 fiscal 2018.
Gross margin when compared to the prior year period was primarily impacted by favorable net merchandise margin.
Yes merchandise margins for Q4 increased 50 basis points to 15.2% versus a year ago.
Merchandise margin improvement was driven by strong performance in food and fresh categories, including pet supplies and seaport seafood category electronics in apparel departments within the non foods category also contributed to not margin improvements in the fourth quarter, although many of our categories did improve we see an opportunity just.
Strengthen in prepared foods, we are evaluating our product offering and member demand to improve growth in this category as well.
In summary, net income for the fourth quarter fiscal year, 2019 was $20.7 million or 67 cents per share.
Fair to $19 million or 62 cents per share in the comparable period last year.
Now turning to the fiscal full fiscal year 2019, total revenues increased by 1.8% net merchandise sales increased by 1.2% and comparable net merchandise sales decreased 5.6%.
Net income for fiscal year, 20, not 19 was $73.2 million or $2.40 per share.
Paired to $74.3 million or $2.44 per share in fiscal year 2018.
As a reminder, we ended Q4 and fiscal year 19, with 43 clubs compared to 41 clubs a year ago.
That is because of the addition of the Santiago derived with club in Panama and May of 2019, and the Santo Domingo club in the Dominican Republic in June of 2019.
I'd like to take a moment to share with you a bit of what I observed at our most recent club opening in Panama.
Last week I attended the opening of our 44th Club Metro Park Panama.
First I have to congratulate our team a club as beautiful it has a new layout that was really well received we have 132 employees there who were selected from a pool of over 800 their passion and commitment to our company was very clear to me.
And the days a nice before the openings I saw our employees meticulously tending to every detail ensuring that each of the six rights that merchandising, we're being followed with discipline.
We had exciting merchandise, including novels seasonal items very impressive direct farm produce prepared foods and bakery goods, including.
Juggle logo brand that with a major hit with our members.
There was an increased offering of our private label member selection, which is quite well regarded in our markets is having as good if not better quality than the leading brand, but at a better price has a better value to the member.
Give me the building itself is approximately 7300 square meters.
70% of this deal that went into the superstructures made from recycled material and the math was from indigenous material and there were a significant number of environmentally sensitive elements employed in the construction of this building.
Throughout the clubs there was more more of our packaging with compostable recyclable or bio degradable, we've completely discontinued the use of high contaminant styrofoam.
Metro Park is our first club in Panama to offer optical services.
This new service provides a full time on optician onsite with our membership up to four family members can undergo vision exams without charge.
It's a benefit that's included in the membership.
The prices of our frames and lenses, including leading brand names are extremely competitive and in most cases, the glasses are ready in about five days, giving our members more reasons to visit the club.
I'd like to also tell you a little bit about our direct farm program, which we rolled out in Metro Park.
This program was initiated over a year ago and today over half of all agricultural products sold in our clubs in Panama come directly from Panamanian farmers.
Through our direct farm program, we not only by from them, but we also support them and the certification process for good agricultural practices and good manufacturing practices, providing confidence in the quality and in the safety of our protocol.
With our team's expertise and the use of our own produce distribution center. We're also able to increase efficiencies and save cost on packaging and labeling and distribution of the protocol to our club. The results are really impressive as our members are getting fresh and improved quality produce at better prices in our clubs.
I saw one example, where they took a picture of.
Panamanian farmer, who had.
Cut a head of let us in the farm and that was it about.
Nine am on one morning, and it was in our club at 60 and the following morning.
The opening of Metro Park brings our total warehouse club count now to 44, including seven in Panama.
Now I'd like to.
And to some of our highlights in key accomplishments and priorities that that I believe we met in fiscal year 2019.
We opened two new clubs as mentioned earlier, both of which are our smaller Clark format for patio that Rob was clubs situated in a secondary city and Panama.
And that was in May of 2019, and the Santo Domingo club in the GR, which is a more urban.
Club, which opened in June of 2019, and we're in we're learning we're learning a lot from these clubs.
I want to thank our real estate construction operations logistics and by team suits stepped it up and accelerated the pace, making it possible for us to open three new clubs in the last five month.
We've also announced our commitment to in fiscal 19, we announced our commitment to six additional hubs between asked by 2020 enough by 2021 announced clubs will bring our total club count to 49 locations.
These clubs include Metro Park, and then San Cristobal, why Tamala, which is a small urban format club and our fourth club in Guatemala that opening isn't just two weeks and I'm really excited to see our team there.
In Costa Rica.
We will see the Liberia club that the secondary cities small format clubs in the north Western part of Costa Rica about three hours from the capital City San Jose in about four hours from our closest existing club Liberia will be our for our eighth club in Costa Rica.
We've acquired a site and city in the city of Port more a suburb of the capital City of Kingston, Jamaica to make has been a strong market for us with great reception from our members.
More will be a traditional size club and our second club in Jamaica, we expected to relieve some of the pressure from our mature club in Kingston and also improve the shopping experience for our members and Kingston.
We'll be expanding our presence in Colombia with two new clubs and that's why 21, one will be a smaller clubs format in the city of Bucaro Mongo, Colombia. The other will be our standards format club in Bogota, Colombia known as our one Seventyth Street location. This is our third location in the focus on Metropolitan area and.
As a result will end up with nine clubs in Colombia, a market, where we see additional strategic importance for us.
Enough why 19, we also invested and improving several of our existing clubs. We've been large some buildings to expand sales floors, we modeled a refreshed aging club and added more parking in four of our highest volume locations.
We plan to make additional investments this fiscal year 2020 to expand our sales for square footage an update existing club.
As I mentioned earlier, we now have optical services in all of Guatemala, Costa Rica, our first.
One in Panama with Metro Park, we plan to add just obstacle to approximately 14 or more locations that off by 20 as we intend to accelerate these plans. So that we can offer it and most of our clubs in the near future. This service is a great example of the value proposition our membership provide.
Our platinum membership program continues to resonate with our members. The program grew 62% year over year and has been rolled out in nine of our 13 markets platinum membership represented almost 3.6% of our total membership base and there is opportunity there for future growth.
We continue to work on our Omnichannel capabilities to our technology development investments.
In fiscal year 19, we implemented new channels for digital revenue, including digital membership capabilities are new sign ups renewals and upgrades and we launched price smart dotcom to initially support clubs in the Dominican Republic with an extended catalog of cross border products.
In fiscal 2020 were currently planning to roll out inventory visibility on mine in all Spanish speaking countries and enable online purchases on price Mark dotcom in select markets with multiple delivery options.
Continuing on technology, we have formalized detect development team. This team is focused on developing tools to further support our core business and enhanced efficiencies and ensure alignment with our omnichannel offering. We also expect better insight on predictive analytics.
We continue to evaluate and explore the potential for more of these smaller format clubs.
The smaller format options are two different goals, which are distinct one is to address the high cost of what and lack of availability of real estate in some of our densely populated urban areas and the other is to allow us the opportunity to grow by extending our reach into rural secondary cities, where we're finding demand.
And and.
These smaller markets tend to be distant from our existing clubs.
Lastly, and most importantly, we continue to invest in our people. We do this through talent development teaching proactive initiatives for collaboration and rotations throughout various areas of our company that is expanding the breadth and depth of our leaders and many of our employees.
As a result, our team is operating in a more unified matter and I believe this is an important contributor to a new renewed energy, we have and is showing an improved financial results and delivery on our key strategic initiatives.
As we look forward to the opportunity fiscal 2020 present, we'll continue to execute on our strategic objective, we plan to add new warehouse clubs at a controlled rate that will allow us to remain focused on our existing clubs and operations increased our technology development to better serve our members gross sales focusing on both in.
Individually and our business members.
We continue to find solutions to mitigate market volatility due to economic and geopolitical conditions.
I'd like to take a moment.
And note that as you might expect.
When we opened these new clubs in existing markets, especially at a faster paced in recent years.
We do see transfer sales from the more established clubs that will inevitably impact our same store sales results.
During fiscal 2020, we will have five clubs that will impact same store sales three of which have already opened and two that are scheduled to open. In addition, we have a competitor reopening in our USPI market after a prolonged closure.
We're building our business for our long term success and to make sure that we maintain the appropriate presence in our markets.
In closing our goal is to be a model for how to operate a profitable company that provides a good return to our investors by serving our members in these emerging and developing markets with safety kleen buildings and equipment and by providing good jobs bare wages and benefits quality merchandise and services at good prices that are.
Made accessible to a broader segment as a population while treating our suppliers right and empowering them, where we can and conducting ourselves responsibly by local norms and respecting the environment and the laws of all the countries in which we operate.
I'd like to recognize and thank our approximate 9000 price smart employees for their exceptional efforts and commitment to our company.
It's been a great experience over these last 12 months. These results would not be possible without the support of our employees and we're very encouraged by our progress as we enter fiscal year 2020. Thank you for your time I will now turn the call Overachieved Martin Yeager, Our Chief Financial Officer, who will go into further details about our fourth.
Quarter results. Thank you Sherry and good morning, everyone as Sheri discussed earlier during the fourth quarter total revenues were 801.3 million an increase of 3.0% over to comparable prior year period revenues consisted of primarily enough merchandise sales of 768.9 million. There are 2.4 million a member.
Shipping E Com 7.7 million in export sales and 11.3 million and other revenue and income.
Total I've seen a expenses as a percentage of total revenue was 13.2% representing a 40 basis points increase versus a year ago. This increase was primarily driven by our investments in new clubs and additional expenses as it relates to pre openings.
Pre opening expenses as a new clubs mature we expect to start leveraging these expenses as a percentage of revenue.
Operating income was 32.0 million or 4.0% of total revenue in Q4 fiscal 2019 versus 27.2 million or 3.5% of total revenue a year ago. The improvement is largely due to higher net merchandising margins in the fourth quarter fiscal 2009.
Team.
Our effective tax rate for the fourth quarter fiscal 2019 was 34.1% the increase versus the 27.5% rate in the same quarter last year was driven largely by the loss of tax asset value incidental to us tax reform impacting us by 12.4%.
Offset however by us tax reform beneficial deductions of 5.9%.
For the whole year at the effective tax rate.
Was 33.8%.
Decrease versus the 36% rate expected was largely driven by the reversal valuation allowances in our Colombia subsidiary.
Net income increased 8.9% to 20.7 million with diluted earnings per share of 67 cents in the fourth quarter fiscal 2019 compared to 19.0 million.
With diluted earnings per share of 62 cents into fourth quarter of last year moving onto the balance sheet, which remains very strong. The company ended the quarter with cash and cash equivalents of 106.2 million an increase of 9.3 million compared to last year during that period cash provided by operating.
Liberties was 170.3 million versus 119.5 billion in that same quarter last year for a favorable increase of 50.9 million. This was primarily due to improved working capital.
Net cash used in investing activities declined by 29.1 million, primarily due to the nonrecurring business acquisition last year, along with significantly fewer purchases of short term investments offset by higher capital expenditures for new warehouse clubs in Panama, The Dominican Republic, Guatemala, Costa Rica and co.
Yes.
Net cash used in financing activities increased 4.2 million, primarily due to regularly scheduled loan payments offset by short term borrowings.
We have seen headwinds in us dollar reported sales, which were largely affected by a continuation of foreign currency devaluation.
Fundamentals of our business as evidenced by our membership accounts and renewal rates constant currency sales overall, especially in Colombia in the Caribbean reinforce that we have a strong business model and significant growth opportunities. We will continue to focus on the six rights driving same store sales delivering on our announced.
Real estate pipeline and continuing to develop our digitally enabled omnichannel platform, our balance sheet liquidity and cash flow remains strong which provides a solid foundation for driving same store sales and future growth that will benefit our members since shareholders alike.
As we move forward to a new fiscal year I'd like to offer some more context.
For the upcoming year earlier on the call Sheri discussed our recent club opening in Panama last week, and we have two additional clubs opening in fiscal 2021 of which is opening in about two weeks in Guatemala and then we also have three additional clubs opening at fiscal 2021.
With our strategic plans in place, we anticipate continuing to grow sales. However, we recognize that there will be a transfer sales as sheri mentioned between clubs. Some members shop at the new clubs within the same markets, while we anticipate that our topline will improve in these markets. We believe that there will be a same store sales impact to mature stores.
This impact will remain in place until our new club operations mature to 13, and a half months after which they will be counted in comps. We also anticipate experiencing some challenges in our Caribbean market as a competitor will be reopening after suffering.
We are storm damage.
Lastly, we expect the effective tax rate to settle between 30, 536% for fiscal year 2020.
We're very encouraged by our progress in fiscal 2019, and I look forward to speaking with all of you on our next earnings call in January of next year to discuss our continued progress.
So now on a personal note I would like to add a few comments as you will likely have seen in our earnings release due to personnel reasons I have made the very difficult decision to move back East in January This will allow me to be closer to family and it is also where early next year I will be getting married.
The current plan is to continue to work in my current role until what we estimate will be January 10th 2020, but I will be flexible based on the needs of the company and will be available there after to ensure a smooth transition I want to take this opportunity to thank price smart and in particular, my executive colleagues as well.
Lets my incredible finance team located here in San Diego and across all of price Smarts markets. I also want to thank our CEO Sheri Brumm baggy the board of directors and the chairman Robert price, specifically for the opportunity to service price Smart CFO , we have made tremendous progress well under.
Going a lot of change and dealing with many challenges I believed that the company is on solid footing with an excellent balance sheet strong cash flows improving sales and margins and an active real estate pipeline, all of which bode well for a long term profitable growth. Thank you once again to everyone for giving me the.
I'd to be part of the price Smart family I will now turn it back to Sherri after which we will take questions on the quarter.
Thank you Martin.
Personally and on behalf of the company I'd like to extend our heartfelt congratulations to you Martin and on near upcoming wedding and the next chapter here like.
During Martin tenure, he made really important contributions to the company. He strengthened our finance department and recruited good talent I'm very comfortable that we'll have a smooth transition with a mutually supportive plan.
We have a strong team in place that provides the opportunity to do a thorough search for a successor, who will complement and continue to maximize the effectiveness of our leadership team.
As we proceed with fiscal year 2020 were continuing to build on our momentum and moving forward as plan to capitalize on all of our initiatives.
Including those that will drive sales expedite club openings develop omnichannel capabilities and deliver on our commitment to the six right.
Thank you and I will turn it over for questions now operator.
We will now become the question and answer fashion.
Ask a question you May press Star then one on your Touchtone phone.
If you're using a speakerphone please pick up your handset before pressing lucky's.
To withdraw your question. Please press Star then too.
At this time, well pause momentarily to assemble our roster.
The first question comes from Jon Braatz, what Kansas City Capital. Please go ahead.
Morning, Sherri good morning Martin.
Good morning.
Just wanted to touch base on the on the gross margins a warehouse gross margin of 15.2%.
During the first three quarters.
You bet, you were a little bit more aggressive on pricing and margins were.
Were soft.
And here on the fourth quarter, obviously, it was very much the surprise I guess can you can you go into a little bit more detail.
On the improvement in gross margins and then secondly, Sherry Martin when I go back and look at.
Gross margins historically I have a little note when when when margins are up around 15% in the past you've always said.
Jose or John and that 15% is somewhat.
Hi, and probably unsustainable.
And so I guess could you comment on the level of where we are now and and where where you think.
Mike go going forward. If these are these levels a new new norm.
I guess stuff.
Okay.
Thank you Sir.
Sure.
So Jonathan I think the main answer to your question is that the improve margins are really the result is sticking close to our six rights and our core discipline.
Weve found great opportunities for being able to operate more efficiently and by better I mean, the direct farm is a great example is that where we found that we've been able to reduce the overcome overall cost of our merchandise and lower prices.
At the same time for our members delivering greater value and we're very we're very disciplined about our margins you're not you're not going to see a change in our core philosophy from that standpoint, but I can tell you that by identifying.
These efficiencies and being able to.
Apply our core discipline at the six rights.
And with these exciting merchandise that we're seeing him a clubs.
Not the same need for Mark Downs.
Improving inventory flow all of those things have allowed us to.
Should deliver better margins and we when we set these margins we're very careful to deliver on our promise to our members and that is to make sure that we're doing our homework for them. We provide a service and that is to cure rates. The best selection of merchandise that we can.
Negotiate the best price that we can make sure that we're getting the best value to them as possible and we're still pricing. It at a level that has a healthy comp umbrella. So that's that's the basic philosophy that we're applying and.
It's worked for us at least in this last quarter.
So going sure going back to your core philosophy has always been passing passing cost savings to the consumer to generate.
Higher revenues.
I assume that hasn't changed and that.
Some of the better and better margins, you're getting you might pass on or should I not think thinking.
Absolutely absolutely with better margins, we have the opportunity to put that back into.
The value that we're able to provide to our members, which then only increases our capabilities to leverage our buying and by even better and drive more volume. It also enhances the value of the membership itself, which should motivate our members to want to renew and new members new people to want to become members.
Because they're going to see a very strong value proposition.
Okay. Thank you and one last question.
Your technology spending.
Going forward.
How do you see it.
Versus this year on the level of spending or are you going to continue at.
The pace you are at or will you see some de acceleration or in fact, maybe see some acceleration that spending thanks.
That area is under.
Serious evaluation at this time I can I can say that it's safe to assume that there's not going to be a dramatic change one way or the other.
We are taking on measured approach I think you can tell.
Already but we're trying to make sure that we're focusing on the first priority is to increase our growth in our sales and operate as efficiently as possible, but I think the short answer is I wouldn't expect a dramatic change one way or the other.
Thank you very much.
Well level.
Our next question comes from Rodrigo It took all right what Scotia Bank. Please go ahead.
Thank you good morning, everyone and congrats on the results couple of questions. On my end can you, perhaps quantify or maybe putting coupon pick somebody County Valley station you you expect.
Oh, which regions or countries, where you believe there would be more.
Susceptible to kind of only patients from the from the store openings.
But that's my first question and then the second question.
With regards to membership prices.
Renewal rates are.
Improving same store sales are improving and it's been a while I believe since you have heading increases on their membership prices.
Are you.
I will leave the recent opportunity on on on that front.
Hello.
Question, but maybe perhaps I.
Thank you.
Okay with regard to the regions I think the best guidance I can give you on that is to just look at the geography is that we've announced where we're opening.
And there they're proximity to existing locations, there's several of our.
Openings that are going to be in more remote areas like Liberia.
That that have a several our commutes from the nearest club.
And then there's those that are that are more in the heart of of where existing clubs currently exists like the one I was just that.
Metropark and Panama.
And so there's going to be some variability from market to market, depending on the proximity and and the cash.
The membership catch pool that will be drawing from.
With regard to membership the fee.
We are reviewing that and it's one where.
Our philosophy is basically we give before we get.
We give to our members to make sure that they are.
Confident that they're getting value by being part of heart membership group and part of our family and as we see that that value proposition is growing then we feel that it may be appropriate to adjust our membership fee and that again is an analysis thats done market.
By market.
So we try to keep it within a.
You know a narrow band.
And we do see potential opportunity but.
Our intention is to give before we get and as we indicated justify are we in our professional relationship with our members that we've earned the right to increase the membership we will do so and hopefully they will continue to see the value and paying that membership because they'll have access to everything that we can provide them.
Got it does that make sense and then finally can you maybe.
Talk a little bit about on the smaller stores on you know from your experience so far.
Part of the also rationale behind the smaller stores through the fact that you could have extended catalog online.
And perhaps.
Some of those somebody inventory.
The what's sitting up store could now be.
Online have you can you comment on what have you seen on on that from so far.
Well, that's part of what we're testing right now with our believe our club and and we're learning a lot from it what I can share with you is that by the end of that's why 2020, we expect to have an extended catalog.
As well as full inventory for for at least our Spanish speaking market and that should provide us opportunity to augment the shopping experience for our members in these smaller real estate footprints. These smaller.
Formats.
The best ways of doing it where it we're exploring different alternatives, there's many different ways to accomplish this including.
Click and collect and but but all of these different approaches have to be technologically enables and that's where our focus is right now.
Got it thank you very much.
You're welcome.
This calculation.
This concludes our question and answer session I would like to turn the conference back over to Sharon Baron Baggy for any closing remarks.
I just want to thank everyone for.
The supports both within our teams and for our investors and I wish you good day.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.