Q1 2022 PriceSmart Inc Earnings Call
Good afternoon, everyone and welcome to price Mart incorporated earnings release conference call for the first quarter of fiscal year 2022, which ended on November 30th of 2021. After remarks from our company Representatives Ms. Sherry Bear in Baggy, Chief Executive Officer, and Michael Mccleary, Chief Financial Officer, you will be given an opportunity to ask.
Questions as time permits as a reminder, this conference call is limited to one hour and is being recorded today Friday January seven 2022, our.
A digital replay will be available following the conclusion of today's conference call through January 14th of 2022 by dialing 1877344 75 to nine for domestic callers or.
Or one for 123170088 for international callers and by entering the replay access code 6014456 for opening remarks, I would like to turn the call over to price Martz Chief Financial Officer, Michael Mccleary. Please proceed sir.
Thank you and welcome to the price My earnings call for the first quarter of fiscal year 2022.
We will be discussing the information that we provided in our earnings press release, and our 10-Q, which were both released yesterday afternoon January six 2022.
Can find these documents on our Investor Relations website at investors thought price Mart Dot Com, where you can also sign up for email alerts.
As a reminder, all statements made on this conference call other than statements of historical fact are forward looking statements concerning the company's anticipated plans revenues and related matters.
Forward looking statements include but are not limited to statements containing the words expect believe plan will may should estimate and similar expressions.
Forward looking statements are based on current expectations and assumptions as of today January seven 2022.
These statements are subject to risks and uncertainties that could cause actual results to differ materially including the risks detailed in the company's most recent annual report on Form 10-K, and other filings with the FCC, which are accessible on the SEC's website at Www Dot FCC Dot Gov. These risks may be updated from time to time the company undertakes.
No obligation to update forward looking statements made during this call now I will turn the call over to Sherry there on baking price Martz Chief Executive Officer.
Good day, everyone welcome to our earnings call I Hope you all starting 'twenty 'twenty channel, but at the same optimism backed up here for the new year.
We have some great topics to cover today and as you can see from the results. We had a very strong first quarter in the fiscal year.
Or no COVID-19 supply chain disruptions or not the results delivered by our team are very very solid.
So now looking at that number during the first quarter, our total membership base.
New record level with 7% growth year over year.
And our 12 months.
Membership renewal rate was very strong at 89%.
Our headline numbers all grew over the prior comparable period and it's worth noting that resulted this quarter I'm being compared to a quarter last year and the significant growth was achieved relative to the same quarter in fiscal year 'twenty.
So net merchandise sales increased 12, 6% versus the same period last year.
With regard to our comparable sales in Q1.
Increased nine 4%.
Same period last year.
Hershey continues to be a headwind and the impact of total and comparable net merchandise sales by 1%.
Our operating income grew three 3% in the first quarter of this fiscal year when compared to the same period last year.
And earnings for the first quarter grew 10, 1% to $35 million versus $27 $7 million in the prior year period.
Basic earnings per share of 98.
Quarter versus 95 in the prior year period.
Now looking forward into Q2, we can report strong holiday sales with a comparable net merchandise sales for the four weeks ended December 26 2021.
Right.
They were up 10, 1%. This was achieved by a negative currency impact of 2.8 percents.
We're seeing good momentum and our team is well prepared to build on that momentum.
So now I'd like to talk a little bit about how we're pursuing growth for our company.
We're focused on three major driver to grow our company.
The first is real estate open.
Opening new clubs and making investments in our distribution network to ensure that we're strategically located in the right places to maximize efficiencies in our supply chain.
Second.
Is enhancing the value of the membership.
And third is driving incremental sales for the company.
Our new platform Priceline com and other digital capabilities.
So now let's briefly touch on some of our activities into those areas.
With regard to real estate, we continue to actively seek opportunities to expand our geographic footprint for brick and mortar warehouse clubs.
It is our intent to continue and even accelerate our current pace of club credits over the next three to five years and to continue to explore and evaluate opportunities in new markets.
Since the beginning of the Covid Covid pandemic, we've opened four clubs sure. Those clubs are just opened in the first quarter of fiscal 'twenty two.
The first of those.
Two is the around the clock and South East, Guatemala City, Guatemala, and it's our first club in Guatemala.
Our C O. All attended the opening and was extremely pleased with the club our employees any overall offering we provide in that market.
Only about three months, we're seeing strong performance and good growth in membership and.
And we see potential for even more clubs in Guatemala.
In November during the first quarter this fiscal year I, along with several members of our leadership team traveled to Colombia to visit our clubs there and evaluate the market.
I tend to be opening up something that Blanca a nightclub in Colombia located in Europe took out a long ago.
It felt really good to be back in our market and it was quite reassuring to see that our local management team is doing an exceptional job.
Our employees were positive and extremely grateful for how they've been cared for and protected during this very difficult time.
We are working to increase our presence in the Colombian market.
Although not yet and now we can share with you today that were under contract permits have been issued and site preparation is underway for a new club.
Colombia.
The site is in the center of a densely populated and growing area of mid teens with very good demographics for our business.
I got to see it myself when I was there in November and we're just extremely excited about the prospects for this location.
Assuming all goes as planned the club, which we refer to as St. Michelle should open in the fall of 2023.
Also as we previously shared the portnoy quite more Jamaica club is progressing nicely.
We believe Jamaica is a strong market for us.
<unk> generated out of our Kingston club has been.
Historically record setting for that location.
We're looking forward to the opening of CT more than approximately April of this year and that will mark the 50th club for our company.
We've invested in our real estate team and have more potential locations identified for potential new clubs than we've had in years.
Of course, the pipeline includes potential sites at various stages of evaluation or due diligence, but there's no doubt the positive results that we're seeing from Europe clubs the increase in demand for our membership and the opportunity that we see to serve the needs of these markets responsibly and competitively as a strong motivator to increase our brick and mortar.
Presence and expand our geographic footprint with new clubs.
Hand in hand, with our plans for club growth Smart planning for our distribution network and additional distribution centers of various types. So that we can most efficiently quite the flow of merchandise from the supplier to the member.
Sales generated from the club's or through price Mart Dot com.
Also the need for Optionality in today's world has proven essential therefore, we plan to make appropriate investments in our distribution network to maximize efficiencies minimize supply chain disruption and to provide optimal support for our growing E comm business.
We also intend to expand our network with Proteus distribution centers from three that we currently operate two six.
Alright, various stages of analysis and execution.
These eventual couldn't distribution centers will allow us to serve local and regional proteins to all of our current market.
These distribution facilities, sometimes also provides the opportunity to centralize certain production activities, such as bakery meat processing and packaging and labeling.
All of which is intended to lead to greater efficiency.
As we scale up the number of our club and sales in our markets, we continually evaluate how to land our merchandise at the lowest cost.
Typically located distribution centers enable us to realize greater efficiencies, which resulted in better pricing guards against La Salle and provides optionality to mitigate the additional expenses associated with supply chain disruption and that's a reality that we're all having to take hold with nowadays.
Now moving to our second driver for growth enhancing membership value.
At its core.
Our business model is about making our value proposition.
So compelling so great that.
People choose to pay a membership to access what we provide.
So we are continually developing new ways to reduce costs and provide greater value.
Examples include our direct farm program, where we invest and partner with local farmers to source better quality produce at a lower cost, which we can then have the savings on to the member.
Another example is our private label program, we have strong brand recognition in our markets and a great reputation.
Private label it gives us the opportunity to get even greater value to our members.
So we plan to continue expanding our offering, especially in the area of hard and soft lines.
Divot label also provides us the opportunity it's worth to source quality items locally when appropriate.
Select local sourcing has a number of benefits.
Hum sample it supports local communities in which we operate by developing industry and creating direct and indirect jobs. It.
It can help mitigate F N.
The FX risk.
It reduces exposure to supply chain disruption and escalation of transportation costs.
So there are a number of reasons for us to continue investing in and expanding our private label, including the fact that it's a differentiator for us.
Given that it's our own brand.
Private label represented approximately 23, 6% of our merchandise sales in us in the first quarter.
Quarter of fiscal 'twenty two.
Which is up from 22% for the full year of fiscal 'twenty one.
We also enhance membership value by offering certain because it can enhance the quality of life for our members.
Our well being initiatives, which continues to expand currently offers.
Optical services in 45 clubs with free eye exams for the member.
And additional members of their families.
Long with deeply discounted quality eyeglass frame.
We expect that we're gonna be opening at least two more before the end of this fiscal year.
And our optical is proving to be a great success for.
For us.
We provide audiology services. This is one of our newest initiatives initiatives under the wellbeing umbrella and we provide those services in all of all five of our Guatemala clubs with free hearing exams for members and members of their family as well as deeply discounted hearing aid.
We expect to rollout audiology to somewhere between a third and half of our clubs before the end of this fiscal year.
And we've opened pharmacy and all eight of our Costa Rica club.
And also like tangible out pharmacy to more of our markets.
Members also benefit from the convenience and services, we provide such a curbside pickup and delivery options for purchasing I'm sorry for purchases are clicking they'll platform and so we continue to invest in and enhance the services we.
We also believe that a benefit of being a member is it we can be trusted.
A company we are trusted and we are working on them.
Really cultivating that goodwill and trust.
That that comes from the fact that we put such emphasis on keeping our members safe and treating them responsibly.
Drink Covid and to this day, we've maintained compelling prices and great value for our members even in times of scarcity of supply chain interruption. Our team did a great job of ensuring we have the right amount since the right merchandise at the right place at the right price and at the right price. So that we could not myself and make available those goods.
What our members needed it most.
So stepping back driving membership value leads to a higher membership base the opportunity.
It provides the opportunity to increase the membership fee when appropriate and it allows us to reinvest.
The membership fee to drive prices down.
Turn that makes the membership even more valuable by adding more valuable benefits that members can only get so much he expect membership.
ROE and for that to be.
A driver for growth for our company.
So now turning to our third main driver.
We're focused on generating incremental sales.
Price Mart Dot com and other online capabilities now that doesn't mean that it necessarily limited to the sales that are transacted online, but by virtue of our presence online we see opportunities to Jen.
Generate incremental sales both online and in our clubs.
As mentioned earlier, we continue to invest in our development and evolution of price Mart Dot com and our technology tools that allow us to engaging better analytics with the valuable resources, we have with our membership data.
We're seeing positive signs and opportunities to grow sales because of our online platform. In fact, we found that members who shop, both online and in club generally spend more than comparable members who shop exclusively in clubs.
In Q1 on <unk> Dot Com, we saw an increase in sales.
<unk> actions.
And penetration of total sales from the immediately preceding quarter.
We recently surpassed $1 5 million transactions on price Smart dotcom and.
Sales at <unk> Dot com represented 4% of our first quarter sales up from three 5% in the pit.
During the quarter.
Which was Q4 of FY 'twenty one.
However, a once again, it's important to emphasize that our online format in our clubs do not operate in silos.
Price more dot com provides a great opportunity to connect and demonstrate our value proposition to our members.
Two formats formats should reinforce each other to drive greater sales overall for the company.
The online platform provide convenience.
In fact, 15% of all new members in Q1 signed up online.
It's also an effective vehicle to provide information and offerings that can help drive in club sales as well.
In addition to your price my Dotcom, we have better connectivity with our members in a two way communication channel that allows us to provide better customer service.
Although our current online platform and technology tools have already become a significant part of how we do business and connect with our members.
We believe we have untapped opportunity to utilize this platform and the data it generates to effectively grow incremental sales.
So wrapping up.
Underlying all of these drivers of growth and what makes any of this a reality is our people.
We've always been a company that puts our employees first.
But I must admit COVID-19 it not only gave us an opportunity to prove it to our employees.
It compels us to do even better.
One of the greatest tangible accomplishment in this last year, which you don't see reflected necessarily in the numbers.
It was to make sure that all of our employees at all levels of our company access to good health care.
No doubt this was a cost we had not previously incurred but I believe it is one of the wives. This long term investments we've made.
The appreciation loyalty and commitment by our employees is palpable.
I firmly believe how we are cared for our employees through these uncertain times is a major contributor to the results that we're talking about here today.
I want to thank our team for a great job on a stellar quarter and I'll hand, it back to Michael now Thank you.
Thank you Sherry good morning, or afternoon to everyone and thanks for joining us today.
Before we begin I would like to take this opportunity to thank our team members for their tremendous effort and dedication during this past quarter and holiday season. Our results are a reflection of that hard work and determination.
Mobile revenues and net merchandise sales for the quarter were $975 $4 million and $944 million, respectively, representing increases of 11, 2% and 12, 6% over the comparable prior year period, respectively.
Including the clubs, we opened in the Rahmbo Guatemala in October in Florida, a block or Colombia in November we ended this quarter with 49 warehouse clubs compared to 46 warehouse clubs at the end of the first quarter of fiscal 2021, and we are excited about our plans to reach the milestone of 50 clubs. When we opened our second club in Jamaica and April 2022.
We experienced a very strong opening out of the gate with a rhonda and membership sign ups for our Florida Blanca Club I've done well ahead of our target. We believe that this is further evidence that consumers in these markets appreciate and embrace our unique business model.
Our comparable net merchandise sales growth for fiscal first quarter was nine 4% for the 13 weeks ended November 28 2021.
Foreign currency fluctuations had a negative impact on both net merchandise sales and comparable net merchandise sales of 100 basis points or approximately $8 $4 million and $8 $5 million respectively.
By segment in Central America, where we had 27 clubs at quarter end net merchandise sales increased 15, 6% with a 14, 1% increase in comparable net merchandise sales.
All of our markets in Central America had positive comparable net merchandise sales growth with exceptional performance in the northern triangle countries like El Salvador, Guatemala and Honduras.
And the Caribbean region, where we had 13 clubs at quarter end total net merchandise sales increased five 4% and comparable net merchandise sales increased 5%, but.
The Dominican Republic, Jamaica, and Aruba, all contributed double digit sales growth.
However, this strong performance was partially offset by weakness from Trinidad where we have four clubs, which saw a sales decline of six 2% in the first quarter.
This decline was primarily driven by our measured approach to rebalance our merchandize mix following the reopening of the economy at the end of our fiscal 2021 in December we began to see strong positive comps again insurance due to a combination of rebalancing our in stock inventory levels strong year end demand and having lapped the impact of a pull back on inventory imports, which.
Began impacting sales in December 2020, we are monitoring the evolution of this market closely but generally continue to manage our enforced to be in line with demand.
U S dollars, we expect to source in Trinidad.
In Colombia, where we had nine clubs opened as of the end of November that merchandise sales increased 16, 6%.
Bearable net merchandise sales declined two 8%.
The comparable net merchandise sales decreased contributed approximately 30 basis points of negative impact to total comparable net merchandise sales for the quarter.
The decrease in Colombia during the first quarter was primarily due to foreign currency devaluation with a relatively small impact from sales transfers from existing clubs due to our new Bogota club that opened in the second quarter of last year.
In terms of merchandise, we saw our foods category grow 9% compared to the same quarter in the prior year or cleaning beverages and liquor departments led the way with 9%, 36% and 13% growth respectively.
Our fresh category grew 12% compared to the same quarter in the prior year led by our poultry beef and seafood departments, with 21%, 18% and 15% growth respectively.
Our total non foods category grew throughput grew 3% compared to the same quarter in the prior year.
Our loans declined 3%, however, excluding turned out sales from both periods, where the reduction of our imports negatively impact year on year comparison, our loans grew two 9%.
Our hotline seasonal Christmas Department enjoyed a strong rebound versus the prior year period was 96% growth offsetting some of the declines in our other departments.
Our software category grew approximately 20% with sales of casual apparel growing 26% and home furnishings growing 24% versus the same quarter last year.
Lastly, our other business category rebounded with 17% growth primarily from our food service and bakery departments buoyed by increases in club traffic.
Turning to margins total gross margins on net merchandise sales came out at 16% for the quarter, which is substantially in line with the 16, 1% margins for the same period last year.
Total revenue margins decreased 60 basis points to 17, 4% of total revenues when compared to the same period last year. This decrease was primarily the result of a 50 basis points of lower revenue margins. Following our sale of Europe close during the quarter.
SG&A expenses increased $11 $2 million compared to the prior year, primarily due to the addition of three new clubs and our continuous investment in technology and talent to support continued growth, but decreased by 20 basis points as a percentage of total revenue.
This decrease was primarily due to lower operating expenses after our sale of Airbus.
The impact of eliminating or opposed to operating expenses was a 40 basis point contribution to lower warehouse club and other expenses and a 10 basis point contribution to lower general and administrative expenses.
These combined cost savings with 50 basis points were offset by the 50 basis points lower margin contribution I mentioned previously therefore, the sale of Europe post how to basically neutral year on year impact on operating income.
Operating income for the quarter increased 3% from the same period last year, a $46 million.
Net interest expense decreased zero point $4 million for the first quarter, primarily due to the short term borrowings compared to the prior year period. When we drew down on short term lines of credit as part of our efforts to secure adequate cash to cover contingencies arising from COVID-19 related risks.
He paid all these borrowings by the end of the third quarter of fiscal 2021.
Other income of $1 $4 million was primarily driven by a pretax gain of $2 $7 million.
Hello variables.
On an after tax basis, the or post disposal resulted in a net contribution of five cents of EPS during the quarter.
This pre tax gain on disposal was partially offset by a $1 $9 million loss associated with the cost to convert turned out of dollars into other charitable currencies and the revaluation of monetary assets and liabilities and several of our markets.
Our effective tax rate for the first quarter of fiscal 2022 came in higher than last year at 34, 1% versus 32, 9% a year ago. This increase of one 2% is attributable to a comparatively unfavorable net tax impact from nonrecurring items of 1.7%, which primarily related to changes in uncertain tax.
Positions offset by a comparable favorable benefit from recurring items of 0.5%, primarily resulting from changes in valuation allowances on our foreign tax credits.
On a go forward basis, we continue to estimate an annualized effective tax rate of 33% to 34%.
Net income for the first quarter of fiscal year, 2022 was $35 million or <unk> 98 cents per diluted share compared to $27 $7 million or <unk> 90 per diluted share in the comparable prior year period.
Moving onto the balance sheet, we ended the quarter with cash cash equivalents and restricted cash totaling $192 $6 million.
From a cash flow perspective, net cash used in operating activities decreased by $4 $4 million compared to the prior year.
The decrease in net cash usage is primarily a result of the increase in profits during the quarter when compared to the prior year with changes in operating assets and liabilities largely offsetting each other our inventory position has increased to $501 million as of November 32021 versus $373 million as of November 30 of 2020.
This increase reflects our efforts to bring our inventory levels in line with our sales trends and the addition of two clubs versus the prior year period. In addition, we have made strategic investments in inventory to maintain adequate in stock levels.
On items that either have been or we expect maybe impacted from increased container transit times, especially for merchandise coming from Europe, and Asia and commodity and electronic parts shortages.
Yeah.
Net cash used in investing activities decreased by $38 $3 million compared to the prior year, primarily due to the decrease in purchases of certificates of deposits compared to the same three month period, a year ago from the significant improvement or decrease in our balance of trade out of dollars on hand versus the prior year.
Cash used in investing activities is also net of approximately $5 million of net cash proceeds from our disposal, but real close during the quarter.
With respect to Trinidad our balance of Trinidad dollar denominated cash cash equivalents and short term and long term investments measured in U S dollars improved slightly during the quarter decreasing $3 million for our fiscal 2021, ending balance to approximately $49 $9 million.
Part of our continued efforts to convert dollars to U S dollars.
In December 2021, we executed a loan whereby we received 25 million U S dollars.
The associated of principal and interest on this loan repaid and turn it into dollars converted at rates in effect in December 2021 over a four year Peru.
By locking in the conversion of a significant amount of Trinidad dollars, our current conversion rates and freeing up this cash in U S dollars for deployment for general corporate purposes.
The $23 $4 million change from cash used in to cash provided by financing activities was primarily the result of higher net repayments of short term debt compared to the same three months period, a year ago. When we were repaying short term facilities access to through early stages of the COVID-19 pandemic, we continue to be vigilant about our cash position and are ready to adapt.
The sudden changes in circumstances.
In closing we are very pleased with the results achieved during the first quarter of fiscal 2022 and believe that we are off to a good start to our fiscal second quarter driven by the pinpoint 1% comparable net merchandise sales growth in December.
Our balance sheet continues to be very strong and we believe we are well positioned to drive future growth through real estate membership value and further digital expansion through price Mart Dot com.
This achievement is a team effort involving the entire organization and their diligence to make price Martin a key component of our members' lives I will now turn the call over to the operator to take your questions. Operator, you may now start taking our callers questions. Thank you. We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Jon Braatz with Kansas City Capital. Please go ahead.
Good morning, Michael Morton Sherry.
Good morning, good morning.
I'm curious with with Covid cases, rising again are you seeing any indications in your markets that there might be a return to some operational restrictions at your stores.
Yes.
At this point, we're not seeing anything.
Significant however, the cases are definitely rising.
I believe me.
The do you is that.
The surround it may be different from prior rounds.
But we don't know and and we are basically.
Let's see Murphy as the government officials, who may decide to impose restrictions or not but to date, we're not seeing much of a difference and we're prepared though regardless to be able to make sure that we can get the goods that our members need to them and the most.
This end and appropriate way no matter what the circumstances are.
Okay. Thank you and Michael.
It sounds like.
The Trinidad Trinidad is getting a little bit better.
It sounds like you're seeing a little bit of sales improvement.
Have you adjusted prices. According to accordingly, I know you raised prices two.
To account for the for the currency restrictions, but.
Have you adjusted pricing in Trinidad.
I guess I guess, John you could say, we're cautiously optimistic I'm you know we did have a little bit of a buffer there in the in the Q4 not not two reasons, we wanted but because we had pulled back on inventory shipments because of the closures and we continue to receive dollars. So that was that was a big help to get you know in our fiscal Q4 to get those balances background.
Closer to more historical levels, but the but we you know we continue to see challenges. There. So we haven't adjusted pricing at this point, it's something we're actively monitoring where we're leaving that Oh you you can see as I reported we had $1 9 million dollar hit and in sourcing.
FX during the quarter. So we continue to incur costs associated with that and we've also now added this new loan which will add some financing costs.
But we're you know we're pretty excited about this new loan is being a new vehicles to generate new dollars, but we have not pulled back on price or at this point, okay. Alright. Thank you.
The next question will come from Charlie Carter with SER Dix. Please go ahead.
Just trying to.
Better understand the general administrative costs I think you all had alluded to you know the talent investments either in like real estate or I T or just other it related spending and there was I guess.
Maybe the health insurance.
Comment too might be part of that so just just trying to make sure I understood that increase and then also.
Kind of habit.
Near to medium term view on kind of what where you see that cost line item going.
And I have a follow up if that's okay.
Yeah. Thanks, Yeah. So.
So as I mentioned I mean, we've got a couple of moving pieces in there this quarter right. We've got the reductions from from Aeropulse right. So that the judge that kind of changes with your on your aspects of that but as we've mentioned I think last quarter. You know I think once we pull out the once we pull out the.
The effects of their approach, where we're kind of expecting that.
We're going to continue to invest as Sherry mentioned things like health care, we've mentioned related to our investments in talent on health care is just one example of that and so we're continuing to invest in the talent technology and we're hoping to show.
Sales are growing again, but we can at least stabilize that G&A percentage is a part of sales as opposed to some of the deleveraging. We've had no. If you include selling in there obviously, there's some distortion because when they opened two new clubs you ramp up some costs for new clubs and.
For the overall costs, you know that your SG&A and until that gets ramped up or kind of more stabilized showing levels.
So is there a.
Forgive me is there a target where you want to grow that I mean, I understand there might need to be some one time investment in the business, but is there just given your.
Intended.
Acceleration in real estate gross store growth do you hope to kind of keep it constant as a percentage of sales or do you think you can actually leverage it as you leverage. These real estate you know, there's real estate talent, you've added on and and what it spending that will support dot com et cetera et cetera.
I guess the best I could say at this point is in the near term you know, we're continuing to make the investments we feel it appropriate to fund that growth that sure I laid out a pretty.
Extensive growth plan, we have her over the next few years and as that growth comes into play then that certainly should help us leverage but in the near term you know we're going to continue to make those investments. So we can support that growth plan.
Okay.
And on that if I can at.
You know.
And in recent years, we have invested in and I'm focused on the talent portion right. Now you know we've invested and expertise in areas that the company really didn't have or need you know you're.
[noise] ago, we now for the first time in the last a year or so have a chief technology officer.
We have Oh E V. P level professional who is adept at data analytics and helping us to use the data that's being mined from the investments in technology. So that we can apply that in a way that allows us to make.
Better decision.
Respond more quickly.
Save in other areas of the business and help us grow in a very.
Yeah.
Disciplined way.
With data to support our decisions. So retailers you know who is involved in the last few years and those were not necessarily positions that were are essential for a successful retail company.
But because of the interplay with technology in the way consumers.
Behave now and how we expect them to behave going forward. These are areas that are extremely important and do you have the opportunity to.
To elaborate and can be leveraged, but the one thing about.
Technology is that it's not like another club for example, every time you build a new brick and mortar, but theres a fixed cost associated with technology, often has the opportunity to apply the same tools across a larger scale without the cost going up.
So there are opportunities to leverage that but in the meantime, we are making those investments that we feel are going to strengthen the foundation of the company for the long term.
These are things that we believe are essential and appropriate for us to be able to grow faster and stay ahead of the curve and be able to reach more members and.
And conduct our business.
Smartly so.
Short term, yes, there's going to be continued investing.
But we have a base, but these are wise investments that have been.
In the long run and and that's our approach for the company.
Yeah, you certainly are.
Realizing at least the early.
Early benefits of that so I I'm, not disagreeing with whether they're warranted I guess, maybe just.
A follow up and then I did have one other question if that's okay, but how many years do you think that you.
Will you be kind of at an elevated level of investments with the distribution centers and adding adding into the stores is there like a when you talk to the board.
What what are what are the expectations you're.
Setting for them in terms of spending at a you know historically elevated level.
Well I mean, the the more you grow or the more you want to go grab the more you're going to spend right.
So if you're if you're gonna open one club a year the spend is going to be much lower than hypothetically 10 clubs a year.
If you if you want to expand into new markets.
We will likely be spending more so we are definitely poised for growth.
And and it's difficult.
For me to tell you how long there's gonna be additional investments made but we're only going to make those investments. If we think we're going to get a good return.
So.
That elevated expense really suggest that that's a word.
We believe that what we're investing in is going to help us grow and help us.
Increase our membership base increase our geographic footprint.
And and generate more sales so that the company can grow.
Well its potential so.
In the meantime, we we do take a measured approach, but we're seeing enough side.
Are we at a level of confidence there.
Our business model.
It's a very specific purpose and wall, especially in emerging markets.
And and not only do we have opportunity in some ways, having gone through this COVID-19 experience I think.
Yeah.
Sense of responsibility, because we experienced how our business model and the values that we hold and the tenants that we maintain really do help keep our members.
Supported their businesses supported and and there's a level of trust that we think has been highlighted by this experience.
That the members have and to the extent that we can continue to.
Generate good profits then.
Expand our reach to people, who can benefit from our business model and we can improve their lives and we intend to do so.
Fair enough just quickly then on the the real follow up question.
On just Forex, you know foreign exchange headwinds for the P&L.
Do you all and at least attempt to kind of price for that in U S. Dollar so that.
So that you don't have margin deleverage on that because I'm, assuming at least some portion of your cost of goods. You know originally was denominated in U S dollars and so how do you how do you all manage to that do you have the analytics to do that well.
Well just you know whatever you can say on pricing in the.
The transactional.
Headwinds from from a stronger U S dollar.
Yeah. Thanks, Charlie Yeah. Good good follow up yeah, where we're very actively monitoring ethics and we we basically you know our whole business model is kind of a cost plus model, where you know we bring things in based on the average cost.
Increasing transportation or first cost from our vendors whatever's coming in we're constantly monitoring that on a weekly or monthly basis, depending on you know, especially in countries like Colombia that has so much volatility we're actively monitoring that and repricing dynamically. So you can see we've had pretty stable margins over the last year, especially and.
Much I mean.
We're very much on top of that and then repricing as we as much as we can as the foreign currency.
Fluctuate.
Thank you for that.
This concludes our question and answer session I would like to turn the conference back over to MS. Sherry bearing begging for any closing remarks. Please go ahead.
I'd just like to thank you all for joining US today, we are looking forward to 2020, two and we have to that you'll join US again for the next quarters earnings call take care Bye bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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