Q2 2022 PriceSmart Inc Earnings Call
Good afternoon, everyone and welcome to price Smart Inc's earnings release conference call for the second quarter of fiscal year 2022 which ended on February 28th 2022 .
After remarks from our company Representatives, Ms Sheri Barron, Peggy 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 April eight.
2022 eight.
A digital replay will be available following the conclusion of today's conference call through April 15th 2022 by dialing 187734475 to nine for domestic callers or.
Or one for 123170088 for international callers and by entering the replay access code 5341114.
For opening remarks, I would like to turn the call over to President <unk>.
Two price Smarts, Chief Financial Officer, Michael Mccleary. Please proceed sir.
Thank you and welcome to the price of our earnings call for the second quarter of fiscal year 2022.
We won't be discussing the information that we provided in our earnings press release, and our 10-Q, which were both for these yesterday afternoon April 7th 2022.
You can find these documents on our Investor Relations website at investors stock 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 some other expressions.
All forward looking statements are based upon current expectations and assumptions as of today April eight 2022. These.
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.
Filings with the SEC, which are accessible on the SEC's website at Www Dot S C 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.
I will turn the call over to Sherri bearing begging, probably spartz Chief Executive Officer.
Thank you Michael and good day, everyone and welcome to our second quarter fiscal 2022 earnings call.
We've had quite a quarter.
And with net merchandise sales, surpassing $1 billion for the first time and membership setting a historical records.
Feeling very positive about our results.
During the second quarter, our total membership base has grown to more than 1.7 million accounts.
That represents growth of seven 3% versus last year.
Our membership 12 month renewal rate was 89.8%, reaching our highest rate ever our highest renewal rate over membership income was $15 $1 million, an increase of 9% over the same period last year.
Our headline numbers all grew over the prior comparable period.
In terms of the bigger picture I think it's also worth noting that the results of this quarter are being compared to a quarter last year in which significant growth was achieved relative to the same quarter in FY 'twenty.
Versus the same period last year net merchandise sales increased by 12, 6% comp.
Comparable net merchandise sales increased by 10, 3%.
Operating income grew seven 4% and that's despite currency headwinds impacted total and comparable net merchandise sales by 3% to 7% respectively.
Earnings grew 11, 4% to $31 5 million birthdays.
28.2.
For the same quarter last year.
Driven by strong sales of <unk>.
<unk> at price Smart with delivered record earnings per share of a dollar trade during the second quarter.
Versus 92.
In Q2 of last year.
So now let's look forward a little bit into Q3 during March ending on March 31, 2022.
Total net merchandise sales were $338 million.
An increase of nine 9% over the same period in the prior year.
And comparable net merchandise sales for the four week period ended March 27 20.
At March 27th 2022.
Merit increased over at nine 8% compared to the comparable period last year.
We're pleased with the results and believe that our investment.
And in the business and our focus on our pillars of growth are supporting these results and the momentum that we continue to belk.
Okay.
Our cash flow is robust.
It enables us to accelerate plan and investments to continue to drive growth.
And importantly, it enables us to improve how we engage with how we serve and how we learn from our members.
Especially during the most challenging times, which include the impact of the pandemic, which continue.
The significant supply chain disruption, which are faced by many of us in this industry and others.
The effects of the warrant Ukraine.
And the challenges of an inflationary environment that we haven't seen in decades.
Yeah.
Our cash position also ensures that our employees are properly cared for that they have the opportunity to grow professionally, but they receive competitive wages and excellent benefit.
As a result of many of these factors.
As a company.
In the second quarter, our board of directors increased the annual dividend by 22, 9%.
The 86 cents per share up from 17 cents per share last year.
So now I'd like to.
Sure.
Our growth drivers.
On our last earnings call I spoke to you about the three major drivers for growth for our company.
<unk> real estate, which includes opening new club, making investments in our distribution network.
I'm sure that we're strategically located in the right places with the right facilities and equipment. So that we can maximize efficiencies in the supply chain.
The second driver of growth with continually developing new and improving on old ways to enhance the value of the price smart membership.
And the third driver of growth with Q.
Drive incremental sales for the company.
Our price Mark Dotcom platform.
And improved.
It all capabilities, yielding important data.
Drive incremental sales for the company, whether the sales happened online or in club.
Because we believe these two environment should be mutually supportive and synergistic.
The price smart dotcom platform and other digital capabilities also allow us to potentially expand in existing markets and or enter new markets, possibly without the immediate need for traditional brick and mortar locations and the huge investments that go with that.
Starting with real estate now I want to update you a little bit on what we've done on that first driver of growth.
On Monday, we plan to be celebrating our 50 as club milestone as we opened our second club in Jamaica located in the area of CT more near the capital Kingston.
We expect this club to do well and take some pressure off of the Kingston location, which is a very high producing but impacted club.
A good sign is we're already seeing new sign ups, well exceeding our plan for part more which indicates to us that this market has significant untapped potential.
Also I'm pleased to say that growth by way of a new club in Jamaica is also go out for our people and upward mobility for them professionally.
Approximately 18% of our employees in Jamaica was promoted as a result of the new quite more club.
With regard to real estate again, we also recently announced the construction has begun on our second warehouse club in Medine, Colombia.
It's located in the alcohol motto area, we expect to open in the summer of 2023.
We've been searching for a beautiful site and this densely populated urban area for a long time.
Instead of real estate and construction teams for making it happen.
We're optimistic that our value proposition will resonate with consumers in this area due to its demographic characteristics and this will be our 10th clubs in Colombia.
Yeah.
In addition to.
Our curated selection of high quality merchandise at great prices.
These new clubs will be.
There'll be a outfitted with our additional services in the wellness area.
Exactly optical and audiology.
As I've mentioned before we're progressing on a very active pipeline or new location in terms of clubs.
And we will be able to share more about that as plans and permits are finalized.
Another part of our real estate strategy focused on focuses on the importance of all of our distribution facilities to optimize efficiencies.
And strive to reduce risk we expect to soon have a distribution center in Trinidad that could also be used to export merchandise to our other markets.
We're actively identifying opportunities for our new distribution center in northern and Central America, and we're working on expanding our distribution footprint in Colombia.
Yeah.
We also are increasing our produce distribution centers are restricted in a P. D C. Throughout the company we have more of an operation at this time and they include a Costa Rica, Panama, the Dominican Republic and the most recent one in Colombia, which we opened last month. These.
These P D C not only support local agriculture and create jobs in and around our communities, but they also allow us to source directly and provide fresh produce to the club.
Allowing our members to benefit some more competitive pricing and also reducing spoilage and other waste that leads to greater efficiency.
We're targeting two additional P. D C at the time and they are likely to be in Guatemala, and in Trinidad, but they are currently still in the planning phase.
With regards to logistics and distribution again, a key area of real estate and the importance of real estate for us.
As everyone knows supply chain disruptions remain pervasive what are the cause of COVID-19 or prices or other factors, especially with regard to those exports are.
From Asia.
This has adversely impacted our suppliers' ability to deliver merchandise and our ability to secure transportation services from Asia and within the United States.
But fortunately our overall supply chain logistics network has remained relatively stable and reliable and its ability to replenish merchandise in our clubs.
Effective collaboration and careful planning.
Oh throughout our supply chain has resulted in our ability to maintain good in stock position during our second quarter.
Average freight costs from Asia will also lower during the second quarter versus the first quarter of fiscal year 2022.
Yeah.
But.
You know we have to remain proactive and vigilance.
Got it.
We certainly believe that we're still facing a continuing volatile.
And unpredictable.
Future in terms of the overall supply chain.
We've recently added a new contracted carriers to our network that is expected to further reduce the average freight rate during the third quarter of fiscal 'twenty two.
And we continue to remain very focused on this very important part of the business in these times.
We're also.
Increasing our efforts to nearshore select items without compromising on any of our quality or value, which will also allow for more reliability and diversification of our supply chain.
Examples I can share with you our textiles and domestic for example, we're thoughtful wonderful quality pillows from Guatemala, and towels from El Salvador.
We're looking at sparkling water park in frozen fruits and vegetables, just to give you an example.
In addition, we are actively including local and regional suppliers.
And including them in our bidding process as we develop additional products that will carry our private label brands.
Members select.
A recent example of this is the selection of a local vendor in Trinidad for our members select copy paper that will be sourced from Trinidad and is expected to be export it to all of our other markets.
Other than the benefits I've mentioned.
That alone.
Creates an export items that is developed largely utilized T T. While generating income that is more easily converted to U S dollars.
So this specific example, also contribute to helping our situation in Trinidad with key piece that may not be readily explained exchangeable into U S dollars.
We are also exploring additional alternatives and ways that we can.
Replicate this type of business initiatives to be able to solve for many varied challenges that we're facing.
You know I have to crowds congratulate our merchandising and distribution and logistics team and their great collaboration and Hal and handling these challenges and turning them into opportunities to make our business even stronger despite.
The additional challenges.
Okay.
So now, let's turn to what we're doing too and he has the benefit of a price war membership.
First we are continuing to expand our private label offering.
During the first six months of fiscal 'twenty, two our private label sales represented 23, 5% of our merchandise total merchandise sales.
That's up 200 basis points from 21, 5% in fiscal year 2021 .
That is a nine 3% increase in penetration of total sales versus FY 'twenty, one for our private label.
There are several benefits to investing in our private label offering in addition to what I've shared above.
The opportunity to offer the same or better quality merchandise.
Often exist at a lower price when we develop our own private label merchandise.
We've got greater control of the supply chain.
When we source locally or regionally there are potential savings in transportation.
Local sourcing for private label can generate more jobs in our market.
We also have in some cases the benefit of a natural currency hedge.
It's a differentiator for price smart.
There's price smart.
<unk> label member select is not available to other major retailers in the countries, where we operate.
And sourcing our own merchandise gives us the opportunity to squeeze out inefficiencies and is also in line with one of our goals to increase our direct participation in the production to ensure our high quality standards are as good if not exceed the leading brand product.
Our private label sales and domestics have grown over 180%.
Our new members select towels pillows sheets and blankets we've.
We've also introduced new Skus of cookware food storage mixing bowl those have been very well received and have shown them.
Yeah.
The kind of sales that give us confidence that we're on the right track with expanding our private label offering.
As I said as I said before our brand carries significant goodwill and trust amongst our members it communicates high standards reliability values.
Our private label Cumulus merchant has been another key area of investment for the business because pallas is important.
Over the past two years, we've expanded this team from six to 11 people.
Although we still maintain a limited number of Skus as part of the overall business discipline excuse me, we have been adding or replacing have contributed to this overall.
Delivery of sales of $230 million during Q2.
So job well done by our private label team and the related teams during Q2, and we plan to grow even more with our private label product development sourcing and sales.
We believe our wellness program is another value driver for our membership.
We currently have decided to expand the audiology two about 30 locations by the end of this fiscal year and to about 40 by the end of Q2 next fiscal year.
Our decision was driven by net membership interaction partly due to the free hearing tests that we provide to our members and the early determination that audiology appears to be a valuable contributor when analyzing renewal rate and the average annual purchases amongst members who utilize our services.
In optical we currently have 45 locations with optical centers and expect to have 47 open by the end of this fiscal year.
This service provides up to four free eye exams with every membership.
We also offer a broad range of quality lenses and frames are highly highly competitive prices in our market.
For the period ending in February .
We've seen total growth in optical sales of 79% over the same period last year and year to date comparable growth.
15% over the same period last year.
We've also opened pharmacy centers in all eight warehouse clubs in Costa Rica, and we expect to have pharmacy centers and all of our Panamanian clubs by the end of fiscal year 2023, we continue to study pharmacy for additional countries as each country varies in dynamics and regulatory.
He requirement.
So now I'd like to turn to our third driver of growth, which is our digital environment that drives engagement and sales.
And our digital channels, which include price Mart Dot com.
Total E comm sales represented three 5% of total merchandise sales and delivery continues to grow as a larger proportion of online sales.
Our digital capabilities are accelerating and driving growth.
When comparing the second fiscal quarter versus the comparable prior year period online sessions increased 8% leading to an increase in digital orders online orders of 12%. Meanwhile, the average online order value increased 13%.
<unk>.
Price smart dot com sales as a percentage of net merchandise sales increased 40 basis points during the second quarter versus the comparable prior year period.
Our total sign ups, which is also an area, where we're seeing benefits of the ability to engage online using digital tools with our members.
Of our total sign ups.
50% of new memberships were purchased online during the quarter.
And online renewals represented 4% of our total renewals for the company.
During the quarter, we had more than 9000 email interactions.
More than 65000 catch interactions with members, which we all believe further improves our ability to engage with the customer provides better customer service and learn somewhat our members.
I tell her that.
As of February 28, 2022, approximately 42% of our members have created an online profile on price smart dotcom.
We've effectively gone from about zero.
To almost half of our base.
Having an online.
At all.
Credential.
Less than two years.
14% of our total membership base has made a purchase on price smart dot com.
I'm, sorry, I think.
I believe its 15% Michael when you correct me on that.
Hey, good fortune as fortunate.
Just wanted to verify it 14% of our total membership base who've made a purchase on price Mart dotcom any average for online purchases on price Mart Dot Com in Q2 was nine 3% higher than the average ticket in club for in club purchases So were seeing a.
Material difference in the average ticket size.
For members, who are buying online versus those who are buying and club which presents additional opportunity.
Also encouraging is the seven 5% of our total membership base and signed up with our auto renewal option, what does that mean they've.
They've provided their email and opted to have their renewal automatically charged on their anniversary and they've also provided a payment method for that charge.
That goes a long way in terms of protecting membership income and ensuring that membership income leakage is reduced.
We're feeling solid about our progress in this area and are proud of what our tech and membership and finance teams have all made possible in a relatively short period of time.
So lastly, I'd like to talk about ESG and sustainability.
<unk> to be a cornerstone of the price smart philosophy.
Hi, smartest committed to fostering a healthy environment for our employees members vendors communities and the world around it.
Company's actions in practices aimed to responsibly use natural resources.
<unk> focus on environmental impact and social well being.
In FY 'twenty, one the company formed price parts ESG department to develop track and measure the company's sustainability.
Social responsibility effort.
One of the principal objectives of the.
Theme of our team is to find prevent and control <unk>.
Higher metal impacts generated by our operations as well to work to adapt and mitigate the impacts of climate change.
ESG continues to develop.
And evolved for everyone and we are also growing and evolving with our effort but.
We continue relentlessly to apply our values every day to improve our lives businesses and communities of our members.
I want to thank our over 10000 employees.
Our executive.
San Diego Miami.
All of our markets, where we operate.
For continuing to build on this momentum momentum.
And showing us that when you have more and more opportunities to do better and better serve our members every day.
Your commitment is really.
A source of great appreciation and admiration.
Thank you again, <unk> and I'll hand, it back to you Michael.
Thank you Sharon good morning, or afternoon to everyone.
And thanks for joining us today to talk about our record setting second quarter.
As Sheri mentioned, we are very excited to have crossed the $1 billion sales threshold for the first time this quarter.
Total revenues on that merchandise sales coming in at one point over $4 billion at one point or $1 billion respectively.
Representing increases of 10, 8% and 12, 6% over the comparable prior year period, respectively.
We ended this quarter with 49 warehouse clubs compared to 47 warehouse clubs at the end of the second quarter of fiscal 2021 and we are also very excited about reaching the milestone of 50 clubs. When we opened our second club in Jamaica next week.
Our comparable net merchandise sales growth for our fiscal second quarter was 10, 3% for the 13 weeks ended February 27th 2022.
Foreign currency fluctuations had a negative impact on that merchandising and comparable net merchandise sales growth of 3% and two 7% or approximately $26 $3 million and 20 $442 million respectively.
By segment in Central America, where we had 27 clubs at quarter end merchandise sales increased 13, 6% with a 10, 6% increase from comparable net merchandise sales.
Foreign currency fluctuations had a negative impact on that merchandise and comparable net merchandise sales growth in central America of approximately one 8% or more 0.9% during the quarter respectively.
All of our markets in Central America had positive comparable net merchandise sales growth, except for Guatemala, which had a small negative comp due to sales transfers from other clubs following the opening of our new around the globe.
And the Caribbean region, where we had 13 clubs at quarter end total net merchandise sales increased 13% and comparable net merchandise sales increased 13, 1%.
All of our markets in the Caribbean had positive comparable net merchandise sales growth were trimmed out showing a significant rebound in this quarter with double digit sales growth versus the comparable prior year period.
Although most local COVID-19 restrictions have been lifted and liquidity of the Trinidad dollar has improved thus far in fiscal 2022.
We continue to manage to a target level of imports in Trinidad.
So far in fiscal 2020 to be self imposed import limitations have generally been in line with the needs of the market from a demand perspective.
However, we continue to actively monitor market demand and our ability to source tradable currencies in Trinidad.
In Colombia, where we had nine clubs open at quarter end net merchandise sales increased seven 2% and comparable net merchandise sales increased one 7%.
Foreign currency fluctuations had a significant negative impact on merchandise and comparable net merchandise sales growth in Colombia of approximately 14% and 13, 1% during the quarter respectively.
In terms of merchandize, we saw foods category grow approximately 8% compared to the same quarter in the prior year.
Cleaning beverages, and liquor Department led the way with 9%, 30% and 14% growth respectively.
Fresh category grew 11% compared to the same quarter in the prior year led by our poultry meat and seafood departments, with 18%, 14% and 14% growth respectively.
Our non foods category grew 15% compared to the same quarter in the prior year as we made strategic investments in inventory in many of our non food categories to respond to rising demand and longer supply chain transit times, especially for merchandise coming from Asia.
Power lines grew 7% with hardware and garden and patio categories coming on very strong with 25% and 29% growth respectively.
Our soft line category had exceptional results growing approximately 33% with.
With sales of a casual apparel up 36% in basic apparel up 49% versus the same quarter last year.
Finally, our other business category rebounded with 16% growth primarily from our food service and bakery departments buoyed by an increased in clubs drove it.
Yeah.
Turning to margins total gross margins on net merchandise sales were 15, 6% for the quarter versus 16% for the same period last year.
This decrease for the quarter was primarily due to a reduction in the premium we applied to our sales prices to offset our COVID-19 related operating costs and higher markdowns versus the prior year period.
Total revenue margins decreased 80 basis points to 17% of total revenues when compared to the same period prior year.
In addition to the 40 basis point decline in gross margin, we had 40 basis points of lower revenue margins due to the sale of airports during the first quarter.
SG&A expenses decreased during the quarter by 60 basis points as a percentage of total revenue primarily due to a lower operating expenses after the sale of variables but.
But for the decrease in margins as a result of the airports disposal was offset by the decrease in expenses do you have in the yielding an essentially neutral impact on operating income when comparing to the same quarter of the prior year.
Operating income for the quarter increased seven 4% from the same period last year or two and $48 $3 million.
Other expense was <unk> $8 million was primarily driven by a $1.8 million foreign currency loss, which mostly consisted of cost to convert Trinidad dollars into other tradable currencies.
Our effective tax rate for the second quarter of fiscal 2022 came in lower than last year at 31% versus 33, 9% a year ago with our year to date rate coming in at 32, 6%.
This decrease in the quarter was primarily related to comparatively favorable changes in uncertain tax positions, partially offset by a comparatively unfavorable 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 second quarter of fiscal year, 2022 was a record $31.5 million for dollar tree per diluted share compared to $28 $2 million or <unk> 92 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 $194 $9 million.
From a cash flow perspective for the six months ended February 28, 2020 to 30.
$37 6 million dollar change from cash provided by cash used in operating activities compared to the prior year, which was primarily a result of non working capital changes in the balance sheet of $29.7 million.
These changes were primarily due to prepaid expenses and income taxes, which increased due to higher sales during the period and V. A T paid increased due to a higher inventory position.
Another contributor to the change in cash flows from operations was our inventory position, which increased to $473 million as of February 22022.
$389.7 million as of February 22021.
This increase reflects our efforts to bring our inventory levels in line with our sales trends and the addition of three new clubs this year, including our Jamaica Club, which will open next week.
Additionally, we have made investments in inventory to maintain adequate in stock levels on items that either have been or we expect may be impacted by increased container transit times, especially for merchandise coming from Asia, and commodity and electronic part shortages.
Our increased inventory investment is also a reflection of of cost to increase throughout the supply chain.
Net cash used in investing activities decreased by $51 $7 million for the six months ended February 28, 2022 compared to the prior year, primarily due to the decrease in balances of certificates of deposits compared to the same period, a year ago due to significant improvement or a decrease in our <unk>.
Turning to our balance of trillions of dollars on hand versus the prior year.
With respect to turn it on our balance of dollar denominated cash cash equivalents and short and long term investments measured in U S dollars improved this year decreasing $17 $4 million from our fiscal 2021 ending balance.
Through approximately $35 $5 million.
As mentioned during our last conference call as part of our continued efforts Sugarberry Trinidad dollars to U S dollars in December we executed alone whereby we received 25 million U S dollars.
Actually their principal and interest on this loan will be repaid in terms of dollars.
Rates in effect upon the initial disbursement for this loan over a four year period, thereby locking in the conversion of a significant amount of Trinidad dollars current conversion rates and freeing up this cash in U S dollars for deployment for general corporate purposes.
The $78 7 million dollar change from cash used in cash provided by financing activities for the six months ended February 28 2022.
As a result of obtaining the additional turnaround related financing in the current year, along with lower net repayments of short term debt compared to the same six month period, a year ago. When we were repaying short term facilities access to at the early stages of the COVID-19 pandemic.
In closing we are very pleased with the record results achieved during the second quarter of fiscal 2022.
And I want to extend my thanks, and appreciation to the price of our team for their hard work and dedication that made these results possible.
We believe our value proposition and how we conduct our business resonates with our members and within our communities.
The fundamentals of the business remain very strong and we believe our growth plans position us well for future success.
I'll 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 Touchtone phone.
If you were using a speakerphone please pick up your handset before pressing the keys.
If at any time of your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Jon Braatz with Kansas City Capital. Please go ahead.
Good morning, Mike.
Good morning, how are you done very good very good.
Just touch touch base on the gross margins are 40 40 basis point reduction.
Sort of Covid related costs.
Cost for impact.
And I'm curious how are we going to see that continue.
That 40 basis point reduction going forward.
Or have you recover those costs so.
So to speak.
Yeah, Hi, John Good morning, Yeah, as far as just backing up to total revenue margins as I mentioned, the 40 basis points decrease there they were opposed to it basically offset by costs. So your particular question was on gross margin and we highlighted a couple of things there, which was the COVID-19 related premium that we're charging.
That was offset by cost right. So that's essentially it should be basically neutral at the operating income level, but but yes. It is oh, just hopefully our COVID-19 costs continue to wind down we would expect to wind down.
Okay.
Just as just as a reminder, I mean, we do have also the <unk> premium.
It is being occurred in insurance for imported merchandize therapy or not.
On year, that's not a factor at this point, but you know if things continue to.
To improve at some point that that may come back down further or is it something of a normal part of our cost plus.
Operations, but we need to do it for now to cover and then the other thing was just the flow of freight and some markdowns that we had during Q2 and that's not necessarily typical to see.
Some markdowns in the Q2 period as we worked through our holiday merchandise, but yeah, we still as you've seen we still have a good set of merchandize, which we're working through the holidays or some other front that Easter.
Today season, now so I'm still working through some of that and certainly expect to be back on track.
At this point, we're estimating definitely be back on track by Q4.
Mike.
I like.
The.
You know it's important also to remember the context of our business model.
As we make the effort to drive volume.
And get better pricing that gives us the opportunity to compress margin.
So we you know we focus on margin dollars as opposed to necessarily margin percentage and.
The flip side to that is as we get more involved in sourcing and developing our own products. Because we think we can achieve something better than what is already out there or that we're already doing.
Sometimes that requires an investment on our part that justifies a different margin structure.
And so you'll you will see that as our business becomes.
As we're adding more dimension to our business and going deeper and trying to to.
Develop quality and good pricing in the most efficient way there will be occasions, when certain areas will have a higher margin structure, because we're directly getting involved in going higher end of the supply chain and making investments to handle more of the production.
And the development of the product.
Sometimes you're going to see that it's going to be compressed because we're gaining volume and as we gain volume, which is the name of the game for us.
We are generating more margin dollars, which allows us to then provide better value because we can buy better better value for the members, which then in turn.
The success of the business by making the membership more valuable so I just want to elaborate on that point because unlike some other retailers.
Is it.
If you just look at the margin from quarter to quarter, and you're not looking deeper or understanding that there are different dynamics and the way, we're developing and providing product to the members today that we didn't do years ago.
I don't know that looking at just the margin percentage like that is going to be as informative.
But that's I just wanted to give you that color sure sure. Okay. Thanks.
Oh, one other question.
Michael one for sure.
And when do you think maybe that.
Pricing premium.
Trinidad.
May begin to say, what's going to take what's what is it going to take to to Oh see prices come down a little bit in selling prices come down a little bit in Trinidad.
Yes.
Yes, Jonathan.
We talked about this other corridor every quarter, we're obviously monitoring it very very closely internally.
Certainly as I've mentioned before it's not something we would hope to keep for the long term, there's a lot of uncertainty out there right now and we've made significant progress from our peak of over $100 million of $80 on hand at 35.
But even you know you know in.
And our imports are kind of a relatively balanced right now with the with the availability of dollars but.
But you know we're also making.
Profits in local currency, so which is a good thing right.
So we have to.
It's just the uncertainty in the market and and worked through our our dollars on hand so.
It's obviously something we're monitoring and we are still incurring.
Current costs also to convert them.
And that means that there may be some some form of that.
For for a long time, whether it's at the same levels remarks, we'll have to see.
Okay.
Yeah.
We will be reducing that at the first opportunity that we feel we can responsibly do so sure again both too.
To keep the prices down okay, Okay, and then I may.
I misunderstood you I think initially you talked a little bit about March March sales.
Alright, Thank you said.
Total sales were up 999% and comps were up nine 8% was that right.
Let me see here go back to I want to make sure I'm, giving you the exact right.
Yeah, that's right.
Yeah, that's right.
Sales at $3 38.1 was an increase of nine 9% and then the four week period ending comp net merchandise sales was nine 8% I know theres a lot that goes into the calculation but.
You have three stores that are not in the comp right now why werent.
And I know there is there was some auto more.
Why werent sales up more than more than the comp.
Well, there's there's multiple reasons first of all we've got.
Several new clubs that we're still dealing with the.
For a sale.
And.
We're also we also have a newer clubs that just are.
Not at the level that we can say has normalized Michael do you have any anything.
I think four days this year.
This month, we're off through there as far as when they just Sunday you've also got.
The whole Semana, Santa Clamoring, which always makes margin individual marketplace is hard to compare so we always we usually look at March and April combined.
Go ahead and put that out there because that was that was what we have as of today.
Okay, Okay, alright, alright. Thanks.
<unk>.
Our next question will come from Rodrigo Hi, Tarik <unk> with Scotiabank. Please go ahead.
Thank you good morning, everyone and congrats on the results.
I wanted to start with.
With the e-commerce or online sales.
The fact that 15% or 14% of total members a R. R.
Yes, it's a small percentage in terms of the full potential which is obviously, great and also that carries a higher ticket if I understood correctly.
So I guess the first question is.
How does the basket the average basket in terms of type of products. The first from the basket the clog.
And a follow up on that would be.
What kind of opportunities do you see.
Beyond growing the number of online users that are existing shoppers have the store.
In terms of the excuse for even higher ticket items.
That would be my first question.
Well in terms of the baskets.
Especially early on in this process, we were a bit surprised to see that.
That there was more in terms of the typical.
Local grocery.
Items than we would've expected for online.
That has been shifting and this is an area that we're studying right now because we.
We still have a ways to go on or a hump in terms of.
The Ah <unk>.
Online platform and in terms of that merchandise and that that's where that's or a very high priority for us right now to make sure that our online is offering.
The right items that would be most conducive for sale online.
We at this point.
Not far beyond.
Being able to offer what we have in club, but we.
The opportunity to have extended skus.
The opportunity to have items that are online only.
We are currently in the midst of working on that right now. So I do think we'll have more potential and it's Barry that's enjoying doing smart week or things are certain types of promotion, but you'll see electronics go up substantially online that took US you know the baskets will have.
Items that are being.
Marketed aggressively because of smart week, when it's convenient for people to get it online and have it delivered but in terms of the concept of what market will do online.
What I'd like to say is we've got a foundation right now but.
It is functioning well.
But in terms of building out all the opportunities where there could be expansion of our online sales are is we're still we're still building.
Got it.
Mentioned earlier Gerry that you were thinking that and I think you've mentioned this in the past, but wanted to pick your brain on this a bit but.
You see the online operations was perhaps.
Different way to tackle new markets.
If there are no Ah stores currently there.
Is this some.
Something that perhaps is more around you know adjacent geography within Colombia or.
Can you maybe touch on that a little bit more in depth.
Yeah sure.
There are opportunities when you know as our online presence grows and our members recognize that they can basically access merchandise via online in a very.
Comfortable and reliable manner.
Yeah.
With regard to existing markets, let's say, let's take for example in Colombia. We have members that are have membership with us that our two for six hours away from the nearest club.
So just imagine and their membership is how is that the location, where we have the brick and mortar.
So just imagine the opportunities that exist.
Basically the data that we can track it.
See what concentrations of memberships, we have and what geographies or what areas of the market.
And if we were to have a physical clubs there.
How successful do you think that would be I mean, it gives us great insights or alternatively, if we were to be able to set it up so that delivery became a very.
Cockpit, but there was a very cost effective way for us to leverage and create membership in those other markets, where there's other weather concentration.
And have a greater presence.
Virtually or with a dark store. Initially these are all the things that are having the online capabilities, having that data and having the brick and mortar work together.
That.
Present themselves.
And each situation's different.
We may look at it and have called it out because this is at a point when are we should really just go straight to a brick and mortar and another we may say this is one where we're seeing substantial sales generated from our core.
Club that is probable of hours away and can be supported with delivery with a with a streamlined system that we make very efficient, but may not yet be at a level, where it's worth investing in our brick and mortar, but again once once there's more activity in the numbers at school and people see the value.
But we offer that can help support because of the closeness of even another brick and mortar.
Got it.
And in terms of the renewal rates I mean, obviously the record high.
Can you highlight any any specific market or the renewal rates are particularly strong.
I don't think we do that sorry, Pepsico [laughter] okay.
No not at this point.
Hmm.
No worries.
I got it and then lastly.
Earlier you were.
Going into a more into more depth on this try to yield absolute dollars versus margin, which always needs.
A big difference versus other.
Formats and retailers.
And this quarter I would say contrary to prior years.
Were there was record.
Our record sales, but not necessarily record EPS.
This quarter the.
Flu nicely.
To the bottom line.
And I know this is a very broad question, but any thoughts on that.
Any thoughts on what.
Just the.
Relative performance or are they.
EPS is definitely this quarter.
It seems to me that.
The operating leverage in the.
The dollar.
Revenue amount boss deep flow nicely this quarter.
What do you see that going forward or you know any.
Any thoughts on the drivers behind that and I know, there's no guidance, but any thoughts for where looking at be appreciated.
Sure without without giving guidance I mean, you know all the things that go into EPS.
But.
Starting with what we talked about this concept of <unk>.
Lowering costs.
It was all in prices.
Again, this is going right back to our roots and fix rate lowering the prices.
As a result of being able to operate more efficiently.
As a result of all the work that's being put into becoming.
If you will more innovative in the way, we do business, but getting our hands into developing our own products.
More of those types of things.
And we also look at most of our pricing more compelling without.
Without compromising the quality to the member.
That's should drive volume.
If that drive volume that should drive more stable.
Stable for us.
And it should.
Results and greater.
Our margin dollars.
So it's sort of a win win if you will the other part is that if members are able to you know when we will see increasing benefit from not just benefits the housewives my basketball.
Hmm.
We take care of them during Covid.
The way we are focusing on wellbeing.
Opex by which we operate.
The increased services globally.
Or their experience, whether it's on the club online or through delivery, but more valuable that membership with hubs.
The more valuable the membership become.
More reliable the membership income and then there's the technical approach you auto renew this is not something we had before you auto renew someone commits to that is what's their credit card down right at the beginning.
There is no risk of losing you know having leakage between the time that they laugh, where a member and they came back to shop to and then when you their membership.
So all of these things.
AD hoc, it's not like there's one silver bullet.
So I it ties right back to the theme of the three drivers of growth if we keep doing what we're doing.
Our hope and expectation is the members are going to win the membership is going to be incredibly valuable.
To drive volume and that's going to drop to the bottom line and you know whether it's in the form of membership income or in the form of margin dollars on.
On the other hand.
You know that investments in technology.
Also does have a financial impact on our EPS away.
That.
Hang on and on.
Sorry, there's something keeping in.
No worse ways.
In a way that capital investments in real estate do not.
So that's why I'm I can't.
How are you.
The EPS, specifically would be impacted because there are a lot of variables there and I'm sure. Michael can give you a whole list of other things but.
Generally speaking.
Yes. The goal is to drive volume because of the compelling prices savings expense savings.
And better value doesn't remember on achieving margin dollars as well as the value of the membership which would make it again like I said before you can't afford to not have the membership.
That's our goal we want to make as.
As many people as possible feel that they cannot afford to not have our membership because there's too much value and.
And associated with it.
Yeah.
Got it.
That's great color. Thank you for all that.
My pleasure hope you're doing well.
This concludes our question and answer session I would like to turn the conference back over to Sherri Baker for any closing remarks.
I'd just like to thank all of our shareholders and the people who have interest in our stock.
That are taking the time to listen to our journey and all the exciting things that we're doing our team is really energized our.
We're excited about the future and we especially believe that we've got an important role.
As a company and an employer and a provider of goods.
In today's world and in the environment that we're in so thank you for joining us and we look forward to seeing you next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.