Q4 2023 PriceSmart Inc Earnings Call
Good afternoon, everyone and welcome to price Mart incorporated earnings release conference call for the fourth quarter of fiscal year 2020, which ended on August 31.
From 23.
After our remarks from our company Representatives Robert.
Interim 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.
You recorded today Tuesday October 31 2023.
Hey, Peter told replay will be available following the conclusion of today's conference call through November seven 2023, Lee dialing 877.
6747070 for domestic callers or 41676 score.
619 International coolers and entering the replay access code 490 6180.
For opening remarks, I would like to turn the call over to price Martz Chief Financial Officer, Michael Mccleary. Please proceed sir.
Thank you operator, and welcome to <unk> earnings call for the fourth quarter of fiscal year 2023, which ended on August 31, 2023, we will be discussing the information that we provided in our earnings press release, and our 10-K, which were both released yesterday afternoon October 30th 2023.
Following these remarks, we refer to non-GAAP financial measures you can find a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures in our earnings press release, and our 10-K. These documents are available 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 companys anticipated plans revenues and related matters.
Looking statements include but are not limited to statements containing the words expect believe plan will may should estimate and some other expressions.
Forward looking statements are based on current expectations and assumptions as of today October 31, 2023. These statements are subject to risks and uncertainties that could cause actual results to differ materially including the rest detailed in the company's most recent annual report on Form 10-K, and other filings with the SEC, which are accessible on the Ics.
<unk> web site at Www SEC 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 Robert price price March interim Chief Executive Officer.
Thank you Michael.
I would like to begin by expressing my sincere, thanks, and appreciation to our more than 11000 employees for their amazing dedication and hard work.
Our Chief Financial Officer, Michael will soon provide a detailed narrative.
For our fourth quarter and full year results.
And I'm going to make a few comments in advance of his remarks.
In spite of the two nonrecurring expense charges during the fourth quarter.
The write off of our investment in the Trinidad packaging plant.
And the settlement of a tax dispute.
Our company had a very strong fourth quarter.
The fundamentals of our business are sound.
Good growth in sales and improved expense ratio a strong cash position.
And a much improved inventory and accounts payable compared to a year ago.
For the full year FY 2023.
Our management team delivered a solid financial performance.
Price Smart has three really significant assets that provide an optimistic outlook for the future of our company.
One is our employee team.
11000 dedicated and knowledgeable people.
Who know the club business and know our markets. The second asset is our members over 1.8 million accounts and over 3 million cardholders.
Third asset is priced smarts good name in the region, where we operate.
We are determined to leverage these assets in order to strengthen the value of the price smart membership.
While continuing to improve our merchandise offering we have added a strong representation of health services and online shopping.
Which is increasingly important to our members.
We continue to grow our business to business sales segment.
Phil and important opportunity in our markets.
I would like to conclude my remarks with a thank you to our shareholders.
Now Michael will provide more detailed comments on our financial results.
Thank you Robert we.
We finished the year with a strong fourth quarter as both revenues and net merchandise sales exceeded $1 billion net merchandise.
<unk> sales increased by 10% or six 4% in constant currency comparable net merchandise sales increased by eight 8% or five 2% in constant currency.
For the fiscal year ended August 31, 2023, total net merchandise sales exceeded $4 3 billion and revenues exceeded $4 4 billion.
Merchandise sales increased by 9% or eight 3% in constant currency and comparable net merchandise sales increased by seven 1% or six 3% in constant currency for the 12 months period.
By segment in Central America, where we had 28 clubs at quarter end net merchandise sales increased 13, 6% or seven 1% in constant currency with an 11, 4% increase in comparable net merchandise sales or five 2% in constant currency.
All of our markets in Central America had positive comparable net merchandise sales growth our.
Our Central America segment contributed approximately 680 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the fourth quarter.
Our Costa Rica colon appreciated significantly against the dollar as compared to the same three months and 12 months period, a year ago, which was the primary contributor to the favorable currency fluctuations in this segment and consolidated net merchandise sales.
In the Caribbean, where we had 14 clubs at quarter end net merchandise sales increased 6% or seven 2% in constant currency and comparable net merchandise sales increased five 8% or seven 2% in constant currency.
All of our markets in this segment had positive comparable net merchandise sales growth.
Our Caribbean region contributed approximately 170 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter.
In Colombia, where we had nine clubs open at quarter end net merchandise sales increased two 1% or 0.1% in constant currency and comparable net merchandise sales increased two 8% or <unk>, 6% in constant currency.
The region contributed approximately 30 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter.
In terms of merchandise categories, when comparing our fourth quarter sales for the same period in the prior year. Our foods category grew approximately 10% our non foods category increased approximately 7%, our food services and bakery categories increased approximately 8% and our health services, including optical audiology and pharmacy increased approximately 91%.
Membership accounts grew two 5% versus the prior year to $1 eight 1 million accounts with a 12 month renewal rate of 86, 9% as of August 31, 2023 patent.
Platinum membership accounts or eight 9% of our total membership base as of August 31, 2023, an increase from seven 4% as of August 31, 2022 for the quarter ended August 31, 2023 membership income was $17 2 million an increase of 10, 6% over the same period last year.
Following many years, where our annual membership fee for two cards has been $35 in most markets $75 per platinum, we recently decided to raise our fee by $5 in most markets problem membership types. We expect these fee increases to take place on a staggered basis in most countries during fiscal year 2024.
Although gross margin for the fourth quarter of fiscal year 2023, as a percentage of net merchandise sales increased 10 basis points to 15, 6% versus 15, 5% in the fourth quarter of fiscal year 2022.
Total dollars total gross margin increased $16 3 million or approximately 10, 6% versus the same quarter of the prior fiscal year.
Total revenue margins increased 20 basis points to 17, 1% of total revenue when compared to the same period last year, primarily due to the increase in total gross margin.
The average price per item increased approximately seven 3% year over year down from a high of approximately 10% in Q1 of this fiscal year.
However, we continue to see the price and FX pressures impact aggregate demand as the average items per basket decreased approximately two 1% compared to the same period of the prior year during the quarter, our average sales ticket and transactions. Both grew four 9% versus the same prior year period.
Hello, SG&A expenses increased to 14, 2% of total revenues for the fourth quarter of fiscal year 2023, compared to 13, 1% for the fourth quarter of fiscal year 2020 to 110 basis point increase was primarily driven by two significant expenses during this quarter.
First we incurred $9 2 million in expenses related to the settlement of a minimum tax dispute with tax authorities on one of the markets, where we operate which contributed approximately 80 basis points to the increase in SG&A as a percentage of total revenues.
Does have a low margin business taxes based on sales can be significantly more burdensome than traditional taxes based on income. However, after several years of litigation in which we challenge the legality of the minimum tax on constitutional another Grand rounds, We decided the best course of action was to settle this dispute in order to create certainty on the impacts of what would have on our.
Now that we have established certainty on this matter. We believe we will be able to continue operating our business profitably in this country.
Secondly, we took a $5 $7 million impairment charge and related closure costs, primarily for the write down of assets of our Trinidad sustainable packaging plant that negatively contributed approximately 50 basis points of the increase in SG&A as a percentage of total revenue we.
We plan to use this plant to increase efficiencies by eliminating intermediaries and manufacturing some of our packaging materials using compostable or recycled inputs. However, we found that achieving economic feasibility proved challenging.
The increase in SG&A expenses as a percentage of revenue was partially offset by a 50 basis point decrease in general and administrative expenses as a percentage of revenue primarily driven by lower costs from CEO compensation savings and leveraging of expenses.
Operating income for the quarter decreased 17, 5% from the same period last year to $32 $1 million, primarily due to costs associated with the minimum tax settlement and asset impairment and closure costs.
Operating income for the fiscal year 2023 increased 10, 4% from the same period last year to $184 $5 million. Despite these costs, we recorded a $1 $5 million net loss and total other expense net in the fourth quarter of fiscal year, 2023% compared to a $3 5 million net loss and total other expense net in the same period.
Asked year, primarily due to an increase in interest income of $3 million because of significantly more investment of surplus cash at higher yields which was partially offset by an increase in other expense of $1 million, primarily due to an increase in total foreign currency transaction losses, as we pay premiums in several countries to source U S dollars.
Our effective tax rate for the fourth quarter of fiscal 2023 came in higher than last year at 49, 9% versus 34, 2% a year ago, primarily attributable to the comparatively unfavorable impact of the minimum tax settlement and asset impairment and related closure costs for.
Fiscal year 2023, the effective tax rate was 35, 4% compared to 33, 2% for the prior year period.
This increase is primarily driven by the comparatively unfavorable impact of the minimum tax settlement. The write off of receivables Arab post related write offs and asset impairment and related closure costs heading into fiscal year 'twenty four we estimate an annualized effective tax rate of about 32%.
Net income for the fourth quarter of fiscal 2023 was $15 $4 million or <unk> 49 per diluted share compared to $23 3 million or <unk> 75 per diluted share in the comparable prior year period net income for fiscal year, 2023 was $109 2 million or $3 50 per diluted share compared to 104.
$5 million or $3.38 per diluted share in the comparable prior year period.
Our earnings per share for the fourth quarter and fiscal year 2023 are both net of the negative impact of <unk> 30 per diluted share for costs related to <unk>.
Operator: Good afternoon, everyone, and welcome to PriceSmart Inc, earnings release conference call for the fourth quarter of fiscal year 2023 which ended on August 31, 2023. After remarks from our company's representative, Robert Price, entering 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 to say October 31, 2023. And by answering the replay access code, 496-180 hash.
Michael McCleary: For opening remarks, I would like to turn to call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed, sir.
Michael McCleary: Thank you, operator, and welcome to PriceSmart Inc, earnings call for the fourth quarter of fiscal year 2023 which ended on August 31, 2023. We will be discussing the information that we provided in our earnings press release and our 10K which were both released yesterday afternoon, October 30, 2023. Also in these remarks, we refer to non-gap financial measures. You can find a recommendation of our non-gap financial measures to the most directly comparable gap measures in our earnings press release and our 10K. These documents are available on our investor relations website at investors.pricemark.com where you can also sign up for email alerts.
Michael McCleary: As a reminder, all statements made on this conference call, other than statements of historical fact, are four looking statements concerning the company's anticipated plans, revenues, and related matters. Four looking statements include, but are not limited to, statements containing the words, expect, believe, plan, will, may, should, estimate, and some other expressions. All four looking statements are based on current expectations and assumptions as of today, October 31, 2023. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risk detailed in the company's most recent annual report on form 10K and other filings with the SEC which are accessible on the SEC's website at www.sec.gov. These risks may be updated from time to time. The company undertakes an obligation to update four looking statements made during this call.
Robert Price: Now I will turn the call over to Robert Price, Price Marks, Andrew M. Chief Executive Officer. Thank you, Michael.
Robert Price: I would like to begin by expressing my sincere thanks and appreciation to our more than 11,000 employees for their amazing dedication and hard work. Our Chief Financial Officer, Michael, will soon provide a detailed narrative for our fourth quarter and full year results. And I'm going to make a few comments in advance of his remarks. In spite of the two non-recurring expense charges during the fourth quarter, the write-off of our investment in the Trinidad Packaging Plant and the settlement of a tax dispute, our company had a very strong fourth quarter. The fundamentals of our business are sound, good growth in sales and improved expense ratio, a strong cash position, and a much improved inventory and accounts payable compared to a year ago.
Robert Price: For the full year FY 2023, our management team delivered a solid financial performance. PriceSmart has three really significant assets that provide an optimistic outlook for the future of our company. One is our employee team, 11,000 dedicated and knowledgeable people who know the club business and know our markets. The second asset is our members over 1.8 million accounts and over 3 million card holders. The third asset is PriceSmart's good name in the region where we operate.
Robert Price: We are determined to leverage these assets in order to strengthen the value of the PriceSmart membership. While continuing to improve our merchandise offering, we have added a strong representation of health services and online shopping, which is increasingly important to our members. We continue to grow our business to business sale segment to fulfill an important opportunity in our markets.
Robert Price: I would like to conclude my remarks with a thank you to our shareholders.
Michael McCleary: Now Michael will provide more detailed comments on our financial results. Thank you Robert. We finished the year with a strong fourth quarter as both revenues and that merchandise sales exceeded $1 billion. Net merchandise sales increased by 10% or 6.4% in constant currency. Comparable net merchandise sales increased by 8.8% or 5.2% in constant currency.
Michael McCleary: For the fiscal year ended August 31, 2023, total net merchandise sales exceeded $4.3 billion and revenues exceeded $4.4 billion. Net merchandise sales increased by 9% or 8.3% in constant currency and comparable net merchandise sales increased by 7.1% or 6.3% in constant currency for the 12 month period. I segment in Central America where we had 28 clubs at quarter end, net merchandise sales increased 13.6% or 7.1% in constant currency with an 11.4% increase in comparable net merchandise sales for 5.2% in constant currency.
Michael McCleary: All of our markets in Central America had positive comparable net merchandise sales growth. Our Central America segment contributed approximately 680 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the fourth quarter. The Costa Rica Cologne appreciated significantly against the dollar as compared to the same three month and 12 month period a year ago, which was the primary contributor to the favorable currency fluctuations in this segment and consolidated net merchandise sales.
Michael McCleary: In the Caribbean, where we had 14 clubs at quarter-end, net merchandise sales increased 6% or 7.2% in constant currency, and comparable net merchandise sales increased 5.8% or 7.2% in constant currency. All of our markets in this segment had positive comparable net merchandise sales growth. Our Caribbean region contributed approximately 170 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter. In Colombia, where we had 9 clubs open at quarter-end, net merchandise sales increased 2.1% or 0.1% in constant currency, and comparable net merchandise sales increased 2.8% or 0.6% in constant currency. Our Columbia region contributed approximately 30 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter.
Michael McCleary: In terms of merchandise categories, when comparing our fourth quarter sales to the same period in the prior year, our foods category grew approximately 10%, our non-foods category increased approximately 7%, our food services in bakery categories increased approximately 80% and our health services including optical audiology and pharmacy increased approximately 91%. Membership accounts grew 2.5% versus the prior year to 1.81 million accounts with a 12 month renewal rate of 86.9% as of august 31st 2023.
Michael McCleary: Platinum Membership accounts are 8.9% of our total membership base as of august 31st 2023, an increase from 7.4% as of august 31st 2022. For the quarter-ended august 31st 2023, membership income was $17.2 million, an increase of 10.6% over the same period last year. Following many years where our annual membership fee for two cards has been $35 in most markets, $75 for platinum, we recently decided to raise our fee by $5 in most markets for all membership types.
Michael McCleary: We expect these fee increases to take place on a staggered basis in most countries during fiscal year 2024. The low growth margin for the fourth quarter of fiscal year 2023 as a percentage of net marginized sales increased 10 basis points to 15.6% versus 15.5% in the fourth quarter of fiscal year 2022. In total dollars, the low growth margin increased 16.3 million dollars or approximately 10.6% versus the same quarter of the prior fiscal year.
Michael McCleary: Total revenue margins increased 20 basis points to 17.1% of total revenue when compared to the same period last year, primarily due to the increase in total growth margin. The average price per item increased approximately 7.3% year over year down from the high of approximately 10% and Q1 of this fiscal year. However, we continue to see the price and FX pressures in fact aggregate demand as the average items per basket decreased approximately 2.1% compared to the same period of the prior year. During the quarter, our average sales ticket and transactions both grew 4.9% versus the same prior year period.
Michael McCleary: Total SGNA expenses increased to 14.2% of total revenues for the fourth quarter of fiscal year 2023, compared to 13.1% for the fourth quarter of fiscal year 2022. This 110 basis point increase is primarily driven by two significant expenses during this quarter. First, we incurred $9.2 million in expenses related to the settlement of a minimum tax dispute with tax authorities in one of the markets where we operate, which contributed approximately 80 basis points to the increase in FGNA as a percentage of total revenues.
Michael McCleary: Because of our low-margined business, taxes based on sales can be significantly more burdensome than traditional taxes based on income. However, after several years of litigation, in which we challenge the legality of the minimum tax on constitutional and other grounds, we decided the best course of action was to settle this dispute in order to create certainty on the impacts it would have on our business. Now that we have established certainty on this matter, we believe we will be able to continue operating our business profitably in this country.
Michael McCleary: Secondly, we took a $5.7 million in payment charge and related closure costs primarily for the right down of assets of our Senate and sustainable packaging plant that negatively contributed approximately 50 basis points of the increase in SGNA as a percentage of total revenue. We had planned to use this plant to increase efficiencies by eliminating intermediaries and manufacturing some of our packaging materials using compostable or recyclable inputs. However, we found that achieving economic feasibility proved challenging.
Michael McCleary: The increase in SGNA expenses as a percentage of revenue was partially offset by a 50 basis point decrease in general administrative expenses as a percentage of revenue primarily driven by lower cost from CEO, competition savings and leveraging of expenses. Operating income for the quarter decreased 17.5% from the same period last year to $32.1 million primarily due to costs associated with the minimum tax settlement and asset impairment and closure costs. Operating income for the fiscal year 2023 increased 10.4% from the same period last year to 184.5 million dollars despite these costs.
Michael McCleary: We recorded a $1.5 million net loss in total other expense net in the fourth quarter of fiscal year 2023 compared to a $3.5 million net loss in total other expense net in the same period last year. Primarily due to an increase in interest income of $3 million because of significant more investment of surplus cash at higher yields, which was partially offset by an increase in other expense of $1 million primarily due to an increase in total foreign currency transaction losses as we pay premiums in several countries to sort it out.
Michael McCleary: Our effective tax rate for the fourth quarter of fiscal 2023 came in higher than last year at 49.9% versus 34.2% a year ago primarily attributable to the comparatively unfavorable impact of the minimum tax settlement and asset impairment and related closure costs. For fiscal year 2023 the effective tax rate was 35.4% compared to 33.2% for the prior year period. This increase is primarily driven by the comparatively unfavorable impact of the minimum tax settlement, the right off of the AT receivables, arrow post related right offs and asset impairment and related closure costs heading into fiscal year 24.
Michael McCleary: We estimate an annualized effective tax rate of about 32%. Net income for the fourth quarter of fiscal 2023 was 15.4 million dollars or 49 cents for the limited share compared to 23.3 million dollars or 75 cents for the limited share in the comparatively unfavorable impact of the period. Net income for fiscal year 2023 was 109.2 million dollars or 350 cents for the limited share compared to 104.5 million dollars or 38 cents for the limited share in the comparable prior year period.
Michael McCleary: Our index per share for the fourth quarter and fiscal year 2023 are both net of the negative impact of 30 cents per limited share for a cost related to