Q3 2024 PriceSmart Inc Earnings Call
Good afternoon, everyone and welcome to price Smarts, Inc. 's earnings release conference call for the third quarter of fiscal year 'twenty 'twenty, four which ended on may 31st 2024.
After remarks from our company's representatives.
Robert Price 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 and is being recorded today Thursday July 11th 2024.
A digital replay.
Speaker Change: We'll be available following the conclusion of today's conference calls through July 18th 2024 by dialing 18886606264 for domestic callers or 16465173 975.
For international callers and by entering the replay access code 97656 count.
For opening remarks, I would like to turn the call over to price Smarts, Chief Financial Officer, Michael Mccleary. Please sure.
Sure.
Thank you operator, and welcome to <unk> earnings call for the third quarter of fiscal year 2024, which ended on May 31 2024.
We will be discussing the information that we provided in our earnings press release, and our 10-Q, which were both released yesterday afternoon July 10th 2024.
Also in 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-Q.
Speaker Change: These documents are available on our Investor Relations website at investors stock price Mart Dot Com, where you can also sign up for email alerts.
Speaker Change: 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 on current expectations and assumptions as of today July 11 2024.
These statements are subject to risks and uncertainties that could cause actual results to differ materially including the risks detailed in the Companys. Most recent annual report on Form 10-K, our quarterly.
Our report on Form 10-Q filed yesterday and other filings with the SEC, which are accessible on the Sec's website at Www SEC Gov. These risks maybe 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.
Robert E. Price: Thank you Michael.
On behalf of myself and our board of directors congratulations to the price smart team for the excellent sales and earnings results and our recently completed third quarter.
Robert E. Price: As we enter our final three months of fiscal year 2024.
And finalized planning for fiscal year 2025.
Robert E. Price: We will continue to focus on improving sales.
Operating efficiencies.
And the use of technology to further enhance our business performance.
Price smart is a highly respected and valued brand in all our markets.
Our goal is to continue to improve our business operations for the benefit of our members.
And our employees.
Thank you to our many shareholders for your continued confidence and support.
Now Michael will continue with his presentation.
Thank you Robyn.
We had a strong third quarter as net merchandise sales reached almost $1 2 billion and total revenue was over $1 2 billion.
For the quarter ended May 31, 2024.
Net merchandise sales increased by 11, 6% or nine 1% in constant currency and comparable net merchandise sales increased by seven 8% or five 6% in constant currency.
For the nine months ended May 31, 2024, total net merchandise sales reached almost $3 6 billion and total revenues for almost $3 7 billion.
Net merchandise sales increased by 11, 8% or eight 3% in constant currency and comparable net merchandise sales increased by.
Eight 2% or 5% in constant currency for the nine months and 39 week periods respectively.
By segment in Central America, where we had 30 clubs at quarter end net merchandise sales increased 11, 2% or eight 9% in constant currency with a seven 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.
First El Salvador, which recently opened two new clubs, which are not yet included in the comparable net merchandise sales calculation.
Our Central America segment contributed approximately 450 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the third quarter.
We opened our sixth warehouse club in Guatemala in November 2023, and our fourth warehouse club in El Salvador in February 2024.
In the Caribbean, where we had 14 clubs at quarter end net merchandise sales increased five 3% or eight 3% in constant currency and comparable net merchandise sales increased 5% or 8% in constant currency.
All of our markets in this segment had positive comparable net merchandise sales growth.
Our Caribbean region contributed approximately 140 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the third quarter.
In Colombia.
Yeah, well, we had 10 clubs opened at the end of our third quarter numbers.
Net merchandise sales increased 33, 9% or 12, 5% in constant currency and comparable net merchandise sales increased 19, 4% and increased 5% in constant currency.
Colombia contributed approximately 190 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 third quarter sales for the same period in the prior year. Our foods category grew approximately 4% our non foods category increased approximately 17%.
Our food services and bakery categories increased approximately 24%.
Robert E. Price: Our health services, including optical audiology and pharmacy increased approximately 43%.
Robert E. Price: Membership accounts grew four 8% versus the prior year to almost $1 9 million accounts with a strong 12 month renewal rate of 88, 1% as of May 31 2024.
Due to the importance of our platinum members during the month of March we ran a special campaign rewarding our platinum members and encouraging upgrades in sign ups to our platinum membership program.
This campaign was quite successful, helping our platinum accounts to end the quarter at 11% of our total membership base and increased from eight 6% as of the end of last year's third quarter and nine 6% from this year's second quarter.
For the quarter ended May 31, 2020 for membership income was $19 3 million an increase of 2% over the same period last year.
We increased the annual membership fee by $5 and substantially all countries during fiscal year 2024.
Total gross margin for the third quarter of fiscal year 2024, as a percentage of net merchandise sales increased 30 basis points to 15, 6% versus 15, 3% in the third quarter of fiscal year 2023.
The 30 basis point increase was primarily due to general margin improvement across most of our sales categories.
Yes.
In total dollars total gross margin increased $22 2 million or approximately 13, 5% versus the same quarter of the prior fiscal year.
Although revenue margins increased 30 basis points to 17, 1% of total revenue compared to the same period last year, primarily due to the increase in total gross margin as a percentage of net merchandise sales.
During the third quarter, our average sales ticket grew by 2% and transactions grew nine 4% versus the same prior year period.
For the nine months.
Robert E. Price: Jared our average ticket grew by two 3% and transactions grew nine 2% versus the same prior year period.
Average price per item increased approximately three 6% year over year with average items per basket decreasing approximately one 2% compared to the same period of the prior year.
Total SG&A expenses increased to 13% of total revenues for the third quarter of fiscal year 2024, compared to 12, 9% for the third quarter of fiscal year 2023, primarily due to higher compensation professional fees and depreciation expense.
General and administrative expenses increased to three 3% of total revenue for the third quarter of fiscal year 2024, compared to three 1% for the third quarter of fiscal year 2023.
Robert E. Price: The 20 basis point increase was primarily due to investments in technology and an increase in compensation expense from stock grants to executive leadership.
Operating income for the quarter increased 15, 9% from the same period last year to $49 9 million operating income for the first nine months of fiscal year 2024 increased 12, 7% from the same period last year to $171 7 million.
In the third quarter of fiscal year 2024, we recorded a $2 $9 million net loss and total other expense compared to $1 $5 million net loss and total other expense in the same period last year.
The increased net loss and total other expense was primarily due to an increase in interest expenses of <unk> $8 million and lowest interest income of zero point $6 million.
Our effective tax rate for the third quarter of fiscal year 2024 came in at 38% versus 28, 9% a year ago. The increase in the effective tax rate is primarily related to the cost savings for CEO compensation offset by assets written down in the prior year.
For the nine months ended May 31, 2020 for the effective tax rate was 31, 3% compared to 32, 2% for the prior year period.
The decrease in the effective tax rate is primarily related to fewer valuation allowances on deferred tax assets from foreign tax credits that are no longer deemed recoverable.
Looking forward into Q4, we expect to end the fiscal year with an annualized effective tax rate of about 31% to 32%.
Net income for the third quarter of fiscal year, 2024 was $32 $5 million or $1 eight per diluted share compared to $29 $6 million or <unk> 94 cents per diluted share in the third quarter of fiscal year 2023.
Net income for the first nine months of fiscal 2024 was $109 8 million or.
A $3 62 per diluted share compared to $93 8 million or $3 <unk> per diluted share in the comparable prior year period.
Yes.
Robert E. Price: Adjusted net income for the third quarter of fiscal year 2024. It was $32 5 billion are.
On an adjusted of $1 eight per diluted share compared to adjusted net income of $32 $5 million foreign adjusted dollars four per diluted share in the comparable prior year period.
Adjusted EBITDA for the third quarter of fiscal year, 2024 for $71 million compared to $63 $9 million in the same period last year.
Adjusted net income for the first nine months of fiscal year, 2024 was $109 $8 million foreign adjusted $3 62 per diluted share compared to adjusted net income of $106 1 million for.
On an adjusted $3 41 per diluted share in the comparable prior year period.
Adjusted EBITDA for the first nine months of fiscal 2024 was $232 9 million compared to $218 $4 million in the same period last year.
Moving onto our strong balance sheet, we ended the quarter with cash cash equivalents and restricted cash totaling $143 million. In addition to approximately $99 $9 million of.
Robert E. Price: Short term investments.
From a cash flow perspective, net cash provided by operating activities totaled $165 8 million for.
For the first nine months of fiscal year, 2024, compared to $184 $7 million for the same prior year period.
Shifts in working capital generated from changes in our merchandise inventory and accounts payable positions.
Robert E. Price: <unk> contributed $35 $8 million to the overall decrease.
Additionally, our net change in operating assets and liabilities contributed $7 $8 million of additional cash used.
This was partially offset by an increase in net income.
Without noncash items, which contributed $24 6 million.
For the nine months ended May 31, 2024.
Yes.
Average inventory per club increased by approximately $900000 or 10, 2% and inventory days on hand increased by approximately one day or two 3% for the third quarter of fiscal year 2024 versus the same period in 2023 the.
The increase of inventory per club and days on hand is primarily due to a shift in our inventory mix towards more non food items, which have longer lead times.
Net cash used in investing activities decreased by $48 4 million for the nine months ended May 31, 2024 compared to the prior year, primarily due to a $103 $6 million increase in proceeds from settlements of short term investments. This was partially offset by a $45 $3 million increase in property and equipment expenditure to support.
Our growth of our real estate footprint, and a $10 $8 million increase in purchases of short term investments compared to the same nine months period a year ago.
We opened three additional clubs during the first nine months of fiscal 2024.
Net cash used in financing activities. During the nine months ended May 31, 2024 increased by $111 $2 million.
Primarily from the result of the share repurchase program, we completed during the first quarter.
Vessel $1 dividend payment in April of 2024, and lower proceeds from long term bank borrowings compared to the same period a year ago.
When reviewing our cash balances. It is important to note that as of May 31, 2024, we had $66 million of cash cash equivalents and short term investments.
Nominated in local currency in Trinidad and Honduras, which we cannot readily convert into U S dollars.
Now onto our growth drivers starting with real estate, we have purchased land and plan to open our ninth warehouse club in Costa Rica, located in cartography, approximately 10 miles east from the nearest clubs in the greater San Jose Metropolitan area.
This club will be built on a six acre property and is anticipated to open in the spring of 2025.
Once this new club is open we will operate 55 warehouse clubs in total.
Additionally, we are currently remodeling several of our high volume clubs, but youre in San Pedro Sula, Honduras Antero to manage on Republic, implored us changing it out and Tobago as well as expanding our clubs in San Salvador, El Salvador, Liberia, Costa Rica, and Port margin makeup.
Finally, we continue to actively seek ways to improve our distribution infrastructure to better serve our members.
In the third quarter, we started using distribution centers run by a third party in Florida from markets, Guatemala, Honduras, Nicaragua and El Salvador.
The benefits of opening distribution centers includes reduced net landed cost reduction in lead time and improvement of working capital.
Turning now to the membership value.
As we've highlighted in previous calls our private label members selection brand continues to be a significant area of focus based on the good value it brings to our members.
We offer private label food household products and apparel under our members selection brand across all markets.
During the first nine months of fiscal year 2020 for our private label sales represented 27, 4% of our total merchandise sales.
That's up 140 basis points from 26% in the comparable period.
Fiscal year 2023.
Robert E. Price: We also continue to focus on health services.
We currently have 53 locations with optical centers as well as pharmacy centers in all eight of our warehouse clubs in Costa Rica, and five warehouse clubs in Panama.
We expect to open two more pharmacies in Guatemala during fiscal year 2024.
We currently have 27 audiology centers open and expect to open one additional audiology center and each of Panama, Jamaica, and Trinidad by the end of fiscal year 2024.
Our optical program provides for free eye exams with every membership and we performed over 38000 eye exams during the quarter.
Optical services are also an important component of our contributions to the communities in which our clubs are located.
In partnership with personal Atrophies outbound area to serve program freshman I apologize for fund III eye exams for children and the charities provide three lenses and frames.
Our third growth driver is providing omnichannel shopping options for our members, including sales via our App and our desktop web site. We currently utilize weizmann dot com, our App and other third party last mile delivery services to drive online sales.
During the third quarter total net merchandise sales through digital channels increased 27% versus the same period in the prior year and represented a record $65 9 million or five 5% of total leveraged and ourselves.
Total orders placed on <unk> dot com and our App increased 21, 9% and the average transaction value increased two 6% versus the prior year period.
In the third quarter of fiscal year 2024, we began a country by country rollout of our new E Commerce website pipeline.
This platform will allow us to better tailor deliveries owns and services for our members update inventory availability more quickly improved product discovery and reduce friction in the shopping experience.
As of May 31, 2020 for approximately 63% of our members had created an online profile with fresh Mark Dotcom our RF.
And 17, 3% of our total membership base has made a purchase on fresh mark dotcom or RF.
We believe that there are significant growth opportunities in our digital channel and we will continue to invest in this part of our business to provide an enhanced omnichannel experience and additional value to our members.
Speaker Change: Additionally, we are continuing to work on implementation of relaxed to modernize our ordering and inventory management.
We started this project in 2023 and it is currently proceeding as planned and we expect it to be completed by the end of fiscal year 2025.
As a result of this implementation, we anticipate improved sales inefficiencies due to enhanced in stock positions diminished spoilage and an optimally streamlined inventory slow.
During the third quarter, we released our comprehensive environmental and social responsibility report for fiscal year 2023.
Speaker Change: This report showcases our commitment to environmental and social responsibility.
The full ESR report is available on our Investor Relations website at investors <unk> com under the ESG tab.
Environmental and social responsibility continues to be an important component of how we approach our business and add value to the membership we do our best to incorporate practices that use natural resources responsibly.
Just to give a quick update we currently have seven recycling centers opened with two what else Oliver three hundreds and two in Guatemala.
Each location collection average of around 30000 pounds of recycled material monthly, but particularly seek alpha locations for collecting around 50000 pounds per month.
Looking ahead, we plan to expand this successful program by opening Florida's recycling centers in the Dominican Republic. During fiscal year 2025, you can find more information about price March two entropic and corporate social responsibility efforts on <unk> Dot org.
Looking forward a little into our current fourth quarter, our comparable net merchandise sales for the four weeks ended June 32024 were up six 4% or six 1% in constant currency.
In closing it was a great results for our third quarter and we are proud to see that our members recognize the value proposition, we offer as evidenced by strong sales growth and renewal rates, we expect a solid performance in the fourth quarter to round out our fiscal year and we are thankful for the ingenuity and hard work of all our employees who make it possible.
For joining our call today.
I will now turn the call over to the operator to take your questions.
Operator, you may now start taking our callers questions.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone, you'll hear a prompt that your hand has been raised should.
Should you wish to decline from the polling process. Please press the star followed by the two if you're using a speaker phone. Please lift the handset before pressing any Keith one moment. Please for your first question.
Your first question comes from John Brad.
From Kansas City Capital. Please go ahead.
Good morning, Robert Michael.
John: Good morning, John.
<unk>.
Most recently the Colombian currency has weakened quite a bit and I don't know if it will continue or not but.
Have you seen any change in consumer behavior in Colombia, and have you made any changes in pricing.
Like you did maybe a year and a half ago.
Or is it too soon to do something like that.
Why do you say this weekend.
Well it has weakened it was that it was it's at 4000 now.
And it was at 3600 or something like that so it's weakened a little bit.
Yes.
I think it's kind of hung in around $3900 to 4000 for a while.
Well.
Can say, particularly weekend.
John: I mean, that's.
Pretty much what we would've expected and hoped for is around before it does all right.
Really impacted.
Okay.
Our general approach to how we.
Price merchandise I mean I.
I think we're feeling pretty good about the fact that it's around 4000.
<unk> made it probably a little more positive frame for it.
Okay. Okay.
That's good and Michael.
When you when you think about the.
John:
The additions and expansions at <unk>.
At your existing stores.
When you add everything up how much of a square foot increase is that in terms of.
In terms of those expansions how much you're expanding.
Those facilities by.
Wow.
Maybe I can take it.
What for locations that are being expanded.
Three or four.
Are you asking that as a percent of those individuals.
Yeah that'd be great.
Oh I would guess.
I'm not sure we've thought about it quite like that but I would guess, maybe 15% to 20% more sales floor.
Okay.
Okay, and then when you do that what kind of merch, what new merchandise do you do you put in there.
Additives.
It's not necessarily that.
Thank you put more.
He is and what happens is that the Europe the ability to.
John: Display the product with better facing okay. They improve.
Have a bigger impact for each item and less labor related to stocking in handling the item.
It improves the efficiency and I think for the member.
Presents a more compelling individual item.
Got you.
The issue, we have where we are trying to.
Uh huh.
Items into.
More limited space.
Statements to make it.
More <unk>.
Efficient and impactful.
Okay.
Okay very good.
That's all I have thank you. Thank.
Yeah. Thanks, John.
There are no further questions I will now turn the call over to Michael.
Okay. Thank you everybody and we hope you have a good day, okay right.
Okay.
Ladies and gentlemen, this concludes the call for today. Thank you for collagen. Please go ahead and disconnect your lines.
Okay.