Q1 2025 PriceSmart Inc Earnings Call
Speaker Change: Good afternoon, everyone, and welcome to Price Smart Inc.'s earnings release conference call for the first quarter of fiscal year 2025, which ended on November 30, 2024.
Speaker Change: 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.
Speaker Change: As a reminder, this conference call is limited to one hour and is being recorded today, Friday, January 10, 2025.
by dialing 888-888-8888.
Speaker Change: or 646-517-3975 for international callers and entering replay access code 20154 and the pound sign. For opening remarks, I would like to turn the call over to Price Smart's Chief Financial Officer, Mr. Michael McCleary. Please proceed, sir.
Speaker Change: Thank you, Operator, and welcome to PriceMart Inc.'s earnings call for the first quarter of fiscal year 2025, which ended on November 30, 2024. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released on January 8, 2025.
Speaker Change: 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 in our 10-Q.
Speaker Change: These documents are available on our Investor Relations website at investors.pricemark.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.
Speaker Change: Forelooking statements include, but are not limited to, statements containing the words expect, believe, plan, will, may, should, estimate, and some other expressions.
Speaker Change: All forward-looking statements are based on current expectations and assumptions as of today, January 10th, 2025.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker Change: These risks may be updated from time to time. The company undertakes no obligation to update forelooking statements made during this call.
Speaker Change: Now we will turn the call over to Robert Price, Pricemart's Interim Chief Executive Officer.
Speaker Change: Thank you, Michael. It is my pleasure to join Michael in welcoming you to our first quarter FY 2025 Investors Call.
Speaker Change: I want to begin by thanking our management team and our 12,000 Price Smart employees for their continuing dedication to our business.
Speaker Change: On behalf of our board and stockholders, we are extremely grateful for your loyalty and contribution to our success.
Speaker Change: Michael will soon be providing his narrative for the first quarter.
Speaker Change: And we look forward to answering your questions at the conclusion of Michael's remarks.
Speaker Change: Now I am pleased to ask Michael to continue with his presentation.
Michael McCleary: Thank you, Robert. Net merchandise sales for the first quarter were $1.22 billion and total revenue was $1.26 billion.
Michael McCleary: Net merchandise sales increased by 7.8% or 8.2% in constant currency and comparable net merchandise sales increased by 5.7% or 6.1% in constant currency.
Michael McCleary: I segment in Central America where we had 30 clubs a quarter in, net merchandise sales increased 8.4% or 7% in constant currency, with a 5.1% increase in comparable net merchandise sales, or 3.7% in constant currency.
Michael McCleary: All of our markets in Central America had positive Comparable Net Merchandise Sales growth, except for El Salvador, which opened one new club in February 2024, which is not yet included in the Comparable Net Merchandise Sales calculation.
Michael McCleary: Our Central America segment contributed approximately 310 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the first quarter.
Michael McCleary: In the Caribbean, where we had 14 clubs a quarter end, net merchandise sales increased 5.4% or 7.9% in constant currency, and comparable net merchandise sales increased 5.2% or 7.6% in constant currency.
Michael McCleary: All of our markets in this segment had positive comparable net merchandise sales growth except for a slight decrease in Barbados
Michael McCleary: Our Caribbean region contributed approximately 150 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the first quarter.
Michael McCleary: In Colombia, where we had 10 clubs open at the end of our first quarter, net merchandise sales increased 10.7% or 16.1% in constant currency, and comparable net merchandise sales increased 10.3% or 16.2% in constant currency.
Michael McCleary: Columbia contributed approximately 110 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 first quarter sales to the same period in the prior year, our foods category grew approximately 1.8%, our non-foods category increased approximately 10.2%.
Michael McCleary: Our food services and bakery categories increased approximately seven and a half percent, and our health services including optical, audiology, and pharmacy increased approximately 20.6 percent.
Michael McCleary: Membership accounts grew 4.8% versus the prior year to over 1.9 million accounts with a 12-month renewal rate of 87.8% as of November 30, 2024.
Michael McCleary: Platinum accounts, as of the end of our first quarter, represented 14% of our total membership base, an increase from 9.3% in the prior year, first quarter, and 12.3% as of the end of fiscal 2024.
Michael McCleary: This increase is due to additional focus on this important segment of our membership, which included platinum promotional campaigns during fiscal 2024 and the first quarter of fiscal 2025.
Michael McCleary: Total gross margin for the first quarter of fiscal year 2025, as a percentage of net merchandise sales, decreased 20 basis points to 15.9% versus 16.1% in the first quarter of fiscal year 2024.
Michael McCleary: During the first quarter, our average sales ticket grew by 2.4% and transactions grew 5.3% versus the same prior year period.
Michael McCleary: The average price per item remained flat year over year, while average items per basket increased approximately 2.4% compared to the same period of the prior year.
Michael McCleary: Regarding SG&A expenses, our Warehouse Club operating expenses for the quarter as a percentage of revenue were the same as last year. The overall 30 basis point increase of SG&A as a percentage of revenue is as a result of U.S. central overhead primarily related to technology investments.
Michael McCleary: We budgeted these expense increases as necessary investments for the future growth of the business.
Michael McCleary: Operating income for the first quarter of fiscal year 2025 was similar to the prior year coming in at 58.3 million dollars.
Michael McCleary: In the first quarter of fiscal year 2025, we recorded a $7.3 million net loss in total other expense compared to a $2.1 million net loss in total other expense in the same period last year.
Michael McCleary: and the U.S. dollars, and an increase of $3.3 million of unrealized losses in value of U.S. dollar-denominated monetary assets and liabilities in several of our markets, as well as lower interest income of $0.6 million.
Michael McCleary: Our effective tax rate for the first quarter of fiscal year 2025 was 26.5% versus 32.3% a year ago. The decrease in the effective tax rate is primarily related to tax optimization initiatives that were undertaken at the end of fiscal year 2024.
Michael McCleary: We anticipate that these tax optimization initiatives will continue to result in lower overall tax rates for the balance of fiscal 2025.
Michael McCleary: Recognizing the many variables that can impact tax rates, we anticipate that our annualized effective tax rate for the full fiscal year will be in the range of 27 to 29 percent.
Michael McCleary: Net income for the first quarter of fiscal year 2025 was $37.4 million, or $1.21 per diluted share, compared to $38 million, or $1.24 per diluted share, in the first quarter of fiscal year 2024.
Michael McCleary: Adjusted EBITDA for the first quarter of fiscal year 2025 was $79.1 million compared to $77.8 million in the same period last year.
Michael McCleary: We ended the quarter with cash, cash equivalents, and restricted cash totaling $136.5 million plus approximately $101.3 million of short-term investments.
Michael McCleary: From a cash flow perspective, net cash provided by operating activities totaled $38.5 million for the first quarter of fiscal year 2025, compared to $41.1 million for the same prior year period.
Michael McCleary: Shifts in working capital generated from changes in our merchandise inventory and accounts payable positions contributed $13.3 million to the overall decrease. This was partially offset by a net positive change in our other operating assets and liabilities, which contributed $9.1 million.
Michael McCleary: Net cash used in investing activities decreased by $0.8 million for the first quarter of fiscal year 2025 compared to the prior year, primarily due to a $5.1 million decrease in property and equipment expenditures.
Michael McCleary: This was partially offset by a $4.3 million net decrease in proceeds from settlements and purchases of short-term investments.
Michael McCleary: Net cash used in financing activities during the first quarter of fiscal year 2025 decreased by $56.9 million, primarily from fewer repurchases of Treasury stock during the first three months of fiscal year 2025.
Michael McCleary: Partially offset by an increase in repayments of long-term bank borrowings compared to the same period a year ago.
Michael McCleary: When reviewing our cash balances, it is important to note that at the end of our first quarter, we had $81 million of cash, cash recoupments, and short-term investments denominated in local currency in Trinidad and Honduras, which we could not readily convert into U.S. dollars.
Now on to our growth drivers.
Michael McCleary: Starting with real estate, we have purchased land and plan to open our ninth warehouse club in Costa Rica, located in Cartago, approximately 10 miles east from the nearest club 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.
Michael McCleary: Additionally, we finalized execution of the land lease this quarter and plan to build our seventh warehouse club in Guatemala, located in Quetzaltenango, approximately 122 miles west from the nearest club in the capital of Guatemala City.
Michael McCleary: This club will be built on a four-acre property and is anticipated to open in the summer of 2025.
Michael McCleary: Once these two new clubs are open, we will operate 56 warehouse clubs in total.
Michael McCleary: In the first three months of fiscal year 2025, we completed the remodeling of our high-volume clubs in San Pedro Sula, Honduras, and Santiago, Dominican Republic.
Michael McCleary: Additionally, in December, we completed expansions of our clubs in San Salvador, El Salvador, and Portmore, Jamaica.
Michael McCleary: Finally, we continue to actively seek ways to improve our distribution infrastructure to better serve our members. We currently have major distribution centers in Miami, Costa Rica, and Panama.
Michael McCleary: We are also in various stages of development and implementation of price-mode operated DCs in markets such as Guatemala, Trinidad, and the Dominican Republic.
Michael McCleary: We believe these in-country distribution centers will provide numerous advantages, including shortening the time to market for imported products, lowering the net landed costs for most of our merchandise, and providing better in-stock positions.
Michael McCleary: Along with additional distribution centers, we are beginning to operate our own fleet of trucks in some countries to deliver merchandise from our distribution centers to our clubs.
Michael McCleary: Additionally, we are enhancing our distribution and logistics network through the expected opening of distribution centers in China and in each of our multi-club markets, either operated by Pricemark or through the use of third-party logistics providers.
Michael McCleary: Turning now to our efforts to increase the value of membership.
Michael McCleary: As we've highlighted in previous calls, our private label and 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.
Michael McCleary: During the first three months of fiscal year 2025, our private legal sales represented 27.7% of our total merchandise sales. That's up 50 basis points from 27.2% in the comparable period of fiscal year 2024.
Michael McCleary: 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, five warehouse clubs in Panama, and four in Guatemala.
Michael McCleary: By the end of fiscal 2025, we expect to have pharmacies in substantially all clubs in Costa Rica, Panama, Guatemala, and El Salvador.
We also currently have 30 audiology centers open.
Michael McCleary: Our optical program provides four free eye exams with every membership and we performed over 35,000 eye exams during the quarter.
Michael McCleary: Our third growth driver is providing omni-channel shopping options for our members, including sales via our app and or our desktop website, as well as enhancing our technological capabilities.
Michael McCleary: We currently utilize Pricemart.com, our app, and other third-party last-mile delivery services to drive online sales.
Michael McCleary: During the first quarter, total net merchandise sales through digital channels increased 21.1% versus the same period in the prior year, and represented a record high of $69.4 million, or 5.7% of total net merchandise sales.
Michael McCleary: Total orders placed directly on PriceMart.com and our app increased 12.8% and the average transaction value increased 5.6% versus the same prior year period.
Michael McCleary: As of the end of the first quarter, approximately 65.2% of our members had created an online profile with Pricemark.com or our app. And 28% of our members with an online profile had made a purchase on Pricemark.com or our app.
Michael McCleary: 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 omni-channel experience and additional value to our members.
Michael McCleary: We are also continuing to prioritize investments in our technology for supply chain enhancements, back office productivity improvements, and initiatives to both optimize and transform the brick-and-mortar experience and to make the digital experience more efficient and member-centric.
Michael McCleary: One example of these efforts is RELEX, which will modernize our ordering and inventory management.
Michael McCleary: We started this project in 2023, and we expect it to be substantially operational by the end of fiscal year 2025.
Michael McCleary: As a result of this implementation, we anticipate improved sales and efficiencies due to enhanced in-stock positions, diminished spoilage, and streamlined inventory flow.
Michael McCleary: Additionally, in the first quarter of fiscal year 2025, we successfully implemented our new point-of-sale system, Alera, a Toshiba product, in one of our countries.
Michael McCleary: We will continue to roll out this new application throughout the next few fiscal years.
Michael McCleary: Looking forward a little into our current second quarter, Comparable Net Merchandise Sales for the four weeks ended December 29, 2024 were up 6.6% or 7.8% in constant currency versus December last year.
Michael McCleary: In closing, we are proud of the positive impact our business has had on our employees and the communities in which we do business.
Michael McCleary: We've made solid progress in our implementation of several important technology initiatives, particularly in key areas such as procurement, logistics, and other front and back office processes that we expect will make us more efficient operationally and more agile in our merchandising process.
Michael McCleary: Thank you 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 caller's questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad.
Speaker Change: You will hear a prompt that your hand has been raised, and should you wish to cancel the request, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.
Speaker Change: Your first question comes from the line of Jan Bratz from Kansas City Capital. Please proceed.
Good morning, Robert and Michael.
Jan Bratz: Michael, can we talk a little bit about your currency conversion cost. I think in the quarter it was $3.4 million, I think, per the 10-Q.
Jan Bratz: It looks like during the quarter, your Trinidad balances went up $10 million, your Honduras balances went down about $11 million. Does that suggest that you only converted Honduras currencies in the quarter?
then we were able to convert.
So.
Does that $3.4 million in currency costs
Jan Bratz: As we've talked about before we make some estimates on an annual basis of what we expect the cost to be and allocations within our margin structure so that we're pricing for that.
averages
Jan Bratz: of what we target throughout the year. I think I mentioned on a couple of calls, we don't always have access to the dollars that we'd like to during the quarter. So there's.
a disconnect
on Timing.
Jan Bratz: Okay, but so the strategy is to recoup those costs through a little bit higher margin.
Correct. Okay. Okay. Okay. And then secondly, on...
Speaker Change: It's not a big part of the business. I know you've sort of lost that export business with the Philippines, and I know you're looking elsewhere to develop that business. Does that business, that revenue, in the absence of new business, does that actually go to zero going forward?
Speaker Change: John, I'll answer that question because we are, no, the answer is no. In fact,
Speaker Change: Even in the first quarter we had revenue from exports, but what we've done in light of the fact that we
Speaker Change: no longer have the Philippines business. We've set up a small division within our company. It's focused exclusively on export sales.
and we think that
Speaker Change: could be a good growth area for our business. It's certainly not going to be at the level that our basic business is, but we have been approached and are working with a number of customers, particularly in countries where we don't already have Pricemart in operations.
And we have you know
Speaker Change: developed some agreements and made sales to third parties in some countries and we're trying to build that business.
Speaker Change: So was there indeed some Philippine revenue in the first quarter?
Speaker Change: I think so because there's I think a kind of a tailing off of our business in the Philippines but there was still some left.
Okay, okay, very good. And last question.
Speaker Change: Your private label business, I think, was up, what did they say, about 28%. Where do you think that can go over the next couple of years? What's your goal in securing more private label business?
Speaker Change: the value of that brand, the member selection brand that we've developed. In fact, when we talk about export sales...
What most of these
Speaker Change: distributors or small retailers want are the private label brands. Very interesting. That's where they're really focused.
Speaker Change: let's say, eliminate too many of the branded products because part of the attraction of PriceMart and the markets we're in is the fact that our members have access to North American, particularly North American brands that aren't readily available in the community.
Speaker Change: Our member selection brand is really well thought of and we've been very disciplined about keeping the quality high and also making...
making sure that we're
Speaker Change: really giving good value. I think there's a lot of potential.
there. Okay.
Thanks, John.
Thank you. And your next question
Speaker Change: Thank you very much, Robert, Michael. Happy New Year. Thank you for taking my questions. Just wanted to know first if you could give us...
Speaker Change: Read more details on the drivers for the increase of cost of percentage of sales if you could please help us understand that a little bit further and also what region was the one that contributed the most to this effect.
Speaker Change: So you cut off right at the key point. Was that a percentage of cost as a percentage of sales? Why don't you repeat the question because I couldn't hear it.
Do you hear me there?
Speaker Change: We can hear you, but it wasn't real clear as to what you said, so could you maybe repeat it?
Speaker Change: Oh yeah, if you could give more details please about the percentage of cost of percentage of sales. We saw an increase there, just wanted to understand the effect.
Speaker Change: What was the driver behind this and what region was the one that contributed the most to this effect?
Oh, COGS, cost of goods sold?
Speaker Change: Yes, yes. Oh, Cogs, okay. Can you repeat, Michael, just so I make sure I understand what's being asked?
Michael McCleary: My understanding of the question, Hector, correct me if I got it right, was COGS, you're asking about why COGS as a percentage of sales went up.
Yes, basically, yes.
Michael McCleary: Okay, but that is the question as to why it went up but What's throwing me is the margins are the margins are up. So I think it's
Michael McCleary: The COGS or percentage of sales should be down, so margins are up. Oh sorry, you're right. No, the margins are off two-tenths of 1%. I was thinking 2.4 to 2.1, yeah. All right, the question could be asked either way. It could be why is COGS up or why are margins down? Yeah, I get it. Is that kind of what you're asking? Yeah.
Michael McCleary: Yes, yes. Okay. I've been studying that a little bit. It was...
Michael McCleary: A little bit of a, we didn't expect, it's not a big difference I guess if you're talking year-to-year, right? 1509 versus 1507 year-to-year.
I think it was primarily in exports.
Michael McCleary: If I remember right, I think on the local merchandise we actually did as well as a year ago.
but it was on exports.
Michael McCleary: And it could be that on, and again, I don't necessarily have a total grasp on it, but it could be that on some of the areas where we were really more aggressive about trying to get sales, particularly in electronics and other big ticket items, we might have lost a little margin in order to get sales.
Be more aggressive about getting the sales.
Michael McCleary: Yeah, the reason I got confused about the question, Hector, so if you look at Q4 to Q1, sequentially we're up 20 basis points. Q1 to Q1 we're down 20 basis points. So I think we've mentioned on a couple calls.
Michael McCleary: ranges of 10 to 30 basis points, you know, in one particular quarter don't necessarily make a trend. Another thing I'd call your attention to is historically Q1 margins have been a little bit higher than the full year, so if you look at the full year last year, full year
prior years compared to Q1.
Michael McCleary: I would say the other factor might be this, and again I haven't studied it totally, but if you notice in our sales increases the largest increase I believe was in Colombia.
Michael McCleary: And Colombia, especially on the imports, or we call them exports, from the U.S., because of the peso,
Michael McCleary: depreciating during the first quarter, we may have lost the margin.
Michael McCleary: in terms of adjusting our prices to the decrease in the peso. And that, I think, we increased in terms of local currency.
Michael McCleary: close to 16% in sales in Columbia, right? Wasn't it something like that, Michael? I think so.
Michael McCleary: down from a year ago quite a bit. So I think we might have gotten hurt on the on the currency situation.
I understand. Thank you. Thank you for that.
of the implementation behind that, please.
Michael McCleary: Make sure we understand your question again. I want, it's a little, can you kind of be a little more specific about what you're...
Speaker Change: Yeah, you were also mentioning in the report that you made some expenses and technology to achieve business optimization So she wanted to understand your goals and also in your prepared remarks You're talking about you expected improved sales and efficiencies Maybe end of the 2025 fiscal year. So I'm going to send more details about
Speaker Change: likely. There are a couple, a number of things that in our business that have
Speaker Change: I think we've under-invested for years in technology in the back office.
We are now in a catch-up phase trying to get
Speaker Change: the resources to end up being less dependent on paper and give the buyers and our distribution people the tools they need to operate efficiently.
Speaker Change: And that takes money. I mean, we have to spend the money now.
Speaker Change: to get the benefits that will occur hopefully over the years.
One area that and I would say that
Speaker Change: The area of technology in the back office is pretty much everywhere. I think we haven't invested enough in accounting technology to create more of an efficient approach.
And then the other thing that's...
Speaker Change: I think is really significant in technology is the point-of-sale technology, which we're working with Toshiba under their, I guess it's called Alera technology, to try to get and to implement efficiencies that will allow us to be more productive at the registers and also service our members better.
Speaker Change: and we're in the early stages of implementing this new technology in Trinidad.
Speaker Change: And hopefully, over the balance of the year, we'll be able to move that technology throughout the system. So that's one piece of it.
Speaker Change: The other thing that I think is really important is our online business because we still Although it grew very well. I think Michael reported about a 21% increase in online sales we we still are not where we need to be in terms of the
Speaker Change: interface with our members, and the quality of the interface on the online business, as well as some of the support areas that relate to maximizing online business. And that also is requiring more investment.
than what we had done in the past, so...
I think this year we're going to experience.
Speaker Change: overhead in the corporate side. Now, I wanted to point out too, this is very important that at the club level, operating level of our warehouse clubs, we've actually, I think in the first quarter, had a lower percent.
Operating in College City.
Speaker Change: pretty close to being the same, maybe it's slightly better. So we are
Speaker Change: doing better there. And the other thing I want to really emphasize, it was in Michael's comments, but I think it's really important to point this out. We're in a pretty
Speaker Change: aggressive mode in developing these regional distribution centers. And I think for me, in my own sense of where we're headed as a company, those distribution centers, particularly in our critical big markets,
Speaker Change: bottom line impact this year. I think we'll do okay. Our numbers look good, but I really feel more that this is something that we had to do that hopefully will be important for the future of the company.
Speaker Change: Thank you very much, Robert. That view was very, very good, very, very helpful. Thank you so much.
Speaker Change: Thank you. There are no further questions at this time. I will now hand the call back to Mr. Michael McCleary for any closing remarks.
Michael McCleary: Okay well thank you everybody for joining our conference call today. We want to send our best wishes to anybody that has been impacted by the fires in Los Angeles and we want to wish a Happy New Year to all.
Thank you.
Michael McCleary: And this concludes today's call. Thank you for participating. You may all disconnect.
Thanks for watching!