Q3 2019 Earnings Call

July 11, 2019

Welcome to the chorus call leasehold and operator will be with you shortly.

Sherry Bahrambeygui: Welcome to Chorus Call.

Operator: Welcome to Chorus Call.

Thomas Vester: Please hold.

Please hold.

Sherry Bahrambeygui: An operator will be with you shortly.

An operator will be with you shortly.

Ronald Bookbinder: Chorus Call.

Chorus Call.

Chorus call conference I would like to join.

Sherry Bahrambeygui: What conference would you like to join?

What conference would you like to join?

Ronald Bookbinder: The PriceSmart earnings call?

Michael Michaelevich: The PriceSmart earnings call?

The price Smart earnings call.

Jon Braatz: Your name please?

Operator: Your name please?

Your name please.

Thomas Vester: Michael Michaelevich. I can spell the last name if.

Michael Michaelevich: Michael Michaelevich. I can spell the last name if.

Michael on the capital, which I can spend the last name if that helps.

Sherry Bahrambeygui: Yes, please.

Operator: Yes, please.

Please.

Thomas Vester: It's M-I-C-H-A-E.

Michael Michaelevich: It's M-I-C-H-A-E.

I see H.A.E.

Ronald Bookbinder: Levi, CH. Thank you.

L E.

V I C H.

Levi, CH. Thank you.

Thank you and every company please.

Sherry Bahrambeygui: May I have your company please?

Operator: May I have your company please?

Thomas Vester: Yep, it's Aiera. It's spelled A-I-E-R-A.

Michael Michaelevich: Yep, it's Aiera. It's spelled A-I-E-R-A.

Its era spelled AI era.

Sherry Bahrambeygui: Absolutely.

Operator: Absolutely.

Absolutely I was on your right in todays call is being recorded thank you.

Rodrigo Echagaray: I'll join you right in.

I'll join you right in.

Sherry Bahrambeygui: Today's call is being recorded.

Today's call is being recorded.Thank you.

Thomas Vester: Thank you. Thank you very much.

Michael Michaelevich: Thank you very much.

Thank you very much.

Maarten Jager: Forward-looking statements containing the words expect, believe, will, may, should, estimate, and similar expressions. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the company's annual report on Form 10-K for the fiscal year ended 31 August 2018 as filed with the Securities and Exchange Commission on 25 October 2018. The Company undertakes no obligation to update forward-looking statements made during this call. Now I will turn it over to Sherry Bahrambeygui, PriceSmart's Chief Executive Officer.

Statements containing the words expect believe.

Will may should estimate and similar expressions. These statements are subject to risks and uncertainties that could cause actual results to differ materially including the risks detailed in the Companys annual report on Form 10-K for the fiscal year ended August 30, Onest 2018 as filed with the Securities and Exchange Commission on October 20, Fiveth 2018, the company undertakes no obligation to update forward looking statements made during this call now I will turn it over to Sheri Brumm Biggie price smartest Chief Executive Officer.

Thank you Martin and good morning, everyone and thank you for joining us today.

Sherry Bahrambeygui: Thank you, Maarten. Good morning, everyone, and thank you for joining us today. Since our last call, we've been quite busy with club openings, both of which are our new smaller format design. The first is PriceSmart Veraguas, Panama, which opened on 1 May. It's our first smaller format club, approximately 38,000sq ft of sales floor, and although it's still early, we're pleased with the reception of this club as indicated by strong membership sign-ups. I'd like to mention some things about Club Veraguas. It's located in a more agricultural rural area of Santiago de Veraguas, Panama, about 120mi or about three hours from our nearest clubs there. This club has been specifically built and merchandised with the local market characteristics in mind.

Since our last call we've been quite busy with club opening both of which are our new smaller format design.

The first its price smart, but I, but Panama, which opened on may 1st it's our first moller Ormat clubs, approximately 38000 square feet of sales floor and although it's still early we're pleased with the recession at this club as indicated by strong membership sign up.

I'd like to mention some things about what the progress is located in a more agricultural rural areas Santiago that Aguas, Panama about 120 miles or about three hours from our nearest clubs there.

This club has been specifically built and merchandise with the local market characteristics in mind.

Sherry Bahrambeygui: We're watching it closely because if it performs as we expect, we believe this broadens our opportunities for healthy growth in secondary locations within our existing markets. The second club opening was just two weeks ago. I attended in Santo Domingo in the Dominican Republic. This smaller format club is different in the sense that it's in a densely populated urban setting. Recognizing the demographics that you're there, we've emphasized fresh organics, prepared foods, and more specialty items merchandised with a more updated look and feel. There are also additional modalities that we're testing there. In Club Bolívar, we're trying various newer initiatives to drive sales within a smaller footprint by exercising very strong SKU discipline and leveraging technology that supports our ability to use alternative and efficient means to get merchandise to our members at a good value.

We're watching it closely because if it performs as we expect, we believe this broadens our opportunities for healthy growth in secondary locations within our existing markets. The second club opening was just two weeks ago. I attended in Santo Domingo in the Dominican Republic. This smaller format club is different in the sense that it's in a densely populated urban setting. Recognizing the demographics that you're there, we've emphasized fresh organics, prepared foods, and more specialty items merchandised with a more updated look and feel. There are also additional modalities that we're testing there. In Club Bolívar, we're trying various newer initiatives to drive sales within a smaller footprint by exercising very strong SKU discipline and leveraging technology that supports our ability to use alternative and efficient means to get merchandise to our members at a good value.

We're watching it closely because if it performed as we expect we believe this broadens our opportunities for healthy growth in secondary locations within our existing market.

The second club opening with just two weeks ago I attended in.

Santo Domingo and the Dominican Republic. This smaller format club is different in the sense that it's in a densely populated urban setting.

Recognizing the demographics, there we've emphasized fresh organics and prepared foods that more specialty items merchandised with a more updated look and feel.

There are also additional modalities that we're testing there in club Boulevard, we're trying various newer initiatives to drive sales within a smaller footprint by exercising very strong S.K., you discipline and leveraging technology that supports our ability to use alternative and efficient means to get merchandise to our members at a good value.

This club provides us with the opportunity to see how we can drive sales within a smaller footprint.

Sherry Bahrambeygui: This club provides us with the opportunity to see how we can drive sales within a smaller footprint. I also want to mention that we put real effort into green initiatives in practice with this club, including more biodegradable packaging, solar power, recycled materials for the steel superstructure, and use of indigenous materials in the construction. Although it's only been two weeks, we're seeing higher than average penetration of food service sales, which we attribute to the central location and the updated offering, and we expect this to drive frequency and traffic to the club.

This club provides us with the opportunity to see how we can drive sales within a smaller footprint. I also want to mention that we put real effort into green initiatives in practice with this club, including more biodegradable packaging, solar power, recycled materials for the steel superstructure, and use of indigenous materials in the construction. Although it's only been two weeks, we're seeing higher than average penetration of food service sales, which we attribute to the central location and the updated offering, and we expect this to drive frequency and traffic to the club.

I also want to mention that we put.

Real effort into green initiatives.

In practice with this club, including more biodegrade bio degradable packaging solar power recycled materials for the steel superstructure and use of indigenous materials in the construction.

Although it's only been two week, we're seeing higher than average penetration of foodservice sales.

Which we attribute to the central location and the updated offering and we expect this to drive frequency and traffic to the club.

I have to acknowledge how impressed I was with our team.

Sherry Bahrambeygui: I have to acknowledge how impressed I was with our team that I saw firsthand in the days and nights before the opening and how meticulous they were about addressing every last detail to ensure that each of the six rights of merchandising were being employed. It's really a beautiful club and we're excited about its prospects in this urban setting. We are also getting ready for the opening of two additional clubs. The next opening will be our new club in Panama City, Panama. This will be our seventh club in Panama and will be followed by the opening of our fourth club in Guatemala located in San Cristóbal. Our goal is to open both of these clubs by the peak holiday shopping season during Q3. We also closed on a key property in a location that we've been very excited about in Cayalá, Guatemala.

I have to acknowledge how impressed I was with our team that I saw firsthand in the days and nights before the opening and how meticulous they were about addressing every last detail to ensure that each of the six rights of merchandising were being employed. It's really a beautiful club and we're excited about its prospects in this urban setting. We are also getting ready for the opening of two additional clubs. The next opening will be our new club in Panama City, Panama. This will be our seventh club in Panama and will be followed by the opening of our fourth club in Guatemala located in San Cristóbal. Our goal is to open both of these clubs by the peak holiday shopping season during Q3. We also closed on a key property in a location that we've been very excited about in Cayalá, Guatemala.

That I saw first hand in the days and nights before the opening and how meticulous they were about addressing every last detail to ensure that each of the six rights of merchandising were being employed it's really a beautiful club and we're excited about its prospects in this urban setting.

We are also getting ready for the opening of two additional clubs. The next opening will be our new Pat club in Panama City.

Panama.

This will be our seventh club in Panama and will be followed by the opening of our fourth club in Guatemala located in San Cristbal.

Our goal is to open both of these clubs by the peak holiday shopping season.

During Q3, we also closed on a key property.

In a location that we've been very excited about and Kybella Guatemala.

I'm very appreciative of our real estate operations logistics and buying team to really accelerated the pace and are working very hard to basically opened four new club within a six to seven month period.

Sherry Bahrambeygui: I'm very appreciative of our real estate operations, logistics, and buying teams who accelerated the pace and are working very hard to basically open four new clubs within a six- to seven-month period. In addition to a lot of activity on the real estate front, we continue our work on the development of PriceSmart.com. Our vision is to create an omnichannel member experience that includes a comprehensive digital catalog of merchandise available to be picked up at or delivered from the club or regional distribution center, as well as merchandise that's available for delivery directly from our vendors, and also we will include cross-border shipments. As we develop our omnichannel capabilities, we continue to improve upon our analytics to help us better understand our members with a focus on improving their PriceSmart experience.

I'm very appreciative of our real estate operations, logistics, and buying teams who accelerated the pace and are working very hard to basically open four new clubs within a six- to seven-month period. In addition to a lot of activity on the real estate front, we continue our work on the development of PriceSmart.com. Our vision is to create an omnichannel member experience that includes a comprehensive digital catalog of merchandise available to be picked up at or delivered from the club or regional distribution center, as well as merchandise that's available for delivery directly from our vendors, and also we will include cross-border shipments. As we develop our omnichannel capabilities, we continue to improve upon our analytics to help us better understand our members with a focus on improving their PriceSmart experience.

In addition to a lot of activity on the real estate front. We continue our work on the development of price Smart Dotcom. Our vision is to create an omnichannel member experience that includes a comprehensive digital catalog of merchandise available to be picked up.

Picked up at or delivered from the club or regional regional distribution center as well as merchandise that's available for delivery directly from our vendors that will end and also we will include cross border shipments.

As we develop our omni channel capabilities, we continue to improve upon our analytics to help us better understand our members with a focus on improving their price smart experience.

Sherry Bahrambeygui: This is no small task and requires promoting a culture that embraces the capabilities that come with digital transformation.

This is no small task and requires promoting a culture that embraces the capabilities that come with digital transformation.

Turning to supply chain inventory flow has improved during Q3 and through June .

Sherry Bahrambeygui: Turning to supply chain, inventory flow has improved during Q3 and through June. Inventory levels are roughly flat relative to a year ago, and that's with an additional club and the buildup for the Bolívar Club. I personally observed the improvement firsthand when I recently visited four of our clubs in the Dominican. One of my early efforts was to focus on efficiency of our supply chain, and we're beginning to see results, especially with a reduction in out of stocks. We continue to dedicate efforts to evaluate the most intelligent ways to effectively flow merchandise from our vendors and DCs to our clubs and ultimately to our members, taking into consideration various factors, changing dynamics such as China tariffs, and ways to maximize the optionality and resources we're building with our regional distribution center.

Turning to supply chain, inventory flow has improved during Q3 and through June. Inventory levels are roughly flat relative to a year ago, and that's with an additional club and the buildup for the Bolívar Club. I personally observed the improvement firsthand when I recently visited four of our clubs in the Dominican. One of my early efforts was to focus on efficiency of our supply chain, and we're beginning to see results, especially with a reduction in out of stocks. We continue to dedicate efforts to evaluate the most intelligent ways to effectively flow merchandise from our vendors and DCs to our clubs and ultimately to our members, taking into consideration various factors, changing dynamics such as China tariffs, and ways to maximize the optionality and resources we're building with our regional distribution center.

Inventory levels are roughly flat relative to a year ago and now with an additional club and the build up for the bulk of our club.

I personally observe the improvement first hand, when I recently visited four of our clubs in the Dominican one of my early efforts with a focus on efficiency of our supply chain and we're beginning to see results, especially with a reduction in out of stock.

We continue to dedicate efforts to evaluate the most intelligent ways to effectively flow merchandise from our vendors and Dcs to our clubs and ultimately to our members.

Taking into consideration various factors changing dynamics, such as China Tara.

And ways to maximize the Optionality and resources were building with our regional distribution center.

Regarding memberships.

Sherry Bahrambeygui: Regarding memberships, we are pursuing opportunities to build more on our business membership, and we're investing resources to strengthen the value and the services that we can provide our business members. We continue to expand on ways to provide better value for our PriceSmart members. For example, we've rolled out optical services and merchandise in seven clubs in Costa Rica, which has proven to be quite successful, and we currently plan to add another approximate 18 locations within the next fiscal year in several additional markets. Overall, we're seeing traffic up in all countries, even Nicaragua, which continues to suffer from political instability, in Honduras, where there have been massive protests against the government, and Costa Rica, which has imposed new tax laws which imposed.

Regarding memberships, we are pursuing opportunities to build more on our business membership, and we're investing resources to strengthen the value and the services that we can provide our business members. We continue to expand on ways to provide better value for our PriceSmart members. For example, we've rolled out optical services and merchandise in seven clubs in Costa Rica, which has proven to be quite successful, and we currently plan to add another approximate 18 locations within the next fiscal year in several additional markets. Overall, we're seeing traffic up in all countries, even Nicaragua, which continues to suffer from political instability, in Honduras, where there have been massive protests against the government, and Costa Rica, which has imposed new tax laws which imposed.

We are pursuing opportunities to build more on our business membership and we're investing resources to strengthen.

The the value and the services that we can provide our business members.

We continue to expand on ways to provide better value for our Pricesmart members. For example, we've rolled out optical services and merchandise and seven clubs and comes to Rica, which is proven to be quite successful and we currently plan to add another approximate 18 locations within the next fiscal year in several additional markets.

Overall, we're seeing traffic up in all countries, even Nicaragua, which continues to suffer from political instability and Honduras, where there has been massive protests against the government and Costa Rica, which has imposed new tax laws, which imposed.

That on certain products and that's had an impact of increasing prices.

Sherry Bahrambeygui: That, on certain products, and that's had an impact of increasing prices. Also, there is an increase on personal income tax rates at certain levels expected to go into effect this month.

That, on certain products, and that's had an impact of increasing prices. Also, there is an increase on personal income tax rates at certain levels expected to go into effect this month.

And also there is an increase on personal income tax rates at certain levels expected to go into effect. This month.

So now let me turn to our results with an overview of Q3 total revenues were $788.6 million, an increase of 8.8% over the comparable prior year period.

Sherry Bahrambeygui: So now let me turn to our results with an overview of Q3. Total revenues were $788.6 million, an increase of 8.1% over the comparable prior year period. Revenues consisted of primarily warehouse sales of $755 million, $8.3 million.

So now let me turn to our results with an overview of Q3. Total revenues were $788.6 million, an increase of 8.1% over the comparable prior year period. Revenues consisted of primarily warehouse sales of $755 million, $8.3 million.

Revenues consisted of primarily warehouse sales of $755 million 8.3 million in export sales $13.1 million in membership income and 12.1 million in other revenue and income.

Sherry Bahrambeygui: In export sales, $13.1 million in membership income, and $12.1 million in other revenue and income. Net merchandising sales were $755 million, an increase of 0.6% over the prior year period. Currency fluctuations had a negative 3.7% impact on net merchandise sales. Comparable net merchandise sales in our 40 clubs open more than 13 and a half months decreased by 0.8%, with currency fluctuations impacting comparable sales negatively by 3.8%. As a reminder, we ended this quarter Q3 with 44 warehouse clubs compared to 41 clubs at the end of the third quarter fiscal year 2018.

In export sales, $13.1 million in membership income, and $12.1 million in other revenue and income. Net merchandising sales were $755 million, an increase of 0.6% over the prior year period. Currency fluctuations had a negative 3.7% impact on net merchandise sales. Comparable net merchandise sales in our 40 clubs open more than 13 and a half months decreased by 0.8%, with currency fluctuations impacting comparable sales negatively by 3.8%. As a reminder, we ended this quarter Q3 with 44 warehouse clubs compared to 41 clubs at the end of the third quarter fiscal year 2018.

Net merchandising sales were $755 million, an increase of 2.6% over the prior year period.

Currency fluctuations had a negative.

3.7% impact on net merchandise sales.

Comparable net merchandise sales in our 40 clubs opened more than 13, and a half months decreased 5.8% with currency fluctuations impacting comparable sales negatively by 3.8%.

As a reminder, we ended this quarter Q3 with 42 warehouse clubs compared to 41 club at the end of the third quarter fiscal year 2018.

Net income for the third quarter of fiscal year, 2019 was $14.1 million or 46 cents per share compared to $18.7 million or 61 cents per share in the comparable period last year.

Sherry Bahrambeygui: Net income for the third quarter of fiscal year 2019 was 14.1 million, or $0.46 per share, compared to $18.7 million, or $0.61 per share in the comparable period last year. This year's results includes a $0.09 per share impact from a combination of our ongoing investments in the development of our omnichannel platform and technological capabilities, costs associated with the acquisition we made in March 2018, and the operations of the legacy business associated with that acquisition. Turning now to sales by segment, the Central American segment where we had 23 clubs at quarter end had a 1.2% decrease in total merchandise sales and a 1.8% decrease in comparable sales. Sales were impacted by what we believe in general weakness in the economies in Costa Rica, Panama, Honduras, and Nicaragua. Some of those things I described a little earlier.

Net income for the third quarter of fiscal year 2019 was 14.1 million, or $0.46 per share, compared to $18.7 million, or $0.61 per share in the comparable period last year. This year's results includes a $0.09 per share impact from a combination of our ongoing investments in the development of our omnichannel platform and technological capabilities, costs associated with the acquisition we made in March 2018, and the operations of the legacy business associated with that acquisition. Turning now to sales by segment, the Central American segment where we had 23 clubs at quarter end had a 1.2% decrease in total merchandise sales and a 1.8% decrease in comparable sales. Sales were impacted by what we believe in general weakness in the economies in Costa Rica, Panama, Honduras, and Nicaragua. Some of those things I described a little earlier.

This year's results includes a nine cents per share impact from a combination of our ongoing investments in the development of our on Omnichannel platform and technological capabilities.

Cost associated with the acquisition, we made in March 2018, and the operations of the legacy business associated with that acquisition.

Turning now to sales by segment.

The Central American segment, where we had 23 clubs at quarter end had a 1.2% decrease in total merchandise sales.

And a 1.8% decrease decrease in comparable sales.

Sales were impacted by what we believe in general weakness in the economies in Costa Rica, Panama, Honduras and Nicaragua.

Some of those things I described a little earlier. These countries contributed approximately 1.5% of the total comparable sales decrease.

Sherry Bahrambeygui: These countries contributed approximately 1.5% of the total comparable sales decrease. The impact of currency on total and comparable sales to the Central American segment were each negative 3.0%.

These countries contributed approximately 1.5% of the total comparable sales decrease. The impact of currency on total and comparable sales to the Central American segment were each negative 3.0%.

The impact of currency on total and comparable sales to the Central American segment, where each negative 3.0%.

Regarding the Caribbean the Caribbean segment, where we had 12 clubs at quarter end had total merchandise sales growth of 6.5% with comparable sales growth of 2.9%.

Sherry Bahrambeygui: Regarding the Caribbean, the Caribbean segment where we had 12 clubs at quarter end had total merchandise sales growth of 6.5% with comparable sales growth of 2.9%. Jamaica and Trinidad led the way in the segment report.

Regarding the Caribbean, the Caribbean segment where we had 12 clubs at quarter end had total merchandise sales growth of 6.5% with comparable sales growth of 2.9%. Jamaica and Trinidad led the way in the segment report.

Jamaican Trinidad led the way in the segment reporting strong with strong same store sales growth of approximately 12.6% and 2.9%, respectively and contributed 70 positive basis points to overall comparable sales.

Sherry Bahrambeygui: Strong same store sales growth of approximately 12.6% and 2.9% respectively and contributed 70 positive basis points to overall comparable sales. Aruba and USVI were also positive contributors, while same store sales were adversely affected in the DR by the opening of the San Isidro store. The San Isidro store, which is not included in same store sales, cannibalized sales from other clubs that are included in the calculation, which had a negative impact on net comparable sales of approximately 50 basis points. The impact of currency on both total and comparable sales to the Caribbean segment was negative 1.1%.

Strong same store sales growth of approximately 12.6% and 2.9% respectively and contributed 70 positive basis points to overall comparable sales. Aruba and USVI were also positive contributors, while same store sales were adversely affected in the DR by the opening of the San Isidro store. The San Isidro store, which is not included in same store sales, cannibalized sales from other clubs that are included in the calculation, which had a negative impact on net comparable sales of approximately 50 basis points. The impact of currency on both total and comparable sales to the Caribbean segment was negative 1.1%.

Our Ruben USPI were also positive contributors while same store sales were adversely affected in the D.R. by the opening.

The Santa theaters store.

The Sandy Cedars store, which is not included in same store sales cannibalized sales from other clubs that are included in the calculation, which had a negative impact on net comparable sales of approximately 50 basis points.

The impact of currency on both total and comparable sales to the Caribbean segment segment was negative 1.1%.

And last to Columbia, where we had seven clubs at quarter end had a 3.9% decrease year over year with a comparable sales decline of 4.5%.

Sherry Bahrambeygui: Last Colombia where we had seven clubs at quarter end had a 3.9% decrease year over year with a comparable sales decline of 4.5%. The impact of currency on total and comparable sales in Colombia was significant. It was negative 13% and negative 13.3% respectively.

Last Colombia where we had seven clubs at quarter end had a 3.9% decrease year over year with a comparable sales decline of 4.5%. The impact of currency on total and comparable sales in Colombia was significant. It was negative 13% and negative 13.3% respectively.

The impact of currency on total and comparable sales in Colombia was significant it was negative 13% and 13 point negative 13.3% respectively.

In terms of merchandise category highlights we saw sales increase in our overall us foods and fresh foods, we saw strong growth in our seafood deli and meat departments.

Sherry Bahrambeygui: In terms of merchandise category highlights, we saw sales increase in our overall US foods and fresh foods. We saw strong growth in our seafood, deli, and meat departments. We had good US dollar comp growth in categories including canned seafood, soda and beverages, pet supplies, tires and small appliances. We were flat to slightly lower in local foods and non foods. With regard to membership, we finished the quarter with approximately 1.6 million accounts, which is a 2.4% increase fiscal year to date. Membership income was up by 2.2% during the quarter. The 12-month renewal rate at the end of May was consistent at 85%. In addition, the Platinum Program grew 45% year over year and has now been rolled out in Panama, Costa Rica, the Dominican Republic, USVI, Honduras, Jamaica, and Barbados.

In terms of merchandise category highlights, we saw sales increase in our overall US foods and fresh foods. We saw strong growth in our seafood, deli, and meat departments. We had good US dollar comp growth in categories including canned seafood, soda and beverages, pet supplies, tires and small appliances. We were flat to slightly lower in local foods and non foods. With regard to membership, we finished the quarter with approximately 1.6 million accounts, which is a 2.4% increase fiscal year to date. Membership income was up by 2.2% during the quarter. The 12-month renewal rate at the end of May was consistent at 85%. In addition, the Platinum Program grew 45% year over year and has now been rolled out in Panama, Costa Rica, the Dominican Republic, USVI, Honduras, Jamaica, and Barbados.

We had good U.S. dollar comp growth in categories, including cans seafood soda and beverages pet supplies tires and small appliances.

We were flat to slightly lower in local food and non food.

With regard to membership we finished the quarter with approximately 1.6 million accounts.

Which is a 2.4% increase fiscal year to date.

Membership income was up by 2.2% during the quarter.

The 12 month renewal rate at the end of May was consistent at 85%. In addition, the platinum program grew 45% year over year and has now been rolled out in Panama, Costa Rica, Dominican Republic, USPI, Honduras, Jamaica and Barbados.

Platinum memberships represented almost 3% of our total membership base and as you can see our membership base continues to grow that's a good sign for our unique business model, especially considering that we are weathering some headwinds in many of these markets.

Sherry Bahrambeygui: Platinum memberships represented almost 3% of our total membership base, and as you can see, our membership base continues to grow. That's a good sign for our unique business model, especially considering that we are weathering some headwinds in many of these markets. Turning quickly to June sales, which were released this week, net merchandise sales were $253.1 million, an increase of 3.9% versus a year ago. FX fluctuations negatively impacted merchandise sales by 3% for the four weeks ended 30 June 2019. Comparable net merchandise sales increased by 1.9% with a negative FX impact of 3.1%.

Platinum memberships represented almost 3% of our total membership base, and as you can see, our membership base continues to grow. That's a good sign for our unique business model, especially considering that we are weathering some headwinds in many of these markets. Turning quickly to June sales, which were released this week, net merchandise sales were $253.1 million, an increase of 3.9% versus a year ago. FX fluctuations negatively impacted merchandise sales by 3% for the four weeks ended 30 June 2019. Comparable net merchandise sales increased by 1.9% with a negative FX impact of 3.1%.

Turning quickly to June sales, which were released this week that merchandise sales were $253.1 million, an increase of 3.9% versus a year ago.

FX fluctuations negatively impacted merchandise sales by 3%.

For the four weeks ended June 32019, comparable net merchandise sales increased by 1.9% was a negative FX impact of 3.1%.

In closing we have confidence in our business model and we're encouraged by the loyalty of our members and the reception we're seeing in our new locations.

Sherry Bahrambeygui: In closing, we have confidence in our business model, and we're encouraged by the loyalty of our members and the reception we're seeing in our new locations. With our disciplined focus on the six rights and by continuing to challenge ourselves to operate more efficiently at every level of the company, we believe we'll be able to drive significant revenue growth from same store sales over time. We also believe that by adding new sources of growth from new clubs and new formats in conjunction with our digital omnichannel capabilities, that we're strengthening our foundation to drive membership and shareholder value once again. I want to especially recognize and thank our approximately 9,100 employees internationally for their dedication and commitment to our company. Thank you for your time.

In closing, we have confidence in our business model, and we're encouraged by the loyalty of our members and the reception we're seeing in our new locations. With our disciplined focus on the six rights and by continuing to challenge ourselves to operate more efficiently at every level of the company, we believe we'll be able to drive significant revenue growth from same store sales over time. We also believe that by adding new sources of growth from new clubs and new formats in conjunction with our digital omnichannel capabilities, that we're strengthening our foundation to drive membership and shareholder value once again. I want to especially recognize and thank our approximately 9,100 employees internationally for their dedication and commitment to our company. Thank you for your time.

With our disciplined focus on the six right and by continuing to challenge ourselves to operate more efficiently at every level of the company. We believe we'll be able to drive significant revenue growth from same store sales over time.

We also believe that by adding new sources of growth from new clubs, the new formats in conjunction with our digital omnichannel capabilities.

That we're strengthening our foundation to drive membership and shareholder value.

Once again, I want to especially recognize and thank our approximately 9100 employees internationally for their dedication and commitment to our company.

Thank you for your time I will now turn the call over to Martin Yeager, Our Chief Financial Officer, who will go into further detail about our third quarter results. Thank you Sherri starting with margins merchandise margins for the period came in at 13.9% versus 14.6% a year ago total gross margins decreased to 16.1% from 16.6% a year ago, mainly due to lower enough merchandise margins along with lower margins on non merchandise revenues of our legacy Aero close business, which decreased to gross margin to total revenues ratio by approximately 10 basis points offset by 30 basis points of margin increase due to the payment and reclassification of shared income generated from co branded cards.

Sherry Bahrambeygui: I'll now turn the call over to Maarten Jager, our Chief Financial Officer, who will go into further detail about our third quarter results.

I'll now turn the call over to Maarten Jager, our Chief Financial Officer, who will go into further detail about our third quarter results.

Maarten Jager: Thank you, Sherry. Starting with margins, merchandise margins for the period came in at 13.9% versus 14.5% a year ago. Total gross margins decreased to 16.1% from 16.6% a year ago, mainly due to lower net merchandise margins along with lower margins on non-merchandise revenues of our legacy Aeropost business, which decreased the gross margin to total revenues ratio by approximately 10 basis points, offset by 30 basis points of margin increase due to the payment and reclassification of shared income generated from co-branded cards. SG&A for the total business was 13.3% versus 12.9% a year ago. Warehouse club and other operations expense increased by approximately 20 basis points due to the opening of the new Veraguas club in Panama.

SGN aided total business was 13.3% versus 12.9% a year ago warehouse club. Another operations expense increased by approximately 20 basis points due to the opening of the new for progress club in Panama.

Maarten Jager: The remaining increase is attributable to pre-opening expenses for the two clubs that had already been opened by the close of Q3 and for the two other clubs which will be opened after Q3. Operating income was $22 million, 2.8% of total revenue, versus $28.4 million, or 3.6% of total revenue, a year ago. Operating income for the core warehouse club business decreased to $25.9 million versus $29.9 million a year ago, again largely due to the lower net merchandise margins as well as the higher pre-opening expenses for the four clubs in one calendar year. Moving on to tax for the quarter, the effective tax rate was 34.7%.

The remaining increase is attributable to pre-opening expenses for the two clubs that had already been opened by the close of Q3 and for the two other clubs which will be opened after Q3. Operating income was $22 million, 2.8% of total revenue, versus $28.4 million, or 3.6% of total revenue, a year ago. Operating income for the core warehouse club business decreased to $25.9 million versus $29.9 million a year ago, again largely due to the lower net merchandise margins as well as the higher pre-opening expenses for the four clubs in one calendar year. Moving on to tax for the quarter, the effective tax rate was 34.7%.

The remaining increase is attributable to pre opening expenses for the two clubs that had already been opened by the close of Q3 and for the two other clubs, which will be open to after Q3.

Operating income was $22 million, 2.8% of total revenue versus $28.4 million or 3.6% of total revenue a year ago operating income for the core warehouse club business decreased to $25.9 million versus 29.9 million a year ago again, largely due to the lower enough merchandise margins as well as the higher preopening expenses for the four clubs and one calendar year.

Moving on to tax for the quarter. The effective tax rate was 34.7% the increase versus the 30.3% rate in the same quarter last year was driven largely by the loss tax asset value incidental to use tax reform impacting us by 6.4%, partially offset by the adjustment of costs incurred to expand our omni channel capabilities of 2.2% consistent with our estimates in Q2. We currently expect a full year tax rate to be 36%. This is higher than our first three quarters, primarily due to timing of the effects from U.S. tax reform.

Maarten Jager: The increase versus the 30.3% rate in the same quarter last year was driven largely by the loss of tax asset value incidental to US tax reform, impacting us by 6.4%, partially offset by the adjustment of costs incurred to expand our omnichannel capabilities of 2.2%. Consistent with our estimates in Q2, we currently expect a full year tax rate to be 36%. This is higher than our first three quarters primarily due to timing of the effects from US tax reform. Recall from the last earnings call that Aeropost, the acquisition we made in March of 2018, consists of both the legacy business and our investment in the PriceSmart.com digital platform, which we believe will drive member value in coordination with our warehouse clubs and distribution footprint. The legacy Aeropost business adversely impacted net income by $1.0 million for the quarter.

The increase versus the 30.3% rate in the same quarter last year was driven largely by the loss of tax asset value incidental to US tax reform, impacting us by 6.4%, partially offset by the adjustment of costs incurred to expand our omnichannel capabilities of 2.2%. Consistent with our estimates in Q2, we currently expect a full year tax rate to be 36%. This is higher than our first three quarters primarily due to timing of the effects from US tax reform. Recall from the last earnings call that Aeropost, the acquisition we made in March of 2018, consists of both the legacy business and our investment in the PriceSmart.com digital platform, which we believe will drive member value in coordination with our warehouse clubs and distribution footprint. The legacy Aeropost business adversely impacted net income by $1.0 million for the quarter.

Recall from the last earnings call that era post the acquisition. We made in March 2018 consists of both the legacy business and our investment in the price Mark Dotcom digital platform, which we believe will drive member value in coordination with our warehouse clubs and distribution footprint.

The legacy Aero post business adversely impacted net income by 1.0 million for the quarter the investments into our digital platforms. During the past quarter adversely impacted net income by 1.8 million and finally as I've mentioned before there are the acquisition related accounting impacts, which adversely impacted net income by 0.1 million for the quarter. The total of these three buckets is 2.9 million of net income impact or nine cents per share.

Maarten Jager: The investments into our digital platform during the past quarter adversely impacted net income by $1.8 million. And finally, as I've mentioned before, there are the acquisition related accounting impacts which adversely impacted net income by $0.1 million for the quarter. The total of these three buckets is $2.9 million of net income impact or $0.09 per share. Moving on to the balance sheet which remains very strong, the company ended the quarter with cash and cash equivalents of $114.0 million, an increase of $17.1 million during the first nine months of the year. During the first nine months, cash provided by operating activities was $113 million versus $90.8 million in the same quarter last year for a favorable swing of $22.2 million. This was primarily due to improved working capital.

The investments into our digital platform during the past quarter adversely impacted net income by $1.8 million. And finally, as I've mentioned before, there are the acquisition related accounting impacts which adversely impacted net income by $0.1 million for the quarter. The total of these three buckets is $2.9 million of net income impact or $0.09 per share. Moving on to the balance sheet which remains very strong, the company ended the quarter with cash and cash equivalents of $114.0 million, an increase of $17.1 million during the first nine months of the year. During the first nine months, cash provided by operating activities was $113 million versus $90.8 million in the same quarter last year for a favorable swing of $22.2 million. This was primarily due to improved working capital.

Moving onto the balance sheet, which remains very strong the company ended the quarter with cash and cash equivalents of 114.0 million an increase of 17.1 million during the first nine months since the year.

During the first nine months cash provided by operating activities was $113 million versus 90.8 million in the same quarter last year for a favorable swing of 22.2 million. This was primarily due to improved working capital.

Maarten Jager: Net cash used in investing activities declined by $81.2 million primarily due to the non-recurring business acquisition purchased last year. In other words, the Aeropost acquisition of $29 million, along with significantly fewer purchases of short-term investments. Investing activities for this year were primarily associated with the construction of our four new warehouse clubs, again Veraguas, Metropark, Bolívar, and San Cristóbal. That's in Panama, the Dominican Republic, and Guatemala respectively. Net cash used in financing activities increased $9.1 million primarily due to the regularly scheduled loan payments. In summary, we've seen some headwinds in US dollar reported sales which were largely impacted by a continuation of foreign currency devaluation. The fundamentals of our business, as evidenced by our membership counts and renewal rates. Our constant currency sales overall reinforce that we have a strong business model and significant growth opportunities.

Net cash used in investing activities declined by $81.2 million primarily due to the non-recurring business acquisition purchased last year. In other words, the Aeropost acquisition of $29 million, along with significantly fewer purchases of short-term investments. Investing activities for this year were primarily associated with the construction of our four new warehouse clubs, again Veraguas, Metropark, Bolívar, and San Cristóbal. That's in Panama, the Dominican Republic, and Guatemala respectively. Net cash used in financing activities increased $9.1 million primarily due to the regularly scheduled loan payments. In summary, we've seen some headwinds in US dollar reported sales which were largely impacted by a continuation of foreign currency devaluation. The fundamentals of our business, as evidenced by our membership counts and renewal rates. Our constant currency sales overall reinforce that we have a strong business model and significant growth opportunities.

Net cash used in investing activities declined by 81.2 million, primarily due to the nonrecurring business acquisition purchase last year in other words, the Arrow post acquisition of 29 million along with significantly fewer purchases of short term investments.

Investing activities for this year were primarily associated with the construction of our four new warehouse clubs again, Ferragu us Metropark OLIF arent suncoast terrible that's in Panama, the Dominican Republic in Guatemala, respectively.

Net cash used in financing activities increased 9.1 million, primarily due to the regularly scheduled loan payments in summary, we've seen some headwinds in U.S. dollar reported sales, which were largely impacted by a continuation of foreign currency devaluation, the fundamentals of our business as evidenced by our membership counts and renewal rates our constant currency sales overall.

Reinforce that we have a strong business model and significant growth opportunities. We will continue to focus on the six Reits driving same store sales delivering on our announced real estate pipeline and launching and continuing to develop our digitally enabled omnichannel platform, our balance sheet liquidity and cash flow remains strong which provides a solid foundation for driving same store sales and future growth that will benefit our members and shareholders alike.

Maarten Jager: We will continue to focus on the six rights driving same store sales, delivering on our announced real estate pipeline, and launching and continuing to develop our digitally enabled omnichannel platform. Our balance sheet liquidity and cash flow remain strong, which provides a solid foundation for driving same store sales and future growth that will benefit our members and shareholders alike. Operator, we will now turn it over to Q and A.

We will continue to focus on the six rights driving same store sales, delivering on our announced real estate pipeline, and launching and continuing to develop our digitally enabled omnichannel platform. Our balance sheet liquidity and cash flow remain strong, which provides a solid foundation for driving same store sales and future growth that will benefit our members and shareholders alike. Operator, we will now turn it over to Q and A.

Operator, we will now turn it over to QNX.

We will now begin the question and answer session.

Operator: 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 are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press Star then two. At this time, we will pause momentarily to assemble our roster.

To ask a question you May press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and he would like to withdraw it. Please press star then too.

At this time, we will pause momentarily to assemble our roster.

Yes.

Our first question comes from Jon Braatz of Kansas City Capital. Please proceed.

Operator: Our first question comes from Jon Braatz of Kansas City Capital. Please proceed.

Our first question comes from Jon Braatz of Kansas City Capital. Please proceed.

Jon Braatz: Morning, Sherry, Maarten.

Morning sure Martin.

Good morning.

Sherry Bahrambeygui: Good morning.

Oh, well, let's turning to gross margins a little bit gross margins are <unk> merchandise margins came in at 13.9% or I should say warehouse margins came in at 13.9% that was the lowest we've seen since may of 2016 or third quarter of 2016. When you when you had to had to.

Jon Braatz: Let's turn to gross margins a little bit, gross margins. Merchandise margins came in at 13.9%, or I should say warehouse margins came in at 13.9%. That was the lowest we've seen since May of 2016 or third quarter of 2016, when you had to.

Reduce margins to move some merchandise.

Jon Braatz: Reduce margins to move some merchandise.

Reduce margins to move some merchandise.

Is is is this something is this it's sort of a new level of margins that were looking at it has there been a change in and a competitive conditions I know you're trying to drive same store sales, but is this something that we should be looking for looking to see continue a little bit of pressure on margins.

Jon Braatz: Is this something, is this sort of a new level of margins that we're looking at? Has there been a change in competitive conditions? I know you're trying to drive same store sales, but is this something that we should be looking for, looking to see continue a little bit pressure on margins?

Is this something, is this sort of a new level of margins that we're looking at? Has there been a change in competitive conditions? I know you're trying to drive same store sales, but is this something that we should be looking for, looking to see continue a little bit pressure on margins?

And I think in short the answer is that its not our expectation we are focused on margin we had.

Sherry Bahrambeygui: In short, the answer is that is not our expectation. We are focused on margins. We had clearly some competitive dynamics that we addressed, but also in focusing on improving our inventory flow, there were certain markdowns that took place that allowed us to improve on the flow and help drive sales. But the short answer is no. There is focus on margin and there is an expectation that we'll be able to increase margin going forward. Maarten, do you want to add?

Clearly set of competitive dynamics that we addressed but also is focusing on improving our inventory flow. There were certain merger markdown that took place that allowed us to improve on the flow and helped drive sales, but the short answer is no. There is focus on margin and there is an expectation that well be able to increase margin going forward.

Do you want it.

Maarten Jager: Thanks, Sherry. No, that's exactly right. We are focused on it and we're expecting to improve on it. Let me just give you a little bit more color on it, some context. We saw some of this margin erosion in all of our regions. There are 70 basis points that you see in the numbers of reduction. About 10 of that came in Colombia, about 40 in Central America, and about 20 in the Caribbean. But then, you know, so that's a geographic breakdown. If you were to look at it from different drivers, there's a bit of FX in there that impacted us. There's also, as Sherry mentioned, markdowns that we took to clear up our inventory, particularly of course in non foods, we took some markdowns there. And you know, the good news from that, and Sherry mentioned it earlier in her remarks, is that that's behind us.

Thanks, Sherri no thats exactly right. We are focused on it and we're expecting to improve on it. Let me just give you a little bit more color on it.

Some context, we saw somewhat as margin erosion in all of our regions. Columbus. So there are 70 basis points that you see in the numbers of reduction.

About 10 of that came in Colombia about 40 in Central America, and about 20 in the Caribbean, but then so thats a geographic breakdown. If you were to look at it from different drivers there was a bit of FX in there.

That impacted us.

There is also as Sheri mentioned markdowns that we took to clear up or in inventory particular, you of course, a non foods. So we took some markdowns there and you know the good news from that and Sheri mentioned it earlier in her remarks is that that's behind US our inventory is roughly flat year over year at the end of May 30 Onest.

Maarten Jager: Our inventory is roughly flat year over year at the end of May 31, and that's with an additional club open and with the Bolívar Club that while it wasn't open as of May 31, was already receiving buildup inventory in anticipation of its opening. You know, and Sherry also mentioned that in visiting the doctor, she saw that, you know, that there was less and there was more open steel and things were flowing better. So, you know, so the other factor, there's some competitive pressure, but I would not say that that's the primary factor, you know, particularly in one of our markets in the Caribbean. In the Caribbean, Jon. So, you know, so then stepping back, we, you know, we are monitoring it, we are managing it, you know, we've cleared up the inventory. That's clear.

Our inventory is roughly flat year over year at the end of May 31, and that's with an additional club open and with the Bolívar Club that while it wasn't open as of May 31, was already receiving buildup inventory in anticipation of its opening. You know, and Sherry also mentioned that in visiting the doctor, she saw that, you know, that there was less and there was more open steel and things were flowing better. So, you know, so the other factor, there's some competitive pressure, but I would not say that that's the primary factor, you know, particularly in one of our markets in the Caribbean. In the Caribbean, Jon. So, you know, so then stepping back, we, you know, we are monitoring it, we are managing it, you know, we've cleared up the inventory. That's clear.

And that's with an additional club open and with the Balibar club that while it wasn't open as of May 31st was already receiving build up inventory in anticipation of its opening.

And Sherri also mentioned that been visiting the DRC saw that there was less and there was more open steel and things were flowing better. So you know so.

The other factor there are some competitive pressure, but I would not say that thats the primary factor.

Particularly in one of our markets in the Caribbean John in the Caribbean John .

So you know so then stepping back we we are monitoring it we are managing ads, we've cleared up the inventory that's clear.

We're asking also some additional questions in terms of sourcing and working with our suppliers were looking at the mix of imported versus local.

Maarten Jager: You know, we're asking also some additional questions in terms of sourcing and working with our suppliers. We're looking at the mix of imported versus local and just making sure that we exercise pricing discipline. And all of this, of course, needs to be done with member value in mind and the competitive dynamics. But in short, as Sherry summarized, this is not the new normal and we think we can improve upon it.

You know, we're asking also some additional questions in terms of sourcing and working with our suppliers. We're looking at the mix of imported versus local and just making sure that we exercise pricing discipline. And all of this, of course, needs to be done with member value in mind and the competitive dynamics. But in short, as Sherry summarized, this is not the new normal and we think we can improve upon it.

You know I'm, just making sure that we that we exercise pricing discipline and all of this of course needs to be done with with member value in mind in the competitive dynamics, but in short to Sherri summarize.

This is not the new normal and we think we can improve upon it yes, we do it we do have a strong focused and we are looking market by market very specifically at at all aspects, including the competitive landscape the cost of doing business.

Sherry Bahrambeygui: Yeah, we do have a strong focus, and we are looking market by market very specifically at all aspects, including the competitive landscape, the cost of doing business. So there is a very concerted focus on making sure that margins are set appropriately with all of the relevant factors in mind and all within the discipline of delivering good value to our members. So there's a very disciplined approach we're taking to looking at margins going forward. And so I would not expect that you would see the same.

So there is a very concerted focus on making sure that margins are set appropriately with all of the relevant factors in mind and all within that discipline.

Delivering good value to our members. So there's a there's a very.

Disciplined approach, we are taking to looking at margins going forward.

And so I would not expect that you would see the same.

I think you have in the last quarter Martin Im sure. If you were to maybe accelerate some of these in the quarter some of these.

Sherry Bahrambeygui: That you have in the last quarter.

That you have in the last quarter.

Jon Braatz: Maarten, Sherry, if you were to maybe X out some of these in the quarter, some of these one-time items you mentioned, the markdowns and so on and so forth. Is there any.

One time items, you mentioned, the markdowns and so on so forth is there any.

Any sense or can you give us a sense as to what.

Jon Braatz: Sense or can you give us a sense as to what those one-time items may be amounted to in terms of reducing margin?

Sense or can you give us a sense as to what those one-time items may be amounted to in terms of reducing margin?

Those one time items, maybe amounted to <unk>.

In terms of reducing that margin.

Let me try to help you in part.

Maarten Jager: Let me try to help you. In part. So we have mentioned markdowns in non-food and cleaning up some of the inventory that contributed about 30 to 35 basis points, roughly. Okay. Of the 70 basis points. All right. But then the rest of it I don't have at my fingertips, but I think give you a pretty good indication.

So we have mentioned markdowns and non non foods.

And cleaning up some of the inventory that contributed about 30 to 35 basis points roughly.

Of the 70 basis.

All right, but then the rest of it I don't have at my fingertips, but I think it gives you a pretty good indication. Okay. All right I appreciate that and then one final question I'm sure you've talked about the new location in Panama and using a lot more local merchandise.

Thomas Vester: Okay.

Jon Braatz: Okay. All right, I appreciate that. And then one final question, Sherry, you talked about the new location in Panama and using a lot more local merchandise compared to your other stores. How much? What percentage of your merchandise in that store is locally derived? I'm curious as to sort of the relative difference between the big stores and this one.

Jon Braatz: All right, I appreciate that. And then one final question, Sherry, you talked about the new location in Panama and using a lot more local merchandise compared to your other stores. How much? What percentage of your merchandise in that store is locally derived? I'm curious as to sort of the relative difference between the big stores and this one.

Compared to your other stores, how much of what what percentage of of your merchandise and that store locally derived them I'm curious as to sort of the relative difference between the big stores and this one.

So I don't know that I said anything about local merchandise and you're talking about the.

Sherry Bahrambeygui: So I don't know that I said anything about local merchandise. And you're talking about the Aguas Club right now, that is in more of an agricultural role.

But I wasn't clear right now that it's been more of an agricultural yes, yes, exactly yes exactly.

Thomas Vester: Yes, exactly.

Jon Braatz: Yes, exactly.

Jon Braatz: Exactly.

Exactly.

No I think the statement I made was that we were we were focused on meeting the member need that type of demographic, which is very distinct for example from the membership that we have in the bully bar.

Sherry Bahrambeygui: No, I think the statement I made was that we were focused on meeting the member needs of that type of demographic, which is very distinct, for example, from the membership that we have in the Bolívar location, just by way of comparison.

No.

Just a way of comparison.

But but they're okay with that type of a culture that's out there in the products that they need.

Sherry Bahrambeygui: But they're with the type of agriculture that's out there and the products that they need.

But they're with the type of agriculture that's out there and the products that they need. In terms of machinery or.

In terms of machinery or okay. Okay.

Sherry Bahrambeygui: In terms of machinery or.

Jon Braatz: I'm sorry, I misinterpreted what you had said.

I'm, sorry, I missed it I misinterpreted what you had said.

You know when you when you look at the store such as Us and if it is proved successful how might that expand your or your and your location opportunities across your across your markets.

Jon Braatz: When you look at stores such as this, and if it is proved successful, how might that expand your location opportunities?

When you look at stores such as this, and if it is proved successful, how might that expand your location opportunities? Across your markets?

Jon Braatz: Across your markets?

Well, it's too early to tell I mean to be perfectly I personally I am excited about the prospects, but it really is too early to tell because.

Sherry Bahrambeygui: Well, it's too early to tell. I mean, to be perfectly honest, personally, I'm excited about the prospect, but it really is too early to tell. Because.

Sherry Bahrambeygui: Well, it's too early to tell. I mean, to be perfectly honest, personally, I'm excited about the prospect, but it really is too early to tell. Because. If it's something that we feel. Can perform at the levels that we're expecting Veraguas to perform. It really does open our minds up to other geographic areas, other towns that have not been the subject of our focus so much in the past. Because the property is less expensive in these areas, the footprint can be a bit smaller if we can tailor and meet the needs of our members in these locations. It does open doors. It opens doors for us to consider markets that really haven't been on our radar screen before. But I don't want to overstate it because we really want to make sure that we're doing this right and it's performing as expected. Based on those results, we're going to build on the positives. But I do see it as a potential opportunity for good growth.

If it if it's something that we feel.

Sherry Bahrambeygui: If it's something that we feel.

Can perform at the levels that were expecting that Atlas to perform.

Sherry Bahrambeygui: Can perform at the levels that we're expecting Veraguas to perform. It really does open our minds up to other geographic areas, other towns that have not been the subject of our focus so much in the past. Because the property is less expensive in these areas, the footprint can be a bit smaller if we can tailor and meet the needs of our members in these locations. It does open doors. It opens doors for us to consider markets that really haven't been on our radar screen before. But I don't want to overstate it because we really want to make sure that we're doing this right and it's performing as expected. Based on those results, we're going to build on the positives. But I do see it as a potential opportunity for good growth.

It really does open our minds up to other geographic areas other towns that have not been the subject if our focus so much in the past.

Because.

The property is less expensive in these areas the footprint can be a bit smaller if we can tailor and meet the needs of our members in these locations. It does open doors. It opens doors for us to consider market that really hasn't been on our radar screen before but I don't want to overstate. It because we really want to make sure that we are doing thats right and it is performing as expected and based on those results, we're going to we're going to build on the positive.

But I see it as a potential opportunity for good growth there alright. Thank you Sir.

Thomas Vester: All right, thank you, Sherry.

Jon Braatz: All right, thank you, Sherry.

My pleasure.

Sherry Bahrambeygui: My pleasure.

Our next question comes from Ronald Bookbinder of ISS Securities. Please proceed.

Operator: Our next question comes from Ronald Bookbinder of IFS Securities. Please proceed.

Hi, good afternoon, and thank you for taking my questions.

Ronald Bookbinder: Good afternoon and thank you for taking my questions.

Well. Thank you for the additional color on the merchandise gross margin, but why the the lower margin lower gross margin on the Aero post business versus last year.

Ronald Bookbinder: Thank you for the additional color on the merchandise gross margin, but why the lower gross margin on the Aeropost business versus last year?

[noise].

Maarten Jager: Ron, I'm going to have to get back to you on that one.

Brian I'm going to have to get back to you on that one.

Thomas Vester: Okay, no problem.

Ronald Bookbinder: Okay, no problem.

Okay no problem.

But it's afternoon.

Maarten Jager: This afternoon.

Okay.

Ronald Bookbinder: Okay.

Sherry Bahrambeygui: Just to give you a piece of information.

Sherry Bahrambeygui: Just to give you a piece of information. We've discussed the fact that earlier in this process, as we're building our PriceSmart.com, we are using the Aeropost.com. site to test certain things before we migrate over to the marketplace. I'm sorry, to PriceSmart.com, so there has been some effort to drive some of the activity over to PriceSmart.com once we've proven that something is working well. So what we're finding, frankly, Ronald, is that the activities of Aeropost.com and PriceSmart are becoming a little bit more blurred, as it should over time. So I don't think we've called out specifically that information. But Maarten can get back to you. I just wanted to give you some background on what's happening.

To give you a.

Piece of information.

We've discussed the fact that that earlier in this process as we are building our price might dot com.

Sherry Bahrambeygui: We've discussed the fact that earlier in this process, as we're building our PriceSmart.com, we are using the Aeropost.com.

We are using the Aero post dotcom.

Site to test certain things before we migrate over to Eric the market I'm, sorry to price might dotcom.

Sherry Bahrambeygui: site to test certain things before we migrate over to the marketplace. I'm sorry, to PriceSmart.com, so there has been some effort to drive some of the activity over to PriceSmart.com once we've proven that something is working well. So what we're finding, frankly, Ronald, is that the activities of Aeropost.com and PriceSmart are becoming a little bit more blurred, as it should over time. So I don't think we've called out specifically that information. But Maarten can get back to you.

So there has been some effort to.

Drive some of the activity over the price might dotcom once we've proven that something is working well. So what we're finding frankly route is that the.

Activities of Arab post Dot com and price smart are becoming a little bit more blurred as it should over time. So I don't think we've called out specifically that information, but Martin can get back to you.

Following that but I just want to give you some background on what's happening.

Sherry Bahrambeygui: I just wanted to give you some background on what's happening.

Okay.

Sherry Bahrambeygui: Okay.

Ronald Bookbinder: Okay.

Ronald Bookbinder: In Colombia right now you're having just a tough FX situation down there.

And in Colombia, right now you are happened.

In Colombia right now you're having just a tough FX situation down there. But what is the overall view of Colombia? It doesn't seem like you guys have opened a store there since Chía in September of 2016. With these new smaller format stores, could we see a ramping up in Colombia? And do you guys still have a real estate office in Bogotá?

You know just a tough the FX situation down there but.

But what is the overall view of Columbia. It it doesn't seem like you guys have opened a store there since she in September of 2016 with these new smaller format stores could we see a ramping up in Colombia, and do you guys still have a real estate office in Bogota.

Ronald Bookbinder: But what is the overall view of Colombia? It doesn't seem like you guys have opened a store there since Chía in September of 2016. With these new smaller format stores, could we see a ramping up in Colombia? And do you guys still have a real estate office in Bogotá?

We are active.

Sherry Bahrambeygui: We are active in pursuing real estate and in looking for opportunities to grow in Colombia. We believe in that market, no doubt the FX fluctuation and the currency devaluation there has been a challenge for us. We're well received there. Membership is strong. If you look in constant currency, our same store sales comps are doing well. The issue for us right now is that we're trying to. One, as you know, real estate is obviously a challenge there. But yes, with a small format, it opens up more opportunities for us to find more suitable locations. And then, separately. Point I wanted to make was with regard to your comment on the effect of the currency.

In pursuing real estate and in looking for opportunities to grow in Colombia, we believe in that market.

No doubt the FX fluctuation.

And the the currency devaluation, there has been a challenge for us.

Were well received their membership it's strong.

Sherry Bahrambeygui: We're well received there. Membership is strong.

The.

Sherry Bahrambeygui: If you look in constant currency, our same store sales comps are doing well.

If you look in constant currency, our same store sales comps or are doing well I mean, the issue for US right now is that we're trying to.

Sherry Bahrambeygui: The issue for us right now is that we're trying to.

Well, yeah as you know real estate is obviously a challenge there, but yes with the small format. It opens up more opportunities for us to find suitable location.

Sherry Bahrambeygui: One, as you know, real estate is obviously a challenge there. But yes, with a small format, it opens up more opportunities for us to find more suitable locations.

And then I have a second separate point I wanted to make was with regard to your comment on.

Sherry Bahrambeygui: And then, separately. Point I wanted to make was with regard to your comment on the effect of the currency. We are also looking for ways to be smarter about matching up some of our expenses.

The effect of the currency. We are also looking for ways to be smarter about matching up some of our expenses.

We are also looking for ways to be smarter about matching up some of our expenses. For the company and with merchandise, with the revenue that we generate through sales. So we're not being passive in terms of the Colombia FX effect. We are looking to source more merchandise locally. Colombia is a very developed market. It's one where we can source exciting merchandise not only for that market, but expand exports into other markets. And we're looking for smart ways to be able to naturally hedge, if you will, some of the impact of the negative effects. So we are very, very committed to Colombia, not just in terms of expanding clubs, but cultivating resources that will strengthen the company overall.

And for the company and with merchandise with the.

Sherry Bahrambeygui: For the company and with merchandise, with the revenue that we generate through sales. So we're not being passive in terms of the Colombia FX effect. We are looking to source more merchandise locally. Colombia is a very developed market. It's one where we can source exciting merchandise not only for that market, but expand exports into other markets. And we're looking for smart ways to be able to naturally hedge, if you will, some of the impact of the negative effects. So we are very, very committed to Colombia, not just in terms of expanding clubs, but cultivating resources that will strengthen the company overall.

Revenue that we generate through sale.

So we're not being passive in terms of the Columbia FX effect.

We are looking to to source more merchandise locally Colombia is a very developed markets.

It's one where we can source exciting merchandise that not only for that market, but expand exports into other markets and we're looking for smart ways to be able to naturally hedge if you will some of the impact of the negative FX.

So we are very very committed to Colombia.

Not just in terms of expanding club, but cultivating resources that will strengthen the company overall.

Okay, and you guys have been performing actually your core business has been performing actually very well if you back out the the FX.

Ronald Bookbinder: Okay. And you guys have been performing actually, your core business has been performing actually very well if you back out the FX impact. And now you've got this exciting opportunity of these smaller stores going into new markets. Given the lower valuation of your stock. I know you don't have a share repurchase program. Your 10-K states that you don't expect to have one going forward. But given where the stock is, why wouldn't the board consider an authorization?

[laughter] impact and now you've got this exciting opportunity of these smaller stores going into new markets.

Ronald Bookbinder: Given the lower valuation of your stock. I know you don't have a share repurchase program. Your 10-K states that you don't expect to have one going forward.

Given the lower valuation of your stock I know you don't have a share repurchase program and your Q.

States that you don't expect to have one.

Going forward, but but given where the stock is why wouldn't the board consider an authorization.

Ronald Bookbinder: But given where the stock is, why wouldn't the board consider an authorization?

Our first priority is to make this company as strong as it possibly can be.

Sherry Bahrambeygui: Our first priority is to make this company as strong as it possibly can be. That's where all efforts are focused at this time. And beyond that, I really don't have.

Sherry Bahrambeygui: Our first priority is to make this company as strong as it possibly can be. That's where all efforts are focused at this time. And beyond that, I really don't have. Any other. Any other. Comment on it other than real estate. In that, you know, there's the potential for real estate there that we could explore,

That's where all efforts are focused assets time and beyond that I really don't have.

Any other.

Sherry Bahrambeygui: Any other.

Any other.

Sherry Bahrambeygui: Any other.

Comment on it other than real estate.

Sherry Bahrambeygui: Comment on it other than real estate. In that, you know, there's the potential for real estate there that we could explore, I think.

In that.

There's there's the potential for real estate there.

So that we could explore.

Maarten Jager: I think. Great question. You know, we generate, as you know, a lot of operating cash flow from our business. We have. We continue to believe that we have a lot of growth opportunity ahead of us and in a number of markets, which of course require significant real estate investment. Our first focus, you know, in the broader context, is to do same store sales, is to grow in new markets with new real estate. It's to invest in our supply chain to back it up, and it's to do omnichannel. So our first protocol for the operating cash flow is to invest in our future growth.

I think a great question you know we generate as you know a lot of operating cash flow from our business and we have we continue to believe that we have a lot of growth opportunity ahead of us in a number of markets, which of course requires significant real estate investment.

Maarten Jager: Great question. You know, we generate, as you know, a lot of operating cash flow from our business. We have. We continue to believe that we have a lot of growth opportunity ahead of us and in a number of markets, which of course require significant real estate investment. Our first focus, you know, in the broader context, is to do same store sales, is to grow in new markets with new real estate. It's to invest in our supply chain to back it up, and it's to do omnichannel. So our first protocol for the operating cash flow is to invest in our future growth.

So our first focus.

In the broader context of our focus is to do same store sales is to grow in new markets with new real estate is to invest in our supply chain to back it up and its who do omnichannel and so our first quarter call for the operating cash flow is to invest in our future growth.

Okay, great. Thank you for taking my questions and good luck in the new quarter.

Sherry Bahrambeygui: Okay, great.

Ronald Bookbinder: Okay, great. Thank you for taking my questions, and good luck in the new quarter.

Ronald Bookbinder: Thank you for taking my questions, and good luck in the new quarter.

Thank you.

Sherry Bahrambeygui: Thank you.

Hey.

I do.

I'll I'll come back to you with a little bit more detail on the arrows are opposed margins.

Maarten Jager: You know, I'll come back to you with a little bit more detail on the Aeropost margins, but there was a reclassification from GNA to COGS that started in Q4 2018, which creates a bit of a comparability issue quarter over quarter. But I'll follow up with a more thorough answer.

But there was a reclassification from gionee to Cogs.

It started in the fourth quarter of 2018, which creates a bit of a comparability issue quarter over quarter, but I'll follow up with a more thorough answer.

Ronald Bookbinder: Would we expect that?

Ronald Bookbinder: Would we expect that? Continuing in the future quarters?

Would we expect that.

Continuing the in the future quarters, Yes, I did read the reclassification would continue to to hit us, but all of that and as I said I'll follow up with you.

Ronald Bookbinder: Continuing in the future quarters?

Maarten Jager: Yeah, the reclassification would continue to hit us, but as I said, I'll follow up with you. Thanks for that.

Thanks, Okay. Thank you.

Ronald Bookbinder: Okay, thank you.

The next question comes from Rodrigo ACA Gray of Scotia Bank. Please proceed.

Operator: The next question comes from Rodrigo Echagaray of Scotiabank. Please proceed.

Thank you thanks for the call a surety Martin I guess, so two questions on my end on the one hand.

Rodrigo Echagaray: Thank you. Thanks for the call. Sherry, Maarten. I guess two questions on my end. On the one hand, it sounds like the new formats are promising early stages, but it sounds like that's the case. And so far, I think we've touched on the opportunity of smaller cities, maybe more urban areas. But what about new countries? Do you guys think that is also something that should be more likely as a result of these new formats?

Sounds like the new formats are promising early stages, but.

Sounds like Thats the case.

And so far I think we touched on the opportunity of smaller cities, maybe more Oregon area.

But what about new countries do you guys.

I think that you also something that should.

Be more.

Likely a result of these new formats.

Yes, not just because of the new formats, but because of the digital digital capabilities that allow us to potentially tasks.

Sherry Bahrambeygui: Yes. Not just because of the new formats, but because of the digital capabilities that allow us to potentially test new markets. So as part of our ongoing efforts, generally, we are evaluating opportunities that exist in additional countries. I really don't have anything more on that at this point.

New York, New markets, so as part of our ongoing efforts generally we are.

Evaluating opportunities that exist in additional country I really don't have anything more on that at this point.

Rodrigo Echagaray: Is that related to the analytics that you guys now have as a result of Aeropost and all the online initiatives that you feel like that data could potentially help you find new countries?

And is that related to the analytics that you guys now have a threshold of Arrow post an all day and the online initiatives that you feel like that the ice is it could potentially help you.

Fine.

New countries.

A better is that does that.

Rodrigo Echagaray: Better. Would that be a correct assessment?

Would that be a correct assessment.

It's not that much of the analytics I'm sure analytics can can play into this but it's also the ability potentially down the road true omni channel and the technology technological capabilities to support Omnichannel that would allow us to test different markets and the reception in different markets.

Sherry Bahrambeygui: It's not so much the analytics. I'm sure analytics can play into this, but it's also the ability potentially down the road through omnichannel and the technological capabilities that support omnichannel that would allow us to test different markets and the reception in different markets of the PriceSmart brand, or basically the PriceSmart model and the merchandise that we provide.

The price smart.

Brant Eric.

Basically the price might model and the merchandise that we provide.

Okay.

Rodrigo Echagaray: Okay, got it. If I take a step back, there's a lot of progress on working capital, there's new formats, and there seems to be a bit of a slight pick up in store openings.

Rodrigo Echagaray: Okay, got it. If I take a step back, there's a lot of progress on working capital, there's new formats, and there seems to be a bit of a slight pick up in store openings. So what would you say, Sherry, is your top priority for, say, next fiscal year and maybe midterm? I mean, there's a lot of things happening. It sounds like some of these are very promising initiatives. What would you say would be your top priority for next year?

Got it and then if I will take us a buck there does a lot of progress on working capital, there's new formats, there seems to be a bit of a slight pickup in store openings.

In it and so what would you say sherri ease your top priority for say next fiscal year and maybe mid term I mean, there's a lot of things happening.

Rodrigo Echagaray: So what would you say, Sherry, is your top priority for, say, next fiscal year and maybe midterm? I mean, there's a lot of things happening. It sounds like some of these are very promising initiatives. What would you say would be your top priority for next year?

It sounds like some of these are very promising initiatives, but what would you say would be your top priority for next year.

[noise].

We continue to put substantial efforts and on the real estate side hand in hand, with the development of our digital.

Sherry Bahrambeygui: We continue to put substantial efforts on the real estate side, hand in hand with the development of our.

Sherry Bahrambeygui: We continue to put substantial efforts on the real estate side, hand in hand with the development of our. Digital transformation. And we see that interrelationship. We want to really strengthen that interrelationship between the digital capabilities with the brick and mortar to be able to maximize our opportunity to flow merchandise in the most cost-effective manner to the members. So it's sort of, it's holistic, and it's all interrelated. We're also focused on building our people, investing in our people, and strengthening further our management team so that we have the capabilities and the bandwidth to be able to continue to grow without being distracted or taking away from what we're doing very well.

Sherry Bahrambeygui: Digital transformation.

Digital transformation.

And and we see that inner relationship we want to really strengthen that inner relationship between the digital capabilities with the brick and mortar to be able to maximize our opportunity to flow merchandise.

Sherry Bahrambeygui: And we see that interrelationship. We want to really strengthen that interrelationship between the digital capabilities with the brick and mortar to be able to maximize our opportunity to flow merchandise in the most cost-effective manner to the members. So it's sort of, it's holistic, and it's all interrelated.

In the most cost effective manner to the members. So it's sort of it's holistic and it's all in our related.

We're all got it.

Sherry Bahrambeygui: We're also focused on building our people, investing in our people, and strengthening further our management team so that we have the capabilities and the bandwidth to be able to continue to grow without being distracted or taking away from what we're doing very well.

Focused on on on building our people investing in our people and strengthening further our management team. So that we have the capabilities and the bandwidth.

To be able to continue to grow without being distracted or taking away from what we are doing very well.

Okay and maybe.

Sherry Bahrambeygui: Okay.

Rodrigo Echagaray: Okay. Maybe Maarten, on the same-store sales of the most recent announcement, what else would you say are some of the takeaways? I mean, there was an uptick on the number. Anything interesting that maybe you can touch on in terms of some of the regions or trends relative to the previous months? I mean, I think the FX obviously probably is still impacting negatively. But other than that, anything else that you're seeing on the latest print that might be worth touching on?

Rodrigo Echagaray: Maybe Maarten, on the same-store sales of the most recent announcement, what else would you say are some of the takeaways? I mean, there was an uptick on the number. Anything interesting that maybe you can touch on in terms of some of the regions or trends relative to the previous months? I mean, I think the FX obviously probably is still impacting negatively. But other than that, anything else that you're seeing on the latest print that might be worth touching on?

Martin on on the same store sales over the most recent announcement.

What else would you say are some of the take away I mean, there was an uptick on on the number.

Anything.

Interesting that that.

Maybe you can touch on in terms of for some of the regions for trends relative to the previous moms I mean, I think the FX.

Obviously, probably still impacting negatively but other than that anything else that you are seeing on the on the latest brain that might be worth touching on.

Greg are you referring to the June sales release are you referring to.

Maarten Jager: Rodrigo, are you referring to the June sales release? Okay, well, I think the June sales really speaks for itself. It's one month of good sales. It was well received by the market. We see some continuing momentum here in the early parts of July, but I want to be very cautious with that statement. We also are managing, as Sherry and I have both addressed in our earlier comments. We are also addressing our margins better. So that's coming in well. We see a little bit less of devaluation impact recently, in particular in Colombia for the month. I mean, it's still significant, but relative to what it was, it's abated a little bit.

Okay, well I think the June sales really speaks for itself. It's one month. So you know a good sales it was well received by the market.

You know we see some continuing momentum here are in the early part of July , but I want to be very cautious.

With with that statement.

We also.

Our managing as as Sheri and I have both address you know.

And our earlier comments, we're also addressing our margins better so thats coming in.

Well, we see a little bit less of devaluation impact.

Recently, particularly in Colombia for the months I mean, there's still there's still significant but relative to what it was.

It's abated a little bit.

And I think that's about as far as I would want to go.

Maarten Jager: Yeah, I think that's about as far as I would want to go.

Great very useful thank thank you guys.

Rodrigo Echagaray: Great.

Rodrigo Echagaray: Great. Very useful. Thank you, guys.

Thomas Vester: Very useful.

Maarten Jager: Thank you, guys. Thank you, Rodrigo.

Maarten Jager: Thank you, Rodrigo.

Thank you to the young.

The next question comes from Thomas Duster of Ella Ji. Please proceed.

Operator: The next question comes from Thomas Vester of LGM. Please proceed.

Yeah, Hi, Sharon Hi, Martin.

Maarten Jager: Yeah.

Thomas Vester: Yeah. Hi, Sherry. Hi, Maarten. Just on the margin, maybe I can ask it a little bit differently. What same store sales level should you be at before you're comfortable on seeing Maarten sort of trending back to what you historically had. So I'm trying to understand what level because clearly the same store sales in US dollars is beneficial for margin. But what level do you feel it takes to really see that swing back in margin? Because it has been compressed for quite a while.

Thomas Vester: Hi, Sherry. Hi, Maarten. Just on the margin, maybe I can ask it a little bit differently. What same store sales level should you be at before you're comfortable on seeing Maarten sort of trending back to what you historically had. So I'm trying to understand what level because clearly the same store sales in US dollars is beneficial for margin. But what level do you feel it takes to really see that swing back in margin? Because it has been compressed for quite a while.

Just on the.

On the margin and maybe I can ask it.

Little bit differently, how much.

What should we.

Same store sales.

The before you are comfortable and CE Mark.

Trending back to to what you've historically had some I'm trying to understand what what level because kind of the same store sales.

I was told US it's beneficial for margin, but what level do you feel it take.

To really see that swing back in March and because it has been compressed for quite awhile.

Well I you know I appreciate the intent behind the question and yes, and trying to link sales to margin. That's obviously there is a relationship but first and foremost we're focusing on driving same store sales through excellent merchandise.

Maarten Jager: Well, I appreciate the intent behind the question.

Maarten Jager: Well, I appreciate the intent behind the question. Trying to link sales to margin, obviously there is a relationship of. But first and foremost, we're focusing on driving same store sales through excellent merchandise. You know, I'm sure from studying our business model, and we know that the business model works best when you have same store sales kind of in the middle single digits to higher because then you start to leverage your expenses, you know, your variable expenses that increase with inflation and wage increases, et cetera, as well as the fixed increases. And that allows you then to reinvest in the value proposition.

Maarten Jager: Trying to link sales to margin, obviously there is a relationship of. But first and foremost, we're focusing on driving same store sales through excellent merchandise. You know, I'm sure from studying our business model, and we know that the business model works best when you have same store sales kind of in the middle single digits to higher because then you start to leverage your expenses, you know, your variable expenses that increase with inflation and wage increases, et cetera, as well as the fixed increases. And that allows you then to reinvest in the value proposition. So I don't want to draw an explicit link between the two, although I understand the intent behind your question. It's same store sales that we're driving. We're focused on excellent merchandise. We've cleared out some of what we had in excess in Q3.

You know I'm sure from studying our business model and we know.

The business model works best when you have a same store sales kind of in the middle single digits to higher.

Because then you start to leverage your expenses you know your variable expenses that increase with inflation and wage increases et cetera, as well as to fixing increases and that allows you then to reinvest into value proposition.

So I don't want to draw an explicit link between the two, although I understand the intent behind your question. It's same store sales that we're driving. We're focused on excellent merchandise. We've cleared out some of what we had in excess in Q3. That in and of itself, of course, when you don't need to mark it down, you know, will help your same store sales. Right. Really at the root of it is to make sure that we have an excellent merchandising offering for our members.

So I don't want to draw an explicit link between the two although I understand the intent behind your question.

It same store sales that were driving we're focused on Exxon with merchandise we've cleared out some of what we had in excess in Q3.

Maarten Jager: That in and of itself, of course, when you don't need to mark it down, you know, will help your same store sales. Right.

That in and of itself of course, when you don't need to market down.

You know will help your same store sales right.

But really at the root of it is to make sure that we have an excellent.

Maarten Jager: Really at the root of it is to make sure that we have an excellent merchandising offering for our members.

Merchandising offering for our members.

Thomas Vester: Okay, great. Makes sense. Just a second question is on the more rural store in Panama, Utrust Moncheri. I mean, two questions. First of all, when you say in terms of the evaluation too early, but you see some promising signs, can you tell us something about when do you expect to be able to evaluate it? And secondly, what it is you're looking for. I mean, obviously there's a number of factors, but just it could be interesting to hear what you're really evaluating on, what are the key parameters that will tell you whether or not this is something you should decide to go ahead with elsewhere or not. So those two things would be helpful to get some clarity on.

Okay, great. Thank you Mike just on my second question is on the.

On the more rules store in Panama.

I'm sorry.

Two questions first of all when you say in terms of devaluation, that's too early but do you see some promising signs can you tell us something about when do you expect to be able to evaluate it.

And secondly, what it is you are looking for.

Oh, that's a number of factors, but it could be interesting.

But what.

Evaluating on one of <unk>.

Tell me, whether or not this is something you should.

Go ahead.

On not so those two things would be.

Well some of the evaluation is ongoing.

Sherry Bahrambeygui: Well, the evaluation is ongoing, and obviously one of the threshold questions is relative to the investment that was required in order to build the club and what it costs to run the club. The type of sales that we can generate out of that smaller footprint and sales per square foot, those are things that we watch closely. To the extent that we can grow sales with less of a real estate investment as a result of being in a secondary market and other savings that come along with a smaller footprint.

And obviously one of the dressel questions is relative to the investment that was required in order to build the club and what it costs around that.

The type of sales that we can generate out of that smaller footprint.

And sales per square foot, so to think that we we watch closely and to the extent that we can grow sales with less of a real estate investment as a result of being in a secondary market and other savings that come along with a smaller footprint on that that is a metric that we would.

Sherry Bahrambeygui: That is a metric that we would pay close attention to and see if the returns are within our threshold, our required threshold that would allow us to have some confidence going forward with other locations.

That is a metric that we would pay close attention to and see if the returns are within our threshold, our required threshold that would allow us to have some confidence going forward with other locations.

Okay close attention to and and see if the returns are within our threshold.

Our required threshold that would allow us to.

Some confidence going forward with other locations.

Yes, Okay and then that's that's separate from sounds like <unk> related to that because.

Thomas Vester: Yeah. Okay. That brings me to the next part related to that because I guess the bottleneck for a long time, and also that's been the explanation, I guess, pre you becoming CEO and Maarten, you CFO, has been that one of the biggest bottlenecks for PriceSmart has been sourcing real estate, especially in Colombia, but also other places.

I guess the bottleneck for a long time and also that's been the nation I guess pre pre you become CEO and lots of new CFO asking that is one of the big Big bottlenecks for <unk> for price might have been talking real estate, especially in.

Globally.

But also one of the places in it.

Thomas Vester: I would assume. But I guess that's my question, whether or not I'm right, that your model should be much more fast, scalable if it proves to be something that you want to roll out in the second tier cities. Because real estate as a bottleneck should be much less because it should be easier to source in these cities. So you should be able to fast forward, crack that. But maybe that's the wrong assumption.

I would assume. But I guess that's my question, whether or not I'm right, that your model should be much more fast, scalable if it proves to be something that you want to roll out in the second tier cities. Because real estate as a bottleneck should be much less because it should be easier to source in these cities. So you should be able to fast forward, crack that. But maybe that's the wrong assumption.

I would assume but but.

I guess, that's my question, whether or not I'm right that your model should be much more scalable or if it proved to be something that you want to roll out in the second two cities because.

Real estate at the bottom line should be much that's because it should be easier to source in the city. So you should be able to to fast track that maybe that's wrong assumption.

That's that's certainly about hope I mean, I I am sure Youve noted on the last three investment calls at at least we focused on.

Sherry Bahrambeygui: That's certainly the hope. I mean, I'm sure you've noted on the last three investment calls, at least, we focused on the challenge of real estate for the company and how, because of the costs associated with being in some of the central areas where we already do business. That real estate was becoming a more challenging barrier for us. We're finding ways to solve for that. One of the explicit approaches that we shared with the investment community was we were going to look for ways to do it by way of bringing down our cost in real estate through smaller formats where appropriate,

The challenge of real estate for the company and how because of the cost associated with being in some of the.

Central areas, where we already do business.

That that real estate with becoming a more challenging barrier for us and we are finding ways to solve for that and.

Sherry Bahrambeygui: That real estate was becoming a more challenging barrier for us. We're finding ways to solve for that. One of the explicit approaches that we shared with the investment community was we were going to look for ways to do it by way of bringing down our cost in real estate through smaller formats where appropriate, where markets could support the type of sales that would justify the investment, and also by investing in our omnichannel capabilities to see if we can get merchandise to our members without the need for so much real estate, by whether it's delivery directly from the merchants and from, I'm sorry, from the vendors or through e-commerce. Using all these different approaches is to reduce the cost of real estate so that we could have a healthy profit as a result of these additional hubs.

One of the explicit.

Approaches that we shared with the investment community was we were going to look for ways to do it by way of bringing down our cost in real estate.

Through smaller formats, where appropriate where markets could support the type of sales that would justify the investment and also by investing in our omni channel capabilities to see if we can get merchandise to our members.

where markets could support the type of sales that would justify the investment, and also by investing in our omnichannel capabilities to see if we can get merchandise to our members without the need for so much real estate, by whether it's delivery directly from the merchants and from, I'm sorry, from the vendors or through e-commerce. Using all these different approaches is to reduce the cost of real estate so that we could have a healthy profit as a result of these additional hubs.

Without the need for so much real estate by whether its delivery directly from the merchants then from I'm sorry from the vendors.

Or through e-commerce , but using all these different approaches to reduce the cost of real estate, so that we could.

How the healthy healthy profits as a result of these additional funds.

Thomas Vester: Yeah, okay, makes sense. Just staying on real estate. I mean, because you are right, Sherry.

Thomas Vester: Yeah, okay, makes sense. Just staying on real estate. I mean, because you are right, Sherry. That we have seen a pickup in, I guess, sourcing of new sites and converting that into new stores. Since you became CEO, can you talk a little bit about what you've done to the team there? I mean, has there been additional resources put in? Has there been changes in resources? I mean, it definitely seems like something has happened.

Yeah, Okay. Thanks. Thanks.

I'm just staying on real estate I mean, because you all right Gerry and that's that.

Thomas Vester: That we have seen a pickup in, I guess, sourcing of new sites and converting that into new stores. Since you became CEO, can you talk a little bit about what you've done to the team there? I mean, has there been additional resources put in? Has there been changes in resources? I mean, it definitely seems like something has happened.

That's definitely have seen a pick up in.

And that gets sourcing of new sites and converting that into new store. Since you became CEO can you talk a little bit about.

What you don't have the team there I mean has there been additional resources put in and change resource wise I mean, it's just.

It definitely seems like something.

You know I I can't take credit for it other than to say that there is a renewed energy [laughter] renewed energy, there's a renewed focus there's a real commitment there was expressed discussion.

Sherry Bahrambeygui: You know, I can't take credit for it other than to say that there's a renewed energy. There's a renewed energy. There's a renewed, renewed focus. There's a real commitment. There's express discussions. People are being challenged. They're being excited about the fact that we have forward momentum in an area that seemed to be lagging a bit for us. We're hoping to continue with this momentum and build on it going forward. I think our team is seeing that this could potentially open more doors for us in terms of markets and even existing markets.

There that people are being challenged or they're being excited about the fact that were Uh huh forward momentum in an area that seem to be.

Sherry Bahrambeygui: People are being challenged. They're being excited about the fact that we have forward momentum in an area that seemed to be lagging a bit for us. We're hoping to continue with this momentum and build on it going forward. I think our team is seeing that this could potentially open more doors for us in terms of markets and even existing markets.

Lagging a bit for us and.

We're hoping to continue with this momentum and build on it going forward and I think our team is seeing a that this this could potentially opening more doors for us in terms of market and even existing markets.

The concept as saturating the market is not so much the concern anymore. If we can expand into secondary markets, where it makes economic sense and business sense for us to do so and we still have other markets that we can be considering outside of our existing markets. So.

Sherry Bahrambeygui: The concept of saturating the market is not so much the concern anymore. If we can expand into secondary markets where it makes economic sense and business sense for us to do so, and we still have other markets that we can be considering outside of our existing market.

The concept of saturating the market is not so much the concern anymore. If we can expand into secondary markets where it makes economic sense and business sense for us to do so, and we still have other markets that we can be considering outside of our existing market. So. Yes, there's been, I'd say, a renewed energy, a renewed motivation.

Operator: So.

Yeah, Theres been a I'd say, a renewed energy a renewed motivation.

Sherry Bahrambeygui: Yes, there's been, I'd say, a renewed energy, a renewed motivation.

Thomas Vester: Yeah. All right. All right.

Yeah, all right all right and then and then come back yes.

Sherry Bahrambeygui: Excuse me. And a commitment from leadership that we will provide the support that's needed in order to expedite our efforts in this area.

Me and a commitment from from leadership that we will provide the support that's needed in order to expedite our efforts in this area.

Rodrigo Echagaray: Yeah.

Thomas Vester: Yeah. Okay. And does that in any way do you feel you had to compromise in terms of, I mean, your return target, because you mentioned also returns on the more real estate, though? I mean, clearly, clearly your return on capital is a key yardstick for whether or not to plow on with others. But I mean, I guess one of the ways also to convert more real estate is to sort of just pay up a bit. Do you feel you have been happy to do that or has that not been the case?

Yes, Okay and does that then maybe anyways do you feel you have to compromise in terms of.

Thomas Vester: Okay. And does that in any way do you feel you had to compromise in terms of, I mean, your return target, because you mentioned also returns on the more real estate, though? I mean, clearly, clearly your return on capital is a key yardstick for whether or not to plow on with others. But I mean, I guess one of the ways also to convert more real estate is to sort of just pay up a bit.

Your your return target because you mentioned also returned some animal rule. So I mean, it really fit into your return on capital leases.

Got to stick for whether or not to plow on but all those but but I mean, I guess one of the ways also to convert more real estate is is to is to sort of and just pay off a bit that you feel you have enough to do that for us that's not been the case.

Thomas Vester: Do you feel you have been happy to do that or has that not been the case?

Sherry Bahrambeygui: I'm sorry, I didn't catch the last part of what you said.

Sherry Bahrambeygui: I'm sorry, I didn't catch the last part of what you said. Another,

I'm, sorry, I didn't catch the last part of what you said another.

Thomas Vester: Another, basically, whether or not you feel in some of the sites to basically secure them, you basically had to compromise a bit on.

Thomas Vester: basically, whether or not you feel in some of the sites to basically secure them, you basically had to compromise a bit on. Paying up. Because that is one way you can get real estate pretty quickly.

They basically whether or not you feel in someone decides to basis through them you basically have to compromise to beat them on on.

Thomas Vester: Paying up. Because that is one way you can get real estate pretty quickly.

Paying paying up Uh huh.

But that is one way you can get ready to stay pretty quickly.

Well I mean at this point, we've got our own internal thresholds for.

Sherry Bahrambeygui: Well, I mean, at this point, we've got our own internal thresholds for.

Sherry Bahrambeygui: Well, I mean, at this point, we've got our own internal thresholds for. We have a very active real estate committee of the board. We've got internal thresholds. That we have to meet before a club will be approved. I can tell you there's a lot of rigor that's applied to make sure that we don't overpay. And that we're paying relative to the return that we expect we'll get by virtue of the sales. And so, no, we're not compromising our standards. That's another way of putting it.

Yeah like we have a very active real estate committee of the board we've got internal thresholds.

Sherry Bahrambeygui: We have a very active real estate committee of the board. We've got internal thresholds.

On that.

Sherry Bahrambeygui: That we have to meet before a club will be approved. I can tell you there's a lot of rigor that's applied to make sure that we don't overpay.

That we have to meet before a club will be approved I can tell you. There's a lot of rigor that supply to make sure that we are overpaid.

And that we're paying relative to the return that we expect will get by virtue of the sales.

Sherry Bahrambeygui: And that we're paying relative to the return that we expect we'll get by virtue of the sales. And so, no, we're not compromising our standards. That's another way of putting it.

And so no we're not compromising our standards since that's a.

Another way of putting it.

Maarten Jager: Yeah. I mean, just to add to that, and I think I addressed this on prior calls, it is, as Harry said, a very rigorous process. We look at all the financials, we look at it on an incremental basis. You know, we use different financial lenses to determine whether something will actually add shareholder value. And those lenses include, they include adjusted ROI, they include NPVs, you know, all the different ways that you would expect, I think, any management team to judiciously evaluate, you know, new projects. Yes, some of the projects are more expensive in some of the areas that we're looking. But then, of course, we are making sure that we're going to get enough incremental sales and value from it and membership income from it.

Yes, I mean, just to add to that and I think I addressed this on prior calls it is as Sheri said, a very rigorous process. We looked at all the financials, we look at it on an incremental basis.

You know, we use different financial lenses to to determine whether whether something will actually add shareholder value and those lenses include ROI. During Q include adjusted ROI. They include Mpvs.

You know all the different ways that you would expect I think any management team to do it judiciously evaluate new projects.

Yes, some of the projects are more expensive and some of the areas that we're looking at but then of course, we are making sure that we're going to get enough incremental sales and value from it and membership income from it.

Thomas Vester: Yeah.

Yeah. So.

Sherry Bahrambeygui: I mean, to add a little bit more to this.

Sherry Bahrambeygui: I mean, to add a little bit more to this. We see the opportunity potentially here to be doing, to being a little bit more nimble and tailored in the size and the formats of our clubs, depending on the markets where we're putting them. So you can expect that if we're going to have another club in Bogotá, which we think is a very fertile market for us, we're going to be paying more for that. But we expect the returns to justify it because of the opportunity that exists.

I mean, I would put out a little bit more to that.

We.

Sherry Bahrambeygui: We see the opportunity potentially here to be doing, to being a little bit more nimble and tailored in the size and the formats of our clubs, depending on the markets where we're putting them. So you can expect that if we're going to have another club in Bogotá, which we think is a very fertile market for us, we're going to be paying more for that. But we expect the returns to justify it because of the opportunity that exists.

We see the opportunity potentially here to be doing on to being a little bit more nimble and tailored and and the size and the formats of our clubs depending on the markets, where we're putting them.

So you can expect that if we're going to.

I have another club in Bogota, which we think is a very fertile market for us we're going to be paying more for that.

But we expect the returns to justify it because of the opportunities that exist.

And so we're going to be looking at it on a case by case basis, but I don't want to leave those conversation with an impression that we're only looking to secondary markets and we're only looking to lower we are we still have opportunities and very.

Sherry Bahrambeygui: We're going to be looking at it on a case-by-case basis. But I don't want to leave this conversation with an impression that we're only looking to secondary markets and we're only looking to lower. We still have opportunities, opportunities in very.

We're going to be looking at it on a case-by-case basis. But I don't want to leave this conversation with an impression that we're only looking to secondary markets and we're only looking to lower. We still have opportunities, opportunities in very. Fertile markets like Bogotá that we are aggressively pursuing, but we're doing that in tandem with our efforts to expand into secondary markets, assuming that Nicaragua continues to prove out as we expect it to.

Fertile markets.

Sherry Bahrambeygui: Fertile markets like Bogotá that we are aggressively pursuing, but we're doing that in tandem with our efforts to expand into secondary markets, assuming that Nicaragua continues to prove out as we expect it to.

Like Bogota that we are aggressively pursuing but we're doing that in tandem with our efforts to expand into secondary markets assuming that Robert.

Continues to prove out as we expected to.

Thomas Vester: Yeah, okay. That's definitely appreciated. Just Maarten, on the working capital, what you've done there is also appreciated. But on the tax.

Thomas Vester: Yeah, okay. That's definitely appreciated. Just Maarten, on the working capital, what you've done there is also appreciated. But on the tax. Maybe in my head, it's a little bit hard to understand why. I mean, looking at the various corporate tax rates in the jurisdictions you operate in and also the corporate tax rate in the US how if, I mean, intuitively, there should be some room to lower the corporate tax rate rate or PriceSmart going forward. But again, maybe help me if I'm missing something there.

Yes, Okay. That's that's definitely appreciate it just gets boxing on.

On on the working capital, what what kind of done that folks have appreciated but on the tax it.

Yeah, maybe in my head, it's a little bit hop to understand why why I mean looking at the various corporate tax rates in the jurisdictions overwriting.

Thomas Vester: Maybe in my head, it's a little bit hard to understand why. I mean, looking at the various corporate tax rates in the jurisdictions you operate in and also the corporate tax rate in the US how if, I mean, intuitively, there should be some room to lower the corporate tax rate rate or PriceSmart going forward. But again, maybe help me if I'm missing something there.

And also the contracts is right in the U.S. how how.

It is.

Well I mean, intuitively that should be some room for lower corporate tax rate.

Price Bob.

Going forward I can maybe help me if I'm missing something there.

Maarten Jager: Well, I think, you know, our tax liability is principally, you know, the overwhelming majority is generated out of the markets. The liability, the tax liability that we have in the markets where we operate. Right. We generate very little income in the United States and have very little tax liability here. As you know. You know, because of tax reform, the tax rate, the corporate tax rate here in the US declined significantly. Kind of turned the whole balance upside down from the US being higher than our markets to now being lower. And as a result of that shift, we've had to relook at our foreign tax credits, and some of those had to be revalued. And that's kind of what we're cycling through in this year.

I think you know our tax liability is principally the overwhelming majority is generated out of the market. The liability attacks I believe that we have in the markets where we operate.

We generate very little income in the United States and have very little tax liability here.

As you know.

Because of tax reform.

The tax rate corporate tax rate here in the U.S. declined significantly kind of turned the whole balance upside down from the U.S. being higher than our markets to now be in lower.

And as a result of that shift.

How to read.

Foreign tax credits and some of those have to be revalued, and that's kind of what we're cycling through in this year, having said all of that.

And that's kind of what we're cycling through in this year. Having said all of that, you know, what we are always looking at is to optimize it in a judicious way. We'll evaluate that going forward. You know, there are losses. There are losses in the US right? I mean, or, you know, recorded as losses. I'd like to think of them as investments that we are making, for example, in our Aeropost business and our omnichannel capabilities. But we don't have income to, you know, to generate to offset those. And so that has then mathematically the impact of effectively raising our tax rate.

Maarten Jager: Having said all of that, you know, what we are always looking at is to optimize it in a judicious way. We'll evaluate that going forward.

But what we are always looking at is too.

You know it's to optimize it in a judicious way and we'll evaluate that going forward.

And you know there are losses, there are losses in the U.S. very timing or recorded as losses I'd like to think of them as investments that we're making for example in our aerospace business and our omni channel capabilities, but we don't have income to you know to generate to offset those.

Maarten Jager: You know, there are losses. There are losses in the US right? I mean, or, you know, recorded as losses. I'd like to think of them as investments that we are making, for example, in our Aeropost business and our omnichannel capabilities. But we don't have income to, you know, to generate to offset those. And so that has then mathematically the impact of effectively raising our tax rate.

And so that has been mathematically the impact of effectively raising our tax rate.

But.

Maarten Jager: But, you know, we are looking at the tax question overall and opportunities that we may have. Operator, we have the opportunity. Thank you, Thomas. Operator, we have the opportunity for one more question.

But, you know, we are looking at the tax question overall and opportunities that we may have. Operator, we have the opportunity. Thank you, Thomas. Operator, we have the opportunity for one more question.

We are looking at the tax question overall and opportunities that we may have.

Operator, we have the opportunity. Thank you Thomas operator will you have the opportunity for one more question.

Our last question comes from Charlie Carter Sarah decks. Please proceed.

Operator: Our last question comes from Charlie Carter of Ceredex. Please proceed.

Hi, just two quick ones. The first is on going back to the June same store sales number.

Ronald Bookbinder: Just two quick ones.

Charlie Carter: Just two quick ones. The first is on, going back to the June same store sales number. I believe last year Central America was, you know, just disrupted by a lot of the political unrest. I want to double check that, you know, that doesn't. That's not sort of driving the improvement. We've seen month to month. It sounded like, Maarten, by the tone of your voice, that you were kind of generally encouraged that it was a sort of a broad based approach improvement.

Charlie Carter: The first is on, going back to the June same store sales number. I believe last year Central America was, you know, just disrupted by a lot of the political unrest. I want to double check that, you know, that doesn't. That's not sort of driving the improvement.

If I believe last year Central America was disrupted by a lot of the political unrest on a double check that that doesn't that's not sort of driving the improvement we've seen month to month it sounded like Martin by the tone of your voice that you were.

Thomas Vester: We've seen month to month.

Charlie Carter: It sounded like, Maarten, by the tone of your voice, that you were kind of generally encouraged that it was a sort of a broad based approach improvement. So I just want to make sure that it's not just a very easy comp for Nicaragua or again, one of its neighbors. And then lastly, I didn't hear any specifics on the new distribution center in Costa Rica. And I can't remember if that was already launched in the quarter or if that's coming. And so just what effect that might.

Kinda generally encouraged that it was a sort of a broad based improvements I just want to make sure that it's not.

So I just want to make sure that it's not just a very easy comp for Nicaragua or again, one of its neighbors. And then lastly, I didn't hear any specifics on the new distribution center in Costa Rica. And I can't remember if that was already launched in the quarter or if that's coming. And so just what effect that might. Have on your margins. Thanks.

Just a very easy comp from Nicaragua, or again, one of its neighbors and then lastly, I didn't hear any us any specifics on the new distribution center in Costa Rica, and I can't remember if that was already.

Launched in the quarter, if that's coming in so just what effect that might have on your margins. Thanks.

Maarten Jager: Have on your margins. Thanks. I'll have Sherry talk about Costa Rica in terms of the comps. Good question. And we do have, you know, we have 13 markets, so it's never one kind of consistent story. There's a number of markets that are helping us, some markets that are still a little flatter. Nicaragua specifically has helped because we are lapping significant unrest. A year ago, it was a drag on our comp a year ago, and it's helping us in June this year. But that's not the whole turnaround.

Maarten Jager: I'll have Sherry talk about Costa Rica in terms of the comps. Good question. And we do have, you know, we have 13 markets, so it's never one kind of consistent story. There's a number of markets that are helping us, some markets that are still a little flatter. Nicaragua specifically has helped because we are lapping significant unrest. A year ago, it was a drag on our comp a year ago, and it's helping us in June this year. But that's not the whole turnaround.

Oh have Sherry talked about Costa Rica in terms of the comps.

Good question.

And we do have.

You know we have 13 markets. So it's never one kind of consistent story. There is a number of markets that are helping us.

In some markets that are still a little flatter.

Nicaragua, specifically has helped because we are lapping significant unrest a year ago. It was a drag on our comp a year ago and it's helping us in June this year.

But that's not the whole turnaround.

Sherry Bahrambeygui: Also, I mean, we have other.

Sherry Bahrambeygui: Also, I mean, we have other. Issues going in the other direction like in Honduras. So that certainly is a very difficult situation there with the mass riots and street closures. And you know, we've even been on alert a few times getting ready to close our clubs down to keep our members and our employees safe. So that's a new challenge we have this year that we didn't have last year. So, there's. It's dynamic.

Well and also I think we know that there.

It's just going the other direction like in.

Sherry Bahrambeygui: Issues going in the other direction like in Honduras. So that certainly is a very difficult situation there with the mass riots and street closures. And you know, we've even been on alert a few times getting ready to close our clubs down to keep our members and our employees safe. So that's a new challenge we have this year that we didn't have last year. So, there's. It's dynamic.

Doris.

So that that certainly is.

A very difficult situation now with the math riot the street closure then.

Yeah, we've even been on alert a few times getting ready to close our club down to keep our members and our employees say.

So that's a new challenge we have this year that we didn't have last year.

So there it's dynamic.

Okay, and now I'm, sorry on the R&D c., so that that is.

Ronald Bookbinder: Okay.

Charlie Carter: Okay.

Sherry Bahrambeygui: And then Costa Rica, I'm sorry, on the Costa Rica RDC. So that is an opportunity that we see to allow us to flow merchandise in a manner that would be most cost-effective and allow us to have the net landed cost.

Maarten Jager: And then Costa Rica,

Sherry Bahrambeygui: I'm sorry, on the Costa Rica RDC. So that is an opportunity that we see to allow us to flow merchandise in a manner that would be most cost-effective and allow us to have the net landed cost. Be as competitive as possible by being able to flow merchandise, for example, from Asia or even potentially Europe directly to Costa Rica as opposed to having to go through Miami and then have Miami then redirect to either Costa Rica or specific countries or clubs. A very in-depth study is going on now to actually look at our items and what is the most cost-effective manner to get that item from the vendor to the clubs.

An opportunity that we see to allow us to flow merchandise in a manner that would be most cost effective and allow us to have been Atlantic cost.

Be as competitive as possible by being able to flow merchandise.

Sherry Bahrambeygui: Be as competitive as possible by being able to flow merchandise, for example, from Asia or even potentially Europe directly to Costa Rica as opposed to having to go through Miami and then have Miami then redirect to either Costa Rica or specific countries or clubs. A very in-depth study is going on now to actually look at our items and what is the most cost-effective manner to get that item from the vendor to the clubs. In addition to just the cost of getting it closer to the members and looking for savings there, there's a business practice that can be improved by virtue. For example, in Costa Rica, that's one of our largest markets.

For example from Asia.

Or even potentially Europe directly to Costa Rica, as opposed to having to go through Miami and then have Miami.

Then redirect to either Costa Rica or specific countries or clubs.

And a very in depth study is going on now to actually look at at art.

Items and what is the most cost effective manner to get that item from the vendor to the clubs and in addition to just the cost of getting it to closer to the members and looking for savings there. There's a business practice that can be improved by virtue for example in Costa Rica.

In addition to just the cost of getting it closer to the members and looking for savings there, there's a business practice that can be improved by virtue. For example, in Costa Rica, that's one of our largest markets. When we're able to aggregate merchandise in the Costa Rica RDC and then pulse it into the clubs on a shorter term basis with real-time knowledge of what the needs are in terms of inventory levels and sales activities in each of those clubs, that will yield savings. It'll yield, you know, better or less out of stock and better sales.

That's that's one of our largest market and when we're able to aggregate merchandise in the coaster Rica, RDC and then pulse it into the club.

Sherry Bahrambeygui: When we're able to aggregate merchandise in the Costa Rica RDC and then pulse it into the clubs on a shorter term basis with real-time knowledge of what the needs are in terms of inventory levels and sales activities in each of those clubs, that will yield savings. It'll yield, you know, better or less out of stock and better sales. The Costa Rica RDC holds a lot of potential for us, but it does require studying and in-depth analysis of almost on an item-by-item basis, frankly, as to how and where is that merchandise best flowed. Stepping back for a moment, what we've achieved with the Costa Rica is this, though it still is in process in terms of the work that needs to go into it to maximize that potential.

On a shorter term basis with real time knowledge of what the needs are in terms of inventory levels and sales activities in each of those clubs that will yield savings that will yield better.

Or less out of stock.

And better sales out actively so the coaster Rica RDC hat holds a lot of potential for us.

The Costa Rica RDC holds a lot of potential for us, but it does require studying and in-depth analysis of almost on an item-by-item basis, frankly, as to how and where is that merchandise best flowed. Stepping back for a moment, what we've achieved with the Costa Rica is this, though it still is in process in terms of the work that needs to go into it to maximize that potential.

But it does require.

Studying an in depth analysis of almost on an item by item basis, frankly as to how and where is that met merchandise that's flowed.

Stepping back for a moment, what we've achieved with the coaster IEC RTC, though.

Still is in process in terms of the work that needs to go into it to maximize that potential, but what we've achieved with that Costa Rica RTC is optionality for our company, which I think is very important not just from a financial standpoint, but from a supply chain standpoint from from a reliability standpoint, I mean dynamics are changing in the world. There is political unrest there's terrorists there's tax law changes.

Sherry Bahrambeygui: But what we've achieved with that Costa Rica RDC is optionality for our company, which I think is very important, not just from a financial standpoint, but from a supply chain standpoint, from a reliability standpoint. Dynamics are changing in the world. There's political unrest, there's tariffs, there's tax law changes. By having that additional flexibility and optionality for the company, I think it's responsible, and it's a smart business move on our part. Now it's up to us to make the most of it.

But what we've achieved with that Costa Rica RDC is optionality for our company, which I think is very important, not just from a financial standpoint, but from a supply chain standpoint, from a reliability standpoint. Dynamics are changing in the world. There's political unrest, there's tariffs, there's tax law changes. By having that additional flexibility and optionality for the company, I think it's responsible, and it's a smart business move on our part. Now it's up to us to make the most of it.

By having that additional.

Flexibility and Optionality for the company I think it's responsible and it's the smart business move on our part and now it's up to us to make the most of it.

Charlie Carter: Just one quick follow up. I know we're running out of time, but on the tariff issue, I mean, I guess, are you tariffed anything that's imported into Miami and then rerouted to your stores?

And just one quick follow up.

I know, we're running out of time, but on the on the tariff issue I mean, I guess are you are you tear up anything that imported in the Miami and then re routed.

To your stores.

We have a free trade zone there.

Sherry Bahrambeygui: We have a free trade zone there, but I can't. I can't. I can't tell you which.

But I can't.

I can't I can't tell you what to finish their solemnly. So there are some merchandise that we get from China and that gets that goes through free trade zones, and so that's not subject to terrorists, but there is other merchandise that we buy from us that is lie or is that in turn came from China that has been subject to tariffs and so it's that part of it that we're really focusing on addressing.

Maarten Jager: Well, so there's some merchandise that we get from China and that goes through free trade zones. And so that's not subject to tariffs, but there's other merchandise that we buy from US suppliers that in turn came from China that has been subject to tariffs. And so it's that part of it that we're really focusing on addressing.

But I guess.

Thomas Vester: Does that make sense?

Yes, it does but it but I guess im looking at it competitively so anybody that you're competing with.

Charlie Carter: Yeah, it does, but I guess I'm looking at it competitively. So anybody that you're competing with on the same product by product or SKU by SKU, they would be buying from the US as well. So it's not as if you would be disadvantaged by tariffs because you're sourcing.

On a same product by product or SKU by SKU, they would be buying from the U.S. as well. So it's not as if you would be disadvantaged by terrorists because you're.

Sourcing through the U.S. and in some ways.

Thomas Vester: Through the US in some ways, I think competitively.

Maarten Jager: I think competitively. That's right. But of course, with a lens on member value, we're looking for alternative ways of flowing that merchandise and trying to leverage our supply chain as effectively as possible, including the free trade zones that we have.

I think competitively that's right but of course with with with a lens on comes on member value. We are looking for alternative ways of flowing up merchandise and trying to trying to leverage our our supply chain as effectively as possible, including the free trade zones that we have and to the extent, we can source that merchandise.

Maarten Jager: That's right. But of course, with a lens on member value, we're looking for alternative ways of flowing that merchandise and trying to leverage our supply chain as effectively as possible, including the free trade zones that we have.

Sherry Bahrambeygui: Yeah. And to the extent we can source that merchandise and avoid the tariffs altogether, that obviously there's a bias in favor of doing that. And by having the Costa Rica RDC, that allows us to do that more effectively.

And avoid the tariffs altogether that obviously there is a bias in favour of doing that and by having that Costa Rica RDC that allows us to.

To do that more effectively.

Maarten Jager: Okay, thank you very much.

Charlie Carter: Okay, thank you very much.

Okay. Thank you very much.

Maarten Jager: Operator: I don't think there are any more questions in the queue.

Operator.

I don't think there are any more questions in the queue that is that is correct.

Ronald Bookbinder: That is correct.

Operator: That is correct.

Operator: This concludes the question and answer session. At this time, I would like to turn the conference back over to the management team for any closing remarks.

This concludes the question and answer session. At this time, I would like to turn the conference back over to the management team for any closing remarks.

This concludes the question and answer session. At this time I would like to turn the conference back over to the management team for any closing remarks.

I'd just like to say thank you all for your time. This morning, we're very excited about the prospects for US moving forward. We're all very committed to working hard on behalf of our members our employees and ultimately our shareholders have a good day.

Sherry Bahrambeygui: I'd just like to say thank you all for your time this morning. We're very excited about the prospects for us moving forward. We're all very committed to working hard on behalf of our members, our employees, and ultimately our shareholders. Have a good day.

Thank you.

Maarten Jager: Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Thomas Vester: Sa.

Sa.

Sherry Bahrambeygui: Sam.

Sam.

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