Bear of the Day: PriceSmart (PSMT)

Zacks

PriceSmart Inc. (PSMT) recently reported fiscal third quarter results where sales were less than inspiring. As a result, analysts have slashed earnings estimates on this Zacks Rank #5 (Strong Sell).

PriceSmart is considered to be the 'Costco of Latin America' as it operates similar membership based warehouse clubs. Headquartered in San Diego, the company now dominates the Latin American market with 33 clubs in 12 countries and one U.S. territory. Costa Rica is its largest market with 6 clubs. It has recently been expanding in Colombia, where it now has 3 clubs.

Sales Comps Disappoint

On July 10, PriceSmart reported fiscal third quarter results and met the Zacks Consensus of 70 cents. The meet wasn't the big story though. It's all about the comps.

On May 7, PriceSmart had reported both March and April comps which were a combined 7.4%, which was a sharp decline from the mid-teens seen in previous months and quarters. Obviously, down in the Caribbean and Latin America, you can't blame polar vortexes for the sales.

It saw strength in Colombia, Panama and Aruba but El Salvador and Jamaica were weak.

Where's the World Cup Bounce?

Last week, PriceSmart released June comparable sales numbers of a gain of just 1%. This is the lowest since December 2009 which was when the global economy was struggling, and was well under analyst forecasts.

Analysts had expected sales to at least temporarily bounce in June and July due to the World Cup. Usually, consumers would be shopping to stock up on party goods ahead of this popular sporting event. But the June comps show that didn't happen.

This is rapidly slowing growth and there is no indication of what, if anything, will cure this slowdown.

2014 and 2015 Estimates Cut

The analysts are cautious about the next several quarters. 3 estimates were cut for Fiscal 2014 in the last week sending the Zacks Consensus down to $3.09 from $3.14.

That is earnings growth of 11.2%.

3 estimates were also lowered for fiscal 2015, with the Zacks Consensus dropping 16 cents to $3.42. That's still earnings growth of 10.6%, however.

Shares Take a Tumble

After the weak earnings report, shares dropped near a 1-year low.

But investors aren't getting much of a deal at these levels. PriceSmart still has a forward P/E of 26.9. It has always been an expensive stock but in prior years, investors were paying a premium for strong growth.

The big box retailers are having a tough time of it right now. Only two of PriceSmart's peers are Zacks Rank Buys.

Even Costco (COST) is a Zacks Rank #3 (Hold). It too is struggling to find earnings growth in Fiscal 2014 with analysts expecting just 2% but a recovery in fiscal 2015 of 12%.

[The author of this article owns shares of PSMT.]

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.


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