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PriceSmart February Comps Face Currency Fluctuation Headwind

Zacks Equity Research

PriceSmart, Inc.’s PSMT comparable warehouse sales (comps) in February — the five-week period (ended Mar 3, 2019) — for the 40 warehouse clubs fell 1.9%, following a 1.4% decline in January. Although comps grew 0.4% in December 2018, the metric decreased in November and October by 2.8% and 1.4%, respectively. Foreign currency exchange rate fluctuations adversely impacted comps by 3.8%.

We note that shares of the company decreased 1.4% during the trading session on Mar 7. In the past six months, this San Diego, CA-based company has lost approximately 30% compared with industry’s 5.4% decline.

Comps also declined 1.4% for the twenty-six-week period (ended Mar 3, 2019) compared with the twenty-six-week period in 2018. Foreign currency exchange rate fluctuations adversely impacted comps by 3.1%.

For February 2019, PriceSmart’s net merchandise sales almost remained almost flat at $228.8 million compared with the year-ago period number. Net merchandise sales were adversely impacted by $8.8 million or 3.8% due to currency rate fluctuations. In the preceding month, the company posted net merchandise sales growth of 0.3%, while for December 2018 the metric increased 0.9%. However, the same for November and October 2018 decreased 1% and 0.8%, respectively.

Net merchandise sales improved 0.4% to $1,567.6 million for the six months (ended Mar 3, 2019) from $1,562 million in the same period last year. Changes in the currency exchange rate hurt net merchandise sales by $49.2 million or 3.1%.

Wrapping Up

Certainly, PriceSmart’s strategy to sell limited products at lower prices helped it to generate member loyalty. Moreover, this operator of membership warehouse clubs’ healthy membership renewal rate reflects its strength. At the end of Feb 28, 2019, this Zacks Rank #3 (Hold) company had 41 warehouse clubs under its operation.

However, the company has been battling cost-related hurdles, which lingered in the first quarter of fiscal 2019. During the first quarter, warehouse club and other operations expenses increased by 6.8% to $74.2 million, while general and administrative expenses jumped 45.2% to $27.3 million. Further, stiff competition and adverse currency impacts raise concerns.

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