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PriceSmart Gets Busy Growing in the Second Quarter

Demitrios Kalogeropoulos, The Motley Fool

Heading into the company's earnings report this week, PriceSmart (NASDAQ: PSMT) investors were optimistic that the warehouse chain would benefit from improving selling conditions in Colombia and a few of its Caribbean markets. The retailer didn't disappoint, as its overall sales growth sped up to its fastest pace in more than a year. That success helped ease the sting from tax charges and rising expenses that took a big bite out of profits.

Here's how the headline results stacked up against the prior-year period:

 Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$840 million

$793 million

6%

Net income

$14.1 million

$27.2 million

(48%)

Earnings per share

$0.47

$0.90

(48%)

Data source: PriceSmart.

What happened this quarter?

PriceSmart enjoyed double-digit growth in the Colombian market along with healthy gains in the core Caribbean territory. Membership income improved at a robust pace thanks to pricing gains across its markets.

A customer browses the aisles at a warehouse retailer.

Image source: Getty Images.

Highlights of the period include:

  • Comparable-store sales jumped 4.1%, up from the 2% rate they had been stuck at for the past year. Colombia expanded 12%, and the Caribbean segment rose 7.2% thanks to improving selling conditions, especially in Trinidad, Dominican Republic, and the U.S. Virgin Islands. Overall, PriceSmart managed 5% higher traffic and a less than 1% uptick in average spending per visit.
  • Membership income shot up by 7.4%, aided by a big increase in fees in the Colombian market and more modest boosts in its other territories.
  • Expenses rose slightly faster than revenue, leading to lower profitability. PriceSmart blamed a write-off for an e-commerce platform for the drop in operating margin to 4.4% of sales from 5.1% a year ago.
  • Tax law changes spurred a one-time bump in tax liabilities that reduced earnings by $13 million, or $0.42 per share.
  • The retailer had 40 warehouses in operation, up from 39 a year ago.

What management had to say

In its quarterly filing, PriceSmart executives highlighted improving selling conditions in many of its biggest markets. Trinidad returned to positive comps, they said, which was "a marked improvement from the flat or negative sales growth experienced in each of the five previous quarters." Colombia's 12% comps spike, meanwhile, was mainly the result of increased customer traffic.

Management also noted a few factors that pushed membership income higher during the quarter. "We increased the annual membership fee in Colombia by 15.4%," executives said. "In addition, we introduced the Platinum membership [offering] in Panama and Dominican Republic, which contributed to an increase in the membership income per average membership account by 3.8%."

Looking forward

The retailer's sales momentum is holding up through the first few weeks of the fiscal third quarter. Sales in March were up 3.5%, the company said, to mark just a slight decrease from February's 4.4% boost.

Separately, PriceSmart announced that Maarten Jager will take over as chief financial officer from John Heffner, who had previously announced plans to retire. Jager will be leaving his post at Walmart's international division -- where he likely accumulated plenty of experience that will apply to his new role as CFO. He can expect to work closely with CEO Jose Luis Laparte as PriceSmart looks to expand its membership base over the next few years while using the newly acquired Aeropost business to boost e-commerce sales.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends PriceSmart. The Motley Fool has a disclosure policy.