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PriceSmart Misses Earnings in Q3; Comps Stay Soft

Zacks Equity Research

Retail warehouse stores operator, PriceSmart, Inc. (PSMT), reported another forgettable quarterly result. While the company missed the Zacks Consensus Estimate for revenues in the third quarter of fiscal 2014, it barely managed to meet the estimate for earnings. Comps were quite weak during the quarter.

Also, PriceSmart’s June comps, released concurrent with the third-quarter results, were the slowest so far this year. Share price of PriceSmart declined nearly 2% in response.

Quarter Details

PriceSmart is involved in the operation of membership shopping warehouses in international markets. It has stores in 12 countries in Latin America and the Caribbean. However, its corporate, U.S. buying operations and distribution centers are primarily located in the United States. It had 33 warehouse clubs in operation at the end of May 2014.

The Zacks Rank #4 (Sell) company reported adjusted earnings of 70 cents per share in the third quarter (ended May 31, 2014), in line with the Zacks Consensus Estimate. Earnings grew 14.8% from the prior-year quarter as slightly better margins offset the top-line weakness. Foreign exchange transaction gains and higher gains from the sale of assets aided earnings in the quarter.

The company reported total revenue of $615.0 million in the quarter, up 7.6% from the prior-year quarter. Revenues missed the Zacks Consensus Estimate of $626 million by almost 2%.

Net warehouse club sales increased 7.6% to $597.9 million in the quarter. Membership income increased 8.9% to $9.6 million in the reported quarter due to growth in membership accounts. Export sales grew 5.7% in the quarter to $6.6 million due to direct sales to a single institutional customer in the Philippines.

Comps grew 2.9% in the quarter, significantly slower than 6.7% and 7.9% in the first two quarters of the fiscal year.

Warehouse gross profit margin increased 34 basis points (bps) to 14.8% in the quarter due to higher merchandise margins. Operating income was $31.2 million, up 9.5% year over year. Operating margin increased 9 bps due to higher warehouse margins.

Jun 2014 Results

Net warehouse club sales for Jun 2014 grew 4.0% to $194.3 million.

Further, PriceSmart reported 1.0% growth in comps for 30 warehouse clubs for the four weeks ended Jun 29. June comps are lower than 2.3% and 4.6% reported in May and April, respectively.

In fact, comps have been soft in all the months so far this year – 1.0% in June, 2.3% in May, 4.6% in April, 1.9% in March, 5.3% in February and 8.4% in January. In fact, PriceSmart’s comps have been declining since Oct 2013 — from high teen/low double-digit comps in 2012 and high single-digit in 2013 — due to weak purchasing power of consumers, slower economic and retail activity in the countries where PriceSmart operates.

Other Stocks to Consider

Better-ranked stocks in the retail sector are Big Lots Inc. (BIG), Burlington Stores, Inc. (BURL) and Foot Locker, Inc. (FL). All the stocks sport a Zacks Rank #2 (Buy).

Read the Full Research Report on BIG
Read the Full Research Report on FL
Read the Full Research Report on PSMT
Read the Full Research Report on BURL

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