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PriceSmart (PSMT) Down 4.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Hilltop Holdings (HTH) delivered earnings and revenue surprises of 57.69% and 6.65%, respectively, for the quarter ended March 2019. Do the numbers hold clues to what lies ahead for the stock?

A month has gone by since the last earnings report for PriceSmart (PSMT). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PriceSmart due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

PriceSmart Q1 Earnings Beat, December Comps Robust

PriceSmart continued with its upbeat earnings performance in first-quarter fiscal 2019, delivering the second straight quarter of bottom-line beat. However, sales missed estimates. Concurrently, the company announced sales and comparable net merchandise sales (comps) results for the four weeks ended Dec 30, 2018.

Q1 in Detail

The company posted earnings of 69 cents a share, which outpaced the Zacks Consensus Estimate of 52 cents. However, the bottom line declined 6.8% year over year on cost related to the Aeropost acquisition and omni-channel development initiatives.

Including one-time items, earnings for the reported quarter were 48 cents, down 22.6% from the prior-year quarter.

Total sales grew 1.6% to $779.6 million from $767.1 million in the prior-year period. However, top-line missed the Zacks Consensus Estimate of $795 million.
 
Net merchandise sales rose 0.3% year over year to $747.4 million in the fiscal first quarter while export sales increased 0.5% to $8.2 million. Meanwhile, membership income climbed 2.9% to $12.7 million. Other revenues and income came in at $11.3 million compared with $1.1 million in the year-ago quarter.

Comps for the 40 warehouse clubs decreased 2.1% due to adverse currency fluctuations.

Operating income declined 25.6% to $24.7 million while operating margin contracted around 110 basis points to 3.2%. Operating margins were hurt by higher expenses. Warehouse club and other operations expenses came in at $74.2 million, up 6.8% from the year-ago quarter. General and administrative expenses increased 45.2% to $27.3 million.

As of November 2018, the company had 41 warehouse clubs in operation compared with 40 clubs in operation in November 2017.

December Sales & Comps

For four weeks (ended Dec 30, 2018), PriceSmart reported decent net merchandise sales, following a 1% decline in the preceding month. The company’s net merchandise sales in December increased about 0.9% to $347.1 million from $344.2 million a year ago. Certainly, the company’s strategy to sell limited products at lower prices has helped it to generate member loyalty and higher sales. Meanwhile, comps for the month increased 0.4%.

Other Financial Aspects

PriceSmart ended the fiscal first quarter with cash and cash equivalents of $81 million and long-term debt (including current portion) of $79.9 million. The company’s shareholders’ equity was $765.4 million, excluding non-controlling interests of $670,000.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, PriceSmart has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

PriceSmart has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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