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PriceSmart (PSMT) Falls Despite Q3 Earnings Beat: Here's Why

Zacks Equity Research

Shares of PriceSmart, Inc. PSMT fell roughly 9% during the after-market trading session on July 10. This was in spite of the company’s fourth straight quarter of positive earnings surprise during the third quarter of fiscal 2019.

Clearly, investors remain concerned about the company’s bottom-line performance that continued to decline year over year for the third quarter in row. Moreover, the top line fell short of the Zacks Consensus Estimate after surpassing the same in the preceding quarter. Meanwhile this operator of membership warehouse clubs continued to witness sluggish comparable net merchandise sales owing to foreign currency headwinds.

Cumulatively these may be cited as reasons behind the stock’s dismal run on the bourses. We note shares of this Zacks Rank #3 (Hold) have tumbled 13.9% in the past six months against the industry’s growth of 21.8%.

Q3 in Detail

PriceSmart reported quarterly earnings of 46 cents a share that fell sharply from 61 cents reported in the year-ago period. Adjusting for costs associated to investments to enhance omni-channel capabilities and net operating results of the Aeropost legacy business earnings came in at 55 cents, still down year over year. The Zacks Consensus Estimate for the quarter under review stood at 42 cents.

Total revenues inched up 0.8% to $788.6 million from $782.2 million in the prior-year quarter. However, the top line marginally came below the Zacks Consensus Estimate of $789.8 million.

PriceSmart, Inc. Price, Consensus and EPS Surprise


PriceSmart, Inc. Price, Consensus and EPS Surprise

PriceSmart, Inc. price-consensus-eps-surprise-chart | PriceSmart, Inc. Quote

Net merchandise sales rose 0.6% to $755 million, including adverse currency impacts of about 3.7%. While export sales plunged 16.9% to $8.3 million, membership income increased 2.2% to $13.1 million. Other revenues and income came in at $12.1 million compared with $8.9 million in the year-ago quarter.

Comparable net merchandise sales for the 40 warehouse clubs decreased 0.8%. The metric was adversely impacted by currency rate fluctuations to the tune of $27.5 million or 3.8%.

Operating income declined 22.6% to $22 million, while operating margin contracted 80 basis points to 2.8%. Operating margins were hurt by higher expenses. Warehouse club and other operations expenses came in at $78.2 million, up 2.6% from the year-ago quarter. General and administrative expenses increased 1.9% to roughly $24.5 million. Pre-opening expenses surged to $1.6 million from $352,000 in the year-ago quarter.

Other Financial Aspects

PriceSmart, which operates 43 warehouse clubs, ended the quarter with cash and cash equivalents of $106.4 million and long-term debt (including current portion) of $93 million. The company’s shareholders’ equity was $778.6 million, excluding non-controlling interests.

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Dollar General DG has an average positive earnings surprise of 1.6% in the trailing four quarters. It carries a Zacks Rank #2.

Target Corporation TGT has a long-term earnings growth rate of 7.1% and a Zacks Rank #2.

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