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PriceSmart's Comps Continue to Decline in July, Down 4.5%

Zacks Equity Research

PriceSmart, Inc.’s PSMT soft comparable net merchandise sales (comps) trend continued for the fourth straight month in July. Apparently, comps for the four weeks ended Jul 26, 2020, fell 4.5% for 42 warehouse clubs. Comps were hurt by foreign-currency fluctuations to the tune of $8.3 million or 3.6%. Prior to this, comps had fallen 4.9%, 6.7% and 19.2% in June, May and April, respectively. However, we note that the rate of decline has decelerated on a sequential basis.

Comps in July were negative across certain markets in Central America and Colombia, while the metric was positive in the Caribbean market. The company experienced weak comps mainly in Costa Rica, Panama and Guatemala due to the mounting coronavirus cases and related restrictions, in addition to the impact of sales being transferred to new clubs in Guatemala and Panama. The San Diego, CA-based company informed that roughly 100 club days were estimated to have been lost on account of closures last month, where in-club shopping was not allowed.

Nevertheless, management said that it has been seeing a sequential improvement in net merchandise sales for the third consecutive month in July despite COVID-19 limitations. These include temporary club closures, reduced operating hours or days in a week, restrictions on segments of the population allowed to shop on certain days, and limits on the number of people that can be in a club at a time. Notably, net merchandise sales during the month under review grew 2.2% to $261.4 million from $255.8 million in the year-ago period. However, currency-rate fluctuations negatively impacted the metric by $9.6 million or 3.7%. The metric had declined 1.5%, 1.9% and 10.9%, respectively, in the preceding months.

Impressively, management is committed toward enhancing its online capabilities and optimizing club experience. PriceSmart progresses well with technology-enabled shopping, with its 'Click & Go' contactless online ordering and curbside-pickup service being now available in all markets. The ‘Click & Go’ service also has a delivery option across four of its markets. The ‘Click & Go’ service, including curbside pickup and delivery, accounted for nearly 4% of overall net merchandise sales during the month under review.

For the fiscal year to date including 11 months ended Jul 31, 2020, net merchandise sales grew 3.5% to $2,929.4 million. The metric was hurt by foreign-currency fluctuations to the tune of $51.8 million or 1.8%. However, comps dipped 1.4% from the year-ago period for the 47-week period ended Jul 26. Foreign-currency fluctuations adversely impacted comps by $48.3 million or 1.7%.

Over the past three months, shares of this membership shopping warehouse club operator have increased 26.6% compared with the industry’s growth of 9.9%.

Key Picks in Retail

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Dollar General DG has a long-term earnings growth rate of 12.5% and a Zacks Rank #2 (Buy).

Dollar Tree DLTR, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 9.7%.

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