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PriceSmart's January Comps Hurt by Currency Fluctuations

Zacks Equity Research

PriceSmart, Inc.’s PSMT comparable net merchandise sales (comps) in January for the 40 warehouse clubs fell 1.4% during the four-week period (ended Jan 27, 2019). Although comps grew 0.4% in December 2018, it had decreased in November and October by 2.8% and 1.4%, respectively. Foreign currency exchange rate fluctuations adversely impacted comps by 3.9%.

Markedly, shares of the company decreased approximately 4% since the announcement of its monthly results on Feb 7. In the past six months, this San Diego, CA-based company has lost roughly 29%, underperforming its industry’s 2.3% decline.



Comps also declined 1.3% for the twenty-one-week period (ended Jan 27, 2019) compared with the twenty-one-week period in 2018. Foreign currency exchange rate fluctuations adversely impacted comps by 3%.

For January 2019, PriceSmart’s net merchandise sales increased 0.3% to $244.3 million from $243.6 million registered in the year-ago period. Net merchandise sales were adversely impacted by $9.6 million or 3.9% due to currency rate fluctuations. In the preceding month, the company posted net merchandise sales growth of 0.9%. However, the same for November and October 2018 decreased 1% and 0.8%, respectively.

Meanwhile, net merchandise sales improved 0.4% to $1,338.9 million for the fiscal year to date, which includes five months (ended Jan 31, 2019), from $1,333.1 million in the same period last year. Changes in currency exchange rate affected net merchandise sales by $40.4 million or 3%.

Bottom Line
 
Certainly, PriceSmart’s strategy to sell limited products at lower prices helped it to generate member loyalty and higher sales. Moreover, this operator of membership warehouse clubs’ healthy membership renewal rate reflects its strength. At the end of January 2019, this Zacks Rank #3 (Hold) company had 41 warehouse clubs under its operation.

However, the company has been battling cost-related hurdles, which lingered in the first quarter of fiscal 2019. During the first quarter, warehouse club and other operations expenses increased by 6.8% to $74.2 million, while general and administrative expenses jumped 45.2% to $27.3 million. Further, stiff competition and adverse currency impacts raise concerns.

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