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Why Is PriceSmart (PSMT) Down 8.8% Since Last Earnings Report?

Zacks Equity Research
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A month has gone by since the last earnings report for PriceSmart (PSMT). Shares have lost about 8.8% 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 drivers.

PriceSmart Q2 Earnings & Revenues Surpass Estimates

PriceSmart delivered second-quarter fiscal 2019 results, wherein adjusted earnings came in at 88 cents a share, which outpaced the Zacks Consensus Estimate of 56 cents. However, the bottom line slipped 1.1% from the adjusted earnings of 89 cents in the year-ago period. Including one-time items, earnings for the reported quarter were 79 cents, up 68.1% year over year.

Total revenues grew 1.8% to $854.4 million from $839.6 million in the prior-year quarter. Further, the top line surpassed the Zacks Consensus Estimate of $853 million.

Net merchandise sales rose 0.5% year over year to $820.3 million, including adverse currency impacts of about 3.6%. Meanwhile, export sales plunged 25.1% to $6.8 million, whereas membership income climbed 1.1% to $12.8 million. Other revenues and income came in at $14.5 million compared with $1.1 million in the year-ago quarter.

Comps dipped 0.9%, with currency fluctuations having a negative impact of 3.7%.

Operating income declined 2.1% to $36.5 million, while operating margin contracted marginally by 10 basis points to 4.3%. Operating margins were hurt by higher expenses. Warehouse club and other operations expenses came in at $75.7 million, up 5.2% from the year-ago quarter. General and administrative expenses increased 23.3% to roughly $25 million.

As of Feb 28, 2019, the company had 41 warehouse clubs in operation compared with 40 clubs in February 2018.

Other Financial Aspects

PriceSmart ended the quarter with cash and cash equivalents of $90.3 million and long-term debt (including current portion) of $26.2 million. The company’s shareholders’ equity was $773.2 million, excluding non-controlling interests.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, PriceSmart has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

PriceSmart has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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