PriceSmart ramps up expansion plans
PriceSmart Inc (PSMT) is ramping up its regional growth plans following the purchase of a six-acre property in Cartago, Costa Rica, which will be the home of its 55th club in early 2025.
The international membership shopping business currently has eight locations in the Central American nation and has been increasing its presence in core Spanish-speaking markets over the last three years. Within the last year, it’s opened a location in Medellín, Colombia, and Escuintla, Guatemala, along with two new locations in El Salvador.
However, while PriceSmart has continued to seize the economic headwinds in Colombia, Costa Rica and Panama totalling 25 clubs, questions have been posed as to the wider long-term potential for other markets like Guatemala, El Salvador, and Jamaica which total 12 clubs.
“I think, without getting too specific, there continue to be opportunities in some of those countries. And we continue to identify the right properties to take advantage of those opportunities. I don’t want to be too specific. I think, I could say regarding Jamaica — or Jamaica, however you want to say it, that it’s been a good market for us, and we think there is additional opportunity there. And I’d say the same thing about Guatemala, and maybe El Salvador as well,” said co-founder, chairman and interim Chief Executive Officer (CEO) Robert Price in response to Scotiabank’s Hector Maya in the company’s earnings call on Wednesday.
PriceSmart opened its first store in Panama during 1996 and hit its 50th store in April 2022 with the opening of Portmore, Jamaica. PriceSmart has doubled the store profile of Guatemala to six since 2019 and doubled to four locations in El Salvador under the significant crime reduction of President Nayib Bukele.
PriceSmart currently has a Fresh Bakery at Bogue Road, Montego Bay, Jamaica. PriceSmart Realty (Jamaica) Limited had received approval from the National Environmental and Planning Agency (NEPA) in February 2020 for the construction of a commercial space at Catherine Hall, Montego Bay. Subsequently, it’s been reported by different sources that a property in Ironshore, Montego Bay, has been identified as the future home for PriceSmart’s third store in Jamaica. This is on top of the company planning to introduce additional audiology centres in Jamaica, Panama, and Trinidad & Tobago.
Price’s response comes against a query by Maya on Jamaica where minimum wages have become a heightened topic for internationally listed companies with a presence in Jamaica. Jamaica’s minimum wage has hiked from $7,000 per week in March 2022 to $15,000 per week on June 1. PriceSmart doesn’t disaggregate its Jamaican segment in its quarterly reports (10-Q) but does disclose any material developments such as changes in same store sales or record sales figures for the bakery.
While Price did not delve further into those three specific markets, he did highlight that the positive for the region comes from the fact that PriceSmart has adjusted its sourcing by moving more production out of Asia to the Latin America and Caribbean region. PriceSmart is currently remodelling its clubs in San Pedro Sula, Honduras; Santiago, Dominican Republic; and Port of Spain, Trinidad and Tobago, and expanding one of its San Salvador locations. PriceSmart is also planning to build a distribution centre in Trinidad & Tobago despite just planning to sell its sustainable packaging plant last year. This is on top of the recently leased distribution centre in Guatemala.
PriceSmart has been doling out it cash very aggressively in the last six months as its operational cash flow grew nine per cent to US$127.67 million. The company spent US$103.48 million in capital expenditure during the period with US$33 million related to the purchase of land and a building at its Via Brasil club in Panama, its highest grossing sales volume location in that country.
PriceSmart also completed its US$75 million or one million ordinary shares under its share repurchase program and paid out a US$0.58 dividend or US$17.77 million on February 29, a 26 per cent annual improvement. The other US$0.58 dividend will be paid out on August 31 for shareholders on record as of August 15.
Notwithstanding the continuing growth in earnings, PriceSmart declared a special dividend of US$1 or US$30.65 million on April 30 to shareholders on record as of April 19. PriceSmart’s cash and cash equivalents at the end of its second quarter (February 29) was US$170.56 million, of which US$63.8 million cannot be readily converted from the domestic Trinidad & Tobago dollar (TTD) nor Honduran lempira (HNL).
PriceSmart’s second quarter earnings saw revenue rise 13 per cent to US$1.29 billion as the company had 54 clubs in the current reporting period relative to the 50 clubs last year. Operating income also improved by 18 per cent to US$63.62 million, but the adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) was six per cent higher at US$84.13 million.
However, gross margins on net merchandise sales had a marginal contraction from 16 per cent to 15.7 per cent due to the removal of the COVID-premium from merchandise pricing and a reduction in liquidity premiums for items sold in Trinidad which has four clubs.
PriceSmart’s net profit came in 25 per cent higher at US$39.27 million with earnings per share (EPS) at US$1.31, just below analyst estimates of US$1.35.
PriceSmart’s half-year revenue is up 12 per cent to US$2.46 billion with operating income increasing 11 per cent to US$121.83 million. Net profit is up a fifth to US$77.32 million with the EPS at US$2.54.
PriceSmart’s total assets are up two per cent for the six months to US$2.04 billion with property, plant and equipment up to US$925.04 million. Total liabilities increased five per cent to US$942.90 million due to higher accounts payable for the period while shareholder’s equity decreased to US$1.09 billion.
While PriceSmart flew past US$88 in after hours on Tuesday, the warm CPI (Consumer Price Index) reading sent the market reeling along with PSMT’s stock price to a closing price of US$80.53, far from the new 52-week high of US$82.90 and intraday low of US$78.31 on Wednesday. PSMT was trading at US$79.80 on Thursday morning which leaves the stock up six per cent year to date with the Nasdaq listed company having a market capitalisation of US$2.44 billion.
“I think we’re in a pretty good place in Colombia. Unfortunately, it’s still challenging to find locations in the big cities, Medellín, and Bogota, and we continue to work on that because we think there’s more opportunity. But I feel pretty good about Colombia. I think we’ve got a good management team there; we have good buying there and things are really improving,” Price added on further prospects in the South American country.