PriceSmart, Inc. is a leading international membership warehouse club operator, providing its members with high-quality merchandise and services at low prices. The company has established a strong presence in Central America, the Caribbean, and Colombia, operating 54 warehouse clubs as of May 31, 2024. PriceSmart's mission is to deliver an exceptional shopping experience to its members, while also generating consistent growth and value for its shareholders.

Financials

In the fiscal year ended August 31, 2023, PriceSmart reported annual revenue of $4,411,842,000 and net income of $109,205,000. The company's annual operating cash flow was $257,331,000, while its annual free cash flow reached $114,820,000. These robust financial results demonstrate PriceSmart's ability to generate sustainable growth and profitability.

For the third quarter of fiscal year 2024, which ended on May 31, 2024, the company reported impressive financial performance. Net merchandise sales increased by 11.6% to $1,194,531,000, compared to the same period in the prior year. Comparable net merchandise sales grew by 7.8%, or 5.6% on a constant currency basis. Membership income also increased by 15.2% to $19,279,000 during the quarter.

Gross margin as a percentage of net merchandise sales increased by 30 basis points to 15.6% in the third quarter, primarily due to general margin improvement across most sales categories. Total revenue margin also expanded by 30 basis points to 17.1% of total revenue. Operating income for the quarter increased by 15.9% to $49,909,000, reflecting the company's ability to drive operational efficiencies.

Geographic Breakdown

PriceSmart's operations are divided into four reportable segments: Central America, the Caribbean, Colombia, and the United States. In the third quarter of fiscal year 2024, the Central America segment contributed 61.1% of net merchandise sales, the Caribbean segment accounted for 27.5%, and the Colombia segment made up 11.4% of total net merchandise sales.

Central America, which had 30 warehouse clubs at the end of the quarter, saw net merchandise sales increase by 11.2%, or 8.9% on a constant currency basis. Comparable net merchandise sales in the region grew by 7.4%, or 5.2% in constant currency. The Caribbean segment, with 14 clubs, reported a 5.3% increase in net merchandise sales, or 8.3% in constant currency, and a 5.0% rise in comparable net merchandise sales, or 8.0% in constant currency. In Colombia, where the company operated 10 clubs, net merchandise sales surged by 33.9%, or 12.5% in constant currency, and comparable net merchandise sales jumped by 19.4%, or 0.5% in constant currency.

Revenue Breakdown and Trends

PriceSmart's revenue is primarily generated from net merchandise sales, which accounted for 97.1% of total revenue in the third quarter of fiscal year 2024. The company's other revenue streams include export sales, membership income, and other revenue and income.

When analyzing the performance of PriceSmart's merchandise categories, the company reported strong growth across most segments. In the third quarter, the foods category grew approximately 4%, the non-foods category increased by around 17%, the food services and bakery categories rose approximately 24%, and the health services, including optical, audiology, and pharmacy, surged approximately 43% compared to the same period in the prior year.

The increase in the health services category was driven by the continued expansion of PriceSmart's optical, audiology, and pharmacy services, which provide additional value-added offerings to its members. The company currently has 53 optical centers, pharmacy centers in all 8 of its Costa Rica clubs and 5 of its Panama clubs, and 27 audiology centers, with plans to open more in the coming year.

Membership Growth and Engagement

PriceSmart's membership base is a key driver of its success, as members provide a reliable and recurring revenue stream through their annual membership fees. As of May 31, 2024, the company had 1.87 million member accounts, representing a 4.8% increase compared to the prior year. The company's 12-month membership renewal rate was a strong 88.1% as of the end of the third quarter.

PriceSmart has also focused on growing its Platinum Membership program, which provides members with a 2% rebate on most items, up to an annual maximum of $500. At the end of the third quarter, Platinum Membership accounts represented 11.0% of the company's total membership base, up from 8.6% in the prior-year period. The Platinum Membership program helps to drive higher engagement and loyalty among PriceSmart's most valuable members.

Omnichannel Expansion and Digital Initiatives

PriceSmart is actively investing in its omnichannel capabilities to provide a seamless shopping experience for its members. In the third quarter of fiscal year 2024, the company's digital channels, including its website and mobile app, accounted for $65.9 million, or 5.5%, of total net merchandise sales, representing a 27% increase compared to the same period in the prior year.

The company recently began a country-by-country rollout of its new e-commerce website platform, which is designed to enhance the member experience by improving delivery options, inventory visibility, and product discovery. As of May 31, 2024, approximately 63% of PriceSmart's members had created an online profile, and 17.3% of the total membership base had made a purchase through the company's digital channels.

PriceSmart is also implementing the RELEX inventory management system, which is expected to improve sales and operational efficiencies by enhancing in-stock positions, reducing spoilage, and optimizing inventory flow. The company anticipates completing the RELEX implementation by the end of fiscal year 2025.

Expansion and Remodeling Initiatives

PriceSmart continues to invest in the growth and improvement of its physical footprint. During the first nine months of fiscal year 2024, the company opened three new warehouse clubs, bringing the total to 54 clubs as of May 31, 2024. The company plans to open its ninth warehouse club in Costa Rica, located in Cartago, in the spring of 2025, which will bring the total number of clubs to 55.

In addition to new club openings, PriceSmart is also remodeling several of its high-volume clubs, including locations in San Pedro Sula, Honduras; Santiago, Dominican Republic; and Port of Spain, Trinidad and Tobago. The company is also expanding its clubs in San Salvador, El Salvador; Liberia, Costa Rica; and Portmore, Jamaica. These remodeling and expansion projects are designed to enhance the member experience and improve operational efficiency.

PriceSmart has also been focused on strengthening its distribution infrastructure, including the use of third-party distribution centers in Guatemala, Honduras, Nicaragua, and El Salvador. These initiatives are expected to reduce delivery costs, shorten lead times, and improve working capital management.

Environmental, Social, and Governance (ESG) Initiatives

PriceSmart is committed to operating its business in a socially responsible and environmentally sustainable manner. In the third quarter of fiscal year 2024, the company released its comprehensive Environmental and Social Responsibility (ESR) report for the prior fiscal year, highlighting its efforts to incorporate sustainable practices and support the communities in which it operates.

One of the company's key ESG initiatives is its recycling program, which currently has seven centers open in El Salvador, Honduras, and Guatemala. These recycling centers collect an average of 30,000 pounds of material per month, with the Tegucigalpa locations collecting around 50,000 pounds per month. PriceSmart plans to expand this program by opening four additional recycling centers in the Dominican Republic during fiscal year 2025.

The company's philanthropic efforts, in partnership with the Price Philanthropies Foundation, include the Aprender y Crecer program, which provides school supplies to over 150,000 children and free eye exams and eyeglasses to thousands of children in the communities where PriceSmart operates.

Outlook

For the fourth quarter of fiscal year 2024, PriceSmart reported that its comparable net merchandise sales for the four weeks ended June 30, 2024 were up 6.4%, or 6.1% in constant currency. The company expects to end the fiscal year with an annualized effective tax rate of approximately 31% to 32%.

While the company did not provide specific guidance for the full fiscal year 2025, management expressed confidence in the company's ability to continue delivering strong financial and operational performance, driven by its focus on enhancing the member experience, expanding its physical and digital footprint, and investing in operational efficiencies.

Conclusion

PriceSmart's consistent financial performance, robust membership growth, and strategic initiatives position the company for continued success. The company's focus on providing exceptional value to its members, expanding its omnichannel capabilities, and investing in sustainable business practices underscores its commitment to long-term value creation for shareholders. With a strong balance sheet, ample liquidity, and a proven track record of growth, PriceSmart remains well-positioned to capitalize on the opportunities in its core markets and drive further shareholder value.