This Quarterly Report on Form 10-Q contains forward-looking statements concerning
PriceSmart, Inc.'s("PriceSmart", the "Company" or "we") anticipated future revenues and earnings, adequacy of future cash flows, omni-channel initiatives, proposed warehouse club openings, the Company's performance relative to competitors and related matters. These forward-looking statements include, but are not limited to, statements containing the words "expect," "believe," "will," "may," "should," "project," "estimate," "anticipated," "scheduled," "intend," and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, but not limited to: various political, economic and compliance risks associated with our international operations, adverse changes in economic conditions in our markets, natural disasters, volatility in currency exchange rates and illiquidity of certain local currencies in our markets, competition, consumer and small business spending patterns, political instability, increased costs associated with the integration of online commerce with our traditional business, whether the Company can successfully execute strategic initiatives, our reliance on third party service providers, including those who support transaction and payment processing, data security and other technology services, cybersecurity breaches that could cause disruptions in our systems or jeopardize the security of Member or business information, cost increases from product and service providers, interruption of supply chains, novel coronavirus (COVID-19) related factors and challenges, exposure to product liability claims and product recalls, recoverability of moneys owed to PriceSmartfrom governments, and other important factors discussed under the captions "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021filed with the United States Securities and Exchange Commission("SEC") on October 21, 2021. These risk factors may be updated from time to time in our other filings with the SEC, which are accessible on the SEC'swebsite at www.sec.gov. Forward-looking statements speak only as of the date that they are made, and the Company does not undertake to update them, except as required by law. In addition, these risks are not the only risks that the Company faces. The Company could also be affected by additional factors that apply to all companies operating globally and in the U.S., as well as other risks that are not presently known to the Company or that the Company currently considers to be immaterial. Overview
PriceSmartbegan operations in 1996 in San Diego, California, with the intent to bring our U.S.style membership shopping warehouse club concept to emerging and developing countries. We currently operate 50 warehouse clubs in Central America, the Caribbeanand Colombia. In all 13 markets, our Members are able to engage with us on social media and shop on our e-commerce platform, PriceSmart.com. Member experience is our top priority. We rigorously limit the number of SKU's in order to drive volume and leverage purchasing power for the benefit of our Members. Our curated selection offers a combination of specialty items that are imported and/or unique to our markets, locally and regionally sourced goods, essential goods, direct-from-farm fresh produce and private label consumer products under the brand "Member's Selection®". Our Member's Selection® offering allows us to maintain key quality items at lower prices and provides the opportunity to reduce supply chain risks. We also offer prepared foods and fresh-baked goods. Most merchandise is available for online ordering through PriceSmart.com and for delivery or contactless curbside pickup through our Click & Go™ service. We also offer well-being services such as Optical, Pharmacy and Audiology. Our clubs typically feature food courts and tire centers and services. We are also a significant provider of goods to small businesses in our markets that benefit from larger pack sizes and low pricing. We strive to continually enhance the value of our membership such that the value of the goods and services purchased and received by the Member far exceeds the cost of the membership. Our warehouse clubs range in sales floor size from approximately 30,000 to 60,000 square feet. Our larger clubs are typically located in and around densely populated major cities that include a large penetration of consumers with significant disposable income. Our smaller clubs tend to be in areas with less population density, but where there are significant opportunities to serve the population and supply and support businesses. We also have smaller format clubs in urban areas where it is difficult to secure sufficient real estate at a reasonable cost. 31
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We strategically invest in technology to improve member experience and convenience. We believe that technology allows us to access valuable data that supports our ability to increase efficiency and gain valuable insights about our members. We now offer digital membership and auto-renewal for the convenience of our members.
Our logistics and distribution infrastructure is key to maximizing efficiencies. We revise and upgrade our logistics and distribution systems to capture efficiencies as our business grows in sales volume, in geography and through activity generated by e-commerce. We utilize regional distribution centers in the
U.S.and Costa Ricaas well as several local distribution centers to distribute merchandise efficiently and to create flexibility to mitigate the risk of supply-chain disruption. We also seek to capture efficiencies by using specialized distribution centers for produce and centralized production for categories such as bakery and meat processing. Purchasing land and constructing warehouse clubs is generally our largest ongoing capital investment. Securing land for warehouse club locations is challenging in several of our markets because suitable sites at economically feasible prices are difficult to find. Ownership of our real estate in many of our markets provides several advantages, including lower operating expenses, flexibility to expand or otherwise enhance our buildings, long-term control over the use of the property and potential increase of value in future years. Although we prefer to own real estate, we sometimes lease our real estate when leasing provides the best available opportunity. Our warehouse clubs currently operate in emerging markets that historically have had higher growth rates and lower warehouse club market penetration than the U.S. market. In locations where we operate, we do not currently face direct competition from U.S.membership warehouse club operators. However, we do face competition from various local and international retail formats such as hypermarkets, supermarkets, cash and carry, hard discounters, home improvement centers, electronic retailers, specialty stores, convenience stores, traditional wholesale distribution and online sales. The number of warehouse clubs for each country or territory were as follows: Number of Number of Warehouse Clubs Warehouse Clubsin Operation as of in Operation as of
Country/Territory May 31, 2022 May 31, 2021 Colombia 9 8 Costa Rica 8 8 Panama 7 7 Dominican Republic 5 5 Guatemala 5 4 Trinidad 4 4 Honduras 3 3 El Salvador 2 2 Nicaragua 2 2 Jamaica 2 1 Aruba 1 1 Barbados 1 1 U.S. Virgin Islands 1 1 Totals 50 47 Our warehouse clubs, one regional distribution center and several smaller local distribution centers are located in
Latin Americaand the Caribbean, and our corporate headquarters, U.S.buying operations and our larger regional distribution center are located primarily in the United States. Our operating segments are the United States, Central America, the Caribbeanand Colombia. We are currently constructing a smaller format warehouse club in the Hacienda San Andrés area of San Miguel, El Salvador, approximately 100 miles east of the capital city San Salvador, which is anticipated to open in the spring of 2023. It will be our third club in El Salvador. In addition, we are proceeding with the construction of a smaller format warehouse club in the affluent El Poblado area of Medellín, Colombia. We expect to open this warehouse club, which will be our second club in Medellín and the Company's tenth warehouse club in Colombia, in the summer of 2023. Once these two new clubs are open, we will operate 52 warehouse clubs. 32
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We also export products to retailer in
Factors affecting our business
The COVID-19 pandemic has challenged us in many respects and continues to do so. COVID-related and other supply and logistics constraints have continued to adversely affect some merchandise categories and are expected to do so for the foreseeable future. The pandemic continues to remain unpredictable in duration and intensity, and we could see periodic reinstatements of stay-at-home orders and other restrictions should infections increase significantly. In addition, we are seeing adverse impacts on our suppliers in the Far East and at various ports, causing delays and changes in transportation schedules. We expect continued uncertainty in the supply chain and economies of our markets as a result of the pandemic and anticipate volatility in employment trends, consumer confidence and demand; shifts in consumer demands; volatility and liquidity of foreign currency exchange rates; volatility of commodity prices; and possible fiscal austerity measures taken by governments in our markets, which will likely impact our results for the foreseeable future. For additional information, refer to the risk factors discussed in Part I. "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended
August 31, 2021. However, COVID has also presented us opportunities to improve how we do business, how we serve our Members and how we treat our employees. COVID: ?Increased our focus on expanding local sourcing and near-shoring of goods that we offer, ?Expedited our efforts to engage with Members online, including the launch of PriceSmart.com, and ?Highlighted the importance of employee well-being and accelerated our decision to ensure health coverage for all employees in our Company. We also are establishing flexible schedules and hybrid work environments for office employees in order to maximize efficiencies and provide opportunity for balance in our employees' lives.
Global economic trends, exchange rate volatility and other factors affecting the business
Our sales and profits vary from market to market depending on general economic factors, including GDP growth; consumer preferences; foreign currency exchange rates; political policies and social conditions; local demographic characteristics (such as population growth); the number of years we have operated in a particular market; and the level of retail and wholesale competition in that market. The economies of many of our markets are dependent on foreign trade, tourism, and foreign direct investments. Global and local travel restrictions and a general slow-down in global economic activity as a result of COVID-19 have significantly impacted and may continue to impact the economies in several of our markets and could cause significant declines in GDP and employment and devaluations of local currencies against the
U.S.dollar. The current environment that we are operating in is characterized by global supply chain disruption, high fuel and freight costs, inflation, significant foreign currency devaluations and less predictable consumer behavior and purchasing patterns due, in part, to COVID's impact on consumer lifestyles. These factors have increased the complexity of managing our inventory flow and business. During the last half of fiscal year 2021 and persisting into fiscal 2022, we saw several factors pressuring supply chains, including raw material shortages, limited manufacturer capacity, factory labor shortages, container shortages, port delays, and truck and driver shortages. These disruptions and shortages continue to impact the timing of deliveries and are leading to higher freight and merchandise costs. Despite all these issues, we continued to see strong sales during the quarter. We are working to hold down and/or mitigate the price increases passed on to the Members while maintaining the right inventory mix to grow sales. One key mitigating factor has been our expanded network of distribution centers, which has facilitated alternative routings of shipments, increased throughput, and provided flexibility to more effectively mitigate these challenges. We made strategic investments in inventory based on anticipated demand and worked with our local vendors to source alternative products in order to reduce out-of-stocks on high demand items that were impacted by these disruptions or that were affected by electronic part shortages. However, rapidly changing consumer preferences, long lead times, and supply chain disruptions led to inventory build up in some of the discretionary non-foods categories in our hardlines segment. We took significantly higher than usual markdowns in the third quarter in these categories to sell through out-of-season merchandise. We are planning to reduce our days on hand of inventory to better adapt to and meet the changing demands of our Members. We expect to face some margin pressure in the fourth quarter of fiscal 2022, but significantly less than the third fiscal quarter, as we continue to right-size our inventory and rebalance our inventory mix. 33 --------------------------------------------------------------------------------
Table of Contents Currency fluctuations can be one of the largest variables affecting our overall sales and profit performance, as we have experienced in prior fiscal years, because many of our markets are susceptible to foreign currency exchange rate volatility. During the first nine months of fiscal year 2022 and 2021, approximately 78.0% and 77.8%, respectively, of our net merchandise sales were in currencies other than the
U.S.dollar. Of those sales, 48.7% and 48.1% consisted of sales of products we purchased in U.S.dollars for each period, respectively. A devaluation of local currency reduces the value of sales and membership income that is generated in that country when translated into U.S.dollars for our consolidated results. In addition, when local currency experiences devaluation, we may elect to increase the local currency price of imported merchandise to maintain our target margins, which could impact demand for the merchandise affected by the price increase. We may also modify the mix of imported versus local merchandise and/or the source of imported merchandise in an effort to mitigate the impact of currency fluctuations. Information about the effect of local currency devaluations is discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Net MerchandiseSales and Comparable Sales." Our capture of total retail and wholesale sales can vary from market to market due to competition and the availability of other shopping options for our Members. Demographic characteristics within each of our markets can affect both the overall level of sales and future sales growth opportunities. Certain island markets, such as Aruba, Barbadosand the U.S. Virgin Islandsoffer us limited upside for sales growth given their overall market size. Political and other factors in each of our markets may have significant effects on our business. For example, the civil unrest in Colombiaparalyzed significant portions of the country's infrastructure as roadblocks and riots disrupted normal economic activity during the third quarter of fiscal 2021. Austerity and tax reform measures for Colombiaand other Latin American countries with high national debt levels and income disparity pose a risk for political instability. Similar unrest happened in Nicaraguaand Hondurasin 2018 and 2019, respectively; Costa Ricaalso had a general strike against tax reform measures that significantly impeded regular economic activity in 2018. Events of this sort have, and may continue to have, an adverse effect on our business. Our operations are subject to volatile weather conditions and natural disasters. In November 2020, Hurricanes Eta and Iota brought severe rainfall, winds, and flooding to a significant portion of Central America, especially Honduras, that caused significant damage to parts of that country's infrastructure. Although our warehouse clubs were not significantly affected and we were able to manage our supply chain to keep our warehouse clubs stocked with merchandise, these natural disasters could adversely impact our overall sales, costs and profit performance in the future. Periodically, we experience a lack of availability of U.S.dollars in certain markets ( U.S.dollar illiquidity), particularly in Trinidad. This can and has impeded our ability to convert local currencies obtained through merchandise sales into U.S.dollars to settle the U.S.dollar liabilities associated with our imported products and to otherwise redeploy these funds in our Company. This illiquidity also increases our foreign exchange exposure to any devaluation of the local currency relative to the U.S.dollar. During fiscal year 2021, we experienced significant limitations on our ability to convert Trinidaddollars to U.S.dollars or other tradeable currencies. As of May 31, 2022, our Trinidadsubsidiary had Trinidaddollar denominated cash and cash equivalents and short and long-term investments measured in U.S.dollars of approximately $28.8 million, a decrease of $24.1 millionfrom August 31, 2021when these same balances were approximately $52.9 millionand a decrease of $71.7 millionfrom the peak of $100.5 millionas of November 30, 2020. The Trinidadcentral bank manages the exchange rate of the Trinidaddollar with the U.S.dollar. While the Trinidadgovernment has publicly stated it has no intention to devalue the Trinidaddollar, it could in the future decide to devalue the currency to improve market liquidity, resulting in a devaluation in the U.S.dollar value of these cash and investments balances. 34 --------------------------------------------------------------------------------
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March 2022the International Monetary Fundupdated prior calculations and estimated that the Trinidaddollar was over-valued between approximately 11.6% and 20.4%. If, for example, a hypothetical 20% devaluation of the Trinidaddollar were to occur, the value of our Trinidaddollar cash and investments position, measured in U.S.dollars, would decrease by approximately $5.8 million, with a corresponding increase in Accumulated other comprehensive loss reflected on our consolidated balance sheet. Separate from the Trinidaddollar denominated cash and investments balances described above, as of May 31, 2022, we had a U.S.dollar denominated monetary asset position of approximately $70.5 millionin Trinidad(net of U.S.dollar denominated liabilities), which would produce a gain from a potential devaluation of Trinidaddollars. If, for example, a hypothetical 20% devaluation of the Trinidaddollar occurred, the net effect on Other income (expense), net on our consolidated statement of operations of revaluing these U.S.dollar denominated net monetary assets would be an approximate $14.1 milliongain. While we may pay premiums or enter into financial transactions at a discount from the official government rate to convert our Trinidaddollars into U.S.dollars, we use the official exchange rate published by the Central Bank of Trinidad and Tobagoto measure the U.S.dollar equivalent of Trinidaddollar-based revenues, expenses, assets and liabilities and the Trinidaddollar equivalent of U.S.dollar-based monetary assets and liabilities for financial reporting purposes, as there are no other reliable references available to translate or remeasure our revenues, expenses, assets and liabilities. While our balance of Trinidaddollars has been reduced significantly so far in fiscal 2022, we have not yet converted all of our Trinidaddollars into U.S.dollars. In response to these liquidity challenges in Trinidad, we have been taking multiple actions, including but not limited to: raising sales prices on imported goods in Trinidaddue to increased costs of conversion of Trinidaddollars to U.S.dollars and risks associated with continued illiquidity, shifting to local sources of goods where appropriate, and entering into financing arrangements such as the loan we obtained in December 2021whereby we received $25 millionin U.S.dollars and will repay the balance in Trinidaddollars (using a conversion rate fixed upon initial disbursement) over the four-year life of the loan. Additionally, we significantly limited shipments of goods from the U.S.to Trinidadduring most of fiscal 2021 due to the illiquidity of the Trinidaddollar and further reduced our shipments in the last quarter of fiscal 2021 because of the government-imposed restrictions on sales of non-essential items during that period driven by the pandemic. Although most local restrictions have been lifted and liquidity of the Trinidaddollar has improved in fiscal 2022, we continue to manage to a target level of imports in Trinidad. So far in fiscal 2022, these self-imposed import limitations have been generally in line with the needs of the market from a demand perspective.
Mission and corporate strategy
PriceSmartexists to improve the lives and businesses of our Members, our employees, and our communities through the responsible delivery of the best quality goods and services at the lowest possible prices. Our mission is to serve as a model company, which operates profitably and provides a good return to our investors by providing Members in emerging and developing markets with exciting, high-quality merchandise sourced from around the world and valuable services at compelling prices in safe U.S.-style clubs and through PriceSmart.com. We prioritize the well-being and safety of our Members and employees. We provide good jobs, fair wages and benefits, and the opportunity for growth. We strive to treat our suppliers right and empower them when we can. We conduct ourselves in a socially responsible manner as we endeavor to improve the quality of the lives of our Members, their businesses and their communities, while respecting the environment and the laws of all the countries in which we operate. The annual membership fee enables us to operate our business with lower margins than traditional retail stores. As we invest to increase our technological capabilities, we are increasing our tools to drive sales and operational efficiencies. We believe we are well positioned to blend the excitement and appeal of our brick-and-mortar business with the convenience and additional benefits of online shopping and services, and meanwhile, enhance Member experience and engagement.
Looking to the future, our business is focused on three main growth drivers:
? Expand Real Estate Footprint with
New Clubsand Distribution Facilities ?Increase Membership Value ?Drive Incremental Sales via PriceSmart.com and Enhanced Online, Digital and Technological Capabilities 35
Table of Contents I.Expand Real Estate Footprint with
New Clubsand Distribution Facilities. We continue to seek opportunities to expand our geographic footprint for brick-and-mortar warehouse clubs. We plan to open a warehouse club in El Salvadorlocated in the city of San Miguelin the spring of 2023 and another club in Medellín, Colombiain the summer of 2023. We continue to actively pursue club growth in our markets and to evaluate opportunities in new markets. Our growth strategy, as it pertains to real estate, includes physical distribution centers of various types to support the flow of merchandise from the supplier to the Member, be it sales generated from the clubs or through PriceSmart.com. Also, the need for optionality in today's world has proven essential. Therefore, we plan to make appropriate investments in our distribution network to maximize efficiencies, minimize supply chain disruption, maximize the efficient use of limited space in our warehouse clubs, and to provide optimal support for a growing e-commerce business. In addition to our distribution center in Miami, Florida, we also operate a regional distribution center in Costa Ricaand are actively considering others. During fiscal 2022 we doubled our network of Produce Distribution Centers from two to four and are currently developing plans for two more. In some cases, these facilities also provide the opportunity to capture efficiencies by centralizing certain production activities, such as bakery, meat processing, packaging and labeling. II.Increase Membership Value. We are seeking to attract more Members and retain our current Members by expanding the benefits of being a Member of PriceSmart, whether through sales, services and/or convenience. As benefits grow and the value of being a PriceSmart Member increases, adjustments to the membership fee may be warranted. A larger membership base and higher membership fee contribute to the bottom line of the business. We focus on growth of our membership base, Member renewal rates and spend per Member as part of how we determine how Members see our value. By adding more benefits that Members can only obtain with us, we expect to see growth in the number of Members, which drives Membership income and Merchandise sales. Recent examples of enhancements we have made to the value of membership include: additional services such as the ability for all of our Members to transact on PriceSmart.com; Click & Go™ curbside pickup and delivery service in all of our clubs; and the implementation and expansion of our Well-being initiative, which offers Optical services with free eye exams for the Member and additional members of their families and deeply discounted eyeglass frames; Audiology services with free hearing exams and deeply discounted hearing aids; and Pharmacy, which provides a significant convenience to our Members. Another way we enhance Membership value is through our private label offering, "Member's Selection®," a brand which is available only to PriceSmart Members. We believe the Member's Selection® brand carries goodwill, and is recognized in our markets for value. Private label also provides us the opportunity to source quality items locally when appropriate. Select local sourcing has multiple benefits including support of local communities in which we operate by developing industry and creating direct and indirect jobs, mitigation of foreign currency exchange risk, and reduced supply chain exposure. These initiatives offer additional benefits and services for our Members whether they choose to shop on-line, in-club, or both. During the first nine months of fiscal 2022, our private label sales represented 24.2% of total merchandise sales, up from 21.7% for fiscal year 2021, and we plan to continue to invest in the development of additional private label products under the "Member's Selection®" brand. III.Drive Incremental sales via PriceSmart.com and Enhanced Online, Digital and Technological Capabilities. We recognize the growing expectation of consumers in our markets for convenience. As a result, we continue to improve the functionality of PriceSmart.com and to expand our product offerings available online. We also build and apply technological tools to continue to learn more about and strengthen our relationships with each of our Members. Using data analytics, we have been able to provide our Members with enhancements to the membership experience. PriceSmart.com and these tools provide the opportunity for us to continually strengthen and expand the scope of our relationship with each Member and offer incremental products and services in the future. Our PriceSmart.com offering provides data that informs us regarding the potential viability of new clubs in new areas and offers us options to serve and expand into new markets without the need for a traditional brick & mortar club location. We also invest in technology to capture operational efficiencies and enhance our decision-making for the increasingly dynamic environment we are in. 36
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Financial highlights for the third quarter of fiscal 2022 included:
“Total revenue increased by 15.1% compared to the comparable period of the previous year.
?Net merchandise sales increased 16.5% over the comparable prior year period. We ended the quarter with 50 warehouse clubs compared to 47 warehouse clubs at the end of the third quarter of fiscal 2021. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.3% versus the comparable three-month period. ?Comparable net merchandise sales (that is, sales in the 47 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 13 weeks ended
May 29, 2022increased 12.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.2%.
? Membership revenue for the third quarter of fiscal 2022 increased 7.8% to
?Total gross margins (net merchandise sales less associated cost of goods sold) increased 4.0% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 14.2%, a decrease of 170 basis points (1.7%) from the same period in the prior year.
?Operating profit for the third quarter of fiscal 2022 was
?We recorded a
$2.5 millionnet currency loss from currency transactions in the third quarter of fiscal 2022 compared to a $2.2 millionnet currency loss in the same period last year. ?Our effective tax rate increased in the third quarter of fiscal 2022 to 33.7% from 30.9% in the third quarter of fiscal 2021, primarily related to changes in uncertain tax positions and changes in foreign currency value and related adjustments. ?Net income attributable to PriceSmartfor the third quarter of fiscal 2022 was $19.3 million, or $0.62per diluted share, compared to $22.5 million, or $0.73per diluted share, in the third quarter of fiscal 2021.
Financial Highlights for the Nine Months Ended
“Total revenue increased by 12.3% compared to the comparable period of the previous year.
?Net merchandise sales increased 13.9% over the comparable prior year period. We ended the first nine months of fiscal 2022 with 50 warehouse clubs compared to 47 warehouse clubs at the end of the third quarter of fiscal 2021. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.1% versus the comparable nine-month period. ?Comparable net merchandise sales (that is, sales in the 47 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 39 weeks ended
May 29, 2022increased 10.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.0%.
?Member revenue increased by 9.4% for
?Total gross margins (net merchandise sales less associated cost of goods sold) increased 8.8% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.3%, a decrease of 70 basis points (0.7%) from the same period in the prior year.
?The operating result was
?We recorded a
$6.1 millionnet currency loss from currency transactions in the current nine-month period compared to a $4.0 millionnet currency loss in the same period last year.
“Our effective tax rates for the first nine months of fiscal 2022 and 2021 were similar at 32.8% and 32.7%, respectively.
?Net income attributable to
PriceSmartfor the first nine months of fiscal 2022 was $81.2 million, or $2.63per diluted share, compared to $78.5 million, or $2.55per diluted share, in the comparable prior year period.
COMPARISON OF THE THREE AND NINE MONTHS ENDED
The following discussion and analysis compares the results of operations for the three-month and nine-month periods ended on
May 31, 2022with the three-month and nine month-periods ended on May 31, 2021and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. Unless otherwise noted, all tables on the following pages present U.S.dollar amounts in thousands. Certain percentages presented are calculated using actual results prior to rounding. 37
Table of Contents Net Merchandise Sales The following tables indicate the net merchandise club sales in the segments in which we operate and the percentage growth in net merchandise sales by segment during the three and nine months ended
May 31, 2022and May 31, 2021. Three Months Ended May 31, 2022 May 31, 2021 Increase % of net ?from % of net Amount ?sales ?prior year Change Amount ?sales Central America $ 587,61658.8 % $ 66,26112.7 % $ 521,35560.8 % Caribbean 290,441 29.1 51,118 21.4 239,323 27.9 Colombia 120,954 12.1 24,154 25.0 96,800 11.3 Net merchandise sales $ 999,011100.0 % $ 141,53316.5 % $ 857,478100.0 % Nine Months Ended May 31, 2022 May 31, 2021 Increase % of net ?from % of net Amount ?sales ?prior year Change Amount ?sales Central America $ 1,751,24859.3 % $ 214,02013.9 % $ 1,537,22859.3 % Caribbean 848,206 28.7 98,149 13.1 750,057 28.9 Colombia 355,496 12.0 48,530 15.8 306,966 11.8 Net merchandise sales $ 2,954,950100.0 % $ 360,69913.9 % $ 2,594,251100.0 %
Comparison of the three and nine month periods ended
Overall, total net merchandise sales grew 16.5% for the third quarter and 13.9% for the nine-month period ended
May 31, 2022. The third quarter increase resulted from a 10.8% increase in transactions and a 5.2% increase in average ticket. For the nine-month period, the increase resulted from an 11.2% increase in transactions and a 2.4% increase in average ticket. Transactions represent the total number of visits our Members make to our warehouse clubs and Click & Go™ curbside pickup and delivery service transactions. Average ticket represents the amount our Members spend on each visit or Click & Go™ order. We had 50 clubs in operation as of May 31, 2022compared to 47 clubs as of May 31, 2021. Net merchandise sales in our Central Americasegment increased 12.7% and 13.9% for the third quarter and nine-months ended May 31, 2022, respectively. These increases had a 770 basis point (7.7%) and 820 basis point (8.2%) positive impact on total net merchandise sales growth. All markets within this segment had positive net merchandise sales growth for the three and nine-month periods ended May 31, 2022. We added one new club to the segment when compared to the comparable prior-year periods. We opened our fifth warehouse club in Guatemalain October 2021. Net merchandise sales in our Caribbeansegment increased 21.4% and 13.1%, respectively, for the third quarter and the nine-months ended May 31, 2022. The increase for the quarter had a 600 basis point (6.0%) positive impact on net merchandise sales growth and the increase for the nine-months had a 380 basis point (3.8%) positive impact on net merchandise sales growth. All of our markets in this segment had positive net merchandise sales growth. Sales for Trinidadwere particularly strong for the third quarter and the nine-months ended May 31, 2022because in the comparable fiscal second and third quarters of 2021, sales were impacted by COVID-19 closures, government prohibitions on sales of most non-foods and non-essential items, and our decision to reduce imported merchandise due to the U.S.dollar liquidity challenges, which improved in the second and third quarters of fiscal 2022. Refer to "Management's Discussion & Analysis - Factors Affecting Our Business" for more information regarding the impact on us of the illiquidity of the Trinidaddollar. We opened our second warehouse club in Jamaicain April 2022. 38 --------------------------------------------------------------------------------
Table of Contents Net merchandise sales in our
Colombiasegment increased 25.0% and 15.8% for the third quarter and the nine-months ended May 31, 2022, respectively. This increase had a 280 basis point (2.8%) and 190 basis point (1.9%) positive impact on total net merchandise sales growth. The primary driver of the increased revenue for the quarter was the addition of one club to the segment when compared to the comparable prior year period. We opened our ninth warehouse club in Colombiain November 2021. The following table indicates the impact that currency exchange rates had on our net merchandise sales in dollars and the percentage change from the three and nine-month period ended May 31, 2022. The term "currency exchange rates" refers to the currency exchange rates we use to convert net merchandise and comparable net merchandise sales for all countries where the functional currency is not the U.S.dollar into U.S.dollars. We calculate the effect of changes in currency exchange rates as the difference between current period activities translated using the current period's currency exchange rates and the comparable prior year period's currency exchange rates. We believe the disclosure of the effects of currency exchange rate fluctuations on our results permits investors to understand better the Company's underlying performance. Currency exchange rate fluctuations for the Three months ended May 31, 2022 Amount % change Central America $ (14,377) (2.8) % Caribbean 2,110 0.9 Colombia (6,814) (7.0) Net merchandise sales $ (19,081) (2.3) % Currency exchange rate fluctuations for the Nine Months Ended May 31, 2022 Amount % change Central America $ (30,528) (2.0) % Caribbean 2,038 0.3 Colombia (25,341) (8.3) Net merchandise sales $ (53,831) (2.1) % Overall, the effects of currency fluctuations within our markets had approximately $19.1 millionand $53.8 million, or 230 basis point (2.3%) and 210 basis points (2.1%), negative impact on net merchandise sales for the quarter and nine-months ended May 31, 2022, respectively. Currency fluctuations had a $14.4 millionand $30.5 million, or 280 basis point (2.8%) and 200 basis point (2.0%), negative impact on net merchandise sales in our Central Americasegment for the quarter and nine-months ended May 31, 2022. These currency fluctuations contributed approximately 170 basis points (1.7%) and 120 basis points (1.2%) of the total negative impact on net merchandise sales for the current period. The Costa Rica Colón depreciated significantly against the dollar as compared to the same three-month and nine-month period a year ago, and was a significant factor in the contribution to the unfavorable currency fluctuations in this segment. Currency fluctuations had a $2.1 millionand $2.0 million, or 90 basis point (0.9%) and 30 basis point (0.3%), positive impact on net merchandise sales in our Caribbeansegment for the quarter and nine-months ended May 31, 2022. These currency fluctuations contributed approximately 20 basis points (0.2%) and 10 basis points (0.1%) positive impact on total net merchandise sales, respectively. This positive impact was primarily driven by the appreciation of the Dominican Republicdollar as compared to the same three-month and nine-month period a year ago. Currency fluctuations had a $6.8 millionand $25.3 million, or 700 basis point (7.0%) and 830 basis point (8.3%), negative impact on net merchandise sales in our Colombiasegment for the quarter and nine-months ended May 31, 2022. These currency fluctuations contributed approximately 80 basis points (0.8%) and 100 basis points (1.0%) of the total negative impact on total net merchandise sales for the quarter and nine-months ended May 31, 2022. 39 --------------------------------------------------------------------------------
Table of Contents Comparable Merchandise Sales We report comparable net merchandise sales on a "same week" basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday. The periods are established at the beginning of the fiscal year to provide as close of a match as possible to the calendar month and quarter that is used for financial reporting purposes. This approach equalizes the number of weekend days and weekdays in each period for improved sales comparison, as we experience higher merchandise club sales on the weekends. Each of the warehouse clubs used in the calculations was open for at least 13 ½ calendar months before its results for the current period were compared with its results for the prior period. As a result, sales related to two of our warehouse clubs opened during calendar year 2021 and one opened in
April 2022will not be used in the calculation of comparable sales until they have been open for at least 13 ½ months. Therefore, comparable net merchandise sales includes 47 warehouse clubs for the thirteen and thirty-nine week periods ended May 29, 2022.
The following tables show comparable net merchandise sales in the reportable segments in which we operate and the percentage changes in net merchandise sales by segment for the thirteen and thirty-nine week periods ended
Thirteen Weeks Ended May 29, 2022 May 30, 2021 % Increase % Increase/(decrease) in comparable in comparable net merchandise sales net merchandise sales Central America 9.7 % 16.0 % Caribbean 17.4 (2.5) Colombia 18.1 3.6 Consolidated comparable net merchandise sales 12.8 % 8.8 % Thirty-Nine Weeks Ended May 29, 2022 May 30, 2021 % Increase % Increase in comparable in comparable net merchandise sales net merchandise sales Central America 11.4 % 5.7 % Caribbean 11.7 2.6 Colombia 5.5 2.2 Consolidated comparable net merchandise sales 10.8 % 4.3 %
Comparison of thirteen and thirty-nine week periods ended
Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the thirteen-week period ended
May 29, 2022increased 12.8%. Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the thirty-nine week period ended May 29, 2022increased 10.8%. Comparable net merchandise sales in our Central Americasegment increased 9.7% and 11.4% for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. All of our markets in Central Americahad positive comparable net merchandise sales growth for the thirteen-week and thirty-nine week periods ended May 29, 2022, except that Guatemalahad negative comparable net merchandise sales growth during the quarter because of transfers of sales from warehouse clubs included in the comparable net merchandise sales calculation to a new club not included in the calculation. The positive comparable net merchandise sales growth for our Central Americasegment contributed approximately 590 basis points (5.9%) and 680 basis points (6.8%) of positive impact in total comparable merchandise sales for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. 40 --------------------------------------------------------------------------------
Table of Contents Comparable net merchandise sales in our
Caribbeansegment increased 17.4% and 11.7% for the thirteen-week and thirty-nine week periods ended May 29, 2022. These increases contributed approximately 490 basis points (4.9%) and 340 basis points (3.4%) of positive impact on total comparable merchandise sales for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. Our Trinidadmarket continued its strong performance in the thirteen-week and thirty-nine week periods ended May 29, 2022, with 21.7% and 8.1% comparable net merchandise sales growth, respectively. Trinidadsales significantly improved versus the prior period due to COVID-19 closures and prohibited sales of most non-foods and non-essential items in the comparable prior year period, along with increased sales in the current period resulting from our restoring inventory levels of merchandise sourced in U.S.dollars in connection with an improvement in the liquidity of the Trinidaddollar during the period. Refer to "Management's Discussion & Analysis - Factors Affecting Our Business" for more discussion on the Trinidaddollar illiquidity situation. Our Dominican Republicand Arubamarkets also showed strong performance, with both having double digit comparable net merchandise sales growth for the thirteen and thirty-nine week periods. Comparable net merchandise sales in our Colombiasegment increased 18.1% and 5.5% for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. These increases contributed approximately 200 basis points (2.0%) and 60 basis points (0.6%) of positive impact in total comparable merchandise sales for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. The increase in Colombiaduring the thirteen-week and thirty-nine week period was primarily due to the year-over-year improvements in sales growth due to the comparably improved COVID-19 situation. The following tables illustrate the impact that changes in foreign currency exchange rates had on our comparable merchandise sales in dollars and the percentage change for the thirteen-week and thirty-nine week periods ended May 29, 2022. Currency Exchange Rate Fluctuations for the Thirteen Weeks Ended May 29, 2022 Amount % change Central America $ (14,434) (2.8) % Caribbean 2,308 1.0 Colombia (6,513) (6.8) Consolidated comparable net merchandise sales $ (18,639) (2.2) % Currency Exchange Rate Fluctuations for the Thirty-Nine Weeks Ended May 29, 2022 Amount % change Central America $ (31,117) (2.0) % Caribbean 2,386 0.3 Colombia (22,590) (7.6) Consolidated comparable net merchandise sales $ (51,321) (2.0) % Overall, the mix of currency fluctuations within our markets had an approximately $18.6 millionand $51.3 million, or 220 basis point (2.2%) and 200 basis point (2.0%), negative impact on comparable net merchandise sales for the thirteen and thirty-nine week periods ended May 29, 2022. Currency fluctuations within our Central Americasegment accounted for approximately 170 basis points (1.7%) and 120 basis points (1.2%) of negative impact on total comparable merchandise sales for the thirteen and thirty-nine week period, respectively. Our Costa Ricamarket was the main contributor as the market experienced currency devaluation when compared to the same periods last year. Currency fluctuations within our Caribbeansegment accounted for approximately 30 basis points (0.3%) and 10 basis points (0.1%) of positive impact on total comparable merchandise sales the thirteen and thirty-nine week period, respectively. Our Dominican Republicmarket experienced currency appreciation, which was partially offset for the thirteen-week period and the thirty-nine week period by our Jamaicamarket, which experienced currency devaluation when compared to the same periods last year. 41 --------------------------------------------------------------------------------
Table of Contents Currency fluctuations within our
Colombiasegment accounted for approximately 80 basis points (0.8%) and 90 basis points (0.9%) of negative impact on total comparable merchandise sales for the thirteen and thirty-nine week period, respectively. This reflects the devaluation of the Colombian peso when compared to the same periods a year ago.
Membership income is recognized ratably over the one-year life of the membership. Three Months Ended May 31, May 31, 2022 2021 Membership Increase income % to ?from net merchandise Amount ?prior year % Change club sales Amount Membership income - Central America
$ 9,070$ 582 6.9 % 1.5 % $ 8,488Membership income - Caribbean 4,130 203 5.2 1.4 3,927 Membership income - Colombia 2,240 326 17.0 1.9 1,914 Membership income - Total $ 15,440 $ 1,1117.8 % 1.5 % $ 14,329Nine Months Ended May 31, May 31, 2022 2021 Membership Increase ?income % to from ?net merchandise Amount prior year % Change ?club sales Amount Membership income - Central America $ 26,824 $ 2,3829.7 % 1.5 % $ 24,442Membership income - Caribbean 12,097 644 5.6 1.4 11,453 Membership income - Colombia 6,381 849 15.3 1.8 5,532 Membership income - Total $ 45,302 $ 3,8759.4 % 1.5 % $ 41,427Number of accounts - Central America 942,096 56,574 6.4 % 885,522 Number of accounts - Caribbean 450,094 20,673 4.8 429,421 Number of accounts - Colombia 355,053 31,163 9.6 323,890 Number of accounts - Total 1,747,243 108,410 6.6 % 1,638,833
Comparison of the three and nine month periods ended
The number of member accounts as of
May 31, 2022was 6.6% higher than the number of accounts as of May 31, 2021. Membership income increased 7.8% and 9.4% over the three and nine-month periods ended May 31, 2022, respectively, compared to the same prior-year periods. Membership income increased across all of our operating segments in the three and nine-month periods ended May 31, 2022. The consolidated increase in membership income is due to an increase in the membership base since the start of fiscal year 2022. Since August 31, 2021, all segments have increased their membership base. Central Americahad the largest increase in membership base in the first three quarters of fiscal year 2022, with 6.4% growth, due primarily to the opening of our fifth club in Guatemalain October 2021, followed by Colombiawith an 9.6% increase, due primarily to the opening of our ninth club in November 2021, and the Caribbeanwith a 4.8% increase, due primarily to the opening of our second club in Jamaicain April 2022. 42 --------------------------------------------------------------------------------
Table of Contents We now offer the Platinum Membership program in all locations where
PriceSmartoperates. The annual fee for a Platinum Membership in most markets is approximately $75. The Platinum Membership program provides Members with a 2% rebate on most items, up to an annual maximum of $500. We record the 2% rebate as a reduction on net merchandise sales at the time of the sales transaction. Platinum Membership accounts are 7.1% of our total membership base as of May 31, 2022, an increase from 6.0% as of May 31, 2021. Platinum Members tend to have higher renewal rates than our Diamond Members. Our trailing twelve-month renewal rate was 88.9% and 87.6% for the periods ended May 31, 2022and May 31, 2021, respectively. Approximately 14% and 15% of our membership sign-ups were completed using our online platform for the nine-month period ended May 31, 2022and May 31, 2021, respectively. Our online platform facilitates capturing data and provides the opportunity for automatic renewal of memberships, as well as improving our digital connection with our Members.
Other revenue primarily consists of non-merchandise revenue from freight and handling fees generated from the marketplace and casillero operations we sold in
October 2021, interest-generating portfolio from our co-branded credit cards, and rental income from operating leases where the Company is the lessor. Three Months Ended May 31, 2022 May 31, 2021 Increase (decrease) from Amount ?prior year % Change Amount Non-merchandise revenue $ - $ (10,806) (100.0) % $ 10,806Miscellaneous income 2,359 713 43.3 1,646 Rental income 604 (188) (23.7) 792 Other revenue $ 2,963$ (10,281) (77.6) % $ 13,244Nine Months Ended May 31, 2022 May 31, 2021 Increase (decrease) from Amount ?prior year % Change Amount Non-merchandise revenue $ 3,307$ (33,172) (90.9) % $ 36,479Miscellaneous income 6,675 1,631 32.3 5,044 Rental income 1,885 (379) (16.7) 2,264 Other revenue $ 11,867$ (31,920) (72.9) % $ 43,787
Comparison of the three and nine month periods ended
The primary driver of the decrease in other revenue for the quarter and nine-months ended
May 31, 2022was the sale of our Aeropostsubsidiary and its marketplace and casillero operations on October 1, 2021. For additional information on the results of the disposition, refer to "Item 1. Financial Statements: Notes to Consolidated Financial Statements, Note 2 - Summary of Significant Accounting Policies." This decrease was partially offset by an increase from our interest-generating portfolio from our co-branded credit cards for the quarter and nine-months ended May 31, 2022. 43 --------------------------------------------------------------------------------
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