PriceSmart Inc. Earnings: Market Challenges Hold Growth Steady

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International warehouse club PriceSmart (NASDAQ: PSMT) posted fiscal third-quarter earnings results this week that included steady sales gains and double-digit growth in profits.

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Here's how the headline results stacked up against the prior-year period:

 Metric

Q3 2017 Actuals

Q3 2016 Actuals

Year-Over-Year Change

Revenue

$730 million

$704 million

3.7%

Net income

$18.8 million

$16.8 million

11.9%

Earnings per share

$0.62

$0.55

12.7%

What happened this quarter?

PriceSmart's results varied widely by geographic region as foreign currency swings and economic growth changes took their toll. A strong rebound in the Colombian market, driven by a stabilization of that country's currency, played the biggest role in the retailer's growth this quarter. On the other hand, results were hurt by economic struggles in Trinidad and currency challenges in Costa Rica.

Highlights of the period include:

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  • Comparable-store sales increased 2.2%, for just a slight improvement over the prior quarter's 2.1%. Still, that result marked the third straight acceleration in PriceSmart's comps pace.
  • Membership income jumped 4.9% to $12 million.
  • Profit rose at roughly the same pace as revenue to keep gross margin steady at 14% of sales.
  • Net income soared 12% thanks to the combination of steady gross and operating margins and a lower effective tax rate.
  • A spike in the Colombia segment made the biggest contribution to growth, with sales up 27% there. Colombia is now responsible for nearly 12% of the business, up from 9.5% a year ago.
  • The Caribbean segment, which last quarter endured a significant slump, steadied as economic conditions improved in Trinidad, PriceSmart's biggest country in the region.
  • Negative currency moves in Costa Rica led to weak gains in the Central American segment that accounts for more than half of the retailer's total sales base.

What management had to say

In its 10-Q report, management detailed a broad rebound in the Colombia business that helped customer traffic spike 16% even as average spending rose by 9.3%. "With the stabilization of the exchange rate between the Colombian peso and the U.S. dollar over the past twelve months," executives explained, "we have seen an improving sales picture in all of our warehouse clubs in Colombia."

As for Trinidad, "the difficult economic environment there continues to negatively impact consumer spending," management explained. However, steady growth in the Dominican Republic, Aruba, and Jamaica helped the Caribbean region log a slight comps gain compared to a 4.6% slump last quarter.

Looking forward

PriceSmart's broader results show a business that's on the mend but still struggling to achieve robust growth. Comps are up 1.4% over the first nine months of fiscal 2017, compared to 0.8% decline last year. There's room for continued improvement ahead as the Colombian market recovers, especially following a membership fee hike that in February brought its monthly price closer to the company's average (the rate had been severely depressed by a sharply devalued Colombian peso).

PriceSmart's operations are still highly sensitive to currency moves across a range of countries and to economic challenges specific to these volatile markets. Even as Trinidad becomes less of a drag on the Caribbean segment, for example, Costa Rica has stepped up to pull sales growth lower in Central America.

In addition to steady comps growth on the overall portfolio of markets in which it operates, PriceSmart is aiming to boost sales by expanding its store base next year. The company plans to open two new warehouses in fiscal 2018, one in Costa Rica and one in the Dominican Republic, after launching just one new location in fiscal 2017.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends PriceSmart. The Motley Fool has a disclosure policy.