PriceSmart Inc.'s Earnings Flat Despite Strong Membership Growth

By Demitrios

International warehouse club PriceSmart announced results for its fiscal fourth quarter and full 2015 fiscal year on Oct. 29. Sales improved at a double-digit pace, while profit was flat against the prior year period:

PriceSmart's results: The raw numbers

Continue Reading Below

Source: Yahoo! Finance.

What happened with PriceSmart this period?Overall, PriceSmart managed solid retailing and membership growth despite massive foreign currency swings that lowered reported sales. Here are the operational highlights of the quarter and full year.

Fiscal fourth quarter

  • Store base rose to 37 warehouse clubs, up from 33 locations last year.
  • Sales at existing shops improved by 3.4%, compared to a 4.6% gain last quarter.
  • Membership income rose 17% to $11.5 million.
  • Warehouse gross profits fell slightly, to 14.8% of sales.

Full fiscal 2015 year

  • Sales at existing warehouses rose by 2.7%.
  • Membership income improved 15% as the subscriber base grew to 1.5 million.
  • Net income was $89 million, compared to $93 million last year.
  • Renewal rate rose to 86% from 84% a year ago.

What management had to sayManagement credited the Colombian market for delivering most of the company's sales gains this year. PriceSmart added three new clubs in that country, and Colombia was responsible for nearly half of the total revenue improvement for the company in fiscal 2015. That's despite the headwind of a big devaluation of the local currency. "Net warehouse sales in Colombia grew 63% when measured in U.S. dollars but 106% when measured in local currency," executives explained in the 10-K report.

The currency swing also affected reported growth by holding down average shopper spending even as traffic spiked higher. PriceSmart booked an 11% increase in customer transactions and just a 0.3% rise in average spending. Even membership income was affected by Colombia's currency issues: Exchange rate moves pushed the average annual cost for membership down to $20 in Columbia, compared to $35 in most of PriceSmart's other markets.

Image source: PriceSmart.

CEO Jose Luis Laparte and his executive team highlighted the fact that the membership renewal rate posted a significant improvement to 86%, which is "similar to that experienced by the major U.S. warehouse club operators," they explained.

That's true: Costco's latest renewal rate was 88% globally, although the warehouse giant enjoys an even sturdier 91% rate in its home market. Yet PriceSmart has the Washington-based warehouse chain beat in one key area: customer traffic. Costco has managed a strong 4% traffic gain in the U.S. for years, but PriceSmart's 11% boost shows the benefit of its focus on markets that don't have much in the way of entrenched warehouse club competition.

Looking forwardPriceSmart's fiscal first quarter is already off to a solid start, with comparable-store sales up 3.2% in the month of September. Meanwhile, the company plans to keep investing in Colombia, breaking ground on its seventh location there in November, with a targeted opening date of late 2016.

The article PriceSmart Inc.'s Earnings Flat Despite Strong Membership Growth originally appeared on

Demitrios Kalogeropoulos owns shares of COST. The Motley Fool owns shares of and recommends COST. The Motley Fool recommends PriceSmart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.