PRICESMART, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements concerningPriceSmart, 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: adverse changes in economic conditions in our markets, natural disasters, compliance risks, 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, 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, including among others, the duration of the pandemic, the unknown long-term economic impact, the impact of government policies and restrictions that have limited access for our Members, and shifts in demand away from discretionary or higher priced products to lower priced products, exposure to product liability claims and product recalls, recoverability of moneys owed toPriceSmart from 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 endedAugust 31, 2021 filed with theUnited States Securities and Exchange Commission ("SEC") onOctober 21, 2021 . These risk factors may be updated from time to time in our other filings with theSEC , which are accessible on theSEC's website 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 theU.S. , as well as other risks that are not presently known to the Company or that the Company currently considers to be immaterial.
Overview
PriceSmart exists to improve the lives and businesses of our Members, our employees and our communities by reliably and consistently providing quality goods and valuable services at the lowest possible prices. We believe that lower prices on products and services drive sales volume, which increases the Company's buying leverage, which in turn leads to better pricing that we can then offer to our Members, validating the value of the annual membership fee.PriceSmart began operations in 1996 inSan Diego, California , with the intent to bring ourU.S. style membership shopping warehouse club concept to underserved countries. We currently operate 49 warehouse clubs inCentral America , theCaribbean andColombia . Our Members also are able to shop on our e-commerce platform, PriceSmart.com, which is available in all 13 markets. We offer our individual and business Members a carefully-curated selection of high quality, brand name and private label consumer products, essential goods and direct-from-farm fresh produce. We also provide prepared foods and fresh-baked goods. Most all merchandise is available for delivery or contactless curbside pickup through our Click & Go™ service. Some of our clubs also provide services that include Optical, Pharmacy, Audiology and Tire departments and serve food at our food courts. Historically, our typical warehouse buildings have ranged in sales floor size from approximately 40,000 to 60,000 square feet and are located in and around the major cities in our markets to take advantage of dense populations and relatively higher levels of disposable income. Additionally, we operate smaller format clubs, with sales floors ranging from approximately 30,000 to 40,000 square feet. These smaller format clubs serve markets where the population may be less dense and/or where there may be significant business to business opportunities. We also have utilized the smaller format option to access and serve urban areas where it is difficult to secure sufficient real estate at a reasonable cost. The option of using a smaller format club, coupled with our omni-channel initiatives, helps us expand our membership base and geographic reach in existing markets. We strategically invest in technology to enhance Member experience and convenience. Technology allows us to use valuable membership and other data to increase efficiencies and use our insights about our Members to positively impact their lives. We also provide wholesale supply services to a retailer inthe Philippines . 31 --------------------------------------------------------------------------------
Table of Contents Logistics and distribution efficiencies are fundamental to delivering high quality merchandise at low prices to our Members. We utilize regional distribution centers in theU.S. andCosta Rica as well as several local distribution centers to distribute merchandise efficiently, retain flexibility and provide alternatives to source and transport goods, and mitigate the risk of supply-chain disruption. As our business grows and includes more e-commerce activity, we continually evaluate how to utilize our logistics and distribution system to most efficiently provide merchandise to our Members. We also seek to drive membership value and efficiencies by expanding our network of Produce Distribution Centers and are exploring centralizing production activities, 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. We own and lease our real estate, depending upon the best available opportunities. 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 the countries in which we operate, we do not currently face direct competition fromU.S. membership warehouse club operators. However, we do face competition from various retail formats such as hypermarkets, supermarkets, cash and carry, 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 Clubs in Operation as of in Operation as of Country/Territory November 30, 2021 November 30, 2020 Colombia 9 7 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 Aruba 1 1 Barbados 1 1 U.S. Virgin Islands 1 1 Jamaica 1 1 Totals 49 46 Our warehouse clubs, one regional distribution center and several smaller local distribution centers are located inLatin America and theCaribbean , and our corporate headquarters,U.S. buying operations and our larger regional distribution center are located primarily inthe United States . Our operating segments arethe United States ,Central America , theCaribbean andColombia . We are currently proceeding with the construction of a standard format warehouse club located within the city of Portmore,Jamaica . Portmore is a suburb west of the capital city ofKingston . We expect to open this warehouse club, which will be our second warehouse club inJamaica , inApril 2022 ; it will also be our 50th warehouse club. 32
--------------------------------------------------------------------------------
Table of Contents
Factors Affecting Our Business
The COVID-19 pandemic has resulted in significant challenges across our 13 markets sinceMarch 2020 . Many markets imposed limitations, varying by market and in frequency, on access to the Company's clubs and on the Company's club operations, including in some cases frequent temporary club closures, a reduction in the number of days during the week and hours per day the Company's clubs were permitted to be open, restrictions on segments of the population permitted to shop or circulate on particular days, and significant limits on the number of people permitted to be in the club at the same time. We also experienced product mix shifts due to changing consumer habits and/or government imposed limitations on many non-food categories, decreases in purchases by many business Members, particularly restaurants and hotels, and sporadic supply chain challenges, which can impact inventory levels.
We are currently focused on these four main priorities:
?Protect the safety and well-being of our employees and our Members.
?Take proactive measures to protect and expand our supply chain options.
?Expand technology-enabled shopping and more effective use of data.
?Manage cash and capital resources.
We recognize that this is an evolving and fluid situation; therefore, we are vigilantly adapting to shifting consumer demands emerging from the pandemic. The situation remains unpredictable in duration and intensity, and we continue to see periodic reinstatements of stay-at-home orders and other restrictions. In addition, we expect continued uncertainty in the economies of our markets as a result of the pandemic and anticipate volatility in employment trends, industry and consumer confidence and demand; 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 endedAugust 31, 2021 .
Overall economic trends, foreign currency exchange volatility, and other factors impacting 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, causing significant declines in GDP and employment and devaluations of local currencies against theU.S. dollar. During the last half of fiscal year 2021 and continuing into fiscal 2022, we saw several factors pressuring supply chains, including container shortages, port delays, and truck and driver shortages. These disruptions and shortages are impacting the timing of deliveries and leading to higher freight costs. Despite all these issues, we continue to see strong sales. We are working to hold down and/or mitigate the price increases passed on to the Members and maintain sufficient inventory 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. In addition, we have made strategic investments in inventory and worked with our local vendors to source alternative products, in order to reduce future out-of-stocks on high demand items that have been impacted by these disruptions or that have been affected by electronic part shortages. We expect pandemic-related conditions to continue throughout fiscal 2022. 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 three months of both fiscal year 2022 and 2021, approximately 77.8% of our net merchandise sales were in currencies other than theU.S. dollar. Of those sales, 48.5% and 49.5% consisted of sales of products we purchased inU.S. dollars for each period, respectively. 33 --------------------------------------------------------------------------------
Table of Contents A devaluation of local currency reduces the value of sales and membership income that is generated in that country when translated toU.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 Merchandise Sales 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 asAruba ,Barbados and theU.S. Virgin Islands offer 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 inColombia paralyzed 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 forColombia and other Latin American countries with high national debt levels and income disparity pose a risk for political instability. Similar unrest happened inNicaragua andHonduras in 2018 and 2019, respectively;Costa Rica also 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. InNovember 2020 , Hurricanes Eta and Iota brought severe rainfall, winds, and flooding to a significant portion ofCentral America , especiallyHonduras , 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. In the past, we have experienced a lack of availability ofU.S. dollars in certain markets (U.S. dollar illiquidity), particularly inTrinidad . This can and has impeded our ability to convert local currencies obtained through merchandise sales intoU.S. dollars to settle theU.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 theU.S. dollar. During fiscal year 2021 and continuing into fiscal year 2022, we continue to experience significant limitations on our ability to convertTrinidad dollars toU.S. dollars or other tradeable currencies. As liquidity conditions have tightened, we have raised prices on imported goods inTrinidad due to increased costs of conversion ofTrinidad dollars toU.S. dollars and risks associated with continued illiquidity. We have also sought to shift the purchase of certain goods to local sources where appropriate, and we are actively seeking to exchangeTrinidad dollars for tradeable currencies to manage our exposure to any potential devaluation. In addition, we significantly limited shipments of goods from theU.S. toTrinidad during most of fiscal 2021 and continuing into fiscal 2022 due to the illiquidity of theTrinidad dollar. We further reduced our already limited shipments in the last quarter of fiscal 2021 because of the government imposed restrictions on non-essential items during that period. However, while shipments remained low relative to historic levels, shipments did increase sequentially from the fourth quarter of fiscal 2021 to the first quarter of fiscal 2022 in connection with the government's lifting of restrictions on sales of non-essential items during the first quarter. We continue to explore and execute several options to increase our ability to generate more reliable sources ofU.S. dollars inTrinidad , some of which may lead us to incur additional expenses. For instance, inDecember 2021 , we executed a loan whereby we received$25 million ofU.S. dollars, but the associated principal and interest will be repaid inTrinidad dollars (converted at rates in effect inDecember 2021 ) over a four-year period, thereby locking in the conversion of a significant amount ofTrinidad dollars at current conversion rates and freeing up this cash inU.S. dollars for deployment for general corporate purposes. As ofNovember 30, 2021 , ourTrinidad subsidiary hadTrinidad dollar denominated cash and cash equivalents and short and long-term investments measured inU.S. dollars of approximately$49.9 million , a decrease of$3.0 million fromAugust 31, 2021 when these same balances were approximately$52.9 million . TheTrinidad central bank manages the exchange rate of theTrinidad dollar with theU.S. dollar. While theTrinidad government has publicly stated it has no intention to devalue theTrinidad dollar, it could in the future decide to devalue the currency to improve market liquidity, resulting in a devaluation in theU.S. dollar value of these cash and investments balances. 34 --------------------------------------------------------------------------------
Table of Contents If, for example, a hypothetical 20% devaluation of theTrinidad dollar were to occur, the value of ourTrinidad dollar cash and investments position, measured inU.S. dollars, would decrease by approximately$10.0 million , with a corresponding increase in Accumulated other comprehensive loss reflected on our consolidated balance sheet. Separate from theTrinidad dollar denominated cash and investments balances described above, as ofNovember 30, 2021 , we had aU.S. dollar denominated monetary asset position of approximately$21.1 million inTrinidad (net ofU.S. dollar denominated liabilities), which would produce a gain from a potential devaluation ofTrinidad dollars. If, for example, a hypothetical 20% devaluation of theTrinidad dollar occurred, the net effect on Other income (expense), net on our consolidated statement of operations of revaluing theseU.S. dollar denominated net monetary assets would be an approximate$4.2 million gain. While we may pay premiums or enter into financial transactions at a discount from the official government rate to convert ourTrinidad dollars intoU.S. dollars, we use the official exchange rate published by theCentral Bank of Trinidad and Tobago to measure theU.S. dollar equivalent ofTrinidad dollar-based revenues, expenses, assets and liabilities and theTrinidad dollar equivalent ofU.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. OurBarbados subsidiary also began facing aU.S. dollar illiquidity situation in fiscal 2020. TheBarbados dollar has a conventional fixed-peg currency arrangement, in which theBarbados dollar exchange rate is fixed to theU.S. dollar. Thus, we do not expect a devaluation of this currency at this time. As ofNovember 30, 2021 , ourBarbados subsidiary hadBarbados dollar denominated cash and cash equivalents measured inU.S. dollars of approximately$3.3 million , which could not be readily converted toU.S. dollars for general use within the Company. However, this balance has decreased significantly from the$12.4 million balance as ofAugust 31, 2021 .
Mission and Business Strategy
PriceSmart exists 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 safeU.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 and their businesses, 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 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. Growth
As we look to the future, our Company is focused on three major drivers of growth:
?Real Estate -
?Membership Value
?Incremental sales generated from PriceSmart.com and digital and online capabilities
Real Estate -New Clubs and Distribution Facilities. We continue to actively seek opportunities to expand our geographic footprint for brick-and-mortar warehouse clubs. Our 50th club is scheduled to open inJamaica inApril 2022 . We intend to continue, and even accelerate, our current pace of club growth over the next 3-5 years and to continue to explore and evaluate opportunities in new markets. Our growth strategy, as it pertains to real estate, includes physical distribution centers of various types to most efficiently 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, and to provide optimal support for a growing e-commerce business. In addition to our distribution center inMiami, Florida , we also operate a regional distribution center inCosta Rica and are actively considering others. We also intend to expand our network of Produce Distribution Centers. 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. Membership Value. Driving membership value leads to a higher membership base, the opportunity to increase the membership fee when appropriate, and contributes 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 35 --------------------------------------------------------------------------------
Table of Contents benefits that Members can only obtain with us, we expect to see growth in Membership income. Recent examples 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 driver of Membership value is our private label offering, which we are working to expand. 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, local currency procurement, 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. Incremental sales generated from PriceSmart.com and digital and online capabilities. Members continue to seek all the great value our distinct business model provides in terms of quality, pricing and an exciting experience. However, there is a growing expectation of consumers in our markets for convenience. We continue to build capabilities and our offerings on PriceSmart.com. We also build and apply technological tools to continue to learn more about and strengthen our relationships with each of our Members. Together with 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.
Financial highlights for the first quarter of fiscal year 2022 included:
?Total revenues increased 11.2% over the comparable prior year period.
?Net merchandise sales increased 12.6% over the comparable prior year period. We ended the quarter with 49 warehouse clubs compared to 46 warehouse clubs at the end of the first quarter of fiscal 2021. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 1.0% versus the comparable three-month period.
?Comparable net merchandise sales (that is, sales in the 46 warehouse clubs that have been open for greater than 13 ½
calendar months) for the 13 weeks ended
?Membership income for the first quarter of fiscal 2022 increased 11.2% to
?Total gross margins (net merchandise sales less associated cost of goods sold) increased 11.9% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 16%, a decrease of 10 basis points (0.1%) from the same period in the prior year.
?Operating income for the first quarter of fiscal 2022 was
?We recorded a$1.4 million gain in Other income (expense), net, primarily from a$2.7 million gain from the sale ofAeropost, Inc. , partially offset by a$1.9 million loss from foreign currency transactions, in the first quarter of fiscal 2022 compared to a$1.5 million net currency loss in the same period last year. The gain from the sale ofAeropost , net of tax, resulted in a$1.5 million net income gain and contributed$0.05 to basic and diluted net income per share in the first quarter of fiscal 2022.
?Our effective tax rate increased in the first quarter of fiscal 2022 to 34.1% from 32.9% in first quarter of fiscal 2021, primarily related to changes in uncertain tax positions.
?Net income attributable toPriceSmart for the first quarter of fiscal 2022 was$30.5 million , or$0.98 per diluted share, compared to$27.7 million , or$0.90 per diluted share, in the first quarter of fiscal 2021.
COMPARISON OF THE three months ended
The following discussion and analysis compares the results of operations for the three-month period ended onNovember 30, 2021 with the three-month period ended onNovember 30, 2020 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. Unless otherwise noted, all tables on the following pages presentU.S. dollar amounts in thousands. Certain percentages presented are calculated using actual results prior to rounding. 36
--------------------------------------------------------------------------------
Table of Contents Net Merchandise Sales The following tables indicate the net merchandise club sales in the segments in which we operate and the percentage growth in net merchandise sales by segment during the three months endedNovember 30, 2021 andNovember 30, 2020 . Three Months Ended November 30, 2021 November 30, 2020 Increase % of net from % of net Amount ?sales prior year Change Amount ?sales Central America$ 560,596 59.4 %$ 75,556 15.6 %$ 485,040 57.8 % Caribbean 268,334 28.4 13,728 5.4 254,606 30.4 Colombia 115,113 12.2 16,390 16.6 98,723 11.8 Net merchandise sales$ 944,043 100.0 %$ 105,674 12.6 %$ 838,369 100.0 %
Comparison of Three Months Ended
Overall, total net merchandise sales grew 12.6% for the first quarter. The increase resulted from an 11.3% increase in transactions and a 1.2% 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 49 clubs in operation as ofNovember 30, 2021 compared to 46 clubs as ofNovember 30, 2020 . Net merchandise sales in ourCentral America segment increased 15.6% for the three-months endedNovember 30, 2021 . The increase had a 900 basis point (9.0%) positive impact on total net merchandise sales growth. All markets within this segment had positive net merchandise sales growth for the three-month period. We added one new club to the segment when compared to the comparable prior-year periods. We opened our fifth club inGuatemala inOctober 2021 . Net merchandise sales in ourCaribbean segment increased 5.4% for the first quarter. The increase for the quarter had a 160 basis point (1.6%) positive impact on net merchandise sales growth. OurDominican Republic market continued its strong performance in the quarter with 16.8% growth. OurAruba andJamaica markets also showed strong performance this quarter with 12.4% and 10.7% growth, respectively. This strong performance was offset by ourTrinidad market which had declines in net merchandise sales for the same period.Trinidad sales were adversely affected by our measured approach to rebalance our merchandise mix following the reopening of the economy from the pandemic restrictions, and we generally continue to manage our imports to be in line with the amounts ofU.S. dollars we expect to source inTrinidad . Net merchandise sales growth forTrinidad improved during the first quarter of fiscal year 2022 compared to the fourth quarter of fiscal 2021 as theTrinidad government lifted restrictions on sales of non-essential merchandise, but sales have still not returned to the level we achieved in the first quarter of fiscal 2021. Refer to "Management's Discussion & Analysis - Factors Affecting Our Business" for more information regarding the impact on us of the illiquidity of theTrinidad dollar.
Net merchandise sales in our
37
--------------------------------------------------------------------------------Table of Contents 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-month period endedNovember 30, 2021 . 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 theU.S. dollar intoU.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 November 30, 2021 Amount % change Central America $ (6,642) (1.4) % Caribbean 874 0.4 Colombia (2,649) (2.7) Net merchandise sales $ (8,417) (1.0) %
Overall, the effects of currency fluctuations within our markets had an
approximately
Currency fluctuations had a$6.6 million , or 140 basis point (1.4%), negative impact on net merchandise sales in ourCentral America segment for the quarter endedNovember 30, 2021 . These currency fluctuations contributed approximately 80 basis points (0.8%) of the total negative impact on total net merchandise sales for the current period. The Costa Rica Colón depreciated significantly against the dollar as compared to the same three-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$0.9 million , or 40 basis point (0.4%), positive impact on net merchandise sales in ourCaribbean segment for the quarter endedNovember 30, 2021 . These currency fluctuations contributed approximately 10 basis points (0.1%) of positive impact on total net merchandise sales for the period. TheDominican Republic experienced currency appreciation when compared to the same period last year. Currency fluctuations had a$2.6 million , or 270 basis point (2.7%), negative impact on net merchandise sales in ourColombia segment for the quarter. These currency fluctuations contributed approximately 30 basis points (0.3%) of the total negative impact on total net merchandise sales for the quarter.
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 one of our warehouse clubs opened during calendar year 2021 will 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 46 warehouse clubs for the thirteen-week period endedNovember 28, 2021 . 38
--------------------------------------------------------------------------------
Table of Contents
The following tables indicate the comparable net merchandise sales in the
reportable segments in which we operate and the percentage changes in net
merchandise sales by segment during the thirteen-week period ended
Thirteen Weeks Ended
November 28, 2021 November 29, 2020
% Increase/(decrease) % Increase/(decrease)
in comparable in comparable
net merchandise sales net merchandise sales
Central America 14.1 % (0.7) %
Caribbean 5.0 9.9
Colombia (2.8) 8.6
Consolidated comparable net
merchandise sales 9.4 % 3.6 %
Comparison of Thirteen-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 endedNovember 28, 2021 increased 9.4%. Comparable net merchandise sales in ourCentral America segment increased 14.1% for the thirteen-week period endedNovember 28, 2021 . All of our markets inCentral America had positive comparable net merchandise sales growth and this increase contributed approximately 820 basis points (8.2%) of positive impact in total comparable merchandise sales for the period. Comparable net merchandise sales in ourCaribbean segment increased 5.0% for the thirteen-week period endedNovember 28, 2021 . The increase contributed approximately 150 basis points (1.5%) of positive impact on total comparable merchandise sales for the period. OurDominican Republic market continued its strong performance in the thirteen-week period with 16.8% comparable sales growth. OurAruba andJamaica markets also showed strong performance this quarter with 12.9% and 7.7% comparable sales growth, respectively. This strong performance was offset by ourTrinidad market, which declined in comparable net merchandise sales by 6.2% for the thirteen-week period.Trinidad sales were adversely affected during most of the first quarter because we limited merchandise shipments to the market due to the ongoingU.S. dollar illiquidity situation. Refer to "Management's Discussion & Analysis - Factors Affecting Our Business" for more discussion on theTrinidad illiquidity situation. Comparable net merchandise sales in ourColombia segment decreased 2.8% for the thirteen-week period endedNovember 28, 2021 . This decrease contributed approximately 30 basis points (0.3%) of negative impact in total comparable merchandise sales for the period. The decrease inColombia during the current quarter was primarily due to the foreign currency devaluation and sales transfers from existing clubs included in the comparable net merchandise sales calculation to new clubs not included in the calculation.
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 period ended
Currency Exchange Rate Fluctuations for the
Thirteen Weeks Ended
November 28, 2021
Amount % change
Central America $ (6,800) (1.4) %
Caribbean 867 0.3
Colombia (2,538) (2.5)
Consolidated comparable net
merchandise sales $ (8,471) (1.0) %
39
--------------------------------------------------------------------------------
Table of Contents
Overall, the mix of currency fluctuations within our markets had an
approximately
Currency fluctuations within ourCentral America segment contributed approximately 80 basis points (0.8%) of negative impact in total comparable merchandise sales for the thirteen-week period. OurCosta Rica market was the main contributor as the market experienced currency devaluation when compared to the same period last year. Currency fluctuations within ourCaribbean segment contributed approximately 10 basis points (0.1%) points of positive impact in total comparable merchandise sales for the thirteen-week period. OurDominican Republic market experienced currency appreciation, which was partially offset by ourJamaica market, which experienced currency devaluation when compared to the same period last year. Currency fluctuations within ourColombia segment contributed approximately 30 basis points (0.3%) of negative impact in total comparable merchandise sales for the thirteen-week period. This reflects the movement of the Colombian peso's foreign currency exchange rate when compared to the same period a year ago.
Membership Income
Membership income is recognized ratably over the one-year life of the
membership.
Three Months Ended
November 30, November 30,
2021 2020
Membership
Increase ?income % to
from ?net merchandise
Amount prior year % Change ?club sales Amount
Membership income -
Central America $ 8,776 $ 901 11.4 % 1.6 % $ 7,875
Membership income -
Caribbean 3,973 262 7.1 1.5 3,711
Membership income -
Colombia 2,042 329 19.2 1.8 1,713
Membership income - Total
1.6 %
Number of accounts - Central America 917,929 78,542 9.4 % 839,387 Number of accounts - Caribbean 432,144 4,273 1.0 427,871 Number of accounts - Colombia 341,412 27,252 8.7 314,160 Number of accounts - Total 1,691,485 110,067 7.0 % 1,581,418
Comparison of Three Months Ended
The number of Member accounts as ofNovember 30, 2021 was 7.0% higher than the prior year period. Membership income increased 11.2% over the three-month period endedNovember 30, 2021 , compared to the prior-year period. Membership income increased across all of our operating segments in the three months endedNovember 30, 2021 . The consolidated increase in membership income is due to an increasing membership base since the start of fiscal year 2021. SinceAugust 31, 2021 , all segments have increased their membership base.Central America had the largest increase in membership in the first three months of fiscal year 2022, with 9.4% growth, due primarily to the opening of our fifth club inGuatemala inNovember 2021 , followed byColombia with an 8.7% increase due primarily to the opening of our ninth club in that country and theCaribbean with a 1.0% increase. 40
--------------------------------------------------------------------------------
Table of Contents We now offer the Platinum Membership program in all locations wherePriceSmart operates. 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$500 . We record the 2% rebate as a reduction on net merchandise sales at the time of the sales transaction. Platinum Membership accounts are 6.5% of our total membership base as ofNovember 30, 2021 , an increase from 5.3% as ofNovember 30, 2020 . Platinum Members tend to have higher renewal rates than our Diamond Members. Our trailing twelve-month renewal rate was 89.0% and 81.9% for the periods endedNovember 30, 2021 andNovember 30, 2020 , respectively. The COVID-19 pandemic caused a decrease in in-club traffic in the first quarter of fiscal year 2021, resulting in fewer in-club visits and thus fewer renewals as most of our renewals occur in the warehouse club. However, approximately 15% and 11% of our membership sign-ups were completed using our online platform for the three-month periods endedNovember 30, 2021 andNovember 30, 2020 , respectively. Our online platform facilitates capturing data and provides the opportunity for automatic renewal of memberships, as well as improving our digital connection with our Members. Other Revenue Other revenue primarily consists of non-merchandise revenue from freight and handling fees generated from the marketplace and casillero operations we sold inOctober 2021 , interest-generating portfolio from our co-branded credit cards, and rental income from operating leases where the Company is the lessor. Three Months Ended November 30, 2021 November 30, 2020 Increase (decrease) from Amount ?prior year % Change Amount Non-merchandise revenue$ 3,307 $ (9,348) (73.9) % $ 12,655 Miscellaneous income 2,046 549 36.7 1,497 Rental income 635 (96) (13.1) 731 Other revenue$ 5,988 $ (8,895) (59.8) % $ 14,883
Comparison of Three Months Ended
The primary driver of the decrease in other revenue for the quarter is due to the sale of ourAeropost subsidiary and its marketplace and casillero operations onOctober 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." 41 --------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
