PriceSmart, Inc. (NASDAQ: PSMT) Q3 2025 Earnings | 07/14/2025

Good evening everyone and welcome to Price Smart Inc.'s earnings release conference call for the third quarter of fiscal year 2025, which ended on May 31st, 2025. After remarks from our company's representative, Robert Price, interim chief executive officer, and Michael McClary, executive vice president, finance, we'll be given an opportunity to ask questions as time permits. As a reminder, this conference call is limited to 1 hour and is being recorded today, Monday, July 14th, 2025. A digital replay will be available shortly following the conclusion of the call through July 21st, 2025 by dialing 888 660 6264 for domestic callers or 646-517-3975 for international callers and entering replay access code 90598. For opening remarks, I would like to turn the call over to Price Smart's executive vice president of finance, Michael. Please proceed, sir.

Thank you, operator, and welcome to Price Smart Inc.'s call for the third quarter of fiscal year 2025, which ended on May 31st, 2025. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released on July 10th, 2025. Also in these remarks, we refer to non-GAAP financial measures. You can find a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures in our earnings press release. These documents are available on our investor relations website at investors.pricesmart.com, where you can also sign up for email alerts. As a reminder, all statements made on this conference call other than statements of historical fact are forward-looking statements concerning the company's anticipated plans, revenues, and related matters. Forward-looking statements include, but are not limited to, statements containing the words expect, believe, plan, will, may, should, estimate, and some other expressions. All forward-looking statements are based on current expectations and assumptions as of today, July 14th, 2025. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the company's most recent annual report on Form 10-K, the quarterly report on Form 10-Q filed on July 10th, 2025, and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These risks may be updated from time to time. The company undertakes no obligation to update forward-looking statements made during this call. Now, I will turn the call over to Robert Price, Price Smart's interim chief executive officer.

Thank you, Robert, and good morning everyone. Let me begin by sharing how honored I am to step into the role of CEO of Price Smart effective September 1st. Building on the legacy of my father and grandfather, Saul Price, I'm committed to leading with the same values that have guided this company from the beginning: integrity, excellence, and community. Values that are centered on our employees, members, providers, and the communities where we operate. Over the past decade, I've had the opportunity to work across many areas of the business, from launching and scaling our digital commerce business to advancing our sustainability efforts and more recently to partnering closely with Robert, John Silverbrand, and the executive team on our broader operations. These experiences have deepened my understanding of what makes Price Smart different: our purpose, our people, and our model, and sharpened my view of where we can go from here. As I step into this role, my priorities are grounded in our core values: prioritizing the welfare of our employees, delivering exceptional value to our members, raising the bar on execution and innovation, and driving sustainable long-term results for our shareholders. As we shared in May, Alberto Hernandez joined Price Smart as CFO on June 1st. He brings strong experience in strategic finance and operations, most recently at the Estee Lauder Companies. Michael McClary will be retiring after more than 20 years at Price Smart, including the last five as CFO. I want to thank Michael for his outstanding service and welcome Alberto to the team. Now, moving on to the main factors and strategic priorities we are focused on to continue increasing sales and member value. Starting with real estate. In April 2025, we opened a new warehouse club in Cartago, near the capital of San Jose in Costa Rica. Additionally, we plan to open our seventh warehouse club in Guatemala, located in Quetzaltenango, approximately 122 miles west from the nearest club in the capital of Guatemala City. This club is in the final phases of construction and is expected to open in August. In the third quarter of fiscal year 2025, we purchased land and plan to open our sixth warehouse club in the Dominican Republic, located in La Romana, approximately 73 miles east from the nearest club in the capital of Santo Domingo. The club will be built on a 5-acre property and is anticipated to open in the spring of 2026. Once these two new clubs are open, Price Smart will operate 57 warehouse clubs. We continue to pursue opportunities to expand in our existing markets and to assess opportunities in new markets. In particular, we are currently evaluating Chile as a potential new market for Price Smart. We have hired local consultants to help us in this process and are actively looking for potential sites in Chile. Having recently visited Chile myself together with other members of our leadership team, I am excited about the potential opportunities this market offers us. However, opening Price Smart in Chile remains subject to our completing our market analysis, finding appropriate sites, and securing permits. We continue to strengthen our distribution and logistics infrastructure to better serve our members. Today, we operate major distribution centers in Miami, Costa Rica, and Panama. In fiscal year 2026, we plan to upgrade our Panama DC to support cold products and to open new DCs in Guatemala, Trinidad, and the Dominican Republic. These local facilities are expected to improve product availability, reduce lead times, and lower landed costs. Along with these new DCs, we are currently testing distribution consolidation in China to streamline shipments directly to our markets. We are exploring ways to enhance logistics in our multi-country market by utilizing a combination of Price Smart-managed and third-party operations. In certain countries, we have also introduced the use of our own fleet of trucks to transport merchandise directly to clubs. And a last word on distribution and logistics: as international trade becomes more complex, our free trade zone operations in the US and Costa Rica give us a strategic advantage by allowing us to consolidate and export goods without duties or tariffs. We're actively pursuing strategies such as supply chain diversification, expanded offshore consolidation, and increased free trade zone utilization, all to improve efficiency and help offset rising costs for our members. Turning now to other ways we're enhancing our membership beyond low prices. Our private label member selection remains a key part of our value proposition. These high-quality, competitively priced products offer meaningful savings without compromising on quality. For the first nine months of FY 2025, private label sales represented 27.7% of total merchandise sales, up 30 basis points from the same period last year. In Central America, we've renewed and enhanced our co-branded consumer credit card with BAC, effective July 2025. The new agreement offers increased cashback rewards on purchases at Price Smart, pricesmart.com, BAC travel program, and other retailers and services, adding even more value for our members. We continue to invest in omnichannel capabilities to meet our members where they are. In Q3, digital channel sales reached $79 million, a 19.8% increase year-over-year, representing 6.1% of total net merchandise sales, our highest digital contribution to date. Orders placed directly through our website or app grew 16.7%, with average transaction value up 3.2%. As of May 31st, 62% of our members had created an online profile, and nearly one-third of those have made a purchase online. We've seen continued opportunity in this space and we'll keep investing to enhance the digital experience we offer our members. We're also modernizing our processes and technology. Taking one example, our migration to the Relex platform is well underway and expected to be substantially operational by year end. This upgrade enhances employee productivity and is designed to improve inventory management, reduce spoilage, and increase in-stock availability, driving both sales and efficiency. Lastly, we recently released our fiscal year 2024 sustainability report, highlighting our commitment to environmental and social responsibility. The full report is available at investors.pricesmart.com under the ESG tab, and more information can be found at pricesmart.org. With that, I'll turn it over to Michael McClary for the financial review.

Thank you, David. We had a strong third quarter as net merchandise sales reached almost $1.3 billion and total revenue was over $1.3 billion. During the first nine months of our fiscal year, net merchandise sales reached over $3.8 billion and total revenue was over $3.9 billion. During the third quarter, net merchandise sales increased by 8% or 9.5% in constant currency, and comparable net merchandise sales increased by 7% or 8.5% in constant currency. For the first nine months of the fiscal year, net merchandise sales increased by 7.2% or 8.2% in constant currency, and comparable net merchandise sales increased by 6.5% or 7.6% in constant currency. By segment: in Central America, where we had 31 clubs at quarter end, net merchandise sales increased 7.5% or 7.6% in constant currency, with a 5.7% increase in comparable net merchandise sales or 5.9% in constant currency. All of our markets in Central America had positive comparable net merchandise sales growth. Our Central America segment contributed approximately 350 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the third quarter. In the Caribbean, where we had 14 clubs at quarter end, net merchandise sales increased 8.2% or 9.7% in constant currency, and comparable net merchandise sales increased 8.6% or 10.1% in constant currency. Our Caribbean region contributed approximately 240 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the third quarter. In Colombia, where we had 10 clubs open at the end of our third quarter, net merchandise sales increased 10.1% or 19.3% in constant currency, and comparable net merchandise sales increased 9.9% or 19.1% in constant currency. Colombia contributed approximately 110 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the quarter. In terms of merchandise categories, when comparing our third quarter sales to the same period of the prior year, our foods category grew approximately 7.8%. Our non-foods category increased approximately 9%. Our food services and bakery categories increased approximately 6.7%, and our health services including optical, audiology, and pharmacy increased approximately 13.9%. Membership accounts grew 5.1% versus the prior year to almost 2 million accounts with a 12-month renewal rate of 88% as of May 31st, 2025. A key driver of our membership strategy is the platinum membership, which is designed to offer even more value to our most engaged members. Platinum members enjoy exclusive benefits including an annual cashback reward on eligible purchases, which directly translates to savings that reward loyalty and increased purchasing power. Platinum accounts as of May 31st, 2025 represented 16.1% of our total membership base, an increase from 11% in the prior year third quarter and 12.3% as of August 31st, 2024. This increase is due to additional focus on growing this important segment of our membership, which included platinum promotional campaigns during fiscal years 2024 and 2025. Total gross margin for the quarter as a percentage of net merchandise sales increased 20 basis points to 15.8% and $17.5 million or approximately 9.4% versus the same prior year period. Total revenue margins increased 30 basis points to 17.4% of total revenue when compared to the same period last year. During the third quarter, our average sales ticket grew by 1.9% and transactions grew 6% versus the same prior year period. The average price per item remained relatively flat year-over-year, while average items per basket increased approximately 1.8% compared to the same period of the prior year. Total SG&A expenses increased to 13.2% of total revenues for the third quarter of fiscal year 2025 compared to 13% for the third quarter of fiscal year 2024, and increased 12.8% versus 12.6% for the 9-month periods ended in May. The 20 basis point increase of SG&A as a percentage of revenue primarily related to planned technology investments to support the future growth of our business. Operating income for the third quarter of fiscal year 2025 increased 12.7% from the same period last year to $56.2 million. Operating income for the first nine months of fiscal year 2025 increased 4.7% from the same period last year to $179.8 million. In the third quarter of fiscal year 2025, we recorded a $7.2 million net loss in total other expense compared to a $2.9 million net loss in total other expense in the same period last year. This increase is primarily driven by an increase in unrealized losses in value of US dollar-denominated monetary assets and liabilities in several of our markets. This increase was also driven by an increase in our cost of premiums to convert local currency into US dollars from $3.8 million in the prior year to $4.8 million in the current year. Our effective tax rate for the third quarter of fiscal year 2025 came in at 28.4% versus 30.8% a year ago. Our effective tax rate for the first nine months of fiscal year 2025 was 27.3% compared to 31.3% for the prior year period. The decrease in the effective tax rate is primarily related to our implementation of certain tax optimization initiatives at the end of fiscal year 2024. On a go forward basis, we estimate our annualized effective tax rate will be approximately 27% to 29%. Net income for the third quarter of fiscal year 2025 was $35.2 million or $1.14 per diluted share compared to $32.5 million or $1.08 per diluted share in the third quarter of fiscal year 2024. Adjusted EBITDA for the third quarter of fiscal year 2025 was $79 million compared to $71 million in the same period last year. Net income for the first nine months of fiscal year 2025 was $116.3 million or $3.80 per diluted share compared to $109.8 million or $3.62 per diluted share in the comparable prior year period. Adjusted EBITDA for the first nine months of fiscal year 2025 was $245.1 million compared to $232.9 million in the same period last year. Moving on to our strong balance sheet, we ended the quarter with cash, cash equivalents, and restricted cash totaling $183.1 million, plus approximately $94 million of short-term investments. When reviewing our cash balances, it is important to note that as of May 31st, 2025, we had $75.9 million of cash, cash equivalents, and short-term investments denominated in local currency in Nicaragua and Honduras, which we could not readily convert into US dollars. This is a decrease from the $77.3 million at the end of the second quarter of fiscal year 2025, driven by our ability to reduce our position in Honduran lempiras during the third quarter. While we have seen improvement in availability in Honduras of US dollars during fiscal year 2025, we continue to monitor the situation actively as the underlying limitations on availability of US dollars persist. From a cash flow perspective, net cash provided by operating activities increased $13.4 million for the first nine months of fiscal year 2025, largely due to improved operating results. Net cash used in investing activities decreased by $53.6 million for the first nine months of fiscal year 2025 compared to the prior year, primarily due to a $40.3 million decrease in property and equipment expenditures and a $14 million increase in proceeds from settlements and purchases of short-term investments compared to the same 9-month period a year ago. Net cash used in financing activities during the first nine months of fiscal year 2025 decreased by $82.4 million, primarily the result of fewer repurchases of our common stock, partially offset by an increase in repayments of and a decrease in proceeds from long-term bank borrowings compared to the same period a year ago. Looking forward a little into our current fourth quarter, our comparable net merchandise sales for the four weeks ended June 29th, 2025 were up 7.7% in both US dollars and constant currency. In closing, we are excited to be able to share these pivotal investments that we have made in our continued commitment to operational efficiency and excellence. We believe these changes will continue to enhance the member experience, creating a mutually beneficial relationship built on trust, value, and innovation. Thank you for joining our call today. Before turning the call over for questions, we would like to request that due to a CEO and CFO transition process and due to travel schedules, we were not able to all be in the same location today. We would like to request that you direct your questions on today's call to Robert or myself. I will now turn the call over to the operator to take your questions. Operator, you may now start taking our callers' questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from John Bratz with Kansas City Capital. John, please go ahead.

Everyone, um, Michael, a question on the your Trinidad funding plans that you discuss in the 10-Q. How is that going to help solve your convertibility issue in Trinidad? And how do you see the impact on the P&L and maybe your liquidity premium that you're charging? And then lastly, does your Trinidad-Jamaica type of transaction generate an additional currency issue when you have the conversion between Trinidad and Jamaica?

Hi, John. Great questions. Thanks. So basically there are several different components of these transactions. There's a total of up to $65 million. The cleanest and simplest, if you will, is the US dollar loan for $15 million in which we repay in Trinidad dollars. So that obviously gives us a direct connection to work on our Trinidad payables. The other $50 million, as you brought up, there's a piece that's in Jamaican dollars, but it's indexed to US dollars. So there won't be any additional exposure from the Jamaican currency. It's just a matter of where the investors were that were subscribing to pieces of that transaction. So the maximum FX exposure to this transaction would be between the Trinidad dollar and US dollar for the $50 million, not for the $15 million that we pay back in Trinidad dollars, and no additional Jamaican exposure. As far as the purpose, it's just another tool for our toolbox here. Obviously, just like in most of the rest of the countries, in Trinidad about half of our merchandise is imported. So those vendors...

Hello. Anybody there?

Can you hear me?

Yes.

Okay, great. It looks like you just cut off there at the end of your question. I can't hear anybody.

Okay, let me just see what's going on here in the moment. Sorry.

It looks like we got disconnected with John. I will move on to the next question from Hector Mayer with Scotia Bank. Please go ahead.

Thank you very much. Robert, Michael, thank you for taking the questions. I just wanted to know if you could please share with us the thinking process that went into your strategic decision to consider Chile for future openings over other markets, and also to understand how you are thinking in terms of the potential for that market to understand what's so appealing about this opportunity, and also how open you could be to considering other opportunities in the region.

Yes. So, can you...

Hello operator, are we live? Please go ahead. Operator, are we live now?

Yes, you are live.

Okay. Did my answer to John's question get fully answered before we were fully cut off there?

No, it looks like John got disconnected near the end of his question.

Okay. So you did not hear my answer to John's question?

No, we did not.

Oh, okay. We are getting some status. So, let me... Is John still on the line?

I'm checking now.

Right. Okay. Can you have... Do you want Hector to ask his question again?

All right. So, we're gonna go ahead and answer Hector's question and then I'll go back to Robert's question. I'm sorry everybody about the technical difficulty.

I don't know where he is now. Hector, is Hector's line still open?

Okay. Operator, can you confirm that you heard Robert's answer?

Hi. Yes, I heard that, and I'm looking for Hector right now just to double check.

Well, we'll just go ahead and proceed, I guess, at this point. He's not here.

Okay. Well, once again, do want to apologize for the technical difficulties. Last few calls have been very smooth. Sorry about that. I want to go back to John's question here. I don't think we have him on the line anymore, but let me just try to recreate that and see if I cover the pieces of John's question. John was asking about the Trinidad financing arrangements and how that affects our liquidity situation in Trinidad. To the extent you haven't already heard this answer, I think it didn't go through. The up to $65 million of financing that we've arranged, which we expect to fund in Q4, $15 million of that is we will receive proceeds in US dollars and we will repay in Trinidad dollars. So that gives us a clear path towards converting our Trinidad dollars into US dollars. The other $50 million is going to be primarily in US dollars. Some of it is actually tied to Jamaican dollars, but from our perspective, the liabilities in US dollars are indexed to US dollars. So we're not introducing any third currency volatility to the US dollar-Jamaican dollar exchange rate. It will just be US dollar-Trinidad for about $15 million entirely. And that was just a convenience factor for certain of the investors that are part of that deal. And then overall, the $50 million is just another tool in our toolbox. Just like the rest of our countries, about 50% of our products sold in Trinidad are imported, which means we have US dollar vendors primarily through PMAR Inc. that need to be paid. So this will allow Price Smart to pay money to PMAR Inc., who can then pay on to their vendors, and give us a path to spread that conversion over several years. The last piece of the question from John was regarding the FX approval and how we're including the premium for our members. That's something that we constantly evaluate to see how much that will impact our pricing, and we do consider that and we are figuring that into our calculations for next year. We're going to do our best to make sure that that does not impact member pricing, but that's a work in process. Thank you. And sorry for that technical difficulty there. I'm not sure what happened. But as a reminder, if you do wish to ask a question, please press star one.

Okay, it looks like we have Hector with a question from Scotia Bank. Hector, please go ahead.

Thank you very much. Hey, thanks so much Robert, Michael for taking my questions. I was basically asking if you could please share the thinking process that went into the strategic decision to consider Chile for future openings over other markets, and also to understand how you are thinking in terms of the potential in that market, and would it also be fair to assume that Price Smart would be open to considering other opportunities in the region and how this could change the growth algorithm in terms of still opening up in the future.

I understand. I'm sorry about that. I was also having issues connecting initially to the call. So maybe I missed that. There'll be a transcript coming out shortly, so hopefully you can catch that. Thank you.

There are no further questions at this time. I will now turn the call over to Michael McClary for closing remarks. Please continue.

Okay, once again everybody, sorry about the technical difficulties. Hopefully everybody will be able to hear our answers clearly. I think we answered both John's and Hector's questions, and thank you for your participation today.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.