PriceSmart, Inc.

Good morning or afternoon, everyone, and welcome to Price Smart Incorporated's earnings release conference call for the fourth quarter of fiscal year 2020, which ended on August 31, 2020. After remarks from our company's representatives, Sherry Baron-Bagey, Chief Executive Officer, and Michael McCleary, Chief Financial Officer, you will be given an opportunity to ask questions as time permits. As a reminder, this conference call is limited to one hour and is being recorded today, Friday, October 30th, 2020. A digital replay will be available following the conclusion of today's call through November 6th, 2020 by dialing 1-877-344-7529 for domestic callers or 1-412-317 For opening remarks, I would like to turn the call over to Pricemart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Thank you, and welcome to the Pricemart earnings call for the fourth quarter of fiscal year 2020. we will be elaborating on the information that we provided in our fourth quarter earnings press release, which we released yesterday afternoon, October 29th, 2020. You can find this document on our investor relations website at investors.pricemark.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, will, may, should, estimate, and similar expressions. All forward-looking statements are based on current expectations and assumptions as of today, October 30th, 2020. 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. These risks may be updated from time to time in other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. The company undertakes no obligation to update forward-looking statements made during this call. Now, I will turn the call over to Sherry Berenbegi, Pricemart's Chief Executive Officer.

Thank you, Michael. Good day, everyone, and thank you for joining us. I hope that you and your families are all safe and healthy. Many people and businesses worldwide are struggling as this pandemic continues to take its toll, and our thoughts are with all those impacted by COVID-19, and as a company, we're committed to working through these challenges to do our part to improve the circumstances. Turning to our results. We were off to a strong start at the beginning of fiscal year 2020 as we began to see the impact of many new practices, modifications, and improvements that we had set into motion during the prior year. These actions were largely driven by our recommitment to vigilantly executing on the six rights of merchandising. As our fiscal year continued, like everyone else, we were faced with the impact of the pandemic. And without delay, we pivoted to anticipate and implement the changes and interventions required to protect our people and our business. Improved productivity, new thinking, and additional capabilities have grown out of that process, which has allowed us to now share with you solid results for the fiscal fourth quarter and full year. I'm pleased to report that we wrapped up the fiscal year stronger than originally anticipated, despite significant and shifting headwinds, which continually varied amongst our three markets. As mentioned in previous calls, our priorities at the beginning of the pandemic remain the same today. We're focused on people, supply, supply chain, demand, and cash management. But as we've adapted to this continuing crisis with creative solutions, we're now focused on our opportunities for the future of our company and the post-COVID world. As to people, plans for return to work continue to evolve, but one thing I can tell you for sure, it will not be the same. We're working on plans to develop greater flexibility, fortify security, enhance productivity, enrich quality of life, and potentially save on inefficient travel and real estate expenses. Emphasis continues on leading in our markets on safety protocols, so our members can trust that we remain vigilant and transparent. We continue with our frequent action task force team meetings comprised of top executives responsible for overseeing all aspects of our business. And we found this format enables us to react and act proactively with unprecedented speed and efficiency. I'm very pleased to announce the newly created significant leadership role for the company. Juan Ignacio Beale, effective September 1, 2020, was named Executive Vice President of Digital Experience and Chief Technology Officer. He reports directly to me. Juan has been an entrepreneur in the technology sector for over 25 years, working in diverse areas of information systems with companies such as Apple, InterAmerica, and NavSats. Juan joined Pricemart as part of the Aeropost acquisition and has since led a talented team that expedited the continued development of Pricemart.com, our omni-channel efforts, and along with other team members, developed the crucial technology capabilities that made Click & Go fully functional within weeks, all during COVID. Juan's expertise is an important component of our overall digital transformation process. One of the distinctive features of our business is that we have a membership format and our membership data has value. We now have a more user-friendly infrastructure to make use of this data in real time to more efficiently operate all aspects of our business. We're also developing technology that provides strong outbound and inbound communication with our members so that we can better tailor sales and services for them. The application of technology and enhancements of our systems and software allow us ease of use and timely reporting so that we can make the optimal business decisions. On the last earnings call, we announced measures taken to preserve PriceSmart's cash liquidity due to the pandemic's unknown impact. One of those precautionary measures included temporary wage and salary reductions for those employees in our U.S. headquarters in Miami and San Diego. Due to our strong fourth quarter results, we were able to pay a special bonus to senior vice presidents and below to offset the foregone wages for the months in which the reduction was taken. The decision to restore our employees' wages is aligned with one of our core principles, recognizing that our employees are our most important resource. As to supply, the team has done a tremendous job of securing alternatives, including quality local sourcing, and distribution flow to minimize out-of-stocks on key items. Due to Pricemart's longstanding and strong relationships with our suppliers, we believe that we benefited from that trusted relationship. And as a result, we were highly accommodated during this crisis. This allowed us to continue to provide great values and merchandise for our members that abruptly came into high demand, such as electronics, computers, garden and patio, home furnishings, and entertainments and small appliances. Few discipline continued and fewer markdowns were taken in the fourth quarter. Also, we've increased our focus on inventory management and our average inventory per club declined in the fourth quarter by an average of approximately a million dollars versus the comparable prior year quarter. In the fourth quarter and into the new fiscal year's opening weeks, we are seeing continued improvements in the global parts of our supply chain, as most of our suppliers are now operating at pre-COVID levels. However, there still are challenges our vendors and suppliers are facing that may limit access to certain categories, including cleaning supplies, outdoor merchandise and electronics. We're also monitoring very closely and taking appropriate actions to address ongoing disruptions to the flow of container traffic from Asia. We've developed alternative local sourcing options for quality products that meet the standards of our six rights. One example of this strategy during this last fiscal year was the opening of our second in-country produce distribution center located in Costa Rica. We expect to open additional produce distribution centers in other countries in fiscal 2021. We believe that our farmer's selection program reduces expenses, waste, and prices on higher quality items while also supporting local farmers and industry. Our produce distribution centers also allow us to get high quality produce from farm to table quicker and more efficiently. The produce DCs have also allowed us to get high volume categories such as fresh into the clubs faster with fewer out of stocks. Our 17 optical departments, while initially closed at the onset of COVID, are being reopened and we're on track for adding at least a dozen more in fiscal 2021. The membership includes free vision exams for up to four family members and excellent prices on optical products. With regard to demand, it's important to note that although we may be considered an essential business, our markets generally do not provide the same latitude and predictability that essential businesses in the United States enjoy. We estimate that in the fourth quarter, we had approximately 260 club days lost in markets where in-club shopping was not permitted as a result of the varying limitations put in place to mitigate the spread of COVID-19. In addition, to complete closures, there were curfews and limitations on hours or the numbers of people permitted in-club at any given time, depending on the market. As a result, we saw a decrease in our in-club throughput. However, we also saw an increase in our average ticket, especially on click-and-go transactions. It should be noted that in-club circulation and local restrictions have most significantly impacted our other businesses' sales, such as food services and optical. And those typically carry higher margins, as well as our membership renewal rate and membership income. Currently, we are experiencing an easing of restrictions. For example, in September, we only lost 30 club days, and in October, the closures have been declining. Of course, this can change at any time in any market. During the last week of FY 2020, we launched our first membership appreciation week, which was very well received. During this event, we partnered with our vendors to offer more compelling prices on certain items. We also invited existing and new members to sign up and or order online and begin to familiarize themselves with our Click and Go service while promoting our expanded offering of high-quality, high-value, private-label member selection products. So I'd like to recap the recent achievements. Online membership sign-up and renewal is now fully functional. a robust online platform for Pricemark.com, which includes the company-wide catalog of inventories available for our clubs. We launched and completed the rollout of our Click & Go contactless service, which allows ordering online, including fresh and groceries, with curbside pickup. Although we're still in the early phases of this new program, in our fourth quarter of fiscal year 2020, Click & Go represented 3.6% of net merchandise sales. Extension of our Click and Go service now includes delivery in nine markets, and we expect the delivery service to be available in all markets by the end of fiscal year 2021. Expansion of our farmer selection program and produce distribution centers. Expansion of our private label merchandise offering. Our company-wide process of digital transformation, which provides valuable tools for inbound and outbound channels to better align our business with our members' needs and expectations. Excuse me a moment here. We executed a safe and successful opening with remote oversight of our new club in Liberia, Costa Rica, which has a significant expat population and is our eighth club in that country. And we're preparing for the opening of our 47th club in Usaquen, the metropolitan area of Grongota, Colombia, in early December, which will be our eighth club in Columbia. We are also evaluating the construction of additional clubs where we have already secured the property, as we also look for additional locations. We recently formalized a Department of Social and Environmental Responsibility and have tasked an Executive Vice President and Vice President to focus on our commitment to grow responsibly and evaluate our business decisions in the context of our impact on the environment and the communities in which we operate. Finally, we're focused on cash management and liquidity. At the beginning of the pandemic, we took appropriate steps to conserve cash. Due to the uncertainty created from the outbreak of COVID-19, we continue to closely monitor operating results and cash flow to ensure optimal timing of future investments and warehouse club openings. With regard to liquidity management, Michael will cover that in just a few minutes. So now I'd like to turn to our business results for fiscal fourth quarter. Total revenues for the quarter were $810.6 million, an increase of 1.2% over the comparable prior year period. Net merchandise sales were $772.9 million, an increase of 0.5% over the prior year period. Currency fluctuations in our markets had a $27.6 million or 360 basis point negative impact on our net merchandise sales for the quarter. By segment in Central America where we had 26 clubs at quarter end, including four clubs open since May 2019, net merchandise sales decreased 1.2% with an 8.6% decrease in comparable net merchandise sales. Our comparable net merchandise sales were negatively impacted by significant traffic reductions. And additionally, as expected, we have seen sales transfer from our existing warehouse clubs to our recently opened warehouse clubs, which impacted comparable sales growth. In the Caribbean region, where we had 13 clubs at quarter end, total net merchandise sales grew 6.8%, with comparable net merchandise sales growth of 6%. Our Dominican Republic, Barbados, and Jamaica markets led the way in the segment with 22.1%, 8.9%, and 6.6% growth, respectively. In the DR, our net merchandise sales growth was primarily attributable to the opening of our fifth club in June 2019 and strong comparable sales growth. Barbados and Jamaica comped strongly for the quarter with the same number of clubs as last year. It should be noted that in Trinidad, those sales are very strong. We are experiencing challenges in converting TTs to U.S. dollars and are exploring alternatives to mitigate the impact of a potential devaluation. Michael will speak more to this later. In Columbia, where we have seven clubs, net merchandise sales decreased 6.6% for the quarter, and there was a decrease in comparable net merchandise sales of 5.6%. The impact of currency on total and comparable net merchandise sales in Colombia was significant at negative 12.1% and 12.2% for the quarter, respectively. Currency devaluation continues to be a challenge in Colombia, but we are employing different approaches in an effort to mitigate the impact, such as sourcing of locally produced goods. Turning to merchandise, we continue to experience strong growth in our grocery and produce departments. It is also important to note that during the fourth quarter of fiscal 2020 and continuing into early fiscal 2021, we've seen a significant shift back to non-food categories, in some cases even exceeding prior year mixed penetrations for those areas. Also, as local restrictions have eased, we've seen a slow but steady increase in our other business categories, which include food service, bakery, and obstacle services. Now I'd like to turn to membership. Our total number of membership accounts at fiscal year end decreased 4.7% when compared to the prior year end period. Our trailing 12 month renewal rate was 80.5% and 85.7% for the periods ended August 30, 2020 and August 31, 2019 respectively. We believe this is because Historically, members would renew their membership at the register and due to the pandemic traffic has slowed down. So the opportunity to renew at the registers decreased. Columbia had the largest membership decline followed by Central America and the Caribbean. To date, Columbia and Central America have been the hardest hit regions in terms of the severity and duration of the government imposed restrictions. However, due to the notable increase in online traffic, the new visibility of inventory online, the opportunity to shop through our Click and Go program, and the added convenience. Membership sign-ups and renewals completed online have been steadily increasing, and we are seeing very encouraging signs of membership renewal through this channel and now in clubs as restrictions ease. Membership income decreased 2.2% during the quarter, but increased 4.5%. over the full fiscal year. We continue to expand our platinum membership program and we are seeing positive results. Net income for the fourth quarter of fiscal year 2020 was $20.1 million or $0.65 per diluted share compared to $20.7 million or $0.67 per diluted share in the comparable period last year. As a reminder, we ended this quarter with 46 warehouse clubs compared to 43 clubs at the end of the fourth quarter of fiscal year 2019. The new clubs include one in Panama, one in Guatemala, one in Costa Rica, and as mentioned earlier, our 47th club is expected to open in Bogota, Colombia in December 2020. We had strong performance for the full year of fiscal 2020 considering the challenges we faced. Total revenues increased by 3.3%, net merchandise sales increased by 3.2%, and comparable net merchandise sales decreased by 1.5%. FX fluctuations adversely impacted net merchandise sales and comparable net merchandise sales by 2.1% and 1.9% respectively. Net income for fiscal year 2020 grew to $78.1 million or $2.55 per share compared to $73.2 million or $2.40 per share in fiscal year 2019. Now turning to September sales and looking forward to FY 2021. We released those sales earlier this month. Net merchandise sales were $258.1 million and an increase of 4.6% versus a year ago. FX fluctuations adversely impacted net merchandise sales by 3.5%. For the four weeks ended September 27, 2020, comparable net merchandise sales increased 0.3% with a negative FX impact of 3.5%. We were very pleased to see this positive U.S. dollar comparable sales increase for the first time since March of 2020. Easing of restrictions and numbers of days closed appear to directly correlate with our ability to increase in-club traffic and the corresponding positive impacts on sales and membership. Looking ahead to the upcoming holiday shopping season, due to the unpredictability of the impacts from the COVID pandemic, we initially pulled back on long lead time merchandise orders for some of our more traditional seasonal programs. However, based on evolving member demands, the ability for us to better analyze extensive data, and the quick and extraordinary efforts of our team, we expect a successful holiday season with an exciting selection of curated merchandise. In closing, we met this past fiscal year with courage, focus, and relentless work. We never lost sight of our priorities, which are informed by our values, first taking care of our employees and focusing on the well-being of our members. We will continue to maintain our flexibility on how we operate our daily business, as well as move forward with our future investments, particularly related to Omnichannel. The results we are experiencing today would not have been possible without our frontline employees' commitment, as well as our dedicated employees in our distribution centers and throughout our corporate offices. This new fiscal year that started on September 1st will no doubt continue to have a new set of challenges but we believe that our team is well positioned to turn those challenges into opportunities to drive growth. Thank you, and I will now turn the call over to Michael.