PriceSmart, Inc.

Good morning or afternoon, everyone, and welcome to PriceSmart Incorporated's Earnings Release Conference call for the first fiscal quarter of 2021, which ended on November 30, 2020. After remarks from our company's representatives, Sherry Barambaghi, 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, January 8th, 2021. A digital replay will be available following the conclusion of today's call through January 15th, 2021 by dialing 1-877-344-7529 for domestic callers or 1-412-3177. for international callers by entering replay access code 10149960. 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 first quarter of fiscal year 2021. We will be discussing the information that we provided in our earnings press release and our 10Q, which were both released yesterday afternoon, January 7th, 2021. You can find both documents on our investor relations website at investors.pricemart.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, January 8, 2021. 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 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 Sherry Barambaghi, iSMART's Chief Executive Officer.

Thank you, Michael. Good day and Happy New Year, everyone. I hope that you and your families are all safe and healthy. We're pleased to discuss with you today our strong first quarter results. Despite the ongoing challenges caused by the pandemic over the past 10 months, we've seen the best from our team members. They've consistently risen to the occasion with an unwavering commitment to safety of members and employees and to providing our members with the best possible shopping experience. Never before has the six rights of merchandising been more important to our business than they are today. This retail philosophy emphasizes having the right kind of merchandise in the right place, at the right time, in the right quantity, in the right condition, and at the right price. Our execution of operational efficiency, vigilance, and discipline to these core principles is what has led us to the 7.7% growth in net merchandise sales and 3.6% growth in comparable net merchandise sales compared to the year-ago period. Note that we had one additional club in operation as of November 30, 2020, compared to the same time last year. During the quarter, we saw gradual relaxation of COVID-related restrictions, which led to fewer club days lost compared to the prior sequential quarter, but we still experienced limitations on hours and numbers of people in the clubs. During this last quarter, we expanded last year's Smart Weekend event, which was held in the Caribbean, to a Smart Week program across all of our markets and proved to be very successful. We also strengthened our digital marketing efforts and social media engagement, which have enhanced our ability to quickly grasp valuable insights from our members and more readily share with them our exciting curated items and programs. As a result of these efforts, we've been able to provide our members with a great inventory mix and reasons to visit the clubs as the number of transactions and in-club traffic increased versus the prior sequential quarter. Driven in part by leadership changes in the merchandising area and restructuring over the last year, the Hardlines team did a tremendous job of working with our suppliers, anticipating and reacting to changes in demand. As a result, our hard lines category experienced approximately 20% sales growth during the period compared to the prior year quarter. Leading this growth were electronics, which grew by 53%, sporting goods grew by 68%, and small appliances grew by 20%. On the food side, our buying team has done a fantastic job of ensuring our grocery, health and beauty, cleaning, and liquor departments all performed well also with 6%, 11%, 10%, and 16% growth respectively. Now we did have challenges during the quarter with seasonal and the toys department. And we attribute this in part to our decision to scale back orders of these long lead time products at the beginning of the pandemic. In our grocery and fresh categories, we continue to see an increasing demand for healthier food options from our members. In an effort to meet this demand, We've invested in infrastructure that allows us to source high quality fresh produce through our direct farm program. This program reduces costs and improves the quality and shelf life of our produce offerings while also supporting local farmers and industry in our market. This is also an important social priority for us. In addition, investments in our produce distribution centers have allowed us to provide farm to table produce quicker and more efficiently than we have in the past. We intend to continue to expand this program and open additional produce distribution centers throughout our market. Although we've seen growth across most of our foods and fresh departments, a few categories lagged, such as candy, snacks, and juices. A real critical part of building on our value proposition and offsetting some of the impact of pandemic-related restrictions is the continued development of our omni-channel efforts. Our Click and Go curbside and delivery service, which represented 3.1% of our net merchandise sales during the quarter, is an important alternative for our members. Curbside pickup is available in all of our clubs and all of our markets, and we expanded delivery to all 13 markets in late October, up from just six at the end of August. Over the past several months, delivery has continued to become a larger portion of our total Click and Go sales. Our grocery, health and beauty, and cleaning departments have done well on our e-commerce platform. We continue to grow the number of active items available to purchase online, and we intend to build our online inventory to offer an expanded selection beyond what's available in the clubs. In addition, shoppers are responding favorably to our online platform for their membership. 11% of all new sign-ups in Q1 were done online. One of the important benefits of this, having those sign-ups and renewals online, is that it provides the opportunity for auto-renewal and auto-payment. Over time, we expect that this will lead to more efficient membership acquisition and renewal. Our investments in technology and enhancements to our systems and software also allow us to make use of valuable membership data and feedback in real time. The inbound and outbound communication channels Allow us to operate our business with better information and to make optimal merchandising and business decisions quickly. That's an especially important capability required in this environment. Turning to supply chain and inventory, I just want to recognize the tremendous job our team has done despite the continued challenges we face. I had the pleasure of visiting our distribution center workers in Miami the week between Christmas and New Year's, and they were hard at work committed to ensuring we're running as smoothly as possible. What the team has done to secure alternatives, including quality local sourcing to minimize out of stock and key items and hedge against currency volatility is remarkable. Due to the significant surge in demand in many of the categories we've discussed, we've seen some shipping container shortages at the point of origin out of Asia, And we've had some slowdown in supply flow in Central America due to the devastating hurricanes Eta and Iota. We expect to be able to work through these challenges and continue to identify and develop local high-quality inventory alternatives as needed. We continue to increase our focus on inventory management. Increased SKU discipline and order management has helped reduce our average inventory per club in the first quarter by an average of approximately $500,000 per club. versus the comparable prior year quarter. Markdowns were significantly less this quarter compared to the same period last year, and our inventory was clean, far less in terms of spoilage. We were the place to go for many non-food categories in our markets as our competitors weren't able to source the same level of merchandise in those areas, such as laptops, tablets, and televisions. We've also expanded our offering of high-quality, high-value private label member selection products. Private label will continue to be a focus area given the ability to offer high-quality merchandise at lower prices and given the impact of our brand value in our market. Especially during this last quarter, we appreciated more than ever that we have optionality with our in-country distribution centers. This has proven to significantly mitigate supply chain disruption risks. Now turning to membership, our total number of membership accounts decreased 3.8% during the first quarter of fiscal year 2021 when compared to the comparable prior year period. However, we saw a 1.5% increase in our membership accounts since just August 31, 2020, as in-club traffic improved. Our trailing 12-month renewal rate was 81.9% and 86.1% for the periods ended November 30, 2020, and November 30, 2019, respectively. Historically, our members would renew their membership at the register, and due to the pandemic, traffic has slowed down. Columbia had the largest membership percentage decline, followed by Central America and the Caribbean. However, our 81.9% trailing 12-month renewal rate has improved significantly from the low of 80.5% at the end of August as restrictions have eased up. And as noted before, we've seen an encouraging increase in membership signups and renewals completed online. We're enhancing the value of our membership through the rollout of optical centers with 21 locations open at the end of the quarter, up from 17 at the end of August. And we're on track for approximately having optical in three quarters of our clubs by the end of this fiscal year. The membership includes no charge vision exams for up to four family members, and excellent prices on optical products. As Pricemart seeks to enhance the quality of life for our members, we believe additional services that attend to our members' well-being provide an opportunity for us to further strengthen our relationship and enhance membership value in a fundamental way. As you can see, we're quite focused on member experience. I'm proud to say that we've been vigilant about precautionary measures and have maintained high standards of cleanliness and safety. This has also deepened the trust of our members, and in my view, it's highlighted us as leaders in our markets. Now I'd like to give a brief update about our real estate and construction activities. On December 4th, just a couple weeks ago, or a little over a month ago, we safely celebrated the grand opening of our Saken Clubs. This was the second time since the pandemic began that our leadership team and international executives were able to effectively and remotely support our local teams' opening of a new club. The Usaken Club is strategically located in the heart of a densely populated area of Bogota and is poised to drive sales growth, provide greater convenience for our members, and strengthen our presence in this important market, which we believe has significant potential. Also recently, we announced plans to build two new warehouse clubs, one in Guatemala City, Guatemala, expected to open in the fall of 2021, and the other in Portmore, Jamaica, a suburb of Kingston, expected to open in the spring of 2022. We're excited about the potential for both of these locations, and this will be our fifth club in Guatemala and follows the successful opening of our fourth warehouse club, San Cristobal, in that market just a year ago. As I've noted before, new club openings are likely to initially adversely impact our comparable net merchandise sales. However, as in these cases, we'll move forward with new club openings when we believe that in the long run, such expansion provides opportunities for growth by way of incremental membership, growth in net merchandise sales and services, leveraging potential, greater presence and prominence in our markets, and a better shopping experience for our members. I'd like to spend a moment now on our December sales that we released earlier today. Net merchandise sales were $372.6 million, an increase of 2.8% versus a year ago with a negative FX impact of 3.1% or $10.5 million. For the four weeks ended December 27, 2020, comparable net merchandise sales decreased 1.7% with a negative FX impact of 2.9%. December sales were impacted by a return of club closure days in Panama over Christmas weekend, as well as additional mobility restrictions in Panama and Colombia as infection rates have risen. We also saw sales decline year over year in Trinidad due to actions we've taken in response to U.S. dollar illiquidity. And Michael will discuss more about that in a few minutes. In closing, we posted strong results for Q1 and December, particularly considering the current environment we're operating in. Our commitment to refocusing our efforts on the six rights has really shown during this quarter and this past holiday season. Considering the challenges we encounter, ranging from hurricanes and lockdowns to container shortages and foreign currency fluctuations, this team has risen to meet these challenges and is inspired to find new ways to better serve our members, which are sustainable, and will carry us into the future even after the immediate pandemic crisis is a thing of the past. We know our members' consumption patterns and priorities will continue to evolve. And as we look forward to the future, we believe we have the know-how, the capabilities, and the team to anticipate, react, and rise to our members' expectations. We have the talent, resolve, and hardened commitment to our members, the markets we serve, and to this company and we have loyal members who really count on us as a trusted source of goods and services. A lot of families depend on us, especially in times like this, and we take that responsibility to heart. We're well positioned to propel our business forward, and that is to the credit of our wonderful team of over 10,000 employees who I sincerely thank for their stellar performance. Thank you, and I'll now turn the call over to Michael.