PriceSmart, Inc.

Good afternoon, everyone, and welcome to Price Marts Incorporated's Earnings Release Conference Call for the second quarter fiscal year of 2021, which ended on February 28th of 2021. After remarks from our company's representatives, Ms. Sherry Barambegi, 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, April 9th. 2021. A digital replay will be available following the conclusion of today's call through April 16th of 2021 by dialing 1-877-344-7529 for domestic callers or 1-412-317-0088 for international callers. Also by entering the replay access code of 1-015-2415. For opening remarks, I would like to turn the call over to Price Mart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Thank you, and welcome to the Price Mart earnings call for the second quarter of fiscal year 2021. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released yesterday afternoon, April 8, 2021. Additionally, we will be talking about our March sales, which we released this morning. You can find all three 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, April 9th, 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 Barambegi, Pricemart's Chief Executive Officer.

Thank you, Michael, and good day, everyone. We hope you're all healthy and safe. Thanks for joining us today and for your interest in our company. We will be sharing the strong results from our fiscal second quarter and how we're continuing to build on the momentum we've developed as we cross the midpoint of fiscal 2021. Our adherence to the founding principles of this company has carried us through a myriad of continuing challenges brought on by COVID and its related effects. We remain vigilant in our unwavering commitment to the safety of our members and employees. The extensive protocols we implemented to provide a safe and healthy environment continue. For instance, we're providing global employees with paid time off for vaccines where and when available. Additionally, We continue to support our employees with bonus opportunities, benefits, and enhanced safety measures. Over the past year, the pandemic has challenged us in many ways. However, I believe it's only strengthened us as a team. It's incredible to watch our team address the short-term challenges while at the same time remaining focused on the long-term objectives we set for ourselves. We believe we're starting to see the results of some of the changes and enhancements we've made over the past couple of years. Our commitment to the six rights of merchandising continues to be at the core of our business. Our members trust that we're going to have the right merchandise in the right place at the right time, in the right quantity, in the right condition, and at the right price. Thanks to the dedication of our team and the trust of our members, Net merchandise sales grew 3.1% and comparable net merchandise sales grew 1.1% compared to the same three-month period a year ago. Currency fluctuations negatively impacted net merchandise sales and comparable net merchandise sales by 3.2% and 3% respectively for the quarter. Note that we had one less shopping day due to the leap year in February of the prior year. During the second quarter, we saw an uptick of COVID-related restrictions, which led to more club days lost compared to the prior sequential quarter. We had 142 club days closed during this holiday quarter versus 51 in the prior sequential quarter. To give you more perspective, we had 225 club days closed in the third quarter of fiscal year 2020, which is from March to May. Similar to what we saw in the United States, infection rates have risen dramatically in our markets. This brought the return of weekend club closures, restricted hours, and reduced traffic, primarily in Panama, which has seven clubs, but we also experienced similar restrictions in Colombia, where we have eight clubs, and in some of our Caribbean markets as well. In addition, we faced sales headwinds due to our decision to reduce the importation of U.S.-sourced merchandise to our Trinidad market, where we have four clubs. as a result of the continued US dollar illiquidity. As expected, this contributed to a decline in sales and membership in that market during the second quarter. Michael will discuss more about that in a few minutes. Despite these challenges, we continue to provide our members with a great inventory mix and reasons to visit the club. Our hard lines team has built on the momentum we gained from the first quarter and extended that streak into the second quarter. They've done a tremendous job anticipating demand and working with our global suppliers to secure inventory. As a result, our hard lines category experienced approximately 8.5% comparable sales growth during the period compared to the prior year quarter. Leading this growth were business machines, major appliances, and electronic departments that grew 183%, 84%, and 27% respectively. Our seafood, produce, cleaning, and grocery departments also performed well with 11%, 7%, 5%, and 4% growth respectively. I've mentioned on previous calls, we continue to make investments in our direct farm program to enhance our offerings of healthier food options for our members, and we're starting to see these investments pay off. Our produce distribution centers allow us to provide high-quality farm-to-table produce quicker and more efficiently and to support our local commerce and farming communities. We currently operate produce distribution centers in three markets and are actively seeking to expand to other markets as well. Although our fresh and produce departments did well, we did have challenges during the quarter with our candy, snacks, and juices departments in our foods categories. Also, sales of our housewares and toys categories decreased due to our decision to scale back on long lead time orders based on anticipated shifts in demand because of the pandemic. Our click and go curbside and delivery service represented 3.1% of our net merchandise sales during the quarter. Curbside pickup and delivery is available in all of our clubs and in all markets. During the quarter, we introduced the option for our members to select specific dates and windows of time for curbside pickup and delivery, which allows us to operate more efficiently, improve our service, and offer greater convenience to our members. Over the past several months, we've seen delivery continue to become a larger portion of our total click-and-go sales. Our grocery, health and beauty, and cleaning departments are currently our best performers on the e-commerce platform. We also continue to expand our mobile app capabilities. For instance, we recently added the capability for a member to scan a product from their place of work or at home to view availability at surrounding clubs and plan to expand that functionality to enable a member to add to their cart. Our members also continue to respond favorably to our online platform for their membership transactions. 14% of all new sign-ups in the second quarter were completed online. That's up from 11% at the end of the first quarter. Now, some of the important benefits on online sign-ups and renewals is that it provides the opportunity for auto-renewal, like a subscription, and auto-payment in addition to capturing high-quality, accurate, and valuable member information. Turning to supply chain and inventory, Our merchandising team continues to do a great job sourcing inventory despite continued shipping container shortages at the point of origin out of Asia. This has caused some time delays with certain departments such as outdoor patios, sporting goods, home furniture, apparel, and domestics. We did a great job optimizing our inventory for the holiday season, and as a result, Markdowns and spoilage were significantly less this quarter compared to the same prior year period. Similar to Q1, there was a higher demand in our non-food categories, particularly electronics. A competitive advantage is that we've been able to source electronics at excellent prices and had good on-hand inventory while others struggled in this area. We see this as a great opportunity, and we've made strategic inventory investments in various non-food departments. So as a result, our average inventory for clubs increased slightly versus comparable prior year quarters. Our total number of membership accounts decreased 3.6% during the second quarter of fiscal year 2021 when compared to the comparable prior year period. We attribute that primarily to the restrictions on mobility. However, we saw a 2.4% increase in our membership accounts since August 31, 2020, as in-club traffic continued to improve. Our trailing 12-month renewal rate was 81.5% and 86.2% for the periods ended February 28, 2021 and February 29, 2020, respectively. Colombia experienced the largest percentage decline, followed by Central America and the Caribbean. However, our 81.5% trailing 12-month renewal rate has improved from the low of 80.5% at the end of August as restrictions eased. And as noted previously, we've recently seen an encouraging increase in membership signups and renewals completed online. We're continuing to enhance the value of our membership through a focus on member wellness. This offering includes healthy foods, Our optical centers, with 28 locations open at the end of the quarter, and we expect to have over 40 in operation by the end of this fiscal year, up from 17 at the end of fiscal 2020. We also recently opened our first two Pricemart farm during this calendar year. We'll begin piloting in-club audiology centers as well this year. Now I'd like to give you a brief update about our real estate and construction activities. We recently began construction of a new warehouse club in Bucaramanga, Colombia that is expected to open in the fall of 2021. This will be our ninth club in Colombia and follows the successful opening of our eighth club, Usaken, just a few months ago. It will be a smaller format club. We believe the smaller format clubs coupled with our omni-channel capabilities extend our reach and presence in these regional or secondary city locations, and represents a significant way for the company to grow. Once this club is open, along with the new clubs, we expect to open another club in Guatemala and another one in Jamaica this fall and next spring, respectively. At that point, we will have reached a new company milestone of 50 warehouse clubs. As I've noted before, new club openings are likely, at least initially, to adversely impact our comparable net merchandise sales. However, we will move forward with new club openings when we believe that in the long run, such expansion leads to growth by way of incremental membership, growth in net merchandise sales and services, greater leverage, and a better shopping experience for our members. I'd like to spend a moment on our March sales that we released earlier today. March marks the one-year anniversary from when we began to experience the impact of the COVID-19 pandemic as well as the month our members began stocking up on merchandise ahead of the uncertainty surrounding the global pandemic. We saw significant sales growth in the month of March last year with a surge in net sales growth of 17.1% and comparable net merchandise sales growth of 15.7%. As a result, we are comping against a COVID-related stock-up phenomenon driving high sales growth in March of last year. Despite the COVID-driven surge in buying in March 2020, our net merchandise sales for March 2021 were up versus last year's sales coming in at $307.6 million, an increase of 0.5% versus a year ago with a negative FX impact of 1.5% or $4.4 million. For the four weeks ended March 28th, 2021, comparable net merchandise sales decreased 5.9% with a negative FX impact of 1.4%. We were very pleased with our total sales results in March, which were a historic record for the company outside of our holiday driven December sales. For us, COVID has illuminated the fact that our fundamental business model prior investments, and commitments to becoming a more critical part of our members' lives is a great value proposition. We will continue to expand our services and continue to provide the best curated selection of merchandise all under one roof. The retail industry is constantly evolving, and our members have made it clear that we are among the most responsive. That can make us the retailer of choice in all of our markets. We believe that taking care of our members, our team, our communities, and continuing to expand our business in a responsible manner will set us on a continued path for success. So to wrap it up, I'm proud of our entire team of over 10,000 employees, whether those working from home or remotely or frontline workers in our clubs and distribution centers. We all look forward to continuing to working together to build on the future and expand on what it means to be a Pricemart member. Thank you, and I'll now turn the call over to Michael.