PriceSmart, Inc.

Good morning or afternoon, everyone, and welcome to Price Smart Incorporated's Earnings Release Conference Call for the third quarter of fiscal year 2021, which ended on May 31st, 2021. 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, so Friday, July 9th, 2021. A digital replay will be available following the conclusion of today's call through July 16th, 2021 by dialing 1-877-344-7529 for domestic callers or 1-412-317-0088 for international callers and by entering replay access code 1015 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 third 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, July 8, 2021. You can find these 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, July 9, 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 we'll turn the call over to Sherry Barambegi, Pricemart's Chief Executive Officer.

Thank you, Michael. Good day, everyone. Thank you for joining us and for your interest in Pricemart. We're pleased to report strong results for our third quarter of the fiscal year, and we're seeing continued sales growth as we enter the final quarter of this fiscal year. For the quarter, net merchandise sales grew 11.6% and comparable net merchandise sales grew 8.8% compared to the same quarter last year. Our trailing 12-month membership renewal rate was 87.6% as compared to 82.5% for the same period ending May 31, 2020. And our total membership accounts have just about recovered to the level they were shortly before COVID. These third quarter results were achieved in part because of operational efficiency, digital capabilities, expanding options for our supply chain, and most importantly, our dedicated team that has become quite nimble at adjusting to rapidly changing dynamics brought on by the pandemic. Also contributing to the company's performance are the investments we've made in talent, technology, and analytics. Generally speaking, our access to timely and high-quality information is supporting better decision-making, greater efficiencies, and our understanding of members' needs and preferences. We also feel that the actions we've been taking to protect our employees and members and their safety has further enhanced our members' trust in us. We believe that our renewed focus on the fundamentals of our business, which I've discussed in prior calls has also contributed to positive results. For example, as compared to the pre-pandemic period in FY 2019, warehouse productivity has increased, and in inventory management, we've reduced markdowns, salvage, throwaway, and demurrage. We've increased inventory turns by almost 20% for the nine months ending May 31, 2021, compared to the comparable period in 2019. And we've achieved lower out-of-stocks. These key metrics have improved relative to the comparable time in 2019, despite the challenges we've been experiencing because of the pandemic. Now let's turn to our markets. During the third quarter, we delivered significant sales growth in Central America versus the same period last year. Our business in the Northern Triangle countries of Honduras, Guatemala, and El Salvador has rebounded strongly in fiscal 2021 when compared to the prior year. We did experience some softness in net merchandise sales in our Caribbean region. primarily driven by Trinidad due to a dramatic resurgence in COVID infections. In May, the government of Trinidad responded with lockdowns and significant restrictions that resulted in a 50% reduction of our club capacity and our sales being limited to only groceries and essential goods. This, coupled with our decision earlier in the year to limit U.S. imports to Trinidad because of the ongoing challenges converting currency led to a significant decline in net merchandise sales in that market for the quarter. Colombia also suffered a COVID resurgence during the quarter, as well as civil unrest in significant portions of the country where protests interfered with the country's infrastructure and public transportation. Roadblocks choked off major arteries, and the disruption to the flow of merchandise and raw materials to produce goods impacted not only us, but the businesses of many of our suppliers. Despite all of this, Columbia delivered impressive sales growth for the quarter. In terms of merchandise, we saw our non-fruits category comprised of both hard lines and soft lines strongly rebound this quarter with 41% sales growth compared to the same quarter in the prior year. Our merchandising teams have done a great job of anticipating demand and working with our global suppliers to secure high demand inventory that has been difficult for our competitors to procure. As a result, our hardline category experienced approximately 31% comparable sales growth compared to the prior year quarter. Virtually all categories in that segment had growth, but the leaders were business machines, housewares, and small appliances, which grew 69%, 36%, and 35% respectively. Our overall soft lines category grew 66%. Casual apparel grew 84% and basic apparel grew 86%. We're seeing the pendulum swing in consumer behavior from the stockpiling and surge demand for essentials in Q3 of last year to an increased demand for discretionary items this year. Due to the COVID stock up in the prior period quarter as expected, We experienced comp declines year over year in our canned food, grain, and grocery categories, which were largely offset by a rebound in other categories such as candy, nuts, soda beverages, and liquor. Overall, our foods category remained steady. Our fresh category grew 8% this quarter versus Q3 of last year. with poultry, meat, and gourmet deli leading the way with 21%, 13%, and 13% growth respectively. We're seeing growth in our high-quality fresh product source through our direct farm program. Our direct farm program, to remind you, reduces costs and improves the quality of our fresh produce offerings while also supporting local farmers and industry. Our new produce distribution centers allow us to provide farm-to-table produce more efficiently and at a better value than purchasing from distributors. We have two produce distribution centers in operation in Panama and Costa Rica, and we expect to open two additional produce distribution centers in the market, other markets next year. Our other business category yielded 41%. comparable net sales growth led by our bakery and food service, which grew 35% and 32% respectively. This occurred despite some markets remaining subject to food court capacity restrictions. Although we've seen a significant improvement in capacity relative to this time last year, we have not yet returned to normal. Turning to supply chain and inventory, our merchandising and logistics teams continue doing a great job sourcing inventory despite the continued global shortage of shipping containers at the point of origin in Asia and the general supply bottleneck due to the closures of certain factories and facilities. The ramp up of demand for certain goods has stressed the global supply network and certain inventory categories continue to have delays. We also experienced supply chain difficulties in Columbia due to the civil unrest that I discussed earlier. In response, as I mentioned in our last earnings call, we've made strategic inventory investments in various non-foods departments, in part to front-load orders of several items. Additionally, we have better real-time data to manage our supply chains. And we've established relationships with new vendors, which provides us with alternative sources for key merchandise. Lastly, by expanding our distribution center, we have more options for transporting merchandise from our vendors to our clubs, which has been key for mitigating supply chain disruption. We don't know when these shortages will ease, but we believe that we are prepared for this to continue to some degree throughout most of this calendar year. As a result of these shortages and supply chain disruptions, transportation costs have increased significantly due to port delays and container shortages, and we're seeing increases in shipping costs. We've also seen inflationary price pressures with significant increases in the commodities that are input to our vendors' products, as well as wage increases in certain markets. Despite these issues, our team has done a great job of mitigating cost increases and supply chain delays in its continued efforts to provide the best value for our members. Our average inventory per club is significantly higher versus comparable prior year quarter, in which we experienced the rapid sell-through of merchandise as members stockpiled items. Last year, we also intentionally reduced certain non-food categories to align with initial consumer preferences. This increase in inventory per club reflects our intention to bring our inventory levels back in line with more historic sales trends. Also, as I mentioned, we've made strategic investments in inventory to guard against potential future price increases. Turning to Omnichannel, last year when members couldn't access basic goods because of club closures and restrictions, We took urgent measures to take care of our members, and we launched Click & Go curbside and delivery service. During Q3, Click & Go represented 3.5% of our net merchandise sales. Curbside pickup and delivery is now available in all of our clubs and all of our markets. Over the past several months, delivery continues to become a larger portion of our total Click & Go sales. Our grocery, health and beauty, and cleaning departments are currently the best performers on our e-commerce platform. We're also pleased to see members using our online platform to sign up and renew their membership. 15% of all new signups fiscal year to date were completed online. That's up from 14% for the six months ended February 28th, 2021. and 5% in the year-ago period. Online member sign-ups and renewals provide several advantages to us, including the opportunity for auto-renewal and auto-payment and access to high-quality, accurate, and valuable information. Our experience with Click & Go has not only shown us the demand for the service, but the value of the data generated by our e-com and online channels. As a result, we've created significant sustainable growth possibilities for our business. Now turning to membership. Our total number of membership accounts increased 3.5% during the third quarter of fiscal year 2021 when compared to the comparable prior period. Our trailing 12-month renewal rate was 87.6%. and 82.5% for the periods ended May 31, 2021 and May 31, 2020 respectively. This renewal rate of 87.6% is higher than our pre-COVID levels and has significantly improved from the low of 80.5% at the end of August. Another encouraging sign that our members recognize the value in our membership is the growth of our platinum program. As a proportion of our total membership account base, Platinum has grown fiscal year-to-date versus last year's comparable period and is available in all of our markets. And as mentioned earlier, a growing portion of our members are engaging with us online. Through virtual chats and social media, we have systems and platforms in place to interact real-time with our members, which enables us to provide better customer service and gain current data, including trends and insights to preferences. This also provides us with valuable information that informs our business decisions. Now looking at real estate. We're currently constructing a new smaller format warehouse club in Bucaramanga, Colombia, that is expected to open in the fall of 2021. This will be our ninth club in Colombia. We believe the smaller format clubs, coupled with our omnichannel capabilities, extend our reach and presence in regional or secondary city locations and represent a significant opportunity for the company to grow in these markets. We have two more club openings coming up, one in Aranda, Guatemala, that is planned to open in the fall of 2021, and one in Portmore, Jamaica, scheduled to open the spring of 2022, which will bring us to a total of 50 clubs. And a quick note update on our member wellness initiative. We now have 37 in-club optical centers in eight of our markets. We plan to expand this service to almost all clubs by the end of this fiscal year. We've piloted pharmacy services in two of our clubs in Costa Rica. and we also plan to expand to additional clubs in Costa Rica and Panama. We expect to open our first two audiology service centers this quarter in Guatemala under our member wellness umbrella, and we'll be opening Aranda Guatemala, the new club, with audiology services included. Looking to the future, overall, we feel positive about FY21, especially as we see memberships rebound and foot traffic to our clubs increase in most of our markets. As to the longer term, we've embarked on a multi-year growth plan, which includes building the internal infrastructure needed to support faster growth. These initiatives will be buoyed by further investing in talent and technology. We plan to grow by expanding our brick-and-mortar footprint in conjunction with our e-com platforms in order to create a truly seamless omni-channel experience for our members. We plan to continue diversifying and expanding e-commerce. Excuse me, expanding our distribution and logistics systems. And we intend to expand our private label product offering and identify additional opportunities for vertical integration. We also intend to drive growth by continually increasing the value proposition we represent to our members, growing our member base. I look forward to sharing more on future calls. To wrap it up, We're grateful for the trust that our members have placed in us to help improve their lives and businesses, especially during these trying times. And I'm especially proud of our more than 10,000 employees across 13 countries. It's been a very challenging 16 months for the team, but we're turning trials into triumph. Our team is energized and motivated to grow and gain market share. I want to thank you all for your time today, and I'll now turn the call over to Michael.