PriceSmart, Inc.

Good day, everyone, and welcome to PriceSmart Incorporated's Earnings Release Conference Call for the fourth quarter of fiscal year 2021, which ended on August 31st, 2021. After remarks from our company's representatives, Sherry Barambegi, Chief Executive Officer, and Michael McCleary, Chief Financial Officer, 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 22nd, 2021. A digital replay will be available following the conclusion of today's call through October 29th, 2021 by dialing 1-877-344-7529 for domestic callers or 1-412-317-0088 for international callers. And by entering the replay access code, For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Thank you, and welcome to the PriceSmart earnings call for the fourth quarter of fiscal year 2021. We will be discussing the information that we provided in our earnings press release and our 10-K, which were both released yesterday afternoon, October 21st, 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, October 22nd, 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 Berenbegi, Pricemart's Chief Executive Officer.

Thank you, Michael. Good day, everyone. Thank you for joining us and for your interest in Pricemart. Fiscal 2021 was quite the year. Our team of more than 10,000 dedicated employees really excelled by working together as one team to innovate and respond to the fluid circumstances that we continue to experience throughout the 13 markets in which we operate. Driven by this commitment and hard work, we're pleased to report strong results for our fourth quarter of the fiscal year, and we continue to see growth in sales and membership as we begin the first quarter of the new fiscal year. Despite ongoing COVID-related restrictions in some form that has affected most all of our clubs, For the fourth quarter of fiscal 2021, net merchandise sales grew 12.7% and comparable net merchandise sales grew 10.3% compared to the same quarter last year. Our membership has grown to an all-time high and our 12-month trailing renewal rate is the highest it's ever been since we began recording it 14 years ago. These fourth quarter results were achieved through improved operational efficiencies, new digital capabilities, optionality for our inventory flow, our e-commerce platform, Pricemark.com, data analytics, incremental member benefits and services, alternative sourcing of goods in response to global supply chain disruptions, expansion of our private label program, and most importantly, the resilience of our dedicated team that has become quite adept at adjusting to rapidly changing dynamics brought on by the pandemic. and its varying impact on our market. We continue to evolve into a more data-driven organization. Our membership model in and of itself differentiates us from other retailers and provides a competitive advantage because it provides a wealth of data that allows us to better serve the needs of our members. Knowledge is power, and we are gaining valuable insights through the new analytics that allow us to use membership data effectively to improve member satisfaction, and ultimately contribute to higher membership renewal rates. We also believe that the early and comprehensive measures we've taken to protect and prioritize the well-being and safety of our employees and members has further strengthened our standing in our market. Additionally, we believe that our adherence to the fundamentals of our business, the six rights of merchandising, which I've discussed on prior calls, has also contributed to positive results. For example, even when comparing our performance to the pre-pandemic period in FY 2019, warehouse productivity has increased, and in inventory management, we've reduced markdowns, salvage, throwaway, and demurrage. These key metrics have improved relative to the comparable time in 2019, despite the challenges we continue to experience as a result of the pandemic. We believe our value proposition is really resonating with our members. I'm excited to report that our total number of membership accounts reached an all-time high of 1.67 million accounts as of August 31, 2021, even after we experienced a COVID-related dip at the end of fiscal 2020. That's a 7.2% increase when compared to the comparable prior year period. our trailing 12-month renewal rate was 89.6% for the period ended August 31, 2021, up from 80.5% for the period ending August 31, 2020, and up from 85.7% for the period ending August 31, 2019. This 12-month renewal rate of 89.6% is the highest since we've been publicly reporting this data and has increased 200 basis points from the end of the third quarter of fiscal 2021. This shows our business model is a real winner in our market. Our membership model is a key differentiator from our competitors and an important asset. Our investments in technology and new talent that provide valuable data analytics, which, by the way, are expense, are helping us unlock greater value from our membership data. This provides us with the opportunity to provide better customer service and more quickly gain better insight into trends and preferences. It also enhances predictability, which is of great benefit to any business, especially in a rapidly evolving environment, whether it be the pandemic, global supply chain disruption, cultural shifts, or consumer behavior in the age of e-commerce. Early indications are showing that so far, members who engage with us online and in clubs, members who we consider to be true omnichannel members, tend to spend more with us than those who only engage with us in clubs. Additionally, to date, we're seeing that Pricemark.com transactions generally yield a higher spend per transaction than our average in-club transactions. During Q4, Pricemark.com announced which allows our members to purchase online for curbside pickup or delivery through Click & Go. That represented 3.5% of our net merchandise sales. Click & Go is currently available in all 47 of our clubs. Our delivery service is growing as a larger proportion of our Pricemark.com sales. Our experience with Click & Go has demonstrated a demand for the service, and the data generated by PriceSmart.com and online channels is another way technology has enabled us to enhance the value of the membership. We believe PriceSmart.com is providing us a platform for significant sustainable growth for our business and a valuable incremental benefit to our members. We're also pleased to see members using PriceSmart.com to sign up and renew their memberships. Online member sign-ups and renewals, which we refer to as digital memberships, provide several advantages to us, including the opportunity for auto renewal and auto payment, which helps to sustain our renewal rate. Digital memberships also provide a more direct way of communicating with members and learning about their preferences. Our focus on converting our members to digital sign-ups and renewals has helped us increase digital sign-ups from 6% of all new signups in fiscal 2020 to 16% in fiscal 2021. Another encouraging sign that our membership model resonates with members is the growth of our Platinum Program, which offers annual rebates to members in exchange for a higher annual membership fee of approximately $75 compared to approximately $35 for a Diamond membership. and new communication channels with digital members have helped us better demonstrate the value of this program to our members. Platinum accounts in total have grown by 28% since the end of fiscal year 2020 and by 73% since the end of fiscal year 2019. Platinum accounts now represent 7% of our total member account base as of the end of fiscal year 2021. The advantage of Platinum members is they tend to show more loyalty and predictability as they renew their membership at higher rates and have higher average spends than our Diamond members. We finished rolling out the Platinum program to all of our markets during this past fiscal year, 2021. Our commitment to the development of technology and analytics is reflected throughout the company, including the leadership team. Accordingly, I'm very pleased to announce that effective September 1, 2021, Nicholas Meslowski was promoted to a newly created position for the company, Executive Vice President, Member Experience, and Strategic Analytics. Prior to this promotion, Mr. Meslowski served as Senior Vice President of Pricemart Member Experience. Since joining Pricemart, he has expanded the capabilities of our leadership team, made great strides in helping us better understand members, And he, along with his team, have devised strategies to grow sales by extracting valuable insights. In addition, Mr. Maslowski and his team have shown how the infusion of user-friendly data and reports positively impact business decision-making throughout the company. Now let's turn to sales by segment. During the fourth quarter, we delivered significant sales growth in Central America versus the same period last year. All markets within this segment produced positive sales growth for both the quarter and the full fiscal year. Central America posted 18.9% sales growth in the fourth quarter compared to the prior year period. In Guatemala, we are looking forward to opening our fifth club next week, and that club is known as Aranda. During the quarter, despite the strong performance of five clubs in the Dominican Republic, we saw a decrease in net merchandise sales in our Caribbean region. This was primarily driven by Trinidad, where we have four clubs and where they have been experiencing a high level of COVID infections and related restrictions. In the second half of the fiscal year 2021, The government of Trinidad responded with strict lockdowns and significant restrictions that resulted in complete closures for a few weeks, followed by a 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 Trinidad for the quarter. Columbia delivered an impressive 21.7% sales growth for the quarter, despite a negative FX impact. And next month, we will be opening Bucaramanga, our ninth club in this market. In terms of merchandise, we saw our non-fuse category, comprised of both hard lines and soft lines, continue its impressive run with 16.3% sales growth compared to the same quarter in the prior year. Our merchandising team has done a great job of anticipating demand and working with our global suppliers to procure high demand inventory that has been difficult for our competitors to secure. As a result, our soft line category grew approximately 40%, casual apparel grew 41%, and basic apparel grew 48% versus the same quarter last year. We're seeing the shift in consumer behavior from the stockpiling and surge demand for essentials in the second half of fiscal year 2020 to an increased demand for discretionary items that is continuing into this fiscal year. Our hardline category experienced approximately 7% comparable sales growth compared to the prior year quarter. Virtually all categories in that segment enjoyed growth, but the leaders were garden patio, which grew 42%, sporting goods, which grew 29%, and small appliance sales grew 19%. Due to the COVID stock-ups in the prior period, 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 soda and beverages, pet supplies, and oils and condiments. Overall, our food category remained steady and had a nearly 6% gain in the quarter. Our fresh category grew nearly 11% this quarter versus Q4 of last year, with poultry growing 26%, meats were up 23%, and gourmet foods were up 12%. We're seeing growth in our high-quality fresh products sourced 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 in our markets. Our new produce distribution centers allow us to provide farm-to-table produce more cost effectively, allowing us to pass on a better value than if we were to purchase from distributors. We currently have two produce distribution centers in operation located in Panama and Costa Rica. We expect our third produce distribution center in the Dominican Republic to be fully operational by the end of the current quarter. We intend to continue to expand this program with additional produce distribution centers in more of our markets going forward. We especially like this program because it is a win-win-win for our business, our members, and our local communities. It also furthers our mission to be a socially responsible business. A significant component of our merchandising strategy and another way we build brand loyalty and differentiate ourselves from our competitors is through our private label products. Our private label products only earn a private label if we believe the product is of the same or better quality as the leading brand and can be offered for a better price. We've increased our selection in all major areas versus the prior year. Our private label sales as a proportion of our total net merchandise sales for the 12 months ended August 31, 2021 was 22%. This is going to be an important part of our merchandising strategy as we move forward. Beyond the obvious benefits of quality, value, and price, private label gives us greater opportunity to nearshore the sourcing and manufacturing on select items. It gives us the opportunity to invest in local markets. It helps potentially reduce the risk of supply chain disruption. And it helps identify potential opportunities for vertical integration. Our other business category yielded 41% comparable net sales growth led by our food court, which grew by 46%, and bakery, which grew 31% for the quarter versus the prior year. We achieved these growth levels despite the fact that Trinidad food courts were closed most of the quarter and were restricted to take out for the rest of the quarter. Additionally, a few other markets also had some club closure days that negatively impacted sales in this category. Turning to supply chain and inventory, just like many other businesses across the globe, we experienced several challenges during the quarter, including container shortages, port delays, and truck and driver shortages. These disruptions and shortages are impacting the timing of deliveries and leading to higher freight, transportation, and labor costs. Despite all of these issues, we worked hard to hold down or mitigate the price increases passed on to the members while maintaining sufficient inventory. Our expanded network of distribution centers and additional real-time data on a number of fronts has facilitated alternative routes of shipments, increased throughput, and provided flexibility, all of which helped us keep good in stocks and generate the sales for this quarter. We've also made strategic investments in inventory and worked with our local vendors to source alternative products to reduce potential future out of stocks on high demand items that have been impacted by these disruptions or that have been affected by electronic part shortages. In the last several months, we've also experienced inflation because of significant increases in the prices of commodities that are input to our vendors products. Despite these issues, Our team has done a great job of holding, delaying, or mitigating cost increases in their continued efforts to provide the best value to our members. However, supply chain disruptions and overall inflationary impact of sourcing and shipping merchandise are causing pressure on our ability to consistently source merchandise and will likely further impact our costs and the price of merchandise. We are closely monitoring our inventory and supply levels to continue to provide the best possible value in this inflationary environment while mitigating against the risk of decline in demand. Now looking at real estate. We're excited about our plans to open our 48th club in Aranda, Guatemala next week, which will be our fifth club in Guatemala. We also expect to open a new smaller format warehouse club in Bucaramanga, Colombia next month, which will be our ninth club in Colombia. Our technology and omnichannel capabilities enhance the value of our smaller format club concept by allowing us to extend our reach and presence in regional or secondary city locations and represents a significant opportunity for growth for the company. Following Bucaramanga, the next planned opening will be in Portmore, Jamaica, which is currently scheduled to open in spring of 2022, this fiscal year. We have expanded our real estate team and have an active pipeline of additional potential club locations that we're working on in many of our markets, which we will announce as the level of certainty around the timing of each project solidifies. We will evaluate the locations, sizes, and investments required for these additional clubs in the context of the opportunities we now see to capture sales through the combination of our brick and mortar clubs our Pricemark.com platform, enhanced delivery capabilities, and potentially less costly strategically located fulfillment and delivery hubs, which we are studying now. Our member wellness initiatives remain a key focus of our growth strategy. As of August 31, 2021, we had 38 in-club optical centers in nine of our markets. We plan to expand this service to almost all clubs by the end of fiscal 2022. As of the end of fiscal 2021, we had opened pharmacies in three of our clubs in Costa Rica, and we expect to open pharmacies in the remaining five Costa Rica clubs during the current quarter, followed by other countries that we are planning for pharmacies as well. We recently opened our first two audiology service centers in Guatemala under our member wellness umbrella. and we'll be opening our new club in Aranda with audiology and optical services included. We plan a full rollout of audiology to all clubs in Guatemala during this quarter. Initial indications from our audiology department are that our members are enjoying dramatic savings relative to the lowest-priced competitors in addition to improving their quality of life. In recognition of all the hard work determination, flexibility, and commitment to the company during this pandemic, we paid all of our non-management employees a special appreciation bonus, which in some markets has a component that incentivizes our employees to get vaccinated. The total impact to the fourth quarter was approximately $1.9 million. Price Mart's people-first culture is embodied at every level of the organization, And it is humbling to see the tireless efforts made by our employees to support the members, coworkers, and our communities and ensure business continuation throughout all of these significant challenges that have been brought on by the COVID pandemic. To bring you current, following the fourth quarter, we sold the legacy Aeropost Casiero and Marketplace operations. The talent, technology, and processes we gained when we acquired Aeropost in 2018 served as a springboard to launch our e-commerce platform, Pricemart.com, accelerated online sales for curbside pickup and delivery, and generated online member signups, renewals, and payments, and enhances our ability to better connect and serve our members. We've retained the requisite valuable talent and the technology that is directly applicable to Pricemart's plans for the future growth of our omni-channel business, data analytics, and information technology capabilities. We meanwhile recouped a portion of our original investment in Aeroposts while dispensing of parts of the business that we believe are not core to PriceSmart's growth plan. Examples of the talent we've retained include our recently created EVP position of Chief Technology Officer and EVP position of Member Experience and Strategic Analytics. These key leadership roles have been filled by former Aeropost officers and continue to be supported by members of their team. We believe the transaction itself will not have a material impact on our results of operations in fiscal year 22, but will consolidate our efforts, sharpen our focus, and will help accelerate our innovation going forward by freeing up resources that were previously shared with the Aeropost legacy businesses. We finished the fiscal year with a strong fourth quarter, especially as we saw memberships rebound and foot traffic to our clubs increase in most markets. When looking to the future, including 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, much of which is expense. We plan to grow by expanding our brick and mortar footprint and our e-commerce platform for both of these sales platforms with a diversified and expanded logistics and distribution system. We intend to continue our increased focus on our private label product offering and identify additional opportunities for vertical integration. We will evaluate every element of our growth plan through the lens of the member, and we will drive this growth by continually increasing the value proposition we represent to our members and by growing our member base. 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 has taken everyone's collective efforts, from frontline workers to remote and off-site workers, from clubs and country managers to corporate executives, and our supportive board of directors. Thanks to each and every one of you. Together, we're turning trials into triumphs. Our team is energized and motivated to grow, and we believe the investments that we are making to lay the foundation and infrastructure for near and medium-term growth will help us gain market share. I want to thank you all for your time today, and I'll now turn the call over to Michael.