PriceSmart, Inc.

Good afternoon, everyone, and welcome to Price Smart Incorporated's earnings release conference call for the first quarter of fiscal year 2022, which ended on November 30th of 2021. After remarks from our company's representatives, Ms. Sherry Barron-Beggy, 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 7th, 2022. A digital replay will be available following the conclusion of today's conference call through January 14th of 2022 by dialing 1-877-344-7529 for domestic callers or 1-412-317-0088 for international callers and by entering the replay access code 601-4456. 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 PriceMart earnings call for the first quarter of fiscal year 2022. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released yesterday afternoon, January 6, 2022. 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, if 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, plan, will, may, should, estimate, and similar expressions. All forward-looking statements are based on current expectations and assumptions as of today, January 7, 2022. 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.

Good day, everyone. Welcome to our earnings call. I hope you're all starting 2022 with the same optimism that our folks here have for the new year. So we have some great topics to cover today. And as you can see from the results, we had a very strong first quarter of the fiscal year. COVID or no COVID, supply chain disruptions or not, the results delivered by our team are very, very solid. So now looking at the numbers During the first quarter, our total membership base has grown to a new record level with 7% growth year over year, and our 12-month membership renewal rate was very strong at 89%. Our headline numbers all grew over their prior comparable period, and it's worth noting that results of this quarter are being compared to a quarter last year in which significant growth was achieved relative to the same quarter in fiscal year 2020. So net merchandise sales increased 12.6% versus the same period last year. With regard to comparable sales in Q1, they increased 9.4% versus the same period last year. Currency continues to be a headwind and impacted total and comparable net merchandise sales by 1%. Our operating income grew 3.3% in the first quarter of this fiscal year when compared to the same period last year. And earnings for the first quarter grew 10.1% to $30.5 million versus $27.7 million in the prior year period, yielding diluted and basic earnings per share of 98 cents in the current quarter versus 90 cents in the prior year period. Now looking forward into Q2, We can report strong holiday sales with our comparable net merchandise sales for the four weeks ended December 26, 2021. They were up 10.1%. This was achieved despite a negative currency impact of 2.8%. We're seeing good momentum and our team is well prepared to build on that momentum. So now I'd like to talk a little bit about how we're pursuing growth for our company. We're focused on three major drivers to grow our company. The first is real estate, opening new clubs and making investments in our distribution network to ensure that we're strategically located in the right places to maximize efficiencies in the supply chain. Second is enhancing the value of the membership. And third is is driving incremental sales for the company through our new platform, Pricemark.com, and other digital capabilities. So now let's briefly touch on some of our activities in each of those areas. With regard to real estate, we continue to actively seek opportunities to expand our geographic footprint for brick-and-mortar warehouse clubs. It is our intent to continue and even accelerate our current pace of club growth over the next three to five years and to continue to explore and evaluate opportunities in new markets. Since the beginning of the COVID pandemic, we've opened four clubs. Two of those clubs were just opened in the first quarter of fiscal 22. The first of those two is the Aranda Club in Southeast Guatemala City, Guatemala, and it's our fifth club in Guatemala. Our COO attended the opening and was extremely pleased with the club, our employees, and the overall offering we provide in that market. In only about three months, we're seeing strong performance and good growth in membership, and we see potential for even more clubs in Guatemala. In November, during the first quarter of this fiscal year, I, along with several members of our leadership team, traveled to Colombia to visit our clubs there and evaluate the markets. We attended the opening of Florida Blanca, our ninth club in Colombia located near Bucaramanga. It felt really good to be back in our markets, and it was quite reassuring to see that our local management team is doing an exceptional job. Our employees were positive and extremely grateful for how they've been cared for and protected during this very difficult time. We are working to increase our presence in the Colombian market. Although not yet announced, We can share with you today that we're under contract, permits have been issued, and site preparation is underway for a new club in Medellin, Colombia. The site is in the center of a densely populated and growing area of Medellin with very good demographics for our business. I got to see it myself when I was there in November, and we're just extremely excited about the prospects for this location. Assuming all goes as planned, this club, which we refer to as St. Michelle, should open in the fall of 2023. Also, as we previously shared, the Portmore Jamaica Club is progressing nicely. We believe Jamaica is a strong market for us, and the sales generated out of our Kingston Club have been historically record-setting for that location. So we're looking forward to the opening of Portmore in approximately April of this year, and that will mark the 50th club for our company. We've invested in our real estate team and have more potential locations identified for potential new clubs than we've had in years. Of course, the pipeline includes potential sites at various stages of evaluation or due diligence, but there's no doubt the positive results that we're seeing from newer clubs, the increase in demand for our memberships, And the opportunity that we see to serve the needs of these markets responsibly and competitively is a strong motivator to increase our brick and mortar presence and expand our geographic footprint with new clubs. Hand in hand with our plans for club growth is smart planning for our distribution network and additional distribution centers of various types so that we can most efficiently support the flow of merchandise from the supplier to the members. be it sales generated from the clubs or through Pricemark.com. Also, the need for optionality in today's world has proven essential. Therefore, we plan to make appropriate investments in our distribution network to maximize efficiencies, minimize supply chain disruption, and to provide optimal support for a growing e-com business. We also intend to expand our network of produce distribution centers from three that we currently operate to six. Sites are at various stages of analysis and execution, but we expect that these eventual six produce distribution centers will allow us to serve local and regional produce to all of our current markets. These distribution facilities sometimes also provide the opportunity to centralize certain production activities, such as bakery, meat processing, and packaging and labeling, all of which is intended to lead to greater efficiencies. As we scale up the number of our clubs and sales in our markets, we continually evaluate how to land our merchandise at the lowest cost. Strategically located distribution centers enable us to realize greater efficiencies, which results in better pricing, guards against lost sales, and provides optionality to mitigate the additional expenses associated with supply chain disruption. And that's a reality that we're all having to contend with nowadays. Now moving to our second driver for growth, enhancing membership value. At its core, our business model is about making our value proposition so compelling, so great, that people choose to pay a membership to access what we provide. So we are continually developing new ways to reduce costs and provide greater value. Examples include our direct farm program where we invest and partner with local farmers to source better quality produce at a lower cost, which we can then pass the savings on to the member. Another example is our private label program. We have strong brand recognition in our market and a great reputation. Private label gives us the opportunity to give even greater value to our members. So we plan to continue expanding our offering, especially in the area of hard and soft lines. Private label also provides us the opportunity to source quality items locally when appropriate. Select local sourcing has a number of benefits. For example, it supports local communities in which we operate by developing industry and creating direct and indirect jobs. It can help mitigate the FX risk It reduces exposure to supply chain disruption and escalation of transportation costs. So there are a number of reasons for us to continue investing in and expanding our private label, including the fact that it's a differentiator for us, given that it's our own brand. Private label represented approximately 23.6% of our merchandise sales in the first quarter of fiscal 22. which is up from 22% for the full year of fiscal 21. We also enhance membership value by offering services that can enhance the quality of life for our members. Our well-being initiative, which continues to expand, currently offers optical services in 45 clubs with free eye exams for the member and additional members of their families, along with deeply discounted quality eyeglass frames. We expect that we're going to be opening at least two more before the end of this fiscal year. And our optical has proven to be a great success for us. We provide audiology services. This is one of our newest initiatives under the well-being umbrella. And we provide those services in all of all five of our Guatemala clubs with free hearing exams for members and members of their family, as well as deeply discounted hearing aids. We expect to roll out audiology to somewhere between a third and half of our clubs before the end of the fiscal year. And we've opened pharmacies in all eight of our Costa Rica clubs and also intend to roll out pharmacy to more of our market. Members also benefit from the convenience services we provide, such as curbside pickup and delivery options for purchasing, I'm sorry, for purchases using our Click and Go platform. And so we continue to invest in and enhance these services. We also believe that a benefit of being a member is that we can be trusted. As a company, we are trusted and we are working on really cultivating that goodwill and trust that that comes from the fact that we put such emphasis on keeping our members safe and treating them responsibly. During COVID and to this day, we've maintained compelling prices and great value for our members. Even in times of scarcity and supply chain interruptions, our team did a great job of ensuring we had the right amounts of the right merchandise at the right place, at the right price, and at the right time so that we could maximize sales and make available those goods when our members needed it most. So, stepping back, driving membership value leads to a higher membership base. It provides the opportunity to increase the membership fee when appropriate, and it allows us to reinvest the membership fee to drive prices down, which in turn then makes the membership even more valuable. By adding more valuable benefits that members can only get from us, we expect membership income to grow significantly. and for that to be a driver for growth for our company. So now turning to our third main driver, we are focused on generating incremental sales from Pricemark.com and other online capabilities. Now, that doesn't mean that it's necessarily limited to the sales that are transacted online, but by virtue of our presence online, we see opportunities to generate incremental sales both online and in our clubs. As mentioned earlier, we continue to invest in our development and evolution of PriceMart.com and our technology tools that allow us to engage in better analytics with the valuable resources we have with our membership data. We're seeing positive signs and opportunities to grow sales because of our online platforms. In fact, we found that members who shop both online and in clubs generally spend more than comparable members who shop exclusively in clubs. In Q1 on PriceSmart.com, we saw an increase in sales, transactions, and penetration of total sales from the immediately preceding quarter. We recently surpassed 1.5 million transactions on PriceSmart.com. And sales via Pricemark.com represented 4% of our first quarter sales, up from 3.5% in the preceding quarter, which was Q4 of FY21. However, once again, it's important to emphasize that our online format and our club do not operate in silos. Pricemark.com provides a great opportunity to connect and demonstrate our value proposition to our members. The two formats, Formats should reinforce each other to drive greater sales overall for the company. The online platform provides convenience. In fact, 15% of all new members in Q1 signed up online. It's also an effective vehicle to provide information and offerings that can help drive in-club sales as well. In addition, through Pricemark.com, we have better connectivity with our members and a two-way communication channel that allows us to provide better customer service. Although our current online platform and technology tools have already become a significant part of how we do business and connect with our members, we believe we have untapped opportunity to utilize this platform and the data it generates to effectively grow incremental sales. So wrapping up, Underlying all of these drivers of growth and what makes any of this a reality is our people. We've always been a company that puts our employees first. But I must admit, COVID, you know, it not only gave us an opportunity to prove it to our employees, it compelled us to do even better. One of the greatest tangible accomplishments in this last year, which you don't see reflected necessarily in the numbers, was to make sure that all of our employees at all levels of our company had access to good healthcare. No doubt, this was a cost we had not previously incurred, but I believe it is one of the wisest long-term investments we've made. The appreciation, loyalty, and commitment expressed by our employees is palpable. I firmly believe how we have cared for our employees through these uncertain times is a major contributor to the results that we're talking about here today. I want to thank our team for a great job on a stellar quarter, and I'll hand it back to Michael now. Thank you.