PriceSmart(PSMT) - 2024 Q4 - Annual Report

Profitability and Costs - Profitability is vulnerable to cost increases, including merchandise, wages, shipping, and utilities, which may reduce profitability [63] - The increasing price of oil and certain commodities could negatively affect operating costs and sales, impacting consumer spending [312] - The company does not currently hedge against commodity price risk [312] Competition and Market Expansion - The company faces significant competition from various retail formats and online retailers, which is expected to grow in the future [64] - Future sales growth depends on successfully opening new warehouse clubs in existing and new markets [85] - The company is considering opening warehouse clubs in new markets, but faces risks related to attracting members and competition from established players [88] Membership and Sales - Membership growth and retention are critical, as they directly influence net sales and operating income [82] - Sales growth at existing warehouse clubs may be limited by physical constraints and the availability of suitable locations [86] Risks and Disruptions - The company is exposed to risks from natural disasters and climate change, which could adversely affect operations and financial results [69][70] - Civil unrest in operating countries can disrupt the flow of goods and access to warehouse clubs [74] - The company relies on third-party suppliers for merchandise and services, with risks of supply disruptions and pricing changes that could adversely affect operations [91] - The company faces risks related to product liability claims and recalls, which could harm sales and reputation if safety standards are not met [94] - Cybersecurity risks are increasing, with potential for significant operational disruptions and costs if security measures are breached [107] - The company faces risks related to compliance with international laws and regulations, which could result in significant legal costs and fines [121] Technology and E-commerce - The company is investing in technology to compete with online retailers, which may impact short-term profitability [66] - The integration of physical and digital retail channels is crucial for the company's e-commerce growth, with potential adverse effects on market position and financial performance if unsuccessful [89] - The company is increasing investments in e-commerce and technology to enhance customer experience, but these initiatives may negatively impact short-term financial performance [90] - The company is migrating to new technology systems, including a point-of-sale system, but risks exist regarding successful implementation and potential operational disruptions [99] - The use of artificial intelligence presents risks related to accuracy and bias, which could harm the company's brand and competitive position [111] - Compliance with evolving privacy and information security laws may result in increased costs and legal risks if not properly managed [105] Financial Performance and Currency Risks - As of August 31, 2024, the company operates 54 warehouse clubs across 12 countries and one U.S. territory [79] - As of August 31, 2024, the company operated 54 warehouse clubs in 12 foreign countries, with 79.5% of net merchandise sales in foreign currencies [130] - The company recorded a $7.2 million charge in fiscal year 2023 to settle a minimum tax payment dispute, including a $1.0 million reserve against an income tax receivable [125] - The monetary lease liability subject to revaluation as of August 31, 2024, was $31.5 million, with the impact of foreign currency exchange rate fluctuations being immaterial [138] - The company is subject to volatility in foreign currency exchange rates, which could materially impact its financial performance [129] - Approximately 49.0% of net merchandise sales are from products purchased in U.S. dollars but sold in foreign currencies [301] - The company has local-currency-denominated long-term loans in Barbados, Honduras, Guatemala, and Trinidad, and cross-currency interest rate swaps in Colombia [304] - A hypothetical 5% negative currency movement could result in a net loss of $436,000 due to foreign exchange fluctuations [306] - The company seeks to manage foreign exchange risk through price adjustments, local currency loans, and cross-currency interest rate swaps [304] - The company has significant U.S. dollar net liability positions in Honduras, Guatemala, Dominican Republic, and Trinidad, totaling $73.2 million, exposing it to exchange rate losses if local currencies weaken [307] - The company experienced a comprehensive decline in cash denominated in foreign currencies, totaling approximately $4.6 million [309] - The aggregate fair value of cross-currency interest rate swaps was in a net asset position of approximately $1.3 million at August 31, 2024, compared to $2.3 million at August 31, 2023 [309] - A hypothetical 10% devaluation in currency exchange rates underlying the swaps would have increased their value by approximately $4.4 million [309] - The company has faced U.S. dollar illiquidity in certain markets, notably in Trinidad and Honduras, impacting its ability to convert local currencies into U.S. dollars [311] Stockholder Influence - Approximately 15.3% of the company's voting stock is owned by a few stockholders, which may impede corporate transactions and affect stock price [127]