PriceSmart(US:PSMT)2023-07-10 20:02PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents PriceSmart, Inc.'s unaudited consolidated financial statements for the three and nine months ended May 31, 2023 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | May 31, 2023 (Unaudited) | August 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,933,346 | $1,808,400 | | Total Current Assets | $847,190 | $773,579 | | Merchandise Inventories | $442,580 | $464,411 | | Total Liabilities | $843,653 | $817,327 | | Total Current Liabilities | $587,265 | $579,456 | | Total Stockholders' Equity | $1,089,693 | $991,073 | Consolidated Statements of Income Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended May 31, 2023 | Three Months Ended May 31, 2022 | Nine Months Ended May 31, 2023 | Nine Months Ended May 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Merchandise Sales | $1,070,263 | $999,011 | $3,211,725 | $2,954,950 | | Total Revenues | $1,096,654 | $1,030,810 | $3,293,649 | $3,044,723 | | Operating Income | $43,052 | $33,762 | $152,379 | $128,101 | | Net Income Attributable to PriceSmart, Inc. | $29,572 | $19,258 | $93,824 | $81,230 | | Diluted EPS | $0.94 | $0.62 | $3.01 | $2.63 | Consolidated Statements of Comprehensive Income - For the nine months ended May 31, 2023, comprehensive income attributable to PriceSmart was $119.8 million, a significant increase from $70.6 million in the prior-year period. This was driven by higher net income and a positive foreign currency translation adjustment of $26.6 million, compared to a negative adjustment of $15.1 million in the same period last year21 Consolidated Statements of Equity - Total stockholders' equity increased from $991.1 million at August 31, 2022, to $1.09 billion at May 31, 2023. The increase was primarily driven by net income of $93.8 million and other comprehensive income of $26.0 million, partially offset by dividends paid and treasury stock purchases26 Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended May 31 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $184,681 | $64,311 | | Net cash used in investing activities | ($197,814) | ($61,404) | | Net cash provided by (used in) financing activities | ($13,051) | $11,365 | | Effect of exchange rate changes on cash | $11,183 | ($7,034) | | Net (decrease) increase in cash | ($15,001) | $7,238 | Notes to Consolidated Financial Statements - As of May 31, 2023, the Company operated 51 warehouse clubs and plans to open three more: one in Medellín, Colombia (August 2023), one in Escuintla, Guatemala (fall 2023), and one in Santa Ana, El Salvador (early 2024), which will bring the total to 54 clubs33 - The company faces challenges with tax receivables. In one country, a $2.3 million VAT receivable was written off in Q3 FY2023 after an unfavorable court ruling. In two other countries, minimum tax rules based on sales have led to significant income tax receivables totaling $11.3 million as of May 31, 2023, which management believes are recoverable5049 - In connection with the resignation of CEO Sherry Bahrambeygui, the company recognized a one-time separation charge of approximately $7.7 million in Q2 FY202384 - The company is involved in a legal dispute with Click USA Inc. regarding the sale of Aeropost. PriceSmart has determined a settlement is probable and has written off a related receivable of approximately $0.75 million126 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q3 and YTD FY2023 financial performance, focusing on revenue growth, margin improvements, and currency impacts Overview and Business Strategy - PriceSmart operates 51 warehouse clubs in 12 countries and one U.S. territory, with plans to open three new clubs in Colombia, Guatemala, and El Salvador by early 2024171182 - The company's growth strategy is focused on three main drivers: - Investing in remodeling existing clubs, adding new locations, and opening more distribution centers - Increasing membership value through expanded services (e.g., optical, audiology), and growing the private label 'Member's Selection' brand - Driving incremental sales via PriceSmart.com and enhancing digital and technological capabilities195 Results of Operations Net Merchandise Sales Growth by Segment (Q3 FY2023 vs Q3 FY2022) | Segment | Q3 2023 Sales (in thousands) | % of Sales | % Change from Prior Year | | :--- | :--- | :--- | :--- | | Central America | $656,719 | 61.4% | +11.8% | | Caribbean | $311,578 | 29.1% | +7.3% | | Colombia | $101,966 | 9.5% | -15.7% | | Total | $1,070,263 | 100.0% | +7.1% | - For Q3 FY2023, currency fluctuations had a net positive impact of $14.9 million (1.5%) on consolidated net merchandise sales. This was driven by appreciation in Costa Rica, offset by a significant devaluation of the Colombian peso, which had a negative 16.3% impact on that segment's sales218220222 - Comparable net merchandise sales for the 13 weeks ended June 4, 2023, increased by 5.8%. On a constant currency basis, the increase was 4.3%199230 - Membership income increased 8.4% in Q3 FY2023 to $16.7 million, driven by a 2.2% increase in total member accounts to nearly 1.8 million. The trailing twelve-month renewal rate was 87.1%235236239 - Total gross margin as a percent of net merchandise sales was 15.3% for Q3 FY2023, an increase of 110 basis points from the prior year, primarily due to significant markdowns taken in Q3 FY2022 on slow-moving inventory247 - Selling, general, and administrative (SG&A) expenses increased 10.7% in Q3 FY2023 compared to the prior year, driven by higher compensation, travel, professional fees, and a $2.3 million VAT receivable write-off199251296 Liquidity and Capital Resources - Net cash provided by operating activities for the nine months ended May 31, 2023, was $184.7 million, a significant increase from $64.3 million in the prior-year period, mainly due to favorable changes in working capital277 - The company faces U.S. dollar illiquidity in certain markets. In Trinidad, the balance of Trinidad dollar-denominated cash and investments was $13.5 million as of May 31, 2023. In Honduras, the central bank began limiting U.S. dollar conversions in Q3 FY2023, affecting the company's ability to convert approximately $15.9 million in local currency190191276 - On February 3, 2023, the company declared a semi-annual dividend of $0.46 per share, payable on August 31, 2023, resulting in a total annual dividend of $0.92 per share for fiscal 2023280 Critical Accounting Estimates - Management identifies several critical accounting estimates requiring significant judgment, including Income Taxes, Tax Receivables (VAT and income tax), impairment of Long-lived Assets, and Goodwill289293300301 - The company wrote off a $2.3 million VAT receivable in Q3 FY2023 following unfavorable court rulings in one country. However, it has not placed an allowance on other significant tax receivables, believing it is more likely than not they will be recovered296297 Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk factors since FY2022, with ongoing U.S. dollar illiquidity in Trinidad and new limitations in Honduras - There have been no material changes in market risk factors since the fiscal year 2022 Form 10-K303 - The company continues to experience U.S. dollar illiquidity in Trinidad and began facing similar issues in Honduras during Q3 FY2023, which impedes the ability to convert local currencies to U.S. dollars304 Controls and Procedures Management concluded disclosure controls were effective as of May 31, 2023, with no material changes to internal controls over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period308 - There has been no change in internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal controls309 PART II - OTHER INFORMATION Legal Proceedings Ongoing legal claims from ordinary business are not expected to materially affect the company's financial condition or operations - The company states that ongoing legal claims from the ordinary course of business are not expected to have a material adverse effect313 Risk Factors Supplements 2022 risk factors with a new risk concerning the CEO transition, highlighting potential disruption and adverse financial impact - A new risk factor was added regarding the transition associated with the resignation of the Chief Executive Officer, effective February 3, 2023315 - The company warns that an inadequate leadership transition could cause disruption, loss of institutional knowledge, and adversely affect financial performance and strategic plans317 Unregistered Sales of Equity Securities and Use of Proceeds Details Q3 FY2023 share repurchases for tax withholding, noting no activity under the $75 million stock buyback program - In Q3 FY2023, the Company repurchased 2,394 shares to cover employees' tax withholding obligations related to vesting of restricted stock320321 - No repurchases were made under the authorized $75 million Stock Buyback Program during the quarter ended May 31, 2023321 Defaults Upon Senior Securities None - None reported322 Mine Safety Disclosures Not applicable - Not applicable323 Other Information None - None reported324 Exhibits Lists exhibits filed with the Form 10-Q, including corporate governance documents, a separation agreement, and required certifications - Lists exhibits filed with the report, including CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents326