PriceSmart(US:PSMT)2023-10-30 20:05Currency and Economic Impact - The Colombian peso devalued approximately 15% on average throughout fiscal year 2023 compared to fiscal year 2022, negatively impacting sales and demand in Colombia [62]. - The company may not be able to adjust prices or operate efficiently enough to offset increased costs due to inflation and currency fluctuations [61]. - As of August 31, 2023, approximately 78.8% of the company's net merchandise sales were in foreign currencies, indicating significant exposure to foreign currency exchange rate fluctuations [111]. - Currency exchange rate changes can significantly impact the cost of imported products and reported sales, with a hypothetical 5% negative currency movement resulting in a net loss of $768,000 [253]. - A 20% hypothetical simultaneous currency devaluation could result in an overall comprehensive loss of $126.965 million related to local currency-denominated assets [254]. - Approximately 78.8% of net merchandise sales are in markets where the functional currency is not the U.S. dollar [249]. - The company has local-currency-denominated long-term loans in Barbados, Honduras, and Guatemala, and utilizes cross-currency interest rate swaps in Colombia [251]. - The aggregate fair value of cross-currency interest rate swaps was approximately $2.3 million at August 31, 2023, compared to $12.9 million at August 31, 2022, indicating a significant decrease [255]. - A hypothetical 10% increase in currency exchange rates would have increased the value of the swaps by approximately $3.3 million, while a 10% decrease would have resulted in a net decrease of approximately $4.1 million [255]. - The monetary lease liability subject to revaluation as of August 31, 2023, was $32.5 million, reflecting additional volatility due to foreign currency exchange rates [118]. Operational Challenges - The company strategically held pricing steady across several product categories in Colombia to mitigate rising costs, adversely affecting Total Gross Margin percentage during the third quarter of fiscal year 2023 [62]. - The company faces significant competition from local retailers and online retailers, which is expected to grow and intensify in the future [65]. - Labor unions exist in three markets, and potential work stoppages could adversely affect financial condition and operations [77]. - The company is exposed to risks from natural disasters and climate change, which could disrupt operations and supply chains [70]. - Political instability and civil unrest in various countries could disrupt the flow of goods and impact operations [64]. - The company imports nearly half of its merchandise, facing challenges related to shipping delays and importation regulations [72]. - The company's future sales growth is dependent on successfully opening new warehouse clubs in existing and new markets, facing limitations in suitable site availability and local regulations [80]. - Sales growth at existing warehouse clubs may be impacted by physical limitations, affecting the number of Members that can be accommodated [80]. Technology and Cybersecurity - The company is investing in technology to enhance its e-commerce platform, aiming for a seamless omni-channel experience for members [69]. - The company is investing in e-commerce and technology initiatives, including the launch of PriceSmart.com curbside pickup and delivery service, to enhance its market position [83]. - The company is migrating to a new point-of-sale system, Elera™, which if not successfully implemented, could jeopardize operations [92]. - The company plans to upgrade its ERP system and other internal systems to improve capabilities and reduce risks of disruption [93]. - Cybersecurity risks are increasing, with potential breaches that could disrupt operations and damage reputation [95]. - Compliance with evolving privacy and information-security laws is essential to avoid legal risks and additional costs [96]. - Any security breach could lead to significant costs and adversely affect the company's reputation and financial condition [99]. - In fiscal year 2023, the company wrote off approximately $700,000 of accounts receivable from Aeropost to settle claims regarding breaches of representations and warranties [102]. Financial Position and Risks - The company completed a $75 million stock repurchase program, purchasing approximately 1,007,000 shares of common stock by October 2023 [104]. - The company recorded a $7.2 million charge in Q4 fiscal year 2023 to settle a minimum tax payment dispute, with $6.2 million accrued for unpaid years of the dispute [108]. - The company's Trinidad dollar cash and cash equivalents decreased by $82.3 million from a peak of $100.5 million as of November 30, 2020, to $18.2 million as of August 31, 2023 [114]. - The Honduran Central Bank began limiting the availability of U.S. dollars for conversion from lempiras, resulting in approximately $19.6 million of cash and cash equivalents in lempiras that cannot be readily converted [115]. - The company faces compliance risks related to international operations, which could result in significant legal costs and fines [105]. - The company is subject to changes in tax laws that could adversely affect its financial condition and results of operations [107]. - Total long-term debt as of August 31, 2023, is $139.68 million, with fixed interest rate debt comprising 91.7% of the total [247]. - The weighted-average interest rate for long-term debt with fixed interest is 6.40% [247]. - The company has faced U.S. dollar illiquidity issues in Trinidad since fiscal year 2017, impacting its ability to convert local currencies into U.S. dollars [257]. - In the third quarter of fiscal year 2023, the Honduran Central Bank began limiting the availability of U.S. dollars for conversion from Honduran lempiras, affecting operations [257]. Commodity Price Risks - The increasing price of oil and certain commodities could negatively impact operating costs and sales, particularly affecting utilities and transportation expenses [258]. - Higher oil prices may reduce the buying power of consumers in the countries where the company operates, potentially impacting sales [258]. - The company does not currently hedge against commodity price risk, exposing it to inflationary pressures on various commodities [258].