PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The company's unaudited consolidated financial statements for the three months ended November 30, 2023 and 2022 CONSOLIDATED BALANCE SHEETS The balance sheets detail the company's financial position as of November 30, 2023, and August 31, 2023 Consolidated Balance Sheet Highlights (Amounts in Thousands) | Item | Nov 30, 2023 (Unaudited) | Aug 31, 2023 | | :--- | :--- | :--- | | Total Assets | $2,029,279 | $2,005,608 | | Total Liabilities | $947,035 | $898,565 | | Total Stockholders' Equity | $1,082,244 | $1,107,043 | | Cash and cash equivalents | $174,452 | $239,984 | | Merchandise inventories | $529,898 | $471,407 | | Long-term debt, net of current portion | $99,704 | $119,487 | CONSOLIDATED STATEMENTS OF INCOME The income statements detail revenues, expenses, and net income for the three months ended November 30, 2023 Consolidated Statements of Income (Three Months Ended Nov 30, Amounts in Thousands, Except Per Share Data) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Total revenues | $1,166,475 | $1,054,806 | | Operating income | $58,213 | $55,527 | | Net income | $38,047 | $32,905 | | Basic net income per share | $1.24 | $1.05 | | Diluted net income per share | $1.24 | $1.05 | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME This statement outlines net income and other comprehensive income items like currency translation adjustments Consolidated Statements of Comprehensive Income (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Net income | $38,047 | $32,905 | | Other Comprehensive Income (Loss) | $3,580 | $(551) | | Comprehensive income | $41,627 | $32,354 | - Foreign currency translation adjustments positively impacted other comprehensive income by $3,537 thousand in Q1 FY2024, a significant improvement from a negative impact of $885 thousand in Q1 FY202321 CONSOLIDATED STATEMENTS OF EQUITY The statements of equity show changes in stockholders' equity for the three months ended November 30, 2023 Consolidated Statements of Equity Highlights (Amounts in Thousands) | Item | Nov 30, 2023 | Aug 31, 2023 | | :--- | :--- | :--- | | Total Stockholders' Equity | $1,082,244 | $1,107,043 | | Retained earnings | $855,606 | $817,559 | | Treasury stock at cost | $(113,748) | $(43,961) | | Shares outstanding | 30,516,876 | 30,976,941 | - The company purchased $69,972 thousand of treasury stock during the three months ended November 30, 2023, significantly higher than $1,300 thousand in the prior year period24 CONSOLIDATED STATEMENTS OF CASH FLOWS This section details cash flows from operating, investing, and financing activities for Q1 FY2024 Consolidated Statements of Cash Flows (Three Months Ended Nov 30, Amounts in Thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $41,098 | $30,463 | | Net cash used in investing activities | $(30,116) | $(21,493) | | Net cash provided by (used in) financing activities | $(74,509) | $14,719 | | Net increase (decrease) in cash, cash equivalents | $(65,314) | $30,315 | | Cash, cash equivalents and restricted cash at end of period | $186,888 | $281,688 | - Net cash used in financing activities significantly increased to $74.5 million in Q1 FY2024, primarily due to substantial treasury stock repurchases, compared to net cash provided of $14.7 million in Q1 FY202326 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed notes covering accounting policies, revenue, debt, and segment information NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION PriceSmart operates 53 international membership warehouse clubs with a focus on three key growth drivers - As of November 30, 2023, PriceSmart operates 53 warehouse clubs in 12 countries and one U.S. territory, with a new club planned for Santa Ana, El Salvador in February 202431 - The company's growth strategy is centered on three key drivers: 1) investing in remodeling existing clubs, adding new locations, and opening more distribution centers; 2) increasing membership value; and 3) driving incremental sales via PriceSmart.com and enhanced online, digital, and technological capabilities3235 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details the company's significant accounting policies, including consolidation and tax receivables - The company consolidates wholly-owned subsidiaries and joint ventures where it is the primary beneficiary, accounting for other joint ventures under the equity method3438 Restricted Cash (Amounts in Thousands) | Item | Nov 30, 2023 | Aug 31, 2023 | | :--- | :--- | :--- | | Short-term restricted cash | $2,869 | $2,865 | | Long-term restricted cash | $9,567 | $9,353 | | Total restricted cash | $12,436 | $12,218 | - The company maintains significant VAT and income tax receivables, totaling $40.5 million and $42.1 million respectively as of November 30, 2023, and does not provide allowances against them, believing it will ultimately succeed in refund requests464952 NOTE 3 – REVENUE RECOGNITION Revenue is primarily recognized from merchandise sales and membership fees, which are recognized over 12 months - Membership income is recognized ratably over the 12-month term of the membership, with a 60-day full refund policy93 - The annual fee for Platinum Memberships increased by $5 to approximately $80 in most markets during the first quarter of fiscal year 2024, offering a 2% rebate on most items up to $500 annually96 Net Merchandise Sales by Category (Three Months Ended Nov 30, Amounts in Thousands) | Merchandise Category | 2023 | 2022 | | :--- | :--- | :--- | | Foods & Sundries | $558,231 | $511,894 | | Fresh Foods | $329,602 | $295,288 | | Hardlines | $132,564 | $115,594 | | Softlines | $54,842 | $54,420 | | Food Service and Bakery | $50,269 | $46,979 | | Health Services | $9,506 | $1,288 | | Total Net Merchandise Sales | $1,135,014 | $1,025,463 | NOTE 4 – EARNINGS PER SHARE The company calculates basic net income per share using the two-class method for participating securities Earnings Per Share (Three Months Ended Nov 30, Amounts in Thousands, Except Per Share) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Net income available for distribution | $37,416 | $32,319 | | Basic weighted average shares outstanding | 30,269 | 30,713 | | Diluted average shares outstanding | 30,269 | 30,719 | | Basic net income per share | $1.24 | $1.05 | | Diluted net income per share | $1.24 | $1.05 | NOTE 5 – STOCKHOLDERS' EQUITY This note covers dividends, comprehensive loss, and the completion of the $75 million share repurchase program - No dividends were declared in the first three months of fiscal year 2024, but the company anticipates ongoing semi-annual dividend payments109 Accumulated Other Comprehensive Loss (Amounts in Thousands) | Item | Nov 30, 2023 | Sep 1, 2023 | | :--- | :--- | :--- | | Beginning balance | $(163,992) | $(163,992) | | Foreign currency translation adjustments | $3,537 | N/A | | Defined benefit pension plans | $121 | N/A | | Derivative instruments | $(78) | N/A | | Ending balance | $(160,412) | N/A | - The $75 million share repurchase program, authorized in July 2023, was successfully completed in Q1 FY2024, resulting in the purchase of approximately 1,007,000 shares of common stock115259 NOTE 6 – COMMITMENTS AND CONTINGENCIES This section addresses legal proceedings, tax contingencies, and other significant company commitments - The company is involved in legal proceedings and tax audits, accruing for probable and estimable losses, but believes the final disposition of current matters will not materially adversely affect its financial position119120121 - As of November 30, 2023, the company has $4.7 million in non-cancelable construction service obligations and has signed a lease for a new facility in Miraflores, Guatemala, expected to be delivered in H1 2025, with estimated future lease payments of $26.9 million129130 - The company plans to purchase its Via Brasil club building in Panama for approximately $33.0 million in Q2 FY2024, which will eliminate a $12.1 million lease liability and $1.4 million in annual lease payments130 NOTE 7 – DEBT This note details the company's short-term borrowings and long-term debt facilities and maturities Short-term Borrowings (Amounts in Thousands) | Item | Nov 30, 2023 | Aug 31, 2023 | | :--- | :--- | :--- | | Total Amount of Facilities | $171,000 | $166,000 | | Facilities Used | $9,199 | $8,679 | | Facilities Available | $161,801 | $157,624 | | Weighted average interest rate (Uncommitted) | 12.6% | 13.2% | Long-term Debt (Amounts in Thousands) | Item | Nov 30, 2023 | Aug 31, 2023 | | :--- | :--- | :--- | | Current portion of long-term debt | $35,276 | $20,193 | | Long-term debt (net of current portion) | $99,704 | $119,487 | | Total Long-term Debt | $134,980 | $139,680 | - The company was in compliance with all covenants for its short-term and long-term debt facilities as of November 30, 2023134136 NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES PriceSmart uses derivative instruments to hedge interest rate and foreign currency exposure - The company uses interest rate swaps and cross-currency interest rate swaps as cash flow hedges to manage interest rate and foreign currency exposure on U.S. dollar denominated debt in international subsidiaries138139142 - Non-deliverable forward foreign-exchange contracts are used to economically hedge exposure to U.S. dollar merchandise inventory expenditures but do not qualify for derivative hedge accounting143154 Net Fair Value of Derivatives Designated as Hedging Instruments (Amounts in Thousands) | Item | Nov 30, 2023 | Aug 31, 2023 | | :--- | :--- | :--- | | Net fair value of derivatives | $2,614 | $4,496 | | Net OCI (Other Comprehensive Income) | $1,955 | $3,207 | NOTE 9 – SEGMENTS PriceSmart operates in four reportable segments: United States, Central America, the Caribbean, and Colombia - The company's reportable segments are United States, Central America, the Caribbean, and Colombia, based on geographic location for management and operational decisions156 Segment Revenue from External Customers (Three Months Ended Nov 30, Amounts in Thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | United States Operations | $10,009 | $10,458 | | Central American Operations | $700,567 | $629,079 | | Caribbean Operations | $326,967 | $307,525 | | Colombia Operations | $128,932 | $107,744 | | Total Revenue from external customers | $1,166,475 | $1,054,806 | Segment Operating Income (Three Months Ended Nov 30, Amounts in Thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | United States Operations | $9,949 | $13,592 | | Central American Operations | $56,902 | $50,130 | | Caribbean Operations | $23,332 | $24,503 | | Colombia Operations | $3,617 | $4,868 | | Total Operating income | $58,213 | $55,527 | NOTE 10 – SUBSEQUENT EVENTS The company evaluated all events subsequent to November 30, 2023, and found none requiring disclosure - No subsequent events requiring disclosure were identified between November 30, 2023, and the issuance date of the consolidated financial statements160 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial condition and operational results for the three months ended November 30, 2023 Forward-Looking Statements This subsection serves as a cautionary note regarding forward-looking statements subject to risks - The report contains forward-looking statements about future revenues, earnings, cash flows, omni-channel initiatives, and warehouse club openings, which are subject to various risks and uncertainties163 Overview PriceSmart operates 53 warehouse clubs in Central America, the Caribbean, and Colombia - PriceSmart operates 53 warehouse clubs across 12 countries and the U.S. Virgin Islands, with revenues exceeding $4.4 billion in fiscal year 2023, serving nearly two million membership accounts165 - The company sources over half its merchandise regionally and offers 'Member's Selection' private label products, along with new services like optical, audiology, and pharmacy167 Number of Warehouse Clubs in Operation | Country/Territory | Nov 30, 2022 | Nov 30, 2023 | Anticipated Openings in CY 2024 | | :--- | :--- | :--- | :--- | | Colombia | 9 | 10 | — | | Costa Rica | 8 | 8 | — | | Panama | 7 | 7 | — | | Dominican Republic | 5 | 5 | — | | Guatemala | 5 | 6 | — | | Trinidad | 4 | 4 | — | | Honduras | 3 | 3 | — | | El Salvador | 2 | 3 | 1 | | Nicaragua | 2 | 2 | — | | Jamaica | 2 | 2 | — | | Aruba | 1 | 1 | — | | Barbados | 1 | 1 | — | | U.S. Virgin Islands | 1 | 1 | — | | Totals | 50 | 53 | 1 | Factors Affecting the Business The business is influenced by economic trends, foreign currency volatility, and political conditions - Sales and profits are affected by GDP growth, consumer preferences, foreign currency exchange rates, political/social conditions, and competition174 - Currency fluctuations significantly impact sales and profit, with 79.5% of Q1 FY2024 net merchandise sales in non-U.S. dollar currencies, of which 49.7% were products purchased in U.S. dollars176 - The company faces U.S. dollar illiquidity in certain markets, notably Trinidad ($29.0 million in local currency cash/investments as of Nov 30, 2023) and Honduras ($22.8 million in local currency cash/investments as of Nov 30, 2023), impeding conversion to U.S. dollars181182 Mission and Business Strategy The mission is to improve lives by delivering quality goods and services at low prices and operating profitably - PriceSmart's mission is to improve lives and businesses through responsible delivery of quality goods and services at the lowest possible prices, while operating profitably and providing a good return to investors183 - The strategy includes blending brick-and-mortar appeal with online shopping convenience, enhancing member experience, and leveraging technology for operational efficiencies183 Growth The growth strategy focuses on investing in clubs, increasing membership value, and driving online sales - Growth is driven by investing in remodeling current clubs, adding new locations (e.g., Santa Ana, El Salvador in Feb 2024), and expanding distribution centers (e.g., Panama relocation)185 - Increasing membership value through additional services (optical, audiology, pharmacy) and private label 'Member's Selection' brand, which represented 27.2% of total merchandise sales in Q1 FY2024 (up from 25.9% YoY)185 - Driving incremental sales via PriceSmart.com and enhanced online, digital, and technological capabilities, leveraging data analytics to understand member preferences and expand into new markets186 Financial highlights for the first quarter of fiscal year 2024 Q1 FY2024 highlights include a 10.6% revenue increase and a 15.6% net income increase to $38.0 million Q1 FY2024 Financial Highlights (YoY Changes) | Metric | Change | | :--- | :--- | | Total revenues | +10.6% | | Net merchandise sales | +10.7% | | Net merchandise sales - constant currency | +6.8% | | Comparable net merchandise sales | +8.0% | | Comparable net merchandise sales - constant currency | +4.3% | | Membership income | +11.7% | | Total gross margins | +9.6% | | Selling, general and administrative expenses | +12.1% | | Operating income | +4.8% | | Net income | +15.6% | | Net income per diluted share | +$0.19 | | Adjusted net income | +8.7% | | Adjusted net income per diluted share | +$0.12 | | Adjusted EBITDA | +3.5% | Non – GAAP (Generally Accepted Accounting Principles) Financial Measures This section defines and reconciles non-GAAP measures used to assess core operating performance Adjusted Net Income and Adjusted Net Income per Diluted Share These non-GAAP measures exclude non-recurring items to provide a clearer view of core operating performance Adjusted Net Income and Per Diluted Share (Three Months Ended Nov 30, Amounts in Thousands, Except Per Share) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Net income as reported | $38,047 | $32,905 | | Aeropost-related write-offs | — | $2,125 | | Adjusted net income | $38,047 | $35,030 | | Net income per diluted share | $1.24 | $1.05 | | Aeropost-related write-offs (per share) | — | $0.07 | | Adjusted net income per diluted share | $1.24 | $1.12 | Adjusted EBITDA Adjusted EBITDA is a non-GAAP measure providing insight into operational profitability Adjusted EBITDA Reconciliation (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 | 2022 | | :--- | :--- | :--- | | Net income as reported | $38,047 | $32,905 | | Interest expense | $2,816 | $2,749 | | Provision for income taxes | $18,153 | $16,426 | | Depreciation and amortization | $19,494 | $17,568 | | Interest income | $(2,866) | $(1,157) | | Other expense, net | $2,126 | $4,566 | | Aeropost-related write-offs | — | $2,125 | | Adjusted EBITDA | $77,770 | $75,182 | Net Merchandise Sales – Constant Currency and Comparable Net Merchandise Sales – Constant Currency These non-GAAP measures exclude foreign currency translation effects to show actual operational growth - Constant currency measures translate current year net merchandise sales and comparable net merchandise sales at prior year monthly average exchange rates to exclude foreign currency translation effects, indicating actual operational growth193 COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2023 AND 2022 This section compares operational results for Q1 FY2024 versus the same period in FY2023 Net Merchandise Sales Net merchandise sales increased by 10.7% to $1.135 billion in Q1 FY2024, with a positive currency impact Net Merchandise Sales by Segment (Three Months Ended Nov 30, Amounts in Thousands) | Segment | 2023 Amount | % of Net Sales | Increase from Prior Year | % Change | 2022 Amount | % of Net Sales | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Central America | $686,993 | 60.5% | $69,941 | 11.3% | $617,052 | 60.2% | | Caribbean | $322,141 | 28.4% | $19,277 | 6.4% | $302,864 | 29.5% | | Colombia | $125,880 | 11.1% | $20,333 | 19.3% | $105,547 | 10.3% | | Total Net Merchandise Sales | $1,135,014 | 100.0% | $109,551 | 10.7% | $1,025,463 | 100.0% | - Overall net merchandise sales grew by 10.7% in Q1 FY2024, driven by an 8.2% increase in transactions and a 2.3% increase in average ticket, with 53 clubs in operation compared to 50 in the prior year195 Impact of Currency Exchange Rates on Net Merchandise Sales (Three Months Ended Nov 30, Amounts in Thousands) | Segment | Net Merchandise Sales (2023) | Net Merchandise Sales - Constant Currency (2023) | Impact of Foreign Currency Exchange | % Impact of Foreign Currency Exchange | | :--- | :--- | :--- | :--- | :--- | | Central America | $686,993 | $656,448 | $30,545 | 4.9% | | Caribbean | $322,141 | $328,829 | $(6,688) | (2.2)% | | Colombia | $125,880 | $109,747 | $16,133 | 15.3% | | Consolidated total | $1,135,014 | $1,095,024 | $39,990 | 3.9% | Comparable Merchandise Sales Comparable net merchandise sales increased by 8.0% for the thirteen-week period ended December 3, 2023 Comparable Net Merchandise Sales Growth by Segment (Thirteen Weeks Ended Dec 3, 2023 vs. Dec 4, 2022) | Segment | % Increase in Comparable Net Merchandise Sales (2023) | % Increase/(Decrease) in Comparable Net Merchandise Sales (2022) | | :--- | :--- | :--- | | Central America | 9.1% | 8.0% | | Caribbean | 6.0% | 6.6% | | Colombia | 7.1% | (13.1)% | | Consolidated comparable net merchandise sales | 8.0% | 5.0% | - Comparable net merchandise sales increased by 8.0% for the thirteen-week period ended December 3, 2023, with all Central America markets showing positive growth206207 Impact of Foreign Currency on Comparable Net Merchandise Sales (Thirteen Weeks Ended Dec 3, 2023) | Segment | Comparable Net Merchandise Sales Growth | Comparable Net Merchandise Sales - Constant Currency Growth/(Decline) | % Impact of Foreign Currency Exchange | | :--- | :--- | :--- | :--- | | Central America | 9.1% | 4.3% | 4.8% | | Caribbean | 6.0% | 8.2% | (2.2)% | | Colombia | 7.1% | (7.2)% | 14.3% | | Consolidated comparable net merchandise sales | 8.0% | 4.3% | 3.7% | Membership Income Membership income increased by 11.7% in Q1 FY2024, driven by a 3.8% increase in member accounts Membership Income and Accounts by Segment (Three Months Ended Nov 30, Amounts in Thousands) | Segment | Membership Income 2023 | Membership Income 2022 | % Change | Number of Accounts 2023 | Number of Accounts 2022 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Central America | $10,317 | $9,525 | 8.3% | 1,015,756 | 953,660 | 6.5% | | Caribbean | $4,629 | $4,415 | 4.8% | 473,014 | 455,800 | 3.8% | | Colombia | $2,803 | $1,955 | 43.4% | 334,928 | 347,739 | (3.7)% | | Total | $17,749 | $15,895 | 11.7% | 1,823,698 | 1,757,199 | 3.8% | - Membership income increased 11.7% year-over-year, primarily due to a 3.8% increase in the total number of Member accounts216 - Platinum Membership accounts increased to 9.3% of the total membership base as of November 30, 2023, up from 7.9% in the prior year, and the trailing twelve-month renewal rate was 87.4%218219 Other Revenue Other revenue increased by 23.8% in Q1 FY2024, driven by higher incentive fees from co-branded credit cards Other Revenue (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 Amount | Increase/(Decrease) from Prior Year | % Change | 2022 Amount | | :--- | :--- | :--- | :--- | :--- | | Miscellaneous income | $3,129 | $732 | 30.5% | $2,397 | | Rental income | $574 | $(19) | (3.2)% | $593 | | Total Other revenue | $3,703 | $713 | 23.8% | $2,990 | - The increase in other revenue was primarily due to a 30.5% rise in miscellaneous income, driven by higher incentive fee revenue from co-branded credit cards221 Results of Operations Total revenues increased 10.6% to $1.166 billion, while operating income rose 4.8% to $58.2 million Consolidated Results of Operations (Three Months Ended Nov 30, Amounts in Thousands, Except Percentages) | Item | 2023 | 2022 | Increase/(Decrease) | | :--- | :--- | :--- | :--- | | Net merchandise sales | $1,135,014 | $1,025,463 | $109,551 | | Total gross margin | $182,286 | $166,395 | $15,891 | | Total gross margin percentage | 16.1% | 16.2% | (0.1)% | | Total revenues | $1,166,475 | $1,054,806 | $111,669 | | Total revenue margin percentage | 17.5% | 17.6% | (0.1)% | | Selling, general and administrative | $145,984 | $130,222 | $15,762 | | Selling, general and administrative percentage of total revenues | 12.5% | 12.3% | 0.2% | | Operating income | $58,213 | $55,527 | $2,686 | | Adjusted EBITDA | $77,770 | $75,182 | $2,588 | | Warehouse clubs at period end | 53 | 50 | 3 | | Warehouse club sales floor square feet at period end | 2,600 | 2,484 | 116 | - Total gross margin as a percentage of net merchandise sales decreased by 0.1% due to the elimination of COVID premiums and reduced liquidity premiums, partially offset by increased food service and bakery margins225 - Selling, general and administrative expenses increased by $15.8 million (12.1%) and rose by 0.2% as a percentage of total revenue, primarily due to higher compensation, professional fees, and depreciation188227 Interest Income Net interest income increased by $1.709 million to $2.866 million due to higher investment yields Interest Income (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 Amount | Change | 2022 Amount | | :--- | :--- | :--- | :--- | | Interest income | $2,866 | $1,709 | $1,157 | - Interest income increased by $1.7 million, driven by significantly more investments of surplus cash at higher yields188234 Interest Expense Net interest expense slightly increased by $0.067 million due to higher rates on long-term borrowings Interest Expense (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 Amount | Change | 2022 Amount | | :--- | :--- | :--- | :--- | | Interest expense on loans | $2,898 | $245 | $2,653 | | Interest expense related to hedging activity | $415 | $68 | $347 | | Less: Capitalized interest | $(497) | $(246) | $(251) | | Net interest expense | $2,816 | $67 | $2,749 | - Net interest expense slightly increased due to higher interest rates on long-term borrowings outstanding237 Other Expense, Net Other expense, net, decreased by $2.440 million to a net loss of $2.126 million due to lower currency losses Other Expense, Net (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 Amount | Change | % Change | 2022 Amount | | :--- | :--- | :--- | :--- | :--- | | Other expense, net | $(2,126) | $2,440 | (53.4)% | $(4,566) | - The primary driver of the decrease in other expense, net, was a $2.4 million decrease in total overall foreign currency losses188241 Provision for Income Taxes The provision for income taxes increased, but the effective tax rate decreased to 32.3% from 33.3% Provision for Income Taxes (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 Amount | Change | 2022 Amount | | :--- | :--- | :--- | :--- | | Provision for income taxes | $18,153 | $1,727 | $16,426 | | Effective tax rate | 32.3% | N/A | 33.3% | - The effective tax rate decreased to 32.3% from 33.3% primarily due to a comparably favorable net tax impact from recurring items, resulting from fewer valuation allowances on deferred tax assets from foreign tax credits188243 Other Comprehensive Income (Loss) Other comprehensive income was $3.580 million, a significant increase from a loss of $0.551 million Other Comprehensive Income (Loss) (Three Months Ended Nov 30, Amounts in Thousands) | Item | 2023 Amount | Change | % Change | 2022 Amount | | :--- | :--- | :--- | :--- | :--- | | Other Comprehensive Income (Loss) | $3,580 | $4,131 | 749.9% | $(551) | - The significant increase in other comprehensive income was primarily due to foreign currency translation adjustments, driven by the appreciation of the Colombian peso and Costa Rica colón against the U.S. dollar244 LIQUIDITY AND CAPITAL RESOURCES This section discusses liquidity, cash flow, capital expenditures, debt, and the share repurchase program Financial Position and Cash Flow Operating activities provided $41.1 million in cash, but financing activities used $74.5 million Cash and Short-term Investments (Amounts in Thousands) | Item | Nov 30, 2023 | Aug 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents, including restricted cash (foreign subsidiaries) | $163,608 | $139,050 | | Cash and cash equivalents, including restricted cash (domestically) | $23,280 | $113,152 | | Total cash and cash equivalents, including restricted cash | $186,888 | $252,202 | | Short-term investments (foreign subsidiaries) | $73,002 | $74,294 | | Short-term investments (domestically) | $15,000 | $16,787 | | Total short-term investments | $88,002 | $91,081 | Summary of Cash Flows (Three Months Ended Nov 30, Amounts in Thousands) | Activity | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $41,098 | $30,463 | $10,635 | | Net cash used in investing activities | $(30,116) | $(21,493) | $(8,623) | | Net cash provided by (used in) financing activities | $(74,509) | $14,719 | $(89,228) | | Net increase (decrease) in cash and cash equivalents | $(65,314) | $30,315 | $(95,629) | - Net cash used in financing activities shifted from a $14.7 million provision in Q1 FY2023 to a $74.5 million usage in Q1 FY2024, primarily due to treasury stock repurchases and lower proceeds from long-term bank borrowings250 Capital Expenditures Capital expenditures for Q1 FY2024 totaled $33.3 million, split between maintenance and growth initiatives - Capital expenditures for the three months ended November 30, 2023, were $33.3 million, comprising $13.6 million for maintenance and $19.7 million for growth expenditures (new clubs, supply chain, major remodels)252 Short-Term Borrowings and Long-Term Debt The financing strategy focuses on liquidity and minimizing borrowing costs while maintaining covenant compliance - The company's financing strategy aims to ensure liquidity and access to capital markets while minimizing borrowing costs, funding working capital, capital expenditures, acquisitions, dividends, and debt repayment253 Future Lease and Other Commitments The company manages future lease commitments and has new agreements in Guatemala and Panama - The company has signed a new lease agreement for a facility in Guatemala and a promissory agreement to purchase a building in Via Brasil, Panama, with current liquidity expected to cover these commitments254 Derivatives The company uses derivative financial instruments to manage interest rate and currency exchange rate risks - Derivative financial instruments are used to manage interest rate and currency exchange rate risks, as further discussed in Note 8255 Off-Balance Sheet Arrangements PriceSmart does not have any off-balance sheet arrangements with a material effect on its financials - The company has no off-balance sheet arrangements with a material current or future effect on its financial condition or statements256 Repurchase of Common Stock and Reissuance of Treasury Shares Related to Employee Stock Awards Shares are repurchased to cover employee tax obligations and reissued for stock-based compensation - Shares are repurchased upon vesting of restricted stock awards to cover employee tax withholding obligations, and treasury shares are reissued for stock-based compensation programs257258 Share Repurchase Program The $75 million share repurchase program was completed in Q1 FY2024, with no new plans in place - The $75 million share repurchase program was completed in Q1 FY2024, acquiring approximately 1,007,000 shares of common stock; no new repurchase plans are currently active259 Share Repurchase Activity (Three Months Ended Nov 30, Amounts in Thousands, Except Per Share) | Period | Number of Common Shares Acquired | Average Price Paid Per Share | Total Cost of Common Shares Acquired | | :--- | :--- | :--- | :--- | | September 1, 2023 - September 30, 2023 | 221,272 | $75.57 | N/A | | October 1, 2023 - October 31, 2023 | 722,797 | $73.67 | N/A | | November 1, 2023 - November 30, 2023 | — | — | N/A | | Total | 944,069 | $74.12 | $69,362 | Critical Accounting Estimates Financial statements require significant management estimates, particularly for taxes and long-lived assets - Management's critical accounting estimates involve significant judgments and assumptions, particularly for income taxes, tax receivables, and long-lived assets, which are inherently uncertain and can materially impact financial results261 Income Taxes Income tax expense and deferred tax assets/liabilities are based on management's best estimates - Income tax expense and deferred tax assets/liabilities rely on management's estimates of current and future taxes, involving significant judgment in interpreting tax laws and assessing deferred tax asset recoverability262263 Tax Receivables The company accumulates significant tax receivables and does not provide allowances, believing in their recovery - The company accumulates VAT and income tax receivables due to local collection procedures, often requiring significant refund claims that can take months to years to complete265266 - Despite unclear or complex rules, the company has not placed allowances on the recoverability of $10.9 million in income tax receivables and $3.4 million in deferred tax assets in one country, believing it will ultimately succeed in refund requests267268 Long-lived Assets Long-lived assets are evaluated quarterly for impairment, with no charges recorded in Q1 FY2024 - Long-lived assets are evaluated quarterly for impairment indicators, with management's judgments based on market and operational conditions and estimates of future cash flows; no impairment charges were recorded in Q1 FY2024271 Seasonality The company's business experiences holiday retail seasonality and quarterly fluctuations - Operating results fluctuate quarterly due to holiday retail seasonality, economic/political events, timing of holidays, weather, shipments, product mix, and currency effects on U.S.-sourced products272 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risks primarily stem from changes in interest rates and currency exchange rates - Market risks primarily arise from changes in interest rates and currency exchange rates, with no material changes in risk factors since the last annual report273 - U.S. dollar illiquidity in markets like Trinidad and Honduras continues to impede the conversion of local currencies to U.S. dollars, affecting the settlement of liabilities and funding operations274 ITEM 4. CONTROLS AND PROCEDURES Disclosure controls and procedures were deemed effective as of November 30, 2023 - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of November 30, 2023277 - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter278 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company expects no material adverse effect from legal claims arising in the ordinary course of business - The company is involved in ordinary course legal claims but expects no material adverse effect on its financial position, results of operations, or liquidity281 ITEM 1A. RISK FACTORS There have been no material changes to the company's risk factors since the last annual report - No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for FY2023282 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The $75 million share repurchase program was completed in Q1 FY2024, acquiring 1,007,000 shares - The company repurchases shares to cover tax withholding obligations for employee restricted stock awards283 - The $75 million share repurchase program was successfully completed in Q1 FY2024, resulting in the purchase of approximately 1,007,000 shares of common stock283 Common Stock Repurchase Activity (Quarter Ended Nov 30, 2023, Dollars in Thousands, Except Per Share Data) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | September 1, 2023 - September 30, 2023 | 221,272 | $75.57 | | October 1, 2023 - October 31, 2023 | 722,797 | $73.67 | | November 1, 2023 - November 30, 2023 | — | — | | Total | 944,069 | $74.12 | ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred285 ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Mine safety disclosures are not applicable to the company286 ITEM 5. OTHER INFORMATION There is no other information to report under this item - No other information is reported under this item288 ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - The exhibits include organizational documents (Amended and Restated Certificate of Incorporation, Bylaws), Section 302 and 906 certifications, and Inline XBRL documents289 SIGNATURES The report is duly signed by the Interim CEO and CFO on behalf of PriceSmart, Inc - The report is signed by Robert E. Price, Interim Chief Executive Officer, and Michael L. McCleary, Executive Vice President and Chief Financial Officer, on January 9, 2024294
PriceSmart(PSMT) - 2024 Q1 - Quarterly Report