Pricesmart Inc (PSMT) Q2 2026 Earnings Call Transcript

Good afternoon, everyone, and welcome to PriceSmart, Inc.'s earnings release conference call for the second quarter of fiscal year 2026, which ended on February 28, 2026. After remarks from our company's representatives, David Price, Chief Executive Officer, and Roberto Hernandez, 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, Thursday, April 9, 2026. A digital replay will be available shortly following the conclusion of the call through April 16, 2026, by dialing 1-800-770-2030 for domestic callers or 1-647-362-9199 for international callers and entering replay access code 589-8084. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Roberto Hernandez. Please proceed, sir.

Thank you, Operator, and welcome to Prismar Inc.'s Earnings Call for the second quarter of fiscal year 2026, which ended on February 28, 2026. We will be discussing the information that we provided in our earnings press release and our thank you, which were both released yesterday, April 8, 2026. Also, in these remarks, we refer to non-GAAP financial measures. You can find a reconciliation of our non-GAAP financial measures to the most directly comparable gap measures in our earnings press release and our thank you. These documents are available on our Investor Relations website at investors.pricemarks.com, where you can also sign up for email alerts. As a reminder, 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 some other expressions. All forward-looking statements are based on current expectations and assumptions as of today, April 9, 2026. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailing the company's most recent annual report on Form 10-K, the quarterly report on Form 10-Q filed yesterday, 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 David Price, PriceMatch's Chief Executive Officer.

Thank you, Gualberto, and good morning, everyone. Thank you for joining us today. We delivered a strong second quarter. Growth was broad-based across our regions, and our membership renewal rate reached an all-time high. I want to take a moment to express my sincere gratitude to every one of our employees across our 13 countries in Chile. Their dedication, hard work, and passion for doing right by our members is the foundation of our success. We delivered these results against a backdrop of continued global uncertainty, including currency volatility, evolving trade policy, and macroeconomic pressures that are a dynamic all multinationals face today. That being the case, our business delivers value to our members in good times and bad, and I am excited about the momentum we are carrying into this. With that, let me walk you through highlights from the quarter. Net merchandise sales and total revenue reached almost $1.5 billion. Net merchandise sales increased by 9.9%, or 7.8% in constant currency. Comparable net merchandise sales increased by 7.6%, or 5.5% in constant currency. Two of our recent club openings, Cartago and Quetzaltenango, are not yet included in our comparator. Net merchandise sales reached over $2.8 billion, and total revenue was almost $2.9 billion. Net merchandise sales increased by 10.2% or 8.6% in constant currency. Comparable net merchandise sales increased by 7.8% or 6.2% in constant currency. During the second quarter, our average sales ticket grew by 2.2% and transactions grew 7.5%. The average price per item increased 3.3% year over year, while average items per basket decreased 1%. First, in Central America, where we had 32 clubs at quarter end, net merchandise sales increased 8.6% or 7.8% in constant currency. Comparable net merchandise sales increased 4.7% or 4% in constant currency. Our Central America segment contributed approximately 280 basis points of positive impact to the growth in total consolidated comparable net merchandise sales for the second 14 clubs at quarter end. Net merchandise sales increased 4.3% or 5.3%. Comparable net merchandise sales increased 4.2% or 5.1% in constant currency. Our Caribbean region contributed approximately 120 basis points of positive impact to the growth in total consolidated comparable net merchandise sales. Last, in Colombia, where we had 10 clubs open at the end of our second quarter, net merchandise sales increased 30.5% or 13.8% in constant currency. Comparable net merchandise sales increased 31.3% or 14.7%. Colombia contributed approximately 360 basis points of positive impact to the growth in total consolidated comparable net merchandise sales. The increase is a result of several factors, including the appreciation of the Colombian peso, increases in member traffic, and continued strengthening of our merchandise offering, which I will share more on later in my remarks. In terms of merchandise categories, when comparing our second quarter sales to the same period in the prior year, our foods category grew approximately 9.2%. Within foods, fresh proteins were a standout. Seafood, poultry, and meat each exceeded 15% growth as we continue to elevate quality and value in those departments. Our non-foods category increased approximately 12.4%. Alongside cost efficiencies from our Asia consolidation initiatives, we drove growth with strong performance in casual apparel, especially in our activewear categories and in small appliances. It included a mix of shark ninja items that were and contributed to our focus of creating the treasure hunt experience within our clubs and online. Soft lines also had a strong quarter, highlighted by our domestics white sale promotion in January, which more than doubled sales. Service and bakery category increased approximately 12.2%, and our health services, including optical, audiology, and pharmacy, increased approximately 13%. Membership accounts grew 7.9% year-over-year to almost 2.1 million accounts, with a strong 12-month renewal rate of 90.2% as of February 28th. It is especially exciting to see our membership renewal rate at an all-time high this past quarter, A clear indication that our members see the value we deliver and remain engaged with our offering. A key focus of our membership strategy is growing the Platinum membership base. Platinum is our premium tier designed for our most engaged members. These members receive an annual cashback reward on eligible purchases, which drives loyalty, increases purchasing frequency, and rewards their continued business with us. By focusing on Platinum growth, we're investing in our highest value member relationship. On February 28th, Platinum accounts represented 19.5% of our total membership base, up from 14.5% in the same period last year. We are happy with the results of our targeted promotional campaigns, and the strong renewal rate we are seeing reflects that our members believe in the value of that upgrade. We believe that a Platinum membership combined with our strong co-branded credit card, which comes with an additional cash back on points earned, ensures that participating members get the very most out of their income as a percentage of revenue increased to 1.6% compared to 1.5% in the prior year period, driven in part by the shift toward platinum membership. These strong results reflect our team's execution and the strategic initiatives we have underway. Now, let me walk you through the progress we're making across real estate expansion, supply chain transformation, and technology investments that are enhancing our ability to serve members and position the companies for our next phase of growth. We are opening our sixth warehouse club in the Dominican Republic in the La Romana municipality early next month. We are excited to bring Price Mart to a new trade area, and we are particularly proud of the sustainable design practices incorporated in its build, including solar panels, a heat reclamation water system that eliminates the need for a water heater, recycled steel in the infrastructure, a modern CO2 refrigeration system, high-efficiency plumbing fixtures, and an intelligent energy management system. These features reflect our commitment to doing right by both our members and the planet, and importantly, they also reduce operating costs, making our club more efficient. We look forward to serving members in this new trade area as we continue to deepen our presence. In Jamaica, we have two clubs under construction, one in Montego Bay and the other on South Camp Road in Kingston, which we are of 2026 respect. Construction is progressing well for both. Recovery efforts have been strong in the aftermath of Hurricane Melissa, and market indicators suggest a robust 2025-2026 tourism season. That, combined with international relief efforts supporting the island's recovery, give us confidence in the consumer demand environment. Additionally, in the second quarter of fiscal year 2026, we purchased land for our 10th warehouse club in Costa Rica and Ciudad, only 47 miles northwest from our nearest club in San Jose. The club will be built on a six-acre property and is anticipated to open this summer. Lastly, in the third quarter of fiscal year 2026, we lease land for our eighth warehouse in Guatemala in the municipality of Villanueva, approximately 13 miles south from the nearest club in Guatemala City. The club will be built on a five-acre property and is anticipated to open in the spring of 2027. Although we are still waiting to obtain all permits, we are confident we will receive them and have begun with the initial earthworks for the club. Should we not receive the remaining permits, we can cancel the lease. Once these five new clubs are open, we will operate 61 warehouse clubs in total. We believe that there is opportunity to expand our footprint in our existing markets and plan to continue to diligently procure sites we think will strengthen our existing network of locations and meet our expected returns. Chile remains a top priority, and we are encouraged by the progress we are seeing there. We have signed executory agreements for two prospective club types and are actively pursuing additional locations. In parallel, we are laying the foundation for a successful market entry. We have hired a country general manager and local team members and are building out the procurement and logistical infrastructure needed to operate and look forward to sharing more specific milestones as they develop. Beyond new growth, we also will begin warehouse club and parking lot expansions and remodels in fiscal year 2026 in Portmore, Jamaica and Barbados. Now turning to our supply chain transformation, one of the key drivers in keeping prices low is improving how we move and distribute merchandise to our major distribution centers in Miami, Costa Rica, Panama, and Guatemala. During the second quarter, we began operations at our new distribution center in Trinidad. In addition, we plan to open distribution centers in Colombia and Jamaica during fiscal year 2026 and in the Dominican Republic during fiscal year 2027. Our goals with these distribution centers are to improve product availability, reduce lead times, and lower landed costs, among other efficiency gains. Alongside these new distribution centers, we completed implementing third-party distribution centers in China to consolidate merchandise sourced in the country. We continue to advance our migration to the RELAX forecasting and replenishment platform and remain on track to complete full implementation in fiscal year 2026. We completed onboarding our U.S. source inventory procurement process, and now we are focused on our local goods procurement process. While the implementation of a new system brings with it an initial learning curve, we are starting to realize its capabilities and expect to see the benefits of improved forecasting, product availability, and operational efficiency. During the second quarter, we advanced our multi-phase implementation of the ETA Open global trade management platform designed to enhance automation, compliance, and controls across global import and export. We believe this platform will strengthen trade compliance, improve data visibility, support scalable international growth once fully implemented. Turning now to other ways we are enhancing membership. On a comparable basis, excluding a reclassification of the produce category, private label penetration increased 50 basis points in the first six months of FY26, reflecting continued progress towards our long-term goal of growing this part of our business. Using our updated methodology, penetration of private label was 26.6. Private label serves multiple strategic purposes. It allows us to offer high quality products at lower prices than national brands. It improves our margins, and it gives us leverage with national brand suppliers by providing a trusted alternative that keeps them competitive. Recent additions like avocado oil, fresh chicken, and purified drinking water demonstrate our focus on delivering exceptional value across key everyday categories. And we have been able to pass meaningful savings to our members as reduction in commodity costs allow, including price reductions on extra virgin olive oil of 31.5% to 8.9% and mozzarella cheese of 5.8%. Our Private Label Water Program is a good example of how Private Label can deliver simultaneously for members, for the business, and for the planet. By shifting supply for our 10 Columbia clubs to a local bottler, we reduced prices by approximately 23%, roughly $2 per pack, while also lowering our carbon footprint to reduce transportation and packaging. We continue to invest in omni-channel capabilities to meet our members where they are. In the second quarter, digital channel sales reached $94.1 million, our highest dollar volume to date, up 23.4% year-over-year and representing 6.4% of total net merchandise sales. Orders placed directly through our website or app grew 10.9%, with average transaction value up 10.8%. As of February 28th, 74.7% of our members have created an online profile, and more than one in four members have made a purchase through Pricemar.com or our app, an indicator of the digital engagement we are building across our membership base. We see continued opportunity in this space, and we will keep investing to enhance the digital experience we offer our members. During the second quarter, we began migrating our mobile application to fully native iOS and Android architectures to enhance speed, reliability, and accessibility. This foundation will allow faster deployment of new features and help us deliver an outstanding member experience in our digital channels. Turning to technology investments that enhance both member and employee experience and operational efficiency. In the first quarter, we completed implementation of our new point-of-sale system, Alera, across all English-speaking Caribbean markets. We have since begun testing in Central America and are making good progress on our rollout plans for Spanish-speaking markets. Early indicators show that Alera is delivering faster checkout times, improved productivity, and expanded payment options for our members. Tangible improvements to the in-club experience. Also in the second quarter, we furthered implementation of Workday's human capital management system to replace legacy HR applications and expect to go live by end of the third quarter. This upgrade is designed to enhance the employee experience with modern user-friendly tools while improving processes and strengthening compliance. It also provides scalable, integrated data layers. Before I turn it over to Guilberto, I want to address a few additional topics. First, regarding U.S. tariffs, approximately half the merchandise we sell is sourced locally and regionally within Latin America. The other half is sourced from the U.S., Europe, China, and globally. In addition, on February 20, 2026, the U.S. Supreme Court invalidated tariffs imposed under the International Emergency Economic Powers Act. While the landscape of tariffs continues to evolve, it is important to note that we consolidate many of these international products through our Miami Distribution Center. They are shipped in bond and are not nationalized in the United States. We also take advantage of free trade agreements where we can. Additionally, we've been leveraging our expanding distribution center network and China consolidation capabilities to ship direct to market where feasible. In short, U.S. import tariffs do not apply to most of our merchandise, and as a result, we are not owed a refund from the U.S. government due to the most recent Supreme Court ruling. We continue to monitor the evolving trade policy environment, but to date, current U.S. tariff policy has not directly impacted our cost structure or business operations. We are also monitoring developments with respect to the ongoing military conflicts with Iran. We anticipate potential impacts to transportation costs or delays in the shipment or delay. The cost of fuel is a significant component of transportation cost. If our vendors or any raw material suppliers on which our vendors rely suffer prolonged manufacturing or transportation disruptions, our ability to source product could be adversely impacted, which would adversely affect our business. Also, fuel prices in some of our markets have increased significantly, which may reduce consumer demand, impacting frequency and purchasing power. However, we are monitoring and will do what we can to ensure we continue to provide the value we are known for in our communities. Lastly, I want to provide a brief preview of our March sales and some insight into our Samana Santa results. Note that Samana Santa this year started late March, early April versus mid to late April last year, so the comparability and growth for March will be skewed higher. However, our comparable net merchandise sales for the four weeks ended March 29, 2026, grew 12.3% in U.S. dollars and 9.2% in constant currency. I'm incredibly proud of the exciting assortment we offered and the outstanding preparation and execution by our merchandising, supply chain, and operation teams, and also all who were involved at the company to make this year's Samana Santa a success. With that, I'll turn it over to Guilberto's to walk you through the financial results.

Thank you, David. Continuing with the income statement, total gross margin for the quarter as a percentage of net merchandise sales increased 50 basis points to 16.1% versus Q2 last year. The increase is mainly driven by shifts in product mix, primarily within our non-food segment, and cost savings we are starting to realize from our Asia consolidation efforts when compared to the same period in the prior year. Total revenue margins improved 60 basis points to 17.7% of total revenue, from 17.1% in the same period last year. This was mainly driven by the increase in our warehouse sales margins and good results in membership renewals and platinum growth, as mentioned before by David. On overhead costs, total SG&A expenses increased to 12.7% of total revenues for the second quarter of fiscal year 2026. compared to 12.4% for the second quarter of fiscal year 2025. The 30 basis point increase is primarily related to the appreciation of the PESO in Colombia and its effect on our continued investments in technology and executive officer compensation not incurred in previous years. Operating income for the second quarter of fiscal year 26 increased 15.6% from the same period last year to $75.4 million. Operating income for the first six months of fiscal year 2026 increased 12% from the same period last year to $138.3 million. Below the operating income line, in the second quarter of fiscal year 2026, we recorded an $8.7 million net loss in total other expenses, an increase from a $5.1 million net loss in the same period last year. The primary cost of the increase is due to foreign currency-related losses, predominantly from unrealized non-cash losses related to the revaluation of the net U.S. dollar monetary asset position we have in Costa Rica, as there was a significant appreciation of the Costa Rica Cologne in the month of February. This loss was partially upset by lower foreign currency exchange transaction costs during the quarter and for the first six months of the fiscal year in Trinidad, as we executed fewer sourcing transactions. And subsequent to quarter end, we have executed and will be sourcing more foreign currency and incurring additional transaction costs for the remaining part of the fiscal year. When and how many transactions we execute in any given period is dependent on various factors, including available trading currencies and the cost to come. Lastly, in light of increased volatility in the exchange rates, we are also actively exploring options to expand our hedging program in select markets. In terms of income tax, the rate for the second quarter of fiscal year 2026 came in at 26.4%, a slightly favorable result versus 27.2% a year ago. For the six months ended February 28, 2026, our effective tax rate was 27.1%, almost in line with the 26.9% effective tax rate of the comparable prior year period. Finally, net income for the second quarter of fiscal year 2026 was $49.1 million, or $1.62 per diluted share, an increase of 11.7%, up from $43.8 million, or $1.45 per diluted share, in the second quarter of fiscal year 2025. Adjusted EBITDA for the second quarter of fiscal year 2026 was $99.7 million, compared to $87 million in the same period last year, a growth of 14.6%. Net income for the first six months of fiscal year 2026 was $89.3 million, or $2.91 per diluted share, an increase of 9.4%, up from $81.2 million, or $2.66 cents, per diluted share in the first six months of fiscal year 2025. Adjusted EBITDA for the first six months of fiscal year 2026 was $186.6 million, compared to $166.1 million in the same period last year, a growth of 12. Moving on to our balance sheet, we ended the quarter with cash, cash equivalents, and restricted cash, totaling $195.1 million, plus approximately $149.7 million of short-term investments, typically held in certificates of deposit. During our cash balances, it's important to note that as of February 28, 2026, we had $76.9 million of cash, cash equivalents, and short-term investments denominated in local currency in Trinidad, which we could not readily convert into U.S. dollars. Turning to cash flow. Net cash provided by operating activities reached $133.3 million for the first six months of fiscal year 2026, an increase of $6.9 million versus the prior year period. The increase is primarily driven by a $10.6 million increase in net income adjusted for non-cash items and a $5.3 million of overall net positive changes in other various operating assets and liabilities. This is partially observed by shifts in working capital, mainly due to higher overall inventory balances, which use $9 million of cash in operating activities. Net cash used in investing activities increased by $89.9 million for the first six months of fiscal year 2026 compared to the prior year, primarily due to net changes in short-term investments of $59.6 million, a $25.5 million increase in property and equipment expenditures, and an $11.9 million increase in purchases of long-term investment. Net cash used in financing activities increased by $21.7 million for the first six months of fiscal year 2026 compared to the prior year, primarily due to a $15.9 million increase in net repayments of short-term bank borrowings, a $3.1 million increase in the purchase of treasury stock upon vesting of restricted stock awards to cover entry's tax withholding obligations, and a $2.3 million increase in cash dividend payment. we declared our annual cash dividend, which in total is $1.40 per share, or an 11.1% increase over last year's dividend. That's five consecutive years of increases and double what we declared per share in 2021. This is another signal of the strength of our cash-generating abilities. Our priority remains executing consistently and responsibly for our long-term success. We believe our established processes, diversified footprints, and experienced teams provide a solid foundation as we manage the business day-to-day with that long-term perspective guiding us forward. We appreciate the continued support of our members, employees, and shareholders, and we thank our teams for their ongoing efforts. Thank you for joining our call today. I will now turn the call over to the operator to take your question. Operator, you may now start taking our call as well.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from a line of John Bratz from Kansas City Capital. Your line is open.

Morning, gentlemen.

Morning, John.

A couple of questions. First of all, David, when you think of, you know, it's been a couple of quarters since you first began talking about Chile and, you know, the media or the press in Chile has wrote a number of, published a number of articles about, you know, where your stores might be and some of the people you hired. But is it taking a little bit longer to sort of dot the I's and cross the T's and get permits and all this other stuff to begin construction of stores? Is it just a little bit longer than you would have anticipated. Thank you. Two other questions, David. A lot of conversations surrounding remittances in your markets. Have you seen any impact because of that? And then secondly, I was distracted a little bit when you were talking about the Mideast. beyond the higher cost of energy. Your comments about maybe supply chain impact?

This chain comes from the line of Hector Mayer from Scotiabank. Your line is open.

Hector, your line is open. Thank you very much.

Hola, David, Walberto. Thank you for taking my question. Buenos dias. Could you please share more details on the drivers of the higher gross margin, particularly if this is more structural or temporary and if there will be some investments going forward? I mean, I saw you had a better mix and solid membership income, but just wanted to understand a bit more about this.

There are a couple of variables. Usually it's not only one single.

Thank you. Thank you very much. Also, given that Central America and the Caribbean are highly dependent on remittances and all imports, how are you preparing for a potential macro challenge there? I mean, at least on the side of remittances, I understand that we haven't seen material changes in the region just yet, but we have seen a few central banks in Central America coming out with projections that point to a deceleration for 2026 in remittances due to declining immigration trends to the U.S. and the 1% tax on remittances that started this year. So basically, how would you say that you could be preparing for potential risks on this?

Well, I think we have some type of natural protection to that or the profile of our – so that gives us some type of natural protection. But we don't track them against the hidden markets.

Thank you. Thank you very much. And the last one, I promise. We noticed that one land club in Costa Rica and one in Jamaica have earlier opening dates now. So just wondering what was behind that. And also, on Chile, if you could give us an update on not so much on progress, because I understand that it is something that you see as going forward, as you were expecting, but progress on how much you're learning so far from the potential opportunities in that market. And I mean, aside from the media behavior that you haven't noticed, what other learnings are you getting from this new market? Super, super clear. Muchas gracias, David. Alberto, thank you very much.

And that concludes our question and answer session. I will now turn the call back over to David Price for closing remarks. This concludes today's conference call. Thank you for your participation. You may now disconnect.