Pricesmart Inc (PSMT) Q3 2026 Earnings Call Transcript

Good morning or good afternoon, everyone, and welcome to PriceSmart Inc.'s earnings release conference call for the third quarter of fiscal year 2026, which ended on May 31st, 2026. After remarks from our company's representative, David Price, Chief Executive Officer, and Welberto 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, July 9, 2026. A digital replay will be available shortly following the conclusion of the call through Thursday, July 16, 2026 by dialing 1-800-770-2030 for domestic callers or 1-647-362-9199 for international callers and entering replay access code 5898084 pound. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Alberto Hernandez. Please proceed, sir.

Thank you, Operator. and welcome to Price Marine's earnings call for the third quarter of fiscal year 2026, which ended on May 31st, 2026. We will be discussing the information that we provided in our earnings press release and our thank you, which were both released yesterday on July 8th, 2026. Also, in these remarks, we refer to non-GAAP financial measures. You can find the reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures in our earnings press release and our thank you. These documents are available on our Investor Relations website at investors.pricemark.com, where you can also sign up for email. 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, July 9, 2026. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks dictated 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, PriceMarch's Chief.

Thank you, Gualberto, and good morning, everyone. Thank you for joining us today. We are happy with the strong results from the company. These results reflect the strength and the dedication and passion of every employee across our country to do right by our company. We'll take a moment to sincerely thank each of them. Their hard work and creativity is the foundation of everything we do. We've delivered these results against the backdrop of continued global uncertainty, solving trade policy and broader macroeconomic pressures. We've stayed focused and disciplined. We welcome Shweta Bhatia as our new chief information. 25 years of leadership experience across major global retailers and on the non-foods, our sales floor, and the visibility of product innovation and seasonal events also continue to play a strong role in our sales growth. We saw notable momentum from housewares, small appliances, and sporting goods. The 2026 FIFA World Cup is also a major global moment. It's an occasion that naturally brings members together, and we see it as a meaningful opportunity to drive engagement. We've built out a broader assortment around it, food, along with digital campaigns featuring match schedules, watch parties, and credit. We've seen our members share content around these promotions organically, which is really just the modern version of word of mouth. And it reinforces the kind of community feel that's always moving on to other merchandise categories. Our food service and bakery category increased approximately 12.6%. Pharmacy increased approximately 14.3%. We continue to grow our membership base with accounts increasing 8% of particularly strong account growth in Colombia. Colombia has been one of our market leaders in platinum membership sites, reintroduced an auto renewal program and are seeing strong adoption across most of our markets. As Latin America and the Caribbean become increasingly digital, auto renewal is one of the ways we're actively reducing. Before the quarter, membership income increased 17.6% of them upgrades have been a significant contributor to that crisis that reinforces loyalty and platinum accounts represented 21% typically run in March and November have resonated well with our members and have given them a clear membership income as a percentage of revenue held steadily at our progress in real estate, supply chain transformation, and technology, and how these investments are strengthening our ability to better serve members. We are excited to announce that in the third quarter, we executed a lease for our first warehouse club in Chile, which will be in Comuna Las Condes in Santiago. This club will be located within the Mall Plaza Los Domenico Shopping Center and is anticipated to open in the spring of 2027. This will be our first warehouse club located within a mall setting and will offer excellent accessibility and a retail environment that will resonate with this club at Mall Plaza Losco. I would like to provide additional color on the scope of our investment in this market. $100 million in capital opportunity that we see operating out of lease. Consistent with our approach in other markets, we intend to offer a mix of local and also seed and opportunity For fiscal year 2026, only four miles east, traffic congestion in Eredia is significant and meaningfully reduces mobility in the city. Consumer demand in this market continues to exceed expectations, reduce travel time. In addition to these two new clubs, a new club in Ciudad Quesada, Costa Rica, which is scheduled to open next month, two clubs in Jamaica, one in Montego Bay and the other on south in Villanueva, Guatemala, also recently opened our sixth warehouse club in the Dominican Republic. We're proud to have incorporated sustainable design practices into that build and are encouraged by its initial performance. In addition to new club growth, we plan to initiate warehouse and parking lot expansions and distribution. We have a major focus on our local goods to ensure we implement re-likes correctly and set up our teams for long-term success. We reflect our commitment to getting during the third quarter of fiscal year 2026 a global trade management plan to improve automation trade. Over time, we expect it to improve data visibility and support the scalability of our international team. Moving on to other ways we are enhancing membership. Private label penetration on a comparable basis, excluding a reclassification of the produce category, increased 40 basis points and continued progress toward our long-term goal of growing this part of our business. Using our updated methodology, penetration of private label was 26.7. Recent additions like macadamia nuts, honey, and private label coffee across key everyday categories and our ability to leverage unique local suppliers in our markets. In addition, we are in the process of developing a new membership platform that, internally, we are calling the Membership Omnichannel Transformation, MOT. We plan to use this unified platform to manage the full identity, transactions, and road we believe MOT will enable personalized communications, targeted promotions, and a frictionless sign-up and renewal experience. Now, let's turn to our digital and technology growth pillar. Sales reach 92% year-over-year and representing 6.9% of total net merchandise sales. or displaced directly through our website or app grew 20.3% with average transaction value up. As of May 31, 75.8% of our members had created an online profile and 27.1% of members had made a purchase through Pricefront.com or our app. We are encouraged by the continued momentum in digital engagement and will keep investing in this channel. On the club technology front, we completed implementation of our new point-of-sale system, Alera, across all English-speaking Caribbean markets, and one of our Spanish teams to roll out across our remaining Spanish teams show Alera is delivering faster checkout times, improved productivity, and expanded payment options for our members. Tangible improvements to the On the back office side, we made meaningful progress on our implementation of Workday's human capital management system project this past quarter. This is part of our broader effort to modernize our HR infrastructure, improving usability for employees, driving greater efficiency and compliance, and supporting scalable growth through a more integrated data environment. Before I turn it over to Guilberto, I want to address a few geopolitical topics. Across our region, we are seeing several political transitions, including Colombia's recent presidential elections, with a new administration set to take office, and along with recent leadership changes in Chile, Costa Rica, and Honduras, these developments are being accompanied by early times of a more market-oriented and business-friendly environment. While it is still too early to assess the full direction and pace of policy changes, we are closely monitoring potential implications for the operating environment. The global geopolitical environment remains complex and fluid. Trade policy uncertainty and ongoing tensions in the Middle East continue to affect. These pressures have contributed to inflation across many of our markets, which in turn is impacting consumer purchasing power and increasing prices.

Looking forward into our current fourth quarter, our comparable net merchandise sales for the margin for the quarter as a percentage of net merchandise sales increased 20 basis points of food margins in our non-foods. Margins may fluctuate up and down, but our strategy remains the same, and our philosophy continues to be identifying cost savings and non-dose savings. Total revenue margins improved 30 basis points to 17.7% of total revenue, from 17.4% in the same period last year. This was mainly driven by the increase in our total gross margin, as I just mentioned, and good results in membership renewals and platinum growth, as caused out by David. On overhead costs, total SG&A expenses increased slightly to 13.3% of total revenues for the third quarter of fiscal year 2026, compared to 13.2% for the third quarter of fiscal year 2025. It was primarily due to higher warehouse club and other operations costs. In particular, warehouse club and other operations costs increased to 9.7% of total revenue, from 9.6% in the same period last year, primarily due to expenses related to supporting our launch in Chile. General and administrative expenses decreased to 3.5% of total revenue from 3.6% in the same period last year, primarily due to the absence of one-time expenses we had in the third quarter of fiscal year 2025 related to the relocation of the San Diego corporate headquarters. SG&A is an important metric that we monitor closely. The expenses can fluctuate from quarter to quarter based on the timing of necessary investments to support the business. Our focus remains on making thoughtful, discipling decisions that position the company for long-term growth and operational strength. Operating income for the third quarter of fiscal year 2026 increased 16.7% from the same period last year to $65.6 million. or 4.4% as the percentage of revenue, versus 4.3% in the prior year period. Operating income for the first nine months of fiscal year 2026 increased 13.5% from the same period last year to $204 million, or 4.7% as the percentage of revenue, versus 4.6% in the prior year period. Below the operating income line, in the third quarter of fiscal year 2026, we recorded a $10.5 million net loss in total other expense, an increase from a $7.2 million net loss in total other expense in the same period last year. The primary cost is the result of additional foreign currency transaction costs. In terms of income tax, our FAPIC tax rate for the third quarter of fiscal year 2026 decreased slightly to 28% compared to 28.4% for the third quarter of fiscal year 2025. For the nine months ended May 31, 2026, our effective tax rate is almost in line at 27.4% compared to 27.3% for the comparable prior year. Finally, net income for the third quarter of fiscal year 2026 was $39.7 million, or $1.28, an increase of 12.3%, up from $35.2 million, or $1.14 per diluted share in the third quarter of fiscal year 2025. Adjusted EBITDA for the third quarter of fiscal year 2026 was $19.4 million, compared to $79 million in the same period last year, a growth of 14.5%. Net income for the first nine months of fiscal year 2026 was $128.9 million, or $4.18 per diluted share, an increase of 10%, $116.3 million, or $3.80 per diluted share in the first nine months of fiscal year 2025. Adjusted EBITDA for the first nine months of fiscal year 2026 was $277 million, compared to $245.1 million in the same period last year, a growth of 13%. Moving on to our balance sheet, we ended the quarter with cash, cash equivalents and restricted cash totaling $254.6 million, plus approximately $113.7 million of short-term investments, typically held in certificates of deposit. When reviewing our cash balances, it is important to know that as of May 31, 2026, we had $44.1 million of cash, cash equivalents, and short- and long-term investments denominated in local currency in Trinidad, which we could not readily convert into U. Turning to cash flow, net cash provided by operating activities reached $192.2 million for the first nine months of fiscal year 2026, an increase of $13.1 million through the prior year period. The increase is primarily driven by a $17.5 million increase in net income without non-cash items and $4.6 million of overall net-positive changes in other various operating assets and liabilities. This is partial of threat by shifts in working capital, mainly due to higher overall inventory balances, which consumed $9 million of cash used in operating activities. Inventory levels are trending higher than they have been in the past, as we are taking a more deliberate approach to ensure we're in a stronger in-stock position, particularly in non-foods, so we can better meet member demand and support sales momentum. Additionally, in the third quarter, the company entered into non-delivery forward foreign exchange contracts to mitigate foreign currency exchange rate risk associated with forecasted U.S. dollar-denominated inventory expenditures in our Colombian subsidiary. These contracts are designated as cash flow hedges and are intended to reduce exposure to currency fluctuations while providing greater predictability around expected inventory costs in Colombia and support more stable pricing. Net cash used in investing activities increased by $93.3 million for the first nine months of fiscal year 2026 compared to the prior year. primarily due to a net increase in purchases, less proceeds, of short-term investments of $46.2 million, a $42.5 million increase in property and equipment expenditures, and an $11.9 million increase in purchases of long-term investments. This was partially offset by a $6.2 million increase in proceeds from disposals of property and equipment, mainly due to the sale of our product distribution center in Guatemala, and $1.1 million of cash received due to the proceeds from the dissolution of our joint venture. Net cash used in financing activities increased by $4.9 million for the first nine months of fiscal year 2026 compared to the prior year, primarily due to a $19.8 million increase in repayments of short-term bank borrowings net of proceeds, a $3.1 million increase in the purchases of treasury stock upon vesting of restricted stock awards to cover employees' tax withholding obligations, and a $2.3 million increase in cash dividend payments. This was partially offset by a $20.3 million increase in proceeds from long-term bank borrowings net of repayments. Looking ahead, we remain focused on sustainable growth, operational excellence, and delivering exceptional value to our members. While macroeconomic conditions across our region remain dynamic, our diversified geographic footprint and disciplined operating model position as well for the remainder of the fiscal year. 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 questions. Operator, you may now start.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1. We do ask that you limit yourself to one question in one follow-up. For any additional questions, please re-queue. And your first question comes from John Bratz with Kansas City Capital. Please go ahead.

Morning, everyone. David, I just want to start with your Chile expansion. Obviously, this is your first new market since Columbia, I think, in 2011. And Chile is obviously a different market. It's smaller, but the GDP per capita is maybe 2x of that of Colombia. And I guess my question is, how are you approaching Chile maybe versus Colombia? It took a while to scale up in Colombia and achieve a decent level of profitability. Can you compare the two markets and how you're approaching it? Now, I don't think you were necessarily with the company at the time when the Chile expansion began, but obviously you had people there that were. But can you talk a little bit about Chile versus Colombia?

Around 50%, let's say, of the population is in Santiago.

When you think about Chile, secondly, when might you first begin to do a membership at a Santiago store? One last question. In the quarter, you were able to reduce your turn-it-to-ad balances quite sharply, and the currency transaction costs were $8.5 million versus $3.7 a quarter ago. Was there just an opportunity that arose to take advantage of it, or is this something that we might see more of?

Kim comes from the line of Hector Mayo with Scotiabank. Please go ahead.

Hola, David. Alberto, buen día.

Buen día, Hector.

Buen día. Thank you for taking my questions. First on, Colombia, could you please share a few details on why operating income declined despite the compete? And then I have a follow-up, if I may, or I can also rejoin the QS instructor. No problem. Yeah, on why the operating income declined by the Combit.

As you know, we have it higher.

Yeah, perfect. And also, if I may, sorry, are you seeing better $3,000 to U.S. dollars conversion conditions? And would that reduce the need to charge premium goods in the country looking ahead?

No, we're not seeing any material change in the conditions in the market. We're following closely every macroeconomic announcement to anticipate. We don't see any reason to believe it would change. It's a tough situation.

I understand. And, Dagmar, could you quantify the impact that Chile is having on warehouse clubs as a GNA line, and how should we think about this impact over the coming quarters?

In this quarter, so we're in the thank you, investing.

And that concludes our question and answer session. I would now like to turn the conference back over to Wilberto Hernandez for closing comments.

Thank you, everybody, for joining this call.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.