Earnings Call Transcript - PSMT Q2 2022

Operator, Operator

Good afternoon, everyone, and welcome to PriceSmart, Inc.'s Earnings Release Conference Call for the Second Quarter of Fiscal Year 2022, which ended on February 28, 2022. After remarks from our company's representatives, Ms. Sherry Bahrambeygui, Chief Executive Officer; and Michael McCleary, Chief Financial Officer, you will be given an opportunity to ask questions as time permits. As a reminder, this conference call is limited to 1 hour and is being recorded today, Friday, April 8, 2022. A digital replay will be available following the conclusion of today's conference call, through April 15, 2022, by dialing 1 (877) 344-7529 for domestic callers or 1 (412) 317-0088 for international callers and by entering the replay access code 5341114. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Michael McCleary, CFO

Thank you, and welcome to the PriceSmart earnings call for the second quarter of fiscal year 2022. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released yesterday afternoon, April 7, 2022. You can find these documents on our Investor Relations website at investors.pricesmart.com, where you can also sign up for e-mail 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 8, 2022. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the company's most recent annual report on Form 10-K and other filings with the SEC that 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 Sherry Bahrambeygui, PriceSmart's Chief Executive Officer.

Sherry Bahrambeygui, CEO

Thank you, Michael. Good day, everyone, and welcome to our second quarter fiscal 2022 earnings call. We had a quiet quarter, with net merchandise sales surpassing $1 billion for the first time and membership setting historical records. We're feeling very positive about our results. During the second quarter, our total membership grew to over 1.7 million accounts, which is a 7.3% increase from last year. Our membership 12-month renewal rate reached 89.8%, marking our highest rate ever. Membership income was $15.1 million, up 9.2% compared to the same period last year. Our headline numbers all showed growth compared to the previous year. It's important to note that this quarter's results are being compared to last year's quarter, which saw significant growth relative to FY '20. Compared to the same period last year, net merchandise sales rose by 12.6%. Comparable net merchandise sales increased by 10.3%. Operating income grew by 7.4%, despite currency headwinds affecting total and comparable net merchandise sales by 3% and 2.7%, respectively. Earnings grew by 11.4% to $31.5 million, up from $28.2 million in the same quarter last year. Strong sales have led to record earnings per share of $1.03 during the second quarter, an increase from $0.92 in Q2 of last year. Looking ahead to Q3, total net merchandise sales for March, ending March 31, 2022, were $338 million, a 9.9% increase from the prior year. Comparable net merchandise sales for the four-week period ending March 27, 2022, rose by 9.8% compared to the same period last year. We are pleased with these results and believe that our business investments and focus on our growth pillars are supporting our success and momentum. Our robust cash flow allows us to accelerate our plans and investments for continued growth. It also enhances our ability to engage with, serve, and learn from our members, especially during challenging times, including the pandemic, supply chain disruptions in the industry, the war in Ukraine, and significant inflation challenges not seen in decades. Our solid cash position ensures we care for our employees, providing them opportunities for professional growth, competitive wages, and excellent benefits. Consequently, our Board of Directors increased the annual dividend by 22.9% to $0.86 per share, up from $0.70 per share last year. So now I'd like to turn to our growth drivers. On our last earnings call, I spoke to you about the three major drivers for growth for our company. The first, real estate, which includes opening new clubs, making investments in our distribution network, making sure that we're strategically located in the right places with the right facilities and equipment so that we can maximize efficiencies in the supply chain. The second driver of growth is continually developing new and improving on old ways to enhance the value of the PriceSmart membership. And the third driver of growth is to drive incremental sales for the company through our pricesmart.com platform and improved digital capabilities, yielding important data to drive incremental sales for the company, whether the sales happen online or in-club because we believe these two environments should be mutually supportive and synergistic. The pricesmart.com platform and other digital capabilities also allow us to potentially expand in existing markets and/or enter new markets, possibly without the immediate need for traditional brick-and-mortar locations and the huge investments that go with that. Starting with real estate, now I want to update you a little bit on what we've done on that first driver of growth. On Monday, we plan to be celebrating our 50th club milestone as we open our second club in Jamaica, located in the area of Portmore, near the capital of Kingston. We expect this club to do well and take some pressure off of the Kingston location, which is a very high producing but impacted club. A good sign is we're already seeing new sign-ups while exceeding our plans for Portmore, which indicates that this market has significant uncaptured potential. Also, I'm pleased to say that growth by way of a new club in Jamaica is also growth for our people and upward mobility for them professionally; approximately 18% of our employees in Jamaica were promoted as a result of the new Portmore club. With regard to real estate, again, we also recently announced that construction has begun on our second warehouse club in Medellín, Colombia. It's located in the El Poblado area. We expect to open in the summer of 2023. We've been searching for a suitable site in this densely populated urban area for a long time. Kudos to the real estate and construction teams for making it home. We're optimistic that our value proposition will resonate with consumers in this area due to its demographic characteristics, and this will be our tenth club in Colombia. In addition to our curated selection of high-quality merchandise at great prices, both of these new clubs will be outfitted with our additional services in the wellness area, specifically optical and audiology. As I've mentioned before, we're progressing on a very active pipeline for new locations in terms of clubs, and we will be able to share more about that as plans and permits are finalized. Another part of our real estate strategy focuses on the important role of our distribution facilities to optimize efficiencies and strive to reduce risk. We expect to soon have a distribution center in Trinidad that could also be used to export merchandise to our other markets. We're actively identifying opportunities for a new distribution center in Northern Central America, and we're working on expanding our distribution footprint in Colombia. We also are increasing our produce distribution centers, or we refer to them as PDCs, throughout the company. We have four operational at this time, and they include Costa Rica, Panama, the Dominican Republic, and the most recent one in Colombia, which we opened last month. These PDCs not only support local agriculture and create jobs in and around our communities, but they also allow us to source directly and provide fresh produce to the clubs, allowing our members to benefit from more competitive pricing and also reducing spoilage and other waste that leads to greater efficiency. We're targeting two additional PDCs at this time, and they're likely to be in Guatemala and in Trinidad, but they are currently still in the planning phase. With regard to logistics and distribution, again, a key area of real estate and the importance of real estate for us. As everyone knows, supply chain disruptions remain pervasive, whether because of COVID, oil prices, or other factors, especially with regard to those exports from Asia. This has adversely impacted our suppliers' ability to deliver merchandise and our ability to secure transportation services from Asia and within the United States. But fortunately, our overall supply chain logistics networks have remained relatively stable and reliable in its ability to replenish merchandise in our costs. Effective collaborations and careful planning throughout our supply chain have resulted in our ability to maintain good in-stock positions during our second quarter. Average freight costs from Asia were also lower during the second quarter versus the first quarter of fiscal year 2022. But we have to remain proactive and vigilant. We certainly believe that we're still facing a continuing volatile and unpredictable future in terms of the overall supply chain. We've recently added a new contracted carrier to our network that is expected to further reduce the average freight rate during the third quarter of fiscal '22. And we continue to remain very focused on this. It's a very important part of the business during these times. We're also increasing our efforts to nearshore select items without compromising on any of our quality or value, which will also allow for more reliability and diversification of our supply chain. Some examples I can share with you are our textiles and domestics; for example, we're sourcing wonderful quality pillows from Guatemala and towels from El Salvador. We're looking at sparkling water, pork, and frozen fruits and vegetables, just to give you an example. In addition, we are actively including local and regional suppliers, including them in our bidding process as we develop additional products that will carry our private label brand Member’s Select. A recent example of this is the selection of a local vendor in Trinidad where our Member’s Select copy paper will be sourced from Trinidad and is expected to be exported to all of our markets. Other than the benefits I've mentioned, that alone creates an export item that is developed largely utilized in Trinidad while generating income that is more easily converted to U.S. dollars. This specific example also contributes to helping to improve our situation in Trinidad with TTDs that may not be readily exchangeable to U.S. dollars. We are also exploring additional alternatives and ways that we can replicate this type of business initiative to solve various challenges that we're facing. I have to congratulate our merchandising and distribution and logistics team and their great collaboration in handling these challenges and turning them into opportunities to make our business even stronger despite the additional challenges. So now let's turn to what we're doing to enhance the benefits of a PriceSmart membership. First, we are continuing to expand our private label offering. During the first six months of fiscal '22, our private label sales represented 23.5% of our total merchandise sales. That's up 200 basis points from 21.5% in fiscal year 2021, representing a 9.3% increase in penetration of total sales versus FY '21 for our private label. There are several benefits to investing in our private label offerings: In addition to what I've shared above, the opportunity to offer the same or better quality merchandise exists at a lower price when we develop our own private label merchandise. We've got greater control of the supply chain. When we source locally or regionally, there are potential savings in transportation, and local sourcing for private label can generate more jobs in our market. We also have, in some cases, the benefits of a natural currency hedge. It's a differentiator for PriceSmart if our private label Member’s Select is not available to other major retailers in the countries where we operate. Sourcing our own merchandise gives us the opportunity to squeeze out inefficiencies and is also in line with one of our goals to increase our direct participation in the production to ensure our high-quality standards are as good, if not better than, leading brand products. Our private label sales in domestics have grown over 180% through our new Member's Select towels, pillows, sheets, and blankets. We've also introduced new SKUs of cookware, food storage, and mixing bowls. Those have been very well received and have shown kind of sales that give us confidence that we're on the right track with expanding our private label offering. As I said before, our brand carries significant goodwill and trust amongst our members. It communicates high standards, reliability, and value. Our private label team of merchants has been another key area of investment for the business because talent is important. Over the past few years, we've expanded this team from six to eleven people. Although we still maintain a limited number of SKUs as part of the overall business discipline, the SKUs we have been adding or replacing have contributed to the overall delivery of sales of $230 million during Q2. So a job well done by our private label team and the related teams during Q2, and we plan to grow even more with our private label product development, sourcing, and sales. We believe our Wellness program is another value driver for our membership. We currently have decided to expand audiology to about 30 locations by the end of this fiscal year and to about 40% by the end of Q2 next fiscal year. Our decision was driven by membership interaction, partly due to the free hearing tests that we provide to our members, and the early determination that audiology appears to be a valuable contributor when analyzing renewal rates and the average annual purchases amongst members who utilize our services. In optical, we currently have 45 locations with optical centers and expect to have 47 opened by the end of this fiscal year. This service provides us to 43 exams with every membership. We also offer a broad range of quality lenses at highly competitive prices in our markets. For the period ending in February, we've seen total growth in optical sales of 79% over the same period last year, and year-to-date comparable growth of 15% over the same period last year. We've also opened pharmacy centers in all eight warehouse clubs in Costa Rica, and we expect to have pharmacy centers in all of our Panamanian clubs by the end of fiscal year 2023. We continue to study pharmacy for additional countries, as each country varies in dynamics and regulatory requirements. I would now like to discuss our third growth driver, which is our digital environment that boosts engagement and sales, including pricesmart.com. E-commerce sales accounted for 3.5% of our total merchandise sales, and delivery is increasingly making up a larger share of online sales. Our digital capabilities are improving and contributing to growth. Compared to the same quarter last year, online sessions rose by 8%, resulting in a 12% increase in digital orders. Additionally, the average value of online orders grew by 13%. Sales from pricesmart.com as a percentage of net merchandise sales increased by 40 basis points in the second quarter over the same period last year. Our total sign-ups are also showing positive results, with 15% of new memberships purchased online during the quarter, and online renewals making up 4% of total renewals for the company. We engaged in over 9,000 email interactions and more than 65,000 chat interactions with members during the quarter, which we believe helps us improve customer engagement, service, and insights from member feedback. As of February 28, 2022, about 42% of our members have set up an online profile on pricesmart.com. In less than two years, we've gone from nearly zero to almost half of our member base having online digital credentials. I believe 15% of our total membership base has made a purchase on pricesmart.com. Michael, can you confirm that?

Michael McCleary, CFO

I think it's 14%. It's 14% to 15%.

Sherry Bahrambeygui, CEO

I just wanted to verify it. 14% of our total membership base has made a purchase on pricesmart.com, and the average for online purchases on pricesmart.com in Q2 was 9.3% higher than the average for in-club purchases. So we're seeing a material difference in the average ticket size for members who are buying online versus those who are buying in-club, which presents additional opportunity. Also encouraging is that 7.5% of our total membership base is signed up with our auto-renewal option. What does that mean? They provided their e-mail and opted to have their renewal automatically charged on their anniversary, and they've also provided a payment method for that charge. That goes a long way in terms of protecting membership income and ensuring that membership income leakage is reduced. We're feeling solid about our progress in this area and are proud of what our tech, membership, and finance teams have all made possible in a relatively short period of time. So lastly, I'd like to talk about ESG and sustainability, which continues to be a cornerstone of the PriceSmart philosophy. PriceSmart is committed to fostering a healthy environment for our employees, members, vendors, communities, and the world around us. The company's actions and practices aim to responsibly use natural resources and focus on environmental impact and social well-being. In FY '21, the company formed PriceSmart's ESG department to develop, track, and measure the company's sustainability and social responsibility efforts. One of the principal objectives of this theme of our team is to find, prevent, and control the environmental impact generated by our operations as well as to work to adapt and mitigate the impact of climate change. ESG continues to develop and evolve for everyone, and we are also growing and evolving with our efforts. We continue relentlessly to supply our values every day to improve the lives, the businesses, and the communities of our members. I want to thank our over 10,000 employees, our executives, whether in San Diego, Miami, throughout all of our markets where we operate, for continuing to build on this momentum and showing us that we have more and more opportunities to do better and serve our members every day. Your commitment is really a source of great appreciation in our relation. Thank you again, team. And I'll hand it back to you, Michael.

Michael McCleary, CFO

Thank you, Sherry. Good morning or afternoon to everyone, and thanks for joining us today to talk about our record-setting second quarter. As Sherry mentioned, we are very excited to have crossed the $1 billion sales threshold for the first time this quarter, with total revenues and net merchandise sales coming in at $1.04 billion and $1.01 billion, respectively, representing increases of 10.8% and 12.6% over the comparable prior year period. We ended this quarter with 49 warehouse clubs compared to 47 warehouse clubs at the end of the second quarter of fiscal 2021. We are also very excited about reaching the milestone of 50 clubs when we open our second club in Jamaica next week. Our comparable net merchandise sales growth for our fiscal second quarter was 10.3% for the 13 weeks ended February 27, 2022. Foreign currency fluctuations had a negative impact on net merchandise and comparable net merchandise sales growth of 3% and 2.7%, or approximately $26.3 million and $24.2 million, respectively. By segment, in Central America, where we had 27 clubs at quarter end, net merchandise sales increased 13.6%, with a 10.6% increase in comparable net merchandise sales. Foreign currency fluctuations had a negative impact of approximately 1.8% and 1.9% during the quarter, respectively. All of our markets in Central America had positive comparable net merchandise sales growth except for Guatemala, which had a small negative comp due to sales transfers from other clubs following the opening of our new Aranda Club. In the Caribbean region, where we had 13 clubs at quarter end, total net merchandise sales increased 13%, and comparable net merchandise sales increased 13.1%. All of our markets in the Caribbean had positive comparable net merchandise sales growth, with Trinidad showing a significant rebound this quarter with double-digit sales growth versus the comparable prior year period. Although most local COVID restrictions have been lifted, and the liquidity of the Trinidad dollar has improved thus far in fiscal 2022, we continue to manage to a target level of imports in Trinidad. So far in fiscal 2022, the self-imposed import limitations have generally been in line with the needs of the market from a demand perspective. However, we continue to actively monitor market demand in our ability to source tradable currencies in Trinidad. In Colombia, where we had 9 clubs opened at quarter end, net merchandise sales increased 7.2%, and comparable net merchandise sales increased 1.7%. Foreign currency fluctuations had a significant negative impact on merchandise and comparable net merchandise sales growth in Colombia of approximately 14% and 13.1% during the quarter, respectively. In terms of merchandise, we saw our foods category grow approximately 8% compared to the same quarter in the prior year. Our cleaning, beverages, and liquor departments led the way with 9%, 30%, and 14% growth, respectively. Our fresh category grew 11% compared to the same quarter last year, led by our poultry, meat, and seafood departments with 18%, 14%, and 14% growth, respectively. Our non-foods category grew 15% compared to the same quarter last year, as we made strategic investments in inventory in many of our non-food categories to respond to rising demand and longer supply chain transit times, especially for merchandise coming from Asia. Hard lines grew 7%, with hardware and garden and patio categories coming in very strong with 25% and 29% growth, respectively. Our soft line category had exceptional results, growing approximately 33%, with sales of casual apparel up 36% and basic apparel up 49% versus the same quarter last year. Finally, our other business category rebounded with 16% growth primarily from our food service and bakery departments, driven by increased in-club traffic. Turning to margins, total gross margins on net merchandise sales were 15.6% for the quarter versus 16% for the same period last year. This decrease for the quarter was primarily due to a reduction in the premium we applied to our sales prices to offset our COVID-related operating costs and higher markdowns versus the prior year period. Total revenue margins decreased 80 basis points to 17% of total revenues when compared to the same period prior year. In addition to the 40 basis point decline in gross margins, we had 40 basis points of lower revenue margins due to the sale of Aeropost during the first quarter. SG&A expenses decreased during the quarter by 60 basis points as a percentage of total revenue, primarily due to lower operating expenses after the sale of Aeropost. Therefore, the decrease in margins as a result of Aeropost's disposal was offset by the decrease in expenses, yielding an essentially neutral impact on operating income when comparing to the same quarter of the prior year. Operating income for the quarter increased 7.4% from the same period last year to $48.3 million. Other expense of $0.8 million was primarily driven by a $1.8 million foreign currency loss, which mostly consisted of costs to convert Trinidad dollars into other tradable currencies. Our effective tax rate for the second quarter of fiscal 2022 came in lower than last year at 31% versus 33.9% a year ago, with our year-to-date rate coming in at 32.6%. This decrease in the quarter was primarily related to comparably favorable changes in uncertain tax positions, partially offset by comparable unfavorable changes in valuation allowances on our foreign tax credits. On a go-forward basis, we continue to estimate an annualized effective tax rate of 33% to 34%. Net income for the second quarter of fiscal year 2022 was a record $31.5 million, or $1.03 per diluted share compared to $28.2 million, or $0.92 per diluted share, in the comparable prior year period. Moving on to the balance sheet, we ended the quarter with cash, cash equivalents, and restricted cash totaling $194.9 million. From a cash flow perspective, for the six months ended February 28, 2022, we had a $37.6 million change from cash provided by to cash used in operating activities compared to the prior year, which was primarily a result of non-working capital changes in the balance sheet of $29.7 million. These changes were primarily due to prepaid expenses and income taxes, which increased due to higher sales during the period and VAT paid increased due to our higher inventory position. Another contributor to the change in cash flows from operations was our inventory position, which increased to $470.3 million as of February 28, 2022, versus $389.7 million as of February 28, 2021. This increase reflects our efforts to bring our inventory levels in line with our sales trend and the addition of three new clubs this year, including our Portmore Jamaica Club, which will open next week. Additionally, we have made investments in inventory to maintain adequate in-stock levels of items that either have been or we expect may be impacted by increased container transit times, especially for merchandise coming from Asia and commodity and electronic part shortages. Our increased inventory investment is also a reflection of cost increase throughout the supply chain. Net cash used in investing activities decreased by $51.7 million for the six months ended February 28, 2022, compared to the prior year, primarily due to the decrease in balances of certificates of deposit compared to the same period a year ago due to a significant improvement or a decrease in our balance of Trinidad dollars on hand versus the prior year. With respect to Trinidad, our balance of Trinidad dollars, denominated cash, cash equivalents, and short and long-term investments measured in U.S. dollars improved this year, decreasing $17.4 million from our fiscal 2021 ending balance to approximately $35.5 million. As mentioned during our last conference call, as part of our continued efforts to convert Trinidad dollars to U.S. dollars, in December, we executed a loan whereby we received US$25 million. The associated principal and interest on this loan will be repaid in Trinidad dollars, converted at rates in effect upon the initial dispersions of this loan over a 4-year period, thereby locking in the conversion of a significant amount of Trinidad dollars by current conversion rates and freeing up this cash in U.S. dollars for deployment for general corporate purposes. The $78.7 million change from cash used in to cash provided by financing activities for the six months ended February 28, 2022, is primarily the result of obtaining the additional Trinidad-related financing in the current year, along with lower net repayments of short-term debt compared to the same six-month period a year ago when we were repaying short-term facilities accessed at the early stages of the COVID-19 pandemic. In closing, we are very pleased with the record results achieved during the second quarter of fiscal 2022. I want to extend my thanks and appreciation to the PriceSmart team for their hard work and dedication that made these results possible. We believe our value proposition and how we conduct our business resonates with our members and within our communities. The fundamentals of the business remain very strong, and we believe our growth plans position us well for the future success. I will now turn the call over to the operator to take your questions.

Operator, Operator

Our first question will come from Jon Braatz with Kansas City Capital.

Jon Braatz, Analyst

Good morning, Sherry, Mike. I wanted to check in on the gross margins, the 40 basis point reduction, and the impact of COVID-related costs. Are we going to see this 40 basis point reduction continue going forward, or have those costs been recovered?

Michael McCleary, CFO

Yes, regarding the total revenue margins, the 40 basis points decrease was primarily offset by costs. Your question pertained to gross margin. We noted a few factors, including the COVID-related premium that we are charging, which was counterbalanced by costs, leading to a neutral impact at the operating income level. As COVID costs continue to decline, we anticipate a reduction in that premium. Additionally, we are incurring an FX premium in Trinidad for imported merchandise. While this hasn't been a significant factor year-on-year, improvements may lead to a reduction as it is not a typical element of our cost structure. We also experienced some freight flow issues and markdowns during Q2, which is somewhat typical as we manage our holiday merchandise. Currently, we have a solid inventory for the holiday season, and we expect to be back on track by Q4.

Sherry Bahrambeygui, CEO

It's important to remember the context of our business model. As we work to increase volume and achieve better pricing, we have the chance to reduce margins. Therefore, our focus is on margin dollars rather than solely on the margin percentage. On the other hand, as we engage more in sourcing and developing our own products, believing we can offer superior alternatives, this sometimes necessitates an investment on our part that leads to a different margin structure. As our business evolves and we delve deeper into creating quality products at competitive prices efficiently, there will be times when certain areas experience a higher margin structure due to our direct involvement in the supply chain and our investments in production and product development. Conversely, some areas may show lower margins as we gain volume. Gaining volume is key for us, enabling us to generate more margin dollars, which in turn allows us to provide better value for our members, enhancing the overall success of our business by making membership more valuable. I wanted to clarify this because unlike some other retailers, simply tracking the margin from quarter to quarter without understanding the different dynamics of how we are developing and offering products today compared to the past may not provide a complete picture. I believe looking only at the margin percentage won’t be as informative, and I wanted to highlight that point.

Jon Braatz, Analyst

One other question, Michael or Sherry, when do you think the pricing premium in Trinidad may start to diminish? What will it take to see prices decrease a bit and selling prices decline a little in Trinidad?

Michael McCleary, CFO

Yes, Jon, we discuss this every quarter and are closely monitoring the situation internally. As I've mentioned before, we don't intend to maintain this for the long term, but there is a lot of uncertainty currently. We have made significant progress in reducing our TT dollars on hand from over $100 million to 35 million. Our imports are relatively balanced with the availability of dollars, and we are also generating profits in local currency, which is positive. We need to navigate the uncertainty in the market and manage our dollars on hand. This is something we are actively keeping an eye on, and we are still incurring costs for conversion, which may persist for some time. Whether these costs will remain at the same level is yet to be determined.

Sherry Bahrambeygui, CEO

We will be reducing that at the first opportunity that we feel we can responsibly do so, again to keep the prices down.

Jon Braatz, Analyst

And then, Sherry, I may have misunderstood you. I think initially you talked a little bit about March sales. And I think you said total sales were up 9.9% and comps were up 9.8%. Was that right?

Sherry Bahrambeygui, CEO

Let me check here. I want to make sure I'm providing you with the exact information.

Michael McCleary, CFO

Yes, that's right.

Sherry Bahrambeygui, CEO

Yes, that's right. The total sales of $338.1 million was an increase of 9.9%, and then the four-week period ending comp net merchandise sales was 9.8%.

Jon Braatz, Analyst

I understand there are many factors involved in this calculation, but you have three stores that are currently not included in the comps. Why weren't sales higher than the comps?

Sherry Bahrambeygui, CEO

There are several reasons. First, we have multiple new clubs that we are still working on transferring sales from. Additionally, some of our newer clubs have not yet reached a normalized sales level. Michael, do you have anything to add to that?

Michael McCleary, CFO

There's, I think, four days this month that we're off there. As far as Sunday to Sunday, you've also got the whole Semana Santa timing which really makes March and April on an individual month basis hard to compare. So we usually look at March and April combined. I want to put that out there because that's what we had as of today.

Operator, Operator

Our next question will come from Rodrigo Echagaray with Scotiabank.

Rodrigo Echagaray, Analyst

Congratulations on the results. I want to start with e-commerce or online sales. The fact that 15% or 14% of total members are participating is a small percentage compared to the full potential, which is encouraging. Additionally, this segment tends to have a higher ticket, if I understood correctly. So my first question is, how does the average basket in terms of product types differ from the basket at the club? A follow-up question would be, what opportunities do you see beyond increasing the number of online users who are already shoppers in the store, particularly regarding SKUs or even higher ticket items? Those would be my first questions.

Sherry Bahrambeygui, CEO

In the early stages of this process, we were somewhat surprised to find a higher number of typical grocery items available online than we anticipated. This trend is changing, and we are currently exploring this area because we still have significant progress to make in our e-commerce efforts regarding both the online platform and the product selection. Prioritizing our online offerings is crucial to ensure we provide the right items that drive sales. Currently, we are just starting to offer what is available in our physical stores, but we are actively working on expanding our assortment to include more exclusive online products. I believe there is considerable potential for growth. The demand fluctuates; for instance, during Smart Week or specific promotions, we see a notable increase in online sales for electronics, as these items are marketed heavily and are convenient for delivery. However, regarding how we can enhance our online presence, I can say that we have a solid foundation in place. We are still in the process of identifying further opportunities to expand our online sales.

Rodrigo Echagaray, Analyst

Got it. You mentioned earlier that you see online operations as a different approach to explore new markets, even if there are no physical stores in those areas. Can you elaborate on whether this is focused more on neighboring regions within Colombia or provide more details on this?

Sherry Bahrambeygui, CEO

Yes, there are opportunities. As our online presence expands and our members realize they can easily and reliably access merchandise online, we see potential in existing markets. For instance, in Colombia, we have members who are located 2 to 6 hours away from the nearest club. This highlights the opportunity we have to analyze membership distribution across different geographies and understand how successful a physical club could be in those areas. It also provides valuable insights into how we could efficiently set up cost-effective delivery systems to cater to members in concentrated markets, potentially using a dark store model initially. By integrating our online capabilities with brick-and-mortar locations, we have numerous strategies to explore. Each situation is unique; in some cases, we may decide to invest directly in brick-and-mortar locations, while in others, we might find that substantial sales can be generated from a club several hours away, supported by an efficient delivery system. As member activity increases and the value we provide becomes more recognized, this will help justify further investment in physical locations.

Rodrigo Echagaray, Analyst

Got it. In terms of the renewal rates, I mean, obviously, record high. Can you highlight any specific market where the renewal rates are particularly strong?

Sherry Bahrambeygui, CEO

I don't think we do that. Sorry, Rodrigo.

Rodrigo Echagaray, Analyst

Okay, that’s fine. No worries. No, no, I get it. And then lastly, you earlier were going into a more depth on the strategy of absolute dollars versus margin, which obviously, it's a big difference versus other formats and retailers. In this quarter, I would say, contrary to prior years where there was record sales but not necessarily a record EPS. This quarter, that flowed nicely to the bottom line. And I know this is a very broader question, but any thoughts on that?

Sherry Bahrambeygui, CEO

Any thoughts on what?

Rodrigo Echagaray, Analyst

The relative performance or the EPS this quarter suggests that the operating leverage and the total dollar revenue were well aligned. What do you expect going forward? Any insights on the factors driving this would be appreciated, even though there's no guidance.

Sherry Bahrambeygui, CEO

So without providing guidance, there are many factors that influence EPS. Starting with our discussion on reducing costs and prices, this approach takes us back to our core principles aimed at improvement. By operating more efficiently and innovating our business practices, we can develop our own products. If this leads to more competitive pricing without sacrificing quality for our members, it should increase our volume. An increase in volume can lead to additional cost savings for us and higher margin dollars, creating a beneficial cycle. Furthermore, as members continue to experience increased benefits and marketing value from PriceSmart, particularly in how we supported them during COVID and our focus on overall well-being and service convenience, the value of their membership grows. As that value increases, the steady membership income also becomes more reliable. The addition of auto-renewals enhances this, as members commit to their membership at the outset, eliminating the risk of lapses in renewal. All these factors contribute to our growth, with our hope being that as we maintain our current strategies, our members will benefit, our membership will hold significant value, and this will lead to greater volume, positively impacting our bottom line through both membership income and margin dollars. However, investments in technology do affect EPS in a way that capital investments in real estate do not, making it challenging to determine specific impacts on EPS due to numerous variables. Generally, our aim is to drive volume through attractive pricing, cost savings, and enhanced member value, ultimately reinforcing the importance of membership. We want as many people as possible to feel that they cannot afford to forgo our membership due to the substantial value it provides.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Sherry Bahrambeygui for any closing remarks.

Sherry Bahrambeygui, CEO

I'd just like to thank all of our shareholders and the people who have interest in our stock for taking the time to listen to our journey and all the exciting things that we're doing. Our team is really energized. We're excited about the future, and we especially believe that we've got an important role as a company, employer, and provider of goods in today's world and the environment that we're in. So thank you for joining us, and we look forward to seeing you next quarter.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.