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Emerging Middle Class Is PriceSmart’s Market

The folks at PriceSmart Inc. are well aware of how to do retail, whether it’s in this country where it made its name, or in Latin America and the Caribbean, where it now operates.

The company was founded by the late Sol Price, the retailing visionary who launched both FedMart Stores and Price Club. Sol and his son Robert sold the Price Club to Costco in 1997 but retained the rights to operate warehouse stores in Latin America, opening its first store in Panama the year before.

By 2000, it had 17 stores in seven countries. Today, at 30 stores in 12 countries and one U.S. territory, PriceSmart is poised to open two more stores this year, a third store in Colombia and a sixth store in Costa Rica.

Central to Its Operations

“Costa Rica is our largest market now and we have five stores there. When the sixth opens sometime in the fall we’ll have a total of 32,” said John Heffner, PriceSmart’s chief operating officer. All of the stores in Costa Rica surround the nation’s capital of San Juan, and carry many of the same goods sold in Costco stores, reflecting a growing middle class.

“The economy there is quite good,” Heffner said.

In its most recently completed fiscal year that ended Aug. 31, PriceSmart sales passed $2 billion, increasing 19 percent above total sales in FY2011. About two thirds of the revenue came from its 21 stores in Central America.

Company executives are particularly pleased with how things are shaping up in Colombia, where it first opened a store in the coastal city of Barranquilla in 2011. Last year it added a second store in Cali, and in May, it’ll open a third store in that nation’s third largest city with about 2.5 million people.

“We’re pleased with the results that our warehouse clubs have shown so far,” Heffner said. “The size of the Colombian economy is just about as large as all of the Central American economies put together.”

Last year, according to a report from the International Monetary Fund, Colombia’s economy, Latin America’s fourth largest behind Brazil, Argentina and Venezuela, grew 5.9 percent over 2011. The country’s economy should expand this year by 4.5 percent, the IMF said.

Among the reasons behind the nation’s surging growth is continuing investment of foreign capital over the past decade, and an increased production of both coal and oil. Assisted by U.S. military forces, the Colombian military dealt crippling blows to both leftist guerrillas and cocaine cartels, paving the way for a stronger economy, the report said.

Jonathan Braatz, a partner at Kansas City Associates in Kansas City, Mo., thinks PriceSmart’s foray into Colombia has gone well so far, and expects it to continue expanding there. “It’s been a source of a lot of their growth,” he said. “The Central American economies are doing stronger than those in the Caribbean. … They seem to be more balanced and more diversified.”

Membership Figures

In his most recent report on the company following PriceSmart’s first quarter results in January, Braatz noted that the company’s membership grew to about 1 million, up 14 percent from the same quarter in the prior fiscal year. Renewal rates dipped a bit, but were still fairly good at 86 percent. Last year, PriceSmart raised its annual membership fee by $5 in most markets to about $35.

Given the first quarter results, Braatz forecast PriceSmart revenue for this fiscal year should finish at $2.32 billion, up nearly 14 percent from FY 2012. That would rank it No. 6 in revenue among San Diego-based public companies.

Shares of PriceSmart have made investors look pretty smart in the past two years since its market price just about doubled over that period. In the past 52 weeks, the stock has risen by about 11 percent.

Most recently trading around $73 on Nasdaq under the ticker PSMT, Braatz put a target price near $78 by year end; he rates the stock as market perform or hold.

Heffner declined to provide any forecast of future revenue or profits, but noted that the first quarter came in higher in both metrics.

PriceSmart apparently isn’t in any hurry to conquer Latin America, and prefers building its club warehouse model one store at a time. He gave no hint about planned new stores, but noted that it has yet to explore Colombia’s two largest cities, Bogota (the capital) and Medellin.

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