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Monday, Jun 5, 2023

PriceSmart Expands With Gusto, Market Goes After Its Shares


CEO: Jose Luis Laparte.

Revenue: $1.7 billion in fiscal 2011; $1.4 billion in fiscal 2010.

Net income: $61.7 million in fiscal 2011; $49.3 million in fiscal 2010.

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No. of local employees: 120.

Headquarters: Sorrento Mesa.

Year founded: 1993.

Stock symbol and exchange: PSMT on Nasdaq.

Company description: Operator of 29 warehouse club stores in 12 countries and one U.S. territory.

Key factors for success: Experienced management; a growing middle class.

For a company whose annual sales and net profits increased 22 percent and 25 percent respectively, and has seen its stock go through the roof, you’d think the chairman would be in an upbeat mood.

Not so for Robert Price, chairman of PriceSmart Inc., the San Diego-based operator of 29 warehouse club stores in the Caribbean and Latin America.

“Look, you know I can’t comment on the stock price,” he said. “It is what it is.”

While Price cannot comment, investors in PriceSmart are probably jumping for joy. Over the 12 months, shares have more than doubled, and as of Nov. 14 were up 113 percent. In comparison, the Standard & Poor’s 500 Index gained about 6.5 percent over the same period.

The ride has been rough at times. In PriceSmart’s 2011 fiscal year fourth quarter and year-end results released earlier this month, the company’s quarterly profits didn’t match Wall Street expectations, causing shares to tumble by about 25 percent. The stock recovered the next day, and as of Nov. 14, it was at $67.92, but earlier in the month it reached just below $79. Some analysts see further upside.

“It’s not a cheap stock,” said Jonathan Braatz of Kansas City Capital, who rates it perform or hold. “From a long-term perspective we think its prospects are very good, especially in Colombia.”

Surprising the Market

PriceSmart’s results for the fourth quarter threw a curveball to the market. The company reported net income of $12.7 million for the quarter ended Aug. 31, compared with net income of $13.2 million in the same quarter of the prior fiscal year. On a per-share basis, the results were off by 12 cents, but the company provided no reason for the decline.

Price said the difference was caused by much higher costs associated with opening its first store in Colombia (disclosed in its annual securities filing as $2.1 million), and an accounting adjustment ($2.5 million, according to the same filing) related to foreign currency expenses.

Excluding those one-time costs, the earnings were generally in line with the estimates, Braatz said.

For its full fiscal year, PriceSmart reported net income of $61.8 million, up 25 percent from net earnings in the 2010 fiscal year. Revenue for the year was $1.71 billion, up 23 percent from the prior fiscal year.

The current company that is an outgrowth of the merger between Price Club and Costco Wholesale Corp. in 1993 shows no signs of slowing down. In October, overall club sales increased 24 percent to $159.6 million; more significantly, same-store sales increased 19 percent from the prior year’s October.

Opportunity Seen in Colombia

PriceSmart opened a store in Barranquilla, Colombia in August to bring its total to 29 warehouse stores in the Caribbean and Central America. The company plans on a second store in north Cali, but Price cautioned the deal hasn’t been completed yet. He declined to say how many stores he’d like to see in Colombia, but Braatz, who visited the country, says the economy is strong enough to support between 15 to 20 stores.

The company’s annual securities filing said it is negotiating to acquire a site in south Cali, and if all goes well, a new store will open there in late 2012.

The speculation is after getting a foothold in Colombia, PriceSmart will expand into the even stronger economies of Brazil, Argentina and Chile. Price refused to address that possibility, but Braatz says the business has its hands full for a while. “Besides, when you talk about those countries, it’s really in a totally different part of the continent and they’re really different markets entirely,” he said.

David Strasser, an analyst with Janney Capital Markets, said the initial results from Colombia prove there’s plenty of opportunity. “We estimate that PSMT could open as many as 10 to 20-plus stores in Colombia driving future earnings per share of $1.00 to $1.50-plus over the next few years; however, we believe that the ultimate number will be at or above the high end of that range,” he wrote in a Nov. 10 report on the company.


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