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Analyst Blog

On Jul 15, Zacks Investment Research downgraded PriceSmart, Inc. to a Zacks Rank #5 (Strong Sell). On Jul 10, this retail warehouse stores operator reported soft third quarter 2014 results, resulting in a major decline in estimates thereafter.

Why the Downgrade?

PriceSmart missed the Zacks Consensus Estimate for revenues in the third quarter of fiscal 2014 and barely managed to meet the estimate for earnings. Comps were quite weak during the quarter.

Adjusted earnings of 70 cents per share in the third quarter (ended May 31, 2014) grew 14.8% from the prior-year quarter as slightly better margins offset the top-line weakness. Foreign exchange transaction gains and higher gains from the sale of assets aided earnings in the quarter.

Total revenue increased 7.6% from the prior-year quarter. Comps grew 2.9% in the quarter, significantly slower than 6.7% and 7.9% in the first two quarters of the fiscal year.

Concurrent with the third-quarter results, the company also released its June comps. Comps growth in the month was the slowest so far this year.

In fact, comps have been soft in all the months so far this year – 1.0% in June, 2.3% in May, 4.6% in April, 1.9% in March, 5.3% in February and 8.4% in January. In fact, PriceSmart’s comps have been declining since Oct 2013 — from high teen/low double-digit comps in 2012 and high single-digit in 2013 — due to weak purchasing power of consumers, and slower economic and retail activity in the countries where PriceSmart operates.

Estimates have been declining ever since the company released its third quarter 2014 results. During the last 7 days, the Zacks Consensus Estimate for fiscal 2014 declined 1.3% to $3.10 per share while that for 2015 declined 4.2% to $3.43 per share.  

Investors interested in the retail sector can consider stocks like Big Lots Inc. , Burlington Stores, Inc. and Foot Locker, Inc. . All the three companies hold a Zacks Rank #2 (Buy).

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