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PriceSmart Slumps on Weak Q1 Earnings

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Retail warehouse stores operator, PriceSmart, Inc. (PSMT - Free Report) , slumped 8% after it announced lower-than-expected first-quarter fiscal 2014 results on Jan 9.

Quarter Details

The Zacks Rank #4 (Sell) company reported adjusted earnings of 71 cents per share in the first quarter of fiscal 2014 (ended Nov 30, 2013), missing the Zacks Consensus Estimate of 73 cents by 2.7%. A slowdown in comps, muted margins and a higher tax rate hurt the bottom line in the quarter.

Earnings grew 7.6% from the prior-year quarter figure of 66 cents due to year-over-year growth in revenues and operating income.

The company reported total revenue of $605.6 million in the first quarter, up 13.1% from the prior-year quarter. Revenues, however, missed the Zacks Consensus Estimate of $611 million by almost 1% which, we believe, was the result of sluggish comps. Comps grew 7.9% in the quarter, much weaker than a respective 9.3% and 9.2% in the previous two quarters  — fourth and third quarters of fiscal 2013.

Net warehouse club sales increased 12.6% to $589.7 million in the quarter. Sales grew 14.2% in Latin America and 9.4% in Caribbean. Membership income increased 20.8% to $9.2 million in the quarter benefiting from the fee increase in Jun 2012.

In terms of product categories, while candy, seasonal candy, gourmet deli, fresh seafood, bakery, fashion apparel, computers and toys showed double-digit growth, the company is facing challenges in the electronics and small appliances category. Electronic sales declined in low single-digits in the quarter.

Warehouse gross profit margin declined 54 basis points (bps) to 14.5% in the quarter due to decline in warehouse club margins. Operating margin declined 19 bps in the quarter to 5.5% due to sluggish sales and gross margin weakness.

Dec 2013 Results

Concurrent with the first-quarter results, PriceSmart also announced net and comparable warehouse club sales for the month of December. Net warehouse club sales grew 10.7% to $280.8 million for the month.

Further, PriceSmart reported 6.7% growth in comps for 29 warehouse clubs for the four weeks ended Dec 29, 2013. PriceSmart’s comps have been slowing down since Oct 2013.

PriceSmart is involved in the operation of membership shopping warehouses in international markets. It had 32 warehouse clubs in operation at the end of Dec 2013.

Other Stocks to Consider

A better-ranked stock in the retail/discount industry is The TJX Companies, Inc. (TJX - Free Report) carrying a Zacks Rank #2 (Buy). In the broader retail sector ConAgra Foods, Inc. (CAG - Free Report) and Green Mountain Coffee Roasters, Inc. , both carrying a Zacks Rank #2, are also worth a look.

In-Depth Zacks Research for the Tickers Above

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Conagra Brands Inc. (CAG) - free report >>

The TJX Companies, Inc. (TJX) - free report >>

PriceSmart, Inc. (PSMT) - free report >>

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