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PriceSmart's (PSMT) Merchandise Sales Rise Again in September

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PriceSmart, Inc. (PSMT - Free Report) continues with its decent net merchandise sales trend, however, the rate of growth decelerated sequentially. We note that after increasing 4.4% in the month of August, net merchandise sales rose 2.8% to $243.7 million in September from $237.1 million in the year-ago period. Moreover, for the four-week period ended Sep 30, 2018, comparable net merchandise sales for the 39 warehouse clubs declined 1.7%. As of Sep 30, 2018, the company operated 41 warehouse clubs.

PriceSmart’s strategy to sell limited products at lower prices has helped it to generate member loyalty and higher sales. Notably, the company offers a limited number of stock keeping units with large pack sizes. Analysts believe that the company’s persistent effort to check operating costs relative to net warehouse club sales enables it to offer better price. PriceSmart focuses on increasing the number of private label products as well.

Moreover, the company has been focusing on adding local and regional distribution centers to augment smooth flow of merchandise. Apart from these, the company is experimenting new small warehouse club format with sales floor square footage of 30,000-40,000 square feet compared with its traditional 50,000-60,000 square feet.

Meanwhile, the retail landscape has been undergoing a fundamental change with technology playing a major role and the focus shifting to online shopping. Retailers are rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. In this regard, PriceSmart acquired Aeropost — one of the largest cross-border logistics and e-commerce providers in Latin America and the Caribbean.

However, the company’s bottom line has been declining for quite some time now despite an increase in the top line. We note that higher cost of goods sold, increased SG&A expenses and rise in other expenses might have acted as deterrents. The acquisition of Aeropost adversely impacted the bottom line by 8 cents a share in the third quarter of fiscal 2018.

Further, PriceSmart reported a negative earnings surprise of 11.6% in the third quarter of fiscal 2018. This was the fourth time in the trailing five quarters that the company has missed expectations. In the past six months, this Zacks Rank #3 (Hold) stock has declined 11.5%, against the industry’s growth of 17.1%.

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