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PriceSmart's (PSMT) June Comps Lift Investors Sentiments

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Shares of PriceSmart, Inc. have surged and outpaced the industry in a month. The stock has increased 17.6% in the said period compared with the industry’s growth of 4.5%. Moreover, the stock has increased 11.2% since the announcement of its third-quarter fiscal 2019 results on Jul 10. The company is well positioned, owing to its sound fundamentals, healthy renewal rates, constant-currency sales, focus on omni-channel platform and strong balance sheet. Also, comparable net merchandise sales (comps) number that showcased an improvement in the month of June may have boosted the company’s performance.

This has been the first monthly comps increase so far in 2019. The company’s comps for the four-week period (ended Jun 30, 2019) for 40 warehouse clubs increased 1.9%, following a 0.9% decline in May. Comps for April, March, February and January dropped 0.5%, 1%, 1.9% and 1.4%, respectively. However, foreign currency exchange rate fluctuations adversely impacted comps by 3.1%.

Net merchandise sales during the month of June came in at $253.1 million, up 3.9% year over year. The metric was adversely impacted by currency rate fluctuations to the tune of 3%. In the preceding month, the company posted net merchandise sales growth of 0.8%, while the metric increased 0.9% and 0.1% in April and March, respectively. In February, it was flat and improved 0.3% in January.

Certainly, PriceSmart’s strategy to sell limited products at low prices helped it generate member loyalty. Moreover, the company’s healthy membership renewal rate reflects its strength. This operator of membership warehouse clubs ended the third quarter with roughly 1.6 million accounts, while membership income grew 2.2%. The renewal rate for the 12-month period (ended May 2019) was 85%.

Moreover, this Zacks Rank #2 (Buy) 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. The company invested in four new warehouse clubs across Panama, the Dominican Republic and Guatemala.

We expect all aforementioned factors to continue bolstering the company’s performance and help it maintain momentum.

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