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PriceSmart (PSMT) Up 4.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for PriceSmart (PSMT - Free Report) . Shares have added about 4.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PriceSmart due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

PriceSmart Q3 Earnings Beat, Decline Year-Over-Year

PriceSmart, Inc. reported fourth straight quarter of positive earnings surprise during the third quarter of fiscal 2019. However, investors remain concerned about the company’s bottom-line performance that continued to decline year over year for the third quarter in row. Moreover, the top line fell short of the Zacks Consensus Estimate after surpassing the same in the preceding quarter. Meanwhile this operator of membership warehouse clubs continued to witness sluggish comparable net merchandise sales owing to foreign currency headwinds.

Earnings & Revenues

PriceSmart reported quarterly earnings of 46 cents a share that fell sharply from 61 cents reported in the year-ago period. Adjusting for costs associated to investments to enhance omni-channel capabilities and net operating results of the Aeropost legacy business earnings came in at 55 cents, still down year over year. The Zacks Consensus Estimate for the quarter under review stood at 42 cents.

Total revenues inched up 0.8% to $788.6 million from $782.2 million in the prior-year quarter. However, the top line marginally came below the Zacks Consensus Estimate of $789.8 million.

Net merchandise sales rose 0.6% to $755 million, including adverse currency impacts of about 3.7%. While export sales plunged 16.9% to $8.3 million, membership income increased 2.2% to $13.1 million. Other revenues and income came in at $12.1 million compared with $8.9 million in the year-ago quarter.

Comps Performance

Comparable net merchandise sales for the 40 warehouse clubs decreased 0.8%. The metric was adversely impacted by currency rate fluctuations to the tune of $27.5 million or 3.8%. 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 3%. Comparable net merchandise sales increased by 1.9%. We note that foreign currency exchange rate fluctuations adversely impacted comps by 3.1%.

With respect to membership, the company ended the quarter with approximately 1.6 million account, reflecting an increase of 2.4% fiscal year-to-date. Membership income jumped 2.2% during the quarter.

Segment Performance

Total merchandise sales at the Central American segment fell 1.2%, while comparable sales decreased 1.8%. Total merchandise sales at the Caribbean segment rose 6.5%, while comparable sales increased 2.9%. Total merchandise sales at Colombia fell 3.9% year-over-year with a comparable sales declining 4.5%.

Margin Performance

Merchandise margin shrunk 70 basis points to 13.9%. Gross margin shriveled 50 basis points to 16.1% from the year-ago period on account of lower net merchandise margins along with lower margins on non-merchandise revenue from our legacy Aeropost business.

Operating income declined 22.6% to $22 million, while operating margin contracted 80 basis points to 2.8%. Operating margin was hurt by higher expenses. Warehouse club and other operations expenses came in at $78.2 million, up 2.6% from the year-ago quarter. General and administrative expenses increased 1.9% to roughly $24.5 million. Pre-opening expenses surged to $1.6 million from $352,000 in the year-ago quarter.

Other Financial Aspects

PriceSmart, which operates 43 warehouse clubs, ended the quarter with cash and cash equivalents of $106.4 million and long-term debt (including current portion) of $93 million. The company’s shareholders’ equity was $778.6 million, excluding non-controlling interests.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, PriceSmart has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise PriceSmart has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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