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PriceSmart Inc. Maintains Its Growth Pace in Weak Market Conditions

International warehouse club PriceSmart (NASDAQ: PSMT) posted fiscal fourth-quarter earnings results this week. The retailer's growth pace held steady, but economic growth challenges in several of its key markets kept a lid on profits.

Here's how the headline results stacked up against the prior-year period:

 Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$733.5 million

$711.1 million

3.2%

Net income

$19.8 million

$22.3 million

(11.2%)

Earnings per share

$0.64

$0.74

(13.5%)

Data source: PriceSmart's financial filing.

What happened this quarter?

PriceSmart's sales growth pace was unchanged as improvements in its Colombian market were mostly offset by weakening growth in other countries, mainly Trinidad and Costa Rica.

Image source: PriceSmart.

Highlights of the period include:

  • Comparable-store sales growth held steady at a 1.9% pace (comps rose 2% last quarter and 2.1% in the fiscal second quarter). Overall revenue improved at a 3% pace thanks to the addition of one new warehouse. The retailer now operates 39 clubs across the Caribbean and Latin America.
  • Membership fee income rose 5.3% to $12 million.
  • Gross profit margin was unchanged at 15% of sales.
  • Operating income ticked lower due to rising operating and administrative expenses.
  • Net income fell 11% to push bottom-line profitability to 2.7% of sales from 3.1% a year ago.

What management had to say

In its 10-K report, management explained how its results varied by geographic segment. Stabilization of the Colombian peso lifted sales and membership fee income in that important market, with comps spiking 27% over the past 12 months. The Caribbean business, on the other hand, was pulled lower due to struggles in Trinidad. "The difficult economic environment there continues to negatively impact consumer spending," executives explained in the filing.

The major hurricanes that moved through its sales region during the quarter hurt results, particularly at PriceSmart's warehouse on St. Thomas in the Virgin Islands. That store was closed for nine days during the quarter and is still operating far from its capacity because "hurricanes Irma and Maria had a severe impact on the infrastructure of the island," management said.

Looking forward

CEO Jose Luis Laparte and his executive team are looking forward to continued improvements in the Colombia business now that exchange rates have fully stabilized. That shift helped the retailer log a 15% jump in traffic in the fiscal year that just closed while average spending rose 10%. PriceSmart's recent membership fee increase in Colombia brought it in line with the company average, and it's also good news for the business that the hike didn't derail subscriber growth.

After the close of the quarter,yaho the company opened a new warehouse in Costa Rica, its seventh in the country and its 40th location overall. The extra selling space should help lift revenue and membership income in fiscal 2018. However, as these latest results demonstrate, operating trends will be even more dependent on broader economic trends in Costa Rica, and in other volatile retailing markets including Colombia and Trinidad.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends PriceSmart. The Motley Fool has a disclosure policy.