PriceSmart's March Comps Drop, Currency Fluctuations Hurt

PriceSmart, Inc. PSMT comparable warehouse sales (comps) in March 2019 (the four-week period ended Mar 31, 2019) for the 40 warehouse clubs fell 1%, following a decline of 1.9% and 1.4% in February and January, respectively. Although comps grew 0.4% in December 2018, it had decreased in November and October by 2.8% and 1.4%, respectively. Foreign currency exchange rate fluctuations adversely impacted comps by 3.3%.

For March 2019, PriceSmart’s net merchandise sales inched up 0.1% to $261.5 million from $261.3 million registered in the year-ago period. Net merchandise sales were adversely impacted by $8.7 million or 3.3% due to currency rate fluctuations.

In the preceding month, the company’s net merchandise sales remained almost flat, while for January the metric increased by 0.3%. For December 2018, it posted net merchandise sales growth of 0.9%. However, the same for November and October 2018 decreased 1% and 0.8%, respectively.

Moreover, comps for the thirty-week period ended Mar 31, 2019 declined 1.4% compared with the comparable thirty-week period in 2018. Foreign currency exchange rate fluctuations adversely impacted comps for this period by 3.1%.

Net merchandise sales improved 0.3% to $1,829.1 million for the seven months (ended Mar 31, 2019) from $1,823.3 million in the same period last year. Changes in the currency exchange rate hurt net merchandise sales by $57.9 million or 3.2%.

Bottom Line

PriceSmart’s strategy to sell limited products at lower prices helps it to generate higher sales and ensures member loyalty. Also, this operator of membership warehouse clubs’ healthy membership renewal rate reflects its strength. At the end of March 2019, the company had 41 warehouse clubs under operation.

However, the company has been battling cost-related hurdles, which lingered in the first quarter of fiscal 2019. During the quarter, warehouse club and other operations expenses increased by 6.8% to $74.2 million, while general and administrative expenses jumped 45.2% to $27.3 million.

This Zacks Rank #5 (Strong Sell) company is also grappling with adverse currency fluctuation as clear from the recent comps figure. Furthermore, net merchandise sales and comparable sales decreased 2.6% and 2.5%, respectively, due to adverse currency fluctuations in first-quarter fiscal 2019. These headwinds along with stiff competition raise concerns for the company.

Consequently, this San Diego, CA-based company has lost roughly 21.3% in the past six months, against its industry’s rise of 6.2%.

3 Stocks to Watch

Foot Locker, Inc. FL delivered average positive earnings surprise of 9.7% in the trailing four quarters. It has long-term earnings growth rate of 9.4% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corp. COST has long-term earnings growth rate of 8.9% and a Zacks Rank #2 (Buy).

Target Corp. TGT has long-term earnings growth rate of 6.3% and a Zacks Rank #2.

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