PriceSmart Inc. (NASDAQ:PSMT) Q3 2019 Earnings Conference Call Transcript

Jul 10, 2019 • 08:00 pm ET

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PriceSmart Inc. (NASDAQ:PSMT) Q3 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Jon Braatz of Kansas City Capital. Please proceed.

Analyst
Jon Braatz

Good morning, Sherry and Maarten.

Executive
Sherry S. Bahrambeygui

Good morning.

Executive
Maarten O. Jager

Good morning.

Analyst
Jon Braatz

Well, let's turn into gross margins a little bit. Gross margins, merchandise margins came at 13.9% or I should say warehouse margins came in at 13.9%, that was the lowest we've seen since May of 2016 or third quarter of 2016 when you had to reduce margins to move some merchandise. Is this something -- is this at, sort of, a new level of margins that we're looking at? Has there been a change in competitive conditions? I know you're trying to drive same-store sales, but is this something that we should be looking to see continue a little bit of pressure on margins?

Executive
Sherry S. Bahrambeygui

In short, the answer is that is not our expectation. We are focused on margin. We had clearly some competitive dynamics that we addressed, but also in focusing on improving our inventory flow there were certain markdowns that took place that allowed us to improve on the flow and help drive sales. But the short answer is, no. There is focus on margin and there is an expectation that we'll be able to increase margin going forward. Maarten, do you want to add anything?

Executive
Maarten O. Jager

No, thanks, Sherry. No, that's exactly right. We are focused on it and we're expecting to improve on it.

Let me just give you a little bit more color on it, some context. We saw some of these margin erosion in all of our regions -- Colombia -- so there is 70 basis points that you see in the numbers of reduction, about 10 of that came in Colombia, about 40 in Central America, and about 20 in the Caribbean. But then -- so that's a geographic breakdown. If you were to look at it from different drivers, there was a bit of FX in there that impacted us, there was also, as Sherry mentioned, markdowns that we took to clear up our inventory, particularly of course in non-foods. So, we took some markdowns there.

And the good news from that and Sherry mentioned it earlier in her remarks is that, that's behind us, our inventory is roughly flat year-over-year at the end of May 31st and that's with an additional club open and with the Bolivar club that while it wasn't open as of May 31st was already receiving build up inventory in anticipation of its opening. And Sherry also mentioned that in visiting the DR, she saw that that there was less and there was more open steel and things were flowing better.

So the other factor, there is some competitive pressure, but I would not say that that's the primary factor, particularly in one of our markets in the Caribbean, Jon.

So then stepping back, we are monitoring it, we are managing it, we've cleared up the inventory, that's clear, we're asking also some additional questions in terms of