PriceSmart's (PSMT) November Comps Down, Dismal Run Continues

PriceSmart, Inc.’s (NASDAQ:PSMT) comparable-store sales in November for the 40 warehouse clubs fell 2.8% for the five-week period (ended Dec 2, 2018), following a 1.3% decline in October. The metric also declined 2.1% for the thirteen-week period (ended Dec 2, 2018) compared with the thirteen-week period in 2017. Markedly, shares of the company decreased more than 5% during the trading session on Dec 7.

In the past three months, this Zacks Rank #4 (Sell) stock has declined roughly 30%, underperforming its industry’s 13.4% decline.



For November, PriceSmart reported soft net merchandise sales, following a 0.8% fall in the preceding month. The company’s net merchandise sales in November declined 1% to $258.9 million from $261.5 million registered in the year-ago period.

A glimpse at the company’s quarterly performance reveals that comparable-store sales growth rate has decelerated sharply. The metric inched up 0.2% in the fourth quarter of fiscal 2018, following an increase of 2.7%, 2.2% and 4.1% in each of the preceding three quarters.

Further, contraction in operating margin due to higher selling, general and administrative (SG&A) expenses raises concern. Increase in SG&A expenses may be attributed to the Aeropost buyout and the opening of new clubs. During the fourth quarter of fiscal 2018, SG&A expenses rose 14.4%, while operating margin contracted 60 basis points to 3.7%.

Certainly, PriceSmart’s strategy to sell limited products at lower prices helped it to generate member loyalty and higher sales. Moreover, this operator of membership warehouse clubs’ healthy membership renewal rate reflects its strength. At the end November 2018, PriceSmart had 41 warehouse clubs under its operation.

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