PriceSmart, Inc. (PSMT) Q4 2017 Earnings Report, Transcript and Summary

Good day and welcome to PriceSmart, Inc.'s Earnings Release Conference Call for the Fourth Quarter of Fiscal Year 2017, the three-month period ending on August 31, 2017. All participants are currently in a listen-only mode. After remarks from Jose Luis Laparte, PriceSmart's President and Chief Executive Officer; and John Heffner, PriceSmart's Executive Vice President and Chief Financial Officer, you will be given an opportunity to ask questions as time permits. [Operator Instructions] As a reminder, this conference call is being recorded on Friday, October 27, 2017. A digital replay will be available through November 3, 2017, following the conclusion of the call by dialing 877-344-7529 for domestic callers or 412-317-0088 for international callers, and entering replay access code 10112016. I would now like to turn the conference over to John Heffner. Please go ahead, sir.

Thank you, Austin, and welcome to our earnings call for the fourth quarter and full year of fiscal year 2017. We will be discussing the information that we provided in our earnings press release and our 10-K, both of which we released yesterday, October 26, 2017. You can find our press release and the 10-K filing on our Web-site, www.pricesmart.com. Please note that statements made during this call may contain forward-looking statements concerning the Company's anticipated future plans, revenues and related matters. These forward-looking statements include, but are not limited to, statements containing the words expect, believe, will, may, should, estimate and similar expressions. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the Company's annual report on Form 10-K for the fiscal year ended August 31, 2017, filed with the Securities and Exchange Commission on October 26, 2017. We assume no obligation and expressly disclaim any duty to update any forward-looking statements to reflect the occurrence of events or circumstances which may arise after the date of this call. Now I will turn this over to Jose Luis Laparte, PriceSmart's President and Chief Executive Officer.

Good morning and thank you for joining our earnings call for the fourth quarter and the full fiscal year 2017. The Company reported sales for the quarter of $711 million, a growth of 3.6% from Q4 of last year, and net income of $19.8 million for an earnings per share in the current quarter of $0.64. This compares to $0.74 per share a year ago when we indicated that the beneficial impact of certain tax related items reduced our effective tax rate and favorably contributed approximately $0.06 per diluted share to our results in that comparable quarter. For the full fiscal year, warehouse sales were $2.91 billion, a growth of 3.2%, with earnings per share of $2.98 compared to $2.92 in fiscal year 2016. We saw a reduction of operating profit in the quarter in both our Central America and Caribbean segments compared to a year ago, largely related to lower sales in our largest market in each of those segments, Costa Rica in Central America and Trinidad in the Caribbean. The other hand, Colombia continued to outperform with sales growth of nearly 21% and operating profit improvement of $2.7 million, from a loss last year of $1.2 million in Q4 to an operating profit this year of $1.54 million. The fourth quarter also had higher expenses, which were recorded in corporate G&A, associated with a specific initiative that we are focused on to drive growth and efficiency in the future but have near-term costs. I will address some of those initiatives in my later remarks. Let me begin with warehouse sales. The 3.6% growth in total sales for the quarter was all driven by a higher number of transactions. The average ticket was essentially flat from a year ago. In Colombia, we saw a strong sales of 20.7% compared to the same quarter last year, including the sales of the Chia location, which opened on September 1, 2016. If we look at comparable clubs, the growth will be 4.4% with the effect of cannibalized sales, particularly in our Salitre Bogota club. Fortunately, the exchange rate has been pretty stable in that market for the last few months, making the comparison in U.S. dollars and Colombian pesos very similar. It is exciting to see our business results in this market now that the currency has stabilized, even with the recent increases a few months ago in their VAT, which went from 16% to 19% in certain products. We have also seen good results in margin and membership, which I will address further. For the Central America region, we finished the quarter with total sales growth of 2.1%, driven by growth in most of our markets like Panama, Guatemala, Honduras, El Salvador and Nicaragua. Costa Rica experienced a decrease in sales of minus 1.1% for the quarter, to some degree affected by currency since in local currency it will be a 3.3% positive growth. Obviously, this is somewhat significant however in that Costa Rica is our largest market in terms of sales. The Caribbean had a slightly favorable comp of 0.7% for the 13-week period. We continue to see difficult economic conditions in Trinidad, which had a negative 13-week comp of minus 1.9%, and Barbados which came down minus 4%. The Dominican Republic and USVI recorded good sales growth, but Jamaica led the path with sales growth right at double digits for the quarter. Overall, comp growth for the 13-week period ending September 3, 2017, finished at 1.9%. For the full fiscal year, our 52-week comp sales were 1.5% in total with Central America up 1.4%, the Caribbean down minus 1.2%, and Colombia up 10.2%. We finished the fiscal year with over 1,000,542 membership accounts, representing a 3.5% increase to our base from a year ago. Membership income for the quarter was $12.2 million, a 5.3% increase. The higher growth in membership income compared to account growth is largely due to the membership fee increase we introduced in Colombia in the month of February. Our 12-month membership renewal rate for the end of the quarter and year was 85% compared to 80% a year ago. Most of the growth is reflected by the improving renewal strength in Colombia. The 12-month renewal rate in Colombia has improved from 58% a year ago to 78%. In addition, we continue to attract new members to our clubs in Colombia. Given the relative currency stability of the past 18 to 24 months, I continue to be upbeat about our opportunity in Colombia for fiscal year 2018 and beyond. Our Chia club near the city of Bogota, which opened a year ago, is showing good growth in membership and transactions at the Salitre Bogota club after a year of suffering the effect of cannibalization is back on the growth trend, finishing the month of September with double-digit sales growth. Our club in Medellin, our second highest volume club in Colombia, comped nearly 27% last fiscal year and 16% in this past month of September. We continue our efforts to identify possible locations for new warehouse clubs in Colombia and have a few targeted site opportunities in addition to exploring other ways we can serve that market. The combination of good sales and membership growth, somewhat higher but still aggressive margins on exciting merchandise, and good operating standards in our Colombian clubs have resulted in a much improved business result. Operating income in Colombia for the full year was $4.9 million versus an operating loss a year ago of $5.4 million. Let me say a few words about merchandise in general. Company-wide, the top categories for the quarter where we saw double-digit sales growth included gourmet deli, tires and fashion apparels. We have been very active in growing our road shows as a new initiative with good results. We saw single-digit growth in candy, pet, soda, deli, seafood, automobile and hardwood. Overall, our softlines department and fresh areas led the way in growth with a total comp growth of 13% and 2.5% respectively for the quarter. I would like now to provide some updates on different areas of the Company and different activities going on as we start the new fiscal year 2018. As we started the year in September, we had the challenges of the hurricane events that affected the region where we operate in the Caribbean and South Florida. In particular, USVI got affected more than other locations with the one-two punch from Irma and then Maria. We were closed for a total of nine days during the month of September and had to curtail operating hours on a number of other days to comply with local curfews. We were fortunate that our building handled the storm well in USVI and only received minor damage, including losing all our light-posts in the parking lot and some cosmetic damage to signage on the outside of our building. We were able to run on generator power for a few weeks and even managed to connect wires into our bank to handle credit card transactions in the days immediately following the first storm. We certainly didn't see any normal operation during the month, given the challenges that the country experienced with lack of fuels, difficulties to move around the island caused by road damage, and inconsistent or nonexistent communication. But I am happy to say that we were able to open quickly and provide much-needed supplies to our members while many other retailers were closed. It is a testament of the commitment of our employees who reported to work despite difficult conditions and/or damage to their own homes. I would like to recognize and to thank all our employees in that location for their efforts in serving our members' needs during the difficult times we had there. We provided some extra relief to our employees to help them get back on their feet. That particular club finished the month of September with a decrease on sales of 16.5, and during October we have seen a more stabilized level of business. It may still take a few months to see the real impact of the storm to the other businesses in the island, including hotels and other tourism industries that drive the economy in USVI. Other locations in the region, like Dominican Republic and Barbados, had to close for business for a couple of days also due to the storms, but we're happy to report that there was not any damage to our warehouses in those locations. In Miami, we were also lucky and our new distribution center only received some minor damage, but nothing of consequence considering what happened in other cities and facilities in the Caribbean and South Florida areas. While there has been some minor interruption of merchandise flow, we were generally able to maintain our shipments and recover once the storms passed. I would like to express my best wishes to our members, employees and all those affected by the storms throughout the Caribbean and Southeastern U.S. Despite those unfortunate events, we started the new fiscal year with a good performance, reflected by a 2.8% comparable growth for the four-week period that ended October 1, 2017. In October, we opened our seventh warehouse club in Costa Rica in the area of Santa Ana, an area west of San Jose. Again, we were affected by weather on our opening day with torrential rains and flooding around the city. Nevertheless, we had a successful opening and good sales have continued. This new location will certainly impact our other clubs in the city, especially our Escazu location, which will probably experience about a 20% to 25% cannibalization. However, we believe that it will allow Escazu, our highest volume club in Costa Rica and the second highest in the Company, to grow again given the traffic and congestion in that area associated with the popularity of our club. Other clubs in Costa Rica may also suffer some cannibalization to a smaller degree, but as a Company we're happy to consolidate our presence in such an important market for us. If our projections are correct about the transfer of sales from Escazu, our reported comps over the next 12 months could be impacted by 75 to 100 basis points. We are also excited about a number of initiatives and strategies that we have been working on, some of which we are launching as we begin the new fiscal year. We have one dedicated to increasing the value of our membership and bring more innovation to our warehouse clubs so that our members can view our membership as a bigger part of their lives. With that said, we are introducing a few new programs and initiatives in our clubs to keep creating excitement and improve our average purchase within our clubs. Let me speak to a few of those. We opened our first optical center with our new Santa Ana location at the beginning of October. This week, we opened our second location in Escazu club. Members are able to get either lenses or frames in that new optical center. So far, with just a few weeks of experience, we're pleased to see the response from our members on this new offering. We are able to offer good savings and great value compared to other alternatives in the market. As soon as we get more results, we will be able to make an assessment on how to grow this initiative, but so far we're happy with the initial results. We have also been working on more gourmet foods, for example [indiscernible] road show which started at the Santa Ana opening, offering our members a high-quality exciting product that receives great response. In our Salitre Bogota club, we opened our first PriceSmart coffee kiosk, where we offer our own private-label member selection coffee and some baked goods in a setting not unlike you will see in the U.S. The kiosk sits just outside the entrance to our club. While this is also a new test, it is showing good results and positive feedback from our members and we may look to do more of this. Another member-centric initiative was launched in Panama during the month of September, our Platinum membership program. Panama is now the second market which offers the Platinum card, which has been in place for a number of years in our Costa Rica market. The initial acceptance of the program has been very good in this market and sign-ups and upgrades are running ahead of our expectations. As a reminder, this program provides the members the opportunity to get a 2% reward cashback for all the purchases they make at PriceSmart. The cost of the Platinum membership is $75, which compares with $35 for the regular membership. In our experience in Costa Rica, we actually saw higher spend with the Platinum members a year after they joined the program. Renewal rate on Platinum members is about 94%, and those members represent over 24% of our sales in Costa Rica. In addition, we will be launching the Platinum program next month in the Dominican Republic. Last but not least, we're also looking at some plans to enhance our co-branded credit card program in an effort to keep growing the number of members that have our card, which reduces our cost while providing an increasing level of rewards, convenience and value to our members. In terms of expansion, our future club in Dominican Republic in the area of San Isidro is under construction for a grand opening in spring 2018, and we're in the middle of expansion of two of our warehouses, one in Pradera, Guatemala and the other one in Kingston, Jamaica. Both of those clubs will have not only additional sales floor space but also more parking to improve the members' shopping experience. Before we move to John's comments, I would like to cover one additional topic, which I also mentioned in our last earnings call. As a Company, we realize the importance of the online activity occurring in the United States and we realize that it is an important trend in meeting future consumer needs. We at PriceSmart are developing a strategy plan and investing in technology to better satisfy our business and retail members. [Indiscernible] development and strategies in this area, we have decided to stop what we call our international catalog business. We learned a lot in trying to make that business work but we feel we needed to refocus our efforts in developing technologies that will better serve our members and contribute to a future growth path. We currently have a new group of people working on what we call the innovation team. Their main goal is to integrate the best of our traditional brick-and-mortar warehouse clubs with the new trends of online shopping and create the right omni-channel experience for our members. We also created an innovation committee of the Board that oversees the efforts of this innovation team. The Board has designated $3 million to $5 million of technology-related spending for this fiscal year 2018, and we believe that the returns of these efforts will be important to create a seamless omni-channel experience for our members. We began this effort and spending in early Q4 with the associated expenses for this and other initiatives that are focused on the long-term success of the Company in this changing retail environment, and that is recognized in our general and administrative expenses in the quarter. It is our intent to continue to make these investments, fund these investments and seek innovation solutions as to how we can best serve our members and markets in the future. Thanks again for joining us today. After John's remarks, we will take your questions.

Thank you, Jose Luis. Let me cover a few additional items. Total gross margins in the period included the effect of the current period lease costs for space in the vacated Miami distribution center that has not been sublet. The impact in the quarter was approximately $450,000 or about 6 basis points of margin, which included a termination fee for 65,000 square feet of space, which we returned to the landlord. We now have about 140,000 square feet remaining of the original 260,000 square feet, with a monthly carrying expense of about $90,000. Overall, for the fourth quarter, net warehouse club margins declined 17 basis points from a year ago, although they were higher by 61 basis points from the prior quarter Q3. Colombia margins were again higher than the year-earlier period by 154 basis points, while Central America and Caribbean margins were lower by 36 basis points and 13 basis points respectively. As Jose Luis mentioned, a number of the investments that we have associated with future initiatives resulted in higher spending in general and administrative expenses in Q4 compared to a year ago. We would expect to operate at somewhat above this – at or above this level of G&A spending throughout fiscal year 2018, as we develop the technologies and capabilities we believe are essential for our future. Compared to Q4 of last year, we had less interest income due to lower cash balances on deposit and higher interest expense largely as a result of the debt associated with the acquisition of the Miami distribution center in Q2. Foreign exchange transactions and the revaluation of monetary assets and liabilities resulted in a $394,000 currency gain in the quarter compared to $119,000 gain in Q4 last year. We continue to face liquidity issues in Trinidad, but have been able to effectively meet the demand for our imported products with shipments without a significant increase in our exposure to the TT dollar. Our team in Trinidad and our corporate treasury team have been able to source sufficient tradable currency to maintain adequate flow of imports into the market. We remain vigilant however to any changes in the market which may cause us to take action to more tightly manage our flow of U.S. products to Trinidad. The effective tax rate for the period was 33.9%. As expected, the effective tax rate has increased to a more normalized level after several quarters of a lower rate due to the benefit we saw for several quarters attributable to intercompany transactions between PriceSmart, Inc., the U.S. entity, and PriceSmart Colombia, related to our ongoing market development efforts in Colombia, with last year's Q4 being exceptionally low at 30.4%. As you may recall, we highlighted this reduction last year as having a beneficial impact of $0.06 per diluted share in our Q4 fiscal year 2016 results. From a balance sheet perspective, the Company ended the year with cash of $162.4 million, a decrease of $29.7 million during the quarter. Operating activities in the quarter added $36.6 million. We invested $35.7 million in various capital projects, including the construction activity associated with the Santa Ana, Costa Rica warehouse club and acquisition of land in Santo Domingo, Dominican Republic and the initial construction of what will be our 41st warehouse club. The work we are doing to expand our Pradera warehouse club in Guatemala used about $2.5 million in the period. Finally, we used $30 million in financing activities, primarily reducing debt and making our August 31 dividend payment of $10.6 million. Now before we take your questions, I have one more item of a personal nature. I recently informed Jose Luis and the Board of my intention to retire from the Company. I committed to work closely with them over the next several months to effect a smooth and seamless transition. I am leaving at a good time for me and for the Company. PriceSmart is in a very strong position in the markets where we operate. It is also a time when the Company has some very exciting plans for the future, including the wider use of technology to better serve our current and future members. This is a great opportunity for someone to be part of that innovation and transformation over the next few years, which was a longer period than what my personal plans allowed. The Company has retained a firm to conduct a search and to evaluate candidates, both internally and externally. We expect that the overall transition process will extend to the first quarter of the calendar year 2018, and until the time is right to formally pass the baton, I will remain fully engaged in my current role, one that I have enjoyed immensely for the past 14 years.

John, let me add that I am very appreciative of John's many contributions to the growth and success of PriceSmart. He and I joined the Company at about the same time and have worked together closely over the years. I will miss John's counsel and leadership, but I fully respect his decision and I'm happy for him as he makes plans to move on to his next life stage. It is important that we have an uneventful transition as we continue to grow the Company and execute on our many plans and initiatives. John will continue to play an important role in that process over the coming months. Thank you, John. With that, we will be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from Ronald Bookbinder with IFS Securities. Please go ahead.

So, on the cannibalization in Costa Rica, you mentioned 75 to 100 basis point impact. Is that on a Company-wide comp or is that just on the Costa Rican comp?

That's on the total Company comp or on the Company-wide, yes.

Okay. And on sort of the slowing in Costa Rica, you grew on a local currency basis, but is there anything else going on there, any competitors or how is traffic versus ticket, how should [indiscernible] about Costa Rica?

Yes, let me tell you, Ron, I don't think there is any increase or any difference in competition in that particular market. It's pretty much the same. I think we have been competing for the last few years with the same guys and we haven't really noticed a big increase in competition in that specific market. In terms of our – the economy seems to be a little soft, no question, and obviously the impact of slight exchange rate or a slight devaluation shows better results in local currency. Our transactions are actually not trending bad at all. They are actually up, and we're up about 2% on transactions in that market. So it is more a result of a little bit less spending from the members in general terms. But as I mentioned, [obviously] [ph], and the reflection of our seventh opening in that market demonstrates our commitment, and things hopefully will get better in the economy for us to keep growing our base there.

Okay. And on the G&A, the increased spending as you build out the technology, you said that it should be at or above the current levels. Are you talking about as a percent of revenue or on an absolute dollar basis? Could you just give us a little more color as to what that means?

Yes. It was driven more on an absolute dollar basis. I think the G&A for the quarter, I don't know if I have it right here, about $18 million or something like that, and it will sort of run in that or slightly above that over time. We had about $800,000 to $900,000 of that type of technology and innovation spending in the quarter, of Q4. It will probably increase a little bit from there. We indicated $3 million to $5 million incrementally for the year. So $5 million over four quarters would be a little more than the $800,000 in any individual quarter.

Okay. And then just lastly, you guys, your model, as you ramp up revenue and you leverage SG&A, you usually cut price, lowering gross margin. With this technology spend for the next year or two, should we think that you're not going to be so aggressive on cutting price and squeezing gross margin because we're going to see increased G&A?

No, Ron. This is Jose Luis. I definitely don't think – that's not our plan at all. We want to continue being aggressive. It's the concept of our business model. It is what makes us obviously a value for our members, and that's what makes the members pay the membership and get those renewals. So we don't want to punish, I guess to some degree, the members because of that. I think we have to work through this gear of investment and obviously do the right things for the long run, and we definitely are not looking at any changes, dramatic changes at all in the margin results, no.

Okay, thank you very much, and good luck going forward.

Your next question comes from Rodrigo Echagaray with Scotiabank. Please go ahead.

John, good luck on this new phase, we wish you the best and thanks for your time at the Company. My question is with regards to the gross margin impact from the carrying cost on the DC. Can you just, I think I might have missed it, I think you said about $90,000 carrying cost per month, and is that right?

Yes, it is correct. It is a $90,000 a month carrying expense, Rodrigo.

Okay, and when do we lap that, when do we see that moderating, would that be until Q3?

That assumes – I mean, $90,000 assumes we don't have any more subleasing. So we're currently active in trying to sublease the additional space that we have there. But if we don't do anything, it would be $90,000 a month. So, with some luck, we will see that reduced. When you say lap that, I guess we vacated that space in probably March of last year, I think?

Yes, March of this 2017.

Yes, 2017. So I guess we will anniversary, whatever that is, in March or April of next year. Hopefully, at that point it would be less than $90,000 a month because we'll have been successful in subletting more space.

Right, it makes sense. And then just lastly, I guess congratulations on the Colombia results. I mean, I'm looking at my models here, and essentially at least as of Q2, every single retailer in Colombia has negative same-store sales and nominal. So the fact that you guys are able to grow in that context, that means that the format is working extremely well. And I just wonder, how do you think about when you compare your numbers versus the competition, obviously the currency has stabilized, does that – I mean, you were saying it gets you more excited on the Colombia opportunity, but does that change your overall estimate on potential returns in Colombia and maybe in that region, maybe Peru, given that we have a better macro?

Yes. I would say, Rodrigo, that definitely we are also excited, as I mentioned, with the results of Colombia. I think it took us [indiscernible] the devaluation was very difficult especially for a new player like us to absorb, especially given our high content of imports, I think we passed that. It was a very challenging year, fiscal year 2016. I think now things are stable with the currency, and as you mentioned, the business model, the format is well-accepted in the country. It seems that it's not different from not only from the PriceSmart countries, but other countries where club business operates. And I think that's good. It's good to see that. I think also that other retailers learn how to play with us. We're going to continue being aggressive, as I mentioned, in trying to find more locations, especially in the big cities, say Bogota, Medellin are cities where we believe there is good opportunity. It doesn't change – I think at this point we're not necessarily changing our strategy. We have always believed since the beginning that we wanted to keep growing in that particular market and especially in those big cities. And in relation to other countries, we definitely do recognize that there might be an opportunity. We don't have anything official. We have just been studying a few of the potential countries where this concept can be accepted, but nothing at this point that we can be talking about, no. It is basically just business as usual at this point, but obviously happy with the results in Colombia. It was challenging, as you mentioned, for a lot of retailers and we were able to come up with a good performance for fiscal year 2017.

Thanks, and just lastly on dividends, I mean you obviously generated a lot of cash and have a solid balance sheet, any thoughts on that in terms of maybe when would you announce the next year's dividend or any thoughts on how you're looking at your balance sheet? You had a big spend in last fiscal year with the distribution center that you will not have next year. So it would seem like the cash may accumulate faster at the current pace of growth in terms of openings.

Yes. I will say, Rodrigo, that at this point we don't foresee anything. Of course, it will be discussed at the next Board meeting coming up in January when we do the review of the first quarter, and our shareholders' meeting, but nothing at this point that we have been discussing on dividends.

Yes, really if I can add to that, Rodrigo, is that we've mentioned before we don't have a firm dividend policy as a Company and it is considered by the Board in the January meeting each year. Historically, that's when we have made our dividend declaration, and I would see no difference this year as well.

Great. Thank you, guys.

Your next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

John, best of luck in retirement. We'll miss you.

Thank you.

Jose, returning to Colombia, did I hear you correctly say that Colombian comps were about 4.6% or 5%, something like that, in the quarter?

For the quarter, including the cannibalization that Salitre had, we ended with a 4.4% comp in Colombia for the quarter. And for the year, we were up in comp, 10%, 4.4% for the quarter and 10% for the year.

Okay. That looked like a deacceleration from the prior quarters. Was there anything specific in Colombia that might account for that?

No, I think it's just the behavior that we're catching up with the years. Obviously, the beginning of the year, we had – back in 2016, we had more of the impact of the devaluation. So that's what caused the main difference on the numbers being a little higher. Obviously, we knew that at some point they were going to get more normalized. We actually had a good start in the month of September with some clubs like Salitre that is again in double digit now with the effect of the Chia cannibalization gone, and even Medellin growing double digit in September. So we're going to see I think, Jon, a good combination of still probably close to – we would like to continue having close to double-digit comps in that market, assuming the currency helps us, which seems to be right now pretty much equal to what it was last year.

I would add one more thing, if I could, Jon, the Chia will not be in our externally reported comp until November. While we've anniversaried the opening, the way we [indiscernible] that, it will be in November will be the first month that this cannibalization will not be there.

Yes, in external reports, correct.

Right, right. John, have you been able to, for tax purposes in Colombia, used your tax loss carryforwards yet?

To some degree, we have, but not all of them. So yes, we have been able to use those a bit over the last year.

Okay. To the degree that you could fully use them, would that have a meaningful impact on your overall tax rate?

No, I don't think it will have a meaningful impact. It will certainly help it, but no, will not have a meaningful impact.

Okay, all right. Thank you.

[Operator Instructions] Our next question is from Patricio Danziger with RWC. Please go ahead.

Just wanted to understand a little bit more if you can elaborate on the innovation that you mentioned that you're spending more money in innovation, I mean what are you doing there and what is the cost of that?

As I mentioned, Patricio, the concept I guess, we created a committee from the Board of Directors and we started creating a team that we call it actually innovation team, and the idea for that team, and as we mentioned in the 10-K and I mentioned here in the call, we are looking at a possible investment. We look at this as an investment, but obviously we'll see that we're going to probably be spending for the full year maybe between $3 million to $5 million. And the idea is to invest more and to learn more about what we can do in this omni-channel and online market. We did discontinue, as I mentioned, the efforts that we had before with the electronic international catalog. We used to have an operation online where we were only serving international catalog, meaning items brought from the States to the countries. We discontinued that. And although we learned a lot, we knew it wasn't the direction we wanted to go. So we're now looking at how we see that we can better integrate our traditional brick-and-mortar warehouse clubs with the new trends of online shopping. And obviously we want to create this omni-channel experience for our members, which is where pretty much a lot of the concepts are also going in retail and in the States. So that's the effort of that innovation team, to see how we see that we can come up with new ideas, and obviously this team is working with the regular team of operators and buying and logistics, which are an important part for these initiatives. But that is in general the concept of this innovation team or the plan for this innovation team going forward.

Fantastic. And as a follow-up question to that, so DC is basically cost in salaries, correct, and how much was it this quarter?

There's a little bit more than just salaries. There are some investments and we're going to see more in licenses and things like that. We're looking at launching a new platform, replacing our old platform that we have before. So there will be additional spending besides salaries for sure. So in that number, $3 million to $5 million we have a component of different things, not only salaries. We're going to start seeing some depreciation. We're going to start seeing investments from different things, consulting. I mean, it's going to be of the different things, Patricio, to make it a right way.

Fantastic. And this $3 million to $5 million, is $3 million to $5 million one time or is this yearly $3 million to $5 million?

I think it's always sort of looked at for this year and what the Board – with the plans that we brought to the Board for this fiscal year. It would not be unreasonable to think that this would continue to some level. But I don't think we would be sort of done, if you will, with this evolving market in how to best serve our members going forward. So I wouldn't cap it as a one-time expense. That's just certainly what we've sort of understood for how we see things working right now.

Sounds good. And if I may ask a second question, I understand that you have 39 stores as of August 31. I mean, if you can tell us a little bit more of on how many stores you announced on openings and how many stores you plan to open in the next months? Thank you.

For the remaining of the fiscal year, for sure we have the one that is under construction in San Isidro, Dominican Republic. That will be our number 41 because we opened in October just a few days ago, 20 days ago, we opened Santa Ana, Costa Rica. So we will finish the fiscal year with 41. And definitely we are looking at – but we have plans, but nothing official to report, but we are trying to add more clubs in the pipeline, but we haven't started construction on any other projects. So basically for the remaining of the fiscal year, we will only have that one, San Isidro. As soon as we have more, Patricio, we will be releasing that information on potential projects or whenever we acquire property. We're looking for permits in different properties around different countries, so hopefully we will be able to announce those soon.

Great. Thank you very much, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to John Heffner for any closing remarks.

Thank you, Austin, for helping us out today. So this ends our call. I want to thank everyone on the line for participating with us today. Have a good rest of the day and a nice weekend.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.