PriceSmart, Inc. (PSMT) Q2 2018 Earnings Report, Transcript and Summary

Good day and welcome to PriceSmart, Inc.’s Earnings Release Conference Call for the Second Quarter of Fiscal Year 2018, the Three and Six-month Period Ended on February 28, 2018. 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, April 06, 2018. A digital replay will be available through April 13, 2018, 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 10117031. I would now like to turn the conference over to John Heffner. Please go ahead, sir.

Thank you, and welcome to our earnings call for the second quarter of fiscal year 2018. We will be discussing the information that we provided in our earnings press release and our 10-Q, both of which we released yesterday, April 05, 2018. This morning, we also released our report on March warehouse sales. You can find both press releases and the 10-Q filing on our website, 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 statement to reflect the occurrence of events or circumstances which may arise after the date of this call. Now, I will turn the call over to Jose Luis Laparte, PriceSmart’s President and Chief Executive Officer.

Good morning everyone and thank you for joining us today. Yesterday, we announced our second quarter financial results. Net income of $14.1 million and earnings per share in the quarter of $0.47 reflected the impact of the new tax law changes in the U.S. that went into effect, resulting from legislation passed in December 2017. For us, these tax charges related to the fundamental operating activity in the period, resulted in a negative impact to our earnings in the quarter of $0.42. John will go into more detail in his remarks on these tax charges. I will be focusing most of my comments on the operating results of the Company in the quarter. I will also address our recent acquisition of Aeropost, Inc., a cross-border package delivery and online business with online technologies, capabilities. Operating income in the current period included onetime costs totaling $3.1 million associated with acquisition of Aeropost. This cost included $525,000 in deal-related expenses and $2.6 million in charges for e-commerce development activities that are no longer needed because of the technology purchase as part of the acquisition of Aeropost, Inc. We finished the second quarter of our fiscal year 2018 with net warehouse sales of $816.5 million, an increase of 5.7% compared to the second quarter last year. The comparable warehouse sales for the 13-week period ending March 4, 2018 increased 4.1%, showing a good improvement versus our first quarter comp increase of 2.2%. Let me now give you more color on our sales results for the quarter. Our net warehouse sales growth of 5.7% for the quarter resulted from a 4.9% increase in transactions and a 0.8% in average ticket. We had positive sales growth results in each of our segments. Central America segment was up 4.2%. This growth driven primarily due to the addition of the Santa Ana Costa Rica warehouse club that opened in October 2017, contributing to an overall positive sales growth in Costa Rica. In the rest of the countries in Central America, we saw high-single digit growth in Honduras, Nicaragua and El Salvador. Guatemala was also positive in the low single digit, Panama reported a small decrease on total and comp sales for the quarter. This is a continuation of what we saw in the first quarter after having experience several years of robust growth. The Caribbean had a sales increase of 6.7%, driven by Trinidad, our largest market in that segment that returned to positive sales growth of 5%, a good improvement from first quarter of this fiscal year where we again saw a slight sales decrease compared to the year earlier period. We continue to see double digit sales growth in USVI, where we’re capturing incremental business due to the fact that the other competitors in the island are still in recovery mode or have not yet reopened due to damage sustained during the hurricanes in September 2017. Jamaica, Dominican Republic and Aruba also reported positive growth while, Barbados had a slight decrease this past quarter compared to the same period a year ago. Colombia continued to have good overall results with double-digit sales growth of 11.5%, improving margins, more membership accounts and $2.2 million in additional operating income compared to the same period a year ago. That currency has remained relatively stable, moving in only a small band, even below the 2,900 pesos to the dollar level. To conclude sales, I would just mention again that the comparable warehouse club sales for the 13-week period ending March 4, increased 4.1%. We’re still seeing a meaningful transfer of sales from our Escazu warehouse to the Santa Ana warehouse in Costa Rica. We estimate that this cannibalization is having a negative impact in comps of about 189 basis points in the Central America region and about 110 basis points on the overall Company comps. This morning, we also released our March sales which continued to show good results. We finished the month with sales of $216.3 million, representing a growth of 8.9% versus the same month a year ago; in terms of comparable sales for the four weeks ended April 1, 2018, our increase was 3.5. As it happens sometimes, this year, Easter or Semana Santa fell in the month of March versus April a year ago. We generally see increased purchases from our members during the Semana Santa period, but this can largely be offset by the fact that all our warehouse clubs are closed on Good Friday and we see lower sales from the Easter weekend compared to our normal weekend. In terms of merchandise categories, we continue to see good results in the softlines area, especially in fashion apparel where we have invested on inventory and additional SKUs to grow that department that for the quarter reported more than 45% comp growth. The fresh area had also good growth and gourmet deli growing more than 18% driven also by new items that our teams [ph] have been adding to this department that creates a lot of excitement and differentiation. In food, some of the departments with growth were candy, nuts, canned meat and canned vegetables. In hardline, computers, toys, and major appliances were the highest growth departments. Our food service and bakery business also reported growth during this quarter. Some challenges, as slight decreases were seen in areas like soda, liquor, sporting goods and office furniture. [Ph] Warehouse margins in the period came at 14.4% compared to 14.6% a year ago as a result of pricing actions to drive sales and less favorable results issuing [ph] salvage and throwaway. Moving on to membership, we finished the quarter with more than 1,557,000 accounts, up 2.9% from a year ago and membership income was up by 7.4%. The 12-month renewal rate at the end of February was 85%. Excluding Colombia, the renewal rate was 87%. The platinum membership was introduced in Dominican Republic and Panama during the first quarter of fiscal year 2018, and we’re pleased with the results we have seen on the acceptance of this new level of membership and which contribute to an overall 4% increase in the average membership fee collected per account. We continue with our efforts to provide additional capacity in some of our existing warehouse clubs to handle the growth in our membership and prove our ability to support our members. Currently, our active building expansions include our Pradera location in Guatemala City and also in our Kingston location in Jamaica. Both of these projects are proceeding well and will be completed during Q3 of this fiscal year. Our construction in the City of Santo Domingo, Dominican Republic is moving as planned and our San Isidro location is scheduled to open on May 3, 2018. We’re pleased with the sign-ups of new members and look forward to another successful opening, our 4th warehouse club in the Dominican Republic. In terms of new clubs, I’m happy to announce that we’re completing the acquisition of a new site of approximately 30,000 square meters for a new opening in the city of Santiago de Veraguas in the country of Panama. This city is the capital of the province of Veraguas. The location for this new warehouse club in this city will allow us to attract people from modern municipalities close to this city like Herrera, Los Santos and Cocle. The city of Santiago is located at about 120 miles from David, Panama where we currently operate a successful warehouse club in that city. We may see a slight cannibalization from some members that make the long trip to David, but we are sure with the primary location in much closer vicinity, we will see much increased shopping frequency from those current members as well as to attract new members from the communities in that area. The distance to Panama City is about 150 miles. We’re expecting to start construction at the end of April and tentatively open this new club at the end of November or early December in time for a holiday. This would be our sixth warehouse club in the country of Panama and our 42 club for the Company. On March 15th, we acquired Aeropost, Inc. for a total consideration of $30 million in a cash transaction. Aeropost is one of the largest and most cross-border logistics and ecommerce providers in Latin America and the Caribbean. With their headquarters in Miami near our PriceSmart U.S. distribution facility and our Miami [indiscernible] Aeropost offers package delivery services to 38 countries and territories including 11 where PriceSmart operates. The service provides convenient local pickup points, delivery and innovative local payment options. Aeropost.com enables customers to purchase U.S. sourced purchase online and receive them in country within days of purchase. The Aeropost service is an exciting, high value addition to the products and services we offer to our members. The combination of our two companies brings together PriceSmart brick and mortar excellence, buying power, and distribution and operational expertise with Aeropost’s exceptional cross-border logistics, delivery options and ecommerce knowhow. Aeropost business accelerates PriceSmart’s ability to offer online shopping, test and measure new digital strategies, and offer delivery options for our members, all while maintaining our commitment to an excellent members experience with high-quality merchandise at low prices. As a standalone business, Aeropost has annual revenues of $40 million to $45 million and is operationally breakeven. At this point, Aeropost will operate as a wholly-owned subsidiary, providing logistics and technology services to support PriceSmart’s omni-channel and digital strategy. Beyond the charges we took in the quarter, we do not anticipate any further dilution to our earnings through the end of this fiscal year with this acquisition. Some of the activities and investments we were planning to do as part of our innovation initiative, which we have previously indicated could be up to $5 million in this fiscal year are now being addressed via Aeropost capabilities. As a result, any incremental costs of integrating Aeropost will largely fall within that previously planned investment amount. We believe we have added exciting new capabilities with Aeropost and I want to personally welcome the employees of our Aeropost to the PriceSmart family. Before I finish my comments, I also want to talk about another announcement that we made this morning regarding our new CFO. We’re happy to announce that Maarten Jager would be joining us in that new role as of April 24, 2018. Maarten is currently working in international division of Walmart. He joined Walmart in 2014 and during his tenure he served as Senior Vice President and Chief Financial Officer of its Asia division, living in Hong Kong before appointed to Senior Vice President and Chief Financial Officer of Sam’s Club. He definitely understands the club warehouse business. Prior to Walmart, he worked for many years at Booz Allen Hamilton, Inc. in different management and technology positions and also at Diageo North America where he oversaw different financial responsibilities. I want to take also the opportunity to thank John Heffner for his contribution during the past 14 years and we will miss him at PriceSmart. He and I joined the Company at the same time and have worked together closely over the years. I wish him the best in his retirement, which he previously announced. Good luck, John, and many thanks for your support. Thanks again for joining us today. After John’s remarks, we will take your questions.

Thank you, Jose Luis. Let me cover few additional items including a further discussion of the impact of the U.S. tax reform legislation on our results in the quarter. Total selling, general and administrative expenses in the quarter were $94.3 million or 11.2% of revenues compared to 10.9% a year ago. SG&A this year has a cost of one additional warehouse club. In addition, we had SG&A costs of $3.1 million related to our Aeropost acquisition that are not expected to reoccur. Included in the $3.1 million or $525,000 in deal costs associated with the acquisition for due diligence, legal, tax, accounting, and technical advice. We also took a total of $2.6 million in charges to discontinued development efforts of our ecommerce solution. The acquisition of Aeropost will allow us to utilize Aeropost online technology along with their in-house digital capability in place of an outsourced solution. Net interest expense was lower in the quarter compared to a year ago due to lower level of long-term debt and increased level of capitalized interest. We recorded net foreign currency transaction gains of $210,000 in the quarter. Obviously, the big change year-over-year is seen in our provision for income taxes. Like many companies, this quarter is when we recognized the impact of the U.S. Tax Cuts and Jobs Act legislation passed in December 2017. We provided some additional estimates of this during our Q1 earnings call and provided a further update in our February sales press release. While a lower U.S. tax rate will benefit earnings in future periods, the various aspects of this new law resulted in a net reduction of earnings of $12.8 million or $0.42 per share in the current quarter. We detailed these pieces that make this up in our earnings release and in the MD&A section of our 10-Q. The most significant aspect of one-time transitional repatriation tax on unremitted foreign earnings is provisionally estimated to be $13.4 million. This is largely a non-cash charge as we expect it to be able to offset at least $10 million of it with foreign tax credits with the remainder payable over eight years. An additional $822,000 non-cash charge was related to the U.S. deferred tax assets on our books that were re-measured at the lower 21% statutory tax rate compared to a 35% at which we had been carrying them. Offsetting these charges was a beneficial impact of the lower tax rate on our current period U.S. earnings totaling $1.4 million. Going forward, we estimate that our overall effective tax rate will see an approximate 200 basis-point improvement from our historical run rate prior to the change in U.S. rates. This is the result of the overall mix of taxable income in the U.S. versus outside the U.S. in foreign tax jurisdictions. Very briefly, from a balance sheet perspective, we ended the quarter with a $155.6 million in cash after paying $10.6 million in dividends to stockholders in February, and we have $96.7 million in debt, both current and long-term. With that, we’d be happy to take your questions. Chad, I’ll turn things over to you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Jon Braatz with Kansas City Capital. Please go ahead.

Good morning, John, Jose.

Good morning.

Regarding Aeropost, when I look online, it looks like they really have two businesses as sort of an online shopping platform and also they act sort of as a facilitator for Amazon, eBay and so on. How are you going to look at those businesses going forward? Do you want to grow the facilitator business or is the emphasis going to be on the online platform?

Jon, the way we’re looking at this, obviously yes, they do move a lot of volume of purchases, mainly from Amazon, eBay, Walmart, you name it, a lot of different retailers that obviously use these services, these kind of category of services to bring items to the country. That business is big. But really, what we’re looking at doing and developing is obviously enhance our value proposition by obviously combining our brick and mortar expertise and obviously build -- grow our e-commerce business. Now, eventually where we want to build a platform and getting to our goal is to offer multi-channel shopping experience opportunity for our members. Now, that’s the way we build -- we not necessarily want to just grow the current category business. Now, we’ll be focused more on growing the I guess the -- in addition, going to build also -- we are looking at building a platform obviously through them so that we can offer our own PriceSmart platform to our members.

Okay. Obviously consumers down in your markets have some online choices. And I guess what I would like to understand better is, how does your physical locations in those markets -- how is that going to set you apart? Will you be able to offer lower distribution costs, expedite orders and by and large be in a better competitive position relative to the other choices the consumers might have now?

Yes. Obviously, Aeropost already offers different pickup points. So, obviously, our clubs can become also important pickup points where members can -- our current members can go and pickup merchandise that they buy through Aeropost. Eventually, obviously we’re going to leverage also our volume and our ability to work with our members. And we should be able to definitely be a good competitor in that market and offer a better value to our members. Our ultimate goal is obviously create a better omni-channel experience for our members, obviously offering a great value proposition for them. That’s the concept, Jon.

Will there be an opportunity to open it up to non-members?

Well, currently, anyone can shop in Aeropost. I’m sure we mix -- obviously we have a mix of members that shop in that. We have a mix of current members that shop Aeropost and shop PriceSmart. Eventually, obviously, there will be PriceSmart merchandise only available for those members now on their website. So, it will actually have an opportunity for us to give us new members, people that will say I’m an Aeropost customer, but I’m not a PriceSmart member. And probably, they will sign up. So, there is a lot to learn about those members. One of the ideas is obviously to introduce the digital marketing expertise to drive online customer acquisition via different digital media campaigns also.

Okay. One last question, John, will there be a segment reporting line for this business? And what type of -- can you give us a size of maybe other additional investments you might have to make with the Aeropost acquisition? And then, lastly, any thought on the amortization charges associated with the acquisition at this stage?

Jon, we’ll report their revenue through our -- through revenue will be a separate segment. It will fall into our U.S. segment. But, I think there will be adequate visibility within our P&L to see key aspects of this. Certainly their revenue stream will be an individual revenue stream that you’ll able to see, because it’s not warehouse sales per se. It’s more income related revenue related that way. In the near-term right now from an investment standpoint, there are investments, but as we mentioned, we have been planning investments to do things and what we consider innovation area, which are now very much wrapped up into the innovation activities of Aeropost. So, we’ve indicated I think $3 million to $5 million for this year. If you look at the upper end of that range of $5 million, we think we can operate within that with the integration of Aeropost. And you asked me a third question too, Jon. Say that again.

The amortization associated with the…

Sure. We need to go through a purchase price accounting exercise. So, we have not done that yet to parse out the pieces of this into intellectual property, goodwill, technology that we require, things like that. So, that’s some work we’re going to be doing this quarter and probably be able to share more in the next call on what that’s looking like.

The next question will be from Ronald Bookbinder with IFS Securities. Please go ahead.

Good morning and congratulations on the continued comp growth. But, continuing on with the Aeropost questions. I think, you all said that it was operating income neutral, but what kind of revenues is the business currently doing?

$40 million to $45 million on revenue, as a standalone business that’s what they were doing.

Okay. And did they already purchase any goods from you guys that they were selling online or shipping overseas?

No, in the past, we actually -- back that in the days when we were doing some e-commerce activity, Ronald, we used Aeropost a few times to service some deliveries to our countries when we were doing our own online business, obviously, because they have the expertise of moving merchandise air freight. Obviously, we didn’t do that. So that was one area of expertise that we used them more as a service. But now definitely, they haven’t -- there wasn’t any other merchandise relation with them.

And Aeropost, they service markets in the region that you guys don’t currently service. Could Aeropost be used to -- for you to gain insight into new markets before you enter such as Ecuador and Peru?

That is correct. That’s one of the concepts obviously that we have been exploring. And obviously, it will give us the ability to deliver some PriceSmart merchandise to countries obviously offering good values as we do offer in the other countries and an opportunity to get to new markets. And learn also obviously what those markets are shopping for now, because not only we will have exposure to our PriceSmart merchandise, but obviously other merchandise that members buy in all these different countries. There is definitely a good learning opportunity with that; and obviously, the fact that we can utilize some of those analytics and member behavior to learn more and drive customer business.

And oil, the price of oil has steadied at a nice level here. Do you feel that’s really benefiting Trinidad and Colombia? And how are things in Trinidad with your exposure to the TT?

Well, in Trinidad, it has helped a bit. We have seen some slight improvement in liquidity situation there. It is -- so, we’re encouraged by that. But this is still a difficult situation for us. Our business has improved a bit. I think the environment there for our business has improved. You can see with the positive sales we saw this last quarter in Trinidad. But we are still very careful in Trinidad. And the liquidity situation generally remains, but it’s not quite as severe as we were experiencing a year ago.

And to your point Ronald on Colombia, I think there is obviously -- Colombia is having a good trend. I don’t know how much of that is related to oil. I’m sure there are some positive signs. We see that on the currency for the last couple of weeks has been even below the 2,800 level. So, it’s actually 2,700 level. So, it is actually helping and obviously in that economy. So, we hope we continue seeing that trend, at least stable currency, and maybe some of that is related, no question, to the oil price.

And on Trinidad, are you still holding back any inventory shipments or…

No. We’re shipping basically what we need for that country. We’re just being careful on obviously the level of inventory, but there are no, today, any restrictions. It’s basically driven by sales. If they continue growing their sales, we will definitely continue looking at shipping inventory.

Yes. We’re getting an adequate level of tradable currency to support any shipments that we’re moving in.

Our next question will come from Rodrigo Echagaray with Scotiabank. Please go ahead.

Just a quick question, I guess two questions. One, can you just expand quickly on the impact from Easter on March sales? And also, going back to the Aeropost acquisition, just trying to understand where the focus would be at the beginning. Is there a big overlap in terms of customers as far as you know in the existing operations of both Aeropost and PriceSmart? And would it be fair to say that a good first opportunity or low hanging fruit would be to make sure that as many as those Aeropost customers that are not currently members of PriceSmart that they become members? I mean, is that a focus at the beginning, or not necessarily will you guys be focused on the membership income, but just driving sales by shipping and buying and selling merchandise?

Let me start with the first one that I think you were actually about Semana Santa. We always have this question, I guess, when we report, because it’s obviously the March or April. A few years sometimes it is that repeat on the same month. This year, we got the benefit, obviously of the additional business in the month of March and we also got the closure, but I guess in the next week, actually we’re going start to seeing our sales compared to last year having an impact, because we’re going to see the rush of sales from last year. So, the way we usually look at this, because it’s hard to say if it’s better or worse, we kind of combine March and April to get a good feeling of what is the result of -- that’s the way we kind of view it, because it’s hard to determine it. You gain or you lose depending on how you view it. But I think that the conclusion that we have made is we usually combine March and April to see what is that we really can expect or what is the real growth that we have on our business. So far in March, it was positive and hopefully in April with other activities going on we can probably minimize that impact of not having Semana Santa falling in this month. Now, to your question on Aeropost, there are different activities going on as we obviously integrate the company within our company. As you mentioned, obviously, we do realize there is an opportunity to convert some of the Aeropost customers to PriceSmart members. Is that the number one priority? It is within the priorities. Obviously, we’re trying to refine of all the things that we want to do, what are the different priorities and how do we start little by little integrating the company within us. Obviously, we’re looking at selling merchandise from PriceSmart within the Aeropost platform. And we’re looking at building a platform that will take a little longer, but as we did the write off our current platform, now we have to replace it with our new platform. So, there are different activities that actually, as we speak, we’re trying to prioritize and figure out how we can start learning. There are a lot of good things obviously that Aeropost brings to the table for us. Obviously the technology on one hand, and good team obviously that will help us get there, time to market -- get to this -- I guess, be a little more faster on what we’re trying to accomplish on this omni-channel opportunity, and basically the region, the geography that they cover is similar to our geography, plus the addition of new countries where we hopefully we can get some merchandise. So, there are different priorities. And obviously, one of those, as you mentioned, would be eventually to convert some of those customers from Aeropost to PriceSmart members if they are not today.

[Operator Instruction] The next question is a follow-up from Jon Braatz Kansas City Capital. Please go ahead.

Jose, sort of a big picture question. Can you talk a little bit about the online market in your -- in South American, Caribbean and Central American in your markets? How sizable it is, what type of growth they’re seeing? And I don’t if it’s relevant but sort of a relative growth in comparison versus the U.S. How dynamic is that -- is the online market in your markets?

Yes. I will say, it’s not obviously as dynamic as it is in the U.S. We’re seeing that is going in that direction. Right now, in the markets where we operate, it’s a little bit fragmented. Our markets are smaller markets, with the exception of Colombia. You have in Colombia some bigger retailers that are already into this online space. You have Falabella, you have Exito, you have some of the big retailers. Also learning a little bit of this and try to get into that culture and getting into their customers and see into this culture of shopping online. So, it is growing definitely. Do we have big players? Obviously, no, there is not an Amazon competition right now. There is a obviously MercadoLibre which is a good -- actually the Amazon of South America, to put it that way, out of Argentina, which they have presence in Brazil, Mexico, and they’re looking at -- obviously they have Colombia and they are looking at different markets. So, I think competition will start coming. It is something that we do realize that we’re going to start facing new competitors. There are other I guess smaller competitors more like Instacart or more like I guess more delivery companies they have different actual members or customers can shop more the supermarket things. So, it is definitely a growing market. And that’s how we want to be ready Jon. And obviously we’re going to learn a lot about this with this acquisition.

If I go on your website now, I think there is link to Aeropost. When Aeropost is fully integrated, will that -- will their website be eliminated and incorporated in yours, so that there is really only one website and all the online shopping will be on the sort of the PriceSmart website?

I think, we had some early discussions with that. I think probably both will still be -- I guess a little independent. We haven’t made that determination yet. Obviously, eventually, we’ll have a pricesmart.com platform for all our members. But, if you’re not a -- if people from other countries or even people in some of our countries, if they are not willing to be a PriceSmart member, they can still be a customer for Aeropost. We haven’t got to that level of detail, Jon.

Okay. And one last question. I’ve read, there were some issues with sort of the last mile delivery in some of the countries. Is that -- has that been a problem with the current delivery vehicle, so to speak, getting that last…

Yes, it is one of the challenges in a lot of our countries. That’s why the pickup points become very important and that’s where probably PriceSmart comes offering something extra because we will be a pickup point for customers from what we hear in our market, and it is happening in the States. Obviously packages are being stolen. I mean, if we leave them -- in our countries, they just can’t leave them in front of the door as they do here and even here it’s becoming a problem. So, the fact that the customers want pickup points, and we see that growing in the States, we see that as a big opportunity for us. And potentially, obviously someone picking up a package at PriceSmart would be as long as they are there, hopefully they will also walk in and buy something else. So, we see some of those efficiencies. We’re going to start it, we keep offering them last mile delivery and deliveries to homes but it’s still quite a challenge in our countries with people that work, they are not at home and you just can’t drop the package. So, that’s probably going to be one of our -- for everybody in this space is going to be probably one of the challenges. And I think that pickup point, not only the ones that Aeropost has but the one that we will offer with our PriceSmart locations, can become important where actually new clubs that we are building, we actually have that ability now; we’re building that space thinking on the pickup points and online deliveries. And going forward, we will probably do some remodels in our clubs to allocate for that because we see that coming as a trend also, Jon.

The next question will be from Christopher Hillary with Roubaix Capital. Please go ahead.

Hi. Good morning. I just wanted to ask, you had some good progress in your operating leverage in the quarter and can you share any commentary on how you see that progressing the rest of this year and into next year?

Well, Christopher, we don’t provide guidance per se, but the nature of our business is to continue to leverage expenses as we can grow our sales. Comp growth that we’ve been seeing recently provides that opportunity, and we would hope that we can continue to do that going forward.

Okay, great. And then, there are lot of questions about the landscape as it pertains to the online markets. But, would you point out anything just in the traditional retail landscape that has been either helpful or challenging, either way in your large markets?

I’m not sure I understand your question. Can you repeat the question again, Christopher?

Sure. I was just asking if you have any color or commentary on just the competitive landscape in your core retail markets, just anything to highlight, given we had some good questions on the online store.

Yes. I think on the regular I guess brick and motor business, if I understood your question, we haven’t seen any big changes. There is obviously still good competition. Obviously when you look at that, if we think about it by region, so obviously you have the Central America region where you have Walmart, with good presence in other countries growing and the different format. I think, we compete well with them, they keep growing and more smaller locations and more year discount store, to put it that way, we have a Colombia that is growing along with discount stores and there are few retailers that came a couple of years ago into Colombia growing their small stores, either [indiscernible] is one of them, the group out of Portugal that is also, I forgot the name of the company but they are also growing with discount stores. I don’t think anything has changed as dramatically. I think, we’re -- actually in most of these markets, we’re pretty much all learning how to compete with each other. I don’t think there has been any drastic changes in the competitive environment. And in the Caribbean, it is actually a lot slower, the growth of retail loans. So, there hasn’t been any new competition or nothing to highlight, Christopher, to put it that way.

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

Well, thank you, Chad. This ends our call. Thank you for participating with us today.