Good day, and welcome to PriceSmart, Inc.’s Earnings Release Conference Call for the Third Quarter of Fiscal Year 2018, ending on May 31, 2018. All participants are currently in a listen-only mode. After remarks from Jose Luis Laparte, PriceSmart’s President and Chief Executive Officer; and Maarten Jager, 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, July 06, 2018. A digital replay will be available through July 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 10120109. I would now like to turn the conference over to Maarten Jager. Please go ahead, sir.

Thank you, and welcome to our earnings call for the third 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, July 05, 2018. This morning, we also released our report on June 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 this over to Jose Luis Laparte, PriceSmart’s President and Chief Executive Officer.

Good morning, everyone, and thank you for joining us today. A lot of activity – activities took place during our third quarter at PriceSmart, and we will spend the next minutes providing more details on our results. This is Maarten Jager’s first conference call with PriceSmart as our Chief Financial Officer, and we’re happy to have him as part of our team. Let me start with our net merchandise sales that were $750.5 million, an increase of 5.6% compared to the third quarter last year. This quarter, we have 41 warehouse clubs compared to 39 clubs a year ago. In terms of comparable sales for the 13-week period ended June 3, we saw an increase of 12 – of 2.7%. Net income for the third quarter of fiscal year 2018 was $18.7 million, or $0.61 per share, compared to $18.8 million, or $0.62 per share in the comparable period last year. I would like to add though that the Aeropost acquisition negatively impacted earnings by $0.08 per share. In addition, during this quarter, we had higher operating expenses from the addition of two warehouse clubs and the ongoing investments that we recorded in SG&A associated with specific initiatives that adds near-term costs, but as mentioned previously, we believe these will help drive additional growth in the future. Let me now provide you more detail on our sales growth. The 5.6% growth on merchandise sales resulted from a 4.6% increase in transactions and a 0.9% increase in average ticket. When we look at the different regions, we have Central America with a 2.9% increase on total merchandise sales, but a decrease in comparable sales for the – of 1% for the third quarter. We estimate that the transfer of sales related to the opening of the Santa Ana club in Costa…

Thank you, Jose Luis. It has been a very good first two months, and I’m excited to be here on my first conference call, representing PriceSmart, a company with such a terrific history and a bright future. PriceSmart is well-positioned with a strong value proposition for its members, a unique competitive position in our markets and a strong balance sheet that enables future growth. It is also exciting to see Aeropost, now an integral part of our team and energized to bring even more value to our existing members as well as draw new ones. Financially, our focus is threefold: One, to continue to deliver profitable growth; second, to deliver operating efficiencies; and third, to deliver good shareholder returns, while making continued strategic investments that drive growth. As Jose Luis mentioned, Q3 net merchandise sales increased 5.6%, with comparable net merchandise sales increasing 2.7%. As such on a nine-month basis, net merchandise sales increased 5.2%, with comparable net merchandise sales increasing 3.0%. Our membership income posted good results with renewal rates ending steady versus a year ago and our gross margins expanded by 60 basis points. This leads us to SG&A, which increased to 12.9% from a 11.6%, driven in large part by the Aeropost acquisition and the opening of the new clubs this year. Our reported financials include $8 million of Aeropost SG&A, which in turn includes the effects of amortization, operating expenses and general and administrative expenses. Foreign exchange transactions and the revaluation of monetary assets and liabilities resulted this year – this quarter in a $575,000 currency loss, which compares to $1.1 million gain in the third quarter of last year. Our effective tax rate, excuse me, declined to 30.3% versus 31.0% a year ago. This quarter – quarter’s 30.3% includes a beneficial impact from the tax…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Ronald Bookbinder of IFS Securities.

Yes, good afternoon. And seems like it was a nice quarter continued revenue growth, but on the $0.08 charge of Aeropost, how much of that was one-time related to the acquisition, and how much was ongoing operations?

Right, the – I’ll take that question. This is Maarten. The $8 million breaks out into $1.2 million of amortization, which I talked about of the intangibles as well as the contingent compensation as well as $4.2 million of operating expenditures and $2.6 million of general and administrative expenses. So I would say, there is not a one-time charge, but part of that to your question is non-cash, that’s the amortization portion and the other part were operating expenses and G&A.

So should we expect charges like this to continue going forward as you digest the acquisition?

Well, I’ll speak only to the amortization aspect of that. The amortization aspect, obviously as I laid out will continue into the next quarter and fiscal 2019. To give you a sense of what the magnitude of that might be, in Q4, the amortization impact which was $1.2 million this quarter will be $1.4 million next quarter. And for the entire year of fiscal 2019, it is expected to be approximately $4.8 million.

Okay. Thank you very much and Maarten, welcome aboard. Glad to have you.

Thank you.

Our next question will come from Rodrigo Echagaray of Scotiabank.

Thank you, and looking forward to meeting you in person, Maarten, and welcome. My question was related to Aeropost, and if you could maybe explain a little bit of what you expect in terms of growth optionality going forward. On the one hand, they had a set of customers that they bring with them, and that probably grows at a particular rate, and now you can also add to that platform all your clients in PriceSmart. So can you give us a sense of how, when, or where could these go in the mid-term? And if you can maybe also explain what could that mean for the profitability of that business, and if you are going to look at that separately or not?

Okay, Rodrigo, good to hear from you. Let me start, I guess, obviously, we’re excited about the opportunity of having all that Aeropost customers that obviously have access and do a lot of transactions in all these different countries, and obviously, we’re looking at this from a different perspective. First of all, there is an opportunity for us to capture some of those Aeropost customers that may not be PriceSmart members, and obviously, we’re working on our way to start doing some of that, so that not only we can add signups or new members to our membership base, but at the same time, obviously, be there to offer products for these – some of our products and membership to these customers now. On the other hand, we do realize we share some of those customers. We know that our PriceSmart members that already do Aeropost. And for that, obviously, we will keep adding benefits, while looking at adding benefits for some of those members, so that they do get more value for their membership and they have, let’s say, a reduced fee for whatever services they do with Aeropost or any shipments they do of merchandise through Aeropost. In addition to that, we’re looking at improving obviously the marketplace. Aeropost has a section of marketplace and we’re looking at improving that with our know-how of buying with our prices, with a lot of the things we do on relations we have with vendors in a way that we can expand that and obviously be there to offer more of those items to the members, getting them to the countries with the expertise that Aeropost has obviously in terms of speed, obviously clearing customs, all that things that obviously when you live in all these countries and you want to buy, obviously, you want to get. You want to know what is it that you are paying for your merchandise and get it right away to – in your hands. And also those are some of the benefits that, again, the combination of Aeropost with our PriceSmart’s expertise should be able to give us. And like – and obviously, as you mentioned, they are – Aeropost is developing also our platform, which is a key component. At this point, our platform won’t probably be launched until next year. They’re working – a portion of that maybe launched with some membership component probably by September, October, but the facility for the members to actually access the pricesmart.com platform will be in place during the spring 2019. So a lot of activities combined with the – with the Aeropost acquisition, Rodrigo. I hope that pretty much answers your questions.

Yes. No, that’s actually really clear. Thank you. And so if I understand correctly, you expect to have a PriceSmart website. And separately from that, you expect to also work on strengthening of the marketplace that Aeropost already operates, is that correct?

That is correct, yes. Eventually, I mean, one of these Aeropost website will continue existing. Our PriceSmart website will be new. It would be somewhere connected. And definitely, one of the key things that we’re looking at doing is improving the marketplace and just take advantage of that again with good opportunity we have of our buying power and Aeropost expertise.

Okay, that make sense. I mean, definitely, marketplace is very important, I think, in some countries like Brazil had – pretty much every other retailer has been doing that. So I think, you guys are still in a good position to that early in the race. And then just finally on the Nicaragua distribution issues, how important are – is all the inventory that goes through Nicaragua that may impact sales from other countries?

It does affect more than anything. We have a big portion of our – some of our region as products are produced in Costa Rica or some of them in Panama or shipped through Panama. So we’re looking at alternatives that was reopened. In the past month, even though you can still cross merchandise, obviously, it is not completely stopped, it is a little bit more of a hassle or obviously freight companies to go through Nicaragua. There’s been – it’s just becoming very slow. So it has some impact definitely for the North American region, especially North and Central America region. We’re trying to reduce that by going through different alternatives. Instead of land, we’re going oversea to try to reduce the impact. But definitely, I mentioned it, because it can be, if things continue to deteriorate in Nicaragua, you can have more of an impact unfortunately for us, not only on Nicaragua itself, but a little bit to some degree in the rest of the region. Hopefully, this is affecting actually the whole flow of goods, not only for us, but for the whole region and obviously, Central America has a lot of dependency between the countries. So I know that there’s a lot of pressure to try to fix these and obviously to try to get things back to normal because of how relevant that can be for all the countries and all the vendors and everyone in that region.

Great. And obviously, just given the location probably Salvador, Honduras and Costa Rica would be the ones that would be the most effective?

That’s correct. Yes, those are the ones that actually we receive the goods from especially from Costa Rica and Panama and obviously, we have to pass through Nicaragua. But there are – those are exactly the three countries that can get a little bit more of this impact, and we already saw some of that with a couple of hardest stocks in the last month. And again, we’re working hard on trying to resolve them sourcing different ways, but still it’s a relevant thing going on right now.

Great. Thank you very much, guys. I appreciate it.

Thank you. Talk to you soon, Rodrigo.

The next question comes from [Nick Daly of CME]. [ph]

Hi, good morning. Stock is down rather sharply down 11% acting like they’re lowering guidance for the year and should investors assume that you’re going to be lowering guidance for the year?

We don’t give guidance on our earnings. I think that I have been pretty transparent in terms of what the impacts are this quarter, both the two big factors are obviously tax reform, which this quarter was relatively small on EPS, $0.03, and Aeropost, and within that are the non-cash elements that I discussed earlier, which will continue to impact and I laid out in an answer to a prior question.

Okay. But you feel pretty good about the business as a whole?

I feel very good about the strategic direction that we’re heading in the fundamentals of over bricks-and-mortar business and our future, yes.

.:

And where do you stand in terms of stock repurchase, is there one currently authorized?

No.

No, we don’t do anything on the stock repurchase.

Okay.

Okay, all right. Thanks very much.

You’re welcome.

[Operator Instructions] Our next question will come from Jon Braatz of Kansas City Capital.

Good morning, Jose and Maarten.

Good morning, Jon.

A couple of questions. Number one, I appreciate the break out, Maarten, in terms of the operating expenses from Aeropost. I guess, my question is for both you. First question is, do you think that Aeropost has the necessary infrastructure to take it – take your e-commerce to the necessary level, or are you going to have to ramp-up spending, ramp-up investment? I’m trying to get an idea of what it might take to get it, where you want it to be?

I will say that, yes, Jon, we’ll require some investments, there are no questions. We definitely have a great team with the Aeropost – on the Aeropost team. But we do have our plans and then we started already investing in different initiatives to create, to improve the marketplace, to improve the overall Aeropost just to build our platform there. Different initiatives that will not happen just without investing, it will require investing on our site and we’re prepared to do that and obviously, it maybe short-term. It may have some impact, but over the long-term, we do believe that is the right thing to do.

Any sense – and idea you could give us on what that level of investment might be?

Not at this point, obviously, we’re putting together our plans, Jon, but we wouldn’t provide any direct guidance or any direct – we wouldn’t say any direct expectation. I guess, we put out the things that are clear. They were going to be up, I guess, having next year or next quarter in terms of all this amortization and other pieces. But in terms of additional investment, we don’t provide anything right now.

Okay. My second question is you broke out the impact Nicaragua was having on your comp store sales.

Right.

And I know the Virgin – U.S. Virgin Islands is a small market, but the comps have been very, very good there because of the hurricane. And as we lapse that, I guess, my question is, does that market really have much of an impact on your comps for that region?

USVI, I guess, in terms of our quarter, it does have some impact in a quarter, we’re probably be about 80 basis points to our comps. So it does have definitely – it had a good comps with the fact that, that we were one of the ones that recovery very fast. We know because you less one competitor is not in the Island again yet. They might come back. And – but so far, definitely our club over there in USVI is growing very fast pace and it’s having definitely impact of about 80 basis points.

Okay, all right. Thank you, Jose.

Thank you, Jon.

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you very much for all of you on the call, and have a nice weekend. Thank you, Laura.

Thank you.

Thank you. The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.