Good day, everyone, and welcome to the PriceSmart Inc. Earnings Release Conference Call for the Third Quarter of Fiscal Year 2019, the 3 and 9 month period ending on May 2019. [Operator Instructions]. After remarks from our company representatives, Sherry Bahrambeygui, Chief Executive Officer; and Maarten Jager, 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 is being recorded, today, Thursday, July 11, 2019. A digital replay will be available through July 18, 2019, following the conclusion of the call by dialing 1-877-344-7529 for domestic callers or 1-412-317-0088 for international callers and entering replay access code 10131782. At this time, I would like to turn the conference over to Maarten Jager. Please proceed, sir.

Thank you, Chris. Thank you, and welcome to our earnings call for the third quarter of fiscal year 2019. We will be discussing the information that we provided in our earnings press release and our 10-Q, both of which we released yesterday afternoon, July 10, 2019. You can find both the press release and the 10-Q filing on our website at www.pricesmart.com. As a reminder, all statements made on this conference call, other than statements of historical fact, are forward-looking statements concerning the company's anticipated future plans, revenues and related matters. All forward-looking statements are based on current expectations and assumptions as of today, July 11, 2019, 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, 2018, as filed with the Securities and Exchange Commission on October 25, 2018. The company undertakes no obligation to update forward-looking statements made during this call. Now I will turn it over to Sherry Bahrambeygui, PriceSmart's Chief Executive Officer.

Thank you, Maarten. Good morning, everyone, and thank you for joining us today. Since our last call, we've been quite busy with club openings, both of which are our new smaller format designs. The first is PriceSmart Veraguas Panama, which opened on May 1. It's our first smaller format club with approximately 38,000 square feet of sales floor. And although it's still early, we're pleased with the reception of this club as indicated by strong membership sign-ups. I'd like to mention some things about club Veraguas. It's located in a more agricultural rural area, Santiago de Veraguas, Panama, about 120 miles or about 3 hours from our nearest clubs there. This club has been specifically built and merchandised with the local market characteristics in mind. We're watching it closely because if it performs as we expect, we believe this broadens our opportunity for healthy growth in secondary locations within our existing markets. The second club opening was just 2 weeks ago. I attended in Santo Domingo's in the Dominican Republic. This smaller format club is different in the sense that it's in a densely-populated urban setting. Recognizing the demographics there, we've emphasized fresh, organics and prepared foods and more specialty items, merchandised with a more updated look and feel. There are also additional modalities that we're testing there. In club Bolívar, we are trying various newer initiative to drive sales within a smaller footprint by exercising very strong SKU discipline and leveraging technology that supports our ability to use alternative and efficient means to get merchandise to our members at a good value. This club provides us with the opportunity to see how we can drive sales within a smaller footprint. I also want to mention that we've put real effort into green initiatives in practice with this club, including…

Thank you, Sherry. Starting with margins. Merchandise margins for the period came in at 13.9% versus 14.6% a year ago. Total gross margins decreased to 16.1% from 16.6% a year ago, mainly due to lower net merchandise margins along with lower margins on non-merchandise revenue from our legacy Aeropost business, which decreased the gross margin to total revenues ratio by approximately 10 basis points, offset by 30 basis points of margin increase due to the payment and reclassification of shared income generated from co-branded cards. SG&A to the total business was 13.3% versus 12.9% a year ago. Warehouse club and other operations expense increased by approximately 20 basis points due to the opening of the new Veraguas club in Panama. The remaining increase is attributable to pre-opening expenses for the 2 clubs that had already been opened by the close of Q3 and for the 2 other clubs which will be opened after Q3. Operating income was $22 million, 2.8% of total revenue versus $28.4 million or 3.6% of total revenue a year ago. Operating income for the core warehouse club business decreased to $25.9 million versus $29.9 million a year ago, again largely due to the lower net merchandise margins as well as the higher pre-opening expenses for the 4 clubs in 1 calendar year. Moving on to tax. For the quarter, the effective tax rate was 34.7%. The increase versus the 30.3% rate in the same quarter last year was driven largely by the loss of tax asset value incidental to U.S. tax reform impacting us by 6.4%, partially offset by the adjustment of costs incurred to expand our omnichannel capabilities of 2.2%. Consistent with our estimates in Q2, we currently expect the full year tax rate to be 36%. This is higher than our first 3 quarters…

[Operator Instructions]. Our first question comes from Jon Braatz of Kansas City Capital.

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

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

Thanks, Sherry. No, that's exactly right. We are focused on it, and we're expecting to improve on it. Let me just give you a little bit more color on it, some context. We saw some of this margin erosion in all of our regions. Colombia -- so there's 70 basis points that you see in the numbers of reduction, about 10 of that came in Colombia, about 40 in Central America and about 20 in the Caribbean. But then -- so that's a geographic breakdown. If you were to look at it from different drivers, there's a bit of FX in there that impacted us. There was also, as Sherry mentioned, markdowns that we took to clear up our inventory, particularly, of course, in nonfoods. So we took some markdowns there. And the good news from that, and Sherry mentioned it earlier in her remarks is, that that's behind us. Our inventory is roughly flat year-over-year at the end of May 31 and that's with an additional club open and with the Bolívar club that, while it wasn't opened as of May 31, was already receiving build-up inventory in anticipation of its opening. Sherry also mentioned that in visiting the DR, she saw that there was less and there was more open steel and things were flowing better. So the other factor, there are some competitive pressure, but I would not say that's the primary factor, particularly in one of our markets in the Caribbean, John. So then stepping back, we are monitoring it, we are managing it. We've cleared up the inventory, that's clear. We're asking also some additional questions in terms of sourcing and working with our suppliers. We're looking at the mix of imported versus local, and just making sure that we exercise pricing discipline. And all of this, of course, needs to be done with member value in mind and the competitive dynamics. But in short, as Sherry summarized, this is not the new normal, and we think we can improve upon it.

Yes. We do have a strong focus, and we are looking market by market very specifically at all aspects, including the competitive landscapes, the cost of doing business. So there is a very concerted focus on making sure that margins are set appropriately with all of the relevant factors in mind and all within the discipline of delivering good value to our members. So there's a very disciplined approach we're taking to looking at margins going forward. And so I would not expect that you would see the same that you have in the last quarter.

Maarten, Sherry. If you were to may be ex-out some of these in the quarter some of these one-time items, you mentioned the markdowns and so on so forth, is there any sense -- or can you give us a sense as to what those one-time items maybe amounted to in terms of reducing margin?

Let me try to help you in part. So we have mentioned markdowns in nonfoods and cleaning up some of the inventory. That contributed about 30 to 35 basis points roughly, okay, of the 70 basis points, all right. But the rest of it, I don't have it on my fingertips, but I think it would give you a pretty good indication.

Okay. All right. I appreciate that. And then 1 final question. Sherry, you talked about the new location in Panama and using a lot more local merchandise. Compared to your other stores, how much of it did -- what percentage of your merchandise net stores are locally derived? I'm curious as to sort of the relative difference between the big stores and this one?

So I don't know that I've said anything about local merchandise, and you're talking about the Veraguas club right now that it's in more of an agricultural rural area...

Yes. Yes, exactly.

No. I think the statement that I made that we're focused on meeting the member needs of that type of demographic, which is very distinct, for example, from the membership that we have in the Bolívar location just by way of comparison. But with the type of agriculture that's out there and the products that they need in terms of machinery or tools…

Okay. I'm sorry, I misinterpreted what you had said. When you look at stores such as this and if it is proved successful, how might that expand your location opportunities across your markets?

Well, it's too early to tell. I mean to be perfectly honest, personally, I'm excited about the prospects, but it really is too early to tell. Because if it's something that we feel can perform at the level that we are expecting Veraguas to perform, it really does open our minds up to other geographic areas, other towns that have not been the subject of our focus so much in the past. Because the properties are less expensive in these areas, the footprint can be a bit smaller. If we can tailor and meet the needs of our members in these locations, it does open doors. It opens doors for us to consider markets that really haven't been on our radar screen before. But I don't want to overstate it, because we really want to make sure that we're doing this right and it's performing as expected. And based on those results, we're going to build on the positives. But I do see that it sets up an opportunity for good growth.

Our next question comes from Ronald Bookbinder of IFS Securities.

Thank you for the additional color on the merchandise gross margin, but why the lower gross margin on the Aeropost business versus last year?

Ron, I'm going to have to give get back to you on that one.

Okay. No problem.

Late this afternoon.

And just to give you a piece of information, we've discussed the fact that earlier in this process as we're building our pricesmart.com, we are using the aeropost.com site to test certain things before we migrate over to the markets -- I'm sorry, to pricesmart.com. So there has been some effort to drive some of the activity over to pricesmart.com once we've proven that something is working well. So what we're finding frankly, Ronald, is that the activities of aeropost.com and PriceSmart are becoming a little bit more blurred as it should over time. So I don't think we've called out specifically that information, but Maarten can get back to you following that. But I just wanted to give you some background on what's happening.

Okay. And in Colombia, right now, you're having just a tough FX situation down there, but what is the overall view of Colombia? It doesn't seem like you guys have opened a store there since Chía in September of 2016. With these new smaller format stores, could we see a ramping up in Colombia? And do you guys still have a real estate office in Bogotá?

We are active in pursuing real estate and looking for opportunities to grow in Colombia. We believe in that market. No doubt, the FX fluctuations, and the currency devaluation there has been a challenge for us. We're well received there, membership is strong. The -- if you look in constant currency, our same-store sales comps are doing well. The issue for us right now is that we're trying to, one, as you know, real estate is obviously a challenge there. But yes, with a small format, it opens up more opportunities for us to find more suitable locations. And then a separate point I wanted to make was with regard to your comment on the effect of the currency. We're also looking for ways to be smarter about matching up some of our expenses and for the company and with merchandise with the revenue that we generate through sales. So we're not being passive in terms of the Colombia FX effect. We are looking to source more merchandise locally. Colombia is a very developed market. It's one where we can source exciting merchandise not only for that market, but expand exports into other markets. And we're looking for smart ways to be able to naturally hedge, if you will, some of the impact of the negative FX. So we are very, very committed to Colombia, not just in terms of expanding clubs, but cultivating resources that will strengthen the company overall.

Okay. And you guys have been performing actually -- your core business has been performing actually very well if you back out the FX impact. And now you've got this exciting opportunity of the smaller stores going into new markets. Given the lower valuation of your stock, I know you don't have a share repurchase program and your Q states that you don't expect to have one going forward, but given where the stock is, why wouldn't the Board consider an authorization?

Our first prior to is to make this company as strong as it possibly can be. That's where all efforts are focused at this time. And beyond that, I really don't have any other comment on it, other than real estate, and that there is a potential for real estate there that we can explore.

I think a great question. We generate, as you know, a lot of operating cash flow from our business, and we have -- we've continued to believe that we have a lot of growth opportunity ahead of us in a number of markets, which, of course, requires significant real estate investment. And so our first focus -- in the broader context, our focus is to do same-store sales, is to grow in new markets with new real estate, is to invest in our supply chain to back it up and it's to do omnichannel. And so our first protocol for the operating casual is to invest in our future growth. I'll come back to you with a little bit more detail on the Aeropost margins, but there was a reclassification from G&A to COGS that started in the fourth quarter of 2018, which creates a bit of a comparability issue quarter-over-quarter. But I'll follow-up with a more thorough answer.

Would we expect that continue in the future quarters?

Yes. The reclassification would continue to hit us, but I -- as I said, I'll follow-up with you. Thanks for those questions.

The next question comes from Rodrigo Echagaray of Scotiabank.

Sherry and Maarten. I guess, two question from -- on my end. On the one hand, it sounds like the new formats are promising early stages, but sounds like that's the case. And so far, I think we've touched on the opportunity of smaller cities, maybe more urban areas. But what about new countries? Do you guys think that is also something that should be more likely as a result of these new formats?

Yes. Not just because of the new formats, but because of the digital capabilities that allow us to potentially test new markets. So as part of our ongoing efforts generally, we are evaluating opportunities that exist in additional countries. So really don't have anything more on that at this point.

And is that related to the analytics that you guys now have as result of Aeropost and the online initiatives that you feel like that data is -- could potentially help you find new countries better? Is that -- would that be a correct assessment?

It's not so much as the analytics. I'm sure analytics can play into this, but it's also the ability potentially down the road through omnichannel and the technological capabilities that support omnichannel that would allow us to test different markets and the reception in different markets of the PriceSmart brand or basically the PriceSmart model and the merchandise that we provide.

Okay. Got it. And if I take us back, there's a lot of progress on working capital, there's new formats, there seems to be a bit of a slight pickup in store openings. And so what would you say, Sherry, is your top priority for, say, next fiscal year and maybe midterm? I mean, there's a lot of things happening. It sounds like some of these are very promising initiatives. But what would you say would be your top priority for next year?

We continue to put substantial efforts in -- on the real estate side hand in hand with the development of our digital transformation. And as we see that in a relationship, we want to really strengthen that interrelationship between the digital capabilities with the brick-and-mortar to be able to maximize our opportunity to flow merchandise in the most cost-effective manner to the members. So it's holistic and it's all interrelated. We're also duly focused on building our people, investing in our people and strengthening further our management team so that we have the capabilities and the bandwidth to be able to continue to grow without being distracted or taking away from what we're doing very well.

Okay. And maybe, Maarten, on the same-store sales of the most recent announcement, what else would you say are some of the takeaways? I mean there was an uptick on the number. Anything interesting that maybe you can touch on in terms of some of the regions or trends relative to the previous months? I mean I think the FX, obviously, probably is still impacting negatively. But other than that, anything else that you're seeing on the latest print that might be worth touching on?

Roderigo, are you referring to the June sales release or are you referring to...

Yes.

Okay. I think the June sales release speaks for itself. It's 1 month of good sales. It was well received by the market. We see some continuing momentum here in the early parts of July, but I want to be very cautious with that statement. We also are managing -- as Sherry and I have both addressed in our earlier comments, we're also addressing our margins better. So that's coming in well. We see a little bit less of devaluation impact recently and particularly in Colombia for the month. I mean it's still significant, but relative to what is, it's abated a little bit. And yes, I think that's about as far as I would want to go.

The next question comes from Thomas Vester of LGM.

Just on the margin, and maybe I can ask it a little bit differently, how much -- what should we -- what same-store sales level should you be at before you're comfortable on seeing margins sort of trending back to what you historically had? So I'm trying to understand what level because clearly, the same-store sales in US dollars is beneficial for margin. But what level do you feel it takes to really see that swing back in margin because it has been compressed for quite a while?

Well. I appreciate the intent behind the question and trying to link sales to margin. Obviously, there is a relationship. But first and foremost, we're focusing on driving same-store sales through excellent merchandise. You know, I'm sure from studying our business model and we know that the business model works best when you have same-store sales kind of in the middle single digits to higher because then you start to leverage your expenses, your variable expenses that increase with inflation and wage increases, et cetera, as well as the fixed increases. And that allows you then to reinvest in the value proposition. So I don't want to draw an explicit link between the two, although, I understand the intent behind your question. With same-store sales that we're driving, we're focused on excellent merchandise. We've cleared out some of what we had in excess in Q3. That in and of itself, of course, when you don't need to market down, will help your same-store sales, right? And -- but really at the root of it is just to make sure that we have an excellent merchandising offering for our members.

Okay. Great. Makes sense. Just on -- my second question is on the more rural store in Panama that you touched upon, Sherry. I mean 2 questions. First of all, when you say in terms of the evaluation that it's too early, but you see some promising sign, can you tell us something about when do you expect to be able to evaluate it? And secondly, what is it that you are looking for? I mean obviously, there's a number of factors. But it could be interesting to hear what you're really evaluating on what are the key parameters that will tell you whether or not this is something you should decide to go ahead with elsewhere or not? So those 2 things would be helpful to get some clarity on.

Well. The evaluation is ongoing. And obviously, one of the threshold questions is relative to the investment that was required in order to build the club and what it costs to run the club, the type of sales that we can generate out of that smaller footprint and sales per square foot, those are things that we watch closely. And to the extent that we can grow sales with less of a real estate investment as a results of being in a secondary market and other savings that come along with a smaller footprint, that is a metric that we would play close attention to and see if the returns are within our threshold -- our required threshold that would allow us to have some confidence going forward with other locations.

Yes. Okay. And then that brings me to part 2 related to that. Because I guess, the bottleneck is for a long time and also that's been the explantation, I guess, pre you becoming CEO and Maarten you CFO, has been one the biggest bottlenecks for PriceSmart has been sourcing real estate, especially in Colombia, but also other places. In -- I would assume, but I guess, that's my question, whether or not I'm right, that your model should be much more fast scalable if it proved to be something that you want to roll out in the second-tier cities because real estate as a bottleneck should be much less because it should be easier to source in these cities. So you should be able to fast track that. But maybe that's the wrong assumption.

That's certainly the hope. I mean, I'm sure, you've noted on the last 3 investment calls that at least we've focused on the challenge of real estate for the company and how -- because of the cost associated with being in some of the central areas where we already do business that real estate was becoming a more challenging barrier for us, and we're finding ways to solve for that. And one of the explicit approaches that we shared with the investment community was we were going to look for ways to do it by way of bringing down our cost in real estate through smaller formats where appropriate, where markets could support the type of sales that would justify the investment. And also by investing in our omnichannel capabilities to see if we can get merchandise to our members without the need for so much real estate by -- whether it's delivery directly from the merchants and from -- I'm sorry, from the vendors or through e-commerce. But using all these different approaches to reduce the cost of real estate so that we could have a healthy profit as a result of these additional clubs.

Yes. Okay. Makes sense. And just staying on real estate, you're right, Sherry, that we have seen a pickup in, I guess, sourcing of new sites and converting that into new stores since you became CEO. Can you talk a little bit about what you've done to the team there? I mean has there been additional resources put in? Has there been change to resource? Or has -- I mean it's just -- it definitely seems like that something has happened.

I can't take credit for it, other than to say that it's a renewed energy. There is a renewed energy, there is a renewed focus, there is a real commitment, there is express discussions. There are -- people are being challenged, they're being excited about the fact that we're -- have forward momentum in an area that seemed to be lagging a bit for us, and we're hoping to continue with this momentum and build on it going forward. And I think our team is seeing that this could potentially open more doors for us in terms of markets and even existing markets. The concept of saturating the market is not so much the concern anymore if we can expand into secondary markets where it makes economic sense and business sense for us to do so. And we still have other markets that we can be considering outside of our existing markets. So yes, there has been, I'd say, a renewed energy, a renewed motivation. And the commitment from leadership that we will provide the support that's needed in order to expedite our efforts in this area.

Yes. Okay. And does that mean, in anyways, do you feel you have to compromise in terms of your return targets because you mentioned also returns in more rules for -- clearly your return capital is the key aspect for whether or not to follow on with others. But I mean I guess, one of the ways to convert more real estate it to sort of just pay all of it. Do you feel you have been up to do that? Or has that not been the case?

I'm sorry, didn't catch the last part of what you said. Another...

Basically, whether or not you feel in some of the sites to basically secure them, you basically have to compromise a bit on paying up? Because that is one way you can get real estate pretty quickly.

Well. I mean, at this point, we've got our own internal thresholds for -- we have a very active real estate committee of the Board. We've got internal thresholds that we have to meet before a club will be approved. I can tell you, there's a lot of rigor that's applied to make sure that we don't overpay, and that we're paying relative to the return that we expect we'll get by virtue of the sale. And -- so no, we're not compromising our standards, if that's another way of putting it.

Yes. I mean just to add to that, and I think I've addressed this on prior calls, it is, as Sherry said, a very rigorous process. We look at all the financials, we look at it on an incremental basis. We use different financial lenses to determine whether something will actually add shareholder value, and those lenses include ROI, they include adjusted ROI, they include MBVs. All the different way that you would expect, I think, any management team to judicially evaluate new projects. Yes, some of the projects are more expensive in some of the areas that we are looking. But then, of course, we are making sure that we are going to get enough incremental sales and value from it and membership income from it.

So I mean to add a little bit more to this, we see the opportunity potentially here to be doing -- to be a little bit more nimble and tailored and precise in the formats of our clubs depending on the markets where we're putting them. So you can expect that if we're going to have another club in Bogotá, which we think is a very fertile market for us, we're going to be paying more for that, but we expect the returns to justify it because of the opportunity that exists. And so we're going to be looking at it on a case-by-case basis. But I don't want to leave this conversation with an impression that we're only looking to secondary markets, and we're only looking to lower -- we are -- we still have opportunities in very fertile markets like Bogotá that we're aggressively pursuing, but we're doing that in tandem with our efforts to expand into secondary markets, assuming that Veraguas continues to prove out as we expect it to.

Yes. Okay. That's definitely appreciated. Just, Maarten, on the working capital, what you've done there is also appreciated. But on the tax, maybe in my head, it's a little bit hard to understand why -- I mean looking at the various corporate tax rates and the jurisdictions you operate in and also the corporate tax rates in the U.S, how -- if -- I mean, if intuitively, there should be some room to lower the corporate tax rate for PriceSmart going forward. But again, maybe help me if I'm missing something there.

I think our tax liability is principally the -- overwhelming majority is generated out of the markets -- the liability -- the tax liability that we have in the markets where we operate, right? We generate very little income in the United States and have very little tax liability here. As you know, because of tax reform, the tax rate -- the corporate tax rate here in the U.S. declined significantly, kind of turned the whole balance upside down from the U.S. being higher than our markets to now being lower. And as a result of that shift, we've had to relook at our foreign tax credits and some of those had to be revalued, and that's kind of what we're cycling through in this year. Having said all of that, what we are always looking at is to optimize it in a judicious way, and we'll evaluate that going forward. And there are losses in the U.S, right? I mean -- or reported as losses, I'd like to think of them as investments that we are making, for example, in our Aeropost business and in our omnichannel capabilities, but we don't have income to generate to offset those. And so that has a mathematically the impact of effectively raising our tax rate. But we are looking at the tax question overall and opportunities that we may have.

Our last question comes from Charlie Carter of Ceredex.

Just two quick ones. The first is on going back to the June same-store sales number. If -- I believe last year, Central America was just disrupted by a lot of political unrest. So I wanted to double check that doesn't -- that's not sort of driving the improvement we've seen month-to-month. It sounded like, Maarten, by the tone of your voice that you were kind of generally encouraged that it was a sort of a broad-based improvement. So I just want to make sure that it was not just a very easy comp for Nicaragua or again, one of its neighbors. And just lastly, any specifics on the new distribution center in Costa Rica. I can't remember if that was already launched in the quarter if that's coming? And so just what effect that might have on your margins?

I'll have Sherry talk about Costa Rica. In terms of the comps, good question. And we do have a -- we have 13 markets. So it's never one kind of consistent story. There's a number of market that are helping us. Some markets that are still a little flatter. Nicaragua specifically has helped because we are lapping significant unrest a year ago. It was a drag on our comp a year ago, and it's helping us in June this year. But that's not the whole turnaround.

And also, we have other issues going in other direction like in Honduras. So that's certainly is a very difficult situation there with the mass riots, with pre closures, and we've even been on the alert a few times getting ready to close our clubs down to keep our members and our employees safe. So that's a new challenge we have this year that we didn't have last year. So it's dynamic.

And in Costa Rica?

I'm sorry in Costa Rica RDC. So that is an opportunity that we see to allow us to sell merchandise in a manner that would be most cost-effective and allow us to have that net landed cost to be as competitive as possible by being able to sell merchandise, for example, from Asia or even potentially Europe directly to Costa Rica as opposed to having to go through Miami and then have Miami then redirect to either Costa Rica or specific countries or clubs. And a very in-depth study is going on now to actually look at our items and what is the most cost-effective manner to get that item from the vendor to the clubs. And in addition to just the cost of getting it to closer to the members and looking for savings year, there is a business practice that can be improved by virtue, for example, in Costa Rica, that's one of our largest markets. And when we are able to aggregate merchandise in the Costa Rica RDC and then pulse it into the clubs on shorter-term basis with a real time knowledge of what the needs are in terms of inventory levels and sales activities in each of those clubs, that will yield savings, it will yield better or less out of stocks and better sales optimally. So the Costa Rica RDC hosts a lot of potential for us. But it does require studying and in-depth analysis of almost on an items-by-items basis frankly as to how and where is that merchandise best float. Stepping back for a moment, what we've achieved with the Costa Rica RDC though still in process in terms of the work that needs to go into it to maximize that potential. But what we've achieved with that Costa Rica RDC is optionality for our company, which I think is very important. Not just from a financial standpoint, but from a supply chain standpoint, from a reliability standpoint. Dynamics are changing in the world, there is political unrest, there is tariffs, there is tax law changes. By having that additional flexibility and optionality for the company, I think it's responsible, and it's a smart business move on our part. Now it's up to us to make the most of it.

And just 1 quick follow-up, just -- I know we are running out of time, but on the tariff issue, I guess, are you [indiscernible] to anything that's imported into the Miami and then rerouted to your stores?

We have a free trade zone there, but I can't tell you with definitive...

Well. There are some merchandise that we get from China and that gives -- that goes through free trade zones and those. So that's not subject to tariffs, but there is another merchandise that we buy from U.S. supplier that in turn came from China that has been subject to tariffs. And so it's that part of it that we are really focusing on addressing. Does that make sense?

Yes, it does. But I guess I'm looking at it competitively. So anybody that you are competing with on the same product-by-product or SKU-by-SKU, they would be buying from the U.S. as well. So it's not as if you would be disadvantaged by tariffs because you're sourcing through the U.S. in some ways?

I think competitively that's right, but of course, with the lenses on member value we are looking for alternative ways of flowing that merchandise and trying to leverage our supply chain as effectively as possible, including the free trade zones that we have.

Yes. And to the extent that we can sort that merchandise and avoid that tariff altogether that obviously, there is bias in favor of doing that. And by having that Costa Rica RDC that allows us to do that more effectively.

Okay. Thank you very much. Operator, I don't think there are any more questions in the queue?

That is correct. This concludes our question-and-answer session. At this time, would like to turn the conference back over to management team for any closing remarks.

I'd just like to say thank you all for your time this morning. We're very excited about the prospects for us moving forward. We are all very committed to working hard on behalf of our members, our employees and ultimately our, shareholders. Have a good day.

Thank you.

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