Good day, and welcome to the First Quarter FY '20 Financial Results Conference Call. [Operator Instructions] I'd now like to turn the conference over to Mr. Michael McCleary, Senior Vice President and Interim Chief Financial Officer. Please go ahead.

Thank you, and welcome to the PriceSmart earnings call for the first quarter of fiscal year 2020. 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, January 9, 2020. You can find both documents on our new Investor Relations website at investors.pricesmart.com where you can also sign up for email alerts. 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, January 10, 2020. 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, 2019, as filed with the Securities and Exchange Commission on October 29, 2019. The Company undertakes no obligation to update the forward-looking statements made during this call. Now I will turn the call over to Sherry Bahrambeygui, PriceSmart's Chief Executive Officer.

Thanks, Michael. Good day, everyone, and Happy New Year. Thank you for joining today's call. Before reviewing our results for Q1 fiscal year 2020, I'd like to formally introduce you to Michael McCleary, our Interim Chief Financial Officer who you just heard from. I'm very appreciative of Michael's willingness to step up during this period, and I'm enjoying working with him in this capacity. I'm confident in Michael's ability to lead the finance team during this stage. As previously shared, Michael joined the Company as Vice President and Corporate Controller in 2003 and was later promoted to Senior Vice President and Corporate Controller. He has a strong knowledge of PriceSmart's business, processes and all aspects of PriceSmart's financial reporting and corporate governance, and he is quite familiar to our finance team and Board members. We're all looking forward to working with Michael in this interim role. On my first call we spoke about our renewed focus on The Six Rights. Our mission continues to focus our efforts on The Six Rights of Merchandising and to drive our business forward by providing our members with an outstanding shopping experience and quality services at the lowest prices. This, along with our high standards and our commitment to our employees and the communities in which we operate, continue to define who we are and set us apart. I'm proud of the team for their efforts over the past year, and our results are starting to show momentum. Based on our solid finish to 2019 and Q1 results, we believe that we are well positioned for fiscal 2020. And we're pleased to report positive financial results for Q1 FY 2020. In the first quarter we had record Q1 revenue of $811.9 million, an increase of 4.1% over the comparable prior year period. Revenues consisted…

Thank you, Sherry, and good morning or afternoon to everyone for my first conference call as Interim CFO. I look forward to leading our great finance team during this transitional period, as we continue to support the rest of the organization to implement our long-term growth and profitability goals. As Sherry discussed earlier, during the first quarter of fiscal 2020 total revenues were $811.9 million, an increase of 4.1%, and gross margins rose 70 basis points, both when compared to the first quarter of fiscal 2019. Total SG&A expenses as a percentage of total revenue was 13.1%, remaining flat versus a year ago. However, our comparable Q1 fiscal year 2019 SG&A total included a one-time $3.8 million charge related to the departure of our former CEO, which represented a 50 basis point impact in that period. The increase year-over-year after considering this one-time impact in the prior period was primarily driven by our investments in talent and expenses related to the opening of our four new clubs, including preopening expenses. Operating income was $30.7 million or 3.8% of total revenue in Q1 fiscal 2020 versus $24.7 million or 3.2% of total revenues a year ago. The improvement is largely due to higher net merchandising margins in the first quarter of fiscal 2020. Below the operating income line, total other expense, primarily related to FX losses, decreased from $2.5 million to $1.6 million when comparing Q1 of this year to the prior year period. The current year losses were partially offset by a $700,000 credit received for the settlement of escrow balances related to our Aeropost acquisition. Our effective tax rate for the first quarter of fiscal 2020 was 32.3% versus a rate of 33.9% a year ago. While our quarterly rates may vary based on specific events in those quarters,…

[Operator Instructions] The first question comes from Jon Braatz of Kansas City Capital. Please go ahead.

Sherry, just a couple of questions. Your gross margins have been improving, and as you said, approaching back to historic levels. As you look forward and you see other opportunities to improve gross margins, at that point do you begin returning some of that improvement back to the consumer, your customer? Once you get to the point where you're back to historic levels, do you begin returning some of that to your customers?

Well, John, as you're very familiar with the fundamental discipline of our business, we attempt to squeeze out all inefficiencies such that we can provide a great value, a compelling value to our members. And we try to maintain margins within a very tight range such that we can give back to our members by basically driving volume through lower pricing and getting better opportunity to purchase merchandise at better prices so that we can then sell that at a better and more compelling value to our members. So indeed, our discipline is to compress margins as much as [possible] [ph]. Given all the circumstances, given our cost structure and given the appropriate margin structure for each type of category that we have in terms of both goods and services that we offer our members so that we can offer the most compelling prices possible to our members in order to increase the value of the memberships. So in short, yes, it does go back to the member.

So we're at those historical levels now, that - and really it would be difficult necessarily to see much additional improvement in margins, at that point, you begin returning some of it to your customers?

I hesitate to give a blanket answer to that. But generally speaking, our goal is to give back the benefit to the members to drive volume, yes.

Then secondly, in the past few quarters, you've given us a little update on your Aeropost spending and your online spending and the impact it has had to the bottom line, and I think it was like $0.12 or $0.13 last quarter or something like that. I didn't see that in the 10-Q, and I'm trying - can you give us a little sense of what that total spending is costing you relative to maybe last quarter and last year and maybe how you see that going forward?

What I can share with you is, it's generally in line with what it's been. And obviously we are investing in talent and making sure that we have the appropriate resources to support and fund the business objectives of building our online capabilities. But in the near term, I don't have any material deviation to share with you. I think you can...

Okay.

You can see we're in line with where we've been. But again, making the appropriate investments as we need.

When do you expect those investments maybe to tail off a little bit and ease somewhat? Are we talking 2021 or would you anticipate those spending levels to be rather consistent with what you might be seeing in 2020?

What I can share with you is that building a robust e-commerce and digital platform is a dynamic process and the more capabilities that you intend to include, the more investing that it requires, there is not - I can't tell you when it would necessarily tail off or even potentially require additional investment at this point. All I can tell you is that for the near future, we are pretty much in line with what we've been spending. But again, the commitment is that we're going to build this platform, and we're going to do it right and we're going to do it in a responsible and methodical way, and we're going to make the investments that are reasonably required as we go.

And one last question, Sherry. You've had a couple of your small format stores open for a short period of time. Anything you've learned from those stores that maybe were unexpected, either positive or negative? Anything you might be able to add on what you're learning?

We are in the process currently because most of these stores have not been open - or these clubs have not been open very long. But we are actively in the process of scrutinizing the performance of these clubs, seeing where we've been exceeding expectations and where we've been falling short of expectations and what lessons can be learned from that as we consider future potential clubs using this format. So, for example, in Bolivar, as we were very upfront about, that was a club that has a lot more attributes at being experimental fresh where we're trying different things to see what works and what doesn't work well. Veraguas, which is a very different club, it's in a - even though it's a small format, it's in more of a remote location that allows us to - in a secondary market that allows us to expand the reach of our membership. And we're learning different lessons from that and seeing areas where we can improve but also some positive signs from that as well. But we're in the process of studying it. It's relatively new right now for me to be able to comment any further on it, though.

[Operator Instructions] This concludes our question-and-answer session. I'd now like to turn the conference back over to Mr. Michael McCleary for any closing remarks.

Okay. Thank you, everybody, and we look forward to talking to you next quarter.

Thanks, everyone. Bye-bye.

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