Good morning or afternoon, everyone, and welcome to PriceSmart Incorporated Earnings Release Conference Call for the Fourth Quarter of Fiscal Year 2020, which ended on August 31, 2020. After remarks from our company's representatives, Sherry Bahrambeygui, Chief Executive Officer; and Michael McCleary, Chief Financial Officer, you will be given an opportunity to ask questions as time permits. As a reminder, this conference call is limited to one hour and is being recorded today, Friday, October 30, 2020. A digital replay will be available following the conclusion of today's call through November 06, 2020, by dialing 1 (877) 344-7529 for domestic callers or 1 (412) 317-0088 for international callers, by entering replay access code 10147692. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed sir.

Thank you and welcome to the PriceSmart earnings call for the third quarter of fiscal year 2020. We will be elaborating on the information that we provided in our fourth quarter earnings press release, which we released yesterday afternoon, October 29, 2020. You can this document on our 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 plans, revenues and related matters. Forward-looking statements include, but are not limited to, statements containing the words expect, believe, will, may, should, estimate and similar expressions. All forward-looking statements are based on current expectations and assumptions as of today, October 30, 2020. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the company's most recent annual report on Form 10-K. These risks may be updated from time to time in other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. The company undertakes no obligation to update forward-looking statements made during this call. Now, I will turn the call over to Sherry Bahrambeygui, PriceSmart's Chief Executive Officer.

Thank you, Michael. Good day everyone and thank you for joining us. I hope that you and your families are all safe and healthy. Many people and businesses worldwide are struggling as this pandemic continues to take its toll and our thoughts are with all those impacted by COVID-19 and as a company we're committed to working through these challenges to do our part to improve the circumstances. Turning to our results, we were off to a strong start at the beginning of fiscal year 2020 as we began to see the impact as many new practices, modifications and improvements that we had set into motion during the prior year. These actions were largely driven by our recommitment to vigilantly executing on the Six Rights of merchandising. As our fiscal year continues like everyone else, we were faced with the impact of the pandemic and without delay we pivoted to anticipate and implement the changes and interventions required to protect our people and our business. Improved productivity, new thinking and additional capabilities have grown out of that process, which has allowed us to now share with you solid results for the fiscal fourth quarter and full year. I'm pleased to report that we wrapped up the fiscal year stronger than originally anticipated despite significant and shifting headwinds, which continually varied amongst our three markets. As mentioned in previous calls, our priorities at the beginning of the pandemic remained the same today. We're focused on people, supply, supply chain, demand and cash management. But as we've adapted to this continuing crisis with creative solutions, we're now focused on our opportunities for the future of our company and the post-COVID world. As to people's plans for return to work continue to evolve, but one thing I can tell you for sure, it…

Thank you, Sherry. Good morning or afternoon to everyone and thanks for joining us today. Sherry has already covered many of the financial highlights of the last quarter, but I would like to add some additional commentary on a few specific areas. Despite all of the challenges during the quarter of operating through the pandemic; total gross margin on net merchandise sales came in at 15.1%, which was within 10 basis points of the same quarter last year. The 10 basis point decline was driven by a 70 basis point shortfall in our other business departments, which consists primarily of food service, bakery and optical and typically have higher margins. Together with lost demo sampling income that were all impacted by COVID restrictions. It is important to note that while our other business departments improved marginally in the fourth quarter versus the third quarter, we began seeing significant improvement in these areas in the first quarter of fiscal 2021, as COVID related restrictions have continued to ease. This Q4 margin shortfall was partially offset by a 60 basis point contribution from fewer markdowns, additional local merchandise volume rebates and improvements in our base margin. Total revenue margins remained flat at 17.2% of total revenues in both the current quarter and the comparable quarter of fiscal year 2019 as the decrease in total gross margins on net merchandise sales was offset by an improvement in Aeropost margins from a combination of increased sales volume and margin rate. SG&A expenses for the quarter were 13.7% of total revenues and increase of 50 basis points versus the same period. Last year, the primary drivers of the increase were our continued investments in talent and omnichannel initiatives. We also incurred $1.2 million of severance costs in the fourth quarter, primarily related to structural realignment…

Thank you. [Operator Instructions] Our first question today will come from Jon Braatz of Kansas City Capital. Please go ahead

Good morning, Sherry, Mike.

Good morning.

Good morning.

Sherry, what are your thoughts on opening new stores – additional stores beyond Bogota in 2021. I know you had some plans and obviously there's still some uncertainty, but it seem to be easing little bit. Do you think we'll see some additional stores in 2121?

I can't give you a definitive answer at this point, other than the fact that we're – we already have three locations that we've secured the property and we are in a good position to move on them depending on the totality of the circumstances. Really what's happening is that the unpredictability and volatility of the pandemic does influence our thinking on an ongoing basis. So I don't want to go out on a limit at this point, but I can tell you that we're well positioned to be able to move quickly on additional clubs; the moment we decide it's the right time.

Yes. Are there be full size stores in the three locations?

It's a mix.

Okay. Okay. Okay. All right. And Michael, you mentioned that in the fourth quarter, the SG&A costs, I think you said $1.2 million in severance costs, but Sherry, you mentioned that there were also – you also paid some one-time bonuses or sort of recaptured what are repaid what was forgiven in the first two quarters – for three quarters? What was that sort of net impact of all that on your SG&A costs in the fourth quarter?

So John it's kind of a wash – it's kind of a wash. It was the way it was from May 1st to the end of July. So you only got one month in Q3 and two months in Q4 and then we just did a catch up payment in Q4. So it's really...

Okay. But there was an impact in it. The catch-up was in the fourth quarter?

Right, of which two-thirds would have been in the fourth quarter anyway. Sorry, it really gets lost in the rounding.

Okay. And what were the – what was the $1.2 million in sacraments costs?

Those departures, executives and also there were some furloughed employees, who did not return and that was as a part of our process and sort of reforming the appropriate staffing to meet the needs that the company required at the time.

Okay. Okay. And Sherry, you mentioned that the Aeropost margins were better in the quarter compared to where they have been. What's behind that?

Volume.

Volume, okay.

Yes.

All right. Is that the traditional volume that Aeropost that was doing?

I don't have in front of me historically, but I can tell you that the demand for online as we saw has increased everywhere as a result of the pandemic. So I do believe that those people that were in a position to be able to acquire things or purchase things through Aeropost and import them into in country took advantage of that channel. And so there was a big surge in activity there.

Okay. One last question Michael and Sherry. You've got a lot of cash on the balance sheet and Michael, you mentioned that the vendor terms will be changing and so on; and that might even eat a little bit into the cash, but you still have a lot of cash. What are your intentions with that cash?

Well, Jon, I think I mentioned also that we have quite a bit of lines of credit that we've drawn down on. So between the two – between the lines of credit and the vendor terms assuming something revert to kind of pre-COVID terms. We hopefully won't, but that will take a big chunk out of that cash, but obviously – it certainly feel comfortable having that cash during these challenging times. And obviously, Sherry mentioned before we've got three properties that we've already closed on and we hope to build on and obviously looking aggressively at other options in other countries. So, ideally, we'd like to redeploy it.

Okay, internally.

Yes.

Yep. Okay. All right. Thank you very much.

And our next question today will come from Rodrigo Echagaray from Scotiabank. Please go ahead.

Hi, everyone. A couple of questions from my end…

Good morning.

Good morning, Sherry. On the one hand, I'd like to get your thoughts on the delivery strategy as you rolled that out. I mean, are you – is that being done in-house? Are you relying on third-party aggregators? How does that work in the different markets? And I guess related to that just curious as to how each market is behaving differently on the online front? Which markets are you seeing the highest engagement? And I guess related to that where do you see the biggest opportunities as you continue to roll out delivery and all that? Thank you.

You're welcome. The delivery solution and the last mile solution varies from market to market. I mean, as you know, one of our strengths of the company is our ability to tailor the appropriate solution for each of our markets given the fact that our markets have varying characteristics. In some markets, there are third-party delivery services where it makes sense to contract with them. In some markets, we actually are doing some of it ourselves in-house. And in some markets it's true third parties that are purchasing PriceSmart merchandise through their own platforms so – or it's a combination of those things. I can tell you generally as to your second question that there has been a strong adoption in Central America of the delivery, Columbia as well. The Caribbean, I believe, lags a bit. And it may have something to do with the – I do think there's a relationship with how those markets and how those governments are reacting to the threat of the pandemic. And I also believe that it has to somewhat to do with timing because as you know we rolled these markets out sequentially. We didn't open up Click & Go all at once. And the Caribbean was one of the later areas that we rolled out Click & Go. And by the way, if I earlier said about delivery, I'm speaking more generally about Click & Go overall in terms of the adoption, which would include the curbside contactless pickup.

Got it. And I guess if we adjust for the nearly 300 days of disruption from restrictions and from – and we also adjust for FX. It sounds like sales would be doing well. Is that how you look at it as well? Or do you see something else besides that?

We feel good about what we put out in September, I'll tell you that much.

Right.

Yes. I mean, there's no question again and I can't emphasize this enough. You look at similar businesses in the United States that are considered essential businesses. And generally speaking, they do not experience the same type of challenges that we do in our markets, which are more vulnerable markets and they don't have in those markets. Most of the markets we operate in did not have stimulus packages like we have in the United States where people had additional funds that they were able to then go spend on essential items. So, the markets that we are in tend to be more vulnerable and different governments respond differently to that, some are extremely conservative and shut things down, some basically continue as there's no business – there's no – there's nothing going on. We have to be quick and nimble and adapt and figure out the best way. The bottom line is we need to earn and maintain the trust of our members. And that's how we're going to continue to grow sales. Is that – when they know that they're safe shopping with us whether it's in club or it's through delivery or Click & Go, and that we're taking every precaution that we can reasonably think of. I believe that we are going to continue to be the trusted leaders in our markets because that's what our members are needing and looking for right now.

Got it. That's clear. And just one final question from my end, it sounds like the local sourcing widget has been highlighted for a few quarters now. But it sounds like this is becoming potentially structural mid-term or long can shift, but it clearly sounds like it's becoming a bigger and bigger opportunity for you. Is there any context that you can share in terms of where you are in that evolution? And if I'm looking at it, is this the right way in terms of a pretty big opportunity?

Well, we certainly see it as a great opportunity, but it's one that we only take when we truly believe that we are able to source those products in a manner that aligns with the Six Rights and meets our high standards, especially for our private label that the product has to be as good if not better than the leading branded product. And yes, indeed there are opportunities to – especially, for example, in Columbia, that has a more mature market and industry in certain areas of manufacturing in produce and other areas as well. There are several advantages in terms of lead times, in terms of reduction of supply chain disruption threats, in terms of cost, in terms of natural hedging. And so, we are carefully studying that area to see where those opportunities exist without compromising the uniqueness of our product offering as a company and the fact that we provide curated merchandise that come from places that are not readily accessible to our members in those markets. So it's about and there are some areas where it makes sense for us to do it and there are other areas where we stick to the core of providing the U.S. membership style club experience with the wow items. But we certainly are seeing great opportunities with local sourcing as well.

Got it. Very clear. Thank you, Sherry. Thank you, Michael.

You're welcome. Have a good day.

Thank you, Rodrigo.

Ladies and gentlemen, this will conclude our question-and-answer session. And at this time also concludes PriceSmart Incorporated's fourth quarter 2020 earnings conference call. We thank you for attending today's presentation and you may now disconnect your lines.

Thank you.