Good morning or afternoon everyone, and welcome to PriceSmart Incorporated Earnings Release Conference Call for the First Fiscal Quarter of 2021, which ended on November 30, 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, January 8, 2021. A digital replay will be available following the conclusion of today's call through January 15, 2021, by dialing 1 (877) 344-7529 for domestic callers or 1 (412) 317-0088 for international callers, by entering replay access code 10149960. 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 first quarter of fiscal year 2021. We will be discussing the information that we provided in our earnings press release in our 10-Q, which were both released yesterday afternoon, January 7, 2021. You can find both documents 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, January 8, 2021. 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 and other filings with the SEC, which are accessible on the SEC's website at www.sec.gov. These risks maybe updated from time-to-time. 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, and Happy New Year, everyone. I hope that you and your families are all safe and healthy. We're pleased to discuss with you today our strong first quarter results. Despite the ongoing challenges caused by the pandemic over the past 10 months, we've seen the best from our team members. They've consistently risen to the occasion with an unwavering commitment to safety of members and employees and to providing our members with the best possible shopping experience. Never before has The Six Rights of Merchandising been more important to our business than they are today. This retail philosophy emphasizes having the right kind of merchandise in the right place at the right time, in the right quantity, in the right condition, and at the right price. Our execution of operational efficiencies, vigilance, and discipline to these core principles is what has led us to the 7.7% growth in net merchandise sales and 3.6% growth in comparable net merchandise sales compared to the year-ago period. Note that we had one additional club in operation as of November 30, 2020, compared to the same time last year. During the quarter, we saw a gradual relaxation of COVID-related restrictions, which led to fewer club days lost compared to the prior sequential quarter, but we still experienced limitations on hours and numbers of people in the club. During this last quarter, we expanded last year's smart weekend event, which was held in the Caribbean to a smart week program across all of our markets and proved to be very successful. We also strengthened our digital marketing efforts and social media engagement, which have enhanced our ability to quickly grasp valuable insights from our members and more readily share with them our exciting, curated items and programs. As a result…

Thank you, Sherry. Good morning or afternoon to everyone, and thanks for joining us today. Before I begin, I would like to take this opportunity to also thank our team members for their tremendous efforts and selflessness during this past quarter and holiday season. Our results are a reflection of that hard work and determination. Total revenues and net merchandise sales for the quarter were $877.4 million and $838.4 million, respectively, representing increases of 8.1% and 7.7% over the comparable prior year period, respectively. As a reminder, including the club we opened in Liberia in June 2020, we ended this quarter with 46 warehouse clubs compared to 45 warehouse clubs at the end of the first quarter of fiscal 2020. Our comparable net merchandise sales growth was 3.6% for the 13 weeks ended November 29, 2020. Foreign currency fluctuations had a negative impact on both net merchandise and comparable net merchandise sales of approximately $27 million or 350 basis points. By segment in Central America, where we had 26 clubs at quarter end, including three opened since October 2019, net merchandise sales increased 6.2% with a 0.7% decrease in comparable net merchandise sales. Our Honduras, El Salvador and Nicaragua markets contributed approximately 150 basis points of positive impact to total comparable net merchandise sales despite the impact from the two hurricanes that hit the region during the quarter. This contribution was out by 190 basis point decrease coming from Panama, Costa Rica and Guatemala. Panama and Guatemala experienced sales transfers from recent club openings in most countries during the quarter and the devaluation in the Costa Rica and Cologne resulted in sales decreases in that country versus the comparable period in the prior year. In the Caribbean region, where we had 13 clubs at quarter end, total net merchandise sales…

We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Rodrigo Echagaray with Scotiabank.

Happy New Year and congrats on the results. I know you touched on December sales, but can you go over the main drivers of same-store sales in December? And also any thoughts on how sustainable that gross margin expansion in the previous quarter would be in the context of December sales, please?

Well, Happy New Year, Rodrigo. December sales, the same-store sales as we've mentioned before were impacted by the fact that we had additional clubs that were transferring sales from existing clubs, and I think it's also important to remember that this December is comping against a holiday season last December where there was no COVID. So, what we did is when the pandemic first came about, we did cut back on some seasonal and some items that we felt would be more discretionary and that did impact sales to some degree, and as people shifted a lot of their focus to essentials during this holiday season, we think that may have had something to do with it. In terms of the margin, our effort is always to try to continue to find the inefficiencies in the process and eliminate them and reduce them so that we can provide the best value to the member possible. Our margins, when you think about it, it's difficult to assign a specific margin to all areas of our business. As you understand, for example, our other business has a higher-margin structure, and we're doing more efforts to source and vertically integrate so that we can provide better quality merchandise and services to our members at a lower cost, but that might require a different margin structure. So, while our mandate is to continually drive the best possible value for the member in terms of pricing, the margin structure may vary among the different areas of our business as we become more dynamic and more entrepreneurial and find better ways to source better materials, better merchandise, and better services for our members.

Got it. So, it sounds like it's definitely a structural change in that direction. I guess the other question is related to the in-country distribution efforts, which seems to be very important and which makes sense to me. Just wondering what's the -- if we think about 10 years down the road, how do you foresee the whole distribution platform shaping up? I mean do you foresee having many more distribution centers in country and a lower inventory being held in Florida?

We believe that having distribution centers in country provides tremendous benefits for a number of reasons. Previously, when most of our imports would come from and still come from China and go through Miami, there would be longer lead times often, and when there's basically one direction of flow, there's more risk involved. By having multiple distribution centers throughout our markets and as we gain leverage and concentration in various markets, it gives us optionality that allows us to go direct. That's one. The other is that we're finding more and more opportunities in our markets to be able to source merchandise, quality merchandise to support our efforts to vertically integrate and expand our private label and to curate unique and exciting items that can then be shared amongst our different markets. And so having the merchandise closer to our retail operations is certainly a benefit and also the ability to hold merchandise and distribution centers and pulse them into the clubs as opposed to trying to thread the needle with long lead times and get the exact right amount directed to each and every club, it does provide an opportunity for us to be more efficient. So, we see some significant benefits in expanding our distribution center and basically decentralizing the structure in a way that we've got more presence among our various markets, and then there's also the online part of it as well, which benefits from having these regional distribution centers.

Yes, that was exactly my question so that makes more sense as well from that perspective.

Yes, right.

Great, well, that's it on my end. Thank you. Happy New Year and congrats on the results.

Thank you, Rodrigo. Happy New Year to you too.

Our next question comes from Jon Braatz with Kansas City Capital.

Looking at Trinidad, Michael your net asset position -- monetary asset position at the end of the fourth quarter was $4.8 million. You went to a net monetary liability of $14.4 million, and if you look at your strategy, what you're doing in Trinidad, it sounds like you're limiting sales, but you're increasing prices to compensate for the additional risk. Given that strategy, would your net monetary liability position increase in the subsequent quarters or would it stay about the same?

Jon, yes, good question. Actually, I wouldn't say we're trying to limit sales in Trinidad. I'd start out there. We're limiting the exports of U.S. goods into Trinidad to the extent [audio disturbance] local items. We certainly are doing our best to do that, and as long as it defies -- complies with our quality and pricing philosophy. But as far as the liability itself, that's, I think, generally we're trying to maintain a balance around that level within a range, right, because we're essentially saying that the exports from the U.S., which would generate more liability should be in line with what we're able to convert into U.S. orders. It's not a perfect equation because -- and things like that, but we're generally toward trying to manage that within, let's say, a regional liability within a reasonable range.

Okay. With the strengthening energy markets is the situation in -- would you think the Trinidad situation might improve a little bit with that country being heavily tied to the energy sector?

Certainly, that's their number one source of U.S. dollars is energy sector. There's several different levels of the energy sector that they participate in. And so -- but yes, definitely rising consumption in resin prices in the energy sector should definitely help. At the same time, as I mentioned, we're also looking to increase our ability to export goods out of Trinidad, if we can buy them in Trinidad dollars and export into other markets and sell in U.S. dollars, that gives us more U.S. dollars to be able to import merchandise to some of our clubs.

Yes. Yes. Okay. Okay. On the gross margin front related to Trinidad, that was up, that accounted for about you said about 50 basis points improvement in your overall gross margin. With the strategy in place the way it is, would you continue to expect a bump in consolidated gross margins related to your actions in Trinidad?

Yes. I mean it's obviously kind of anathema to the business model to be charging this premium, but also at the same time, we're facing a risk here that we haven't faced one before. But generally, we thought it was prudent to price ahead of it. So hopefully, as long as we thought it was important to call it out as a component because to the extent that this situation ends up resolving itself, and we would hope that premium would go down, but we do foresee it for the foreseeable future and all these situations start to set.

Okay, one last question. Sherry, you mentioned in December, there were some additional lockdowns, if you want to call it and things that restricted your hours of operation. Has that improved or worsened as we moved into the New Year? Have things changed at all?

It varies from market to market, but we are seeing additional, as a result of a rising cases, additional restrictions. For example, governments have been keeping people home, especially because of the holidays for Christmas and New Year's that whole weekend, a couple of our markets restricted people from any circulation, and we're concerned about large gatherings and rapid spread. So, we see this as an ongoing dynamic that we just have to be prepared for and utilize our alternative modes of shopping and different ways to get merchandise to our members. But certainly, it's not resolved here and it's not resolved there, so it's still an ongoing dynamic.

Okay. Is it more Panama and Colombia that has been impacted the most?

That's where we've seen it the most.

This concludes our question-and-answer session, and I'd like to turn the call back over to Sherry Bahrambeygui for any closing remarks.

Just wanted to thank everyone for your steadfast commitment and to our company and most especially to thank our employees who have really demonstrated a tremendous commitment to each other and to taking care of our members, so wishing everybody a good start to the New Year.

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