Good afternoon everyone, and welcome to PriceSmart Incorporated’s Earnings Release Conference Call for the First Quarter of Fiscal Year 2022 which ended on November 30 of 2021. After remarks from our company’s representatives, Ms. 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 1 hour and is being recorded today, Friday, January 7, 2022. A digital replay will be available following the conclusion of today’s conference call through January 14 of 2022, by dialing 1-877-344-7529 for domestic callers, or 1-412-317-0088 for international callers, and by entering replay access code 6014456. 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 2022. We will be discussing the information that we provided in our earnings press release and our 10-Q which were both released yesterday afternoon January 6, 2022. You can find these documents on our Investor Relations website at investors.pricesmart.com, or you can also sign up for e-mail 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, plan, will, may, should, estimate, and similar expressions. All forward-looking statements are based on current expectations and assumptions as of today, January 7, 2022. 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 may be 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.

Good day, everyone. Welcome to our earnings call. I hope you're all starting 2022 with the same optimism that our folks here have for the new year. So we have some great topics to cover today. And as you can see from the results, we had a very strong first quarter of the fiscal year. COVID or no COVID, supply chain disruptions or not, the results delivered by our team are very, very solid. So now looking at the numbers. During the first quarter, our total membership base has grown to a new record level with 7% growth year-over-year and our 12 month membership renewal rate was very strong at 89%. Our headline numbers all grew over their prior comparable period. And it's worth noting that results of this quarter are being compared to a quarter last year in which significant growth was achieved relative to the same quarter in fiscal year '20. The net merchandise sales increased 12.6% versus the same period last year. With regard to comparable sales in Q1, they increased 9.4% versus the same period last year. Currency continues to be a headwind and impacted total and comparable net merchandise sales by 1%. Our operating income grew 3.3% in the first quarter of this fiscal year, when compared to the same period last year. And earnings for the first quarter grew 10.1% to $30.5 million versus $27.7 million in the prior year period, yielding diluted and basic earnings per share of $0.98 in the current quarter versus $0.90 in the prior year period. Now, looking forward into Q2, we can report strong holiday sales with our comparable net merchandise sales for the four weeks ended December 26, 2021. They were up 10.1%. This was achieved despite a negative currency impact of 2.8%. We've seen good momentum…

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 thank our team members for their tremendous efforts and dedication 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 $975.4 million and $944 million, respectively, representing increases of 11.2% and 12.6% over the comparable prior year period, respectively. Including the clubs we opened in Aranda, Guatemala in October and Floridablanca, Colombia in November, we ended this quarter with 49 warehouse clubs compared to 46 warehouses clubs at the end of the first quarter of fiscal 2021, and we are excited about our plans to reach the milestone of 50 clubs when we open our second club in Jamaica in April 2022. We experienced a very strong opening out of the gate with Aranda and membership sign-ups for our Floridablanca club have been well ahead of our target. We believe that this is further evidence that consumers in these markets appreciate and embrace our unique business model. Our comparable net merchandise sales growth for our fiscal first quarter was 9.4% for the 13 weeks ended November 28, 2021. Foreign currency fluctuations had a negative impact on both net merchandise sales and comparable net merchandise sales of 100 basis points or approximately $8.4 million and $8.5 million, respectively. By segment, in Central America, where we had 27 clubs at quarter end, net merchandise sales increased 15.6% with a 14.1% increase in comparable net merchandise sales. All of our markets in Central America had positive comparable net merchandise sales growth with exceptional performance in the northern triangle countries of El Salvador, Guatemala and Honduras. In the Caribbean region,…

[Operator Instructions] And the first question will come from Jon Braatz with Kansas City Capital.

I'm curious, with the COVID cases rising again, are you seeing any indications in your markets that there might be a return to some operational restrictions at your stores?

At this point, we're not seeing anything of significance. However, the cases are definitely rising. I believe the view is that this round may be different from prior rounds, but we don't know. And we are basically at the mercy of the government officials who may decide to impose restrictions or not. But to date, we're not seeing much of a difference. And we're prepared though regardless to be able to make sure that we can get the goods that our members need to them in the most safe and appropriate way no matter what the circumstances are.

Okay. And Michael, it sounds like Trinidad is getting a little bit better. It sounds like you're seeing a little bit of sales improvement. Have you adjusted prices accordingly? I know you raised prices to account for the currency restrictions. But have you adjusted pricing in Trinidad?

I guess, John, you could say we're cautiously optimistic. We did have a little bit of a buffer there in the Q4, not to reasons we wanted, but because we had pulled back on inventory shipments because of the closures, and we continue to receive dollars. So that was a big help to get in our fiscal Q4, to get those balances back down closer to more historical levels. But we continue to see challenges there, so we haven't adjusted pricing at this point. It's something we're actively monitoring. We're leaving that. You could see, as I reported, we had $1.9 million hit in sourcing of FX during the quarter, so we continue to incur costs associated with that. And we've also now added this new loan, which will add some financing costs. But we're pretty excited about this new loan as being a new vehicle to generate new dollars, but we have not pulled back on any pricing at this point.

Next question will come from Charlie Carter with Ceredex.

Just trying to better understand the general and administrative costs. I think you all had alluded to the talent investments either in like real estate or IT or just other IT-related spending. And there's, I guess, maybe the health insurance comment too might be part of that. So just trying to make sure I understood that increase and then also would like to kind of have a near- to medium-term view on kind of where you see that cost line item going? And I have a follow-up, if that's okay.

Yes, thanks. Yes. So as I mentioned, we've got a couple of moving pieces in there this quarter, right? We've got the reductions from Aeropost, right? So that kind of changes the year-on-year aspects of that. But as we've mentioned, I think, last quarter, I think once we pull out the effects of Aeropost, we're kind of expecting that we're going to continue to invest. As Sherry mentioned, things like health care, we've mentioned, relatively our investments in talent. And health care is just one example of that. And so we're continuing to invest in the talent and technology, and we're hoping to -- as sales are growing again that we can at least stabilize that G&A percentage as a part of sales as opposed to some of the deleveraging we've had. Now if you include selling in there, obviously, there's some distortions as we open 2 new clubs. You ramp up some costs for new clubs for the overall capture of SG&A until they ramp up their kind of more stabilized selling levels.

So is there a target where you want to grow that? I mean, I understand there might need to be some onetime investment in the business. But is there -- just given your intended acceleration in real estate growth, store growth, do you hope to kind of keep it constant as a percentage of sales? Or do you think you can actually leverage it as you leverage these real estate talent you've added on? And what IT spending that will support, dot-com, et cetera, et cetera?

I guess, the best I could say at this point is in the near term, we're continuing to make the investments we feel are appropriate to fund that growth that Sherry laid out a pretty extensive growth plan we have over the next few years. And as that growth comes to play, then that certainly should help us leverage. But in the near term, we're going to continue to make those investments so we can support that growth plan.

On that, if I can add, in recent years, we have invested -- and I'm focused on the talent portion right now. We've invested in expertise in areas that the company really didn't have or need years ago. We now, for the first time, in the last year or so, have a Chief Technology Officer. We have an EVP-level professional who is adept at data analytics and helping us use the data that's being mined from the investments in technology so that we can apply that in a way that allows us to make better decisions, respond more quickly, save in other areas of the business and help us grow in a very disciplined way with data to support our decisions. So retail, as you know, has evolved in the last few years, and those were not necessarily positions that were essential for a successful retail company. But because of the interplay with technology and the way consumers behave now and how we expect them to behave going forward, these are areas that are extremely important and do have the opportunity to leverage and to be leveraged. The one thing about technology is that it's not like another club. For example, every time you build a new brick-and-mortar, there's a fixed cost associated with it. Technology often has the opportunity to apply the same tools across a larger scale without the cost going up. So there are opportunities to leverage this. But in the meantime, we are making those investments that we feel are going to strengthen the foundation of the company for the long term. These are things that we believe are essential and appropriate for us to be able to grow faster and stay ahead of the curve and be able to reach more members and conduct our business smartly. So short term, yes, there's going to be continued investing. But we have faced that these are wise investments that are going to bear fruit in the long run, and that's our approach for the company.

Yes. You certainly are realizing at least the early, early benefits of that. So I'm not disagreeing with whether they're warranted. I guess maybe just a follow-up, and then I did have 1 other question, if that's okay. But how many years do you think though, will you be kind of at an elevated level of investments with the distribution centers and adding into the stores? Is there like a -- when you talk to the Board, what are the expectations you're setting for them in terms of spending at a historically elevated level?

Well, I mean, the more you grow or the more you want to grow, the more you're going to spend, right? So if you're going to open 1 club a year, the spend is going to be much lower than, hypothetically, 10 clubs a year. If you want to expand into new markets, we will likely be spending more. So we are definitely poised for growth. And it's difficult for me to tell you how long there's going to be additional investments made, but we're only going to make those investments if we think we're going to get a good return. So that elevated expense really suggests that we believe that what we're investing in is going to help us grow and help us increase our membership base, increase our geographic footprint and generate more sales so that the company can grow to its potential. So in the meantime, we do take a measured approach, but we're seeing enough signs that we have a level of confidence that our business model has a very specific purpose and role, especially in emerging markets. And not only do we have opportunity in some ways, having gone through this COVID experience, I think there's a sense of responsibility because we have experienced how our business model and the values that we hold and the tenets that we maintain really do help keep our members supported, their businesses supported. And there's a level of trust that we think has been highlighted by this experience that the members have. And to the extent that we can continue to generate good profits and expand our reach to people who can benefit from our business model, and we can improve their lives, then we intend to do so.

Fair enough. Just quickly then on the real follow-up question. On just foreign exchange, like headwinds for the P&L, do you all at least attempt to kind of price for that in U.S. dollar, so that you don't have margin deleverage on that? Because I'm assuming at least some portion of your cost of goods originally was denominated in U.S. dollars. And so how do you all manage through that? Do you have the analytics to do that well? Just whatever you can say on pricing and the transactional headwind from a stronger U.S. dollar?

Yes. Thanks, Charlie. Yes, a good follow-up. Yes. We're very actively monitoring FX, and we basically -- our whole business model is kind of a cost-plus model where we bring things in based on the average cost of increasing transportation or produce cost from our vendors, whatever is coming in, we're constantly monitoring that on a weekly or a monthly basis, depending on especially countries like Colombia that has so much volatility where we're actively monitoring that and repricing dynamically. So you can see we've had pretty stable margins over the last year, especially. And we're very much -- I mean, we're very much on top of that and repricing as we -- as much as we can as the foreign currency fluctuates.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Sherry Bahrambeygui for any closing remarks. Please go ahead.

I'd just like to thank you all for joining us today. We are looking forward to 2022, and we hope to -- that you'll join us again for the next quarter's earnings call. Take care. Bye, bye.

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