Good afternoon, everyone, and welcome to PriceSmart Incorporated's Earnings Release Conference Call for the Second Quarter of Fiscal Year 2024, which ended on February 29, 2024. After remarks from our company's representatives, Robert Price, Interim 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, Wednesday, April 10th, 2024. A digital replay will be available following the conclusion of today's conference call through April 17, 2024 by dialing 1-(888)-660-6264 for domestic callers or 1-(646)-517-3975 for international callers and by entering the replay access code 59511#. For opening remarks, I'd like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Thank you, operator, and welcome to PriceSmart, Inc.'s earnings call for the Second Quarter of Fiscal Year 2024, which ended on February 29, 2024. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released yesterday afternoon, April 9, 2024. Also, in these remarks, we refer to non-GAAP financial measures. You can find a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP measures in our earnings press release and our 10-Q. These documents are available 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, plan, will, may, should, estimate, and some other expressions. All forward-looking statements are based on current expectations and assumptions as of today, April 10, 2024. 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, the Quarterly Report on Form 10-Q filed yesterday, 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 Robert Price, PriceSmart's Interim Chief Executive Officer.

Thank you, Michael. I want to extend my appreciation to everyone at PriceSmart for contributing so much to a very successful second quarter. I especially want to acknowledge a few of our warehouse club managers, whose locations were challenged operationally because of the very high sales volumes during December. I also want to thank our merchandising teams in the U.S., and in our countries for their outstanding management of inventory flow during the holidays, resulting in strong sales, low markdowns, and excellent inventory churn. Now I will ask Michael to continue with his presentation.

Thank you, Robert. We had a strong second quarter as both total revenues and net merchandise sales reached almost $1.3 billion. During the first half of our fiscal year, total revenues and net merchandise sales reached almost $2.5 billion and $2.4 billion respectively. During the second quarter, net merchandise sales increased by 13% or 9% in constant currency and comparable net merchandise sales increased 8.8% or 5.2% in constant currency. For the first half of the fiscal year, net merchandise sales increased by 11.9% or 8% in constant currency and comparable net merchandise sales increased by 8.4% or 4.7% in constant currency. By segment, in Central America, where we had 30 clubs at quarter end, net merchandise sales increased 12.4% or 8.8% in constant currency, with an 8.1% increase in comparable net merchandise sales, or 4.6% in constant currency. All of our markets in Central America had positive comparable net merchandise sales growth. Our Central America segment contributed approximately 500 basis points of positive impact to the growth in consolidated comparable net merchandise sales for the quarter. We opened our sixth warehouse club in Guatemala in November 2023 and our fourth warehouse club in El Salvador in February 2024. In the Caribbean, where we had 14 clubs at quarter-end, net merchandise sales increased 7.2% or 8.9% in constant currency and comparable net merchandise sales increased 6.3% or 8% in constant currency. All of our markets in this segment had positive comparable net merchandise sales growth. Our Caribbean region contributed approximately 180 basis points of positive impact to the growth in consolidated comparable net merchandise sales for the second quarter. In Colombia, where we had 10 clubs opened at the end of our second quarter, net merchandise sales increased 34.5% or 11% in constant currency, and comparable net merchandise sales increased…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Mr. Jon Braatz from Oppenheimer. Please go ahead.

Robert, you mentioned in your opening comments that, you know, obviously December was a pretty good month, but you said there were some challenges in meeting that demand. Can you speak a little bit about those challenges and did it impact the -- did you incur some additional costs?

Thanks for the question. I maybe didn't explain it very well. We have some locations, first of all, we did volumes in certain locations that really went beyond anything. I think, I would have thought with -- they were capable of doing just based on the physical limitations of some of our locations. I really was trying to complement managers who were under tremendous stress just to move that volume through those locations on various days during December. I don't think per se that it resulted in additional expense, but I think it was very, very tough on our management team in a number of places just to deal with what was the throughput and sales and [physical] (ph) inventory on hand. But I think they handled it really well and the expenses seem to be well in-line. But it was tough. I mean, I don't know, if I personally had to run one of those locations if I could do it.

Okay, thank you. Turning to Colombia. Colombia, the currency has strengthened there. Your comp store sales there were flattish in the quarter. It seems like the impression I'm getting is the overall market in Colombia is getting better. Can you speak maybe a little bit about the Colombian market and how you see it, generally speaking in terms of the economic environment?

I think that politically, as well as financially there's been a lot of improvements in Colombia in the last year and we're certainly reaping the benefits of those improvements. From my knowledge, I haven't been in Colombia in a while, and I'm planning a trip. I think, we're running our business well. And I think our reputation there is really, really good from what we hear and the way our members seem to feel about it. There's been a lot of turnaround in Colombia. I think the other thing to mention in Colombia is that we made a decision probably close to a year ago to reduce margins a bit and to change our pack sizes on some of the items that just had become too expensive under the large pack sizes. And I think both of those actions have really strengthened our market position. I think we're in a pretty good place in Colombia. Unfortunately, it's still challenging to find locations in the big cities, Medellin and Bogota, and we continue to work on that because we think there's more opportunity. But I feel pretty good about Colombia. I think we've got a good management team there, we have good buying there and things are really improving.

Okay. And then lastly Rob or Michael the new Costa Rican store, I think you noted it was 10 miles from the nearest store. When you open a new store in Colombia and other places there's a little bit of cannibalization. Would you expect anything more or less from this new store opening versus what you've seen in the past?

As far as the transfer of sales, there will be some transfer of sales, and I think it'll be more or less the way we would have had in other Costa Rica's locations, where we're opening not too far away. On the other hand, our track record in Costa Rica has been that we backfill pretty quickly in terms of recovering those sales that had been transferred. And I think overall, because we're building our sales volume and market position in Costa Rica, we're going to buy better, distribute better, and probably overall, it's going to help all the clubs just to have that extra club in the marketplace.

Okay, thank you.

Your next question comes from the line of Mr. Hector Maya from Scotiabank. Please go ahead.

Hi, thank you, Robert and Michael for taking my questions. The first one would be regarding the kind of wide potential that you see for new openings down the road. And aside from Colombia, where else would you be seeing the most opportunity, and what would be the long-term potential for countries like El Salvador, Guatemala, or others in the Caribbean like Jamaica, where potentially minimum wages could be a factor?

I’m going to make sure I understand your question. Are you -- was your question about opportunity in countries other than Colombia?

Yeah, aside from Colombia, in markets like El Salvador, Guatemala, or even Jamaica in the Caribbean, the wide spread potential that you see there?

I think, without getting too specific, the -- there continue to be opportunities in some of those countries. And we continue to identify the right properties to take advantage of those opportunities. I don't want to be too specific. I think, I could say regarding Jamaica -- or Jamaica, however you want to say it, that it's been a good market for us and we think there is additional opportunity there. And I'd say the same thing about Guatemala, and maybe El Salvador as well. I mean, you know -- I think also -- I feel really pretty good about those regions because, you know, with the change in our approach to sourcing in terms of the big picture macro moving more production out of Asia to the region we're in, I feel that there – this is a very positive sign for the region and also for us. That would include all the countries you mentioned.

Got it. Thank you. Very, very clear. And could you also please talk a bit more about the increase in general and administrative expenses with compensation on travel costs? And if you could give us also a sense of what happened in the non-recurring expenses there too.

Hi, Hector. Yeah, just basically overall, we're continuing to review our compensation levels – at all levels of management. And so there's some year-on-year increases there. And the non-recurring expenses were just some professional fees we incurred from some special projects that won't have an impact going forward. So I mean, G&A in general, remember we're investing in IT and we're investing in the management team. So it's going to fluctuate quarter-on-quarter based on sales increases and where we're going, and I can fluctuate up and down a little bit as a percentage of sales. Obviously, our goal in the long run is to leverage G&A, as a percentage of sales because that helps us deliver better value to our member.

One thing I'd add to that though, which certainly I agree with everything Michael has said, I think, the real fundamental nature of the club business is to continue to find ways to be more efficient in the delivery of merchandise to the ultimate consumer. And Michael had mentioned, I believe, that we had recently opened a Panama distribution center. We are soon to open a Guatemala distribution center, and we're building a distribution center for Trinidad. Those are very strategic decisions that we believe can leverage and improve expense ratios and inventory turn because of the fact that we can flow merchandise in a much more efficient way, we believe. And we've kind of proven it in Costa Rica, where we already have a distribution center. And those distribution centers have many other possibilities beyond just the flow of merchandise to our clubs, as we get more into online shopping and dealing more with business-to-business members, we think these distribution centers will become quite strategic. The way I think of the distribution center is going back to the early days of Price Club in 1976. In a sense, we were a distribution center. And so, in a way, it's going back to our roots, and especially as we focus more and more on the business-to-business segment in our business -- and our operation.

Excellent. Thank you very much. That was a very, very good color. And the last one to -- if you could also share some further details on the performance seen in the other income and expenses, particularly with more color on the spike in other expenses during the quarter?

Yeah, I think Hector, I mentioned in the call that -- that's pretty much from FX. And I called out two things in particular. We have this unique situation where we're sitting on a lot. I think we've talked about this in prior calls, we're sitting on a good amount of cash in -- that we convert into U.S. dollars from local currency, we hold that in our bank accounts in Costa Rica. And the strengthening of the Colon has had the unusual effect of hitting us from a P&L perspective. So that's essentially unrealized losses on our U.S. dollar balances. We're a U.S. dollar based company in the whole. And we think from a long-term perspective, it's the right thing to do to transfer our -- convert our local currency balances into U.S. dollars, and that's what we generally do in all of our markets, as long as we're able to. And we generally hold that because then we can redeploy it easier within the company. So we have some unusual fluctuations from foreign currency sometimes in some of the countries. In the past, you may recall we've had similar issues with Jamaica. So hopefully that's a transitional issue. And then I also mentioned that we continue to pay extra costs to convert the ill-liquid currencies that we have, such as Honduras and Trinidad, into U.S. dollars. And that's also impacting that line.

Got it. I understand. Thank you very much Robert and Michael for taking my questions. Thank you.

Thank you, Hector.

Your next question comes from the line of Jon Braatz from Oppenheimer. Please go ahead.

Michael, just a follow-up. Given the currency issues in Honduras, have you implemented any pricing actions in that country similar to what you did in Trinidad?

We've taken some pricing actions in Honduras, and that's something that we're continuing to review. So yeah, obviously, our goal is to hopefully be able to pay for those -- any extra costs we're incurring in countries where the currencies are ill-liquid. You may not, kind of like the -- I mentioned for Costa Rica, may not always match on an accounting basis, but from an economic perspective, I'd [rather line those up] (ph).

I just add one thing to -- this is very top of the agenda for Michael and myself. We've spent a lot of time talking about Honduras and trying to identify a variety of ways to balance the challenge we have with ill-liquidity, but also making sure that we don't harm the business long term. Balancing Act. And I think we're on top of it. But this is part of the nature of where we do business. These are countries that have a lot of challenges. We've gotten pretty good at it, but the reality is we go through these [series] (ph) where it costs us money, reserve a business, pretty good business, and so we're looking at a lot of alternatives for how to deal with the Honduras situation, but it is a significant challenge. And we're on it.

Okay, good. And then lastly, Michael, are all the membership increases fully in place as of this time? Or do you have some more to go?

Most of them are in place, substantially all of them, but not quite all of them. We haven't given any details about countries or volume, but most of them are.

Okay, all right, thank you.

There are no further questions at this time. I'll hand the call over back to Michael McCleary. Please go ahead.

Okay. Thank you, everybody. That wraps up our call today. I hope you all have a great day. Bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.