PriceSmart, Inc. – The ‘CostCo’ of Latin America
PriceSmart, Inc. engages in the ownership and operation of U.S-style membership shopping warehouse clubs in Central America and the Caribbean. These warehouse clubs sell basic consumer goods to individuals and businesses. The clubs offer a selection of products, including perishable foods and basic consumer items. They also provide ancillary services, which include food services, bakery, tire centers, and photo centers. As of July 7, PriceSmart operated in 26 warehouse clubs in 11 countries and one U.S. territory, including four in Panama; five inCosta Rica; three each in Guatemala and Trinidad; two each in the Dominican Republic, El Salvador, and Honduras; and one each in Aruba, Barbados, Jamaica, Nicaragua, and the United States Virgin Islands.
When Sol Price sold his U.S. – based PriceClubs to CostCo he was no longer allowed to compete with COST here at home. PriceSmart was developed to recreate the same experience in Central America and the Caribbean. Sol’s son Robert Price is now CEO and Chairman of the very successful discount chain. [Sol died this week at age 93].
Business has been very good despite the poor economic climate. Recently announced earnings for FY 2009 (ended August 31) came in at $1.45 /share versus $1.30 in FY 2008. Here are PSMT’s per share (fully diluted) numbers as reported in their annual report.
|
FY* |
Sales |
C/F |
EPS |
Div. |
B/V |
Avg. P/E |
Range |
|
2005 |
24.02 |
d.0.52 |
d. 3.15 |
Nil |
7.75 |
NMN |
6.11 – 8.70 |
|
2006 |
25.24 |
0.61 |
0.30 |
Nil |
8.10 |
31.2x |
7.55 – 20.64 |
|
2007 |
30.13 |
0.88 |
0.44 |
0.32 |
8.36 |
32.6x |
13.31 – 33.67 |
|
2008 |
37.65 |
1.67 |
1.30 |
0.32 |
9.27 |
20.3x |
10.35 – 31.89 |
|
2009 |
42.89 |
1.85 |
1.45 |
0.50 |
10.27 |
11.7x |
13.76 – 21.50 |
* FYs end Aug, 31st
Semi-annual dividends were initiated in 2007 at a $0.32 yearly rate that was raised to $0.50 per year in 2009. The next dividend announcement should come by next month with another hike likely. At the present rate, the current yield is already a decent 2.51% at yesterday’s close of $19.94 /share.
Zacks sees FY 2010 and 2011 estimates of $1.49 and $1.73 respectively making the multiple about 13.4x this year’s and approximately 11.5x next year’s expectations. Compare those P/Es with CostCo’s at 20.6x this year’s and 18.6x next year’s estimates. Also note the historical P/E levels for PSMT itself from the chart shown above.
A return to a still lower-than-normal 16 multiple would bring PSMT shares back to $23.84 by next summer and to a goal of $27.68 by the end of FY 2011. Those targets doesn’t seem out of line considering the excellent sales, earnings, dividend and book value growth since 2005. Note that PSMT shares hit peak trades of $31.89 and $33.67 in 2007 and 2008 when fundamentals were not as strong as they are today.
They have been occasional rumors that Wal-Mart may consider a buyout of the whole company as a cheap and quick way to expand their Latin American operations.
Summary:
PriceSmart is a well-run discount retailer that is thriving even during a major economic downturn. The valuation looks compelling and the yield is better than what’s now available on money markets and 1 – 2 year CDs.
Buyers today will qualify for the next semi-annual dividend (expected in January) and position themselves for total returns that look quite good. The takeover possibility, while unpredictable, adds a potential bonus to the expected projections.
Disclosure: Author is long PSMT shares. I previously wrote up PSMT on May 27, 2009 at a price of $15.75 /share.
PriceSmart Announces February Sales
SAN DIEGO, CA — (Marketwire) — 03/05/10 — PriceSmart, Inc. (NASDAQ: PSMT) today announced that for the month of February 2010, net sales increased 11.6% to $100.4 million from $90.0 million in February a year earlier.
For the six months ended February 28, 2010, net sales increased 6.5% to $667.5 million from $626.8 million in the same period last year. There were 26 warehouse clubs in operation at the end of February 2010 compared to 25 warehouse clubs in operation in February 2009.
For the five weeks ended February 28, 2010, comparable warehouse sales for the 25 warehouse clubs open at least 12 full months increased 7.1% compared to the same five-week period last year.
For the twenty-six week period ended February 28, 2010, comparable warehouse sales increased 2.8% compared to the comparable twenty-six week period a year ago.
PriceSmart’s Earnings Brighten Up Shares
Retailer’s growth in Central America and the Caribbean bolsters third-quarter bottom line.
PriceSmart, Inc. 07/09/2010 $25.18
PriceSmart beat expectations with its third-quarter earnings Friday, and things seem to be moving in the right direction on the top line as well, with revenue climbing 13.7% from a year earlier.
The company, one of the largest retail operators in Central America and the Caribbean, announced quarterly earnings of $12 million, or 40 cents a share, besting the consensus analyst estimate of 35 cents by a nickel and representing a 38% rise from the third quarter of 2009. May sales figures released on June 7 show net sales in May up 16.2%, a $16.5 million increase. For the nine-month period ended May 31 net sales increased 8.9%, and analysts are optimistic about San Diego, Calif.-based PriceSmart’s direction in the approaching quarters.
“Their warehouse gross margin [15.5%] was better than the 14.7% I expected,” says Kansas City Capital’s Jonathan Braatz, thanks to consumers shifting toward non-discretionary spending. Braatz claims that economies have improved in the regions where PriceSmart operates, and though its Caribbean stores have not been performing as well as its Central American counterparts, that a result of dwindling American tourism. In the crucial same-store sales category, PriceSmart reported an increase of 5.6%. With a store opening in Columbia in 2011, expect additional progress, says Braatz.
Shares of PriceSmart finished 2.6% higher Friday with a gain of 64 cents to $25.18, and the stock is up 23.3% year-to-date. Competitors in the region like Wal-Mart de Mexico ( WMMVY - news - people ) (WALMEX) and Carrefour ( CA - news - people ), are also performing well this year. William Blair analyst Mark Miller says athough PriceSmart’s revenues are about a third the size of WALMEX’s, it is none the less a significant player in the Latin American market with plenty of room to grow. Between plans to launch online shopping in the countries it operates in and the aforementioned opening of its Columbia store — Braatz claims the country can support 15-25 stores — PriceSmart is poised for a robust expansion.
PriceSmart’s history goes back to Sol Price and his son Robert, who founded Price Club in 1976 and are considered the creators of discount warehouse shopping. In 1993 they sold their brainchild to CostCo for $2 billion in stock. Four years later the Prices took their model to emerging markets in Central America and the Caribbean, under the new name of PriceSmart. Stock prices hit a high of $49 in 2000 only to fall to $6.75 three years later. Since 2003 PriceSmart has hired a new president, closed ineffective branches in Guam and the Philippines, and now operates 27 stores in 11 countries, up 1 store since 2009.