Despite growing total revenue up 15 per cent to US$1.03 billion and beating estimates, Nasdaq-listed Price-smart, Inc ($PSMT) has lost US$211.88 million ($32.33 billion) in market value over the last three days as its earnings came in at US$0.62 per share, US$0.20 below estimates of US$0.82 for its third quarter (March to May).

Price-smart achieved US$1.01 billion in net merchandise sales in its second quarter which was the first time the regional warehouse and membership club surpassed the US$1-billion mark. For its third quarter, net merchandise sales inched up 17 per cent to US$999.01 million ($152.44 billion) with membership income increasing eight per cent to US$15.44 million. This was against the fact that the company had a 2.2 per cent negative foreign currency impact.

However, it has become the latest company to face an impact of excess inventory similar to firms in the United States of America like Target, Walmart and Macy’s. The Price-smart investor release noted that consumer behaviour has shifted more from discretionary items to more essential items. This has hit the company more in its hardlines which is characterised by items such as electronics, appliances, hardware and sporting goods. Seventeen per cent of Price-smart’s sales in the third quarter was non-food with hardlines making up a third of these sales with the remainder in soft lines like apparel and furniture. The company expects another 25 to 50 basis point compression in the fourth quarter.

“Many months ago, we made strategic investments in inventory with the goal of remaining in stock and capturing higher sales. Since then, the environment has been characterised by global supply chain disruption, including Asia port closures due to COVID, container shortages, higher freight and fuel costs, inflation, and sharp changes in consumer demands,” stated the release by Chief Executive Officer Sherry Bahrambeygui.

Price-smart’s operating income for the third quarter fell six per cent to US$33.76 million as operating expenses rose for net merchandise sales and warehouse and club operations. There was a rise in pre-opening expenses to US$306,000 due to the opening of the Portmore location in April. Price-smart’s net income declined 15 per cent to US$19.26 million. Price-smart had 50 clubs in operation during the quarter compared to 47 a year prior.

“We have taken decisive action, and continue to do so, to swiftly sell through excess inventory and quickly rebalance our inventory mix. As a result, we have experienced higher than normal markdowns. Our plan is to handle this quickly and efficiently in order to be well-positioned for the holiday season. Although it is likely we will see some margin pressure in the fourth quarter, we believe it will be far less than the third quarter. We see this as a point in time. We have gained many new important insights. We expect soon to return to our healthy, historical margin structures,” Bahrambeygui emphasised.

Price-smart’s Portmore opening was its 50th location to date and was attended by the likes of Senator Donald Wehby, Portmore Mayor Leon Thomas and Acting Deputy Chief of Mission at the United States Embassy Michelle Mason. According to the CEO, the location had signs ups 25 per cent above their original estimates and saw net merchandise sales beat their internal forecasts by 12 per cent. Maxine Brown is the general manager for the club with Tara Kisto leading as the country manager.

“We celebrated our 50th plus milestone with the opening of our Portmore club in April. That was our second club in Jamaica. I was there and the support and reception that we received in Jamaica was pretty impressive. We have a very big presence in that market and we’re very well respected. It was clear they do see us providing tremendous value in that market and hopefully that translates into how closely they will be working with us in the future,” she explained.

Price-smart has also continued to forge a stronger partnership with Sagicor Bank Jamaica Limited (SBJ). Apart from the automated banking machine present at the Portmore location, SBJ launched a co-branded Visa Gold credit card which rewards users with a four per cent cash-back on all purchases made at the Pricesmart Jamaica locations. The card has an annual fee of $3,500 and has a welcome bonus up to September 30. This comes as SBJ launched a Care Shield which is group insurance plan for its credit cardholders and their families through their life insurance arm Sagicor Life Jamaica Limited.

Price-smart has remained quiet on the Catherine Hall, Montego Bay property’s final use as a third store, warehouse or distribution centre. It currently has a Fresh Bakery location at the Bogue City Centre location. The National Environmental and Planning Agency approved the development of office and commercial complexes of 5,000 square metres or more in February 2020. Executives toured the location on their visit to Jamaica in April before going out to the rest of the Caribbean in their first mass trip since the novel coronavirus pandemic.

“We’re currently analysing new locations for local distribution centres in several areas that would serve our Central American, Caribbean and Columbian markets. We’re also reviewing potential sites in the northern triangle countries for a regional distribution centre. This would give us a near term option to create alternative routes for imports from Asia for distribution to our markets and represents further job creation and investment in these markets,” Bahrambeygui added in the conference call on Tuesday.

Price-smart announced in October 2021 that it was planning to build its third regional distribution centre in Trinidad and Tobago (T&T). The other centres are in Miami and Costa Rica. Bahrambeygui also announced on Tuesday that the company should complete the opening of a sustainable packaging plant in T&T by the end of August. Apart from creating nearshoring opportunities and continued vertical integration, she explained that it would also result in the subsidiary being able to export to other markets and sell to business to business customers and earn United States dollars. T&T has experienced a severe illiquidity issue over the last two years with USD which lead to an increase in local prices and reduction in imports to the country.

Price-smart also announced plans to open new clubs in San Miguel, El Salvador and Medellín, Colombia, in the spring and summer of 2023. Total assets increased by five per cent to US$1.79 billion while equity attributable to shareholders grew six per cent to US$968.20 million. The company will pay a US$0.43 dividend on August 31 to shareholders on record as of August 15. The payment totals US$13.30 million.

“I think Sherry has also emphasised that we’ve really been trying to clear out this problem and doesn’t necessarily mean that there’s going to be a slowdown. We’re just trying to work through some of the backlogs through some our programme. I don’t think we’re directly linking mark downs to a slowdown in growth. We’re not directly projecting a slowdown,” Vice-President Michael McCleary ended.