PriceSmart Inc ($PSMT) will be tacking on an extra US$5 in membership fees to its more than 1.82 million membership accounts during 2024, in a move which is likely to add an extra US$9.12 million-US$15 million (J$1.40 billion-J$2.31 billion) to the annualised bottom line for the international regional membership shopping business.

The Nasdaq-listed firm currently operates 53 warehouse clubs across Latin America, the Caribbean and United States Virgin Islands with an extra club set to be opened in Santa Ana, El Salvador, next month. It offers a bulk shopping experience across a range of fresh and durable products to its members which they gain access to through the purchase of a Diamond or Platinum membership plan. There are also the Business member and Business Platinum cards as well. This has resulted in the firm having more than three million cardholders at the end of its first quarter (Q1) on November 30.

The Diamond membership currently costs US$35-US$40 while the Platinum membership costs US$75-US$80. In Jamaica, this translates to a current cost of J$7,121.98 for the Diamond offer and J$14,243.96, an increase from the J$6,208.85 and J$13,305.50 charged in November 2022. During Q1, PriceSmart raised the annual fee by US$5 in most markets and expects to stagger the remaining increase in the second quarter. PriceSmart brought in US$66.05 million (J$10.11 billion) in membership income during its 2023 financial year (FY), when it had 51 warehouse clubs, and US$17.75 million (J$2.73 billion) in membership income during Q1 2024.

“In the first quarter of fiscal year 2024, we raised the annual membership fee for two cards by US$5 for all membership types in most markets. We expect these fee increases to also take place in most of the remaining countries on a staggered basis during the remainder of fiscal 2024,” said PriceSmart’s Chief Financial Officer Michael McCleary on Wednesday.

The company’s membership income is a crucial part of its business model, with it representing 35.80 per cent of its total operating income in 2023 and 30.5 per cent of its total operating income in Q1. The mission and business strategy section of PriceSmart’s 10-Q filing noted that the annual membership fee enables it to operate the business with lower margins than traditional retail stores. The last five years have seen membership income grow at a compounded annual growth rate (CAGR) of 5.4 per cent with an annual renewal rate above 87 per cent.

The company surpassed its one-million-member account figure in 2013 when it had 31 clubs and launched its Platinum membership offering. A decade later, the company is nearing the two-million-account mark when it will have 54 clubs. Central America now accounts for 56 per cent of the 1.82 million accounts while the Caribbean and Colombia account for 26 per cent and 18 per cent, respectively. Its platinum members account for 9.30 per cent of all accounts and benefit from an annual two per cent rebate on eligible purchases.

All of this expansion has been rewarded through the company’s Q1 revenue rising 11 per cent to US$1.17 billion (J$179.52 billion), with a record five per cent of the company’s US$1.14 billion in net merchandise sales being from e-commerce. However, the company’s pre-opening expenses of its two new clubs resulted in its operating income being five per cent higher at US$58.21 million. After finance costs and taxes, PriceSmart’s consolidated net profit was 16 per cent higher at US$38.05 million with earnings per share (EPS) increasing from US$1.05 to US$1.24. This EPS performance beat analyst expectations of US$1.12 with revenue beating by US$10 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) was three per cent higher at US$77.77 million.

Despite not announcing any new locations following the 54th club opening, the company is quite bullish on the future prospects as it adds other complementary services to its members.

“We are currently finalising construction of our warehouse called in Santa Ana, El Salvador, which we plan to open in February 2024. This new club will be our fourth in a seller. Once this club is open, we’ll be operating 54 warehouse clubs and we are actively exploring additional locations as well. Additionally, we are currently remodelling several of our high-volume clubs which are in San Pedro Sula, Honduras, Santiago, Dominican Republic and Port of Spain, Trinidad and Tobago, as well as expanding one of our clubs in San Salvador, El Salvador,” McCleary added in his presentation.

The company is also purchasing its club in Via Brasil, Panama, which has the highest sales volume among the seven locations in the country. PriceSmart has also decided to extend the lease term for its Miraflores club in Guatemala, which is the highest selling location among the six locations.

“In October 2023, we relocated our distribution centre in Panama, more than doubling its size to approximately 120,000 square feet. Building on the success of our Costa Rica distribution centre, we believe this new facility will allow us to drive more efficiencies within our distribution network by centralising receiving process from local Panamanian vendors as well as for our imported merchandise into this market. We are actively reviewing similar opportunities in other markets,” McCleary said.

PriceSmart’s total assets grew marginally during the quarter to US$2.03 billion with its cash and cash equivalents at US$174.45 million, down from the US$239.98 million in August after it purchased new short-term investments and completed its US$75 million share buy-back programme. US$51.8 million in locally denominated cash and cash equivalents and short- and long-term investments in Honduras and Trinidad and Tobago cannot be readily converted to United States dollars at the end of the quarter.

Total liabilities increased 11 per cent to US$705.20 million while shareholders equity marginally declined to US$1.08 billion following the buyback completion in the quarter.

PriceSmart’s stock price rallied 14 per cent to a new 52-week high of US$83.71 on Wednesday following its earnings beat before closing around US$76.51. It was trading around US$75.21 on Thursday which gave it a market capitalisation of US$2.30 billion.

“This gives a fresher look to our members and keep the excitement going in our clubs. In closing, in fiscal year 2024, we are focused on making shopping easier, more efficient and more rewarding for our members. We are doing this by filling our clubs with the right merchandise geared to members want some needs. We are proud of another successful quarter, a great start to our second quarter and our team who makes all this possible,” the CFO said.