Good day ladies and gentlemen welcome to PriceSmart Inc’s Earnings Release Conference Call for the Second Quarter of Fiscal Year 2014, the three month and six month periods ending on February 28, 2014. All participants are currently in a listen-only mode. After remarks from Jose Luis Laparte, PriceSmart’s President and Chief Executive Officer; and John Heffner, PriceSmart’s Executive Vice President and Chief Financial Officer, you will be given an opportunity to ask questions as time permits. (Operator Instructions). As a reminder, this conference call is being recorded on Thursday April 10, 2014. (Operator Instructions). I would now like to turn the conference over to John Heffner. Please go ahead, sir.

Thank you and welcome to our earnings call for the second quarter of fiscal year 2014. I hope you will find this to be a useful forum to review the information that we provided in our earnings press release which included a report on our net warehouse sales for March 2014 and our 10-Q filing which we released yesterday, April 9, 2014. You can find both the filing as well as the press release on our website www.pricesmart.com. Please note that statements made during this call may contain forward-looking statements concerning the Company’s anticipated future plans, revenues, and related matters. These forward-looking statements include, but are not limited to, statements containing the words expect, believe, will, may, should, estimate and similar expressions. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2013 filed with the Securities and Exchange Commission on October 30, 2013. We assume no obligation and expressly disclaim any duty to update any forward-looking statement to reflect the occurrence of events or circumstances which may arise after the date of this call. Now, I will turn this over to Jose Luis Laparte, PriceSmart’s President and Chief Executive Officer.

Good morning everyone and thank you for joining us in our conference call for the second quarter of fiscal year 2014. Let me start with an update on sales, second quarter sales came in at $657 million representing an 11% total growth compared to the prior year. We ended this period with 32 warehouse clubs compared to 30 warehouse clubs a year ago. Comparable sales for the 13 weeks ended March 2, 2014 grew 6.7%. When we look at the numbers by region, the Latin America region reported a 12.2% increase and the Caribbean region a 8.7% increase. The higher increase in the Latin America region is a result of the two additional clubs one in Cali North, Columbia and the other one in Costa Rica in the area of La Unión, Cartago. Overall net warehouse growth of 11% during that three month period resulted from a 10.2% growth in transactions and a 0.7% growth in average ticket. We saw sales growth in nearly all countries, exception being Jamaica which has experienced a significant devaluation of it's local currency over the past year. We also experienced a rather significant devaluation of the Costa Rican colon in February of approximately 5% compared to the average rate in January and also the year ago period. While overtime we will adjust prices on our important merchandise to reflect these devaluation in merchandise lots at a higher cost. In the short term sales that are transacted in the local currency and translated back to U.S. dollars will do so at a lower rate which can negatively affect sales growth. We continue to see strong sales in Panama, Trinidad and Aruba with each of them recording double-digit sales growth in the quarter. In terms of merchandising categories, we recorded double digit sales growth in different…

Thank you Jose Luis. Let me highlight a few additional items specific to our financial results for the second quarter before we take your questions. Warehouse gross profit margins as a percent of net warehouse sales were 14.5% a reduction of 19 basis points from Q2 of fiscal year 2013 generally consisted with our trends over the past few quarters. Membership income grew at 13.9% on 11.4% growth in number of accounts. The impact of the membership fee increase which went into effect June 2012 has pretty much worked it's way through the membership income stream and future growth in membership income should approximate the growth in accounts. Similar to what we reported in Q1, warehouse club operations expenses in Q2 were essentially equal to Q2 of last year at 8.1% of net warehouse sales. We had positive leverage of expenses in many of our warehouse clubs but this is offset by additional expenses associated with the two new warehouse clubs that were in operation in the quarter compared to Q2 of fiscal 2013. In total SG&A expenses improved four basis points. Pre-opening expenses in the quarter of $340,000 were associated with our soon to open Tegucigalpa, Honduras warehouse club. In addition, the warehouse club currently under construction in Bogota is on leased land. We took possession of that property in the second quarter and began paying rent. The rental expense will be recognized in preopening expenses during the construction period for that club and become warehouse operating expense upon opening of the warehouse club. This will cause us to have a bit more preopening expenses for this club than we historically have had for clubs where we have acquired the land. As noted in our 10-Q we are now reporting the gain or loss on disposal of assets above…

(Operator Instructions). First up is Ronald Bookbinder with Benchmark Company.

I was wondering on the membership renewal rate, while it maintains the 12 month rolling average of 85%, on a quarterly basis it looks like it had softened up a bit. Is that because the devaluations in certain territories that could be causing a little bit of economic pressure?

No we don’t think, I guess it's been a few quarters Ronald that we have been reporting the 85%. We reported a little bit higher numbers probably almost a year ago or more than a year ago but the effect of the devaluation I think we have seen it get -- I mean we can say Jamaica definitely has impact on the devaluation but we don’t really see a big impact on renewals and the one in Costa Rica which I highlighted at the beginning of the call and John did the same while just recently, so we don’t really see that impact, and 85% is pretty consistent with the renewal rate we have seen in the last few years. Hopefully that will not change though Ronald.

Okay, but I was talking -- if you look at what the quarter must have been I was calculating that the quarter must have been at about an 80% renewal rate which was down from the prior two quarters to average out that 85%.

I guess I don’t know how to make that math so maybe you’re catching me out. We’re at 85%, if you look at annual, annual renewal rate is the way to look at it and we have been holding steady 85% for quite some time I think now.

At least for 3-4 quarters.

Okay and on the comp, yes it's totally understandable; Semana Santa shifting three weeks later would impact March but is there any way for you to quantify what you think the impact was on a basis point for the month of March?

Well I think the best way to think about that Ronald is to wait till we have announce in April and then we can -- then we will see what the impact is because we can take a look at March and April put together.

Yes that’s what we just probably do, internally we look at both months together to kind of see if we are following that trend not because -- I mean this happens pretty much every year but this year in particular the separation of Easter was longer and obviously it did have -- it sent the whole business to the month of April which we’re actually about to start Semana Santa in all these countries it's start this Saturday. So we’re looking forward to good business obviously with higher transactions in the quarter and the clubs are ready for that incremental business now.

Okay and just one last question, are you seeing any benefit from the platinum plan in Costa Rica and could that be moving system wide?

We’re still evaluating -- obviously we’re happy with what we have seen Ronald that it's still a little early to extend it to other countries. So far we’re still learning, it's been a little bit over a year that we hit the anniversary of platinum, we started in November 2012. So we hit the anniversary on November 2013 and we have a I guess a lot of good members happy with the program but we still have to study a little bit more of what’s going on in the results before we can extend it a bit.

The other thing I would add there Ronald, is also we’re learning how to best implement a program like this. So we recently changed for example that moved from the annual period not being on the annual membership renewal rates but on a once a year basis for getting the rebate checks similar to how Costco does it here. We started down one path in a move to another one, so we’re continuing to refine sort of our implementation of that program as well.

Our next from Roth Capital Partners is Dave King.

This is Joe for Dave, just the first question I have is can you talk a little bit more about how TV and electronics trended during the quarter as well as in March and kind of some of your promotions behind and if you guys are seeing any sort of traction leading up to the World Cup at this point?

Well it's time to see a little bit of traction. Definitely we have good expectations on World Cup. I think I mentioned this on my last call for the Latin America countries, different from the U.S. because I know -- I guess soccer is not as important as it is in the U.S. In our countries it's much more important than in the U.S. and that fortunately we have actually few countries that qualify for World Cup and there is a lot of attention on TVs and a lot of attention on World Cup events. So, hopefully it will be good for our electronics and even other categories within the selection. The sales on electronics will probably start more strong within the last weeks of April and for sure May, as people get ready for June 12th first game.

And in your opening remarks did you say that electronics in the quarter were down just in a low single digits?

Yes I did said that and also they were down in Q1. It's been an effect I guess in the whole, I guess as we follow all the retailers we know that lot of them have experienced something similar even the big TV companies have had some difficulties in the last few quarters. There hasn’t been anything new coming out in the electronics world except for some technology that it is still a bit expensive like the 4K and other things. So it has been quite a challenging time for electronics, everybody has a lot of data probably in World Cup to change a little bit of that trend and get a lot of bars and homes to replace old technology, or go after bigger screens and help a little of sales of electronics and that pretty much is what we’re looking at and try to accomplish here.

Okay and then thinking about your warehouse club gross margins held up pretty well year-over-year. It actually improved sequentially. Can you talk a little bit about what might be driving that and how should we be thinking about your ability to lower prices on a go forward basis to help drive volumes and comps?

I think our warehouse margins actually went down by looking at total margin which would also include membership income and again we have the effect of looking through some of the increase in the membership fee we did back in June of 2012 but consistent with what we have been doing for the last number of quarters and probably years we have a reduction of our net warehouse margins, I think 90 basis points in this last quarter and that’s one of the -- that's the model for the company as we continue to grow sales and leverage our operating expenses and can push that back into lower margin, we also obviously can lower prices by efforts to continue to by better and to see efficiencies in our distribution operation which we can pass our savings on to our members and lower prices as well.

And then just last question, it seems like new membership growth has slowed in recent months. Can you just talk a little bit about what’s been driving that?

Only about 11% I think you said?

Yes I highlighted 11% growth compared to the last quarter and 13% on income. So it's been actually consistent growth, we have been holding a double digit growth for the last few -- last couple of years actually. So it's as such following a good trend, we don’t really see that. I mean slowing down, it seems pretty consistent.

Our next question today comes from Jon Braatz, Kansas City Capital.

Let me take that one, our currency generally devalue against the U.S. dollar as we have noted in our 10-Q in fact. If you look on, if you’re a real 10-Q person, if you look on page 62 you actually highlighted and show what the devaluation has been during the six month period and our major markets. So in that regard the sales growth report in U.S. dollars would generally be lower than the sales growth in local currency. However number of factors make sizing this difference I think a pretty tricky matter Jon. Among them -- we do reprice our imported merchandise purchased in U.S. dollars to maintain our target margins although with an eye to maintaining our competitive price umbrella. Now in addition you know while the translation of the sales of our local merchandise we translate that back, it translates back as fewer U.S. dollars. They are maybe offsetting price increases associated with higher underlying inflation in these markets that could mitigate that. So it doesn’t necessarily lend itself to an easy calculation, so I guess the long way of saying that yes devaluation of currencies in our markets probably negatively impacts our sales growth but that’s always been the case. And attempting to fully account for the various factors associated with it is pretty tricky business. It's simply one of the risks we attempt to manage as an international warehouse club business. Net-net, yes it probably impacts the growth and we did see particularly I think in February Costa Rica devalued pretty quickly as opposed to sort of a normal devaluation and that probably and we did not reprice up merchandise because most of the merchandise we brought in at the lower cost so there is no need for us to reprice it. So they probably had an impact on sales for Costa Rica when we translated it back to U.S. But overtime that will correct itself as we reprice for our merchandise that lands at a higher cost.

There was a nice I guess in the month of March, the Columbian currency appreciated nicely. So that maybe a little bit of a tail wind for the month of March?

Until it goes down again or up again.

Of course down again and up again, all right. Okay, John you talked a little bit about preopening levels in Bogota you’re going to include rental expense in preopening expenses. We got two other stores opening, when did some of those expenses begin to hit beyond just what you mentioned in Bogota?

Generally preopening expenses tend to hit 2 or 3 months.

Three months before opening, so we’re planning opening in November. We will probably start seeing a lot of that in between, and starting August we will see a higher level of expenses coming for preopening.

And with those three new stores it will be rather elevated compared to what we have seen previously, correct?

It will be elevated.

In aggregate.

Right.

Okay.

I don’t recall last time we opened three warehouse clubs within a couple of weeks of each other.

It's been a while or probably many, many years since we have opened three in probably in a period of -- in a month or whatever period specifically we will open. So yeah it's going to hit us a little bit on the expense side and then obviously we’re looking forward.

Jose, given the fact that you’re opening three new stores within couple of months, does that place any limitations on what else you may do in a near term basis? Would you want to get those things completed before you move on other stores? What kind of -- is there any limitation on your expansion plan because of those three quick new openings here in the latter part of this year or late part of this year?

I would say Jon that not necessarily while we keep -- I will tell we’re still actively looking for alternatives wherever we find them and then we have a team that is obviously, a real estate team and in terms of expansion the real estate team is keeping an eye on opportunities that can come in other major cities or other places and basically that construction team, the one that is really busy. I think we set up that company to a point that we can open these three without causing a distraction in growing and obviously keeping also the business on the current 32 almost 33 warehouse clubs that we have now. So it's a little challenging but the good thing is we knew it was coming and we’re working, we have been working on planning a good holiday season, a good successful opening of three warehouse clubs in Columbia and obviously we will keep an eye on opportunity for growth. So I will say not necessarily we will be affecting our future growth.

(Operator Instructions). Up next is Edwin Johnston, Sandhill Investment Management.

Just a question staying with Colombia, John, we've had a few discussions. Is the general idea there still that you have the three openings, which will get you to 6, that 15 eventually? No time frames, because I know you won't give them, but is a 12 to 15 type of number in Colombia in a long-term sense still the type of number that you would like to work to in that country?

I’m not sure. I guess if we ever mention the 12 to 15 but obviously that way we have made our math is that given the size of the country, Edwin with more 44, over 45 million people. It gives us the opportunity, that’s the population of Central America, it keeps us definitely in -- if you make the math, it gives the opportunity to have as many as we have in Central America. So there is an opportunity there and obviously the big cities like Medellin and Bogota, just Bogota with 8 million people. We know that one warehouse club is insufficient to serve a city that size. So there is obviously a good opportunity and that’s our intention to keep looking for opportunities especially in the major cities and other secondary cities where we still don't have a presence. So the opportunity is still there. As you mentioned we don’t have a time frame when we can complete the more warehouses. We feel pretty good about closing the year with six warehouses which would be pretty good accomplishment factor two years of starting our business in Columbia and we will try to add obviously as we can, but not sure if that -- I mean if we make the math here we can probably suggest that there will be more than what we have but I’m not sure if that 12 or 15 number is something we have in mind.

I didn't mean to throw anything out there that's not there. That's fair enough. You're going to try and do additional stores. Speaking to the priority, I know you're opportunistic with regard to acquiring land and acquiring sites and how difficult it is; you've spoken acquiring the land, the permitting process, so on and so forth which would you say is a priority, the clustering in say bigger cities like Bogota and Medellin or new smaller cities, secondary cities, which you still find attractive where there might be less competition? Going forward, is there a preference between those two?

Not really. We actually have our eyes on both. Since the process is long we just try to do a little bit of both at the same time. We have ideas on things that we can make happen in the major cities and at the same time opportunities for the secondary cities which usually are pretty good cities, not necessarily with a lot less competition but obviously good opportunities still. What we have found with our warehouse club concept is that a lot of people will like to have one in their cities. As we do social media and other things. We hear from people really asking for us to be in secondary cities not which are also definitely a good opportunity but there is not a priority on getting those. I mean we want to try to get them as much as we can and knowing that the process is long, is that the right thing to do to start working on all I guess fronts and try to get as much as we can.

And with regard to your real estate team out there looking, is it fair to say, and if you have some wonderful new geography I'm sure you won't tell us anyway, but is it fair to say that they continue the majority of their efforts or all of their efforts are in Colombia? Or are other newer geographies a possibility at this point in time or is it still really all about Colombia?

No it's not all about Columbia. We still have opportunities as you can see in the last 12 months actually we have opened -- we opened one in Costa Rica, we’re about to open one on Honduras. So we’re still trying to add, where possible, some existing units in current markets. So we try to have a good balance between Columbia and existing markets so we don’t slow down the opportunities that we may have in existing countries which we know are pretty good, we’re pretty pleased with what we have done in the existing countries and we don’t want to lose that attention either. So it's just a matter of keeping a good balance, Edwin, on that.

Okay. So, your efforts remain in the current countries and not in terms of looking in new countries, is that fair?

Yes, that’s fair statement.

And we will now hear from David Strasser, Janney Capital Markets.

Just to talk a little bit about cannibalization, currently, I know you talked a lot about Costa Rica and one store in Colombia being cannibalization. I'm just trying to think if this is kind of the peak period of this cannibalization, whether Honduras will add to the cannibalization because it sounds like the other stores going up in Colombia shouldn't be or they're in different markets, so as we kind of cycle through this, you'll start to hopefully see those negative comp stores start to rise again. I'm just trying to understand a sense of timing around some of these different moves.

I guess David, the first answer is Honduras will definitely hit us again when we open in May. It will definitely have an impact because we have the existing warehouse club in Honduras needs some of that cannibalization to keep growing. So it's going to be painful for a few months, but it is in the short term but it is going to be good for that warehouse club and obviously the growth for the entire city of Tegucigalpa. In the meantime we’re almost about probably three months from the anniversary of the opening of the second one in Cali. We still have few months of impact in Cali and the new clubs in the new cities will have a relatively small impact because even though we have some members shopping from Bogota or Medellin, it's not going to be a significant --

We should have like no impact on comp, yes the ones we’re opening in Bogota and Medellin those are the incremental sales --

Incremental new sales and very little impact. The one that we definitely know is going to affect us and we’re prepared to live with that the one in Tegucigalpa. It's the right thing to do but it's going to affect us. It's just a matter of a time, I guess in the last year the three openings that we have had have happened in existing warehouse clubs affected existing warehouse clubs, starting with Cali, then Costa Rica, and now obviously Honduras. So it's just -- the need of growth that of growth that we have in some of those countries that it's going to affect us day before a short term.

Has the cannibalization done the positive of taking some of the pressure off these stores? Can you hear that from the people in the stores that have been cannibalized, that maybe the shopping experience is better? Because when I've been down there, it's ridiculous to try and -- you go in any sort of peak period it's just been ridiculous. So has the positive aspects of that shown up in the shopping experience?

No question. I mean the members in Zapote, probably they wish that we have moved more sales to the other one but definitely it's making the shopping experience there better which is the intention. I guess in the past we heard these comments from people saying nobody goes there because it's so crowded. So it is probably happening and we keep hearing that in some of those markets. So it's a positive and obviously with the way we see things is they will even grow again. Zapote is one of the clubs that got hit with the cannibalization of sales but there is opportunity for members that stopped going or stopped going as frequent because as you mentioned if you’ve been there on a weekend or even on a weekday it was hard to find a parking slot in some of our location. So we want to make that shopping experience better and that’s the intention of that. I guess that this cannibalization.

In some ways thinking about it, as the Colombia one rolls off from a cannibalization standpoint on some level, the Honduras one comes in, so probably overall doesn’t -- what we've been seeing may roughly be the same type of cannibalization numbers give or take, at least by club, over the next year or so?

Yes if I look at the month coming up here I think the one in second club in Cali comes back into our comp base in July. So given that we opened to Tegucigalpa number two in May, I think May and June will be probably those months will be when we have three clubs being cannibalized than it will fall into being to being cannibalized in July and then we will -- how that all plays out but it's going to be with us for a while.

And just on a little bit of a shorter term note, talking about the March numbers, there's no question, obviously, the later Easter's going to help April. Last year, just to make sure, Easter Sunday you're closed and then a bunch of stores get closed on Good Friday. So that's an offset in April where you'll have Easter Sunday closed and a handful of stores or something on Good Friday?

We actually close only on Good Friday. Yes, all clubs close other than that, there's one country that I believe we close on Easter.

A few on Easter, okay.

Yes but it's not a big impact on April.

So, the bigger impact is definitely the lead-up to it? I remember reading about last year moving it up, you said it added 70 basis points when you moved it up from the first week of April when it was two years ago to the March 30 or March 31 last year, it added a little bit to your overall business.

Yes I think last year, I think it sort of bridge the month a little bit right? This is sort of clearly in one versus the other which is why we want to call it out. I mean this is a pretty big separation and I think no run-up to the Semana Santa activity happened in March this year. I think in prior periods there has always been some bleed one way or the other across the boundary.

At the risk of prying too hard on this, is there any sense of -- can you give any sense of magnitude? I know you don't want to give a definitive number or anything. Is it several hundred basis points you think that will shift in comp? Is it 500, 200?

Yes I will give the response that I gave to Ron, David is we’re couple of weeks away from announcing our April sales. So I guess we could speculate what it would be but I guess I would rather just tell you what the actuals are when we get them.

And everyone at this time there are no further questions. I will hand the conference back over to our speakers for any additional or closing remarks.

Well thank you Lisa. I guess this ends our call. So thank you all for participating with us today. Bye.

Thank you.

Ladies and gentlemen that does conclude today’s program. Thank you all for your participation.