Good day, everyone, and welcome to PriceSmart, Inc. Earnings Release Conference Call for the Fourth Quarter of Fiscal Year 2019 ending on August 31, 2019. [Operator Instructions]. After remarks from our company's representatives, Sherry Bahrambeygui, Chief Executive Officer; and Maarten Jager, 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 is being recorded today, Wednesday, October 30, 2019. A digital replay will be available through November 6, 2019, following the conclusion of the call by dialing 1-877-344-7529 for domestic callers or 1-412-317-0088 for international callers and entering replay access code 10134778. I would now like to turn the conference over to Maarten Jager. Please go ahead, sir.

Thank you, and welcome to our earnings call for the fourth quarter of fiscal year 2019. We will be discussing the information that we provided in our fourth quarter earnings press release issued yesterday afternoon and our 10-K that was uploaded and submitted yesterday to the Securities and Exchange Commission's EDGAR system. However, due to technical difficulties experienced by the EDGAR system yesterday, our 10-Q filing was released early this morning, October 30, 2019. In addition to the EDGAR system, you can find both the press release and the 10-K filing on our Investor Relations website at investors.pricesmart.com. As a reminder, all statements made in this conference call other than statements of historical fact are forward-looking statements concerning the company's anticipated future plans, revenues and related matters. All forward-looking statements are based on current expectations and assumptions as of today, October 30, 2019, 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, 2019, as submitted to the Securities and Exchange Commission on October 29, 2019. The company undertakes no obligation to update forward-looking statements made during this call. Now I will turn it over to Sherry Bahrambeygui, PriceSmart's Chief Executive Officer.

Thank you, Maarten. Good morning, everyone, and thanks for joining us today. This call is an important milestone as fiscal 2019 ends and the new year begins with strong momentum. As you may remember from my first call in fiscal 2019, I briefly discussed priorities for PriceSmart. Those priorities were to drive membership value with a renewed focus on The Six Rights of Merchandising; invest in our people; develop talent; expedite our growth strategies in a manner consistent with our core values; and to be proactive about meeting members' need in the future. Over the last year, our focus on these priorities have yielded measurable improvements for our company. We've worked hard to address internal and external challenges and significant volatility in many of our markets. And we're pleased to report a quarter of improved sales trends, membership revenue and renewal rate increases, gross margin stabilization and continued investment in technology development. I'll now review with you the results of the fourth quarter and full year results for FY '19. In the fourth quarter, revenues were $801.3 million, an increase of 3% over the comparable prior year period. Revenues consisted of primarily net merchandise sales of $768.9 million, $13.4 million in membership income, $7.7 million in export sales and $11.3 million in other revenue and income. Currency fluctuations did have a negative 2.7% impact on net merchandise sales. Comparable net merchandise sales in our 41 clubs which were open more than 13.5 months increased by 1.5%, with currency fluctuations again affecting comparable sales negatively by 2.7%. So now looking at this by segment. In Central America, we had 23 clubs at quarter end. We had a 3.6% increase in total merchandise sales and a 1.1% increase in comparable sales. Nicaragua and El Salvador led the way in this segment with…

Thank you, Sherry, and good morning, everyone. As Sherry discussed earlier, during the fourth quarter, total revenues were $801.3 million, an increase of 3.0% over the comparable prior year period. Revenues consisted of primarily net merchandise sales of $768.9 million, $13.4 million of membership income, $7.7 million in export sales and $11.3 million in other revenue and income. Total SG&A expenses as a percentage of total revenue was 13.2%, representing a 40 basis points increase versus a year ago. This increase was primarily driven by our investments in new clubs and additional expenses as it relates to preopening's. Preopening expenses as the new clubs mature, we expect to start leveraging these expenses as a percentage of revenue. Operating income was $32.0 million or 4.0% of total revenue in Q4 fiscal 2019 versus $27.2 million or 3.5% of total revenue a year ago. The improvement is largely due to higher net merchandising margins in the fourth quarter of fiscal 2019. Our effective tax rate for the fourth quarter of fiscal 2019 was 34.1%. The increase versus the 27.5% rate in the same quarter last year was driven largely by the loss of tax asset value incidental to U.S. Tax Reform impacting us by 12.4%, offset however, by U.S. tax reform beneficial deductions of 5.9%. For the whole year, the effective tax rate was 33.8%. The decrease versus the 36% rate expected was largely driven by the reversal of valuation allowances in our Colombia subsidiary. Net income increased 8.9% to $20.7 million with diluted earnings per share of $0.67 in the fourth quarter of fiscal 2019 compared to $19.0 million with diluted earnings per share of $0.62 in the fourth quarter of last year. Moving on to the balance sheet which remains very strong. The company ended the quarter with cash and…

Thank you, Maarten. Personally, and on behalf of the company, I'd like to extend our heartfelt congratulations to you, Maarten, and on your upcoming wedding and the next chapter of your life. During Maarten's tenure, he's made really important contributions to the company. He strengthened our finance department and recruited good talent. I'm very comfortable that we'll have a smooth transition with the mutually supportive plans. We have a strong team in place that provides us the opportunity to do a thorough search for a successor who will complement and continue to maximize the effectiveness of our leadership team. As we proceed with fiscal year 2020, we're continuing to build on our momentum and moving forward as planned to capitalize on all of our initiatives, including those that will drive sales, expedite club openings, develop omnichannel capabilities and deliver on our commitment to The Six Rights. Thank you and I will turn it over for questions now, operator.

[Operator Instructions]. The first question comes from Jon Braatz with Kansas City Capital.

I just want to touch base on the gross margins, the warehouse gross margins of 15.2%. During the first three quarters, you were a little bit more aggressive on pricing and the margins were soft. And here in the fourth quarter, obviously, it was very much a surprise. I guess, can you go into a little bit more detail on the improvement in the gross margins? And then secondly, Sherry, Maarten, when I go back and looked at the gross margins historically, I have a little note when margins are up around 15%. In the past, you've always said, José or John, that 15% is somewhat high and probably unsustainable. And so I guess could you comment on the level where we are now and where you think it might go going forward? If these -- I mean, are these levels a new norm? I guess that's what I'm asking.

Sure. So Jonathan, I think the main answer to your question is that the improved margins are really the results of sticking close to our Six Rights in our core discipline. We found great opportunities for being able to operate more efficiently and buy better. I mean the direct farm is a great example of that where we've found that we have been able to reduce the overall cost of our merchandise and lower prices at the same time for our members, delivering greater value. And we're very disciplined about our margins. You're not going to see a change in our core philosophy from that standpoint. But I can tell you that by identifying these efficiencies and being able to apply our core discipline at the Six Rights and with these exciting merchandise that we're seeing in the clubs, not the same needs for markdowns, improving inventory flow. All of those things have allowed us to deliver better margins. And when we set these margins, we're very careful to deliver on our promise to our members, and that is to make sure that we're doing our homework for them. We provide a service and that is to curate the best selection of merchandise that we can, negotiate the best price that we can, make sure that we're getting the best value to them as possible. And we're still pricing it at a level that has a healthy comp umbrella. So that's the basic philosophy that we're applying and it's worked for us at least in this last quarter.

So Sherry, going back to your core philosophy, it's always been passing cost savings on to the consumer to generate higher revenues. I assume that hasn't changed and that some of the better margins you're getting, you might pass on. Or should I not think...

No. Absolutely, absolutely. With better margins, we have the opportunity to put that back into the value that we're able to provide to our members which then only increases our capabilities to leverage our buying and buy even better and drive more volume. It also enhances the value of the membership itself which is motivate our members to want to renew and new members, new people, to want to become the members because they're going to see very strong value proposition.

Okay. And one last question. Your technology spending going forward, how do you see it versus this year, the level of spending? Are you going to continue at the pace you're at? Or will you see some -- deacceleration or impact -- maybe see some acceleration of that spending?

That area is under serious evaluation at this time. I can say that it's safe to assume that there's not going to be a dramatic change one way or the other. We are taking a measured approach, I think you can tell already, but we're trying to make sure that we're focusing on the first priority is to increase our growth in our sales and operate as efficiently as possible. But I think the short answer is I wouldn't expect a dramatic change one way or the other.

Our next question comes from Rodrigo Echagaray with Scotiabank.

A couple of questions on my end. Can you perhaps quantify or maybe put into context some of the cannibalization you expect? Which regions or countries do you believe they will be more susceptible to cannibalization from the store openings? That's my first question. And then the second question is with regards to membership prices. Renewal rates are improving, same-store sales are improving. And it's been a while, I believe, since you have any increases on the membership prices. Are you -- do believe there is an opportunity on that front? And I have a third question but maybe perhaps that could wait.

Okay. With regard to the regions, I think the best guidance I can give you on that is to just look at the geographies that we've announced where we're opening and their proximity to existing locations. There is several of our openings that are going to be in more remote areas like Liberia that has a several hour commute from the nearest club. And then there's those that are more in the heart of where existing clubs currently exists like the one, I was just at, Metropark in Panama. And so there's going to be some variability from market to market, depending on the proximity and the catch, the membership catch pool that we'll be drawing from. With regards to membership fee, we are reviewing that and this is one where our philosophy is basically, we give before we get. We give to our members to make sure that they are confident that they're getting value by being part of our membership group and part of our family. And as we see that, that value proposition is growing, then we feel that it may be appropriate to adjust our membership fee. And that, again, is an analysis that is done market by market, although we try to keep it within a narrow band. And we do see potential opportunity, but our intention is to give before we get. And as we can justify in our professional relationship with our members, that we've earned the right to increase the membership, we will do so and hopefully they will continue to see the value in paying that membership because they will have access to everything that we can provide them.

Got it. That makes sense. And then finally, can you maybe talk a little bit about, on the smaller stores, from your experience so far, I think part of the also rationale behind the smaller stores is the fact that you could have extended catalog online. And perhaps some of those, some of that inventory, those sitting in the store, could now be online. Have you -- can you comment on what have you seen on that front so far?

Well, that's part of what we're testing right now with our Bolivar club. And we are learning a lot from it. What I can share with you is that by the end of FY 2020, we expect to have an extended catalog as well as full inventory for at least our Spanish-speaking market. And that should provide us opportunity to augment the shopping experience for our members in these smaller real estate footprints, these smaller formats. That's a way of doing it. We're exploring different alternatives. There's many different ways to accomplish this, including click-and-collect. And -- but all of these different approaches has to be technologically enabled, and that's where our focus is right now.

This concludes our question-and-answer session. I would like to turn the conference back over to Sherry Bahrambeygui for any closing remarks.

I just want to thank everyone for the support, both within our teams and for our investors, and I wish you a good day.

Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.