Good afternoon, everyone, and welcome to PriceSmart, Inc.'s Earnings Release Conference Call for the Second Quarter of Fiscal Year 2022, which ended on February 28, 2022. After remarks from our company's representatives, Ms. Sherry Bahrambeygui, Chief Executive Officer; and Michael McCleary, Chief Financial Officer, you will be given an opportunity to ask questions as time permits. As a reminder, this conference call is limited to 1 hour and is being recorded today, Friday, April 8, 2022. A digital replay will be available following the conclusion of today's conference call, through April 15, 2022, by dialing 1 (877) 344-7529 for domestic callers or 1 (412) 317-0088 for international callers and by entering the replay access code 5341114. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Thank you, and welcome to the PriceSmart earnings call for the second quarter of fiscal year 2022. We will be discussing the information that we provided in our earnings press release and our 10-Q, which were both released yesterday afternoon, April 7, 2022. You can find these documents on our Investor Relations website at investors.pricesmart.com, where you can also sign up for e-mail alerts. As a reminder, all statements made on this conference call other than statements of historical fact are forward-looking statements concerning the company's anticipated plans, revenues and related matters. Forward-looking statements include, but are not limited to, statements containing the words expect, believe, plan, will, may, should, estimate and some other expressions. All forward-looking statements are based on current expectations and assumptions as of today, April 8, 2022. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the company's most recent annual report on Form 10-K and other filings with the SEC which are accessible on the SEC's website at www.sec.gov. These risks may be updated from time to time. The company undertakes no obligation to update forward-looking statements made during this call. Now, I will turn the call over to Sherry Bahrambeygui, PriceSmart's Chief Executive Officer.

Thank you, Michael. Good day, everyone, and welcome to our second quarter fiscal 2022 earnings call. We had a quiet quarter and with net merchandise sales surpassing $1 billion for the first time and membership setting historical records, we're feeling very positive about our results. During the second quarter, our total membership base has grown to more than 1.7 million accounts. That represents growth of 7.3% versus last year. Our membership 12-month renewal rate was 89.8%, reaching our highest rate ever -- our highest renewal rate ever. Membership income was $15.1 million, an increase of 9.2% over the same period last year. Our headline numbers all grew over the prior comparable period. In terms of the bigger picture, I think it's also worth noting that the results of this quarter are being compared to a quarter last year in which significant growth was achieved relative to the same quarter in FY '20. Versus the same period last year, net merchandise sales increased by 12.6%. Comparable net merchandise sales increased by 10.3%. Operating income grew 7.4%, and that's despite currency headwinds, which impacted total and comparable net merchandise sales by 3% and 2.7%, respectively. Earnings grew 11.4% to $31.5 million versus $28.2 million for the same quarter last year. Driven by strong sales, the team at PriceSmart has delivered record earnings per share of $1.03 during the second quarter. This is versus $0.92 in Q2 of last year. So now let's look forward a little bit into Q3. During March, ending on March 31, 2022, total net merchandise sales were $338 million, an increase of 9.9% over the same period in the prior year. And comparable net merchandise sales for the four week period, ending March 27, 2022 week period increased over 9. 8% compared to the comparable period last year.…

I think it's 14%. It's 14% to 15%.

Just wanted to verify it. 14% of our total membership base has made a purchase on pricesmart.com and the average for online purchases on pricesmart.com in Q2 was 9.3% higher than the average in us for in-club purchases. So we're seeing a material difference in the average ticket size for members who are buying online versus those who are buying in club, which presents additional opportunity. Also encouraging is that 7.5% of our total membership base is signed up with our auto renewal option. What does that mean? They provided their e-mail and opted to have their renewal automatically charged on their anniversary, and they've also provided a payment measure for that charge. That goes a long way in terms of protecting membership income and ensuring that membership income leakage is reduced. We're feeling solid about our progress in this area and are proud of what our tech and membership and finance teams have all made possible in a relatively short period of time. So lastly, I'd like to talk about ESG and sustainability, which continues to be a cornerstone of the PriceSmart philosophy. PriceSmart is committed to fostering a healthy environment for our employees, members, vendors, communities and the world around us. The company's actions and practices aim to responsibly use natural resources and focus on environmental impact and social well-being. In FY '21, the company formed PriceSmart's ESG department to develop, track and measure the company's sustainability and social responsibility efforts. One of the principal objectives of this theme of our team is to find, prevent and control environmental impact generated by our operations as well as to work to adapt and mitigate the impact of climate change. ESG continues to develop and evolve for everyone, and we are also growing and evolving with our efforts. So we continue relentlessly to supply our values every day to improve the lives the businesses and the communities of our members. I want to thank our over 10,000 employees, our executives, whether in San Diego, Miami, throughout all of our markets where we operate for continuing to build on this momentum and showing us that we have more and more opportunities to do better and better and serve our members every day. Your commitment is really a source of great appreciation in our relation. Thank you again, team. And I'll hand it back to you, Michael.

Thank you, Sherry. Good morning or afternoon to everyone, and thanks for joining us today to talk about our record setting second quarter. As Sherry mentioned, we are very excited to have crossed the $1 billion sales threshold for the first time this quarter, with total revenues and net merchandise sales coming in at $1.04 billion and $1.01 billion, respectively, representing increases of 10.8% and 12.6% over the comparable prior year period, respectively. We ended this quarter with 49 warehouse clubs compared to 47 warehouse clubs at the end of the second quarter of fiscal 2021. And we are also very excited about reaching the milestone of 50 clubs when we open our second club in Jamaica next week. Our comparable net merchandise sales growth for our fiscal second quarter was 10.3% for the 13 weeks ended February 27, 2022. Foreign currency fluctuations had a negative impact on net merchandise and comparable net merchandise sales growth of 3% and 2.7% or approximately $26.3 million and $24.2 million, respectively. By segment, in Central America, where we had 27 clubs at quarter end, net merchandise sales increased 13.6%, with a 10.6% increase in comparable net merchandise sales. Foreign currency fluctuations had a negative impact on net merchandise and comparable net merchandise sales growth in Central America of approximately 1.8% and 1.9% during the quarter, respectively. All of our markets in Central America had positive comparable net merchandise sales growth except for Guatemala, which had a small negative comp due to sales transfers from other clubs following the opening of our new Aranda Club. In the Caribbean region, where we had 13 clubs at quarter end, total net merchandise sales increased 13%, and comparable net merchandise sales increased 13.1%. All of our markets in the Caribbean had positive comparable net merchandise sales growth…

[Operator Instructions]. Our first question will come from Jon Braatz with Kansas City Capital.

Good morning, Sherry, Mike. Just touch -- want to touch base on the gross margins, 40 basis point and sort of COVID related costs per impact. And I'm curious, are we going to see that continue, the sort of that 40 basis point reduction going forward? Or have you recovered those costs, so to speak?

Yes, as far as just backing up the total revenue margins, as I mentioned, the 40 basis points decrease there, the Aeropost, was basically offset by costs. So your particular question was on gross margin. And we highlighted a couple of things there, which was the COVID related premium that we're charging. That was offset by cost, right? So that essentially should be basically neutral at the operating income level. But yes, as hopefully our COVID costs continue to wind down, we would expect to wind down that. Just as a reminder, I mean, we do have also the FX premium that is being incurred in Trinidad for imported merchandise there. We have not -- year-on-year, that's not a factor at this point, but if things continue to improve at some point that may come down further as it's not a normal part of our cost plus operations that we need to do for now to cover. And then the other thing was just the flow of freight and some markdowns that we had during Q2, and it's not necessarily atypical to see some markdowns in the Q2 period as we work through our holiday merchandise. But -- yes, we still -- as you've seen, we still have a good set of merchandise, which we're working through the holiday that the amateur holiday season now. So we're still working to with that and then certainly expect to be back on track -- at this point, we're estimating to definitely be back contract by Q4.

It's important also to remember the context of our business model. As we make the effort to drive volume and get better pricing, that gives us the opportunity to compress margins. So we focus on margin dollars as opposed to necessarily the margin percentage. And the flip side to that is as we get more involved in sourcing and developing our own products because we think we can achieve something better than what is already out there or that we're already doing. Sometimes that requires an investment on our part that justifies a different margin structure. And so you will see that as our business becomes -- as we're adding more dimensions to our business and going deeper and trying to develop quality and good pricing in the most efficient way, there will be occasions when certain areas will have a higher margin structure because we're directly getting involved in going higher into the supply chain and making investments to handle more of the production and the development of the product. And sometimes you're going to see that it's going to be compressed because we are gaining volume. And as we gain volume, which is the name of the game for us, we are generating more margin dollars, which allows us to then provide better value because we can buy better value for the members, which then in turn sees the success of the business by making the membership more valuable. So I just want to elaborate on that point because unlike some other retailers, it's -- if you just look at the margin from quarter-to-quarter and you're not looking deeper or understanding that there are different dynamics in the way we're developing and providing products to the members today that we didn't do years ago. I don't know that looking at just the margin percentage like that is going to be as informative, that's -- I just wanted to give you that color.

One other question on -- Michael -- or Sherry, when do you think maybe that pricing premium in Trinidad may begin to fade? What's going to take -- what is it going to take to see prices come down a little bit and -- selling prices come down a little bit in Trinidad?

Yes. Yes, Jon, I mean we talk about this every quarter. We're obviously monitoring it very closely internally. Certainly, as I've mentioned before, it's not something we would hope to keep for the long term, but there's a lot of uncertainty out there right now. And we've made significant progress from our peak of over $100 million of TT dollars on hand to 35. But even -- and our imports are kind of -- are relatively balanced right now with the availability of dollars. But we're also making profits in local currency. So -- which is a good thing, right? So we have to balance just the uncertainty in the market and work through our dollars on hand. So it's obviously something we're monitoring. We are still incurring costs also to convert. And that may -- there may be some form of that for a long time. Whether it's at the same levels or not, we'll have to see.

We will be reducing that at the first opportunity that we feel we can responsibly do so, again to keep the prices down.

And then, Sherry, I may have misunderstood you. I think, initially, you talked a little bit about March sales. And I think you said total sales were up 9.9% and comps were up 9.8%. Was that right?

Let me see here. And go back to -- I want to make sure I'm giving you the exact right.

Yes, that's right.

Yes, that's right. The total sales 338.1 million was an increase of 9.9% and then the 4-week period ending comp net merchandise sales was 9.8%.

I know there is a lot that goes into this calculation, but you have 3 stores that are not in the comps right now. Why weren't -- and I know there was some -- why weren't sales up more than the comps?

Well, there's multiple reasons. First of all, we've got several new clubs that we're still dealing with the transfer of sales. Then we're also -- we also have newer clubs that just are not at the level that we could say is normalized. Michael, do you have anything to add to that?

There's, I think, 4 days this month that we're off there. As far as Sunday to Sunday, you've also got the whole Semana Santa timing which really makes March and April on an individual month basis hard to compare. So we usually look at March and April combined. I want to put that out there because that was what we had as of today.

Our next question will come from Rodrigo Echagaray with Scotiabank.

Congrats on the results. I want to start with the e-commerce or online sales. The fact that 15% or 14% of total members are -- it's a small percentage in terms of the full potential, which is obviously great. And also that carries a higher ticket, if I understood correctly. So I guess the first question is, how does the basket, the average basket, in terms of the type of products differs from the basket at the club? And a follow-up on that would be what kind of opportunities do you see beyond growing the number of online users that are existing shoppers at the store in terms of the SKUs or even higher ticket items? That would be my first questions.

Well, in terms of the basket, especially early on in this process, we were a bit surprised to see that there was more in terms of typical grocery items than we would have expected for online. That has been shifting and this is an area that we're studying right now because we still have a ways to go on our e-com in terms of both the online platform and in terms of the merchandise and that's a very high priority for us right now to make sure that our online is offering the right items that would be most conducive for sales online. We -- at this point, it's not far beyond being able to offer what we have in club, but the opportunity to have extended SKUs, the opportunity to have items that are online only, we are currently in the midst of working on that right now. So I do think we have more potential. And it varies. I mean, during Smart Week or doing certain types of promotions, you'll see electronics go up substantially online, the tickets, the basket will have items that are being marketed aggressively because of Smart Week and it's convenient for people to get it online and have it delivered. But in terms of the concept of what more can we do online, what I'd like to say is we've got a foundation right now that is functioning well. But in terms of building out all the opportunities where there could be expansion of our online sales is -- we're still building.

Got it. And I think you mentioned earlier, Sherry, that you were thinking about -- and I think you've mentioned this in the past, but wanted to pick your brain on this is a bit, that you see the online operations as perhaps a different way to tackle new markets, even if there are no stores currently there. Is this something that perhaps is more around adjacent geography within Colombia or can you maybe touch on that a little bit more in depth?

Yes. There are opportunities. As our online presence grows, and our members recognize that they can basically access merchandise via online in a very comfortable and reliable manner, we have -- with regard to existing markets, let's say, for example in Colombia, we have members that have membership with us that are 2 to 4, 6 hours away from the nearest club. So just imagine, and their membership is housed at the location where we have the brick-and-mortar. So just imagine the opportunity that exists and basically the data that we can track to see what concentration of membership we have in what geographies and what areas of the market? And if we were to have a physical club there, how successful do lease would be. I mean, it gives us great insights. Or alternatively, if we were to be able to set it up so that delivery became a very cost -- there was a very cost-effective way for us to leverage and create memberships in those other markets where there's other -- where there's concentration and have a greater presence virtually or with a dark store initially, these are all the things that are -- having the online capabilities, having the data and having the brick-and-mortar work together, that present themselves. And each situation is different. And some we may look at and conclude no, this is at a point where we should really just go straight to brick-and-mortar and another we may to say, this is one where we're seeing substantial sales generated from a club that is several hours away to be supported with delivery with a streamlined system that we make very efficient, but may not yet be at a level where it warrants investing in a brick-and-mortar. But again, once there's more activity and the member just grow and people see the value that we offer that can help support the justification of even another brick and mortar.

Got it. In terms of the renewal rates, I mean, obviously, record high. Can you highlight any specific market where the renewal rates are particularly strong?

I don't think we do that. Sorry, Rodrigo.

Okay, that’s fine. No worries. No. No, I get it. And then lastly, you early were going into a more -- into more depth on the strategy of absolute dollars versus margin, which obviously, it's a big difference versus other formats and retailers. In this quarter, I would say, contrary to prior years where there was record sales but not necessarily a record EPS. This quarter, the -- that flew nicely to the bottom line. And I know this is a very broader question, but any thoughts on that?

Any thoughts on what?

Just the relative performance or the EPS is definitely -- this quarter, it seems to me that the operating leverage and the absolute dollar revenue amount was -- did flow nicely this quarter. What do you see that going forward? Or any thoughts on the drivers behind that? And I know there's no guidance, but any thoughts forward-looking would be appreciated.

So without giving guidance, I mean, you know all the things that go into EPS. But starting with just what we talked about, this concept is lowering costs -- lowering prices, right? Again, this is going right back to our roots, to fix right. Lowering the prices as a result of being able to operate more efficiently as a result of all the work that's being put into becoming if you were more innovative in the way we do business, but getting our hands into developing our own products, doing more of those types of things. If the end result is we can make our prices more compelling without compromising the quality to the member, that should drive volume. If that drives volume, that should drive more expense savings for us and it should result in greater margin dollars. So it's sort of a win-win-win, if you will. The other part is that if members are able to continue to see increasing benefits and marketing benefits through how PriceSmart does business, the way we take care of them during COVID, the way we are focusing on well-being, the ethics by which we operate, the increased services and convenience for their experience, whether it's in the club or it's online or through delivery, the more valuable that membership becomes -- the more valuable the membership becomes, the more reliable the membership income. And then there's the technical approach. You auto renew -- this is not something we had before. You auto renew, someone commits to that, put their credit card down right at the beginning, there's no risk of losing -- having leakage between the time that they last remember and they came back to shop and then renew their membership. So all of these things add up. It's not like…

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

I'd just like to thank all of our shareholders and the people who have interest in our stock that are taking the time to listen to our journey and all the exciting things that we're doing. Our team is really energized. We're excited about the future, and we especially believe that we've got an important role as a company and an employer and a provider of goods in today's world and the environment that we're in. So thank you for joining us, and we look forward to seeing you next quarter.

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