Good afternoon, everyone, and welcome to PriceSmart, Inc.'s Earnings Release Conference Call for the Second Quarter of Fiscal Year 2023, which ended on February 28, 2023. After remarks from our Company's representatives Robert Price, Interim 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 one hour and is being recorded today, Tuesday, April 11th, 2023. A digital replay will be available following the conclusion of today's conference call through April 18th, 2023 by dialing 1-877-344-7529 for domestic callers or 1-412-317-0088 for international callers and by entering the replay access code 6733003. For opening remarks, I would like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Thank you, operator, and welcome to the PriceSmart earnings call for the second quarter of fiscal year 2023 that ended on February 28th, 2023. 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 10th, 2023. You can find these documents on our Investor Relations website at investors.pricesmart.com, where you can also sign up for email 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 similar expressions. All forward-looking statements are based on current expectations and assumptions as of today, April 11th, 2023. 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, the quarterly report on Form 10-Q filed yesterday, 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 Robert Price, PriceSmart's Interim Chief Executive Officer.

I want to begin by thanking our management team and all of our over 10,000 PriceSmart employees for their dedication and many contributions to our Company's progress. Our financial results for the second quarter and first six months of fiscal 2023 have been highlighted by solid sales and earnings growth, improved inventory turns, and a strong balance sheet. Our focus continues to be on the basics. Inventory flow, in-stock position, new products, expenses, sales on PriceSmart.com, improvements to our warehouse club locations, identifying opportunities for new locations and investing in efficiencies driven by improved processes and technology. Speaking to technology, I am pleased to announce that we have engaged Wayne Sadin as a consultant to support our Information Technology function, reporting to our Executive Vice President and Chief of Staff. Wayne will be working with our team in identifying opportunities to continue optimizing and transforming how we deliver on our value proposition and how we leverage technology to drive business process improvement and enhance the member experience. Since December of 2022, I have taken a more active management role, while officially taking on the Interim CEO position in early February. My takeaways from these past few months include my appreciation for the way in which our management team is taking responsibility for its various areas of responsibility. My other main takeaway is how much opportunity we continue to have to grow our business in a healthy way for the long-term benefit of our members, our employees, our shareholders, and for the communities in which we do business. For me, personally, I am grateful to be leading a company that does so much for so many people.

Thank you, Robert. We had an outstanding second quarter with both total revenues and net merchandise sales exceeding $1.1 billion. Net merchandise sales increased by 10.3% after a negative 0.2% currency impact and comparable net merchandise sales increased by 8.5% after taking into account a negative 0.2% currency impact. By segment, in Central America, where we had 27 clubs at quarter-end, net merchandise sales increased 13% with a 13.1% increase in comparable net merchandise sales for that region. All of our markets in Central America had positive comparable net merchandise sales growth. Our Central America segment contributed approximately 770 basis points of positive impact to our total consolidated comparable net merchandise sales for the quarter. In the Caribbean, where we had 14 clubs at quarter-end, net merchandise sales increased 13.2% and comparable net merchandise sales increased 6.9% for that region, with the exception of Jamaica, where we opened a new club last year. All of our markets in this segment had positive comparable net merchandise sales growth. Our Caribbean region contributed approximately 200 basis points of positive impact to total consolidated comparable net merchandise sales for the quarter. In Colombia, where we had nine clubs open at quarter-end, net merchandise sales decreased 10.8% and comparable net merchandise sales decreased 10.6% for that region. The decrease in Colombia during the quarter was primarily due to the significant foreign currency devaluation that negatively impacted net merchandise sales by 18.1% and comparable net merchandise sales by 18.2%. The comparable net merchandise sales decreased in Colombia, driven by the significant devaluation of the Colombian peso, contributed approximately 120 basis points of negative impact to total consolidated comparable net merchandise sales for the quarter. In terms of merchandise categories, when comparing our second quarter sales to the same period in the prior year, our foods…

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Hector Maya with Scotiabank. Please go ahead.

Hi. Thank you very much for the call. I just have a couple of questions. The first one, if you could please give us more details on the magnitude of the margin pressure that we could expect during the second half of the year and some initiatives that you could be implemented in Colombia to offset the headwinds from high inflation and FX weakness? And then I'll come back with a follow up.

Yeah, this is Robert Price, and I don't know that we are comfortable giving you a specific number. I would say, though, that something to understand about the margin approach in the club business and I was taught this by my father even back to FedMart days, is that you have to price the merchandise as if you're buying it, right? And one of the challenges we have in Colombia, this really relates to the imports where we're struggling because the imports are most impacted by the currency and also because imports give us the greatest differentiation with competitors. We have very sophisticated competitors in Colombia, is the fact that because we have not been generating the volume on the imports, we haven't been landing them at the prices that I think we could land them at if we had the volume. So it's part of the approach in terms of becoming more competitive on the imports is to increase the volume so that the buying can improve, the distribution and freight can improve and that we continue to differentiate ourselves from competitors and strengthen our market position for the long haul. And in particular, when we talk about opening the new location in Medellin, which is a very, very important location for us, we want to be well ahead in terms of how we're pricing imports so that we can get the maximum benefits in sales from the new location in Medellin. But I don't think it would be prudent for us to give you specific numbers on what that margin change could look like.

Understand that. Thank you very much for that. Makes sense. So talking about the new store in Medellin and going back to the growth algorithm from new stores, I mean, we saw that your plans for Salvador imply that there will be two new stores in the next 12 months. And I mean could you tell us what has changed there to accelerate openings and what other markets could also see an acceleration in new stores? And also, if there is a smaller store format, that is something that we could be expecting as a new trend in the short-term?

Okay. Why don't you take them one at a time? You threw a lot in there. Can you go back and start with your first question?

Yeah, sorry for that. So talking about the new store in Medellin, I'm wondering if, looking at, for example, El Salvador, there will be two new stores in the next 12 months. So just want to understand what has changed in El Salvador particularly to accelerate the openings, because I understand that you had just two stores in El Salvador since 2000, since the year 2000. So just want to understand why the acceleration in that particular market?

Okay. You're talking specifically about El Salvador. We've done well in El Salvador in terms of the two locations we have. And I think as we were more thoughtful in thinking about cities outside of San Salvador, we recognize that there are these two cities that are pretty sizable cities that also receive a lot of remittances from the United States. And we believe that we probably have been a little tardy in opening in those two cities. So I think it's really a recognition that there's more opportunity in El Salvador than what we have up to now taken advantage of.

Yeah, I mean, that's great. So that's why I also I'm wondering if you could also believe that you could have other opportunities like in El Salvador, but in other countries, because probably we could talk about several different cities in which you could also have opportunities to open more stores. Is that something that you are also thinking about?

We definitely are in existing markets, particularly in Central America and some extent in the Caribbean, considering the opportunity for additional clubs. I think one thing to keep in mind is that we want to have a good return when we open any new location and we have a very - where our capital goes in. This company is primarily to real estate and secondarily to fixtures and equipment. And so when we are thinking about expansion, we've been really trying to figure out how do we leverage down the cost of these fixed capital investments in a smart way, so that we can get the returns that we think our shareholders are entitled to? And I think we've made some progress in that area.

All right. Are there different factors that we could be thinking of, if we do this analysis going city by city, what should be the main factors that we would need to be looking at to say, hey, probably there is a higher opportunity in these area than these other area. Just to try to understand if we can be able to see how you would be expanding in the future, considering that you have this new push.

Yeah. We’re - I don't think we're going to give you specifics like that. We're constantly evaluating our markets to the extent that we are better merchants and generating more sales in existing clubs within certain markets that then can lead to additional locations because of the fact that we have created sufficient volume to warrant the investment in additional locations. But that's a market by market analysis. And the other thing to keep in mind is that all of this has to be paired with the distribution centers because the distribution centers give us the ability to leverage down our fixed cost in the club locations and also hopefully to get better terms on our inventory, which reduces our working capital requirement.

All right. But in the end, should we still think about two new stores per year as it's been happening over the last decade? Or maybe we could be looking at a higher number than two stores per year from now on?

Well, I'm not going to say respond to that. We're going to be prudent in how we do things and we're going to monitor the situation as we go, and we'll do the best we can. I think we're trying to be very responsible managers of this business. And we're somewhat we're going to be prudent.

Great. Great. Excellent. Thank you very much, Mr. Price for all your answers. Very clear. Thank you.

[Operator Instructions] Our next question will come from Jon Braatz with Kansas City Capital. You may now go ahead.

Good morning, Robert, Michael.

Good morning.

Good morning, Jon.

On the last conference call, you mentioned that you noted that December comps were up 10%. And I guess if you do the arithmetic, that means January and February comps were about 7%. And you mentioned that March was 6%. Obviously, we hear a little bit of -- sort of negative news here domestically, some of the retailers having a little bit tougher time. What can you tell me about the sort of the macro environment? And is this the sales trend weakening a little bit because it's just a little bit tougher out there?

Oh, boy. That's a -- I think that we're not immune to the macro factors that affect probably the whole hemisphere in terms of the interest rates, inflation, the things that you're well aware of. And that's certainly a factor for us. So I don't -- I just don't know exactly how to respond to that question because some of it is external to what we can control and other parts of it. I think hopefully we can do a better job in the way we price and merchandise. And particularly in one thing I was going to mention, you know, earlier when Hector asked his question and I'll mention this to you, I think something that's underappreciated about our company is the impact that we have through our business to business sales on small businesses in many of our markets. We are a very important factor to helping small businesses get started and sustain in terms of purchasing. And because many of these markets are underserved when it comes to the distribution aspects of their economies, and that's an area that I think we haven't we have a wonderful man that's helping us here in the company develop that area along with our merchandising people. And I think we have a great opportunity, even notwithstanding the fact that it is a tougher economy, economic environment. I think we have a lot of opportunity in our business side to do a lot more. And I think that area, because it's mainly consumables that is impacted by some of the other factors that might affect the non-foods area.

Okay. Thank you. Two follow-up questions. Robert, if you could maybe comment on any comment on the new CEO search. And Michael, obviously, in the first half of the year and this quarter particularly cash flow was fantastic. How do you see working capital investment in the second half of the year? Obviously, you got some new stores coming on stream. And but how do you see that the level of working capital needs in the second half?

Michael, do you want to take that?

The CEO transition or the working capital?

Oh, no, the working capital. See, I don't know what the question was about the CEO, but he mentioned specifically a question about working capital.

I'll take working capital first. So, yeah, Jon, I mean, I think you can see I mean, we need to highlight Q3 and Q4 last year, right? As we were coming out of Q2 last year, we were at a significantly higher inventory level. And that's what resulted in the Q3 and Q4 markdowns that we took. I think we've highlighted that from a margin perspective. We don't expect to repeat that, although, we have the other competing pressures in places like Colombia. But as far as working capital goes, I mean, we're much tighter and we're much leaner. We're keeping an eye on things. We want to make sure we don't overdo it and end up with out of stocks on important key commodities and things like that. So that's always a balancing act. But, yeah, I think what you're seeing is the big turnaround effect year-on-year versus where we were going into Q3 and Q4 last year versus a rein that back for this Q2.

Okay. Thank you.

Q4, as usual, we'll be ramping up for our upcoming holiday period. But I think that's those are the big messages.

Okay. Thank you, Michael. Anything on the new CEO search?

Well, nothing to report. You still got the old CEO, Interim CEO. So I don't think we have anything new to report. That's really something that we will continually monitor with our board who's, you know, I guess my boss.

All right. Thank you.

This concludes our question-and-answer session. I would now like to turn the call back to management for any closing remarks.

Okay. Thank you, everybody. That's the end of our conference call today and thank you very much for joining us. Take care. Goodbye.

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