In the last 10 quarters, PriceSmart, Inc. (NASDAQ:PSMT) has rewarded investors by returning more than 430%. This terrific performance has raised investors’ expectations, and the upcoming third-quarter results, due to be released on July 10, will play a crucial role in determining whether PriceSmart, Inc. (NASDAQ:PSMT) can maintain the momentum or not.
Let’s dive deeper to see what can be expected of PriceSmart and whether or not it can continue to deliver and maintain a positive outlook for the future.
About revenue
Over time, the company has reported the following sales figures:
for the month of May 2013, net sales increased 14.8% to $187.5 million from $163.4 million in May a year earlier.
for the month of April 2013, net sales increased 10.7% to $176.1 million from $159.1 million in April a year earlier.
for the month of March 2013, net warehouse club sales increased 11.5% to $192.3 million, from $172.4 million in March a year earlier.
Further, PriceSmart, Inc. (NASDAQ:PSMT) is expected to post revenue of $568.33 million, which, if accomplished, would be a growth of 12.1% from the year-ago period revenue of $506.77 million. As the company itself has reported sales of $555.9 million, I believe achieving this revenue estimate won’t be difficult, keeping in mind that the company also collects membership fees.
About earnings
Analysts are expecting PriceSmart, Inc. (NASDAQ:PSMT) to earn $0.64 a share, which is way above the $0.52 a share the company had earned in the same period last year. The bottom-line estimate has been kept almost the same by analysts, with a downward adjustment of just a penny in the last 90 days. Further, the company has beaten analysts’ estimates for the last three quarters, and keeping that in mind, there is a chance that it might even do it again in this quarter.
PriceSmart’s operating profit growth has been in high double-digits over the past five years, and the operating profit margin has also increased decently every year. However, over the last three years operating profit margin has leveled around 5.3%. This is on the higher side over the period of the last five years, but I believe if the company opens new facilities then it is possible to boost its margins.
Outlook
PriceSmart, Inc. (NASDAQ:PSMT) could be considered a smaller version of warehouse club leader, Costco Wholesale Corporation (NASDAQ:COST). The company currently operates with 31 warehouse clubs in 12 nations and one U.S. territory. PriceSmart’s revenue in the last five years has grown at 10.76% and is expected to grow in the coming quarters at about 13%.
Over the past five years, the company’s EPS has grown at a rate of 22.39%, and in the coming five years it is expected to grow at 20%. The company has been slow but steady in expanding in the past, and moving forward it has the potential to expand in more countries. Moreover, PriceSmart can grow in places where it already has its footing by opening new facilities.
Colombia: Tremendous potential
As per SEC filings, Worldbank estimates Colombia’s population is almost 80% of the total population of all the Central American and Caribbean countries put together in which PriceSmart currently operates. Further, the GDP per capita of Colombia is $7,104, compared to an average $4,515 in other Central American and Caribbean. As the company currently operates with only two warehouse clubs in Colombia, the country offers a lot of growth potential in the long run and could almost double its top-line.
The Leader
PriceSmart’s warehouse club model is somewhat similar to Costco Wholesale Corporation (NASDAQ:COST)’s business model. Costco operates primarily in the U.S., while PriceSmart is considered the Costco of Latin America. In 2012 PriceSmart’s sales per square foot were over $1,000 while Costco’s sales per square foot were around $814. PriceSmart, Inc. (NASDAQ:PSMT) no doubt was a better performer last year, but it is comparatively in the early stage of its business cycle, while Costco Wholesale Corporation (NASDAQ:COST) is a more matured company.
Costco’s membership model is a great success. It has brand-loyal customers, which can be gauged by the high membership renewal rate of 86.4%. Further, paying a membership fee works on a person’s psychology, and they intend to buy goods from Costco so as to derive value from their membership.
In the last five years Costco’s revenue has grown 7.9% and earnings surged 18.9% on a year-over-year basis. Analysts predict 13.5% growth per year during the next five years and revenue growth of 6.9% for the full year. The company is expanding well overseas, and has a lot of opportunity to increase its operations outside the U.S. Costco’s e-commerce business sales increased 20% in its last quarter on a comparative basis. The warehouse giant is a definite value addition to an investor’s portfolio.
Another specialty discounter’s earnings release
Unlike PriceSmart, Inc. (NASDAQ:PSMT), Family Dollar Stores, Inc. (NYSE:FDO)’ earnings, due to be released on July 9, are not being met with positive vibes. Year-to-date, the stock price has remained almost flat and, moreover, in the last year the company has missed analysts’ estimates three out of four times. To add to the misery, the company has been slashing its own guidance in the last two quarters.
The company is expected to post revenue of $2.57 billion, which, if achieved, would be a growth of 8.9% compared to the year-ago period. And on the bottom-line, analysts expect Family Dollar Stores, Inc. (NYSE:FDO) to report EPS of $1.03, which would be 3% lower than the same period last year.
Family Dollar’s gross margins have been falling, which has put the company in a difficult spot. The company has, no doubt, expanded its non-consumables sales but failed to sell higher-margin products to its customers. Although its revenue grew, an increase in sales of lower margin products is affecting its profitability.
Further, the company’s balance sheet is also in bad shape. It has an extremely low quick ratio of 0.30. Family Dollar Stores, Inc. (NYSE:FDO), as of March 2013, had $189 million in cash and cash equivalents, while its payables were over $1 billion. The company’s short-term debt has increased more than 10 times in the last nine months, suggesting that Family Dollar might be struggling to pay its short-term obligations.
Final words
PriceSmart, Inc. (NASDAQ:PSMT) has performed extremely well in the past couple of years, and going forward it gives its investors a positive outlook. I completely believe in the company’s potential to grow in the future, but that does not mean that the stock price will appreciate at the same pace. PriceSmart is a good investment for those who are willing to bet on the Latin American markets.
The article Earnings Preview: PriceSmart originally appeared on Fool.com and is written by tarun bachhawat.
tarun bachhawat has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale (NASDAQ:COST) and PriceSmart. The Motley Fool owns shares of Costco Wholesale. tarun is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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