PriceSmart Announces Second Quarter Results of Operations
PriceSmart, Inc. (NASDAQ: PSMT) (www.pricesmart.com) today announced its results of operations for the second quarter of fiscal year 2008 which ended on February 29, 2008.
For the second quarter of fiscal year 2008, net warehouse club sales increased 27.1% to $288.2 million from $226.7 million in the second quarter of fiscal year 2007. Total revenues for the second quarter increased 26.7% to $293.8 million, compared to $231.9 million in the prior year. The Company had 25 warehouse clubs in operation as of February 29, 2008 compared to 23 warehouse clubs in operation as of February 28, 2007.
The Company recorded operating income in the second quarter of $10.7 million compared to operating income of $9.6 million in the second quarter of the prior year. Net income was $9.5 million, or $0.33 per diluted share, in the second quarter of fiscal year 2008 compared to $6.5 million, or $0.22 per diluted share, in the second quarter of fiscal year 2007.
For the first six months of fiscal year 2008, net warehouse club sales increased 25.6% to $533.4 million from $424.8 million in the first six months of fiscal year 2007. Total revenues for the first half of the fiscal year increased 25.3% to $544.3 million from $434.4 million in the same period of the prior year. For the first six months of fiscal year 2008, the Company recorded operating income of $20.9 million and net income of $16.2 million, or $0.56 per share. During the same six month period in fiscal year 2007, the Company recorded operating income of $16.8 million and net income of $10.6 million, or $0.36 per share.
Included in the results for the second quarter and first six months of fiscal year 2008 are pre-tax charges and income tax benefits related to the Company’s settlement of previously announced disputes pursuant to a Settlement Agreement and Release with PSC, S.A. and related entities dated February 8, 2008, net of a $5.5 million reserve established in the fourth quarter of fiscal year 2007. The amount of the reserve was equal to management’s estimate at that time of the potential impact of a global settlement on PriceSmart’s net income. In the second quarter of fiscal year 2008, the Company recorded an additional pre-tax charge of $3.4 million, offset by a benefit to provision for income tax of $1.7 million, resulting in a net reduction in net income in the quarter of $1.7 million. Included in the pre-tax charge of $3.4 million, and not affecting the income tax benefit, is a charge of $2.2 million related specifically to the fair market value of put rights granted by the Company to PSC as part of the overall settlement. The closing price of the Company’s common stock on February 29, 2008 was $24.26. The Settlement Agreement and Release provides that, subject to PSC’s commercially reasonable efforts to sell, during a 60-day period commencing February 8, 2008, 679,500 shares of the Company’s common stock held by PSC at a price at or above $25.00 per share, the Company and PSC will enter into a Put Agreement covering any of the 679,500 shares that PSC owns at the end of such period. The Put Agreement, in turn, will require PSC to use commercially reasonable efforts to sell the shares subject to the Put Agreement during a period of 60 days from the date of the Put Agreement. At the end of such period, PSC may require the Company to purchase at $25.00 per share any of those shares which may remain unsold at the conclusion of that period. The value of the put rights was initially measured at February 8, 2008 (the date of the settlement) and modified as of February 29, 2008 (the end of the fiscal quarter) based on the closing price of PriceSmart’s common stock on that date using the Black-Scholes method of valuation and applied to 679,500 shares that were subject to the put rights. The Company will continue to employ “mark-to-market” accounting in valuing the put rights. If PSC is successful in selling all of the subject shares in the open market, or if PSC decides to hold those shares beyond the 120-day period and not exercise its put rights, then the Company will ultimately record no cost associated with the put and realize a $2.2 million gain in the Company’s third and/or fourth quarter of fiscal year 2008, offsetting the charge taken in the current (second) quarter. Conversely, if PSC, having used commercially reasonable efforts to sell its shares of the Company’s common stock at or above a price of $25.00 per share during the 120-day period beginning February 8, 2008, were not able to sell all of the subject shares and elected to exercise its put rights, the Company would realize a charge equal to the difference between the then-market value of the shares and $25.00 applied to all of the unsold shares. This charge could be more or less than the charge already recorded and would result in either a further charge to the Company’s reported third quarter earnings or reversal of some portion of the charge already taken.
As of March 31, 2008, the closing price of PriceSmart common stock was $27.71 and the Company has been informed that 199,789 shares of PriceSmart common stock have been sold by PSC and are no longer subject to the put rights. As a result, the fair market value of the put rights was $1.1 million as of March 31, 2008, or $1.1 million less than the charge recorded in the second quarter.
About PriceSmart
PriceSmart, headquartered in San Diego, owns and operates U.S.-style membership shopping warehouse clubs in Central America and the Caribbean, selling high quality merchandise at low prices to PriceSmart members. PriceSmart now operates 25 warehouse clubs in 11 countries and one U.S. territory (four each in Panama and Costa Rica; three each in Guatemala and Trinidad, two each in Dominican Republic, El Salvador and Honduras; and one each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands).
This press release may contain forward-looking statements concerning the Company’s anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,”"believe,”"will,”"may,”"should,”"project,”"estimate,”"scheduled,” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the following risks: the Company’s financial performance is dependent on international operations which exposes the Company to various risks; any failure by the Company to manage its widely dispersed operations could adversely affect the Company’s business; the Company faces significant competition; the Company faces difficulties in the shipment of and inherent risks in the importation of merchandise to its warehouse clubs; the Company is exposed to weather and other risks associated with international operations; declines in the economies of the countries in which the Company operates its warehouse clubs would harm its business; a few of the Company’s stockholders have control over the Company’s voting stock, which will make it difficult to complete some corporate transactions without their support and may prevent a change in control; the loss of key personnel could harm the Company’s business; the Company is subject to volatility in foreign currency exchange; the Company faces the risk of exposure to product liability claims, a product recall and adverse publicity; a determination that the Company’s long-lived or intangible assets have been impaired could adversely affect the Company’s future results of operations and financial position; and the Company faces increased compliance risks associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002; as well as the other risks detailed in the Company’s SEC reports, including the Company’s Annual Report on Form 10-K filed pursuant to the Securities Exchange Act of 1934 on November 29, 2007. We assume no obligation and expressly disclaim any duty to update any forward-looking statement to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.
PRICESMART, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED – AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended Six Months Ended ——————– ——————– Feb. 29, Feb. 28, Feb. 29, Feb. 28, 2008 2007 2008 2007 ——— ——— ——— ——— Revenues: Sales: Net warehouse club $ 288,216 $ 226,722 $ 533,405 $ 424,822 Export 340 171 707 266 Membership income 3,975 3,421 7,717 6,662 Other income 1,313 1,543 2,426 2,604 ——— ——— ——— ——— Total revenues 293,844 231,857 544,255 434,354 ——— ——— ——— ——— Operating expenses: Cost of goods sold: Net warehouse club 245,333 192,959 453,844 361,457 Export 320 168 669 260 Selling, general and administrative: Warehouse club operations 26,024 21,749 49,251 42,042 General and administrative 7,870 6,877 15,186 12,845 Preopening expenses 215 23 987 255 Asset impairment and closure costs 14 472 33 663 Provision for settlement of litigation, including changes in fair market value of put agreement 3,386 — 3,386 — ——— ——— ——— ——— Total operating expenses 283,162 222,248 523,356 417,522 ——— ——— ——— ——— Operating income 10,682 9,609 20,899 16,832 Other income (expense): Interest income 364 479 774 843 Interest expense (470) (90) (529) (445) Other income (expense), net (37) (36) (84) (22) ——— ——— ——— ——— Total other income (expense) (143) 353 161 376 ——— ——— ——— ——— Income from continuing operations before provision for income taxes, loss of unconsolidated affiliate and minority interest 10,539 9,962 21,060 17,208 Provision for income taxes (890) (3,219) (4,605) (6,192) Loss of unconsolidated affiliate — (99) — (183) Minority interest (160) (128) (290) (262) ——— ——— ——— ——— Income from continuing operations 9,489 6,516 16,165 10,571 Discontinued operations, net of tax 27 28 45 46 ——— ——— ——— ——— Net income $ 9,516 $ 6,544 $ 16,210 $ 10,617 ========= ========= ========= ========= Basic income per share: Continuing operations $ 0.33 $ 0.23 $ 0.56 $ 0.37 Discontinued operations, net of tax — — — — ——— ——— ——— ——— Net income $ 0.33 $ 0.23 $ 0.56 $ 0.37 ========= ========= ========= ========= Diluted income per share: Continuing operations $ 0.33 $ 0.22 $ 0.56 $ 0.36 Discontinued operations, net of tax — — — — ——— ——— ——— ——— Net income $ 0.33 $ 0.22 $ 0.56 $ 0.36 ========= ========= ========= ========= Shares used in per share computations: Basic 28,848 28,477 28,815 28,441 ========= ========= ========= ========= Diluted 29,233 29,224 29,207 29,153 ========= ========= ========= ========= Dividends per share $ 0.32 $ 0.32 $ 0.32 $ 0.32 ========= ========= ========= ========= PRICESMART, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED – AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) February 29, August 31, 2008 2007 ———- ———– ASSETS Current Assets: Cash and cash equivalents $ 25,912 $ 32,065 Short-term restricted cash 6,693 8,046 Receivables, net of allowance for doubtful accounts of $11 and $3 in 2008 and 2007, respectively 1,888 2,705 Merchandise inventories 109,301 95,979 Prepaid expenses and other current assets 16,510 15,777 Assets of discontinued operations 1,540 1,380 ———- ———– Total current assets 161,844 155,952 Long-term restricted cash 590 477 Notes receivable 2,040 2,086 Property and equipment, net 199,255 179,985 Goodwill 38,609 31,652 Deferred tax assets 20,194 19,535 Other assets 3,538 3,732 Investment in unconsolidated affiliate — 2,000 ———- ———– Total Assets $ 426,070 $ 395,419 ========== =========== LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Short-term borrowings $ 3,917 $ 3,301 Accounts payable 92,755 80,633 Accrued salaries and benefits 6,383 6,962 Deferred membership income 7,920 6,634 Income taxes payable 2,834 4,593 Accrued reserve for settlement of litigation, including fair market value of put agreement 8,358 5,500 Common stock subject to put agreement 16,988 — Other accrued expenses 10,686 18,564 Dividend payable 9,391 4,678 Long-term debt, current portion 1,805 1,411 Liabilities of discontinued operations 119 151 ———- ———– Total current liabilities 161,156 132,427 Deferred tax liability 1,663 1,474 Deferred rent 1,895 1,977 Accrued closure costs 2,992 3,072 Long-term income taxes payable 6,504 — Long-term debt, net of current portion 15,582 8,008 ———- ———– Total liabilities 189,792 146,958 Minority interest 269 3,145 Stockholders’ Equity: Common stock, $0.0001 par value, 45,000,000 shares authorized; 30,210,255 and 29,815,435 shares issued and 29,691,311 and 29,339,211 shares outstanding (net of treasury shares), respectively 3 3 Additional paid-in capital 354,623 369,848 Tax benefit from stock-based compensation 4,830 3,970 Accumulated other comprehensive loss (12,762) (12,343) Accumulated deficit (99,268) (106,087) Less: treasury stock at cost; 518,944 shares and 476,224 shares as of February 29, 2008 and August 31, 2007, respectively (11,417) (10,075) ———- ———– Total stockholders’ equity 236,009 245,316 ———- ———– Total Liabilities and Stockholders’ Equity $ 426,070 $ 395,419 ========== ===========
For further information, please contact: Robert E. Price Chief Executive Officer (858) 551-2336 John M. Heffner Executive Vice President and Chief Financial Officer (858) 404-8826.
SOURCE: PriceSmart, Inc.