PriceSmart Investor Relations

PriceSmart Investor Relations
July 2016
Forward Looking Statements
This presentation 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, anticipated, scheduled, and like expressions, and the negative thereof. These forward-looking statements include, but are not limited to, statements
containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “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: our financial performance
is dependent on international operations, which exposes us to various risks; any failure by us to manage our widely dispersed operations could adversely affect
our business; we face significant competition; future sales growth depends, in part, on our ability to successfully open new warehouse clubs and grow sales in
our existing locations; we might not identify in a timely manner or effectively respond to changes in consumer preferences for merchandise, which could
adversely affect our relationship with members, demand for our products and market share; although we have begun to offer limited online shopping to our
members, our sales could be adversely affected if one or more major international online retailers were to enter our markets or if other competitors were to offer
a superior online experience; our profitability is vulnerable to cost increases; we face difficulties in the shipment of and inherent risks in the importation of,
merchandise to our warehouse clubs; we are exposed to weather and other natural disaster risks; general economic conditions could adversely impact our
business in various respects; we are subject to risks associated with possible changes in our relationships with third parties with which we do business, as well
as the performance of such third parties; we rely extensively on computer systems to process transactions, summarize results and manage our business; failure
to adequately maintain our systems and disruptions in our systems could harm our business and adversely affect our results of operations; we could be subject
to additional tax liabilities; a few of our stockholders own approximately 26.0% of our voting stock as of May 31, 2016, which may make it difficult to complete
some corporate transactions without their support and may impede a change in control; failure to attract and retain qualified employees, increases in wage and
benefit costs, changes in laws and other labor issues could materially adversely affect our financial performance; we are subject to volatility in foreign currency
exchange rates; we face the risk of exposure to product liability claims, a product recall and adverse publicity; any failure to maintain the security of the
information relating to our company, members, employees and vendors that we hold, whether as a result of cybersecurity attacks on our information systems,
failure of internal controls, employee negligence or malfeasance or otherwise, could damage our reputation with members, employees, vendors and others,
could cause us to incur substantial additional costs and to become subject to litigation and could materially adversely affect our operating results; we are subject
to payment related risks; changes in accounting standards and assumptions, estimates and judgments by management related to complex accounting matters
could significantly affect our financial condition and results of operations; we face increased public company compliance risks and compliance risks related to our
international operations; if remediation costs or hazardous substance contamination levels at certain properties for which we maintain financial responsibility
exceed management's current expectations, our financial condition and results of operations could be adversely impacted. The risks described above as well as
the other risks detailed in the Company's U.S. Securities and Exchange Commission (“SEC”) reports, including the Company's Annual Report on Form 10-K filed
for the fiscal year ended August 31, 2015 filed on October 29, 2015 pursuant to the Securities Exchange Act of 1934.
The statements and information in the presentation are current only as of its date, and we do not undertake to subsequently update them.
This presentation may include certain non‐GAAP financial measures such as Adjusted EBITDA intended to supplement, not substitute for, comparable GAAP
measures. Reconciliations of non‐GAAP financial measures to GAAP financial measures are provided at the end of the presentation. Investors are urged to
consider carefully the comparable GAAP measures and the reconciliations to those measures provided.
For further information, please contact John M. Heffner, Principal Financial Officer and Principal Accounting Officer (858) 404- 8826
2
Introduction to Pricesmart
1
Company Overview
2
Current Business Update
3
Appendix
3
Company Overview
Our Heritage
5
Today, PriceSmart is a Leading Pan-Regional
Membership Warehouse Club Operator
Business Overview
(1)
 U.S.-style Membership warehouse club operator
―





First club opened in 1996 in Panama
― Company went public in 1997
― Nasdaq Global Select Market (PSMT)
Headquarters and primary DC in the U.S.
$2.6Bn+ market cap
TTM Sales of $2.8Bn
― 95K total transactions per day
― Annual average sales: $73.5MM/club
38 warehouse clubs across 13 countries
― 2.7MM+ sq ft (48,000 to 100,000 per club)
― 78% of clubs’ real estate is owned
1.5MM membership accounts
― Over 2.8MM card holders
― 88% renewal rate in established markets
(excludes Colombia)
Pan-Regional Presence
Los Angeles – Distribution Center
San Diego – Headquarters
Miami – Primary Distribution Center
Mexico – Distribution Center
Jamaica (1)
USVI (1)
Guatemala (3)
El Salvador (2)
(1) Data as of 02/29/16
Honduras (3)
Barbados (1)
Aruba (1)
Nicaragua (2)
Trinidad (4)
Costa Rica (6)
Panama (5)
Colombia (6)
Net Warehouse Sales Breakdown
Business
20%
Retail
80%
Note:
Dominican
Republic (3)
Source: Company estimates
Caribbean
30%
Colombia
10%
Central America
60%
Source: 10-Q FY2016
6
Historical Perspective
1996-2002
2003-2005
2006-2010
2011-2016
Future
Rapid Unit Expansion
Transition / Inward
Focus
Back to Organic
Growth
Good Cash Flow / New
Markets
Continue Investments


Closed nonperforming clubs


Entered Colombia

Additional capacity


Operational improvements
Exited markets
(Philippines,
Guam, Mexico)

Expanded to 6
locations in the
country

New warehouse clubs
Established
presence in
Caribbean and
CEAM markets


($MM)
4,000

3,500
Focused on
merchandising,
operations and
membership
Recapitalization of
Company with
rights offering
3,000
Added clubs in
larger markets
SSS growth of
20.1%, 8.7%, and
8.2% in 2008,
2009, and 2010,
respectively
($MM)
―
Established
markets
―
Colombia
4,000
3,500
3,000
2,500
2,500
2,000
2,000
1,500
1,500
1,000
1,000
500
Market Cap
has increased
approximately
30x since 1998
500
0
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Market Cap
LTM Revenue
7
Attractive Warehouse Club Facilities
Exteriors
Interiors
8
Differentiated Merchandising Strategy
Multi-Sourcing / Multi-Category
Sales Breakdown
Locally
Sourced
Softlines
Consistent Brand Management
Other
Food
2%
6%
Hardlines
•
Average of 2,200 SKUs per club
•
40 - 50% imported brands
12%
52%
48%
54%
26%
US and
Internationally
Sourced
Sundries
Brand 4
Successful Private Label Business
•
Treasure Hunt Concept Drives Avg. Ticket
~10% of sales
Picture 1
Picture 2
Picture 3
9
Generating Membership Value and Loyalty
Facts

Membership Type
Targets higher income and upper-middle class
families

Over 2.8MM total cardholders

1.5MM total membership accounts

88% annual renewal rate (excluding Colombia)

Offers co-branded credit card in nearly all of the
Company’s markets at reduced or zero annual fee
Diamond
94% of Accounts
Business
6% of Accounts
Membership Growth
Increase from
$30 to $35
Membership Growth (%)
30.0
25.0
20.0
15.0
16.1
16.0
13.0
8.0
10.0
Renewal Rate (%)
100
25.7
Open 3 clubs
95
in Colombia
90
13.5
10.0
85
7.9
80
5.0
0.0
75
2008
2009
2010
Total Membership Growth
2011
2012
2013
Renewal Rate
2014
2015
Platinum
(Costa Rica)
Description

2.6MM cards

1.4MM membership
accounts

Annual fee of $35 (most
markets)

0.2MM cards

0.1MM membership
accounts

Annual fee of $30 plus $10
for add-on memberships

Introduced in Oct. 2012

Annual fee of $75 with
2% rebate up to $500

Considering additional
country inclusions in
FY2017
10
Current Business Update
Recent Financial Performance
For the Nine Month Period Ending May 31, 2016…
―
Net warehouse sales increased 4.4% over comparable period a year earlier.
―
Membership income increased 6.3% to $34.2 million
 Total accounts grew 3.3% to 1,477,303
 12-Month Renewal Rate of 80% (87% excluding Colombia)
―
Warehouse gross profits as a percent of net warehouse sales were 14.2%, a
decrease of 52 basis points year on year.
―
Operating income of $103.9 million compared to $$111.5 million a year ago.
―
Net income for 9-Month period was $66.5 million, or $2.19 per diluted share
compared to $66.7 million, or $2.20 per diluted share.
―
Cash and cash equivalents of $202.6 million
―
Total debt of $97.7 million
12
Colombia Challenges
PriceSmart views Colombia as a very good
market for the Company in the long-term:
COP to USD
4000
3500
3000
―
We are willing to accept lower margins during
this time of currency volatility to build our
business.
―
Sourcing an increasing number of high quality
products within Colombia at a good value.
2500
2000
1500
1000

APR
FEB
MAR
JAN
DEC
SEP
OCT
JUL
AUG
JUN
APR
FY2016
MAY
FEB
MAR
DEC
OCT
NOV
SEP
AUG
JAN
FY2015
0
NOV
500
The devaluation of Colombia peso (COP) has
had a measurable effect on the consolidated
financial results of the Company
―
Imported merchandise price increases impacts
demand
―
Sales and Membership results are translated to fewer
US dollars
―
Q2 US$ Sales declined 32% from year earlier
Locally sourced merchandise sales grew 9% in
Q2 (in COP)
―
New members sign-ups at 3 of the Colombia
clubs were the highest of any of our clubs in
Q2.
―
Expansion of warehouse club in Barranquilla
includes the addition of a parking deck.
―
Colombia warehouse club #7 (Chia, north of
Bogota) will open in September
13
Current Investments / Focus Areas
Distribution Network and Capabilities
Warehouse Club Capacity and Growth
E-Commerce Platform Enhancement
Colombia
14
Well-Developed Distribution Network
Key Facts
Distribution Network
 Five DC’s in North America, Costa Rica, Colombia,
Trinidad and Panama for imported merchandise
―
Totaling approximately 450,000 square feet
―
One DC located Mexico City to reduce crossborder tariffs for certain items
―
Costa Rica, Colombia, and Panama DC’s
enable direct shipments from suppliers
Dominican
Republic (3)
Guatemala (3)
 Core competency of international shipping and local
import logistics expertise
EL Salvador (2)
Jamaica (1)
Honduras (3)
Aruba (1)
Nicaragua (2)
Costa Rica (6)
 Managed sourcing logistics from over 20 countries
USVI (1)
Barbados (1)
Trinidad (4)
Panama (5)
Colombia (6)
 Executes over 20,000 ocean-container shipments
annually
 Staff of 250 dedicated logistics associates in 13
countries
Primary DC
Other / Regional DCs
 Recently announced the planned acquisition of
build-to-suit distribution center in Miami for
improved efficiency and long-term stability
15
Warehouse Club Growth
 Two new warehouse clubs successfully
opened in the past 12 months
―
Costa Verde, Panama (June 2015)
―
Masaya, Managua, Nicaragua
(November 2015)
Masaya, Managua, Nicaragua
 Land was acquired and construction is
nearing completion of a warehouse club in
Chia, Colombia
―
September 2016 opening
 Looking to expand existing warehouse
clubs where the site allows for that
expansion
―
Chia, Colombia
Barranquilla, Colombia
 Capital investment expected to be
approximately $45M for second half of
fiscal year 2016.
Barranquilla, Colombia
16
E-Commerce: www.pricesmart.com
17
Appendix
Historical Growth Performance
Same Store Sales Growth (1)
Net Warehouse Club Sales (1)
%
$Bn
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1.1
1.2
1.4
1.7
2.2
2.0
2.4
2.7
20
20.1
18.1
8.7
10
Total Units (1)
8.2
9.0
4.8
2.7
2008 2009 2010 2011 2012 2013 2014 2015
Total Membership Income & Accounts
50
40
25
26
(1)
$MM
# Warehouse Clubs
27
29
29
31
33
37
38
20
10
0
2008 2009 2010 2011 2012 2013 2014 2015 2016
50
40
30
20
10
0
MM
34
20
16
18
0.6
0.7 0.7
23
38
27
0.8 1.0
44
1.5
1.1 1.2
2.0
1.0
0.0
2008 2009 2010 2011 2012 2013 2014 2015
Membership Fee Income
Notes:
14.5
0
2008 2009 2010 2011 2012 2013 2014 2015
30
10.8% Average
30
Membership Accounts
(1) Fiscal years
19
Historical Earnings Performance
EBITDA Margin (1)(2)
EBIT Margin (1)(2)
%
%
8
5.4
6
5.8
6.4
6.4
6.4
6.6
6.6
6.5
6
5.6
5.3
4
5
5.2
5.3
5.5
5.3
4.7
4.4
2
0
4
2008 2009 2010 2011 2012 2013 2014 2015
Diluted EPS (1)
2008 2009 2010 2011 2012 2013 2014 2015
ROIC (1)(3)
$
%
4
3.07 2.95
2.78
3
1.65
1.29 1.43
2
2.07 2.24
1
0
25
20
15
10
5
0
2008 2009 2010 2011 2012 2013 2014 2015
Notes:
(1) Fiscal years
(2) Excludes asset impairment and closure costs and provisions for pending litigation
(3) ROIC = EBIT * (1 - Effective Tax Rate) / (Net PPE + Net Working Capital + Goodwill)
16.8 18.4 17.0 16.2
15.6
13.9 14.4 13.9
2008 2009 2010 2011 2012 2013 2014 2015
20
Adjusted EBITDA Reconciliation
Fiscal Year Ended
($MM)
Net income, as reported
Aug-08
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
38
42
49
62
68
84
93
Discontinued ops
0
0
(0)
0
0
-
-
Net income attributable to NCI
0
0
0
-
-
-
-
Losses of unconsolidated affiliates
-
0
0
0
0
0
(0)
(1)
3
1
(1)
5
5
4
9
13
23
27
35
39
41
11
14
15
21
24
24
28
Asset impairment and closure costs
1
(0)
0
-
-
-
-
Provision for pending litigation
1
-
-
-
-
-
-
61
73
89
110
132
152
167
Total other income (expense)
Provision (benefit) for income taxes
Depreciation & amortization
Adj. EBITDA
21