PriceSmart 3Q Beats Estimates On Continued Operating Strength

Singular Research recent sent a note to clients on PriceSmart, Inc.'s (PSMT) 3Q earnings. Key excerpts follow:   

OVERVIEW

PriceSmart’s fiscal Q3:08 results handily beat our estimates as total sales for the quarter rose 23.7%, to $250.4 million. Total warehouse club sales were up 26.5%, to $283.7 million, driven both by stronger traffic and higher average ticket. Membership revenue jumped 15.5%, to $4.1 million as membership increased 11.4% during the quarter, to 583 thousand members, and average membership fees rose approximately 10%. Operating EPS came in at $0.36, far exceeding our $0.26 estimate, as higher sales, SG&A leverage and a lower tax rate drove upside to our model. EPS were also aided by a one time $2 million expense reversal relating to a settlement agreement with RSC, S.A. Overall it appeared to be another solid quarter for the company, with comps remaining above 20% and margins continuing to expand nicely.

Looking ahead, we see momentum for the company continuing through fiscal 2008 and into fiscal 2009. While comps will become more challenging through the year, we continue to think PriceSmart can generate overall same store sales growth of at least 13.2% for the year, which is what we have modeled. We note, of course, that this is much lower than the 20%+ rate of comps the company has achieved in the past several months. Cash flow and balance sheet metrics also remained sound. Cash from operations was a positive $8.1 million in Q3:08, up from a use of $1.2 million in Q3:07. Accounts receivable declined 48.9%, to $2.3. Inventories increased 24%, to $112.2 million. Overall, the net trade cycle for the company declined by over 4 days, to 12.8 and working capital excluding cash and debt stood at just over $8 million at quarter end. We reiterate a BUY rating and $37 price target on PriceSmart shares, and would use the current price weakness amid the market’s recent sell-off as a buying opportunity.

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