PriceSmart Announces Second
Quarter Results of Operations
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 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
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.
For further
information, please contact Robert E. Price, Chief Executive Officer (858)
551-2336; or John M. Heffner, Executive Vice President and Chief Financial
Officer (858) 404-8826.
PRICESMART, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)