Release Date: April 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net merchandise sales increased by 13% or 9% in constant currency during the second quarter.
- Comparable net merchandise sales increased 8.8% or 5.2% in constant currency for the second quarter.
- Membership accounts grew 5% versus the prior year to almost 1.9 million accounts with a strong 12-month renewal rate of 88.3%.
- Membership income for the second quarter was $18.5 million, an increase of 14.6% over the same period last year.
- Operating income for the quarter increased 18.2% from the same period last year to $63.6 million.
Negative Points
- Total gross margin for the second quarter as a percentage of net merchandise sales decreased 30 basis points to 15.7%.
- General and administrative expenses increased to 3% of total revenues for the second quarter compared to 2.8% for the same period last year.
- A net loss of $7.1 million in total other expense was recorded for the second quarter, primarily due to increased foreign currency revaluation losses.
- The effective tax rate for the second quarter came in lower at 30.5% versus 34% a year ago, primarily due to non-recurrence of CEO separation costs.
- Challenges in meeting high sales volumes during December put stress on management and operational capacity.
Q & A Highlights
Q: Can you speak a little bit about the challenges faced in December and if it resulted in additional costs?
A: Robert Price, Interim CEO, explained that certain locations experienced volumes beyond physical limitations, putting stress on managers. However, it did not result in additional expense, and the management team handled it well with expenses in line.
Q: Can you speak about the Colombian market and the economic environment there?
A: Robert Price, Interim CEO, mentioned improvements in Colombia both politically and financially, benefiting the company. They've adjusted margins and pack sizes, which has strengthened their market position. Finding locations in big cities remains a challenge, but they are working on it.
Q: Would you expect any cannibalization from the new Costa Rican store opening?
A: Robert Price, Interim CEO, acknowledged some sales transfer but expects quick backfilling of sales. The new club should help improve overall sales volume and distribution in Costa Rica.
Q: What is the whitespace potential for new openings in countries like El Salvador, Guatemala, or Jamaica?
A: Robert Price, Interim CEO, sees opportunities in these countries and is looking for the right properties. He feels positive about the region, especially with production moving from Asia to the local region.
Q: Can you provide more details on the increase in general and administrative expenses?
A: Michael McCleary, EVP and CFO, mentioned reviewing compensation levels and incurring some nonrecurring professional fees. They are investing in IT and management, and while G&A may fluctuate, the goal is to leverage it as a percentage of sales.
Q: Can you share further details on the performance seen in other income and expenses, particularly the spike in other expenses during the quarter?
A: Michael McCleary, EVP and CFO, attributed the increase to unrealized losses on USD cash balances in Costa Rica due to the strengthening of the local currency and extra costs to convert illiquid currencies like those in Honduras and Trinidad into USD.
Q: Given the currency issues in Honduras, have you implemented any pricing actions?
A: Michael McCleary, EVP and CFO, confirmed some pricing actions in Honduras to cover extra costs from currency illiquidity. They are reviewing various ways to balance the challenge without harming the business long-term.
Q: Are all the membership increases fully in place as of this time?
A: Michael McCleary, EVP and CFO, stated that most membership increases are in place, but not all details about specific countries have been disclosed.
