x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
February 28, 2023 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 33-0628530 9740 Scranton Road, San Diego, CA 92121 (Address of principal executive offices) (Zip Code) Title of each class Trading Symbol Name of each exchange on which registered Common Stock, $0.0001 par value PSMT NASDAQ Global Select Market Large accelerated filer Accelerated filer Non-accelerated filer o Smaller Reporting Company No March 31, 2023. Page May 31, 2022 August 31, (Unaudited) 2021 ASSETS Current Assets: Cash and cash equivalents $ 207,528 $ 202,060 Short-term restricted cash 2,986 3,647 Short-term investments 19,767 50,233 Receivables, net of allowance for doubtful accounts of $50 as of May 31, 2022 and $94 as of August 31, 2021, respectively 14,569 12,359 Merchandise inventories 460,962 389,711 Prepaid expenses and other current assets (includes $1,550 and $0 as of May 31, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments) 44,059 39,194 Total current assets 749,871 697,204 Long-term restricted cash 12,203 9,772 Property and equipment, net 765,034 730,204 Operating lease right-of-use assets, net 114,775 123,655 Goodwill 43,347 45,095 Other intangibles, net 1,153 7,762 Deferred tax assets 27,990 24,225 Other non-current assets (includes $5,410 and $2,464 as of May 31, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments) 66,852 57,329 Investment in unconsolidated affiliates 10,538 10,544 Total Assets $ 1,791,763 $ 1,705,790 LIABILITIES AND EQUITY Current Liabilities: Short-term borrowings $ 15,336 $ — Accounts payable 393,536 388,791 Accrued salaries and benefits 40,411 41,896 Deferred income 29,648 26,898 Income taxes payable 8,292 8,310 Other accrued expenses and other current liabilities 35,387 39,736 Operating lease liabilities, current portion 7,442 8,526 Dividends payable 13,430 — Long-term debt, current portion 34,275 19,395 Total current liabilities 577,757 533,552 Deferred tax liability 2,000 1,568 Long-term income taxes payable, net of current portion 5,550 4,160 Long-term operating lease liabilities 121,583 129,256 Long-term debt, net of current portion 108,182 110,110 Other long-term liabilities (includes $1,048 and $3,010 for the fair value of derivative instruments and $7,445 and $7,380 for post-employment plans as of May 31, 2022 and August 31, 2021, respectively) 8,493 10,930 Total Liabilities 823,565 789,576 Stockholders' Equity: Common stock $0.0001 par value, 45,000,000 shares authorized; 31,688,311 and 31,467,971 shares issued and 30,930,527 and 30,755,308 shares outstanding (net of treasury shares) as of May 31, 2022 and August 31, 2021, respectively 3 3 Additional paid-in capital 477,281 465,015 Accumulated other comprehensive loss (193,148) (182,508) Retained earnings 713,444 658,919 Less: treasury stock at cost, 757,784 shares as of May 31, 2022 and 712,663 shares as of August 31, 2021 (29,382) (26,084) Total stockholders' equity attributable to PriceSmart, Inc. stockholders 968,198 915,345 Noncontrolling interest in consolidated subsidiaries — 869 Total Stockholders' Equity 968,198 916,214 Total Liabilities and Equity $ 1,791,763 $ 1,705,790 See accompanying notes. Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2022 2021 2022 2021 Revenues: Net merchandise sales $ 999,011 $ 857,478 $ 2,954,950 $ 2,594,251 Export sales 13,396 10,213 32,604 30,800 Membership income 15,440 14,329 45,302 41,427 Other revenue and income 2,963 13,244 11,867 43,787 Total revenues 1,030,810 895,264 3,044,723 2,710,265 Operating expenses: Cost of goods sold: Net merchandise sales 856,812 720,726 2,503,638 2,179,453 Export sales 12,805 9,820 31,087 29,568 Non-merchandise — 5,755 1,809 17,847 Selling, general and administrative: Warehouse club and other operations 96,081 89,322 281,270 264,603 General and administrative 30,887 33,225 96,531 92,016 Pre-opening expenses 306 1 1,406 651 Loss on disposal of assets 157 366 881 568 Total operating expenses 997,048 859,215 2,916,622 2,584,706 Operating income 33,762 36,049 128,101 125,559 Other income (expense): Interest income 473 518 1,540 1,454 Interest expense (2,796) (1,596) (6,824) (5,857) Other expense, net (2,423) (2,295) (1,833) (4,132) Total other expense (4,746) (3,373) (7,117) (8,535) Income before provision for income taxes and loss of unconsolidated affiliates 29,016 32,676 120,984 117,024 Provision for income taxes (9,776) (10,082) (39,729) (38,265) Gain (loss) of unconsolidated affiliates 18 (13) (6) (34) Net income 19,258 22,581 81,249 78,725 Less: net income attributable to noncontrolling interest — (52) (19) (223) Net income attributable to PriceSmart, Inc. $ 19,258 $ 22,529 $ 81,230 $ 78,502 Net income attributable to PriceSmart, Inc. per share available for distribution: Basic $ 0.62 $ 0.73 $ 2.63 $ 2.55 Diluted $ 0.62 $ 0.73 $ 2.63 $ 2.55 Shares used in per share computations: Basic 30,615 30,414 30,582 30,396 Diluted 30,629 30,446 30,588 30,423 Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2022 2021 2022 2021 Net income $ 19,258 $ 22,581 $ 81,249 $ 78,725 Less: net income attributable to noncontrolling interest — (52) (19) (223) Net income attributable to PriceSmart, Inc. $ 19,258 $ 22,529 $ 81,230 $ 78,502 Other Comprehensive Income, net of tax: Foreign currency translation adjustments (1) (9,401) (3,007) (15,119) (2,577) Defined benefit pension plan: Net gain arising during period 5 3 42 65 Amortization of prior service cost and actuarial gains included in net periodic pensions cost 34 33 98 99 Total defined benefit pension plan 39 36 140 164 Derivative instruments: (2) Unrealized gains/(losses) on change in derivative obligations 272 (667) (147) 488 Unrealized gains on change in fair value of interest rate swaps 355 1,048 4,486 1,377 Total derivative instruments 627 381 4,339 1,865 Other comprehensive loss (8,735) (2,590) (10,640) (548) Comprehensive income 10,523 19,939 70,590 77,954 Less: comprehensive income attributable to noncontrolling interest — 33 3 91 Comprehensive income attributable to PriceSmart, Inc. $ 10,523 $ 19,906 $ 70,587 $ 77,863 (1)Translation adjustments arising in translating the financial statements of a foreign entity have no effect on the income taxes of that foreign entity. They may, however, affect: (a) the amount, measured in the parent entity's reporting currency, of withholding taxes assessed on dividends paid to the parent entity and (b) the amount of taxes assessed on the parent entity by the government of its country. The Company has determined that the reinvestment of earnings of its foreign subsidiaries are indefinite because of the long-term nature of the Company's foreign investment plans. Therefore, deferred taxes are not provided for on translation adjustments related to non-remitted earnings of the Company's foreign subsidiaries. Three Months Ended Total Accumulated Stockholders' Additional Other Equity Common Stock Paid-in Comprehensive Retained Treasury Stock Attributable to Noncontrolling Total Shares Amount Capital Loss Earnings Shares Amount PriceSmart, Inc. Interest Equity Balance at February 28, 2021 31,452 $ 3 $ 454,881 $ (174,778) $ 616,943 675 $ (22,781) $ 874,268 $ 983 $ 875,251 Purchase of treasury stock — — — — — 3 (335) (335) — (335) Issuance of restricted stock award 4 — — — — — — — — — Stock-based compensation — — 4,931 — — — — 4,931 — 4,931 Dividend paid to stockholders — — — — — — — — (87) (87) Net income — — — — 22,529 — — 22,529 52 22,581 Other comprehensive income (loss) — — — (2,590) — — — (2,590) 33 (2,557) Balance at May 31, 2021 31,456 $ 3 $ 459,812 $ (177,368) $ 639,472 678 $ (23,116) $ 898,803 $ 981 $ 899,784 Balance at February 28, 2022 31,626 $ 3 $ 473,277 $ (184,413) $ 694,186 755 $ (29,169) $ 953,884 $ — $ 953,884 Purchase of treasury stock — — — — — 3 (213) (213) — (213) Issuance of restricted stock award 63 — — — — — — — — — Forfeiture of restricted stock awards (1) — — — — — — — — — Stock-based compensation — — 4,004 — — — — 4,004 — 4,004 Net income — — — — 19,258 — — 19,258 — 19,258 Other comprehensive loss — — — (8,735) — — — (8,735) — (8,735) Balance at May 31, 2022 31,688 $ 3 $ 477,281 $ (193,148) $ 713,444 758 $ (29,382) $ 968,198 $ — $ 968,198 PRICESMART, INC. Nine Months Ended Total Accumulated Stockholders' Additional Other Equity Common Stock Paid-in Comprehensive Retained Treasury Stock Attributable to Noncontrolling Total Shares Amount Capital Loss Earnings Shares Amount PriceSmart, Inc. Interest Equity Balance at August 31, 2020 31,418 $ 3 $ 454,455 $ (176,820) $ 582,487 747 $ (28,406) $ 831,719 $ 1,013 $ 832,732 Purchase of treasury stock — — — — — 27 (2,574) (2,574) — (2,574) Issuance of treasury stock (96) — (7,864) — — (96) 7,864 — — — Issuance of restricted stock award 137 — — — — — — — — — Forfeiture of restricted stock awards (3) — — — — — — — — — Stock-based compensation — — 13,221 — — — — 13,221 — 13,221 Dividend paid to stockholders — — — — (10,762) — — (10,762) (346) (11,108) Dividend payable to stockholders — — — — (10,755) — — (10,755) — (10,755) Net income — — — — 78,502 — — 78,502 223 78,725 Other comprehensive income (loss) — — — (548) — — — (548) 91 (457) Balance at May 31, 2021 31,456 $ 3 $ 459,812 $ (177,368) $ 639,472 678 $ (23,116) $ 898,803 $ 981 $ 899,784 Balance at August 31, 2021 31,468 $ 3 $ 465,015 $ (182,508) $ 658,919 713 $ (26,084) $ 915,345 $ 869 $ 916,214 Purchase of treasury stock — — — — — 54 (3,997) (3,997) — (3,997) Issuance of treasury stock (9) — (699) — — (9) 699 — — — Issuance of restricted stock award 234 — — — — — — — — — Forfeiture of restricted stock awards (5) — — — — — — — — — Stock-based compensation — — 12,678 — — — — 12,678 — 12,678 Dividend paid to stockholders — — — — (13,275) — — (13,275) — (13,275) Dividend payable to stockholders — — — — (13,430) — — (13,430) — (13,430) Net income — — — — 81,230 — — 81,230 19 81,249 Other comprehensive income (loss) — — — (10,640) — — — (10,640) 3 (10,637) Sale of Aeropost stock — — 287 — — — — 287 (891) (604) Balance at May 31, 2022 31,688 $ 3 $ 477,281 $ (193,148) $ 713,444 758 $ (29,382) $ 968,198 $ — $ 968,198 Nine Months Ended May 31, May 31, 2022 2021 Operating Activities: Net income $ 81,249 $ 78,725 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 50,258 48,350 Allowance for doubtful accounts 10 19 Loss on sale of property and equipment 881 568 Deferred income taxes (3,241) (2,748) Equity in losses of unconsolidated affiliates 6 34 Stock-based compensation 12,678 13,221 Change in operating assets and liabilities: Receivables, prepaid expenses and other current assets, non-current assets, accrued salaries and benefits, deferred membership income and other accruals (16,133) 6,147 Merchandise inventories (71,257) (27,136) Accounts payable 9,860 (37,213) Net cash provided by operating activities 64,311 79,967 Investing Activities: Proceeds from the disposal of Aeropost, net of divested cash 4,959 — Additions to property and equipment (98,562) (73,350) Purchases of short-term investments (22,442) (58,355) Proceeds from settlements of short-term investments 53,058 37,605 Purchases of long-term investments — (1,479) Proceeds from settlements of long-term investments 1,486 1,479 Proceeds from disposal of property and equipment 97 109 Net cash used in investing activities (61,404) (93,991) Financing Activities: Proceeds from long-term bank borrowings 30,633 3,000 Repayment of long-term bank borrowings (17,804) (13,135) Proceeds from short-term bank borrowings 22,313 — Repayment of short-term bank borrowings (6,505) (64,916) Cash dividend payments (13,275) (11,108) Purchase of treasury stock (3,997) (2,574) Other financing activities — (223) Net cash provided by (used in) financing activities 11,365 (88,956) Effect of exchange rate changes on cash and cash equivalents and restricted cash (7,034) (2,351) Net increase (decrease) in cash, cash equivalents 7,238 (105,331) Cash, cash equivalents and restricted cash at beginning of period 215,479 303,771 Cash, cash equivalents and restricted cash at end of period $ 222,717 $ 198,440 Supplemental disclosure of noncash investing activities: Capital expenditures accrued, but not yet paid $ 1,456 $ 8,763 Dividends declared but not yet paid (13,430) (10,755) The following table provides a breakdown of cash and cash equivalents, and restricted cash reported within the statement of cash flows: Nine Months Ended May 31, May 31, 2022 2021 Cash and cash equivalents $ 207,528 $ 190,687 Short-term restricted cash 2,986 781 Long-term restricted cash $ 12,203 $ 6,972 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 222,717 $ 198,440 In the case of the Company's ownership interest in real estate development joint ventures, both parties to each joint venture share all rights, obligations and the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. As a result, the Company has determined that it is not the primary beneficiary of the VIEs and, therefore, has accounted for these entities under the equity method. Under the equity method, the Company's investments in unconsolidated affiliates are initially recorded as an investment in the stock of an investee at cost and are adjusted for the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of the initial investment. The Company's ownership interest in real estate development joint ventures the Company has recorded under the equity method as of Real Estate Development Joint Ventures Countries Ownership Basis of GolfPark Plaza, S.A. Panama 50.0 % Price Plaza Alajuela PPA, S.A. Costa Rica 50.0 % (1)Joint venture interests are recorded as investment in unconsolidated affiliates on the consolidated balance sheets. May 31, August 31, 2022 2021 Short-term restricted cash $ 2,986 $ 3,647 Long-term restricted cash 12,203 9,772 Total restricted cash(1) $ 15,189 $ 13,419 (1)Restricted cash consists of cash deposits held within banking institutions in compliance with federal regulatory requirements in Costa Rica and Panama. In addition, the Company is required to maintain a certificate of deposit and/or security deposits of Trinidad dollars, as measured in U.S. dollars, of approximately Short-Term Investments – The Company considers as short-term investments, certificates of deposit and similar time-based deposits with financial institutions with maturities over three months and up to one year. The Company’s policy for classification and presentation of VAT receivables, income tax receivables and other tax receivables is as follows: May 31, August 31, 2022 2021 Prepaid expenses and other current assets $ 3,885 $ 3,173 Other non-current assets 31,564 28,437 Total amount of VAT receivables reported $ 35,449 $ 31,610 May 31, August 31, 2022 2021 Prepaid expenses and other current assets $ 9,622 $ 11,491 Other non-current assets 22,281 18,872 Total amount of income tax receivables reported $ 31,903 $ 30,363 Merchandise Inventories – Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or net realizable value. The Company provides for estimated inventory losses and obsolescence based on a percentage of sales. The provision is adjusted every reporting period to reflect the trend of actual physical inventory and cycle count results. In addition, the Company may be required to take markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise. Fair Value Measurements – The Company measures the fair value for all financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring or non-recurring basis. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor. Non-financial assets and liabilities are revalued and recognized at fair value subsequent to initial recognition when there is evidence of impairment. For the periods reported, Gain Contingencies and Recoveries – A gain contingency is an existing condition, situation, or set of circumstances involving uncertainty as to a possible gain that will ultimately be resolved when one or more future events occur or fail to occur. During the ordinary course of our business, gain contingencies arise when we have the opportunity to recover costs or damages, we incur from insurance carriers or other third parties. Anticipated proceeds in excess of the amount of loss recognized are considered contingent gains. Anticipated proceeds in excess of a loss recognized in the financial statements are not recognized until all contingencies related to the collectability, timing and amount are realizable. The Company substantially fulfilled all payment obligations by the end of the second quarter of fiscal year 2023; however, some vesting of PSUs will occur in the first quarter of fiscal year 2024. –On February 3, 2023, Robert E. Price, a Company founder and Chairman of the Board, became Interim Chief Executive Officer. Mr. Price has elected not to receive compensation for his role as Interim Chief Executive Officer. Therefore, the financial statements do not include compensation charges for his services. We have estimated the fair value of these services, based on a number of factors, to be approximately $5.1 million on an annual basis. We acknowledge that this may not be representative of what ultimately could be the cost to the Company when a replacement Chief Executive Officer is hired. revenue, costs and expenses are translated at average rates of exchange in effect during the period. The corresponding translation gains and losses are recorded as a component of accumulated other comprehensive income or loss. These adjustments will affect net income upon the sale or liquidation of the underlying investment. Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2022 2021 2022 2021 Effect on other comprehensive loss due to foreign currency translation $ (9,401) $ (3,007) $ (15,119) $ (2,577) Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2022 2021 2022 2021 Currency loss $ (2,504) $ (2,240) $ (6,142) $ (3,970) Net Merchandise Sales. The Company recognizes net merchandise sales revenue, net of sales taxes, on transactions where the Company has determined that it is the principal in the sale of merchandise. These transactions may include shipping commitments and/or shipping revenue if the transaction involves delivery to the customer. Non-merchandise Sales. Until the disposal of Aeropost in the first quarter of fiscal 2022, the Company recognized non-merchandise revenue, net of sales taxes, on transactions where the Company had determined that it was the agent in the transaction. These transactions primarily consisted of contracts the Company entered into with its customers to provide delivery, insurance and customs processing services for products its customers purchased online in the United States either directly from other vendors utilizing the vendor’s website or through the Company’s marketplace site. Revenue was recognized when the Company’s performance obligations were completed (that is when delivery of the items have been made to the destination point) and was recorded in “non-merchandise revenue” on the consolidated statements of income. Prepayment for orders for which the Company had not fulfilled its performance obligation were recorded as deferred income. Additionally, the Company recorded revenue at the net amounts retained, i.e., the amount paid by the customer less amounts remitted to the respective merchandise vendors, as the Company was acting as an agent and was not the principal in the sale of those goods being purchased from the vendors by the Company’s customers. Membership Fee Revenue. Membership income represents annual membership fees paid by the Company’s warehouse club Members, which are recognized ratably over the 12-month term of the membership. Our membership policy allows Members to cancel their membership in the first 60 days and receive a full refund. After the 60-day period, membership refunds are prorated over the remaining term of the membership. The Company has significant experience with membership refund patterns and expects membership refunds will not be material. Therefore, no refund reserve was required for the periods presented. Membership fee revenue is included in membership income in the Company's consolidated statements of income. The deferred membership fee is included in deferred income in the Company's consolidated balance sheets. Company has determined that this revenue should be recognized as “Other revenue and income” on the consolidated statements of income. Contract Liabilities May 31, 2022 August 31, 2021 Deferred membership income $ 28,570 $ 25,951 Other contract performance liabilities $ 8,050 $ 7,871 Three Months Ended Nine Months Ended May 31, 2022 May 31, 2021 May 31, 2022 May 31, 2021 Foods & Sundries $ 490,268 $ 431,007 $ 1,453,993 $ 1,298,134 Fresh Foods 293,148 252,365 851,945 745,158 Hardlines 111,677 94,732 343,953 318,229 Softlines 57,322 43,468 172,355 130,732 Other Business 46,596 35,906 132,704 101,998 Net Merchandise Sales $ 999,011 $ 857,478 $ 2,954,950 $ 2,594,251 The following table sets forth the computation of net income per share for the three and Three Months Ended Nine Months Ended May 31, May 31, May 31, May 31, 2022 2021 2022 2021 Net income attributable to PriceSmart, Inc. $ 19,258 $ 22,529 $ 81,230 $ 78,502 Less: Allocation of income to unvested stockholders (312) (372) (869) (952) Net income attributable to PriceSmart, Inc. available for distribution $ 18,946 $ 22,157 $ 80,361 $ 77,550 Basic weighted average shares outstanding 30,615 30,414 30,582 30,396 Add dilutive effect of performance stock units (two-class method) 14 32 6 27 Diluted average shares outstanding 30,629 30,446 30,588 30,423 Basic net income per share $ 0.62 $ 0.73 $ 2.63 $ 2.55 Diluted net income per share $ 0.62 $ 0.73 $ 2.63 $ 2.55 First Payment Second Payment Declared Amount Record Date Date Amount Record Date Date Amount 2/3/2022 $ 0.86 2/15/2022 2/28/2022 N/A $ 0.43 8/15/2022 N/A 8/31/2022 $ 0.43 2/4/2021 $ 0.70 2/15/2021 2/26/2021 N/A $ 0.35 8/15/2021 8/31/2021 N/A $ 0.35 Attributable to Noncontrolling PriceSmart Interests Total Beginning balance, September 1, 2021 $ (182,508) $ 251 $ (182,257) Foreign currency translation adjustments (15,119) 3 (15,116) Defined benefit pension plans (1) 140 — 140 Derivative instruments (2) 4,339 — 4,339 Sale of Aeropost — (254) (254) Ending balance, May 31, 2022 $ (193,148) $ — $ (193,148) Attributable to Noncontrolling PriceSmart Interests Total Beginning balance, September 1, 2020 $ (176,820) $ 134 $ (176,686) Foreign currency translation adjustments (2,577) 91 (2,486) Defined benefit pension plans (1) 164 — 164 Derivative Instruments (2) 1,865 — 1,865 Ending balance, May 31, 2021 $ (177,368) $ 225 $ (177,143) Attributable to Noncontrolling PriceSmart Interests Total Beginning balance, September 1, 2020 $ (176,820) $ 134 $ (176,686) Foreign currency translation adjustments (7,837) 117 (7,720) Defined benefit pension plans (1) (230) — (230) Derivative Instruments (2) 2,252 — 2,252 Amounts reclassified from accumulated other comprehensive loss 127 — 127 Ending balance, August 31, 2021 $ (182,508) $ 251 $ (182,257) (1)Amounts reclassified from accumulated other comprehensive income (loss) related to the minimum pension liability are included in warehouse club and other operations in the Company's consolidated statements of income. May 31, August 31, 2022 2021 Retained earnings not available for distribution $ 8,554 $ 8,022 Income Taxes February 28, 2023. Other Commitments One of the land purchase agreements and the lease option described above were executed after February 28, 2023, but prior to issuance of these financial statements. Refer to "Note 10 – Subsequent Events" for more information. Entity % Initial Additional Net Income (Loss) Company’s Commitment Company's GolfPark Plaza, S.A. 50 % $ 4,616 $ 2,402 $ (56) $ 6,962 $ 99 $ 7,061 Price Plaza Alajuela PPA, S.A. 50 % 2,193 1,236 147 3,576 785 4,361 Total $ 6,809 $ 3,638 $ 91 $ 10,538 $ 884 $ 11,422 (1)The parties intend to seek alternate financing for the project, which could reduce the amount of investments each party would be required to provide. The parties may mutually agree on changes to the project, which could increase or decrease the amount of contributions each party is required to provide. Facilities Used Total Amount Short-term Letters of Facilities Weighted average of Facilities Borrowings Credit Available interest rate May 31, 2022 - Committed $ 75,000 $ — $ 114 $ 74,886 — % May 31, 2022 - Uncommitted 91,000 15,336 — 75,664 4.1 May 31, 2022 - Total $ 166,000 $ 15,336 $ 114 $ 150,550 4.0 % August 31, 2021 - Committed $ 40,000 — 97 $ 39,903 — % August 31, 2021 - Uncommitted 91,000 — — 91,000 — August 31, 2021 - Total $ 131,000 $ — $ 97 $ 130,903 — % As of February 28, 2023: (Amounts in thousands) Current Long-term Total Balances as of August 31, 2021 $ 19,395 $ 110,110 $ 129,505 (1) Proceeds from long-term debt incurred during the period: Guatemala subsidiary — 4,204 4,204 Trinidad subsidiary 4,924 21,505 26,429 Total proceeds from long-term debt incurred during the period 4,924 25,709 30,633 Repayments of long-term debt: (7,398) (10,406) (17,804) Reclassifications of long-term debt due in the next 12 months 17,395 (17,395) — Translation adjustments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar (2) (41) 164 123 Balances as of May 31, 2022 $ 34,275 $ 108,182 $ 142,457 (3) (1)The carrying amount of (2)These foreign currency translation adjustments are recorded within Other comprehensive income (loss). Twelve Months Ended May 31, Amount 2023 $ 34,275 2024 18,763 2025 34,702 2026 11,980 2027 36,042 Thereafter 6,695 Total $ 142,457 Cash Flow Hedges February 28, 2023: Entity Date Derivative Derivative Initial Bank Floating Leg Fixed Rate Settlement Effective Colombia subsidiary 3-May-22 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 10,000,000 PriceSmart, Inc. 3.00% 9.04 % 3rd day of each May, August, November and February, beginning on August 3, 2022 May 3, 2022 - Colombia subsidiary 17-Nov-21 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 10,000,000 PriceSmart, Inc. 3.00% 8.40 % 17th day of each February, May, August, and November, beginning on February 17, 2022 November 17, 2021 - Colombia subsidiary 3-Dec-19 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 7,875,000 Citibank, N.A. Variable rate 3-month Libor plus 2.45% 7.87 % 3rd day of each December, March, June, and September, beginning on March 3, 2020 December 3, 2019 - Colombia subsidiary 27-Nov-19 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 25,000,000 Citibank, N.A. Variable rate 3-month Libor plus 2.45% 7.93 % 27th day of each November, February, May and August beginning February 27, 2020 November 27, 2019 - Colombia subsidiary 24-Sep-19 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 12,500,000 PriceSmart, Inc. Variable rate 3-month Libor plus 2.50% 7.09 % 24th day of each December, March, June and September beginning December 24, 2019 September 24, 2019 - Panama subsidiary 25-Jun-18 Bank of Nova Scotia ("Scotiabank") Interest rate swap $ 14,625,000 Bank of Nova Scotia Variable rate 3-month Libor plus 3.0% 5.99 % 23rd day of each month beginning on July 23, 2018 June 25, 2018 - Honduras subsidiary 26-Feb-18 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 13,500,000 Citibank, N.A. Variable rate 3-month Libor plus 3.00% 9.75 % 29th day of May, August, November and February beginning May 29, 2018 February 26, 2018 - PriceSmart, Inc. 7-Nov-16 MUFG Union Bank, N.A. ("Union Bank") Interest rate swap $ 35,700,000 Union Bank Variable rate 1-month Libor plus 1.7% 3.65 % 1st day of each month beginning on April 1, 2017 March 1, 2017 - For the three and Income Statement Classification Interest Cost of Total Interest expense for the three months ended May 31, 2022 $ 618 $ 871 $ 1,489 Interest expense for the three months ended May 31, 2021 $ 656 $ 907 $ 1,563 Interest expense for the nine months ended May 31, 2022 $ 1,720 $ 2,628 $ 4,348 Interest expense for the nine months ended May 31, 2021 $ 2,015 $ 2,785 $ 4,800 (1)This amount is representative of the interest expense recognized on the underlying hedged transactions. Notional Amount as of May 31, August 31, Floating Rate Payer (Swap Counterparty) 2022 2021 Union Bank $ 31,663 $ 32,619 Citibank N.A. 67,522 51,032 Scotiabank 9,000 10,125 Total $ 108,185 $ 93,776 May 31, 2022 August 31, 2021 Derivatives designated as cash flow hedging instruments Balance Sheet Fair Net Tax Net Fair Net Tax Net Cross-currency interest rate swaps Other non-current assets $ 4,512 $ (1,579) $ 2,933 $ 2,464 $ (741) $ 1,723 Cross-currency interest rate swaps Other current assets 1,550 (543) 1,007 — — — Interest rate swaps Other non-current assets 898 (198) 700 — — — Interest rate swaps Other long-term liabilities (49) 14 (35) (2,305) 535 (1,770) Cross-currency interest rate swaps Other long-term liabilities (999) 340 (659) (705) 212 (493) Net fair value of derivatives designated as hedging instruments $ 5,912 $ (1,966) $ 3,946 $ (546) $ 6 $ (540) Fair Value Instruments Financial Derivative Subsidiary Dates Settlement Scotiabank Colpatria, S.A. Colombia $ 3,500 Citibank, N.A. ("Citi") Forward foreign $ 6,000 Forward foreign $ 5,000 February 28, 2022. The following tables summarize by segment certain revenues, operating costs and balance sheet items (in thousands): United Central Caribbean Colombia Operations Reconciling Total Three Months Ended May 31, 2022 Revenue from external customers $ 13,396 $ 599,132 $ 294,785 $ 123,497 $ — $ 1,030,810 Intersegment revenues 351,404 6,223 1,706 1,388 (360,721) — Depreciation, Property and equipment 1,355 8,688 4,408 2,718 — 17,169 Amortization, Intangibles 388 — — — — 388 Operating income (loss) 2,821 39,458 19,163 4,652 (32,332) 33,762 Net income (loss) attributable to PriceSmart, Inc. (442) 34,011 14,903 3,118 (32,332) 19,258 Capital expenditures, net 197 11,851 10,695 8,439 — 31,182 Nine Months Ended May 31, 2022 Revenue from external customers $ 36,102 $ 1,785,017 $ 860,953 $ 362,651 $ — $ 3,044,723 Intersegment revenues 1,138,283 16,251 4,483 2,989 (1,162,006) — Depreciation, Property and equipment 3,361 25,586 12,449 7,638 — 49,034 Amortization, Intangibles 1,224 — — — — 1,224 Operating income (loss) 17,377 128,889 60,796 17,154 (96,115) 128,101 Net income (loss) attributable to PriceSmart, Inc. 6,106 108,661 48,977 13,620 (96,134) 81,230 Long-lived assets (other than deferred tax assets) 70,322 494,086 218,365 186,630 — 969,403 Intangibles, net 1,153 — — — — 1,153 Goodwill 8,982 24,316 10,049 — — 43,347 Total assets 201,571 844,844 478,008 267,340 — 1,791,763 Capital expenditures, net 3,404 37,902 32,742 24,524 — 98,572 Three Months Ended May 31, 2021 Revenue from external customers $ 21,237 $ 531,595 $ 243,468 $ 98,964 $ — $ 895,264 Intersegment revenues 309,261 4,305 1,228 434 (315,228) — Depreciation, Property and equipment 1,666 7,990 3,920 2,403 — 15,979 Amortization, Intangibles 606 — — — — 606 Operating income (loss) 545 38,313 17,240 5,135 (25,184) 36,049 Net income (loss) attributable to PriceSmart, Inc. (2,388) 32,700 13,524 3,929 (25,236) 22,529 Capital expenditures, net 3,334 8,724 6,486 4,870 — 23,414 Nine Months Ended May 31, 2021 Revenue from external customers $ 67,622 $ 1,567,287 $ 762,153 $ 313,203 $ — $ 2,710,265 Intersegment revenues 955,619 12,842 3,498 2,413 (974,372) — Depreciation, Property and equipment 5,115 23,367 11,570 6,500 — 46,552 Amortization, Intangibles 1,798 — — — — 1,798 Operating income (loss) 8,315 113,120 59,600 17,139 (72,615) 125,559 Net income (loss) attributable to PriceSmart, Inc. (4,306) 94,247 48,175 13,224 (72,838) 78,502 Long-lived assets (other than deferred tax assets) 79,178 484,039 189,873 163,266 — 916,356 Intangibles, net 8,368 — — — — 8,368 Goodwill 10,695 24,359 10,088 — — 45,142 Total assets 202,770 777,703 427,078 224,404 — 1,631,955 Capital expenditures, net 6,052 30,334 14,748 20,416 — 71,550 As of August 31, 2021 Long-lived assets (other than deferred tax assets) $ 79,404 $ 490,099 $ 197,030 $ 164,970 $ — $ 931,503 Intangibles, net 7,762 — — — — 7,762 Goodwill 10,695 24,332 10,068 — — 45,095 Total assets 246,896 795,940 434,428 228,526 — 1,705,790 (1)Management considers its club in the U.S. Virgin Islands to be part of its Caribbean operations. PRICESMART, INC. We strategically invest in technology to enhance Member experience and convenience. We believe technology allows us to access valuable data that supports our ability to increase efficiencies and gain important insights about our Number of Number of Warehouse Clubs Warehouse Clubs in Operation as of in Operation as of Country/Territory May 31, 2022 May 31, 2021 Colombia 9 8 Costa Rica 8 8 Panama 7 7 Dominican Republic 5 5 Guatemala 5 4 Trinidad 4 4 Honduras 3 3 El Salvador 2 2 Nicaragua 2 2 Jamaica 2 1 Aruba 1 1 Barbados 1 1 U.S. Virgin Islands 1 1 Totals 50 47 We also export products to a retailer in the Philippines and are Currency I. Another way we enhance Membership value is through our private label offering, “Member’s Financial highlights for the Adjusted net income for the second quarter of fiscal year 2023 was $38.5 million, or an adjusted $1.25 per diluted share, compared to $31.5 million, or $1.03 per diluted share, in the second quarter of fiscal year 2022. Adjusted net income for the first six months of fiscal year 2023 was $71.4 million, or an adjusted $2.30 per diluted share, compared to adjusted net income of $60.5 million, or an adjusted $1.96 per diluted share, in the comparable prior year period. Net Merchandise Sales Three Months Ended May 31, 2022 May 31, 2021 Amount % of net Increase Change Amount % of net Central America $ 587,616 58.8 % $ 66,261 12.7 % $ 521,355 60.8 % Caribbean 290,441 29.1 51,118 21.4 239,323 27.9 Colombia 120,954 12.1 24,154 25.0 96,800 11.3 Net merchandise sales $ 999,011 100.0 % $ 141,533 16.5 % $ 857,478 100.0 % Nine Months Ended May 31, 2022 May 31, 2021 Amount % of net Increase Change Amount % of net Central America $ 1,751,248 59.3 % $ 214,020 13.9 % $ 1,537,228 59.3 % Caribbean 848,206 28.7 98,149 13.1 750,057 28.9 Colombia 355,496 12.0 48,530 15.8 306,966 11.8 Net merchandise sales $ 2,954,950 100.0 % $ 360,699 13.9 % $ 2,594,251 100.0 % Comparison of Three and February 28, 2023. Net merchandise sales in our Colombia segment Currency exchange rate fluctuations for the Three months ended May 31, 2022 Amount % change Central America $ (14,377) (2.8) % Caribbean 2,110 0.9 Colombia (6,814) (7.0) Net merchandise sales $ (19,081) (2.3) % Currency exchange rate fluctuations for the Nine Months Ended May 31, 2022 Amount % change Central America $ (30,528) (2.0) % Caribbean 2,038 0.3 Colombia (25,341) (8.3) Net merchandise sales $ (53,831) (2.1) % Comparable Merchandise Sales March 5, 2023. year: Thirteen Weeks Ended May 29, 2022 May 30, 2021 % Increase in comparable net merchandise sales % Increase/(decrease) in comparable net merchandise sales Central America 9.7 % 16.0 % Caribbean 17.4 (2.5) Colombia 18.1 3.6 Consolidated comparable net merchandise sales 12.8 % 8.8 % Thirty-Nine Weeks Ended May 29, 2022 May 30, 2021 % Increase in comparable net merchandise sales % Increase in comparable net merchandise sales Central America 11.4 % 5.7 % Caribbean 11.7 2.6 Colombia 5.5 2.2 Consolidated comparable net merchandise sales 10.8 % 4.3 % Comparison of Thirteen and Comparable net merchandise sales in our Caribbean segment increased periods ended March 5, 2023, respectively, due to sales transfers from the existing club included in the comparable net merchandise sales calculation to the new club not included in the calculation. foreign currency devaluation. March 5, 2023: Currency Exchange Rate Fluctuations for the Thirteen Weeks Ended May 29, 2022 Amount % change Central America $ (14,434) (2.8) % Caribbean 2,308 1.0 Colombia (6,513) (6.8) Consolidated comparable net merchandise sales $ (18,639) (2.2) % Currency Exchange Rate Fluctuations for the Thirty-Nine Weeks Ended May 29, 2022 Amount % change Central America $ (31,117) (2.0) % Caribbean 2,386 0.3 Colombia (22,590) (7.6) Consolidated comparable net merchandise sales $ (51,321) (2.0) % Overall, the mix of currency fluctuations within our markets had an approximately March 5, 2023. appreciation. Currency fluctuations within our Colombia segment accounted for approximately Three Months Ended May 31, May 31, 2022 2021 Amount Increase % Change Membership income % to net merchandise club sales Amount Membership income - Central America $ 9,070 $ 582 6.9 % 1.5 % $ 8,488 Membership income - Caribbean 4,130 203 5.2 1.4 3,927 Membership income - Colombia 2,240 326 17.0 1.9 1,914 Membership income - Total $ 15,440 $ 1,111 7.8 % 1.5 % $ 14,329 Nine Months Ended May 31, May 31, 2022 2021 Amount Increase from prior year % Change Membership Amount Membership income - Central America $ 26,824 $ 2,382 9.7 % 1.5 % $ 24,442 Membership income - Caribbean 12,097 644 5.6 1.4 11,453 Membership income - Colombia 6,381 849 15.3 1.8 5,532 Membership income - Total $ 45,302 $ 3,875 9.4 % 1.5 % $ 41,427 Number of accounts - Central America 942,096 56,574 6.4 % 885,522 Number of accounts - Caribbean 450,094 20,673 4.8 429,421 Number of accounts - Colombia 355,053 31,163 9.6 323,890 Number of accounts - Total 1,747,243 108,410 6.6 % 1,638,833 February 28, 2023 that market. We Three Months Ended May 31, 2022 May 31, 2021 Amount Increase (decrease) from % Change Amount Non-merchandise revenue $ — $ (10,806) (100.0) % $ 10,806 Miscellaneous income 2,359 713 43.3 1,646 Rental income 604 (188) (23.7) 792 Other revenue $ 2,963 $ (10,281) (77.6) % $ 13,244 Nine Months Ended May 31, 2022 May 31, 2021 Amount Increase (decrease) from % Change Amount Non-merchandise revenue $ 3,307 $ (33,172) (90.9) % $ 36,479 Miscellaneous income 6,675 1,631 32.3 5,044 Rental income 1,885 (379) (16.7) 2,264 Other revenue $ 11,867 $ (31,920) (72.9) % $ 43,787 Results of Operations Three Months Ended Results of Operations Consolidated May 31, 2022 May 31, 2021 Increase/(Decrease) (Amounts in thousands, except percentages and number of warehouse clubs) Net merchandise sales Net merchandise sales $ 999,011 $ 857,478 $ 141,533 Total gross margin $ 142,199 $ 136,752 $ 5,447 Total gross margin percentage 14.2 % 15.9 % (1.7) % Revenues Total revenues $ 1,030,810 $ 895,264 $ 135,546 Percentage change from prior period 15.1 % Comparable net merchandise sales Total comparable net merchandise sales increase 12.8 % 8.8 % 4.0 % Total revenue margin Total revenue margin $ 161,193 $ 158,963 $ 2,230 Total revenue margin percentage 15.6 % 17.8 % (2.2) % Selling, general and administrative Selling, general and administrative $ 127,431 $ 122,914 $ 4,517 Selling, general and administrative percentage of total revenues 12.4 % 13.7 % (1.3) % Three Months Ended May 31, % of May 31, % of Results of Operations Consolidated 2022 Total Revenue 2021 Total Revenue Operating income- by segment Central America $ 39,458 3.8 % $ 38,313 4.3 % Caribbean 19,163 1.9 17,240 1.9 Colombia 4,652 0.4 5,135 0.6 United States 2,821 0.3 545 - Reconciling Items (1) (32,332) (3.1) (25,184) (2.8) Operating income - Total $ 33,762 3.3 % $ 36,049 4.0 % (1)The reconciling items reflect the amount eliminated upon consolidation of intersegment transactions. Nine Months Ended Results of Operations Consolidated May 31, 2022 May 31, 2021 Increase/(Decrease) (Amounts in thousands, except percentages and number of warehouse clubs) Net merchandise sales Net merchandise sales $ 2,954,950 $ 2,594,251 $ 360,699 Total gross margin $ 451,312 $ 414,798 $ 36,514 Total gross margin percentage 15.3 % 16.0 % (0.7) % Revenues Total revenues $ 3,044,723 $ 2,710,265 $ 334,458 Percentage change from comparable period 12.3 % Comparable net merchandise sales Total comparable net merchandise sales increase / (decrease) 10.8 % 4.3 % 6.5 % Total revenue margin Total revenue margin $ 508,189 $ 483,397 $ 24,792 Total revenue margin percentage 16.7 % 17.8 % (1.1) % Selling, general and administrative Selling, general and administrative $ 380,088 $ 357,838 $ 22,250 Selling, general and administrative percentage of total revenues 12.5 % 13.2 % (0.7) % Warehouse clubs Warehouse clubs at period end 50 47 3 Warehouse club sales floor square feet at period end 2,484 2,325 159 Nine Months Ended May 31, % of May 31, % of Results of Operations Consolidated 2022 Total Revenue 2021 Total Revenue Operating income- by segment Central America $ 128,889 4.2 % $ 113,120 4.2 % Caribbean 60,796 2.0 59,600 2.2 Colombia 17,154 0.6 17,139 0.6 United States 17,377 0.6 8,315 0.3 Reconciling Items (1) (96,115) (3.2) (72,615) (2.7) Operating income - Total $ 128,101 4.2 % $ 125,559 4.6 % The following table summarizes the selling, general and administrative expense for the periods disclosed: Three Months Ended May 31, % of May 31, % of 2022 Total Revenue 2021 Total Revenue Warehouse club and other operations $ 96,081 9.3 % $ 89,322 10.0 % General and administrative 30,887 3.0 33,225 3.7 Pre-opening expenses 306 0.1 1 — Loss on disposal of assets 157 — 366 — Total Selling, general and administrative $ 127,431 12.4 % $ 122,914 13.7 % Nine Months Ended May 31, % of May 31, % of 2022 Total Revenue 2021 Total Revenue Warehouse club and other operations $ 281,270 9.3 % $ 264,603 9.8 % General and administrative 96,531 3.2 92,016 3.4 Pre-opening expenses 1,406 — 651 — Loss on disposal of assets 881 — 568 — Total Selling, general and administrative $ 380,088 12.5 % $ 357,838 13.2 % Comparison of Three and Colombia. Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, separation costs associated with the Chief Executive Officer departure, pre-opening expenses, and loss on disposal of assets. In total, selling, general and administrative expenses increased 2023 and 2022. . Three Months Ended May 31, May 31, 2022 2021 Amount Change Amount Interest expense on loans $ 2,160 $ 865 $ 1,295 Interest expense related to hedging activity 871 (36) 907 Less: Capitalized interest (235) 371 (606) Net interest expense $ 2,796 $ 1,200 $ 1,596 Nine Months Ended May 31, May 31, 2022 2021 Amount Change Amount Interest expense on loans $ 5,300 $ 708 $ 4,592 Interest expense related to hedging activity 2,628 (157) 2,785 Less: Capitalized interest (1,104) 416 (1,520) Net interest expense $ 6,824 $ 967 $ 5,857 Comparison of Three and the comparable prior year period. Three Months Ended May 31, May 31, 2022 2021 Amount Change % Change Amount Other expense, net $ (2,423) $ (128) (5.6) % $ (2,295) Nine Months Ended May 31, May 31, 2022 2021 Amount Change % Change Amount Other expense, net $ (1,833) $ 2,299 55.6 % $ (4,132) Provision for Income Taxes Three Months Ended May 31, May 31, 2022 2021 Amount Change Amount Provision for income taxes $ 9,776 $ (306) $ 10,082 Effective tax rate 33.7 % 30.9 % Nine Months Ended May 31, May 31, 2022 2021 Amount Change Amount Provision for income taxes $ 39,729 $ 1,464 $ 38,265 Effective tax rate 32.8 % 32.7 % Three Months Ended May 31, May 31, 2022 2021 Amount Change % Change Amount Other comprehensive loss $ (8,735) $ (6,145) (237.3) % $ (2,590) Nine Months Ended May 31, May 31, 2022 2021 Amount Change % Change Amount Other comprehensive loss $ (10,640) $ (10,092) (1,841.6) % $ (548) Republic subsidiaries. : May 31, August 31, 2022 2021 Amounts held by foreign subsidiaries $ 194,047 $ 160,808 Amounts held domestically 28,670 54,671 Total cash and cash equivalents, including restricted cash $ 222,717 $ 215,479 : May 31, August 31, 2022 2021 Amounts held by foreign subsidiaries $ 19,767 $ 50,233 Amounts held domestically — — Total short-term investments $ 19,767 $ 50,233 From time to time, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity). This impedes our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products or otherwise fund our operations. Since fiscal 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradeable currencies. We are working with our banks in Trinidad and government officials to convert all of our Trinidad dollars into tradeable currencies. We have and continue to take additional actions in this respect. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for our quantitative analysis and discussion. Nine Months Ended May 31, May 31, 2022 2021 Change Net cash provided by operating activities $ 64,311 $ 79,967 $ (15,656) Net cash used in investing activities (61,404) (93,991) 32,587 Net cash provided by (used in) financing activities 11,365 (88,956) 100,321 Effect of exchange rates (7,034) (2,351) (4,683) Net increase (decrease) in cash and cash equivalents $ 7,238 $ (105,331) $ 112,569 year-ago. First Payment Second Payment Declared Amount Record Date Date Amount Record Date Date Amount 2/3/2022 $ 0.86 2/15/2022 2/28/2022 N/A $ 0.43 8/15/2022 N/A 8/31/2022 $ 0.43 2/4/2021 $ 0.70 2/15/2021 2/26/2021 N/A $ 0.35 8/15/2021 8/31/2021 N/A $ 0.35 Short-Term Borrowings and Long-Term Debt Critical Accounting Estimates for the period ended on February 28, 2023. Tax Receivables Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity, which in turn drives estimates of future cash flows from these assets. These periodic evaluations could cause management to conclude that impairment factors exist, 2022. Period (a) (b) (c) (d) March 1, 2022 - March 31, 2022 2,505 77.13 — N/A April 1, 2022 - April 30, 2022 239 80.34 — N/A May 1, 2022 - May 31, 2022 — — — N/A Total 2,744 $ 77.41 — — 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) (1)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997. Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 9, 2022. SIGNATURES PRICESMART, INC. Date: By: /s/ Robert E. Price Interim Chief Executive Officer (Principal Executive Officer) Date: By: /s/ MICHAEL L. MCCLEARY Michael L. McCleary Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)May 31, 2022¨o¨o¨ox ¨o¨¨oEmerging growth company ¨o¨o¨o30,931,56231,001,100 shares of its common stock, par value $0.0001 per share, outstanding at June 30, 2022.PRICESMART,PRICESMART, INC.MAYFEBRUARY 28, 2023 (UNAUDITED) AND AUGUST 31, 2022 (UNAUDITED) AND AUGUST 31, 2021NINE SIXMONTHS ENDED MAY 31, 2022 FEBRUARY 28, 2023 AND 20212022 - UNAUDITEDNINESIX MONTHS ENDED MAY 31, 2022 FEBRUARY 28, 2023 AND 20212022 - UNAUDITEDNINESIX MONTHS ENDED MAY 31, 2022 FEBRUARY 28, 2023 AND 20212022 - UNAUDITEDNINESIX MONTHS ENDED MAY 31, 2022 FEBRUARY 28, 2023 AND 20212022 - UNAUDITED3132555756585759575957595760576057605861PARTPART I—FINANCIAL INFORMATIONITEMMay 31, 2022February 28, 2023 and the consolidated balance sheet as of August 31, 2021,2022, the unaudited consolidated statements of income for the three and ninesix months ended May 31,February 28, 2023 and 2022, and 2021, the unaudited consolidated statements of comprehensive income for the three and ninesix months ended May 31,February 28, 2023 and 2022, and 2021, the unaudited consolidated statements of equity for the three and ninesix months ended May 31,February 28, 2023 and 2022, and 2021, and the unaudited consolidated statements of cash flows for the ninesix months ended May 31,February 28, 2023 and 2022 and 2021 are included herein. Also included herein are the notes to the unaudited consolidated financial statements.
PRICESMART,PRICESMART, INC.
February 28,
2023
(Unaudited)August 31,
2022ASSETS Current Assets: Cash and cash equivalents $ 260,927 $ 237,710 Short-term restricted cash 9,110 3,013 Short-term investments 54,322 11,160 Receivables, net of allowance for doubtful accounts of $54 as of February 28, 2023 and $103 as of August 31, 2022, respectively 16,401 13,391 Merchandise inventories 449,101 464,411 Prepaid expenses and other current assets (includes $41 and $2,761 as of February 28, 2023 and August 31, 2022, respectively, for the fair value of derivative instruments) 46,910 43,894 Total current assets 836,771 773,579 Long-term restricted cash 10,515 10,650 Property and equipment, net 774,826 757,241 Operating lease right-of-use assets, net 106,043 111,810 Goodwill 43,185 43,303 Deferred tax assets 27,898 28,355 Other non-current assets (includes $15,994 and $11,884 as of February 28, 2023 and August 31, 2022, respectively, for the fair value of derivative instruments) 76,474 72,928 Investment in unconsolidated affiliates 10,460 10,534 Total Assets $ 1,886,172 $ 1,808,400 LIABILITIES AND EQUITY Current Liabilities: Short-term borrowings $ 10,133 $ 10,608 Accounts payable 406,581 408,407 Accrued salaries and benefits 35,340 44,097 Deferred income 32,665 29,228 Income taxes payable 9,587 7,243 Other accrued expenses and other current liabilities (includes $171 and $82 as of February 28, 2023 and August 31, 2022, respectively, for the fair value of derivative instruments) 43,256 38,667 Operating lease liabilities, current portion 7,144 7,491 Dividends payable 14,456 — Long-term debt, current portion 27,421 33,715 Total current liabilities 586,583 579,456 Deferred tax liability 2,105 2,165 Long-term income taxes payable, net of current portion 4,729 5,215 Long-term operating lease liabilities 113,335 118,496 Long-term debt, net of current portion 126,383 103,556 Other long-term liabilities (includes $9,125 and $8,440 for post-employment plans as of February 28, 2023 and August 31, 2022, respectively) 9,125 8,439 Total Liabilities 842,260 817,327 Stockholders' Equity: Common stock $0.0001 par value, 45,000,000 shares authorized; 31,869,393 and 31,697,590 shares issued and 31,001,117 and 30,904,826 shares outstanding (net of treasury shares) as of February 28, 2023 and August 31, 2022, respectively 3 3 Additional paid-in capital 492,099 481,406 Accumulated other comprehensive loss (183,703) (195,586) Retained earnings 772,430 736,894 Less: treasury stock at cost, 868,276 shares as of February 28, 2023 and 792,764 shares as of August 31, 2022 (36,917) (31,644) Total Stockholders' Equity 1,043,912 991,073 Total Liabilities and Equity $ 1,886,172 $ 1,808,400
PRICESMART,PRICESMART, INC.Three Months Ended Six Months Ended February 28,
2023February 28,
2022February 28,
2023February 28,
2022Revenues: Net merchandise sales $ 1,115,999 $ 1,011,896 $ 2,141,462 $ 1,955,939 Export sales 6,882 8,674 17,340 19,208 Membership income 16,176 15,071 32,071 29,862 Other revenue and income 3,132 2,916 6,122 8,904 Total revenues 1,142,189 1,038,557 2,196,995 2,013,913 Operating expenses: Cost of goods sold: Net merchandise sales 937,462 853,633 1,796,530 1,646,826 Export sales 6,563 8,215 16,552 18,282 Non-merchandise — — — 1,809 Selling, general and administrative: Warehouse club and other operations 103,630 93,993 200,522 185,189 General and administrative 32,759 33,951 65,931 65,644 Separation costs associated with Chief Executive Officer departure Separation costs associated with Chief Executive Officer departure 7,747 — 7,747 — Pre-opening expenses 89 130 89 1,100 Loss on disposal of assets 139 313 297 724 Total operating expenses 1,088,389 990,235 2,087,668 1,919,574 Operating income 53,800 48,322 109,327 94,339 Other income (expense): Interest income 1,942 549 3,099 1,067 Interest expense (2,814) (2,438) (5,563) (4,028) Other income (expense), net Other income (expense), net (5,344) (819) (9,910) 590 Total other expense (6,216) (2,708) (12,374) (2,371) Income before provision for income taxes and loss of unconsolidated affiliates 47,584 45,614 96,953 91,968 Provision for income taxes (16,202) (14,139) (32,628) (29,953) Loss of unconsolidated affiliates Loss of unconsolidated affiliates (35) (14) (73) (24) Net income 31,347 31,461 64,252 61,991 Less: Net income attributable to noncontrolling interest Less: Net income attributable to noncontrolling interest — — — (19) Net income attributable to PriceSmart, Inc. $ 31,347 $ 31,461 $ 64,252 $ 61,972 Net income attributable to PriceSmart, Inc. per share available for distribution: Basic $ 1.02 $ 1.03 $ 2.07 $ 2.01 Diluted $ 1.02 $ 1.03 $ 2.07 $ 2.01 Shares used in per share computations: Basic 30,741 30,578 30,727 30,565 Diluted 30,760 30,582 30,740 30,593
PRICESMART,PRICESMART, INC.Three Months Ended Six Months Ended February 28,
2023February 28,
2022February 28,
2023February 28,
2022 Net income $ 31,347 $ 31,461 $ 64,252 $ 61,991 Less: net income attributable to noncontrolling interest — — — (19) Net income attributable to PriceSmart, Inc. $ 31,347 $ 31,461 $ 64,252 $ 61,972 Other Comprehensive Income, net of tax: 12,199 2,413 11,314 (5,718) Defined benefit pension plan: Net gain/(loss) arising during period (31) 20 (59) 37 Amortization of prior service cost and actuarial gains included in net periodic pensions cost 37 30 74 64 Total defined benefit pension plan 6 50 15 101 Unrealized gains/(losses) on change in derivative obligations 160 883 (536) (418) Unrealized gains/(losses) on change in fair value of interest rate swaps 83 880 (1,632) 4,130 Amounts reclassified from accumulated other comprehensive income to other expense, net for settlement of derivatives (14) — 2,722 — Total derivative instruments 229 1,763 554 3,712 Other comprehensive income (loss) 12,434 4,226 11,883 (1,905) Comprehensive income 43,781 35,687 76,135 60,067 Less: comprehensive income attributable to noncontrolling interest — — — 3 Comprehensive income attributable to PriceSmart, Inc. $ 43,781 $ 35,687 $ 76,135 $ 60,064 PRICESMART,PRICESMART, INC.Three Months Ended Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossRetained
EarningsTreasury Stock Total
EquityShares Amount Shares Amount Total
EquityBalance at November 30, 2021 Balance at November 30, 2021 31,598 $ 3 $ 469,170 $ (188,639) $ 689,430 736 $ (27,818) $ 942,146 Purchase of treasury stock — — — — — 19 (1,351) (1,351) Issuance of restricted stock award 31 — — — — — — — Forfeiture of restricted stock awards (3) — — — — — — — Stock-based compensation — — 4,107 — — — — 4,107 Dividend paid to stockholders Dividend paid to stockholders — — — — (13,275) — — (13,275) Dividend payable to stockholders Dividend payable to stockholders — — — — (13,430) — — (13,430) Net income — — — — 31,461 — — 31,461 Other comprehensive income Other comprehensive income — — — 4,226 — — — 4,226 Balance at February 28, 2022 Balance at February 28, 2022 31,626 $ 3 $ 473,277 $ (184,413) $ 694,186 755 $ (29,169) $ 953,884 Balance at November 30, 2022 Balance at November 30, 2022 31,858 $ 3 $ 485,096 $ (196,137) $ 769,799 807 $ (32,398) $ 1,026,363 Purchase of treasury stock Purchase of treasury stock — — — — — 61 (4,519) (4,519) Issuance of restricted stock award Issuance of restricted stock award 63 — — — — — — — Forfeiture of restricted stock awards Forfeiture of restricted stock awards (52) — — — — — — — Stock-based compensation Stock-based compensation — — 7,003 — — — — 7,003 Dividend paid to stockholders Dividend paid to stockholders — — — — (14,260) — — (14,260) Dividend payable to stockholders Dividend payable to stockholders — — — — (14,456) — — (14,456) Net income Net income — — — — 31,347 — — 31,347 Other comprehensive income Other comprehensive income — — — 12,434 — — — 12,434 Balance at February 28, 2023 Balance at February 28, 2023 31,869 $ 3 $ 492,099 $ (183,703) $ 772,430 868 $ (36,917) $ 1,043,912
Six Months Ended Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossRetained
EarningsTreasury Stock Total
Stockholders'
Equity
Attributable to
PriceSmart, Inc.Noncontrolling
InterestTotal
EquityShares Amount Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossRetained
EarningsShares Amount Total
Stockholders'
Equity
Attributable to
PriceSmart, Inc.Noncontrolling
InterestTotal
EquityBalance at August 31, 2021 31,468 $ 3 713 $ (26,084) Purchase of treasury stock — — — — — 51 (3,784) (3,784) — (3,784) Issuance of treasury stock (9) — (699) — — (9) 699 — — — Issuance of restricted stock award 171 — — — — — — — — — Forfeiture of restricted stock awards (4) — — — — — — — — — Stock-based compensation — — 8,674 — — — — 8,674 — 8,674 Dividend paid to stockholders — — — — (13,275) — — (13,275) — (13,275) Dividend payable to stockholders — — — — (13,430) — — (13,430) — (13,430) Net income — — — — 61,972 — — 61,972 19 61,991 Other comprehensive income (loss) — — — (1,905) — — — (1,905) 3 (1,902) Sale of Aeropost stock — — 287 — — — — 287 (891) (604) Balance at February 28, 2022 Balance at February 28, 2022 31,626 $ 3 $ 473,277 $ (184,413) $ 694,186 755 $ (29,169) $ 953,884 $ — $ 953,884 Balance at August 31, 2022 Balance at August 31, 2022 31,698 $ 3 $ 481,406 $ (195,586) $ 736,894 793 $ (31,644) $ 991,073 $ — $ 991,073 Purchase of treasury stock Purchase of treasury stock — — — — — 82 (5,819) (5,819) — (5,819) Issuance of treasury stock Issuance of treasury stock (7) — (546) — — (7) 546 — — — Issuance of restricted stock award Issuance of restricted stock award 237 — — — — — — — — — Forfeiture of restricted stock awards Forfeiture of restricted stock awards (59) — — — — — — — — — Stock-based compensation Stock-based compensation — — 11,239 — — — — 11,239 — 11,239 Dividend paid to stockholders Dividend paid to stockholders — — — — (14,260) — — (14,260) — (14,260) Dividend payable to stockholders Dividend payable to stockholders — — — — (14,456) — — (14,456) — (14,456) Net income Net income — — — — 64,252 — — 64,252 — 64,252 Other comprehensive income Other comprehensive income — — — 11,883 — — — 11,883 — 11,883 Balance at February 28, 2023 Balance at February 28, 2023 31,869 $ 3 $ 492,099 $ (183,703) $ 772,430 868 $ (36,917) $ 1,043,912 $ — $ 1,043,912 PRICESMART,PRICESMART, INC.
Six Months Ended February 28,
2023February 28,
2022Operating Activities: Net Income $ 64,252 $ 61,991 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,443 32,701 Allowance for doubtful accounts (49) 12 Loss on sale of property and equipment 297 724 Deferred income taxes (737) (2,124) Equity in losses of unconsolidated affiliates 73 24 Stock-based compensation 11,239 8,674 Change in operating assets and liabilities: Receivables, prepaid expenses and other current assets, non-current assets, accrued salaries and benefits, deferred membership income and other accruals (6,513) (19,503) Merchandise inventories 15,310 (80,608) Accounts payable (2,634) (9,811) Net cash provided by (used in) operating activities 116,681 (7,920) Investing Activities: Proceeds from the disposal of Aeropost, net of divested cash — 4,959 Additions to property and equipment (53,016) (60,468) Purchases of short-term investments (47,500) (17,658) Proceeds from settlements of short-term investments 4,301 41,075 Proceeds from settlements of long-term investments — 1,484 Proceeds from disposal of property and equipment 137 77 Net cash used in investing activities (96,078) (30,531) Financing Activities: Proceeds from long-term bank borrowings 33,712 30,180 Repayment of long-term bank borrowings (16,994) (10,969) Proceeds from short-term bank borrowings 301 20,179 Repayment of short-term bank borrowings — (4,488) Cash dividend payments (14,260) (13,275) Purchase of treasury stock (5,819) (3,784) Net cash provided by (used in) financing activities (3,060) 17,843 Effect of exchange rate changes on cash and cash equivalents and restricted cash 11,636 42 Net increase (decrease) in cash, cash equivalents 29,179 (20,566) Cash, cash equivalents and restricted cash at beginning of period 251,373 215,479 Cash, cash equivalents and restricted cash at end of period $ 280,552 $ 194,913 Supplemental disclosure of noncash investing activities: Capital expenditures accrued, but not yet paid $ 3,937 $ 8,369 Dividends declared but not yet paid 14,456 13,430 Six Months Ended February 28,
2023February 28,
2022Cash and cash equivalents $ 260,927 $ 178,705 Short-term restricted cash 9,110 4,172 Long-term restricted cash 10,515 12,036 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 280,552 $ 194,913 May 31, 2022NOTE"we""our") business consists primarily of international membership shopping and services offered both online and at warehouse clubs similar to, but typically smaller in size than, warehouse clubs in the United States. As of May 31, 2022,February 28, 2023, the Company had 50 warehouse clubs in operation in 12 countries and 1one U.S. territory (9(nine in Colombia; 8eight in Costa Rica; 7seven in Panama; 5five in the Dominican Republic and Guatemala; 4four in Trinidad; 3three in Honduras; 2two each in El Salvador, Nicaragua and Jamaica; and 1one each in Aruba, Barbados and the United States Virgin Islands), of which the Company owns 100% of the corresponding legal entities (see Note 2 - Summary of Significant Accounting Policies). In addition, the Company plans to open two warehouse clubs in El Salvador, one in San Miguel in May 2023 and the other in Santa Ana in early 2024. The Company also plans to open a warehouse club in San Miguel, El SalvadorMedellín, Colombia and Escuintla, Guatemala in the spring of 2023 and a warehouse club in Medellín, Colombia in the summer of 2023. Once these 2four new clubs are open, the Company will operate 5254 warehouse clubs. OurOur operating segments are the United States, Central America, the Caribbean and Colombia.Expand Real Estate Footprint withInvest in Remodeling Current PriceSmart Clubs, Adding New ClubsPriceSmart Locations and Opening More Distribution FacilitiesCenters;,Value;Value; andCapabilitiesCapabilities..20212022 (the “2021“2022 Form 10-K”). The interim consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries. Intercompany transactions between the Company and its subsidiaries have been eliminated in consolidation.May 31, 2022February 28, 2023 are listed below:PresentationDisposals, Acquisitions and Related Items – From March 2018 through September 2021, we operated a cross border package forwarding (casillero) and online marketplace business under the “Aeropost” banner in 38 countries in Latin America and the Caribbean. PriceSmart acquired Aeropost in 2018 to leverage Aeropost’s technology and its management’s experience in developing software and systems for e-commerce and logistics to advance PriceSmart’s development of an omni-channel shopping experience for its Members. In October 2021, PriceSmart sold the legacy casillero and marketplace operations, which were not core to our main objectives. PriceSmart retained key Aeropost personnel and technology in the transaction, with which we believe we can continue to grow our omni-channel business. This technology and talent have helped us combine our brick-and-mortar operations with online capabilities, supported by a more sophisticated distribution system. These online capabilities and the enhanced distribution system provide us with the potential to expand our geographic coverage, reach more Members in more ways, increase efficiencies, reduce costs and provide Members with greater value.The Company disposed of its entire ownership in Aeropost to an unrelated third party. However, as part of the consideration of the sale, Aeropost will provide $2.0 million of logistical services to the Company as needed for 36 months. The Company recorded a pre-tax gain from the sale of Aeropost of $2.7 million in the first quarter of fiscal 2022 in Other income (expense), net in the consolidated statements of income.interim consolidated financial statements and accompanying notes. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable. Actual results could differ from those estimates. The novel coronavirus (COVID-19) pandemic continues to significantly impact the economies of the countries where the Company operates. The Company has assessed the impact that COVID-19 has had on our estimates assumptions and accounting policies and made additional disclosures, if and as necessary.assumptions.February 28,
2023August 31,
2022Short-term restricted cash $ 9,110 $ 3,013 Long-term restricted cash 10,515 10,650 $ 19,625 $ 13,663 $10.0 $7.7 million with a few of its lenders as compensating balances for several U.S. dollar and euro denominated loans payable over several years. The certificates of deposit will be reduced annually commensurate with the loan balances.and Other Intangibles, net– Goodwill and other intangibles totaled $44.5 $43.2 million as of May 31, 2022February 28, 2023 and $52.9$43.3 million as of August 31, 2021.2022. The Company reviews reported goodwill and other intangibles at the reporting unit level for impairment. The Company tests goodwill for impairment at least annually or when events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In connection with the Aeropost disposal, we retained the intellectual property associated with our PriceSmart.com business. However, in conjunction with this disposal, we wrote off $1.7 million of goodwill, $4.4 million of intangibles related to the Aeropost trademark, and $1.0 million of intangibles related to the developed technology of Aeropost directly associated with Aeropost’s legacy marketplace and casillero business. These write offs of goodwill and intangible assets are included as part of the $2.7 million net pre-tax gain recorded during the first fiscal quarter of 2022 for the sale of Aeropost.there have been changes inwhere the method of computingCompany operates, minimum income tax payments, under which the governments have sought torules require the Company to pay taxes based on athe percentage of sales rather than taxable income. As a result, the Company has made and may continue to makeis making income tax payments substantially in excess of those it would expect to pay based on taxable income. The Company had income tax receivables of $11.3 million and $11.0 million as of May 31, 2022 and August 31, 2021, respectively, and deferred tax assets of $3.3$4.0 million and $3.5 million as of May 31, 2022February 28, 2023 and August 31, 2021,2022, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, theThe Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. Similarly, we have not placed any recoverability allowances on tax receivables that arise from payments we are required to make originating from tax assessments that we are appealing, as we believe it is more likely than not that we will ultimately prevail in the related appeals. There can be no assurance, however, that the Company will be successful in recovering all tax receivables or deferred tax assets.•Short-term VAT and Income tax receivables, recorded as Prepaid expenses and other current assets: This classification is used for any countries where the Company’s subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year. The Company also classifies as short-term any approved refunds or credit notes to the extent that the Company expects to receive the refund or use the credit notes within one year.•Long-term VAT and Income tax receivables, recorded as Other non-current assets: This classification is used for amounts not approved for refund or credit in countries where the Company’s subsidiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes. An allowance is provided against VAT and income tax receivable balances in dispute when the Company does not expect to eventually prevail in its recovery. The Company does not currently have any allowances provided against VAT and income tax receivables.February 28,
2023August 31,
2022Prepaid expenses and other current assets $ 1,898 $ 3,890 Other non-current assets 33,964 32,460 Total amount of VAT receivables reported $ 35,862 $ 36,350 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)February 28,
2023August 31,
2022Prepaid expenses and other current assets $ 13,949 $ 12,077 Other non-current assets 20,725 19,985 Total amount of income tax receivables reported $ 34,674 $ 32,062 TheThe Company does not combine lease and non-lease components.this lease expense is incurred. The Company’s variable lease payments generally relate to amounts the Company pays for additional contingent rent based on a contractually stipulated percentage of sales.3three types of equity awards: restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). Compensation related to RSAs, RSUs and PSUs is based on the fair market value at the time of grant. The Company recognizes the compensation cost related to RSAs and RSUs over the requisite service period as determined by the grant, amortized ratably or on a straight-line basis over the life of the grant. The Company also recognizes compensation cost for PSUs over the performance period of each tranche, adjusting this cost based on the Company’s estimate of the probability that performance metrics will be achieved. If the Company determines that an award is unlikely to vest, any previously recorded expense is then reversed.ninesix months ended May 31, 2022,February 28, 2023, the Company reissued approximately 9,0007,000 treasury shares.0no impairment of such non-financial assets was recorded.20212022 Annual Report on Form 10-K.May 31, 2022February 28, 2023 and August 31, 20212022.For the Company includes the costs of external and internal shipping, handling and other direct costs incurred to provide delivery, insurance and customs processing services in cost of goods sold, non-merchandise.ninesix months ended May 31,February 28, 2023 and 2022 and 2021 (in thousands):Three Months Ended Six Months Ended February 28,
2023February 28,
2022February 28,
2023February 28,
2022Effect on other comprehensive income (loss) due to foreign currency translation $ 12,199 $ 2,413 $ 11,314 $ (5,718) Three Months Ended Six Months Ended February 28,
2023February 28,
2022February 28,
2023February 28,
2022Currency loss $ (5,555) $ (1,775) $ (10,058) $ (3,638) FASB ASC 740 ASU 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income TaxesIn December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. The Company adopted ASU No. 2019-12 on September 1, 2021, the first quarter of fiscal year 2022. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. other new accounting standards that had a material impact on the Company’s consolidated financial statements during the nine-monthsix-month period ended May 31, 2022,February 28, 2023, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of May 31, 2022February 28, 2023 that the Company expects to have a material impact on its consolidated financial statements.certificates;cards; therefore, the Company assumes a 100% redemption rate prior to expiration of the gift certificate.cards. The Company periodically reviews unredeemed outstanding gift certificates, and the gift certificates that have expired are recognized as “Other revenue and income” on the consolidated statements of income.Contract Liabilities February 28,
2023August 31,
2022Deferred membership income $ 31,128 $ 28,000 Other contract performance liabilities $ 20,140 $ 10,473 Three Months Ended Six Months Ended February 28,
2023February 28,
2022February 28,
2023February 28,
2022Foods & Sundries $ 552,153 $ 492,776 $ 1,064,046 $ 963,726 Fresh Foods 325,479 289,122 620,766 558,797 Hardlines 119,689 120,335 235,285 232,274 Softlines 66,372 64,561 120,790 115,034 Other Business 52,306 45,102 100,575 86,108 Net Merchandise Sales $ 1,115,999 $ 1,011,896 $ 2,141,462 $ 1,955,939 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)nine-monthssix-months ended May 31,February 28, 2023 and 2022 and 2021 (in thousands, except per share amounts):Three Months Ended Six Months Ended February 28,
2023February 28,
2022February 28,
2023February 28,
2022Net income attributable to PriceSmart, Inc. $ 31,347 $ 31,461 $ 64,252 $ 61,972 Less: Allocation of income to unvested stockholders (51) (78) (627) (600) Net income attributable to PriceSmart, Inc. available for distribution $ 31,296 $ 31,383 $ 63,625 $ 61,372 Basic weighted average shares outstanding 30,741 30,578 30,727 30,565 Add dilutive effect of performance stock units (two-class method) 19 4 13 28 Diluted average shares outstanding 30,760 30,582 30,740 30,593 Basic net income per share $ 1.02 $ 1.03 $ 2.07 $ 2.01 Diluted net income per share $ 1.02 $ 1.03 $ 2.07 $ 2.01 20222023 and 20212022 (amounts are per share):First Payment Second Payment
Date
Paid
Payable
Date
Paid
PayableDeclared Amount Record
DateDate
PaidDate
PayableAmount Record
DateDate
PaidDate
PayableAmount 2/3/2023 2/3/2023 $ 0.92 2/16/2023 2/28/2023 N/A $ 0.46 8/15/2023 N/A 8/31/2023 $ 0.46 2/3/2022 $ 0.86 2/15/2022 2/28/2022 N/A $ 0.43 8/15/2022 8/31/2022 N/A $ 0.43 uncertainty surrounding the ongoing effects of the COVID-19 pandemicuncertain macroeconomic conditions on our results of operations and cash flows.Total Beginning balance, September 1, 2022 $ (195,586) $ — $ (195,586) Foreign currency translation adjustments 11,314 — 11,314 15 — 15 554 — 554 Ending balance, February 28, 2023 $ (183,703) $ — $ (183,703) Attributable to
PriceSmartNoncontrolling
InterestsTotal Beginning balance, September 1, 2021 $ (182,508) $ 251 $ (182,257) Foreign currency translation adjustments (5,718) 3 (5,715) 101 — 101 3,712 — 3,712 Sale of Aeropost — (254) (254) Ending balance, February 28, 2022 $ (184,413) $ — $ (184,413) Attributable to
PriceSmartNoncontrolling
InterestsTotal Beginning balance, September 1, 2021 $ (182,508) $ 251 $ (182,257) Foreign currency translation adjustments (19,034) 3 (19,031) (341) — (341) 6,170 — 6,170 Amounts reclassified from accumulated other comprehensive loss 127 — 127 Sale of Aeropost — $ (254) (254) Ending balance, August 31, 2022 $ (195,586) $ — $ (195,586) February 28,
2023August 31,
2022Retained earnings not available for distribution $ 8,971 $ 8,648 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)IncomeOur income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. The Company isWe are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating its ability to recover deferred tax assets in the jurisdictions from which they arise, the Company considerswe consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company beginswe begin with historical results adjusted for the results of discontinued operations and incorporates assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income (loss).ninesix months ended May 31, 2022.May 31, 2022February 28, 2023 and August 31, 2021,2022, the Company has recorded within other accrued expenses and other current liabilities a total of $1.2$1.4 million and $1.8$1.1 million, respectively, for various non-income tax related tax contingencies.May 31, 2022February 28, 2023 and August 31, 2021,2022, respectively, and deferred tax assets of $3.3$4.0 million and $3.5 million as of May 31, 2022February 28, 2023 and August 31, 2021,2022, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. Similarly, we have not placed any recoverability allowances on tax receivables that arise from payments we are required to make originating from tax assessments that we are appealing, as we believe it is more likely than not that we will ultimately prevail in the related appeals. There can be no assurance, however, that the Company will be successful in recovering all tax receivables or deferred tax assets.May 31, 2022February 28, 2023 and August 31, 2021,2022, the Company had approximately $10.0$14.4 million and $16.2$16.5 million, respectively, in contractual obligations for construction services not yet rendered.May 31, 2022,February 28, 2023, the Company had entered into three land purchase agreements that, if completed, would result in the use of approximately $10.6 million in cash. These land purchase agreements correlate with our due diligence for two potential additional warehouse clubs and one additional Produce Distribution Center. Lastly, the Company has one lease option agreement for one additional warehouse club.May 31, 2022February 28, 2023 (in thousands):
Ownership
Investment
Investments
Inception to
Date
Variable
Interest
in Entity
to Future
Additional
Investments(1)
Maximum
Exposure
to Loss in
Entity(2)Entity %
OwnershipInitial
InvestmentAdditional
InvestmentsNet Income (Loss)
Inception to
DateCompany’s
Variable
Interest
in EntityGolfPark Plaza, S.A. 50 % $ 4,616 $ 2,402 $ (96) $ 6,922 $ 99 $ 7,021 Price Plaza Alajuela PPA, S.A. 50 % 2,193 1,236 109 3,538 785 4,323 Total $ 6,809 $ 3,638 $ 13 $ 10,460 $ 884 $ 11,344 Facilities Used February 28, 2023 - Committed $ 75,000 $ — $ 151 $ 74,849 — % February 28, 2023 - Uncommitted 91,000 10,133 — 80,867 12.7 February 28, 2023 - Total $ 166,000 $ 10,133 $ 151 $ 155,716 12.7 % August 31, 2022 - Committed $ 75,000 — 73 $ 74,927 — % August 31, 2022 - Uncommitted 91,000 10,608 — 80,392 5.3 August 31, 2022 - Total $ 166,000 $ 10,608 $ 73 $ 155,319 5.3 % May 31, 2022February 28, 2023 and August 31, 2021,2022, the Company was in compliance with all covenants or amended covenants for each of its short-term facility agreements. These facilities generally expire annually or bi-annually and are normally renewed. One of these facilities is a committed credit agreement with one bank for $75.0 million. In exchange for the bank’s commitment to fund any drawdowns the Company requests, the Company pays an annual commitment fee of 0.25%, payable quarterly, on any unused portion of this facility. Additionally, the Company has uncommitted facilities in most of the countries where it operates, with drawdown requests subject to approval by the individual banks each time a drawdown is requested.ninesix months ended May 31, 2022:(Amounts in thousands) Current
portion of
long-term debtLong-term
debt (net of current portion)Total Balances as of August 31, 2022 $ 33,715 $ 103,556 $ 137,271 (1) Proceeds from long-term debt incurred during the period: Guatemala subsidiary — 12,454 12,454 Barbados subsidiary — 7,460 7,460 Honduras subsidiary 1,002 12,796 13,798 Total proceeds from long-term debt incurred during the period 1,002 32,710 33,712 Repayments of long-term debt: (8,175) (8,819) (16,994) Reclassifications of long-term debt due in the next 12 months 868 (868) — 11 (196) (185) Balances as of February 28, 2023 $ 27,421 $ 126,383 $ 153,804 (3)
portion of
long-term debt
debt (net of current portion) cash and non-cash assets assigned as collateral for these loans was $7.0 million and $153.5 million, respectively.$155.6 million. The carrying amount of cash assets assigned as collateral for these loans was $5.3 million. cash and non-cash assets assigned as collateral for these loans was $5.9$172.0 million. The carrying amount of cash assets assigned as collateral for these loans was $4.4 million.million and $160.6million, respectively.May 31, 2022February 28, 2023 and August 31, 2021,2022, the Company had approximately $114.9$102.9 million and $103.4$110.7 million, respectively, of long-term loans held in the U.S. entity and in several foreign subsidiaries, thatwhich require these subsidiariesentities to comply with certain annual or quarterly financial covenants, which include debt service and leverage ratios. The Company was in compliance with all covenants or amended covenants for both periods. The net increase in long-term debt during the nine months ended May 31, 2022 is primarily attributable to a loan entered into by the Company’s Trinidad subsidiary, whereby it received $25.0 million in U.S. dollars, which it will pay back in Trinidad dollars (using a conversion rate fixed upon initial disbursement) over the four-year life of the loan.Twelve Months Ended February 28, Amount 2024 $ 27,421 2025 37,926 2026 15,534 2027 13,288 2028 43,483 Thereafter 16,152 Total $ 153,804 May 31, 2022,February 28, 2023, all of the Company’s interest rate swap and cross-currency interest rate swap derivative financial instruments are designated and qualify as cash flow hedges. The Company formally documents the hedging relationships for its derivative instruments that qualify for hedge accounting.ninesix months ended May 31, 2022:
Entered
into
Financial
Counter-
party
Financial
Instruments
US$
Notional
Amount
US$
loan
Held
with
(swap
counter-party)
for PSMT
Subsidiary
Dates
Period of swapEntity Date
Entered
intoDerivative
Financial
Counter-
partyDerivative
Financial
InstrumentsInitial
US$
Notional
AmountBank
US$
loan
Held
withFloating Leg
(swap
counter-party)Fixed Rate
for PSMT
SubsidiarySettlement
DatesEffective
Period of swap
May 3, 2027Colombia subsidiary 26-Sep-22 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 12,500,000 PriceSmart, Inc. 3.00% 10.35 % 24th day of each December, March, June and September beginning December 26, 2022 September 26, 2022 - September 24, 2024
November 18, 2024Colombia subsidiary 3-May-22 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 10,000,000 PriceSmart, Inc. 3.00% 9.04 % 3rd day of each May, August, November and February, beginning on August 3, 2022 May 3, 2022 - May 3, 2027
December 3, 2024Colombia subsidiary 17-Nov-21 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 10,000,000 PriceSmart, Inc. 3.00% 8.40 % 17th day of each February, May, August, and November, beginning on February 17, 2022 November 17, 2021 - November 18, 2024
November 27, 2024Colombia subsidiary 3-Dec-19 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 7,875,000 Citibank, N.A. Variable rate 3-month Libor plus 2.45% 7.87 % 3rd day of each December, March, June and September beginning March 3, 2020 December 3, 2019 - December 3, 2024
September 26, 2022Colombia subsidiary 27-Nov-19 Citibank, N.A. ("Citi") Cross currency interest rate swap $ 25,000,000 Citibank, N.A. Variable rate 3-month Libor plus 2.45% 7.93 % 27th day of each November, February, May and August beginning February 27, 2020 November 27, 2019 - November 27, 2024
March 23, 2023Panama subsidiary 25-Jun-18 Bank of Nova Scotia ("Scotiabank") Interest rate swap $ 14,625,000 Bank of Nova Scotia Variable rate 3-month Libor plus 3.0% 5.99 % 23rd day of each month beginning on July 23, 2018 June 25, 2018 - March 23, 2023
February 24, 2024
March 1, 2027PriceSmart, Inc. 7-Nov-16 MUFG Union Bank, N.A. ("Union Bank") Interest rate swap $ 35,700,000 Union Bank Variable rate 3-month Libor plus 1.70% 3.65 % 1st day of each month beginning on April 1, 2017 March 1, 2017 - March 1, 2027 ninesix months ended May 31,February 28, 2023 and February 28, 2022, and May 31, 2021, the Company included the gain or loss on the hedged items (that is, variable-rate borrowings) in the same line item—interest expense—as the offsetting gain or loss on the related interest rate swaps as follows (in thousands):Income Statement Classification Total Interest expense for the three months ended February 28, 2023 $ 1,327 $ 190 $ 1,517 Interest expense for the three months ended February 28, 2022 $ 544 $ 908 $ 1,452 Interest expense for the six months ended, February 28, 2023 $ 2,430 $ 537 $ 2,967 Interest expense for the six months ended February 28, 2022 $ 1,101 $ 1,757 $ 2,858
expense on
borrowings(1)
swaps (2) Notional Amount as of Floating Rate Payer (Swap Counterparty) February 28,
2023August 31,
2022Union Bank $ 30,706 $ 31,344 Citibank N.A. 57,263 66,353 Scotiabank 7,875 8,625 Total $ 95,844 $ 106,322
Classification
Value
Effect
OCI
Value
Effect
OCIFebruary 28, 2023 August 31, 2022 Derivatives designated as cash flow hedging instruments Balance Sheet
ClassificationFair
ValueNet Tax
EffectNet
OCIFair
ValueNet Tax
EffectNet
OCICross-currency interest rate swaps $ 41 $ (11) $ 30 $ 2,736 $ (348) $ 2,388 Cross-currency interest rate swaps 13,550 (4,742) 8,808 10,289 (4,559) 5,730 Cross-currency interest rate swaps — — — (82) 25 (57) Interest rate swaps 2,444 (540) 1,904 1,596 (6) 1,590 Net fair value of derivatives designated as hedging instruments $ 16,035 $ (5,293) $ 10,742 $ 14,539 $ (4,888) $ 9,651
(Counterparty)
Entered into (Range)
entered intoFinancialDerivative Financial
Instrument
(Counterparty)DerivativeTotal NotionalFinancialAmountsInstrumentNotional
Amount(in thousands)
Dates (Range)DateEffective Period
of ForwardColombia4-Feb-2211-Jan-2023 - 17-Feb-2023 Forward foreign
exchange contracts (USD)5,0003-Aug-22February 4, 202217-Apr-2023 - August 3, 202214-Nov-2023Colombia 28-Mar-2218-Jan-2023 - 23-Feb-2023Scotiabank Colpatria, S.A.
exchange contracts (USD)2,00028-Jun-2228 March, 202219-May-2023 - 28 June, 202216-Nov-2023ColombiaBanco Ficohsa28-Mar-22HondurasScotiabank Colpatria, S.A.22-Feb-2023 - 28-Feb-2023
exchange contracts (USD)2,00026-Jul-2228 March, 20221-Mar-2023 - 26 July, 20227-Mar-2023Colombia28-Mar-22Scotiabank Colpatria, S.A.Forward foreign
exchange contracts (USD)$1,00025-Aug-2228 March, 2022 - 25 August, 2022ninesix month periods ended May 31, 2022February 28, 2023 and May 31, 2021.1one U.S. territory that are located in Central America, the Caribbean and Colombia.Colombia. In addition, the Company operates distribution centers and corporate offices in the United States. The Company has aggregated its warehouse clubs, distribution centers and corporate offices into reportable segments. The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographic location, which are used by management and the Company's chief operating decision maker in setting up management lines of responsibility, providing support services, and making operational decisions and assessments of financial performance. Segment amounts are presented after converting to U.S. dollars and consolidating eliminations. Certain revenues, operating costs and inter-company charges included in the United States segment are not allocated to the segments within this presentation, as it is impractical to do so, and they appear as reconciling items to reflect the amount eliminated on consolidation of intersegment transactions. From time to time, the Company revises the measurement of each segment's operating income and net income, including certain corporate overhead allocations, and other measures as determined by the information regularly reviewed by the Company's chief operating decision maker.management. When the Company does so, the previous period amounts and balances are reclassified to conform to the current period's presentation.United
States
OperationsCentral
American
OperationsColombia Operations Total Three Months Ended February 28, 2023 Revenue from external customers $ 6,882 $ 694,210 $ 332,306 $ 108,791 $ — $ 1,142,189 Intersegment revenues 365,177 6,801 1,137 1,175 (374,290) — Depreciation, Property and equipment 1,478 8,925 4,792 2,299 — 17,494 Amortization, Intangibles 381 — — — — 381 Operating income (loss) 6,964 56,633 25,474 4,662 (39,933) 53,800 Net income (loss) attributable to PriceSmart, Inc. 1,279 46,442 20,424 3,135 (39,933) 31,347 Capital expenditures, net 3,338 16,067 3,968 5,031 — 28,404 Six Months Ended February 28, 2023 Revenue from external customers $ 17,340 $ 1,323,289 $ 639,831 $ 216,535 $ — $ 2,196,995 Intersegment revenues 772,817 13,383 2,651 1,880 (790,731) — Depreciation, Property and equipment 2,856 17,724 9,423 4,675 — 34,678 Amortization, Intangibles 765 — — — — 765 Operating income (loss) 20,556 106,763 49,977 9,530 (77,499) 109,327 Net income (loss) attributable to PriceSmart, Inc. 7,104 88,448 39,708 6,491 (77,499) 64,252 Long-lived assets (other than deferred tax assets) 74,226 524,474 209,684 169,934 — 978,318 Goodwill 8,981 24,149 10,055 — — 43,185 Total assets 221,076 959,064 474,637 231,395 — 1,886,172 Capital expenditures, net 8,829 28,311 7,369 9,314 — 53,823 Three Months Ended February 28, 2022 Revenue from external customers $ 8,722 $ 614,381 $ 293,680 $ 121,774 $ — $ 1,038,557 Intersegment revenues 372,536 5,030 1,333 779 (379,678) — Depreciation, Property and equipment 1,541 8,598 4,023 2,556 — 16,718 Amortization, Intangibles 380 — — — — 380 Operating income (loss) 8,299 46,052 21,755 6,124 (33,908) 48,322 Net income (loss) attributable to PriceSmart, Inc. 3,176 38,750 17,624 5,819 (33,908) 31,461 Capital expenditures, net 1,298 13,361 14,974 3,702 — 33,335 Six Months Ended February 28, 2022 Revenue from external customers $ 22,706 $ 1,185,885 $ 566,168 $ 239,154 $ — $ 2,013,913 Intersegment revenues 786,879 10,028 2,777 1,601 (801,285) — Depreciation, Property and equipment 2,006 16,898 8,041 4,920 — 31,865 Amortization, Intangibles 836 — — — — 836 Operating income (loss) 14,556 89,431 41,633 12,502 (63,783) 94,339 Net income (loss) attributable to PriceSmart, Inc. 6,548 74,650 34,074 10,502 (63,802) 61,972 Long-lived assets (other than deferred tax assets) 75,543 497,585 212,418 176,911 — 962,457 Goodwill 8,982 24,309 10,043 — — 43,334 Total assets 191,677 860,718 463,236 257,699 — 1,773,330 Capital expenditures, net 3,207 26,051 22,047 16,085 — 67,390 As of August 31, 2022 Long-lived assets (other than deferred tax assets) $ 71,743 $ 498,204 $ 218,021 $ 175,194 $ — $ 963,162 Goodwill 8,981 24,250 10,072 — — 43,303 Investment in unconsolidated affiliates — 10,534 — — — 10,534 Total assets 230,411 867,898 474,411 235,680 — 1,808,400
States
Operations
American
Operations
Operations(1)
Items(2)May 31, 2022February 28, 2023 through the date of issuance of these consolidated financial statements and has determined that, except as set forth below, there are no subsequent events that require disclosure."we""our") anticipated future revenues and earnings, adequacy of future cash flows, omni-channel initiatives, proposed warehouse club openings, the Company's performance relative to competitors 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,” “intend,” and like expressions, and the negative thereof. These statements are only as of the date they are made, and we do not undertake to update these statements, except as required by law. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, but not limited to: various political, economic and complianceto, the risks associated with our international operations, adverse changesdetailed in economic conditions in our markets, natural disasters, volatility in currency exchange rates and illiquidity of certain local currencies in our markets, competition, consumer and small business spending patterns, political instability, increased costs associated with the integration of online commerce with our traditional business, whether the Company can successfully execute strategic initiatives, our reliance on third party service providers, including those who support transaction and payment processing, data security and other technology services, cybersecurity breaches that could cause disruptions in our systems or jeopardize the security of Member or business information, cost increases from product and service providers, interruption of supply chains, novel coronavirus (COVID-19) related factors and challenges, exposure to product liability claims and product recalls, recoverability of moneys owed to PriceSmart from governments, and other important factors discussedthis Quarterly Report under the captions “Itemheading “Part II. Item 1A. Risk Factors” and “Itemin the Annual Report on Form 10-K under the heading “Part I. Item 1A. Risk Factors” and “Part I Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, 20212022 filed with the United States Securities and Exchange Commission (“SEC”) on October 21, 2021.31, 2022. These risk factors may be updated from time to time in our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Forward-looking statements speak only as of the date that they are made, and the Company does not undertake to update them, except as required by law. In addition, these risks are not the only risks that the Company faces. The Company could also be affected by additional factors that apply to all companies operating globally and in the U.S., as well as other risks that are not presently known to the Company or that the Company currently considers to be immaterial.PriceSmart existsand businesses of our Members, our employees and Members, provide socially responsible support to the communities in which we operate our communities by reliablybusiness and consistently providingdeliver a fair financial return to our investors. PriceSmart is the only membership-based warehouse club business in the markets where we operate in Latin America and the Caribbean. Following in the tradition of PriceClub® and Costco®, our goal is to offer high quality goods and valuable servicesmerchandise at the lowest possible prices.prices by leveraging volume purchasing and eliminating inefficiencies from the distribution network.began operationsopened its first location in 1996Panama City, Panama in San Diego, California,October of 1996. Today, our company operates 50 warehouse clubs in 12 countries, plus the U.S. Virgin Islands, with revenues in excess of $4.0 billion in fiscal year 2022.intentprice of the products we sell. We believe membership also provides a sense of identity and loyalty that, in turn, reduces the need for PriceSmart to bring our U.S. style membership shoppingspend money on advertising.conceptbusinesses, PriceSmart stocks a limited number of stock keeping units (SKU’s). Our SKU count is less than 3,000 items, compared to emerging and developing countries.a grocery store that might stock 30,000 SKU’s or a hypermarket that might stock over 100,000 SKU’s. We currently operate 50 warehouse clubs in Central America, the Caribbean and Colombia. In all 13 markets, our Members are able to engage with us on social media and shop on our e-commerce platform, PriceSmart.com.Member experience is our top priority. We rigorously limitbelieve limiting the number of SKU’s in ordercontributes to drive volume and leverage purchasing power for the benefitefficiencies at all levels of our business, thereby supporting lower prices for our Members. Our curatedoffers a combination of specialty items that are imported and/or unique to our markets, locally and regionally sourced goods, essential goods, direct-from-farm fresh produce andits own private label consumer products under the brand “Member’s Selection®“Member’s Selection®”. Our The Member’s Selection® offering allows usSelection® brand provides our Members with high quality private label merchandise at prices lower than the comparable national brands. Similar to maintain key quality items at lower prices and provides the opportunity to reduce supply chain risks. We also offer prepared foods and fresh-baked goods. Most merchandise is available for online ordering through PriceSmart.com and for delivery or contactless curbside pickup through our Click & Go™ service. We also offer well-being services such as Optical, Pharmacy and Audiology. Ourother warehouse clubs, typically featurePriceSmart has food courts at all locations with the traditional selection of hot dogs and tire centerspizza, along with other items. Unique to many of our PriceSmart clubs are our coffee bars selling coffee and services. We are also a significant provider of goods to small businessescoffee specialties, with coffee sourced from the coffee growing regions in our markets that benefit from larger pack sizes and low pricing. We strive to continually enhance the valuemarkets. PriceSmart also offers an extensive line of bakery products, which are produced by our membership such that the valuebakeries.haveoperate smaller format clubs in urban areas where it is difficult to secure sufficient real estate at a reasonable cost. However, for future clubs with a smaller physical footprint, beginning with our San Miguel, El Salvador Club, we have redesigned the layout in order to accommodate a similar number of selling pallet positions as our larger clubs.Members.Members and their shopping preferences. We now provide digital membership and auto-renewal for the convenience of our Members. Additionally, technology is fundamental to providing a platform for our members to shop online.revisecontinually review and upgrade our logistics and distribution systems in an attempt to capture efficiencies as our business grows in sales volume, in geography and through activity generated by e-commerce. We utilize regional distribution centers in the U.S. and Costa Rica as well as several local distribution centers to distribute merchandise efficiently and to create flexibility to mitigate the risk of supply-chain disruption. We also seek to capture efficiencies by using specialized distribution centers for produce and centralized production for categories such as bakery and meat processing.OwnershipWe believe ownership of our real estate in many of our markets provides several advantages, including lower operating expenses, flexibility to expand or otherwise enhance our buildings, long-term control over the use of the property and potential increase of value in future years. Although we prefer to own real estate, we sometimes lease our real estate when leasing provides the best available opportunity.Our warehouse clubs currently operate in emerging markets that historically have had higher growth rates and lower warehouse club market penetration than the U.S. market. In locations where we operate, weoperators.operators in our markets. However, we do face competition from various local and international retail formats such as hypermarkets, supermarkets, cash and carry outlets, hard discounters, home improvement centers, electronic retailers, specialty stores, convenience stores, traditional wholesale distribution and online sales.Country/Territory Number of
Warehouse Clubs
in Operation as of February 28, 2022Number of
Warehouse Clubs
in Operation as of February 28, 2023Anticipated Warehouse Club Openings in Calendar Year 2023 Anticipated Warehouse Club Openings in Calendar Year 2024 Colombia 9 9 1 — Costa Rica 8 8 — — Panama 7 7 — — Dominican Republic 5 5 — — Guatemala 5 5 1 — Trinidad 4 4 — — Honduras 3 3 — — El Salvador 2 2 1 1 Nicaragua 2 2 — — Jamaica 1 2 — — Aruba 1 1 — — Barbados 1 1 — — U.S. Virgin Islands 1 1 — — Totals 49 50 3 1 smaller format warehouse club in the Hacienda San Andrés area of San Miguel, El Salvador, approximately 100 miles east of the capital city San Salvador, which is anticipated to open in the spring ofMay 2023. It will be our third club in El Salvador. We have also purchased land and plan to open our fourth warehouse club in El Salvador, located in Santa Ana, approximately 40 miles west from the nearest club in the capital of San Salvador. The club will be built on a five-acre property and is anticipated to open in early 2024. In addition, we are proceeding with the construction of a smaller format warehouse club in the affluent El Poblado area of Medellín, Colombia. We expect to open this warehouse club, which will be our second club in Medellín and the Company’s tenth warehouse club in Colombia, in 2023. We have recently leased land and have plans to open our sixth warehouse club in Guatemala, located in Escuintla, approximately 40 miles south of the summernearest club in the capital of Guatemala City. The club will be built on a five-acre property and is anticipated to open in the fall of 2023. Once these twofour new clubs are open, we will operate 5254 warehouse clubs.looking to expandexploring expansion of that business intoin other markets.COVID-19 PandemicThe COVID-19 pandemic has challenged us in many respects and continues to do so. COVID-related and other supply and logistics constraints have continued to adversely affect some merchandise categories and are expected to do so for the foreseeable future. The pandemic continues to remain unpredictable in duration and intensity, and we could see periodic reinstatements of stay-at-home orders and other restrictions should infections increase significantly. In addition, we are seeing adverse impacts on our suppliers in the Far East and at various ports, causing delays and changes in transportation schedules. We expect continued uncertainty in the supply chain and economies of our markets as a result of the pandemic and anticipate volatility in employment trends, consumer confidence and demand; shifts in consumer demands; volatility and liquidity of foreign currency exchange rates; volatility of commodity prices; and possible fiscal austerity measures taken by governments in our markets, which will likely impact our results for the foreseeable future. For additional information, refer to the risk factors discussed in Part I. “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2021.However, COVID has also presented us opportunities to improve how we do business, how we serve our Members and how we treat our employees. COVID:Increased our focus on expanding local sourcing and near-shoring of goods that we offer,Expedited our efforts to engage with Members online, including the launch of PriceSmart.com, andHighlighted the importance of employee well-being and accelerated our decision to ensure health coverage for all employees in our Company. We also are establishing flexible schedules and hybrid work environments for office employees in order to maximize efficiencies and provide opportunity for balance in our employees’ lives.GlobalUncertain economic conditions and local travel restrictions and a general slow-downslowdown in global economic activity as a result of COVID-19 have significantly impactedgrowth and investment may continue to impact the economies in several of our markets, and could causecausing significant declines in GDP and employment and devaluations of local currencies against the U.S. dollar.The current environment that we are operatingDuring the second quarter of fiscal year 2023, inflation in is characterized by global supply chain disruption, high fuelall of our markets and freight costs, inflation, significantdevaluations of foreign currency, especially in Colombia, were significant headwinds. However, some markets, especially Costa Rica, benefited from currency appreciation which off-set most of the currency devaluations experienced in our other countries. Substantial product cost increases due to inflation or commodity price increases have and less predictable consumer behaviorcould continue to impact our financial results and purchasing patterns due,could lead to reduced sales, fewer units sold, and/or margin pressure. Events directly or indirectly related to COVID-19 have resulted in part, to COVID’s impact on consumer lifestyles.market and supply-chain disruptions. These factors have increased the complexity of managing our inventory flow and business. During business; however, during the last halffirst six months of fiscal year 2021 and persisting into fiscal 2022,2023, we saw several factors pressuring supply chains, including raw material shortages, limited manufacturer capacity, factory labor shortages, container shortages, port delays,a general improvement in transit days and truck and driver shortages. These disruptions and shortages continue to impact the timinga reduction in freight rates of deliveries and are leading to higher freight and merchandise costs. Despite all these issues, we continued to see strong sales during the quarter.our shipping containers. We are working to hold down and/or mitigate the price increases passed on to theour Members while maintaining the right inventory mix to grow sales. OneOne key mitigating factor has been our expanded network of distribution centers, which has facilitated alternative routings of shipments,shipping routes, increased throughput, and provided flexibility to mitigate our supply-chain challenges and risks more effectively mitigate these challenges. We made strategic investments in inventory based on anticipated demand and worked with our local vendors to source alternative products in order to reduce out-of-stocks on high demand items that were impacted by these disruptions or that were affected by electronic part shortages. However, rapidly changing consumer preferences, long lead times, and supply chain disruptions led to inventory build up in some of the discretionary non-foods categories in our hardlines segment. We took significantly higher than usual markdowns in the third quarter in these categories to sell through out-of-season merchandise. We are planning to reduce our days on hand of inventory to better adapt to and meet the changing demands of our Members. We expect to face some margin pressure in the fourth quarter of fiscal 2022, but significantly less than the third fiscal quarter, as we continue to right-size our inventory and rebalance our inventory mix.effectively.fluctuationsfluctuation can be one of the largest variables affecting our overall sales and profit performance, as we have experienced in prior fiscal years, because many of our markets are susceptible to foreign currency exchange rate volatility. During the first ninesix months of fiscal year 2023 and 2022, approximately 78.8% and 2021, approximately 78.0% and 77.8%77.9%, respectively, of our net merchandise sales were in currencies other than the U.S. dollar. Of those sales, 48.7%48.9% and 48.1%48.7% consisted of sales of products we purchased in U.S. dollars for each period, respectively.intoto U.S. dollars for our consolidated results. In addition, when local currency experiences devaluation, we may elect to increase the local currency price of imported merchandise to maintain our target margins, which could impact demand for the merchandise affected by the price increase. We may also modify the mix of imported versus local merchandise and/or the source of imported merchandise in an effort to mitigate the impact of currency fluctuations. Our Colombia market has experienced a foreign currency devaluation against the U.S. dollar of approximately 23% as of February 28, 2023 compared to February 28, 2022. Raising prices to keep pace with inflation and offset currency devaluations can increase the effective cost of imported merchandise to the Member and negatively impact sales volume. As a result, beginning later in the second quarter of fiscal year 2023, we strategically held pricing steady on certain commodity and high volume items in our U.S. Foods and U.S. Fresh categories imported to Colombia, instead of increasing the prices to reflect the rising costs of these items. We expect that this action will begin to adversely impact our total gross margin percentage for our Colombia segment and our Company overall. We see Colombia as a key market for growth, and we believe this strategy will enable us to provide value for the Member during a particularly difficult economic period of high inflation and significant currency devaluation. Information about the effect of local currency devaluations is discussed further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net Merchandise Sales and Comparable Sales.”Political and other factors in eachour marketspolitical instability which may have significant effects on our business. For example, the civil unrest in Colombia in response to tax reform and austerity measures paralyzed significant portions of the country’s infrastructure as roadblocks and riots disrupted normal economic activity during the third quarter of fiscal year 2021. Austerity and tax reform measures for Colombia and other Latin American countries with high national debt levels and income disparity pose a risk for political instability. Similar unrest happened in Nicaragua and Honduras experienced anti-government protests in 2018 and 2019, respectively;2019; Costa Rica also had a general strike against tax reform measures that significantly impeded regular economic activity in 2018. Events of this sort have, and may continue to have, an adverse effect on our business.disasters.disasters. In November 2020, Hurricanes Eta and Iota brought severe rainfall, winds, and flooding to a significant portion of Central America, especially Honduras, thatwhich caused significant damage to parts of that country’s infrastructure. Although our warehouse clubs were not significantly affected and we were able to manage our supply chain to keep our warehouse clubs stocked with merchandise, thesesimilar natural disasters could adversely impact our overall sales, costs and profit performance in the future.DuringFor instance, during fiscal year 2021, we experienced significant limitations on our ability to convert Trinidad dollars to U.S. dollars or other tradeable currencies.As Our balance as of May 31, 2022, our Trinidad subsidiary hadFebruary 28, 2023 of Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately $28.8was $14.7 million, a decrease of $24.1 million from August 31, 2021 when these same balances were approximately $52.9 million and a decrease of $71.7$85.8 million from the peak of $100.5 million as of November 30, 2020. TheHowever, as the Trinidad central bank strictly manages the exchange rate of the Trinidad dollar with the U.S. dollar. Whiledollar and affects the Trinidad government has publicly stated it has no intention to devalue the Trinidad dollar, it couldlevel of U.S. Dollar liquidity in the future decidemarket through its interventions, we are subject to devalue the currency to improve market liquidity, resulting in a devaluation in the U.S. dollar value of these cash and investments balances.In March 2022 the International Monetary Fund updated prior calculations and estimated that the Trinidad dollar was over-valued between approximately 11.6% and 20.4%. If, for example, a hypothetical 20% devaluation of the Trinidad dollar were to occur, the value of our Trinidad dollar cash and investments position, measured in U.S. dollars, would decrease by approximately $5.8 million, with a corresponding increase in Accumulated other comprehensive loss reflected on our consolidated balance sheet. Separate from the Trinidad dollar denominated cash and investments balances described above, as of May 31, 2022, we had a U.S. dollar denominated monetary asset position of approximately $70.5 million in Trinidad (net of U.S. dollar denominated liabilities), which would produce a gain from a potential devaluation of Trinidad dollars. If, for example, a hypothetical 20% devaluation of the Trinidad dollar occurred, the net effect on Other income (expense), net on our consolidated statement of operations of revaluing these U.S. dollar denominated net monetary assets would be an approximate $14.1 million gain. While we may pay premiums or enter into financial transactions at a discount from the official government rate to convert our Trinidad dollars into U.S. dollars, we use the official exchange rate published by the Central Bank of Trinidad and Tobago to measure the U.S. dollar equivalent of Trinidad dollar-based revenues, expenses, assets and liabilities and the Trinidad dollar equivalent of U.S. dollar-based monetary assets and liabilities for financial reporting purposes, as there are no other reliable references available to translate or remeasure our revenues, expenses, assets and liabilities.While our balance of Trinidad dollars has been reduced significantly so far in fiscal 2022, we have not yet converted all of our Trinidad dollars into U.S. dollars. In response to these liquiditycontinued challenges in Trinidad, we have been taking multiple actions, including but not limited to: raising sales prices on imported goods in Trinidad due to increased costs of conversion ofconverting our Trinidad dollars to U.S. dollars, and risks associated with continued illiquidity, shiftingas well as being exposed to local sourcesthe risk of goods where appropriate, and entering into financing arrangements such as the loan we obtained in December 2021 whereby we received $25 million in U.S. dollars and will repay the balance in Trinidad dollars (using a conversion rate fixed upon initial disbursement) over the four-year lifepotential devaluation of the loan. Additionally, we significantly limited shipments of goods from the U.S. to Trinidad during most of fiscal 2021 due to the illiquidity of the Trinidad dollar and further reduced our shipments in the last quarter of fiscal 2021 because of the government-imposed restrictions on sales of non-essential items during that period driven by the pandemic. Although most local restrictions have been lifted and liquidity of the Trinidad dollar has improved in fiscal 2022, we continue to manage to a target level of imports in Trinidad. So far in fiscal 2022, these self-imposed import limitations have been generally in line with the needs of the market from a demand perspective.currency.high-qualityhigh quality merchandise sourced from around the world and valuable services at compelling prices in safe U.S.-styleU.S. style clubs and through PriceSmart.com. We prioritize the well-being and safety of our Members and employees. We provide good jobs, fair wages and benefits and the opportunityopportunities for growth.advancement. We strive to treat our suppliers right and empower them when we can. We conduct ourselves in a socially responsible manner as we endeavor to improve the quality of the lives of our Members their businesses and their communities,businesses, while respecting the environment and the laws of all the countries in which we operate. The annual membership fee enables us to operate our business with lower margins than traditional retail stores. As we continue to invest to increase ourin technological capabilities, we are increasing our tools to drive sales and operational efficiencies. We believe we are well positioned to blend the excitement and appeal of our brick-and-mortar business with the convenience and additional benefits of online shopping and services and, meanwhile, enhance Member experience and engagement.• Expand Real Estate Footprint withInvest in Remodeling Current PriceSmart Clubs, Adding New ClubsPriceSmart Locations and Opening More Distribution FacilitiesCenters•Increase Membership Value•Drive Incremental Sales via PriceSmart.com and Enhanced Online, Digital and Technological CapabilitiesExpand Real Estate Footprint withInvest in Remodeling Current PriceSmart Clubs, Adding New ClubsPriceSmart Locations and Opening More Distribution FacilitiesCenters. .We believe that one of the quickest and most effective ways to increase sales and profitability is to increase the size and number of parking spaces in our high-volume locations. For instance, we are currently remodeling and expanding one of our clubs in San Salvador, El Salvador. We continue to seek opportunities to expand our geographic footprint for brick-and-mortar warehouse clubs. We plan to open apursue warehouse club in El Salvador located in the city of San Miguel in the spring of 2023 and another club in Medellín, Colombia in the summer of 2023. We continue to actively pursue club growth opportunities in our markets and to evaluateassess opportunities in new markets. Our growth strategy, as it pertainsCurrently our pipeline of new clubs includes plans to real estate, includes physical distribution centersopen two warehouse clubs in El Salvador, one located in San Miguel and the other in Santa Ana, which we expect to open in May 2023 and in early 2024, respectively. Currently under construction is our second warehouse club in Medellin, Colombia, which we expect to open before the close of various types to support the flow of merchandise from the supplier to the Member, be it sales generated from the clubs or through PriceSmart.com. Also, the need for optionality in today’s world has proven essential. Therefore,calendar year 2023. Additionally, we plan to make appropriate investmentsopen our sixth warehouse club in Guatemala, located in Escuintla, which we expect to open in the fall of 2023. Our distribution network currently consists of major distribution centers in Miami and Costa Rica, complemented by varying distribution activities in our other markets. Based on our experience with our Costa Rica distribution networkcenter, we believe that investing in similar distribution centers in other major markets will play a strategic role in a variety of ways. Distribution centers are also strategically important in providing the infrastructure to maximize efficiencies, minimize supply chain disruption, maximize the efficient use of limited space insupport PriceSmart.com online sales to both our warehouse clubs,business and to provide optimal support for a growing e-commerce business. our family Members. In addition to ourmajor distribution centercenters, PriceSmart has been investing in Miami, Florida,what we also operate a regional distribution center in Costa Rica and are actively considering others. During fiscal 2022 we doubled our network ofcall Produce Distribution Centers, which enable us to purchase, process and package produce directly from two to four and are currently developing plansfarms both in our markets, as well as for two more. In some cases, these facilities also provide the opportunity to capture efficiencies by centralizing certain production activities, such as bakery, meat processing, packaging and labeling.imported produce.Value.Value. We are seeking to attract more Members and retain our current Members by expanding the benefits of being a Member of PriceSmart whether through sales, services, and/orand convenience. As benefits grow and the value of being a PriceSmart Member increases, adjustments to the membership fee may be warranted. A larger membership base and higher membership fee contribute to the bottom line of the business. We focus on growth of our membership base, Member renewal rates and spend per Member as part of how we determinedetermining how Members see our value. By adding more benefits that Members can only obtain with us, we expect to see growth in the number of Members, which drives Membership income and Merchandise sales. Recent examples of enhancements we have made to the value of membership include: additional services, such as the ability for all of our Members to transact on PriceSmart.com; Click & Go™ curbside pickup and delivery service in all of our clubs; and the implementation and expansion of our Well-being initiative, which offers Optical services with free eye exams for the Member and additional members of their families and deeply discounted eyeglass frames;frames, Audiology services with free hearing exams and deeply discounted hearing aids;aids, and, in some of our markets, Pharmacy, which provides a significant convenience to our Members.Selection®Selection®,” a brand whichthat is available only to PriceSmart Members. We believe the Member’s Selection®Selection® brand carries goodwill and is recognized in our markets for value. Private label also provides us the opportunity to source quality items locally when appropriate. Select local sourcing has multiple benefits, including support of local communities in which we operate by developing industryenhancing business activity and creating direct and indirect jobs, mitigation of foreign currency exchange risk, and reduced supply chain exposure. These initiatives offer additional benefits and services for our Members, whether they choose to shop on-line, in-club, or both. During the first ninesix months of fiscal 2022,2023, our private label sales represented 24.2%25.9% of total merchandise sales, up from 21.7%23.5% for fiscal year 2021,2022, and we plan to continue to invest in the development of additional private label products under the “Member’s Selection®Selection®” brand.CapabilitiesCapabilities.. We recognize the growing expectation of consumers in our markets for convenience. As a result, we continue to improve the functionality of PriceSmart.com and to expand our product offerings and related content available online. We also build and apply technological tools to continue to learn more about and strengthen our relationships with each of our Members. Using data analytics, we have been able to provide our Members with enhancements to the membership experience. PriceSmart.com and these tools provide the opportunity for us to continually strengthen and expand the scope of our relationship with each Member and offer incremental products and services in the future. Our PriceSmart.com offering also provides data that informs us regarding the potential viability of new clubs in new areas and offers us options to serve and expand into new markets without the need for a traditional brick & mortar club location. We also invest in technology to capture operational efficiencies and enhance our decision-making for the increasingly dynamic environment we are in.thirdsecond quarter of fiscal year 20222023 included:•Total revenues increased 15.1%10.0% over the comparable prior year period.•Net merchandise sales increased 16.5%10.3% over the comparable prior year period. We ended the quarter with 50 warehouse clubs compared to 4749 warehouse clubs at the end of the thirdsecond quarter of fiscal 2021.year 2022. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.3%0.2% versus the comparablesame three-month period.period in the prior year.•Comparable net merchandise sales (that is, sales in the 4749 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 13 weeks ended May 29, 2022March 5, 2023 increased 12.8%8.5%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.2%0.2%.•Membership income for the thirdsecond quarter of fiscal 2022year 2023 increased 7.8%7.3% to $15.4 million.$16.2 million over the comparable prior year period.•Total gross margins (net merchandise sales less associated cost of goods sold) increased 4.0%12.8% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 14.2%16.0%, a decreasean increase of 17040 basis points (1.7%)or 0.4% from the same period in the prior year.•Selling, general and administrative expenses increased 12.4% primarily due to a one-time $7.7 million severance charge for the departure of the Company's former Chief Executive Officer.thirdsecond quarter of fiscal 2022year 2023 was $33.8$53.8 million, a decreasean increase of 6.3%11.3%, or $2.2$5.5 million, compared to the thirdsecond quarter of fiscal 2021.year 2022.•We recorded a $2.5$5.3 million net currency loss in other income (expense), net primarily from currency transactions in the thirdsecond quarter of fiscal 2022year 2023 compared to a $2.2$0.8 million net currency loss primarily from currency transactions in the same period last year.thirdsecond quarter of fiscal 2022year 2023 to 33.7%34.0% from 30.9%31.0% in the thirdsecond quarter of fiscal 2021,year 2022. The increase in the effective tax rate is primarily related to changes in uncertain tax positions and changes in foreign currency value and related adjustments.separation costs associated with the departure of our former Chief Executive Officer.•Net income attributable to PriceSmart for the thirdsecond quarter of fiscal 2022year 2023 was $19.3$31.3 million, or $0.62$1.02 per diluted share, compared to $22.5$31.5 million, or $0.73$1.03 per diluted share, in the thirdsecond quarter of fiscal 2021.year 2022.ninesix months ended May 31, 2022February 28, 2023 included:•Total revenues increased 12.3%9.1% over the comparable prior year period.•Net merchandise sales increased 13.9%9.5% over the comparable prior year period. We ended the first ninesix months of fiscal 20222023 with 50 warehouse clubs compared to 4749 warehouse clubs at the end of the thirdsecond quarter of fiscal 2021.2022. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.1%1.2% versus the comparable nine-monthsix-month period.•Comparable net merchandise sales (that is, sales in the 4749 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 3926 weeks ended May 29, 2022March 5, 2023 increased 10.8%6.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.0%1.1%.•Membership income increased 9.4%7.4% to $45.3$32.1 million.•Total gross margins (net merchandise sales less associated cost of goods sold) increased 8.8%11.6% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.3%16.1%, a decreasean increase of 7030 basis points (0.7%)or 0.3% from the same period in the prior year.•Selling, general and administrative expenses increased 8.7% primarily due to a one-time $7.7 million severance charge for the departure of the Company's former Chief Executive Officer.$128.1$109.3 million, an increase of 2.0%15.9%, or $2.5$15.0 million, compared to the first ninesix months of fiscal 2021.2022.•We recorded a $6.1$9.9 million net currency loss in other income (expense) primarily from currency transactions in the current nine-monthsix-month period compared to a $4.0$0.6 million net currency lossgain primarily from the disposal of Aeropost in the same period last year.•Our effective tax ratesrate increased for the first ninesix months of fiscal year 2023 to 33.7% from 32.6% in the first six months of fiscal 2022, and 2021 were similar at 32.8% and 32.7%, respectively.primarily related to separation costs associated with the departure of our former Chief Executive Officer.•Net income attributable to PriceSmart for the first ninesix months of fiscal 2022year 2023 was $81.2$64.3 million, or $2.63$2.07 per diluted share, compared to $78.5$62.0 million, or $2.55$2.01 per diluted share, in the comparable prior year period.Three Months Ended Six Months Ended February 28,
2023February 28,
2022February 28,
2023February 28,
2022Net income as reported $ 31,347 $ 31,461 $ 64,252 $ 61,972 Adjustments: 7,747 — 7,747 — — — — (2,736) (550) — (550) 1,280 Adjusted net income $ 38,544 $ 31,461 $ 71,449 $ 60,516 Net income per diluted share $ 1.02 $ 1.03 $ 2.07 $ 2.01 0.23 — 0.23 — — — — (0.05) Adjusted net income per diluted share $ 1.25 $ 1.03 $ 2.30 $ 1.96 three and NINE months ended May 31,THREE AND SIX MONTHS ENDED FEBRUARY 28, 2023 AND 2022 and 2021nine-monthsix-month periods ended on May 31, 2022February 28, 2023 with the three-month and ninesix month-periods ended on May 31, 2021February 28, 2022 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. Unless otherwise noted, all tables on the following pages present U.S. dollar amounts in thousands. Certain percentages presented are calculated using actual results prior to rounding.ninesix months ended May 31, 2022February 28, 2023 and May 31, 2021.February 28, 2022:Three Months Ended February 28, 2023 February 28, 2022 Amount % of net
salesIncrease/ (Decrease) from prior year Change Amount % of net
salesCentral America $ 681,667 61.1 % $ 78,630 13.0 % $ 603,037 59.6 % Caribbean 327,754 29.4 38,323 13.2 289,431 28.6 Colombia 106,578 9.5 (12,850) (10.8) 119,428 11.8 Net merchandise sales $ 1,115,999 100.0 % $ 104,103 10.3 % $ 1,011,896 100.0 % Six Months Ended February 28, 2023 February 28, 2022
sales
from
prior year
salesAmount % of net
salesIncrease/ (Decrease) from prior year Change Amount % of net
salesCentral America $ 1,298,719 60.6 % $ 135,086 11.6 % $ 1,163,633 59.5 % Caribbean 630,618 29.5 72,854 13.1 557,764 28.5 Colombia 212,125 9.9 (22,417) (9.6) 234,542 12.0 Net merchandise sales $ 2,141,462 100.0 % $ 185,523 9.5 % $ 1,955,939 100.0 %
sales
from
prior year
salesNineSix Months Ended May 31,February 28, 2023 and 2022 and 202116.5%10.3% for the thirdsecond quarter and 13.9%9.5% for the nine-monthsix-month period ended May 31, 2022.February 28, 2023. The thirdsecond quarter increase resulted from a 10.8%3.8% increase in transactions and a 5.2%6.2% increase in average ticket. For the nine-monthsix-month period, the increase resulted from an 11.2%a 3.4% increase in transactions and a 2.4%5.9% increase in average ticket. Transactions represent the total number of visits our Members make to our warehouse clubs and Click & Go™PriceSmart.com curbside pickup and delivery service transactions. Average ticket represents the amount our Members spend on each visit or Click & Go™PriceSmart.com order. We had 50 clubs in operation as of May 31, 2022February 28, 2023 compared to 4749 clubs as of May 31, 2021.February 28, 2022.12.7%13.0% and 13.9%11.6% for the thirdsecond quarter and nine-monthssix-months ended May 31, 2022,February 28, 2023, respectively. These increases had a 770780 basis point (7.7%(7.8%) and 820690 basis point (8.2%(6.9%) positive impact on total net merchandise sales growth. All markets within this segment had positive net merchandise sales growth for the three and nine-monthsix-month periods ended May 31, 2022. We added one new club to the segment when compared to the comparable prior-year periods. We opened our fifth warehouse club in Guatemala in October 2021.21.4%13.2% and 13.1%, respectively, for the thirdsecond quarter and the nine-monthssix-months ended May 31, 2022.February 28, 2023. The increase for the quarter had a 600380 basis point (6.0%(3.8%) positive impact on net merchandise sales growth and the increase for the nine-monthssix-months had a 380370 basis point (3.8%(3.7%) positive impact on net merchandise sales growth. All of our markets in this segment had positive net merchandise sales growth. Sales for Trinidad were particularly strong forWe added one new club to the third quarter and the nine-months ended May 31, 2022 because insegment when compared to the comparable fiscal second and third quarters of 2021, sales were impacted by COVID-19 closures, government prohibitions on sales of most non-foods and non-essential items, and our decision to reduce imported merchandise due to the U.S. dollar liquidity challenges, which improved in the second and third quarters of fiscal 2022. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more information regarding the impact on us of the illiquidity of the Trinidad dollar.prior-year period. We opened our second warehouse club in Jamaica in April 2022.increased 25.0%decreased 10.8% and 15.8%9.6% for the thirdsecond quarter and the nine-monthssix-months ended May 31, 2022,February 28, 2023, respectively. This increasedecrease had a 280130 basis point (2.8%(1.3%) and 190110 basis point (1.9%(1.1%) positivenegative impact on total net merchandise sales growth. The primary driver of the increaseddecreased revenue for the quarter was the addition of one clubdue to the segment when compared tosignificant devaluation of the comparable priorColombian peso during the current fiscal year, period. We opened our ninth warehouse clubwhich has negatively impacted sales in Colombia in November 2021.the second quarter of fiscal year 2023.nine-monthsix-month period ended May 31, 2022.February 28, 2023. The term “currency exchange rates” refers to the currency exchange rates we use to convert net merchandise and comparable net merchandise sales for all countries where the functional currency is not the U.S. dollar into U.S. dollars. We calculate the effect of changes in currency exchange rates as the difference between current period activities translated using the current period’s currency exchange rates and the comparable prior year period’s currency exchange rates. We believe the disclosure of the effects of currency exchange rate fluctuations on our results permits investors to understand better the Company’s underlying performance.Amount % change Central America $ 16,245 2.6 % Caribbean 2,952 1.0 Colombia (21,513) (18.1) Net merchandise sales $ (2,316) (0.2) % Amount % change Central America $ 13,933 1.2 % Caribbean 7,615 1.4 Colombia (45,082) (19.3) Net merchandise sales $ (23,534) (1.2) % $19.1$2.3 million and $53.8$23.5 million, or 23020 basis point (2.3%(0.2%) and 210120 basis points (2.1%(1.2%), negative impact on net merchandise sales for the quarter and nine-monthssix-months ended May 31, 2022,February 28, 2023, respectively.$14.4$16.2 million and $30.5$13.9 million, or 280260 basis point (2.8%(2.6%) and 200120 basis point (2.0%(1.2%), negativepositive impact on net merchandise sales in our Central America segment for the quarter and nine-monthssix-months ended May 31, 2022.February 28, 2023. These currency fluctuations contributed approximately 170140 basis points (1.7%(1.4%) and 12070 basis points (1.2%(0.7%) of the total negativepositive impact on net merchandise sales for the current period.quarter and six-months ended February 28, 2023. The Costa Rica Colón depreciatedappreciated significantly against the dollar as compared to the same three-month and nine-monthsix-month period a year ago, and was a significant factor in the contribution to the unfavorablefavorable currency fluctuations in this segment.$2.1$3.0 million and $2.0$7.6 million, or 90100 basis point (0.9%(1.0%) and 30140 basis point (0.3%(1.4%), positive impact on net merchandise sales in our Caribbean segment for the quarter and nine-monthssix-months ended May 31, 2022.February 28, 2023. These currency fluctuations contributed approximately 2030 basis points (0.2%(0.3%) and 1040 basis points (0.1%(0.4%) of positive impact on total net merchandise sales, respectively. This positive impact was primarily driven by the appreciation of the Dominican Republic dollarPeso as compared to the same three-month and nine-monthsix-month period a year ago.$6.8$21.5 million and $25.3$45.1 million, or 7001,810 basis point (7.0%(18.1%) and 8301,930 basis point (8.3%(19.3%), negative impact on net merchandise sales in our Colombia segment for the quarter and nine-monthssix-months ended May 31, 2022.February 28, 2023. These currency fluctuations contributed approximately 80190 basis points (0.8%(1.9%) and 100230 basis points (1.0%(2.3%) of the total negative impact on total net merchandise sales for the quarter and nine-monthssix-months ended May 31, 2022.February 28, 2023.twoone of our warehouse clubs opened during calendarfiscal year 2021 and one opened in April 2022 will not be used in the calculation of comparable sales until they haveit has been open for at least 13 ½ months. Therefore, comparable net merchandise sales includes 4749 warehouse clubs for the thirteen and thirty-nine week periodsthirteen-week period ended May 29, 2022.thirty-ninetwenty-six week periods ended May 29,March 5, 2023 and February 27, 2022 and May 30, 2021 compared to the prior year.Thirteen Weeks Ended March 5, 2023 February 27, 2022 % Increase/(Decrease)
in comparable
net merchandise sales% Increase
in comparable
net merchandise salesCentral America 13.1 % 10.6 % Caribbean 6.9 13.1 Colombia (10.6) 1.7 Consolidated comparable net merchandise sales 8.5 % 10.3 % Twenty-Six Weeks Ended March 5, 2023 February 27, 2022 % Increase/(Decrease)
in comparable
net merchandise sales% Increase/(Decrease)
in comparable
net merchandise salesCentral America 10.6 % 12.3 % Caribbean 6.8 9.1 Colombia (11.9) (0.5) Consolidated comparable net merchandise sales 6.8 % 9.9 % Thirty-Nine-WeekTwenty-Six-Week Periods Ended May 29,March 5, 2023 and February 27, 2022 and May 30, 2021May 29, 2022March 5, 2023 increased 12.8%8.5%. Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the thirty-ninetwenty-six week period ended May 29, 2022March 5, 2023 increased 10.8%6.8%.9.7%13.1% and 11.4%10.6% for the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022,March 5, 2023, respectively. All of our markets in Central America had positive comparable net merchandise sales growth for the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022, except that Guatemala had negative comparable net merchandise sales growth during the quarter because of transfers of sales from warehouse clubs included in the comparable net merchandise sales calculation to a new club not included in the calculation.March 5, 2023. The positive comparable net merchandise sales growth for our Central America segment contributed approximately 590770 basis points (5.9%(7.7%) and 680630 basis points (6.8%(6.3%) of positive impact in total comparable merchandise sales for the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022,March 5, 2023, respectively.17.4%6.9% and 11.7%6.8% for the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022.March 5, 2023. These increases contributed approximately 490200 basis points (4.9%(2.0%) and 340190 basis points (3.4%(1.9%) of positive impact on total comparable merchandise sales for the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022,March 5, 2023, respectively.TrinidadDominican Republic market continued its strong performance in the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022,March 5, 2023, with 21.7%15.1% and 8.1%17.1% comparable net merchandise sales growth, respectively. Trinidad sales significantly improved versus the prior period due to COVID-19 closures and prohibited sales of most non-foods and non-essential items in the comparable prior year period, along with increased sales in the current period resulting from our restoring inventory levels of merchandise sourced in U.S. dollars in connection with an improvement in the liquidity of the Trinidad dollar during the period. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the Trinidad dollar illiquidity situation. Our Dominican Republic and Aruba markets also showedThis strong performance with both having double digitwas offset by our Jamaica market, which declined in comparable net merchandise sales growthby 5.0% and 6.0% for the thirteenthirteen-week and thirty-ninetwenty-six week periods.increased 18.1%decreased 10.6% and 5.5%11.9% for the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022,March 5, 2023, respectively. These increasesdecreases contributed approximately 200120 basis points (2.0%(1.2%) and 60140 basis points (0.6%(1.4%) of positivenegative impact in total comparable merchandise sales for the thirteen-week and thirty-ninetwenty-six week periods ended May 29, 2022,March 5, 2023, respectively. The increasedecrease in Colombia during the thirteen-week and thirty-ninetwenty-six week period was primarily due to the year-over-year improvements in sales growth due to the comparably improved COVID-19 situation.thirty-ninetwenty-six week periods ended May 29, 2022.Currency Exchange Rate Fluctuations for the Thirteen Weeks Ended March 5, 2023 Amount % change Central America $ 16,846 2.8 % Caribbean 2,667 0.9 Colombia (21,292) (18.2) Consolidated comparable net merchandise sales $ (1,779) (0.2) % Amount Central America $ 15,305 1.3 % Caribbean 7,445 1.4 Colombia (44,055) (18.9) Consolidated comparable net merchandise sales $ (21,305) (1.1) % $18.6$1.8 million and $51.3$21.3 million, or 22020 basis point (2.2%(0.2%) and 200110 basis point (2.0%(1.1%), negative impact on comparable net merchandise sales for the thirteen and thirty-ninetwenty-six week periods ended May 29, 2022.170190 basis points (1.7%(1.9%) and 12080 basis points (1.2%(0.8%) of negativepositive impact on total comparable merchandise sales for the thirteen and thirty-ninetwenty-six week period, respectively. Our Costa Rica market was the main contributor as the market experienced currency devaluationappreciation when compared to the same periods last year.1040 basis points (0.1%(0.4%) of positive impact on total comparable merchandise sales for the thirteen and thirty-ninetwenty-six week period, respectively. Our Dominican Republic, marketJamaica, and Trinidad markets all experienced currency appreciation, which was partially offset for the thirteen-week period and the thirty-nine week period by our Jamaica market, which experienced currency devaluation when compared to the same periods last year.80240 basis points (0.8%(2.4%) and 90230 basis points (0.9%(2.3%) of negative impact on total comparable merchandise sales for the thirteen and thirty-ninetwenty-six week period, respectively. This reflects the devaluation of the Colombian peso when compared to the same periods a year ago.Three Months Ended February 28, 2023 February 28, 2022
from
prior yearAmount Increase/ (Decrease) from prior year % Change Amount Membership income - Central America $ 9,854 $ 874 9.7 % 1.4 % $ 8,980 Membership income - Caribbean 4,338 344 8.6 1.3 3,994 Membership income - Colombia 1,984 (113) (5.4) 1.9 2,097 Membership income - Total $ 16,176 $ 1,105 7.3 % 1.4 % $ 15,071 Six Months Ended February 28, 2023 February 28, 2022
income % to
net merchandise
club salesAmount Increase/ (Decrease) from prior year % Change Amount Membership income - Central America $ 19,379 $ 1,624 9.1 % 1.5 % $ 17,755 Membership income - Caribbean 8,753 786 9.9 1.4 7,967 Membership income - Colombia 3,939 (201) (4.9) 1.9 4,140 Membership income - Total $ 32,071 $ 2,209 7.4 % 1.5 % $ 29,862 Number of accounts - Central America 967,406 36,890 4.0 % 930,516 Number of accounts - Caribbean 460,855 23,790 5.4 437,065 Number of accounts - Colombia 339,295 (5,213) (1.5) 344,508 Number of accounts - Total 1,767,556 55,467 3.2 % 1,712,089 NineSix Months Ended May 31, 2022May 31, 2022February 28, 2023 was 6.6% 3.2% higher thanthan the number of accounts as of May 31, 2021.February 28, 2022. Membership incomeincome increased 7.8%7.3% and 9.4%7.4% over the three and nine-monthsix-month periods ended May 31, 2022,February 28, 2023, respectively, compared to the same prior-year periods.across all ofin our operatingCentral America and Caribbean segments and decreased in our Colombia segment in the three and nine-monthsix-month periods ended May 31, 2022.February 28, 2023. The consolidated increase in membership income is due to an increase in the membership base since the start of fiscalcomparable prior year 2022.period. Since August 31, 2021, all2022, our Central America and Caribbean segments have increased their membership base and our Colombia segment has faced a decline in its membership base. Central America had the largest increaseInflation and significant foreign currency devaluation have adversely impacted our Members in membership base in the first three quarters of fiscal year 2022, with 6.4% growth, due primarily to the opening of our fifth club in Guatemala in October 2021, followed by Colombia with an 9.6% increase, due primarily to the opening of our ninth club in November 2021, and the Caribbean with a 4.8% increase, due primarily to the opening of our second club in Jamaica in April 2022. now offer the Platinum Membership program in all locations where PriceSmart operates. The annual fee for a Platinum Membership in most markets is approximately $75. The Platinum Membership program provides Members with a 2% rebate on most items, up to an annual maximum of $500. We record the 2% rebate as a reduction on net merchandise sales at the time of the sales transaction. Platinum Membership accounts are 7.1%are 8.2% of ourour total membership base as of May 31, 2022,February 28, 2023, an increase from 6.0%from 6.8% as of May 31, 2021.of February 28, 2022. Platinum Members tend to have higher renewal rates than our Diamond Members.was 88.9%was 88.0% and 87.6%89.8% for the periods ended May 31,February 28, 2023 and February 28, 2022, and May 31, 2021, respectively. Approximately 14% and 15% of our membership sign-ups were completed using our online platform for the nine-month period ended May 31, 2022 and May 31, 2021, respectively. Our online platform facilitates capturing data and provides the opportunity for automatic renewal of memberships, as well as improving our digital connection with our Members.Three Months Ended February 28, 2023 February 28, 2022
prior yearAmount Increase/ (Decrease) from prior year % Change Amount Miscellaneous income $ 2,619 $ 349 15.4 $ 2,270 Rental income 513 (133) (20.6) 646 Other revenue $ 3,132 $ 216 7.4 % $ 2,916 Six Months Ended February 28, 2023 February 28, 2022
prior yearAmount Increase/ (Decrease) from prior year % Change Amount Non-merchandise revenue $ — $ (3,307) (100.0) % $ 3,307 Miscellaneous income 5,016 699 16.2 4,317 Rental income 1,106 (174) (13.6) 1,280 Other revenue $ 6,122 $ (2,782) (31.2) % $ 8,904 NineSix Months Ended May 31,February 28, 2023 and February 28, 2022 and May 31, 2021quarter and nine-monthssix-months ended May 31, 2022February 28, 2023 was the sale of our Aeropost subsidiary and its marketplace and casillero operations on October 1, 2021. For additional information on the results of the disposition, refer to “Item 1. Financial Statements: Notes to Consolidated Financial Statements, Note 2 – Summary of Significant Accounting Policies.” This decrease was partially offset by an increase from our interest-generating portfolio from our co-branded credit cards for the quarter and nine-months ended May 31, 2022.Three Months Ended Results of Operations Consolidated February 28, 2023 February 28, 2022 Increase/ (Decrease) (Amounts in thousands, except percentages and number of warehouse clubs) Net merchandise sales Net merchandise sales $ 1,115,999 $ 1,011,896 $ 104,103 Total gross margin $ 178,537 $ 158,263 $ 20,274 Total gross margin percentage 16.0% 15.6% 0.4% Revenues Total revenues $ 1,142,189 $ 1,038,557 $ 103,632 Percentage change from prior period 10.0% Comparable net merchandise sales Total comparable net merchandise sales increase/(decrease) 8.5% 10.3% (1.8)% Total revenue margin Total revenue margin $ 198,164 $ 176,709 $ 21,455 Total revenue margin percentage 17.3% 17.0% 0.3% Selling, general and administrative Selling, general and administrative $ 144,364 $ 128,387 $ 15,977 Selling, general and administrative percentage of total revenues 12.6% 12.4% 0.2 % Three Months Ended Results of Operations Consolidated February 28,
2023February 28,
2022Operating income- by segment Central America $ 56,633 5.0 % $ 46,052 4.4 % Caribbean 25,474 2.2 21,755 2.1 Colombia 4,662 0.4 6,124 0.6 United States 6,964 0.6 8,299 0.8 (39,933) (3.5) (33,908) (3.3) Operating income - Total $ 53,800 4.7 % $ 48,322 4.7 % Six Months Ended Results of Operations Consolidated February 28, 2023 February 28, 2022 Increase/ (Decrease) (Amounts in thousands, except percentages and number of warehouse clubs) Net merchandise sales Net merchandise sales $ 2,141,462 $ 1,955,939 $ 185,523 Total gross margin $ 344,932 $ 309,113 $ 35,819 Total gross margin percentage 16.1% 15.8% 0.3% Revenues Total revenues $ 2,196,995 $ 2,013,913 $ 183,082 Percentage change from comparable period 9.1% Comparable net merchandise sales Total comparable net merchandise sales increase/(decrease) 6.8% 9.9% (3.1)% Total revenue margin Total revenue margin $ 383,913 $ 346,996 $ 36,917 Total revenue margin percentage 17.5% 17.2% 0.3% Selling, general and administrative Selling, general and administrative $ 274,586 $ 252,657 $ 21,929 Selling, general and administrative percentage of total revenues 12.5% 12.5% — % Warehouse clubs Warehouse clubs at period end 50 49 1 Warehouse club sales floor square feet at period end 2,484 2,438 46 Six Months Ended Results of Operations Consolidated February 28,
2023February 28,
2022Operating income- by segment Central America $ 106,763 4.9 % $ 89,431 4.4 % Caribbean 49,977 2.3 41,633 2.1 Colombia 9,530 0.4 12,502 0.6 United States 20,556 0.9 14,556 0.7 (77,499) (3.5) (63,783) (3.2) Operating income - Total $ 109,327 5.0 % $ 94,339 4.6 % disclosed.February 28,
2023February 28,
2022Warehouse club and other operations $ 103,630 9.1 % $ 93,993 9.1 % General and administrative 32,759 2.8 33,951 3.3 Separation costs associated with Chief Executive Officer departure 7,747 0.7 — — Pre-opening expenses 89 — 130 — Loss on disposal of assets 139 — 313 — Total Selling, general and administrative $ 144,364 12.6 % $ 128,387 12.4 % Six Months Ended February 28,
2023February 28,
2022Warehouse club and other operations $ 200,522 9.1 % $ 185,189 9.2 % General and administrative 65,931 3.0 65,644 3.3 Separation costs associated with Chief Executive Officer departure Separation costs associated with Chief Executive Officer departure 7,747 0.4 — — Pre-opening expenses 89 — 1,100 — Loss on disposal of assets 297 — 724 — Total Selling, general and administrative $ 274,586 12.5 % $ 252,657 12.5 % NineSix Months Ended May 31,February 28, 2023 and February 28, 2022 and May 31, 2021May 31, 2022February 28, 2023 was 14.2%16.0% and 16.1%, 17040 basis points (1.7%(0.4%) lowerand 30 basis points (0.3%) higher than the comparable prior year period.period, respectively. This decrease for the quarterincrease was primarily due to general margin improvement across most of our sales categories, particularly from our other business services, such as our food services and bakery, and improved front end margin.taken to reduce inventory levels of seasonal and high cube merchandise during the quarter and a reduction in the premium we applied to our sales prices to offset our COVID-related operating costs.On a consolidated basis, total gross margin percentage for the nine months ended May 31, 2022 was 15.3%, 70 basis points (0.7%) lower than the comparable prior year period. The decrease for the nine months ended was primarily due to increased markdowns versus the prior fiscal year period and a reduction in the premium we applied to our sales prices tooffset our COVID-related operating costs. During 2021, while experiencing strong sales and projecting high demand for our long-lead time merchandise, we were also noting increases in costs of merchandise. We proceeded to purchase merchandise at higher than normal volumes to secure good pricing and in-stock position. That, combined with higher than normal freight and fuel costs, subsequent COVID-related Asia port closures and other supply-chain disruptions hampered the expected cadence of inventory flow, resulting in, among other things, seasonal merchandise arriving too late for the applicable season. We also did not attain the levels of sales we projected for certain non-food categories. As a result, we took significantly higher than usual markdowns in the third quarter in these categories to sell through out-of-season merchandise, and we anticipate continued margin pressure (albeit at a significantly lower rate than that experienced in our fiscal third quarter) into the fourth quarter of fiscal 2022.decreased 220increased 30 basis points (2.2%(0.3%) for the three months ended May 31, 2022February 28, 2023 compared to the prior-year period, which is primarily the result of the lowerhigher total gross margin percentage of 170 basis points (1.7%) along with lower revenue margins from our casillero and marketplace business of 40 basis points (0.4%), and 10 basis points (0.1%) from lower membership income as a percentage of revenue year-over-year.. Total revenue margin decreased 110increased 30 basis points (1.1%(0.3%) for the ninesix months ended May 31, 2022February 28, 2023 compared to the prior-year period, which is primarily the result of lower revenue margins from our casillero and marketplace business of 40 basis points (0.4%) along with the lowerhigher total gross margin percentage of 7030 basis points (0.7%(0.3%).$4.5$16.0 million compared to the prior year, and increased as a percentage of total revenue, increasing by 20 basis points (0.2%) to 12.6% of total revenue for the second quarter of fiscal year 2023 compared to 12.4% of total revenues for the second quarter of fiscal year 2022. Selling, general and administrative expenses increased $21.9 million compared to the prior year but decreasedremained unchanged as a percentage of total revenue, declining 130 basis points (1.3%) to 12.4% of total revenue compared to 13.7% of total revenues for the third quarter of fiscal year 2022 compared to the third quarter of fiscal year 2021. Selling, general and administrative expenses increased $22.3 million compared to the prior year but decreased as a percentage of total revenue, declining 70 basis points (0.7%) to 12.5% of total revenue for the first ninesix months of fiscal year 2022 compared to 13.2%2023 and 2022.first nine monthssecond quarter of fiscal year 2021.9.3%9.1% of total revenues for the third quarterfirst six months of fiscal year 20222023 compared to 10.0%9.2% for the third quarter of fiscal year 2021prior-year period. This was primarily due to 5010 basis points (0.50%(0.1%) of lower operations expenses from our casillero and marketplace business due to the sale of Aeropost on October 1, 2021. This decrease was supplemented by our Costa Rica market which decreased 20 basis points (0.20%) as a percentage of revenue year over year primarily due to higher sales volumes driving favorable leverage in expensesthe devaluation of the Costa Rica colón.Warehouse club and other operationsadministrative expenses decreased to 9.3%2.8% of total revenues for the first nine monthssecond quarter of fiscal year 20222023 compared to 9.8%3.3% for the prior-year period. This was primarily due to 40second quarter of fiscal year 2022. The 50 basis points (0.40%point (0.5%) of lower operations expenses from our casillero and marketplace business due to the sale of Aeropost on October 1, 2021. This decrease was supplemented by our Costa Rica market which decreased 10 basis points (0.10%) as a percentage of revenue year over yearis primarily due to the devaluationleveraging of general and administrative expenses when compared to increased total revenues and the Costa Rica colón.approximately $2.2 million, or $0.06 per diluted share, impact of compensation expense savings from the absence of compensation for our former Chief Executive Officer and our Interim Chief Executive Officer's election not to receive compensation.third quarterfirst six months of fiscal year 20222023 compared to 3.7%3.3% for the third quarterfirst six months of fiscal year 2021.2022. The 7030 basis point (0.7%(0.3%) decrease is primarily due to the leveraging of general and administrative expenses.50go-forward basis, point (0.50%) decrease from the reduction inour Interim Chief Executive Officer has declined to receive compensation for his services during his term; therefore, we expect selling, general and administrative expenses duewill be positively impacted by $2.5 million of savings each quarter during his term, net of salary increases for other executives related to the sale of Aeropost.General and administrative expenses decreased to 3.2% of total revenues for the first nine months of fiscal year 2022 compared to 3.4% for the first nine months of fiscal year 2021. The 20 basis point (0.2%) decrease is primarily due to a 50 basis point (0.50%) decrease from the reductionchange in general and administrative expenses due to the sale of Aeropost. This decrease was partially offset by a 30 basis point (0.30%) increase from our continued investments to support our technology development, talent acquisition, and employee development. Given our strategic initiatives, we expect to continue to invest at comparable or higher levels (as a percentage of revenue), especially in talent and technology, to enhance our competence and support our three drivers of growth.leadershipthirdsecond quarter of fiscal year 2022 decreased2023 increased to $33.8$53.8 million (3.3%(4.7% of total revenue) compared to $36.0$48.3 million (4.0%(4.7% of total revenue) for the same period last year. This reflects the decreaseincrease in total revenue margin of 22030 basis points (2.2%(0.3%), partially offset by a 13020 basis point (1.3%(0.2%) increase due to leveragingin deleveraging of selling, general and administrative expenses over the comparable prior-year period.ninesix months ended May 31, 2022February 28, 2023 increased to $128.1$109.3 million (4.2%(5.0% of total revenue) compared to $125.6$94.3 million (4.6% of total revenue) for the same period last year. This reflects the decrease in total revenue marginclubclubs and other operations, increase U.S. dollar liquidity in our Trinidad subsidiary and ongoing working capital requirements.Three Months Ended February 28,
2023February 28,
2022Amount Change Amount Interest expense on loans $ 3,064 $ 1,261 $ 1,803 Interest expense related to hedging activity 190 (718) 908 Less: Capitalized interest (440) (167) (273) Net interest expense $ 2,814 $ 376 $ 2,438 Six Months Ended February 28,
2023February 28,
2022Amount Change Amount Interest expense on loans $ 5,717 $ 2,577 $ 3,140 Interest expense related to hedging activity 537 (1,220) 1,757 Less: Capitalized interest (691) 178 (869) Net interest expense $ 5,563 $ 1,535 $ 4,028 NineSix Months Ended May 31,February 28, 2023 and February 28, 2022 and May 31, 2021nine-monthsix-month period ended May 31, 2022February 28, 2023 primarily due to the increase inhigher interest rates and higher long-term borrowings in our Trinidad marketoutstanding when compared to facilitate conversion of Trinidad dollars to US dollars and a decrease in capitalized interest from fewer construction projects comparatively.Three Months Ended February 28,
2023February 28,
2022Amount Change % Change Amount Other Expense, net $ (5,344) $ (4,525) 552.5 % $ (819) Six Months Ended February 28,
2023February 28,
2022Amount Change % Change Amount Other Income (Expense), net $ (9,910) $ (10,500) (1,779.7)% $ 590 NineSix Months Ended May 31,February 28, 2023 and 2022 and 2021nine-monthssix-months ended May 31, 2022February 28, 2023 the primary driver of Other income (expense), net included $2.5a $3.9 million and $6.1$7.4 million losses,loss, respectively, associated with foreign currency transactions and thedue to revaluation of monetary assets and liabilities (primarily U.S. dollars) in several of our markets. The foreign currency gainsOf those amounts, Costa Rica contributed a $1.9 million and losses resulted from$2.8 million revaluation loss, respectively, due to the revaluationimpact of netthe appreciation of the Costa Rican Colón on our U.S. dollar monetary net assets and liabilities in markets where the local functional currency revalued or devalued against the U.S. dollarCosta Rica. In addition, we had transaction costs of $1.6 million and from exchange transactions. For the first nine months of fiscal year 2022, this loss was partially offset by a gain of $2.7 million associated with the sale of our Aeropost subsidiary on October 1, 2021.The primary foreign currency impacts during the quarter and ninesix months ended May 31, 2022 were higher transaction costs of $2.0 million and $5.9 million,February 28, 2023, respectively, associated with converting Trinidad dollars into available tradeabletradable currencies, such as euros or Canadian dollars, before converting them to U.S. dollars.Three Months Ended February 28,
2023February 28,
2022Amount Change Amount Provision for income taxes $ 16,202 $ 2,063 $ 14,139 Effective tax rate 34.0% 31.0% Six Months Ended February 28,
2023February 28,
2022Amount Change Amount Provision for income taxes $ 32,628 $ 2,675 $ 29,953 Effective tax rate 33.7% 32.6% NineSix Months Ended May 31,February 28, 2023 and February 28, 2022 and May 31, 2021May 31, 2022,February 28, 2023, the effective tax rate was 33.7%34.0% compared to 30.9%31.0% for the prior year period. The increase in the effective tax rate versus the prior year was primarily attributable to the following factors:•A comparably unfavorablefavorable net tax impact from recurring items of 0.5%1.0%, primarily resulting from valuation allowances we took with respect to deferred tax assets from foreign tax credits that are no longer deemed recoverable; and•A comparably unfavorable net tax impact from non-recurring items of 2.3%4.0%, primarily related to changes in uncertain tax positions, and changes in foreign currency value and related adjustments.separation costs associated with the departure of our former Chief Executive Officer.ninesix months ended May 31, 2022,February 28, 2023, the effective tax rate was 32.8%33.7% compared to 32.7%32.6% for the prior year period. The slight increase in the effective tax rate versus the prior year was primarily attributable to the following factors:•A comparably unfavorablefavorable net tax impact from recurring items of 0.5%1.0%, primarily resulting from valuation allowances we took with respect to deferred tax assets from foreign tax credits that are no longer deemed recoverable; and•A comparably favorableunfavorable benefit from non-recurring items of 0.4%2.1%, primarily related to changes in uncertain tax positions, and changes in foreign currency value and related adjustments.separation costs associated with the departure of our former Chief Executive Officer.Three Months Ended February 28,
2023February 28,
2022Amount Change % Change Amount Other Comprehensive Income $ 12,434 $ 8,208 194.2 % $ 4,226 Six Months Ended February 28,
2023February 28,
2022Amount Change % Change Amount Other Comprehensive Income (Loss) $ 11,883 $ 13,788 723.8% $ (1,905) NineSix Months Ended May 31,February 28, 2023 and February 28, 2022 and May 31, 2021lossincome of approximately $8.7$12.4 million for the thirdsecond quarter of fiscal year 20222023 resulted primarily from the comprehensive lossgain of approximately $9.4$12.2 million from foreign currency translation adjustments related to assets and liabilities and the translation of revenue, costs and expenses on the statements of income of our subsidiaries whose functional currency is not the U.S. dollar, accompanied by approximately $0.6$0.2 million related to unrealized gains on changes in our derivative obligations. Other comprehensive lossincome for the nine-monthssix-months ended May 31, 2022February 28, 2023 of approximately $10.6$11.9 million was primarily the result of the comprehensive lossgain of $15.1$11.3 million from foreign currency translation adjustments offset byalong with approximately $4.3$0.6 million related to unrealized gains on changes in the fair value of our derivative obligations. For the quarter, the Costa Rica colón exchange rate withlargest translation adjustments were related to the appreciation of the local currency against the U.S. dollar declined significantly.for our Costa Rica subsidiary. For the nine-monthsix-month period, the Colombia peso and Costa Rica colón exchange rate withlargest translation adjustments were related to the appreciation of the local currency against the U.S. dollar declined significantly, and these declines wereof our Costa Rica subsidiary, partially offset by an appreciationthe devaluation of the local currencies against the U.S. dollar for our Colombia and Dominican peso over the same period..February 28,
2023August 31,
2022Amounts held by foreign subsidiaries $ 241,013 $ 203,952 Amounts held domestically 39,539 47,421 Total cash and cash equivalents, including restricted cash $ 280,552 $ 251,373 .February 28,
2023August 31,
2022Amounts held by foreign subsidiaries $ 24,322 $ 11,160 Amounts held domestically 30,000 — Total short-term investments $ 54,322 $ 11,160 May 31, 2022February 28, 2023 and August 31, 2021, long-term investments consisting of2022, there were no certificates of deposit with a maturity of over onea year held by our foreign subsidiaries were $0 and $1.5 million, respectively. We have no long-term investments consisting of certificates of deposit with a maturity of over one year heldor domestically.Six Months Ended February 28,
2023February 28,
2022Change Net cash provided by (used in) operating activities Net cash provided by (used in) operating activities $ 116,681 $ (7,920) $ 124,601 Net cash used in investing activities (96,078) (30,531) (65,547) Net cash provided by (used in) financing activities (3,060) 17,843 (20,903) Effect of exchange rates 11,636 42 11,594 Net increase (decrease) in cash and cash equivalents $ 29,179 $ (20,566) $ 49,745 $64.3$116.7 million and $80.0net cash used in operating activities totaled $7.9 million for the ninesix months ended May 31,February 28, 2023 and February 28, 2022, and May 31, 2021, respectively. The decrease in netFor the six-months ended February 28, 2023, cash provided by operating activities isincreased primarily the result of non-workingdue to shifts in working capital generated from changes in our merchandise inventory and accounts payable positions, which contributed $103.1 million, and a positive net change in our other various operating assets and liabilities when compared to the balance sheetsix-months ended February 28, 2022. The net use of $22.3 millioncash in operating activities in the prior year resulted primarily from increases in prepaid assets and long-term tax assets. The increases in prepaid assets and long-term tax assets are largely due to the increase in prepaid expenses, prepaid duties and freight and VAT paid. Prepaid expenses increased primarily from our higher sales during the period, and prepaid duties and freight and VAT paid increased primarily from our higher inventory position. The changes in non-working capital were partially offset by an increase in net incomeinventory to accommodate pandemic-influenced consumer preferences and to mitigate out-of-stocks due to supply-chain disruptions during that period. Our inventory buildup for the nine months ended May 31, 2022 over the prior-year period. Inventory was $461.0million as of May 31, 2022, compared with $389.7 million and $336.6 million at August 31, 2021 and May 31, 2021, respectively. The increase in the inventory balance compared to the priorthis fiscal year is the result of purchasing excess merchandise in certain non-food categories. During 2021, while experiencing strong saleswas lower as we set our inventory position to align more with our historical days-on-hand, and projecting high demand for our long-lead time merchandise, we were also noting increases in costs of merchandise. We proceeded to purchase merchandise at higher than normal volumes to secure good pricing and in-stock position. Unfortunately, COVID-related Asia port closures and other supply-chain disruptions hampered the expected cadence of inventory flow, resulting in, among other things, seasonal merchandise arriving too late for the applicable season. We also did not attain the levels of sales we projected for certain non-food categories. Lastly, we have three additional clubs in therebalanced our inventory mix to reflect current year.and anticipated consumer demand and preferences.$61.4$96.1 million and $94.0$30.5 million for the ninesix months ended May 31,February 28, 2023 and February 28, 2022, and May 31, 2021.respectively. The decrease$65.5 million increase in cash used in investing activities is primarily the result of a net decrease in proceeds from settlements of short-term investments and an increase in purchases of certificates of deposits and higher proceeds from settlementsshort-term investments, compared to the same nine-monthsix-month period a year-ago,year-ago. The decrease in proceeds from settlements is primarily due to being able to source more U.S. dollarsthe overall net decrease of short-term investments in Trinidad. Refer to “Management’s DiscussionTrinidad as fewer of those investments settled comparatively and Analysis – Factors Affecting Our Business” for additional discussion of the currentwe are investing our excess U.S. dollar illiquidity we are experiencingbalances in that market. The decrease was partially offset by higher propertymarket in shorter dated certificates of deposits or other liquid investments classified as cash or cash equivalents.equipment expenditures compared to the same nine-month period a year-ago to support growth of our real estate footprint.Netnet cash provided by financing activities totaled $11.4 million and net cash used in financing activities was $89.0$17.8 million for the ninesix months ended May 31,February 28, 2023 and February 28, 2022, and May 31, 2021, respectively. We use cash flows provided by financing primarily to fund our working capital needs, our warehouse club and distribution center acquisitions and expansions, and investments in technology to support our omni-channel initiatives. The $100.3$20.9 million shift from cash used in,provided by, to cash provided by,used in, financing activities is primarily the result of obtaining additional financing (primarily the $25 million loan in Trinidad to address U.S. dollar liquidity challenges there) in the current year along with lowera net repaymentsdecrease of proceeds from short-term debtborrowings compared to the same nine-monthsix-month period a year-ago, when we were repaying short-term facilities accessed at the early stages of the COVID-19 pandemic.20222023 and 20212022 (amounts are per share).
Date
Paid
Payable
Date
Paid
PayableFirst Payment Second Payment Declared Amount Record
DateDate
PaidDate
PayableAmount Record
DateDate
PaidDate
PayableAmount 2/3/2023 $ 0.92 2/16/2023 2/28/2023 N/A $ 0.46 8/15/2023 N/A 8/31/2023 $ 0.46 2/3/2022 $ 0.86 2/15/2022 2/28/2022 N/A $ 0.43 8/15/2022 8/31/2022 N/A $ 0.43 nine-monthssix-months ended May 31, 2022,February 28, 2023, we reissued approximately 9,0007,000 treasury shares.we pay.paid by us. We, in consultation with our tax advisors, base our tax returns on interpretations that we believe to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various taxing authorities in the jurisdictions in which we file our tax returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations we used to calculate our tax liability and therefore require us to pay additional taxes.The Company accruesitsour estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has 50% or less than 50% likelihood of being sustained. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate. There were no material changes in our uncertain income tax positions since August 31, 2021.May 31, 2022February 28, 2023 and August 31, 2021,2022, respectively, and deferred tax assets of $3.3$4.0 million and $3.5 million as of May 31, 2022February 28, 2023 and August 31, 2021,2022, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. Similarly, we have not placed any recoverability allowances on tax receivables that arise from payments we are required to make originating from tax assessments that we are appealing, as we believe it is more likely than not that we will ultimately prevail in the related appeals. There can be no assurance, however, that wethe Company will be successful in recovering all tax receivables or deferred tax assets.•Short-term VAT and Income tax receivables, recorded as Other current assets: This classification is used for any countries where our subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year. We also classify as short-term any approved refunds or credit notes to the extent that we expect to receive the refund or use the credit notes within one year.•Long-term VAT and Income tax receivables, recorded as Other non-current assets: This classification is used for amounts not approved for refund or credit in countries where our subsidiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes. An allowance is provided against VAT and income tax receivable balances in dispute when we do not expect to eventually prevail in our recovery of such balances. We do not currently have any allowances provided against VAT and income tax receivables.•the asset's inability to continue to generate income from operations and positive cash flow in future periods;•loss of legal ownership or title to the asset;•significant changes in its strategic business objectives and utilization of the asset(s); and•the impact of significant negative industry or economic trends.which could requirerequiring an adjustment of these assets to their then-current fair market value. Loss/(gain)Future business conditions and/or activity could differ materially from the projections made by management causing the need for additional impairment charges. We did not record any impairment charges during the second quarter of fiscal year 2023 related to the loss of legal ownership or title to assets; significant changes in the Company's strategic business objectives or utilization of assets; or the impact of significant negative industry or economic trends. Loss on disposal of assets recorded during the years reported resulted from improvements to operations and normal preventive maintenance.approximately $43.3approximately $43.2 million of certain acquired goodwill, the fair value was greater than the carrying value; however, any deterioration in the fair value maymay result in an impairment charge.ITEMMay 31, 2022February 28, 2023 compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021.three-month periodthree and six-month periods ended May 31, 2022February 28, 2023 is disclosed in “Item 2. Management’s Discussion & Analysis – Other Expense, net”.three-month periodthree and six-month periods ended May 31, 2022February 28, 2023 is disclosed in “Item 1. Financial Statements: Notes to Consolidated Financial Statements, Note 8 – Derivative Instruments and Hedging Activities.”nine-monthsix-month period ended May 31, 2022February 28, 2023 is disclosed in “Item 2. Management’s Discussion & Analysis – Other Comprehensive Loss.”ITEMITEM 4. CONTROLS AND PROCEDURESPARTPART II—OTHER INFORMATIONITEMITEM Refer to Part I. “Item 1. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 6 – Commitments and Contingencies” for additional information regarding our legal proceedings.factors discussedfollowing risk factor, which supplements and should be read in conjunction with the information appearing under Part I. “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2021. There have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2021.2022.ITEMMay 31, 2022,February 28, 2023, the Company repurchased 2,74461,224 shares in the indicated months. These were the only repurchases of equity securities made by the Company during the thirdsecond quarter of fiscal year 2022.2023. The Company does not have a stock repurchase program.
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as Part of
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Under the
Plans or
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Average Price
Paid Per Share(c)
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ProgramsDecember 1, 2022 - December 31, 2022 — $ — — N/A January 1, 2023 - January 31, 2023 20,329 71.42 — N/A February 1, 2023 - February 28, 2023 40,895 75.00 — N/A Total 61,224 73.81 — — ITEMITEMITEMITEMITEM 6. EXHIBITS3.1(1)*Identifies management contract or compensatory plan or arrangement.**These certifications are being furnished solely to accompany this Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of PriceSmart, Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.SIGNATURESJuly 11, 2022April 10, 2023SHERRY S. BAHRAMBEYGUIROBERT E. PRICESherry S. BahrambeyguiJuly 11, 2022April 10, 2023