x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 2023. Page February 28, 2022 August 31, (Unaudited) 2021 ASSETS Current Assets: Cash and cash equivalents $ 178,705 $ 202,060 Short-term restricted cash 4,172 3,647 Short-term investments 26,933 50,233 Receivables, net of allowance for doubtful accounts of $52 as of February 28, 2022 and $94 as of August 31, 2021, respectively 15,001 12,359 Merchandise inventories 470,313 389,711 Prepaid expenses and other current assets (includes $1,566 and $0 as of February 28, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments) 46,156 39,194 Total current assets 741,280 697,204 Long-term restricted cash 12,036 9,772 Property and equipment, net 753,671 730,204 Operating lease right-of-use assets, net 115,290 123,655 Goodwill 43,334 45,095 Other intangibles, net 1,542 7,762 Deferred tax assets 26,258 24,225 Other non-current assets (includes $4,583 and $2,464 as of February 28, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments) 69,399 57,329 Investment in unconsolidated affiliates 10,520 10,544 Total Assets $ 1,773,330 $ 1,705,790 LIABILITIES AND EQUITY Current Liabilities: Short-term borrowings $ 15,342 $ — Accounts payable 380,778 388,791 Accrued salaries and benefits 32,239 41,896 Deferred income 30,793 26,898 Income taxes payable 10,164 8,310 Other accrued expenses and other current liabilities 42,240 39,736 Operating lease liabilities, current portion 6,808 8,526 Dividends payable 13,430 — Long-term debt, current portion 28,761 19,395 Total current liabilities 560,555 533,552 Deferred tax liability 1,946 1,568 Long-term income taxes payable, net of current portion 5,602 4,160 Long-term operating lease liabilities 122,602 129,256 Long-term debt, net of current portion 120,057 110,110 Other long-term liabilities (includes $958 and $3,010 for the fair value of derivative instruments and $7,726 and $7,380 for post-employment plans as of February 28, 2022 and August 31, 2021, respectively) 8,684 10,930 Total Liabilities 819,446 789,576 Stockholders' Equity: Common stock $0.0001 par value, 45,000,000 shares authorized; 31,626,219 and 31,467,971 shares issued and 30,871,179 and 30,755,308 shares outstanding (net of treasury shares) as of February 28, 2022 and August 31, 2021, respectively 3 3 Additional paid-in capital 473,277 465,015 Accumulated other comprehensive loss (184,413) (182,508) Retained earnings 694,186 658,919 Less: treasury stock at cost, 755,040 shares as of February 28, 2022 and 712,663 shares as of August 31, 2021 (29,169) (26,084) Total stockholders' equity attributable to PriceSmart, Inc. stockholders 953,884 915,345 Noncontrolling interest in consolidated subsidiaries — 869 Total Stockholders' Equity 953,884 916,214 Total Liabilities and Equity $ 1,773,330 $ 1,705,790 See accompanying notes. Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 2022 2021 2022 2021 Revenues: Net merchandise sales $ 1,011,896 $ 898,404 $ 1,955,939 $ 1,736,773 Export sales 8,674 9,706 19,208 20,587 Membership income 15,071 13,799 29,862 27,098 Other revenue and income 2,916 15,660 8,904 30,543 Total revenues 1,038,557 937,569 2,013,913 1,815,001 Operating expenses: Cost of goods sold: Net merchandise sales 853,633 755,108 1,646,826 1,458,727 Export sales 8,215 9,315 18,282 19,748 Non-merchandise — 6,268 1,809 12,092 Selling, general and administrative: Warehouse club and other operations 93,993 90,449 185,189 175,281 General and administrative 33,951 31,270 65,644 58,791 Pre-opening expenses 130 48 1,100 650 Loss on disposal of assets 313 132 724 202 Total operating expenses 990,235 892,590 1,919,574 1,725,491 Operating income 48,322 44,979 94,339 89,510 Other income (expense): Interest income 549 445 1,067 936 Interest expense (2,438) (2,228) (4,028) (4,261) Other income (expense), net (819) (292) 590 (1,837) Total other expense (2,708) (2,075) (2,371) (5,162) Income before provision for income taxes and 45,614 42,904 91,968 84,348 Provision for income taxes (14,139) (14,565) (29,953) (28,183) Loss of unconsolidated affiliates (14) (12) (24) (21) Net income 31,461 28,327 61,991 56,144 Less: net income attributable to noncontrolling interest — (91) (19) (171) Net income attributable to PriceSmart, Inc. $ 31,461 $ 28,236 $ 61,972 $ 55,973 Net income attributable to PriceSmart, Inc. per share available for distribution: Basic $ 1.03 $ 0.92 $ 2.01 $ 1.82 Diluted $ 1.03 $ 0.92 $ 2.01 $ 1.82 Shares used in per share computations: Basic 30,578 30,376 30,565 30,387 Diluted 30,582 30,404 30,593 30,412 Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 2022 2021 2022 2021 Net income $ 31,461 $ 28,327 $ 61,991 $ 56,144 Less: net income attributable to noncontrolling interest — (91) (19) (171) Net income attributable to PriceSmart, Inc. $ 31,461 $ 28,236 $ 61,972 $ 55,973 Other Comprehensive Income, net of tax: Foreign currency translation adjustments (1) 2,413 (2,331) (5,718) 430 Defined benefit pension plan: Net gain arising during period 20 2 37 62 Amortization of prior service cost and actuarial gains included in net periodic pensions cost 30 33 64 66 Total defined benefit pension plan 50 35 101 128 Derivative instruments: (2) Unrealized gains/(losses) on change in derivative obligations 883 (75) (418) 1,155 Unrealized gains on change in fair value of interest rate swaps 880 1,251 4,130 329 Total derivative instruments 1,763 1,176 3,712 1,484 Other comprehensive income (loss) 4,226 (1,120) (1,905) 2,042 Comprehensive income 35,687 27,116 60,067 58,015 Less: comprehensive income attributable to noncontrolling interest — 27 3 58 Comprehensive income attributable to PriceSmart, Inc. $ 35,687 $ 27,089 $ 60,064 $ 57,957 (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 November 30, 2020 31,396 $ 3 $ 450,666 $ (173,658) $ 610,224 658 $ (21,068) $ 866,167 $ 1,124 $ 867,291 Purchase of treasury stock — — — — — 17 (1,713) (1,713) — (1,713) Issuance of restricted stock award 56 — — — — — — — — — Stock-based compensation — — 4,215 — — — — 4,215 — 4,215 Dividend paid to stockholders — — — — (10,762) — — (10,762) (259) (11,021) Dividend payable to stockholders — — — — (10,755) — — (10,755) — (10,755) Net income — — — — 28,236 — — 28,236 91 28,327 Other comprehensive income (loss) — — — (1,120) — — — (1,120) 27 (1,093) Balance at February 28, 2021 31,452 $ 3 $ 454,881 $ (174,778) $ 616,943 675 $ (22,781) $ 874,268 $ 983 $ 875,251 Balance at November 30, 2021 31,598 $ 3 $ 469,170 $ (188,639) $ 689,430 736 $ (27,818) $ 942,146 $ — $ 942,146 Purchase of treasury stock — — — — — 19 (1,351) (1,351) — (1,351) Issuance of restricted stock award 31 — — — — — — — — — Forfeiture of restricted stock awards (3) — — — — — — — — — Stock-based compensation — — 4,107 — — — — 4,107 — 4,107 Dividend paid to stockholders — — — — (13,275) — — (13,275) — (13,275) Dividend payable to stockholders — — — — (13,430) — — (13,430) — (13,430) Net income — — — — 31,461 — — 31,461 — 31,461 Other comprehensive income — — — 4,226 — — — 4,226 — 4,226 Balance at February 28, 2022 31,626 $ 3 $ 473,277 $ (184,413) $ 694,186 755 $ (29,169) $ 953,884 $ — $ 953,884 PRICESMART, INC. Six 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 — — — — — 24 (2,239) (2,239) — (2,239) Issuance of treasury stock (96) — (7,864) — — (96) 7,864 — — — Issuance of restricted stock award 133 — — — — — — — — — Forfeiture of restricted stock awards (3) — — — — — — — — — Stock-based compensation — — 8,290 — — — — 8,290 — 8,290 Dividend paid to stockholders — — — — (10,762) — — (10,762) (259) (11,021) Dividend payable to stockholders — — — — (10,755) — — (10,755) — (10,755) Net income — — — — 55,973 — — 55,973 171 56,144 Other comprehensive income — — — 2,042 — — — 2,042 58 2,100 Balance at February 28, 2021 31,452 $ 3 $ 454,881 $ (174,778) $ 616,943 675 $ (22,781) $ 874,268 $ 983 $ 875,251 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 — — — — — 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 31,626 $ 3 $ 473,277 $ (184,413) $ 694,186 755 $ (29,169) $ 953,884 $ — $ 953,884 Six Months Ended February 28, February 28, 2022 2021 Operating Activities: Net income $ 61,991 $ 56,144 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 32,701 31,765 Allowance for doubtful accounts 12 31 Loss on sale of property and equipment 724 202 Deferred income taxes (2,124) (1,997) Equity in losses of unconsolidated affiliates 24 21 Stock-based compensation 8,674 8,290 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 (19,503) 10,156 Merchandise inventories (80,608) (29,728) Accounts payable (9,811) (45,157) Net cash provided by (used in) operating activities (7,920) 29,727 Investing Activities: Proceeds from the disposal of Aeropost, net of divested cash 4,959 — Additions to property and equipment (60,468) (47,170) Purchases of short-term investments (17,658) (51,314) Proceeds from settlements of short-term investments 41,075 16,158 Purchases of long-term investments — (1,477) Proceeds from settlements of long-term investments 1,484 1,477 Proceeds from disposal of property and equipment 77 50 Net cash used in investing activities (30,531) (82,276) Financing Activities: Proceeds from long-term bank borrowings 30,180 3,000 Repayment of long-term bank borrowings (10,969) (8,467) Proceeds from short-term bank borrowings 20,179 — Repayment of short-term bank borrowings (4,488) (41,916) Cash dividend payments (13,275) (11,021) Purchase of treasury stock (3,784) (2,239) Other financing activities — (171) Net cash provided by (used in) financing activities 17,843 (60,814) Effect of exchange rate changes on cash and cash equivalents and restricted cash 42 (2,629) Net decrease in cash, cash equivalents (20,566) (115,992) Cash, cash equivalents and restricted cash at beginning of period 215,479 303,771 Cash, cash equivalents and restricted cash at end of period $ 194,913 $ 187,779 Supplemental disclosure of noncash investing activities: Capital expenditures accrued, but not yet paid $ 8,369 $ 11,529 The following table provides a breakdown of cash and cash equivalents, and restricted cash reported within the statement of cash flows: Six Months Ended February 28, February 28, 2022 2021 Cash and cash equivalents $ 178,705 $ 180,179 Short-term restricted cash 4,172 736 Long-term restricted cash $ 12,036 $ 6,864 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 194,913 $ 187,779 2023 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 February 28, 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. Restricted Cash – The following table summarizes the restricted cash reported by the Company (in thousands): February 28, August 31, 2022 2021 Short-term restricted cash $ 4,172 $ 3,647 Long-term restricted cash 12,036 9,772 Total restricted cash(1) $ 16,208 $ 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 In February 28, August 31, 2022 2021 Prepaid expenses and other current assets $ 3,478 $ 3,173 Other non-current assets 36,045 28,437 Total amount of VAT receivables reported $ 39,523 $ 31,610 February 28, August 31, 2022 2021 Prepaid expenses and other current assets $ 11,140 $ 11,491 Other non-current assets 21,072 18,872 Total amount of income tax receivables reported $ 32,212 $ 30,363 Operating lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. The Company’s leases generally do not have a readily determinable implicit rate; therefore, the Company uses a collateralized incremental borrowing rate at the commencement date in determining the present value of future payments. The incremental borrowing rate is based on a yield curve derived from publicly traded bond offerings for companies with credit characteristics that approximate the Company's market risk profile. Fair Value Measurements – The Company measures the fair value for all financial and Fair Value Instruments. The Company is exposed to foreign currency exchange rate fluctuations in the normal course of business. This includes exposure to foreign currency exchange rate fluctuations on U.S. dollar denominated liabilities within the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. The Company manages these fluctuations, in part, through the use of non-deliverable forward foreign-exchange contracts that are intended to offset changes in cash flows attributable to currency exchange movements. The contracts are intended primarily to economically address exposure to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. Selling, General and Administrative – Selling, general and administrative costs consist primarily of expenses associated with operating warehouse clubs and freight forwarding operations. These costs include payroll and related costs, including separation costs associated with the Chief Executive Officer departure, utilities, consumable supplies, repair and maintenance, rent expense, building and equipment depreciation, bank, credit card processing fees, and amortization of intangibles. Also included in selling, general and administrative expenses are the payroll and related costs for the Company’s U.S. and regional management and purchasing centers. 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. Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 2022 2021 2022 2021 Effect on other comprehensive income (loss) due to foreign currency translation $ 2,413 $ (2,331) $ (5,718) $ 430 Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 2022 2021 2022 2021 Currency loss $ (1,775) $ (238) $ (3,638) $ (1,731) Recent Accounting Pronouncements Adopted 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. 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. Platinum Points Reward Programs. The Company currently offers Platinum Memberships in all of its 12 countries. The annual fee for a Platinum Membership is approximately $75. The Platinum Membership provides Members with a 2% rebate on most items, up to an annual maximum of $500. The rebate is issued annually to Platinum Members on March 1 and expires August 31. Platinum Members can apply this rebate to future purchases at the warehouse club during the redemption period. The Company records this 2% rebate as a reduction of revenue at the time of the sales transaction. Accordingly, the Company has reduced warehouse sales and has accrued a liability within other accrued expenses and other current liabilities, platinum rewards. The Company has determined that breakage revenue is 5% of the awards issued; therefore, it records 95% of the Platinum Membership liability at the time of sale. Annually, the Company reviews for expired unused rebates outstanding, and the expired unused rebates are recognized as “Other revenue and income” on the consolidated statements of income. Contract Liabilities February 28, 2022 August 31, 2021 Deferred membership income $ 29,584 $ 25,951 Other contract performance liabilities $ 15,497 $ 7,871 Disaggregated Revenues Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, Foods & Sundries $ 492,776 $ 448,751 $ 963,726 $ 867,127 Fresh Foods 289,122 257,505 558,797 492,794 Hardlines 120,335 110,712 232,274 223,496 Softlines 64,561 46,935 115,034 87,264 Other Business 45,102 34,501 86,108 66,092 Net Merchandise Sales $ 1,011,896 $ 898,404 $ 1,955,939 $ 1,736,773 Three Months Ended Six Months Ended February 28, February 28, February 28, February 28, 2022 2021 2022 2021 Net income attributable to PriceSmart, Inc. $ 31,461 $ 28,236 $ 61,972 $ 55,973 Less: Allocation of income to unvested stockholders (78) (117) (600) (580) Net income attributable to PriceSmart, Inc. per share available for distribution $ 31,383 $ 28,119 $ 61,372 $ 55,393 Basic weighted average shares outstanding 30,578 30,376 30,565 30,387 Add dilutive effect of performance stock units (two-class method) 4 28 28 25 Diluted average shares outstanding 30,582 30,404 30,593 30,412 Basic net income per share $ 1.03 $ 0.92 $ 2.01 $ 1.82 Diluted net income per share $ 1.03 $ 0.92 $ 2.01 $ 1.82 : 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 (5,718) 3 (5,715) Defined benefit pension plans (1) 101 — 101 Derivative instruments (2) 3,712 — 3,712 Sale of Aeropost — (254) (254) Ending balance, February 28, 2022 $ (184,413) $ — $ (184,413) Attributable to Noncontrolling PriceSmart Interests Total Beginning balance, September 1, 2020 $ (176,820) $ 134 $ (176,686) Foreign currency translation adjustments 430 58 488 Defined benefit pension plans (1) 128 — 128 Derivative Instruments (2) 1,484 — 1,484 Ending balance, February 28, 2021 $ (174,778) $ 192 $ (174,586) 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. Retained Earnings Not Available for Distribution February 28, August 31, 2022 2021 Retained earnings not available for distribution $ 8,322 $ 8,022 The Company accrues an amount for its 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 less than 50% likelihood of being sustained. There were no material changes in the Company’s uncertain income tax positions during the six months ended February 28, 2023. The table below summarizes the Company’s interest in real estate joint ventures, commitments to additional future investments and the Company’s maximum exposure to loss as a result of its involvement in these joint venture as of February 28, Entity % Initial Additional Net Income (Loss) Company’s Commitment Company's GolfPark Plaza, S.A. 50 % $ 4,616 $ 2,402 $ (43) $ 6,975 $ 99 $ 7,074 Price Plaza Alajuela PPA, S.A. 50 % 2,193 1,236 116 3,545 785 4,330 Total $ 6,809 $ 3,638 $ 73 $ 10,520 $ 884 $ 11,404 (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 February 28, 2022 - Committed $ 75,000 $ — $ — $ 75,000 — % February 28, 2022 - Uncommitted 91,000 15,342 — 75,658 3.0 February 28, 2022 - Total $ 166,000 $ 15,342 $ — $ 150,658 3.0 % 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 — % The following table provides the changes in long-term debt for the six months ended 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 4,844 21,132 25,976 Repayments of long-term debt: Guatemala subsidiary (377) — (377) Costa Rica subsidiary (1,261) (109) (1,370) Regularly scheduled loan payments (3,487) (5,735) (9,222) Reclassifications of long-term debt due in the next 12 months 9,657 (9,657) — Translation adjustments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar (2) (10) 112 102 Balances as of February 28, 2022 $ 28,761 $ 120,057 $ 148,818 (3) (1)The carrying amount of (2)These foreign currency translation adjustments are recorded within Other comprehensive income (loss). Twelve Months Ended February 28, Amount 2023 $ 28,761 2024 26,230 2025 36,009 2026 13,521 2027 11,189 Thereafter 33,108 Total $ 148,818 Cash Flow Hedges Subsidiary Date Derivative Derivative Initial Bank Floating Leg Fixed Rate Settlement Effective Colombia 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 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 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 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 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 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 - Income Statement Classification Interest Cost of Total Interest expense for the three months ended February 28, 2022 $ 544 $ 908 $ 1,452 Interest expense for the three months ended February 28, 2021 $ 676 $ 953 $ 1,629 Interest expense for the six months ended February 28, 2022 $ 1,101 $ 1,757 $ 2,858 Interest expense for the six months ended February 28, 2021 $ 1,360 $ 1,878 $ 3,238 (1)This amount is representative of the interest expense recognized on the underlying hedged transactions. The total notional balance of the Company’s pay-fixed/receive-variable interest rate swaps and cross-currency interest rate swaps was as follows (in thousands): Notional Amount as of February 28, August 31, Floating Rate Payer (Swap Counterparty) 2022 2021 Union Bank $ 31,981 $ 32,619 Citibank N.A. 58,692 51,032 Scotiabank 9,375 10,125 Total $ 100,048 $ 93,776 February 28, 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 $ 4,583 $ (1,378) $ 3,205 $ 2,464 $ (741) $ 1,723 Cross-currency interest rate swaps Other current assets 1,566 (472) 1,094 — — — Interest rate swaps Other long-term liabilities (616) 146 (470) (2,305) 535 (1,770) Cross-currency interest rate swaps Other long-term liabilities (342) 103 (239) (705) 212 (493) Net fair value of derivatives designated as hedging instruments $ 5,191 $ (1,601) $ 3,590 $ (546) $ 6 $ (540) Financial Derivative Subsidiary Dates Settlement Scotiabank Colpatria, S.A. Colombia $ 3,500 Citibank, N.A. ("Citi") Colombia 18-Jan-2023 - 23-Feb-2023 Forward foreign exchange contracts (USD) $ 6,000 19-May-2023 - 16-Nov-2023 2022. NOTE 9 – SEGMENTS 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 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) 74,001 497,585 212,418 176,911 — 960,915 Intangibles, net 1,542 — — — — 1,542 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 Three Months Ended February 28, 2021 Revenue from external customers $ 22,768 $ 541,000 $ 260,169 $ 113,632 $ $ 937,569 Intersegment revenues 296,255 3,801 1,124 850 (302,030) — Depreciation, Property and equipment 1,784 7,683 3,858 2,362 — 15,687 Amortization, Intangibles 593 — — — — 593 Operating income (loss) 2,028 40,362 20,766 6,439 (24,616) 44,979 Net income (loss) attributable to PriceSmart, Inc. (1,545) 32,309 17,480 4,699 (24,707) 28,236 Capital expenditures, net 1,500 14,066 5,804 7,007 28,377 Six Months Ended February 28, 2021 Revenue from external customers $ 46,385 $ 1,035,692 $ 518,685 $ 214,239 $ — $ 1,815,001 Intersegment revenues 646,358 8,537 2,270 1,979 (659,144) — Depreciation, Property and equipment 3,449 15,377 7,650 4,097 — 30,573 Amortization, Intangibles 1,192 — — — — 1,192 Operating income (loss) 7,771 74,807 42,359 12,004 (47,431) 89,510 Net income (loss) attributable to PriceSmart, Inc. (1,917) 61,547 34,650 9,295 (47,602) 55,973 Long-lived assets (other than deferred tax assets) 80,449 483,729 181,815 162,641 — 908,634 Intangibles, net 8,974 — — — — 8,974 Goodwill 10,695 24,389 10,073 — — 45,157 Total assets 201,726 770,899 430,327 227,884 — 1,630,836 Capital expenditures, net 2,718 21,610 8,262 15,546 — 48,136 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. Number of Number of Warehouse Clubs Warehouse Clubs in Operation as of in Operation as of Country/Territory February 28, 2022 February 28, 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 Aruba 1 1 Barbados 1 1 U.S. Virgin Islands 1 1 Jamaica 1 1 Totals 49 47 clubs. We also export products to a retailer in the Philippines and are economic activity during the third quarter of fiscal year 2021. currency. Another way we enhance Membership value is through our private label offering, “Member’s Financial highlights for the second quarter of fiscal year calendar months) for the 13 weeks ended 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. calendar months) for the 26 weeks ended 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 February 28, 2022 February 28, 2021 Amount % of net Increase from prior year Change Amount % of net Central America $ 603,037 59.6 % $ 72,204 13.6 % $ 530,833 59.1 % Caribbean 289,431 28.6 33,303 13.0 256,128 28.5 Colombia 119,428 11.8 7,985 7.2 111,443 12.4 Net merchandise sales $ 1,011,896 100.0 % $ 113,492 12.6 % $ 898,404 100.0 % Six Months Ended February 28, 2022 February 28, 2021 Amount % of net Increase Change Amount % of net Central America $ 1,163,633 59.5 % $ 147,760 14.5 % $ 1,015,873 58.5 % Caribbean 557,764 28.5 47,030 9.2 510,734 29.4 Colombia 234,542 12.0 24,376 11.6 210,166 12.1 Net merchandise sales $ 1,955,939 100.0 % $ 219,166 12.6 % $ 1,736,773 100.0 % Comparison of Three and Six Months Ended February 28, 2022 2023. the second quarter of fiscal year 2023. The following table indicates the impact that currency exchange rates had on our net merchandise sales in dollars and the percentage change from the three and six-month period ended February 28, Currency exchange rate fluctuations for the Three months ended February 28, 2022 Amount % change Central America $ (9,507) (1.8) % Caribbean (946) (0.4) Colombia (15,879) (14.2) Net merchandise sales $ (26,332) (3.0) % Currency exchange rate fluctuations for the Six Months Ended February 28, 2022 Amount % change Central America $ (16,150) (1.6) % Caribbean (73) — Colombia (18,527) (8.8) Net merchandise sales $ (34,750) (2.0) % ago. for the current period were compared with its results for the prior period. As a result, sales related to March 5, 2023. year: Thirteen Weeks Ended February 27, 2022 February 28, 2021 % Increase in comparable net merchandise sales % Increase/(decrease) in comparable net merchandise sales Central America 10.6 % 2.4 % Caribbean 13.1 0.8 Colombia 1.7 (4.5) Consolidated comparable net merchandise sales 10.3 % 1.1 % Twenty-Six Weeks Ended February 27, 2022 February 28, 2021 % Increase/(decrease) in comparable net merchandise sales % Increase in comparable net merchandise sales Central America 12.3 % 0.9 % Caribbean 9.1 5.1 Colombia (0.5) 1.7 Consolidated comparable net merchandise sales 9.9 % 2.3 % Comparison of Thirteen and Twenty-Six-Week Periods Ended March 5, 2023 and February 27, 2022 calculation. Comparable net merchandise sales in our Colombia segment devaluation. March 5, 2023: Currency Exchange Rate Fluctuations for the Thirteen Weeks Ended February 27, 2022 Amount % change Central America $ (9,882) (1.9) % Caribbean (790) (0.3) Colombia (13,539) (13.1) Consolidated comparable net merchandise sales $ (24,211) (2.7) % Currency Exchange Rate Fluctuations for the Twenty-Six Weeks Ended February 27, 2022 Amount % change Central America $ (16,683) (1.6) % Caribbean 78 — Colombia (16,078) (7.9) Consolidated comparable net merchandise sales $ (32,683) (1.8) % Overall, the mix of currency fluctuations within our markets had an approximately March 5, 2023. Membership Income Three Months Ended February 28, February 28, 2022 2021 Amount Increase % Change Membership Amount Membership income - Central America $ 8,980 $ 900 11.1 % 1.5 % $ 8,080 Membership income - Caribbean 3,994 179 4.7 1.4 3,815 Membership income - Colombia 2,097 193 10.1 1.8 1,904 Membership income - Total $ 15,071 $ 1,272 9.2 % 1.5 % $ 13,799 Six Months Ended February 28, February 28, 2022 2021 Amount Increase from prior year % Change Membership Amount Membership income - Central America $ 17,755 $ 1,801 11.3 % 1.5 % $ 15,954 Membership income - Caribbean 7,967 441 5.9 1.4 7,526 Membership income - Colombia 4,140 522 14.4 1.8 3,618 Membership income - Total $ 29,862 $ 2,764 10.2 % 1.5 % $ 27,098 Number of accounts - Central America 930,516 79,972 9.4 % 850,544 Number of accounts - Caribbean 437,065 10,347 2.4 426,718 Number of accounts - Colombia 344,508 25,640 8.0 318,868 Number of accounts - Total 1,712,089 115,959 7.3 % 1,596,130 2023 2022. Membership income increased Our trailing twelve-month renewal rate Three Months Ended February 28, 2022 February 28, 2021 Amount Increase (decrease) from % Change Amount Non-merchandise revenue $ — $ (13,018) (100.0) % $ 13,018 Miscellaneous income 2,270 370 19.5 1,900 Rental income 646 (96) (12.9) 742 Other revenue $ 2,916 $ (12,744) (81.4) % $ 15,660 Six Months Ended February 28, 2022 February 28, 2021 Amount Increase (decrease) from % Change Amount Non-merchandise revenue $ 3,307 $ (22,367) (87.1) % $ 25,674 Miscellaneous income 4,317 920 27.1 3,397 Rental income 1,280 (192) (13.0) 1,472 Other revenue $ 8,904 $ (21,639) (70.8) % $ 30,543 2022 Results of Operations Three Months Ended Results of Operations Consolidated February 28, 2022 February 28, 2021 Increase/(Decrease) (Amounts in thousands, except percentages and Net merchandise sales Net merchandise sales $ 1,011,896 $ 898,404 $ 113,492 Total gross margin $ 158,263 $ 143,296 $ 14,967 Total gross margin percentage 15.6 % 16.0 % (0.4) % Revenues Total revenues $ 1,038,557 $ 937,569 $ 100,988 Percentage change from prior period 10.8 % Comparable net merchandise sales Total comparable net merchandise sales increase 10.3 % 1.1 % 9.2 % Total revenue margin Total revenue margin $ 176,709 $ 166,878 $ 9,831 Total revenue margin percentage 17.0 % 17.8 % (0.8) % Selling, general and administrative Selling, general and administrative $ 128,387 $ 121,899 $ 6,488 Selling, general and administrative percentage of total revenues 12.4 % 13.0 % (0.6) % Three Months Ended February 28, % of February 28, % of Results of Operations Consolidated 2022 Total Revenue 2021 Total Revenue Operating income- by segment Central America $ 46,052 4.4 % $ 40,362 4.3 % Caribbean 21,755 2.1 20,766 2.2 Colombia 6,124 0.6 6,439 0.7 United States 8,299 0.8 2,028 0.2 Reconciling Items (1) (33,908) (3.3) (24,616) (2.6) Operating income - Total $ 48,322 4.7 % $ 44,979 4.8 % (1)The reconciling items reflect the amount eliminated upon consolidation of intersegment transactions. Six Months Ended Results of Operations Consolidated February 28, 2022 February 28, 2021 Increase/(Decrease) (Amounts in thousands, except percentages and number of warehouse clubs) Net merchandise sales Net merchandise sales $ 1,955,939 $ 1,736,776 $ 219,163 Total gross margin $ 309,113 $ 278,046 $ 31,067 Total gross margin percentage 15.8 % 16.0 % (0.2) % Revenues Total revenues $ 2,013,913 $ 1,815,001 $ 198,912 Percentage change from comparable period 11.0 % Comparable net merchandise sales Total comparable net merchandise sales increase / (decrease) 9.9 % 2.3 % 7.6 % Total revenue margin Total revenue margin $ 346,996 $ 324,434 $ 22,562 Total revenue margin percentage 17.2 % 17.9 % -0.7 % Selling, general and administrative Selling, general and administrative $ 252,657 $ 234,924 $ 17,733 Selling, general and administrative percentage of total revenues 12.5 % 12.9 % (0.4) % Warehouse clubs Warehouse clubs at period end 49 47 2 Warehouse club sales square feet at period end 2,438 2,325 113 Six Months Ended February 28, % of February 28, % of Results of Operations Consolidated 2022 Total Revenue 2021 Total Revenue Operating income- by segment Central America $ 89,431 4.4 % $ 74,807 4.1 % Caribbean 41,633 2.1 42,359 2.3 Colombia 12,502 0.6 12,004 0.7 United States 14,556 0.7 7,771 0.4 Reconciling Items (1) (63,783) (3.2) (47,431) (2.6) Operating income - Total $ 94,339 4.7 % $ 89,510 4.9 % The following table summarizes the selling, general and administrative expense for the periods disclosed: Three Months Ended February 28, % of February 28, % of 2022 Total Revenue 2021 Total Revenue Warehouse club and other operations $ 93,993 9.1 % $ 90,449 9.7 % General and administrative 33,951 3.3 31,270 3.3 Pre-opening expenses 130 — 48 — Loss on disposal of assets 313 — 132 — Total Selling, general and administrative $ 128,387 12.4 % $ 121,899 13.0 % Six Months Ended February 28, % of February 28, % of 2022 Total Revenue 2021 Total Revenue Warehouse club and other operations $ 185,189 9.2 % $ 175,281 9.7 % General and administrative 65,644 3.3 58,791 3.2 Pre-opening expenses 1,100 — 650 — Loss on disposal of assets 724 — 202 — Total Selling, general and administrative $ 252,657 12.5 % $ 234,924 12.9 % Comparison of Three and Six Months Ended February 28, 2022 Colombian Peso. We are considering additional strategic pricing actions in Colombia. 2023 and 2022. Warehouse club and other operations expenses decreased to 9.1% of total revenues for the . This reflects the increase in total revenue margin of 30 basis points (0.3%), partially offset by a 20 basis point (0.2%) increase in deleveraging of selling, general and administrative expenses over the comparable prior-year period. Three Months Ended February 28, February 28, 2022 2021 Amount Change Amount Interest expense on loans $ 1,803 $ 230 $ 1,573 Interest expense related to hedging activity 908 (45) 953 Less: Capitalized interest (273) 25 (298) Net interest expense $ 2,438 $ 210 $ 2,228 Six Months Ended February 28, February 28, 2022 2021 Amount Change Amount Interest expense on loans $ 3,140 $ (158) $ 3,298 Interest expense related to hedging activity 1,757 (121) 1,878 Less: Capitalized interest (869) 46 (915) Net interest expense $ 4,028 $ (233) $ 4,261 2022 period. Other Income (Expense), Net Three Months Ended February 28, February 28, 2022 2021 Amount Change % Change Amount Other income (expense), net $ (819) $ (527) (180.5) % $ (292) Six Months Ended February 28, February 28, 2022 2021 Amount Change % Change Amount Other expense, net $ 590 $ 2,427 132.1 % $ (1,837) 2022 Provision for Income Taxes Three Months Ended February 28, February 28, 2022 2021 Amount Change Amount Provision for income taxes $ 14,139 $ (426) $ 14,565 Effective tax rate 31.0 % 33.9 % Six Months Ended February 28, February 28, 2022 2021 Amount Change Amount Provision for income taxes $ 29,953 $ 1,770 $ 28,183 Effective tax rate 32.6 % 33.4 % 2022 Three Months Ended February 28, February 28, 2022 2021 Amount Change % Change Amount Other comprehensive income (loss) $ 4,226 $ 5,346 477.3 % $ (1,120) Six Months Ended February 28, February 28, 2022 2021 Amount Change % Change Amount Other comprehensive income (loss) $ (1,905) $ (3,947) 193.3 % $ 2,042 2022 Republic subsidiaries. : February 28, August 31, 2022 2021 Amounts held by foreign subsidiaries $ 172,554 $ 160,808 Amounts held domestically 22,359 54,671 Total cash and cash equivalents, including restricted cash $ 194,913 $ 215,479 : February 28, August 31, 2022 2021 Amounts held by foreign subsidiaries $ 26,933 $ 50,233 Amounts held domestically — — Total short-term investments $ 26,933 $ 50,233 or domestically. 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. Six Months Ended February 28, February 28, 2022 2021 Change Net cash provided by (used in) operating activities $ (7,920) $ 29,727 $ (37,647) Net cash used in investing activities (30,531) (82,276) 51,745 Net cash provided by (used in) financing activities 17,843 (60,814) 78,657 Effect of exchange rates 42 (2,629) 2,671 Net decrease in cash and cash equivalents $ (20,566) $ (115,992) $ 95,426 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) December 1, 2021 - December 31, 2021 — $ — — N/A January 1, 2022 - January 31, 2022 19,140 70.58 — N/A February 1, 2022 - February 28, 2022 — — — N/A Total 19,140 $ 70.58 — — 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. SIGNATURES PRICESMART, INC. Date: April By: /s/ Robert E. Price Interim Chief Executive Officer (Principal Executive Officer) Date: April By: /s/ MICHAEL L. MCCLEARY Michael L. McCleary Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)2022¨o¨o¨ox ¨o¨¨oEmerging growth company ¨o¨o¨o30,873,93831,001,100 shares of its common stock, par value $0.0001 per share, outstanding at March 31, 2022.PRICESMART,PRICESMART, INC.2022 2023 (UNAUDITED) AND AUGUST 31, 202120222022 2023 AND 20212022 - UNAUDITED2022 2023 AND 20212022 - UNAUDITED2022 2023 AND 20212022 - UNAUDITED2022 2023 AND 20212022 - UNAUDITED565757585859585958595860586058605961PARTPART I—FINANCIAL INFORMATIONITEM20222023 and the consolidated balance sheet as of August 31, 2021,2022, the unaudited consolidated statements of income for the three and six months ended February 28, 20222023 and 2021,2022, the unaudited consolidated statements of comprehensive income for the three and six months ended February 28, 20222023 and 2021,2022, the unaudited consolidated statements of equity for the three and six months ended February 28, 20222023 and 2021,2022, and the unaudited consolidated statements of cash flows for the six months ended February 28, 20222023 and 20212022 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 (5,344) (819) (9,910) 590 Total other expense (6,216) (2,708) (12,374) (2,371)
loss of unconsolidated affiliatesIncome before provision for income taxes and loss of unconsolidated affiliates 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 (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
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LossRetained
EarningsShares Amount Total
EquityBalance at November 30, 2021 31,598 $ 3 736 $ (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 — — — — (13,275) — — (13,275) Dividend payable to stockholders — — — — (13,430) — — (13,430) Net income — — — — 31,461 — — 31,461 Other comprehensive income — — — 4,226 — — — 4,226 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 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 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 February 28, 2022,2023, the Company had 4950 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 Nicaragua;Jamaica; and 1one each in Aruba, Barbados Jamaica 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 Portmore, JamaicaMedellín, Colombia and Escuintla, Guatemala in April 2022 and a warehouse club in Medellín, Colombia that is anticipated to open in the summer of 2023. Once these 2four new clubs are open, the Company will operate at least 5154 warehouse clubs, depending on the timing of the development and construction of other warehouse club projects in our pipeline. clubs. OurOur operating segments are the United States, Central America, the Caribbean and Colombia.Expand Real Estate (new clubsInvest in Remodeling Current PriceSmart Clubs, Adding New PriceSmart Locations and distribution facilities),Opening More Distribution Centers;Value;Value; andenhanced online, digitalEnhanced Online, Digital and technological capabilities.Technological Capabilities.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.noncontrollingnon-controlling interests. The Company reports noncontrollingnon-controlling interests in consolidated entities as a component of equity separate from the Company’s equity. The interim consolidated financial statements also include the Company's investment in, and the Company's share of the income (loss) of, joint ventures recorded under the equity method. All significant inter-company accounts and transactions have been eliminated in consolidation. The interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC and reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows for the periods presented. The results for interim periods are not necessarily indicative of the results for the year.20222023 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 due to elevated infection ratesestimates and government restrictions. 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 $11.2 $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 $44.9 $43.2 million as of February 28, 20222023 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 other intangibles related to the Aeropost trademark, and $1.0 million of other intangibles related to the developed technology of Aeropost directly associated with Aeropost’s legacy marketplace and casillero business. These write-offs 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.mosttwo countries where the Company operates, there are defined and structured processes to recover VAT receivables via refunds or offsets. However, in one country without a clearly defined refund process, the Company is actively engaged with the local government to recover VAT receivables totaling $11.9 million and $9.7 million as of February 28, 2022 and August 31, 2021, respectively. In two other countries, there have been changes in the method of computing 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 and deferred tax assets of $4.0 million and $3.5 million as of February 28, 20222023 and August 31, 2021, respectively and deferred tax assets of $3.7 million and $3.3 million as of February 28, 2022, and August 31, 2021, 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.2022,2023, the Company reissued approximately 9,0007,000 treasury shares.nonfinancialnon-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring or nonrecurringnon-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.0no impairment of such non-financial assets was recorded.20212022 Annual Report on Form 10-K.20222023 and August 31, 2021.2022.sold,sold: net merchandise sales. The Company also includes in cost of goods sold: net merchandise sales the external and internal distribution and handling costs for supplying merchandise, raw materials and supplies to the warehouse clubs, and, when applicable, costs of shipping to Members. External costs include inbound freight, duties, drayage, fees, insurance, and non-recoverable value-added tax related to inventory shrink, spoilage and damage. Internal costs include payroll and related costs, utilities, consumable supplies, repair and maintenance, rent expense and building and equipment depreciation at the Company's distribution facilities and payroll and other direct costs for in-club demonstrations.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.20222023 and February 28, 20212022 (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 six-month period ended February 28, 2022,2023, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of February 28, 20222023 that the Company expects to have a material impact on its consolidated financial statements.TheUntil the disposal of Aeropost in the first quarter of fiscal 2022, the Company recognizesrecognized non-merchandise revenue, net of sales taxes, on transactions where the Company hashad determined that it iswas the agent in the transaction. These transactions primarily consistconsisted of contracts the Company entersentered into with its customers to provide delivery, insurance and customs processing services for products its customers purchasepurchased online in the United States either directly from other vendors utilizing the vendor’s website or through the Company’s marketplace site. Revenue iswas recognized when the Company’s performance obligations have beenwere completed (that is when delivery of the items have been made to the destination point) and iswas recorded in “non-merchandise revenue” on the consolidated statements of income. Prepayment for orders for which the Company hashad not fulfilled its performance obligation arewere recorded as deferred income. Additionally, the Company recordsrecorded 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 iswas acting as an agent and iswas not the principal in the sale of those goods being purchased from the vendors by the Company’s customers.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)
2022
2021
2022
202120222023 and 20212022 (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).2022.20222023 and August 31, 2021,2022, the Company has recorded within other accrued expenses and other current liabilities a total of $1.8$1.4 million and $1.1 million, respectively, for various non-income tax related tax contingencies.20222023 and August 31, 2021,2022, respectively, and deferred tax assets of $3.7$4.0 million and $3.3$3.5 million as of February 28, 20222023 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.20222023 and August 31, 2021,2022, the Company had approximately $24.3$14.4 million and $16.2$16.5 million, respectively, in contractual obligations for construction services not yet rendered.2022,2023, the Company had entered into three land purchase agreements that, if completed, would result in the use of approximately $13.2$10.6 million in cash. In March 2022,Lastly, the Company finalizedhas one lease option agreement for one additional warehouse club. One of the land purchase of oneagreements and the lease option described above were executed after February 28, 2023, but prior to issuance of these parcels of land and began construction of a new club in El Poblado (Medellín), Colombia.financial statements. Refer to "Note 10 – Subsequent Events" for more information.20222023 (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 % NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)20222023 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.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 $6.4$172.0 million. The carrying amount of cash assets assigned as collateral for these loans was $4.4 million.million and $166.8million, respectively.20222023 and August 31, 2021,2022, the Company had approximately $120.5$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 period 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 2022,2023, 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.2022:2023:Entity 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 swapColombia 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 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 - May 3, 2027 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 - November 18, 2024 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 March 3, 2020 December 3, 2019 - December 3, 2024 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 - November 27, 2024 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 - March 23, 2023 PriceSmart, 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
Entered
into
Financial
Counter-
party
Financial
Instruments
US$
Notional
Amount
US$
loan
Held
with
(swap
counter-party)
for PSMT
Subsidiary
Dates
Period of swap
November 18, 2024
December 3, 2024
November 27, 2024
September 26, 2022
March 23, 2023
February 24, 2024
March 1, 202720222023 and February 28, 2021,2022, 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 February 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)
Classification
Value
Effect
OCI
Value
Effect
OCI
(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-2023Banco Ficohsa Honduras 22-Feb-2023 - 28-Feb-2023 Forward foreign exchange contracts (USD) $ 5,000 1-Mar-2023 - 7-Mar-2023 20222023 and February 28, 2021.4950 warehouse clubs located in 12 countries and 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)20222023 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.Real Estate TransactionsIn2022,10, 2023, the Company acquiredexecuted a lease agreement for land in Escuintla, Guatemala for approximately $7.0 million in Medellín, Colombia to openthe purpose of constructing a new warehouse club. Construction has commenced and the club, is anticipatedwhich it expects to open in the summerfall of 2023. ItThe lease agreement will beresult in the secondrecognition of a lease liability and right-of-use asset of approximately $1.5 million.Medellín and the tenth in Colombia.early 2024."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: adverse changesto, the risks detailed in economic conditions in our markets, natural disasters, compliance risks, 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, 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, including among others, the duration of the pandemic, the unknown long-term economic impact, the impact of government policies and restrictions that have limited access for our Members, and shifts in demand away from discretionary or higher priced products to lower priced products, 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 49 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.densely-populateddensely populated major cities that include a large penetration of consumers with significant disposable income. Our smaller clubs tend to be in areas with less population density, but where there are significant opportunities to serve the population and supply and support businesses. We also 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.Data is one of our most valuable resources, and technology allows us to extract valuable membership and other information to enhance Member experience and benefits as well as plan for the future. 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 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 continually 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 Jamaica 1 2 — — Aruba 1 1 — — Barbados 1 1 — — U.S. Virgin Islands 1 1 — — Totals 49 50 3 1 standard format warehouse club located withinin the cityaffluent El Poblado area of Portmore, Jamaica. Portmore is a suburb west of the capital city of Kingston.Medellín, Colombia. We expect to open this warehouse club, which will be our second warehouse club in Jamaica, in April 2022. In addition, we are constructing a smaller format warehouse club in the affluent El Poblado area of Medellín, Colombia and expect to open it in the summer of 2023. It will be our second club in Medellín and the Company’s tenth warehouse club in Colombia.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 nearest 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 at least 5154 warehouse clubs, depending on the timing of the development and construction of other warehouse club projects in our pipeline.looking to expandexploring expansion of that business intoin other markets.COVID-19 PandemicThe COVID-19 pandemic continues to present challenges to our business. 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, industry and 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.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.last halfsecond quarter of fiscal year 20212023, inflation in all of our markets and continuing into fiscal 2022, we saw several factors pressuring supply chains, including raw material shortages, limited manufacturer capacity, factory labor shortages, container shortages, port delays,devaluations 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 truck and driver shortages. These disruptions and shortagescould continue to impact our financial results and could lead to reduced sales, fewer units sold, and/or margin pressure. Events directly or indirectly related to COVID-19 have resulted in market and supply-chain disruptions. These factors have increased the timingcomplexity of deliveriesmanaging our inventory flow and are leading to higherbusiness; however, during the first six months of fiscal year 2023, we saw a general improvement in transit days and a reduction in freight costs. Despite all these issues, we continued to see strong sales during the quarter.rates of our shipping containers. We are working to hold down and/or mitigate the price increases passed on to theour Members while maintaining sufficientthe 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. In addition, we have made strategic investments in inventory and worked with our local vendors to source alternative products in order to reduce future out-of-stocks on high demand items that have been impacted by these disruptions or that have been affected by electronic part shortages. We expect pandemic-related conditions to continue throughout fiscal 2022.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 six months of fiscal year 2023 and 2022, approximately 78.8% and 2021, approximately 77.9% and 78.3%, respectively, of our net merchandise sales were in currencies other than the U.S. dollar. Of those sales, 48.7%48.9% and 48.8%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 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 February 28, 2022, our Trinidad subsidiary had2023 of Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately $35.5was $14.7 million, a decrease of $17.4 million from August 31, 2021 when these same balances were approximately $52.9 million and a decrease of $65.0$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 $7.1 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 February 28, 2022, we had a U.S. dollar denominated monetary asset position of approximately $58.7 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 $11.7 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 financing structures such as the loan executed 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.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-positionedwell 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.I.• Expand Real Estate –Invest in Remodeling Current PriceSmart Clubs, Adding New clubsPriceSmart Locations and distribution facilitiesOpening More Distribution CentersII.•IncreaseMembership ValueIII.•Drive Incremental Sales via PriceSmart.com and enhanced online, digitalEnhanced Online, Digital and technological capabilitiesTechnological CapabilitiesExpand Real EstateInvest in Remodeling Current PriceSmart Clubs, Adding New PriceSmart Locations and Opening More Distribution Centers. - NewWe 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 and distribution facilities.in San Salvador, El Salvador. We continue to actively seek opportunities to expand our geographic footprint for brick-and-mortar warehouse clubs. We plan to open apursue warehouse club growth opportunities in Jamaica in April 2022 and another club in Medellín, Colombia in the summer of 2023. We intend to continue, and even accelerate, our current pace of club growth over the next three to five yearsmarkets and to continue to explore and 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,support PriceSmart.com online sales to both our 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. ByWe 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/or convenience, we expect the value proposition to help build a larger membership base.and 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, memberMember 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 memberMember and additional members of their families and deeply discounted eyeglass frames, Audiology services with free hearing exams and deeply discounted hearing 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 six months of fiscal 2022,2023, our private label sales represented 23.5%25.9% of total merchandise sales, up from 21.5%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.and digital, enhanced online and technological capabilities. Members continue to seek allWe recognize the great value our distinct business model provides in terms of quality, pricing and an exciting experience. However, there is a growing expectation of consumers in our markets for convenience. WeAs a result, we continue to build capabilitiesimprove the functionality of PriceSmart.com and to expand our product offerings on PriceSmart.com.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.20222023 included:•Total revenues increased 10.8%10.0% over the comparable prior year period.•Net merchandise sales increased 12.6%10.3% over the comparable prior year period to $1.0 billion.period. We ended the quarter with 4950 warehouse clubs compared to 4749 warehouse clubs at the end of the second quarter of fiscal 2021.year 2022. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 3.0%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 ½February 27, 2022March 5, 2023 increased 10.3%8.5%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.7%0.2%.•Membership income for the second quarter of fiscal 2022year 2023 increased 9.2%7.3% to $15.1 million.$16.2 million over the comparable prior year period.•Total gross margins (net merchandise sales less associated cost of goods sold) increased 10.4%12.8% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.6%16.0%, a decreasean increase of 40 basis points (0.4%)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.2022year 2023 was $48.3$53.8 million, an increase of 7.4%11.3%, or $3.3$5.5 million, compared to the second quarter of fiscal 2021.year 2022.•We recorded a $1.8$5.3 million net currency loss in other income (expense), net primarily from currency transactions in the second quarter of fiscal 2022year 2023 compared to a $0.2$0.8 million net currency loss primarily from currency transactions in the same period last year.decreasedincreased in the second quarter of fiscal 2022year 2023 to 31.0%34.0% from 33.9%31.0% in the second quarter of fiscal 2021,year 2022. The increase in the effective tax rate is primarily related to changes in uncertain tax positions.separation costs associated with the departure of our former Chief Executive Officer.•Net income attributable to PriceSmart for the second quarter of fiscal 2022year 2023 was $31.5$31.3 million, or $1.03$1.02 per diluted share, compared to $28.2$31.5 million, or $0.92$1.03 per diluted share, in the second quarter of fiscal 2021.year 2022.20222023 included:•Total revenues increased 11.0%9.1% over the comparable prior year period.•Net merchandise sales increased 12.6%9.5% over the comparable prior year period to $2.0 billion.period. We ended the first halfsix months of fiscal 20222023 with 4950 warehouse clubs compared to 4749 warehouse clubs at the end of the second quarter of fiscal 2021.2022. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.0%1.2% versus the comparable six-month period.•Comparable net merchandise sales (that is, sales in the 4749 warehouse clubs that have been open for greater than 13 ½February 27, 2022March 5, 2023 increased 9.9%6.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 1.8%1.1%.•Membership income increased 10.2%7.4% to $29.9$32.1 million.•Total gross margins (net merchandise sales less associated cost of goods sold) increased 11.2%11.6% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.8%16.1%, a decreasean increase of 2030 basis points (0.2%)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.$94.3$109.3 million, an increase of 5.4%15.9%, or $4.8$15.0 million, compared to the first six months of fiscal 2021.2022.•We recorded a $3.6$9.9 million net currency loss in other income (expense) primarily from currency transactions in the in the current six-month period compared to a $1.7$0.6 million net currency lossgain primarily from the disposal of Aeropost in the same period last year.•Our effective tax rate decreasedincreased for the first six months of fiscal 2022year 2023 to 32.6%33.7% from 33.4%32.6% in the first six months of fiscal 2021,2022, primarily related to changes in uncertain tax positions.separation costs associated with the departure of our former Chief Executive Officer.•Net income attributable to PriceSmart for the first six months of fiscal 2022year 2023 was $62.0$64.3 million, or $2.01$2.07 per diluted share, compared to $56.0$62.0 million, or $1.82$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 six months ended FebruaryTHREE AND SIX MONTHS ENDED FEBRUARY 28, 2023 AND 2022 and 202120222023 with the three-month and six month-periods ended on February 28, 20212022 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.20222023 and February 28, 2021.2022: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
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
sales20222023 and 202112.6%10.3% for the second quarter and 9.5% for the six-month period ended February 28, 2022.2023. The second quarter increase resulted from an 11.7%a 3.8% increase in transactions and a 0.9%6.2% increase in average ticket. For the six-month period, the increase resulted from an 11.5%a 3.4% increase in transactions and a 1.0%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 4950 clubs in operation as of February 28, 20222023 compared to 4749 clubs as of February 28, 2021.2022.13.6%13.0% and 14.5%11.6% for the second quarter and six-months ended February 28, 2022,2023, respectively. These increases had an 800a 780 basis point (8.0%(7.8%) and 850690 basis point (8.5%(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 six-month periods ended February 28, 2022. We added one new club to the segment when compared to the comparable prior-year periods. We opened our fifth club in Guatemala in October 2021.13.0%13.2% and 9.2%13.1%, respectively, for the second quarter and the six-months ended February 28, 2022.2023. The increase for the quarter had a 370380 basis point (3.7%(3.8%) positive impact on net merchandise sales growth and the increase for the six-months had a 270370 basis point (2.7%(3.7%) positive impact on net merchandise sales growth. Our Dominican Republic market continued its strong performanceAll of our markets in the quarter with 17.8%this segment had positive net merchandise sales growth. Our Aruba and Trinidad markets also showed strong performance this quarter with 12.9% and 12.4% growth, respectively. Sales for Trinidad in the fiscal second quarter of 2021 were impacted by reductions in imported merchandise dueWe added one new club to the U.S. dollar liquidity challenges, which was more normalizedsegment when compared to the comparable prior-year period. We opened our second warehouse club in the second quarter of fiscalJamaica in April 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.increased 7.2%decreased 10.8% and 11.6%9.6% for the second quarter and the six-months ended February 28, 2022,2023, respectively. This increasedecrease had a 90130 basis point (0.9%(1.3%) and 140110 basis point (1.4%(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 clubwhich has negatively impacted sales in Colombia in November 2021.2022.2023. 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) % $26.3$2.3 million and $34.8$23.5 million, or 30020 basis point (3.0%(0.2%) and 200120 basis points (2.0%(1.2%), negative impact on net merchandise sales for the quarter and six-months ended February 28, 2022,2023, respectively.$9.5$16.2 million and $16.2$13.9 million, or 180260 basis point (1.8%(2.6%) and 160120 basis point (1.6%(1.2%), negativepositive impact on net merchandise sales in our Central America segment for the quarter and six-months ended February 28, 2022.2023. These currency fluctuations contributed approximately 110140 basis points (1.1%(1.4%) and 9070 basis points (0.9%(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 six-month period a year ago, and was a significant factor in the contribution to the unfavorablefavorable currency fluctuations in this segment.$0.9$3.0 million and $0.1$7.6 million, or 40100 basis point (0.4%(1.0%) and negligible, negative140 basis point (1.4%), positive impact on net merchandise sales in our Caribbean segment for the quarter and six-months ended February 28, 2022.2023. These currency fluctuations contributed approximately 1030 basis points (0.1%(0.3%) and no negative40 basis points (0.4%) of positive impact on total net merchandise sales, respectively. This negativepositive impact was primarily driven by the devaluationappreciation of the Jamaican dollarDominican Peso as compared to the same three-month and six-month period a year ago and was partially offset by the Dominican Republic, which experienced significant currency appreciation when compared to the same period last year.$15.9$21.5 million and $18.5$45.1 million, or 1,4201,810 basis point (14.2%(18.1%) and 8801,930 basis point (8.8%(19.3%), negative impact on net merchandise sales in our Colombia segment for the quarter and six-months ended February 28, 2022.2023. These currency fluctuations contributed approximately 180190 basis points (1.8%(1.9%) and 110230 basis points (1.1%(2.3%) of the total negative impact on total net merchandise sales for the quarter and six-months ended February 28, 2022.2023.twoone of our warehouse clubs opened during calendarfiscal year 20212022 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 twenty-six weekthirteen-week period ended February 27, 2022. and February 28, 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 % and February 28, 2021February 27, 2022March 5, 2023 increased 10.3%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 twenty-six week period ended February 27, 2022March 5, 2023 increased 9.9%6.8%.10.6%13.1% and 12.3%10.6% for the thirteen-week and twenty-six week periods ended February 27, 2022,March 5, 2023, respectively. All of our markets in Central America except for Guatemala which is experiencing transfers from warehouse clubs included in the comparable net merchandise sales calculation to a new club not included in the calculation, had positive comparable net merchandise sales growth for the thirteen-week and this increasetwenty-six week periods ended March 5, 2023. The positive comparable net merchandise sales growth for our Central America segment contributed approximately 770 basis points (7.7%) and 630 basis points (6.3%) and 720 basis points (7.2%) of positive impact in total comparable merchandise sales for the thirteen-week and twenty-six week periods ended February 27, 2022,March 5, 2023, respectively.13.1%6.9% and 9.1%6.8% for the thirteen-week and twenty-six week periods ended February 27, 2022.March 5, 2023. These increases contributed approximately 380200 basis points (3.8%(2.0%) and 280190 basis points (2.8%(1.9%) of positive impact on total comparable merchandise sales for the thirteen-week and twenty-six week periods ended February 27, 2022,March 5, 2023, respectively.February 27, 2022,March 5, 2023, with 18.0%15.1% and 17.4%17.1% comparable net merchandise sales growth, respectively. Our Aruba and Trinidad markets also showedThis strong performance with 14.1%was offset by our Jamaica market, which declined in comparable net merchandise sales by 5.0% and 12.6% comparable sales growth6.0% for Aruba,the thirteen-week and 12.6% and 2.7% comparable sales growth for Trinidad, respectively. Trinidad sales significantly improved versus the prior periodtwenty-six week periods ended March 5, 2023, respectively, due to a more normalized level of inventory associated with an improvementsales transfers from the existing club included in the liquidity ofcomparable net merchandise sales calculation to the Trinidad dollar duringnew club not included in the period. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the Trinidad dollar illiquidity situation.increased 1.7%decreased 10.6% and decreased 0.5%11.9% for the thirteen-week and twenty-six week periods ended February 27, 2022,March 5, 2023, respectively. This increase and decreaseThese decreases contributed approximately 20120 basis points (0.2%(1.2%) and 10140 basis points (0.1%(1.4%) of positive and negative impact in total comparable merchandise sales for the thirteen-week and twenty-six week periods ended February 27, 2022,March 5, 2023, respectively. The decrease in Colombia during the thirteen-week and twenty-six week period was primarily due to the foreign currency devaluation and sales transfers from existing clubs included in the comparable net merchandise sales calculation to new clubs not included in the calculation.February 27, 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) % $24.2$1.8 million and $32.7$21.3 million, or 27020 basis point (2.7%(0.2%) and 180110 basis point (1.8%(1.1%), negative impact on comparable net merchandise sales for the thirteen and twenty-six week periods ended February 27, 2022.110190 basis points (1.1%(1.9%) and 9080 basis points (0.9%(0.8%) of negativepositive impact on total comparable merchandise sales for the thirteen and twenty-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.1030 basis points (0.1%(0.3%) and no negative40 basis points (0.4%) of positive impact on total comparable merchandise sales for the thirteen and twenty-six week period, respectively. Our Dominican Republic, Jamaica, marketand Trinidad markets all experienced currency devaluation, which was partially offset for the thirteen-week period and completely offset for the twenty-six week period by our Dominican Republic market, which experienced currency appreciation when compared to the same periods last year.appreciation.150240 basis points (1.5%(2.4%) and 90230 basis points (0.9%(2.3%) of negative impact on total comparable merchandise sales for the thirteen and twenty-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 year
income % to
net merchandise
club salesAmount 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 202220222023 was 7.3% 3.2% higher thanthan the number of accounts as of February 28, 2021. Membership income increased 9.2% and 10.2% over the three and six-month periods ended February 28, 2022, respectively, compared to the same prior-year periods.across all of our operating segments in7.3% and 7.4% over the three and six-month periods ended February 28, 2022.2023, respectively, compared to the same prior-year periods.start of fiscalcomparable prior year 2021.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 halfthat market. 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 6.8%are 8.2% of ourour total membership base as of February 28, 2022,2023, an increase from 5.6%from 6.8% as ofof February 28, 2021.2022. Platinum Members tend to have higher renewal rates than our Diamond Members.waswas 88.0% and 89.8% and 81.5% for the periods ended February 28, 20222023 and February 28, 2021, respectively. The COVID-19 pandemic caused a decrease in in-club traffic in the second quarter of fiscal year 2022, resulting in fewer in-club visits and thus fewer renewals as most of our renewals occur in the warehouse club. However, approximately 15% and 14% of our membership sign-ups were completed using our online platform for the six month periods ended February 28, 2022 and February 28, 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 20222023 and February 28, 2021quarter and six-months ended February 28, 20222023 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.”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 %
number of warehouse clubs)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 % 20222023 and February 28, 202120222023 was 15.6%16.0% and 16.1%, 40 basis points (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 a reduction in the premium we applied togeneral margin improvement across most of our sales prices to offsetcategories, particularly from our COVID-related operating costsother business services, such as our food services and higher markdowns versus the prior fiscal year period.bakery, and improved front end margin.On a consolidated basis, total gross margin percentage for the six months ended February 28, 2022 was 15.8%, 20 basis points (0.2%) lower than the comparable prior year period. The decrease for the six months ended was primarily due tofactor intohave determined not to increase the sales price on select items on which our sales prices on our imported merchandisecosts have increased in an effort to reduce the Dominican Republic and a reduction in the premium we appliedcost burden to our sales prices to offset our COVID-related operating costs compared withMembers in this market during this period of exceptionally high inflation and significant devaluation of the prior year period.decreased 80increased 30 basis points (0.8%(0.3%) for the three months ended February 28, 20222023 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 40 basis points (0.4%). Total revenue margin decreased 70increased 30 basis points (0.7%(0.3%) for the six months ended February 28, 20222023 compared to the prior-year period, which is primarily the result of lower revenue margins from our casillero and marketplace business of 50 basis points (0.5%) along with the lowerhigher total gross margin percentage of 2030 basis points (0.2%(0.3%).$6.5$16.0 million compared to the prior year, but decreasedand increased as a percentage of total revenue, declining 60increasing by 20 basis points (0.6%(0.2%) to 12.4%12.6% of total revenue for the second quarter of fiscal year 2023 compared to 13.0%12.4% of total revenues for the second quarter of fiscal year 2022 compared to the second quarter of fiscal year 2021.2022. Selling, general and administrative expenses increased $17.7$21.9 million compared to the prior year but decreasedremained unchanged as a percentage of total revenue, declining 40 basis points (0.4%) to 12.5% of total revenue compared to 12.9% of total revenues for the first six months of fiscal year 2022 compared to2023 and 2022.first six monthssecond quarter of fiscal year 2021.second quarterfirst six months of fiscal year 20222023 compared to 9.7%9.2% for the second 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 10 basis points (0.10%) as a percentage of revenue year over year.Warehouse clubother operationsadministrative expenses decreased to 9.2%2.8% of total revenues for the second quarter of fiscal year 2023 compared to 3.3% for the second quarter of fiscal year 2022. The 50 basis point (0.5%) decrease is primarily due to the leveraging of general and administrative expenses when compared to increased total revenues and the 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.20222023 compared to 9.7% for the prior-year period. This was primarily due to 40 basis points (0.40%) 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 year.General and administrative expenses remained unchanged at 3.3% of total revenues for the second quarter of fiscal year 2022 compared to 3.3% for the second quarter of fiscal year 2021. Given our strategic initiatives, we anticipate that we will continue to make investments at comparable levels (as a percentage of revenue) to further our omni-channel, technology and employee development initiatives.General and administrative expenses increased to 3.3% of total revenues for the first six months of fiscal year 2022 compared to 3.2% for the first six months of fiscal year 2021.2022. The 1030 basis point (0.1%(0.3%) increasedecrease is primarily due to the leveraging of general and administrative expenses.10go-forward basis, point (0.1%) increase from our continued investmentsInterim Chief Executive Officer has declined to support our technology development, talent acquisition,receive compensation for his services during his term; therefore, we expect selling, general and employee development.administrative expenses will be positively impacted by $2.5 million of savings each quarter during his term, net of salary increases for other executives related to the change in leadership20222023 increased to $48.3$53.8 million (4.7% of total revenue) compared to $45.0$48.3 million (4.8%(4.7% of total revenue) for the same period last year.20222023 increased to $94.3$109.3 million (4.7%(5.0% of total revenue) compared to $89.5$94.3 million (4.9%(4.6% of total revenue) for the same period last year.clubclubs 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 20222023 and February 28, 2021period ended February 28, 2022 primarily due to the increase in long-term borrowings. Net interest expense decreased for theand six-month period ended February 28, 20222023 primarily due to lower average short-termhigher interest rates and higher long-term borrowings outstanding when compared to the comparable prior year period when we had outstanding balances to cover contingencies arising from COVID-19 related risks.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 20222023 and 202120222023 the primary driver of Other income (expense), net included $1.8a $3.9 million and $3.6$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 half of fiscal year 2022, this loss was 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 were higher transaction costs of $2.3 millionand six months ended 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% 20222023 and February 28, 20212022,2023, the effective tax rate was 31.0%34.0% compared to 33.9%31.0% for the prior year period. The decreaseincrease 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 1.7%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 favorable benefitunfavorable net tax impact from non-recurring items of 4.6%4.0%, primarily related to changes in uncertain tax positions.separation costs associated with the departure of our former Chief Executive Officer.2022,2023, the effective tax rate was 32.6%33.7% compared to 33.4%32.6% for the prior year period. The decreaseincrease 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 1.3%2.1%, primarily related to changes in uncertain tax positions.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) 20222023 and February 28, 2021$4.2$12.4 million for the second quarter of fiscal year 20222023 resulted primarily from the comprehensive gain of approximately $2.4$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 $1.8$0.2 million related to unrealized gains on changes in our derivative obligations. Other comprehensive lossincome for the six-months ended February 28, 20222023 of approximately $1.9$11.9 million was primarily the result of the comprehensive lossgain of $5.7$11.3 million from foreign currency translation adjustments offset byalong with approximately $3.7$0.6 million related to unrealized gains on changes in the fair value of our derivative obligations. For the quarter, the Colombia peso and Dominican peso exchange rate withlargest translation adjustments were related to the appreciation of the local currency against the U.S. dollar have appreciated significantly and this appreciation was partially offset by a devaluation in thefor our Costa Rica colón.subsidiary. For the six-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 have 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 20222023 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 and domestically were $0 and $1.5 million, respectively.Six Months Ended February 28,
2023February 28,
2022Change 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 Net increase (decrease) in cash and cash equivalents $ 29,179 $ (20,566) $ 49,745 million and net cash provided by operating activities totaled $29.7 million for the six months ended February 28, 20222023 and February 28, 2021,2022, respectively. The decrease in netFor the six-months ended February 28, 2023, cash provided by operating activities increased primarily due to usedshifts 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 six-months ended February 28, 2022. The net use of cash in operating activities is primarily the result of non-working capital changes in the balance sheet of $29.7 millionprior 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 thean increase in prepaid expenses, prepaid income taxes and VAT paid. Prepaid expenses and prepaid income taxes increased primarily from our higher sales during the period and VAT paid increased primarily from our higher inventory position. The remaining portion of the decrease in cash provided by (used in) operating activities is from working capital, largely driven by inventory increases not fully offset by increases in accounts payable. Inventory was $470.3million as of February 28, 2022, compared with $389.7 million and $339.2 million at August 31, 2021 and February 28, 2021, respectively. The increase over the balances as of February 28, 2021 reflects our efforts to bring our inventory levels in-line with our sales trends. In addition, we have made strategic investments in inventory to avoid futureaccommodate pandemic-influenced consumer preferences and to mitigate out-of-stocks on high volume itemsdue to supply-chain disruptions during that have been impacted from container, commodity,period. Our inventory buildup for this fiscal year was lower as we set our inventory position to align more with our historical days-on-hand, and electronic part shortages. Lastly, we have two additional clubs in therebalanced our inventory mix to reflect current year.and anticipated consumer demand and preferences.$30.5$96.1 million and $82.3$30.5 million for the six months ended February 28, 20222023 and February 28, 2021.2022, 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 six-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 six-month period a year-ago to support our real estate footprint growth.Netnet cash provided by financing activities totaled $17.8 million and net cash used in financing activities was $60.8 million for the six months ended February 28, 20222023 and February 28, 2021,2022, 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 $78.7$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 six-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 2022,2023, 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.most countries where we operate, there are defined and structured processes to recover VAT receivables via refunds or offsets. However, in one country without a clearly defined refund process, the Company is actively engaged with the local government to recover VAT receivables totaling $11.9 million and $9.7 million as of February 28, 2022 and August 31, 2021, respectively. In addition, in two other countries where the Company operates, there have been changes in the method of computing minimum tax payments, under which the governments have sought to require the Company to pay taxes based on a percentage of sales rather than taxable income. As a result, we have made and may continue to make income tax payments substantially in excess of those we would expect to pay based on taxable income. The Company had income tax receivables of $11.3 million and $11.0 million as of February 28, 20222023 and August 31, 2021,2022, respectively, and deferred tax assets of $3.7$4.0 million and $3.3$3.5 million as of February 28, 20222023 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.ITEM20222023 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 February 28, 20222023 is disclosed in “Item 2. Management’s Discussion & Analysis – Other Expense, net”.three-month periodthree and six-month periods ended February 28, 20222023 is disclosed in “Item 1. Financial Statements: Notes to Consolidated Financial Statements, Note 8 – Derivative Instruments and Hedging Activities.”20222023 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.ITEM2022,2023, the Company repurchased 19,14061,224 shares in the indicated months. These were the only repurchases of equity securities made by the Company during the second 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
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Average Price
Paid Per Share(c)
Total Number
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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)Separation10.1**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.February 28,December 9, 2022.SIGNATURES7, 202210, 2023SHERRY S. BAHRAMBEYGUIROBERT E. PRICESherry S. Bahrambeygui7, 202210, 2023