PriceSmart Inc (PSMT) 2014 Q1 法說會逐字稿

Good day, and welcome to PriceSmart Inc's earnings release conference call for the first quarter of FY14, the three-month period ending on November 30, 2013.

(Operator Instructions)

After remarks from Jose Luis Laparte, PriceSmart's President and Chief Executive Officer, and John Heffner, PriceSmart's Executive Vice President and Chief Financial Officer, you will be given an opportunity to ask questions, as time permits.

(Operator Instructions)

As a reminder, this conference call is being recorded on Friday, January 10. A digital replay of this call will be available through January 31, 2014, by dialing 888-203-1112 for domestic callers, or 719-457-0820 for international callers. The passcode is 8610355.

I would now like to turn the conference over to Mr. John Heffner. Please go ahead, sir.

Thank you, Shannon, and welcome to our earnings call for the first quarter of FY14. I hope you'll find this to be a useful forum to review the information that we provided in our earnings press release, which included a report on our net warehouse sales for December 2013 and the announcement of a property acquisition in Colombia, and our 10-Q filing, which we released yesterday, January 9, 2013. You can find both the filing as well as the press release on our website, www.pricesmart.com.

Please note that statements made during this call may contain forward-looking statements concerning the Company's anticipated future plans, revenues, and related matters. These forward-looking statements include, but are not limited to, statements containing the words expect, believe, will, may, should, estimate, and similar expressions. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the risks detailed in the Company's annual report on Form 10K for the fiscal year ended August 31, 2013, filed with the Securities and Exchange Commission on October 30, 2013. We assume no obligation, and expressly disclaim any duty, to update any forward-looking statement to reflect the occurrence of events or circumstances which may arise after the date of this call.

Now I will turn things over to Jose Luis Laparte, PriceSmart's President and Chief Executive Officer.

Good morning, everyone, and thank you for joining us in our conference call for the results on the first quarter of FY14.

Let me first begin with an update on sales for the first quarter. We ended with sales of $589.7 million, resulting in a 12.6% total sales growth versus the first quarter of last year. The growth in transactions was 11.7%, and the average ticket grew 0.8%. Comparable warehouse sales growth for the quarter was 7.9%.

If we look at our sales by segment, the Latin America region had sales growth of 14.2%, and in this quarter this year, we have the two Cali, Colombia locations and one new location in Costa Rica. A year ago for the same period, we only had one of the Cali locations, the one in the south that was open for about six weeks of the total period.

For the Caribbean, the growth was 9.4%, and there was no change in the number of growth. We continue to experience a stronger double-digit growth in our larger Trinidad market, and Aruba also experienced a double-digit growth during Q1.

In terms of merchandise categories for the quarter, the food and non-food areas had comp increases in the low-single digit. Fresh and food service growth were high-single digit, and bakery had a double-digit growth. In particular, we saw a strong performance in the candy and seasonal candy categories, and also in the toys and seasonal non-food programs where we carry a good selection of merchandise for the holiday season. Those areas reported a double-digit growth, which is a good indicator of our merchandise differentiation in the markets where we operate.

Electronics sales in particular reported a low-single-digit negative growth in this first quarter versus last year due to challenges we saw on TV sales, similar to what many US retailers experienced. On a positive note, we are seeing good growth in the technology category, driven by the success and popularity of tablets in our markets.

Now I would like to talk about membership income. The increase in income of 20.8%, or $9.2 million, reflected a growth in membership accounts, and also an increase in the average fee. We finished the quarter with more than 1,000,120 accounts, representing an increase of 12.1% versus the same quarter last year. The membership renewal rate for the 12-month period ended November 30, 2013, was 85%.

Some other highlights that I would like to make regarding the first quarter of this fiscal year include the opening of our sixth warehouse club in Costa Rica, located in the area of La Union, Cartago. We call the new warehouse Tres Rios. It is one of our larger clubs in terms of sales area, and our expanded tracking will allow us to accommodate significant more merchandise than some of the clubs we built in the early days of the Company. In addition, it has underground parking beneath the club, which is particularly convenient for our members during the rainy season in Costa Rica. We had a good opening in October, and are very pleased with initial results of Tres Rios.

Although this new club is, as expected, impacting sales in our location in the Zapote club, we believe it is the right move to grow our overall sales in the area, serving our existing and new members better, and also allow the Zapote location to continue growing. For example, the combined growth of Zapote plus Tres Rios in December was 40%, compared to Zapote alone last year or the Zapote comp negative.

The opening of Tres Rios has an impact in our comparable sales growth for the Company, given that our Zapote club is in our comparable sales, but the new club is not. We indicated in our last call that we anticipated this impact to be about 1%, and we believe in the first month and a half of the Tres Rios that it is still in the ballpark. However, as time goes on, it will be increasingly difficult to provide an accurate assessment update, and we will likely not comment further on it, other than to acknowledge that it exists.

During the first quarter, we made progress in the construction of our new warehouse club in southern Tegucigalpa, Honduras. We are planning the opening of that new club in the spring, and we are currently targeting the month of May 2014. That will be our second club in the city, and will also have an impact on sales in the existing Tegucigalpa club, which, again, will have a negative impact on the comparable warehouse sales that we report monthly, but we believe we will also add new sales in these new areas of the city that has been growing during the last few years.

Moving on with updates, I would also like to share the results of the month of December 2013, our largest sales month of the year. We finished the month with sales of $280.8 million, representing 10.7% growth, and 6.7% comparable growth for the four-week period ending December 29, 2013.

A few highlights that are worth mentioning are our performance in several categories that ended with a double-digit growth for the month. Some of those include candy, seasonal candy, gourmet deli, fresh seafood, bakery, fashion apparel, computers and toys. We continue to have some challenges in electronics and small appliances, and we're working on changing that trend.

I would like to acknowledge the tremendous efforts of our merchants and club personnel to ensure we have the right level of quality and exciting merchandise available, so our members could enjoy a festive holiday season. We set individual daily sales record in some of our clubs during the days leading up to Christmas, and that could not have been done without the high level of planning and execution of the part of everyone in the Company.

Before I finish, I would like to give another update regarding expansion plans on Colombia. I am happy to report that we acquired property in the city of Pereira, where we plan to open our fourth warehouse club in the country. The city of Pereira is located in the western part of Colombia in a coffee-producing area where we will start construction soon in an effort to open this club in late calendar-year 2014 with a target of November to be open for the holiday season. Pereira, a city in an area of about 600,000 people, has been one of the targeted cities in our Colombia expansion plan, and we are pleased to have located a good site there.

At the same time, I want to reiterate that we remain focused on growing our presence in Colombia, and we're making progress in the more well-known cities like Bogota and Medellin. The permitting process is longer and more difficult for some of those sites that are in more urban and developed areas, and our policy is to announce sites only after the key permits have been issued, and after we have officially acquired the property. Having said that, we have identified sites in these and other cities, and are actively pursuing the steps necessary to take possession.

In the meantime, we also keep working on establishing our brand, and growing sales and membership in the city of Barranquilla. After a little less than two and a half years, Barranquilla is now in our top-five clubs in the Company in sales volume. In the city of Cali, we have good presence with one club in the north, and another one in the south. These clubs are not at the same extraordinary level of sales we're seeing in Barranquilla, but they continue to perform well and contribute positively to our overall presence in Colombia.

One last item about Colombia: I mentioned last time that we were introducing ourselves to the Bogota market by allowing members there to shop with us online and get merchandise delivered from one of our Cali locations. This is continuing, but I don't want to suggest that it is a new strategic direction for us, and we will hope that once we open our first location in Bogota, our members will prefer to shop with us in the club.

Thanks again for joining us today, and before we take your questions, let me turn things back to John Heffner for a few additional comments about the financial results.

Thank you, Jose Luis. You all have the numbers from our release and filing yesterday, so I will not go over them in detail, and Jose Luis has addressed net warehouse sales and some other important items about our fiscal first quarter. Let me highlight a few other items in our financial results before we take your questions.

Warehouse gross profit margins as a percent of net warehouse sales were 14.5%, a reduction of 54 basis points from Q1 of FY13 -- pretty consistent with our trends. Membership income continues to benefit from the fee increase of June 2012, and to a lesser degree, from the platinum membership program contributing 8.5% to the 20.8% year-over-year increase in membership income on 12.1% growth in membership accounts. We will see the impact of that fee increase become less and less in the next two quarters as we approach the two-year anniversary in June 2014 of the fee increase.

Warehouse club operations expense were essentially equal to Q1 of last year at 8.8% of net warehouse sales. We had positive leverage of expenses in many of our warehouse clubs, but this was offset by the additional expenses associated with three new warehouse clubs that were in operation for all or a portion of the quarter compared to Q1 of fiscal 2013.

On the other hand, general and administrative expenses were 1.9% of sales, compared to 2.1% of net warehouse sales in Q1 last year, a reduction of 23 basis points. Again, G&A expenses are those that are associated with the Company's corporate functions and US buying activity. In total, selling, general and administration, or SG&A, expenses, not including pre-opening expenses and loss on the disposal of assets, improved by about 21 basis points.

We had some pre-opening expenses in the quarter related to the opening of our sixth warehouse club in Costa Rica, but this was less than the pre-opening expenses incurred a year ago when we were opening our first warehouse club in Cali, Colombia. As noted in our 10-Q, we are now reporting the gain or loss on disposal of assets above operating income, whereas before it was reported after operating income but before pre-tax income. These amounts, and they are generally losses, relate primarily to the replacement or retirement of fixed assets that have some remaining net book value in the normal course of business. As such, we decided it was more appropriate to include that expense in our operating income.

Operating income in the quarter was $32.4 million. This is an increase of $2.6 million or 8.9% from last year, driven by the growth in sales, and the additional membership income. At 5.5% of sales, this is down 19 basis points from Q1 a year ago, largely due to the reduction in the net warehouse margin percent. The re-valuation of monetary assets and liabilities, which we report as currency gain or loss, had a positive impact on the quarter's results, adding $311,000. There was a negligible impact in the year-ago quarter.

There was an uptick in our effective tax rate to 32.4% from 30.5% a year ago, resulting from a benefit in last year's rate of reversals of uncertain tax positions, and also from a shift in taxable income to jurisdictions with higher statutory tax rates. As reported in our earnings release, net income for the quarter was $21.4 million, or $0.71 per share, compared to $0.66 per share in the year-ago quarter.

A few words on our balance sheet as of the end of November: In the first quarter of the fiscal year, due to the seasonality of our Business, we made a substantial investment in merchandise inventories to position our warehouse clubs for December sales. During the quarter, inventory increased $81 million to nearly $299 million. While this is 24% higher than last year at the same time, we were better positioned with merchandise in the clubs entering December this year.

Most of that increase is in merchandise shipped into our markets, so-called US merchandise, which has a higher use of cash than locally acquired merchandise. Consequently, the consolidated cash balance for the Company ended the quarter at $77.2 million, a reduction from $121.9 million at the end of August.

With that, Jose Luis and I would be happy to take your questions. Shannon, I'll turn things over to you.

Thank you, sir.

(Operator Instructions)

Dave King with Roth Capital.

I guess, first off, in terms of the decline in the warehouse club gross margin this quarter, anything to highlight there? I appreciate all of the color you had, Jose Luis, in terms of comps by segment. Is there anything -- mix that might have driven that, or is it just the consistent thing where you guys are lowering prices and trying to pass that back to consumers, or is there something else to note? Thank you.

Thank you, Dave. There isn't anything different. It's just a consistency, and our policy and focus on lowering margins, and obviously try to get that in terms of volume, but nothing changed really dramatically the last quarter.

Okay, so, no widespread price declines or anything like that, and it sounds like it's mainly merch margin that's driving it, not necessarily any deleverage or anything like that at this point?

That's correct. Nothing in particular at this point that we will highlight.

Okay, that's helpful. And then, in terms of the December comp, if I remember last year, I think you guys had an outsized benefit related to calendar timing, and I think the store closures, things of that nature. Did that have any effect this December at all? And how should we think about that for January, if so?

No, Dave, this is John. No, it didn't have any impact this year. I think last year -- it was actually two years ago, we picked up where I think January 1 might have -- New Year's Day might have fallen into December in our comp period and, therefore, when we were comparing last year to the year before. So, that was a two-year-old, not problem, but a shift in the calendar.

But from this year to last year, there was no change in that. January 1 is going to fall into our January comps, just as it did last year, and Christmas obviously, and Christmas Day and Boxing Days, which have some closures, all both fell into December last year and this year, so there's no change to that.

Okay, that helps. So, then, in terms of the comp that we saw -- I guess the comps we've been seeing in terms of the 6% range, it sounds like that's pretty clean, but some of it, you alluded to, is maybe100 basis points for the new Costa Rica store cannibalization. But then it sounds like also some of it's just kind of the electronics weakness that you highlighted.

Jose Luis, I think you've talked about some initiatives you have planned to re-boost that or get that to re-accelerate. Do you care to add some color around that?

Yes, well, it's been a trend, even in the US retailers, as far as we know, and there's a concern in the market because, for whatever reason, the price points are not dropping as dramatical as they used to drop in electronics or TV, so there is a need obviously of increasing volume. We are now putting together good plans for World Cup that will affect positively a lot of our sales for this 2014 calendar year that we just started. And hopefully that will help change in the trend, particularly in our markets where World Cup of soccer becomes a big event -- Central America, Colombia, and even some Caribbean markets.

It's probably not as important in the States, but we believe that it will help change the trend with people getting ready to have a better TV. We noticed that four years ago. So, we are looking forward to changing the trend, and having a good selection for people to replace the old TVs and get ready for a good World Cup session this year.

Okay, that helps. Kind of like Super Bowl in the US. Okay, but thanks so much, guys.

I think Jose Luis would suggest it's even bigger than the Super Bowl in the US.

Even bigger.

Well, I would hope so. Okay. Thanks so much.

Thank you, Dave.

David Strasser with Janney Capital Markets.

It seems that one of the trends, if you look at some of the numbers, is that the Caribbean seems to be doing a little bit better sales growth-wise, maybe it's slowing a little bit on the Latin American side. But is there anything going on? Is it inflation? Is it improvements in merchandising or something that is sort of driving some of those changes?

Well, in the Caribbean, I think this year, particularly for Q1, I think we were better positioned in terms of inventory. We had better planning for the holiday season, which obviously starts for us -- it kicks off with September, and goes all the way obviously through December. So, I think that has to do with the good results that we saw in markets like Trinidad.

There is definitely a good recovery of the economy in Aruba. A year ago -- for a couple of years, Aruba had some challenges in their economy. It's a small economy, but we definitely saw a good comeback from that economy. That's basically the main thing driving.

We have challenges still in Jamaica. Jamaica has been running a pretty significant evaluation, as much as 15% compared to a year ago. And even with that, they have a decent performance. So, that's what I would say for the Caribbean markets. There isn't anything else to highlight as far as recovery.

For Latin America, I will say that most of the economies are pretty solid. A little bit more challenging -- Honduras right now. They had elections during calendar-year 2013, and the government is actually -- the new government is starting January 20 or something like that, this month of January. So, there will be some -- every time you have elections or political changes in these countries, there seems to be a slowdown.

Hopefully nothing will change, and we'll see things getting back to normal. But that's the only market that I would probably highlight in Central America that has more of a challenging or, I guess, uncertainty right now, Honduras.

And I imagine that, to some degree, maybe the Costa Rican cannibalization. So, I know you don't want to talk about it, but I just want to make sure I understood what you said specifically on the Costa Rica -- that you said that you had estimated about 100 basis points, and that it's running somewhere around there of cannibalization to the overall Business?

That is correct. That's our best guess. Obviously, we're trying to -- we gather all our data, and we think that's what we believe it is affecting our numbers in the current Zapote. And again, since we planned the opening of Tres Rios, we knew we needed to give more space to Zapote, allow more members to park, and obviously make the shopping experience better. And it is working. As I mentioned, the growth of having both is 40%, which is pretty much following our plans of what we expected.

I will add something on that one, Jose Luis. As time goes on, David, it's going to be more and more difficult for us to sort of assess what that impact could be because even existing members who used to shop at Zapote may be shopping more in Tres Rios now because it's more convenient for them. So, I'm not sure it's an adjunct comparable to do that.

So, I'm not sure we're going to be -- we will have this issue for a while, and I think it's going to be with us even into the next couple of months. We're going to -- in this next month of January, we start comping our first club in Cali. We'll go into our comp calculations in January.

Well, since we started opening that one, we opened another one in Cali, and that took some sales from that one. So, we're going to see some level of cannibalization of that. Now, that club is not nearly as big as Zapote, in terms of the impact, but it's going to have some impact.

And then again, come May, when we open the second club in Tegucigalpa, that's going to be taking some sales from our existing club in Teguc. So, comps will be -- have this impact for us for some time, and so we're focused really more on the top line total sales growth.

I understand that. It makes perfect sense. It seems absolutely the right thing to do there.

One last question regarding Colombia: As you open this next club, and as you kind of continue to grow sales there, are you still getting significant opportunities from leverage on both gross margin and SG&A from the infrastructure there, and how significant can that be? Or I guess maybe another way to put it: Is there -- as you open the next club and continue to move forward, is there more spending that you need to do there, or do you have an infrastructure in place for a couple more clubs?

We definitely believe we have the infrastructure to support the growth. It's actually getting better as we open number four, then hopefully five, six, whenever they are open, it will help leverage the expense portion.

Okay, great, thank you very much.

Thank you.

Jon Braatz with Kansas City Capital.

John, Jose, can you give me a little bit more data on, or insight into -- I hope I pronounce it right -- Pereira? Compared to Cali and Barranquilla, it's a lot smaller city. Is there any demographic data? Is it income levels the same as those cities? And when you think about the size of the city, about 600,000, I assume the metropolitan area is larger, but is that the limit that you want to go in terms of size of city -- on the 600,000 population level?

Yes, let me tell you, Jon, what our plan has been I guess since the very beginning, we started studying obviously the main capital, Bogota/Medellin, and we started ranking the cities by size of population. We also used a different system of ranking than based on demographics. We tried to look at -- out of those households, Colombia fortunately is very organized in terms of the demographics. You get them by straph, and there's a number assigned depending on the neighborhood. So, we got good data that probably shows the potential in each of the cities. The 600,000 number is probably pretty close; it can be even below that number, and we can make a successful club out of those cities.

One thing to highlight on Pereira: It is a city that becomes a commercial center from the coffee region, which obviously becomes -- everybody knows how important is coffee for Colombians, and how big they are on exporting and doing things with coffee.

One thing to highlight, as I mentioned is: Pereira becomes a commercial center for Manizales and Armenia, two cities that are relatively smaller, but obviously depend on Pereira a lot, as far as consumption. So, we believe that this club in Pereira will be able to serve the needs of what we call not only Pereira, but the region of the coffee area. So, it's definitely kind of our direction, and it's a small, nice city in the west part of Colombia.

I saw that was only about 100 miles from Cali. Do you have any members of the Cali stores that live in Pereira?

Yes, actually, we have members already from Pereira that shop at Cali. I guess that's what you meant. Yes, we do have some members that are already shopping in Pereira; it happens with Barranquilla, with the other locations. It is a nice, what is it, hour and 45-minute drive. I've done it in the past, and it's a pretty nice drive from one city to the other.

Okay. And then one last question: You had mentioned that Barranquilla was in your top-five stores. Can Barranquilla support two stores?

We're looking at some of those numbers. We definitely have a great location right now in the north of Barranquilla. And we're trying to analyze some of those numbers to see if there is a need, or an opportunity I guess, to help obviously grow more in the Barranquilla area. I guess the answer is probably, and we're kind of looking at those opportunities.

Okay, thank you very much.

Thank you, Jon.

[Wesley Hardy], Private Investor.

How's it going, guys?

Hi, Wesley.

You guys spoke a little bit about currency risk. And as you expand more, or into new countries or more inside of the countries that you're already in, how do you plan on safeguarding from an inflationary situation like Venezuela, which borders Colombia? And also, do you foresee any problems with cross-currency leverage? In other words, that involved with cross-currency transactions that could cause an issue for PriceSmart?

Well, thanks for your question. The Company is subject to currency movements, and we get both a positive or negative impact as currencies move. And mostly that's outside the direct control of the Company, but we can and we have taken actions designed to reduce our exposure to movements in currencies in certain markets with things like local currency bank loans.

We do do some hedging transactions, particularly in Colombia, and we take some pricing actions on the US merchandise. So, we have a series of things that we do within the Company that we've been operating with for quite some time, and feel we can do what we can to manage our currency risk, although currencies will move, and not completely under our control.

Completely understood. But I guess my question is: Are those actions that you just cited -- are those actions increasing as to the proportions that you increase your presence in those countries, if that's clear?

I think so, and, yes, I think the activity that we're doing in this area is increasing as our business increases. So, I think proportionate to our business growth, these types of things sort of follow along with that, and we take those actions.

Okay thank you very much, guys.

Thank you.

Thank you.

Flay Lewis, Weybosset Research and Management.

My question: Haven't been in Colombia for a while, and things are going well and expanding well. Can you tell us a little bit about the competitive situation there? Who do you find yourself banging heads against and that sort of thing? And is it different than what you've encountered in Central America or the Caribbean?

Yes, Flay, I will say that Colombia is actually probably one of the countries where we operate where we have more competition -- very formalized, very formal competition. Obviously there are two big retailers in terms of supermarkets or hypermarkets, which is owned by Casino, the French group. And very strong competitor, very strong retailer with a lot of hypermarkets, supermarkets, different formats of operation.

In addition, we have what used to be Carrefour, was purchased by Cencosud, a Chilean company, and also they probably have at least 90 to 95 stores in the hypermarket format. So, those are kind of the two big players.

In addition, you have some local, regional players like [Hatoz] in the area of Cali, and that area of the country. You have in the northern also with presence in a lot of places, [Olympicca]. You have the department store presence with [Falabala], which is pretty strong department store owned by the Chilean group. You have the Home Centers, which are The Home Depot-style stores also with a lot of presence, more than probably 35, 40 stores in the whole country.

So, there is very good -- we had [Oncosta], which is kind of a hybrid between a club and a hypermarket, but with no membership, which operates like 12 units between Bogota and other cities in the country. We already compete with them in Cali. So, I would say that Colombia has a variety of retailers.

Some category (inaudible) there also. So, there's a good competition. But we have found, since we first did the analysis of Colombia, was that there was a niche for clubs.

There was a desire for people to buy imported goods -- good quality merchandise like the one we carry -- at a more reasonable price. I think the Colombian market was getting pretty comfort that retailers were in a little bit of a comfort level of charging higher margins, and I think we came up with a good strategy with our low prices and good quality merchandise that has been accepted.

I forgot to mention there's also [Micro], another retailer that kind of competes in the mom-and-pop deliveries, and mom-and-pop service, so there is quite a good competition in Colombia. I will say, as I said at the beginning, that it's probably the most competitive markets where we make business, as far as variety of retailers and very strongest retail competition, which is good. I think it helps -- makes everyone be on their feet, and makes it good competition.

Thank you.

You're welcome.

(Operator Instructions)

West Whittaker with Carmel Capital Management.

Historically, have you found your markets have a fairly close correlation with US market growth or consumption patterns, with maybe a one- or two-quarter lag? Or are you finding that the consumption patterns are becoming less correlated?

I'm not sure I have an opinion on that. I think we saw that a couple years ago when the retail market took a real dip here, we looked like we lagged about six months; I think we could sort of point to that. I don't know if that was a real trend, or just what we saw at the time.

Jose Luis?

I would say that some specific markets get more of an influence when things go slow in the States. But we noticed back in the 2008/2009 years, it took a little bit more of time for us to get the impact, but we saw obviously remittance money. When things are not going well here, there's not that much money flowing into some of the countries. It affects Jamaica. It affects DR. It affects El Salvador. It affects Honduras and Guatemala. Those are the countries get more affected by it, and to some degree, Colombia.

But other than that, I think the good thing is: We believe our countries are more and more independent. They keep growing. Obviously they all depend a lot on the consumption to some degree of the States. Also with not only with the remittance, but also production of some things -- exports obviously, (inaudible) in the area of Honduras and El Salvador. Four years ago, five years ago they got hit because of the reduction of inventories and just the reduction of consumption in the States. So, there is a factor that definitely affects.

And the last one would be tourism. Back in the 2008/2009, a lot of people didn't go to Costa Rica, to Barbados -- some of those vacation places got a little bit affected also by that. So, I think that we will always have kind of a connection with the US economy. They kind of find their way around with their own economies, but there will be always probably some kind of an influence.

Okay, thank you.

I hope that answers your question, West.

It does.

Thank you.

Ronald Bookbinder with The Benchmark Company.

Thank you, and thank you for taking my question. The Bogota internet sales: Are they really of any size to speak of? Would you be able to identify how much they are helping Barranquilla be in a top-five store for you guys?

No, it's kind of a nice experiment, but they are not significantly impacting definitely Cali sales. I think it was a good start to get the members from Bogota. We noticed that when members were going to Barranquilla, especially Barranquilla, when they were going on vacation to Cartagena or Santa Marta, which are vacation places, they used to make a trip to Barranquilla to shop, and a lot of those members were coming from Bogota. And they were shopping in Barranquilla where we already have a delivery service actually. So, that gave us the idea of saying: What if we get closer to those guys that can only shop at PriceSmart when they go on vacation for a week to Barranquilla or that area. So, we said: Let's get it a little closer, so what they can do is get online with their membership, and they can buy some of the basic consumables.

Obviously, it does help a little bit in consumables. It's a little bit harder to sell. I think the effect of having a member walk in a club, and shopping in a brick and mortar, and finding items that they are not looking for -- it's very hard to get that through internet. We're doing our best, and we think it's a good effort for us to keep them with their membership active, and obviously shopping a few items here and there. But we, as I've mentioned on my script, we believe that the way to go is hopefully one day we'll get a club opening in Bogota and there will be shopping right there. But it's just kind of a convenient thing for some of the members to be able to shop year around with us in the meantime.

Okay. And in the past, you had talked about that it was difficult to acquire locations in Colombia, and that you might have to move more towards a renting model, but you just announced another land acquisition. You sound like you're very positive on more locations, hopefully in Bogota, as you were just talking about. Have you seen a change? Are you attacking the market differently to acquire locations?

No, I mean, nothing has changed. This is still challenging. I guess we are moving forward with working on permitting for locations over there in both Medellin and Bogota, and hopefully we'll be able to announce soon the completion of some of those efforts, but nothing has changed. It's still challenging.

I think we know our way better after two and a half years of -- or almost three years of working on that market, since we -- even since before we opened Barranquilla. I think we know more people, we know more developers, we know more of the cities. So, there is some knowledge obviously now that we have acquired through these years that is making, if not easier, I guess it's not that much easier, it's making things move a little better for us. So we feel pretty positive, Ronald.

And obviously, Pereira took us some time to get it completed. So, the permitting processing in all of these countries is quite challenging, probably no different than in the States, with the growth of the cities and challenges for making sure that you offer the right parking, that you won't affect traffic and all the things that you have to go through in terms of permitting. But we keep making progress, and we are still optimistic.

Okay. And lastly, John, you talked about the inventory being up at the end of the quarter -- being better positioned for the holiday in December. Did you see that come down in line with plan? Can you give us a little color as to that high inventory after the holiday?

Yes, we sold a lot of it in December, Ron. So, we're on target with our plans for inventory, and we continue to be, I think, in pretty good shape as we come into January and with the merchandise that we have. So, we're pleased with where we stand right now.

Okay, great. Thank you very much.

Thank you, Ronald.

Stan Trilling with Credit Suisse.

Just two quick questions. Long term -- by long term over the next two to three years, what do you see as the potential number of units you could have in -- all things being equal, how many units do you think you could have in Colombia?

Okay, I guess we are obviously getting ready to open our number, but we don't have a specific number in mind. Given the size of the Colombian market, we believe that we could open multiple warehouse clubs in this country, if we can secure the right size and if we continue to experience that success we have seen so far. That's pretty much as much as we can say: The size of the market is as big as Central America and Panama all together. So, I guess it's a matter of making the math of 45 million people -- close to 45 million people -- the population of Colombia, and the opportunities there of finding the right size.

Okay, and are there any other countries that have the demographics -- in South America -- that have similar demographics that you would consider expanding to in South America?

Well, I guess similar demographics -- there are a lot of those I guess, not that we will be expanding in all of them, but we know that Peru has some similar demographics. They aren't as big as Colombia. Chile has some of that structure.

Obviously Brazil -- Brazil is a big country and different language. I'm not suggesting we will even go there, but there might be some other countries with opportunities. For sure, Peru and Chile can be one of those countries with kind of a similar structure and opportunity for us.

Are those more like three and four and five years out type of thinking?

I can't answer that. We don't really have a timeline for -- we are not even suggesting we will be open in there. I guess it's just to answer your question, the demographics are there. We don't know if we will definitely go there, but the potential can be there, for sure.

Okay, thank you very much, and congratulations on doing a phenomenal job over a significant period of time, and I'm proud to be an owner.

Thank you, Stan.

Dave King with Roth Capital.

Thanks, guys, just a quick follow-up. John, in a response to another question, you touched on Cali moving into the comp base in January, and how the second Cali store will obviously be cannibalizing that a bit, and obviously that makes sense and I get it. I guess what I was curious about is: How is Cali -- I get that it's not performing as well as Barranquilla, for all the reasons we've talked about in the past, in terms of what drove the strength at Barranquilla. But I'm curious: Is Cali still performing on a comp? And when I say Cali, I mean the first store. Is that performing better than your Company average? I would assume it would, just because of where it's at in its life cycle, but any color there would be appreciated.

Well, we don't provide individual comp information on individual warehouse clubs, so I really can't comment on that. But I would say, overall, as Jose Luis mentioned in his opening comments, Barranquilla has a substantial level of sales, and Cali -- I wouldn't say they are not performing as well. Their sales are not as high as Barranquilla, but we're very pleased with the performance of the clubs we have in Cali.

Okay, that helps, thank you.

Thank you, David.

At this time, there are no further questions in queue. I would like to turn the conference back over to Mr. John Heffner for any closing remarks.

Well, thank you, Shannon, and I'd like to thank everyone on the call for participating with us today. Thank you.

That does conclude today's conference. We do thank you for your participation, and you may now disconnect.