PriceSmart Inc (PSMT) 2016 Q2 法說會逐字稿

Good day and welcome to PriceSmart, Inc.'s earnings release conference call for the second quarter of FY16, the three-month period ending on February 29, 2016.

(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)

Also, as a reminder, this conference is being recorded on Friday, April 8, 2016, and a digital replay of this call will be available through April 31, 2016 by dialing toll free 888-203-1112 for domestic callers or 719-457-0820 for international callers. The passcode for the replay is 120-1714.

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

Thank you and welcome to our earnings call for the second quarter of FY16. We will be discussing the information we provided in our earnings press release, which we released yesterday, April 7, 2016, along with our 10-Q.

The earnings release also included information about our net warehouse and comp sales for March. You can find both the press release and the 10-Q filing 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 can cause actual results to differ materially, including the risks detailed in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2015 filed with the Securities and Exchange Commission on October 29, 2015. We assume no obligation, and expressly disclaim any duty, to update any forward-looking statements to reflect the occurrence of events or circumstances which may arise after the date of this call.

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

Good morning, everyone, and thank you for joining us today. I will begin my remarks focused on our second-quarter results and will follow that with some comments about March sales, which was also included in our press release.

Sales for the quarter were $759 million, an increase in total sales of 3.7% when compared to the second quarter of last fiscal year. We ended the quarter with 38 warehouse clubs compared to 36 a year ago. Net income for the second quarter of FY16 was $25.9 million or $0.85 per share compared to $24.8 million or $0.82 a year ago for the same quarter.

I will probably sound a little repetitive as I have been mentioning in the last few calls that the Colombia currency affects many of our comparisons with last year, and quarter 2 was no exception. For example, comparable sales, which now includes 38 of our 38 clubs, had a decrease of 0.9 for the 13 weeks ended February 28, 2016. Three Colombia warehouse clubs were in the calculation for the full 13 weeks and the other three in Colombia were in the calculation for a portion of that period. Extracting those clubs from the calculation, the 13 week comparable sales for the other 30 warehouse clubs was a positive of 2.7%.

I will speak more about our Colombian business but let me first touch base on results in our other regions. Our non-Colombia market performed well in the second quarter. Central America had a total sales growth of 11.5%, which included a positive impact of two additional warehouse clubs, one in Panama open in June 2015 and one in Nicaragua opening November 2015. The two new warehouse clubs continued to do well adding members and sales.

We saw positive comp sales in all of our Central America countries with the section of Nicaragua which was impacted by the planned cannibalization of sales in the existing warehouse club by the new one. Double-digit sales growth was recorded in Panama, Honduras and Nicaragua.

In the Caribbean warehouse sales grew 4.4% in the second quarter compared to the year-earlier period with the cumulative number of warehouse clubs 11. Again, all countries in the region of the Caribbean recorded positive sales growth with Jamaica growing above 10% year on year.

On the other hand, we started to see some challenges in Trinidad during the quarter. In February, Trinidad increased the BAT on a large number of products which impacted prices and consumer spending. That country in total, a big exporter of oil and natural gas, is slipping into a period of slower economic growth due to low price of those commodities. This is expected to put some pressure on consumer demand, which could impact our business in the next few quarters in a market that has been very good for us over the past two to three years.

In Colombia, net warehouse sales declined by 32% when translated to US dollars, reflecting the impact of a 37.8% devaluation of the peso compared to the US dollar in the same quarter last year. The average exchange rate for translating Colombian peso sales to US dollars in the quarter was 3,283 compared to 2,382 a year ago.

In local currency, net warehouse sales for the quarter declined 6.5%. The prices on imported merchandise, which have a US dollar cost basis is impacting demand, which is driving the negative growth for those products. Sales of local products, however, recorded a 9% positive growth when measured in pesos.

It is our goal going forward to comp positive in local currency in Colombia. We did not achieve that in the second quarter. The peso has stabilized somewhat at around [COP3,100]. A stable currency should help us achieve that goal. From a merchandise perspective for the total Company we recorded comp sales growth in the period in liquor, health and beauty, pets, produce, fresh meat, automobile, home furniture, office furniture and fashion apparel.

Moving on to membership, membership income was $11.3 million for the quarter. We finished the quarter with more than 1,000,460 accounts. While this is an increase of 6% compared to a year ago it is a reduction of approximately 21,000 accounts from the end of FY15 driven by renewal activity in Colombia on the [neebersaris] of the opening of the warehouse clubs in Bogota, Medellin, Pereira.

As discussed in our first-quarter earnings call, the combination of generally lower renewal rates for first-year members, another factor specific to the three newer clubs in Colombia, such as the exceptionally large number of pre-opening signups in the Bogota club and the distance of the Bogota club to a number of those members, resulted in a net reduction of member accounts. We finished the second quarter at an 81% 12-month renewal capture rate for all countries, and that will be 88% excluding Colombia.

While we have seen some improvement in the monthly renewal rate over the past few months in Colombia we are particularly encouraged by an ongoing stream of new member signups in our Colombia clubs. Our warehouse clubs in Bogota, Medellin and Barranquilla have the highest number of new membership signups of any of our warehouse clubs in the second quarter. We believe this is a good indication of the acceptance of our Company with these new members. But despite the current prices on imported merchandise, they are seeing good value in the overall item mix that we now have between imported and local merchandise.

Before I leave the subject of Colombia, let me say a few things about our approach to pricing our imported merchandise during this evaluation that I know I share a few times already in other earnings calls but is worth repeating. There is no question that prices of imported merchandise across all retailers in Colombia are going up, which negatively impacts consumers' demand.

We have taken margin reductions in that market in an effort to solidify our position for the future. And, in addition, we are pleased with the combination items to lock up production that we have been introducing in the last few months, while making sure that the quality of the locally produced products is at least as good as imported goods that we have been offering for sale. It has been a good experience working with local vendors that have demonstrated their ability to produce and supply high quality items for us.

Other activities relevant to report on as we finish second quarter include the progress of the construction of our new warehouse club in Chia, a municipality in the northern suburb of Bogota. Our plans remain to open that club around September 2016. We believe this new club will serve not only the Chia community but also residents in the northern portion of Bogota.

Also in Colombia, we're adding a parking deck at our Barranquilla location. This is part of an overall expansion program in certain markets. The expansion in Barranquilla will add both more parking spaces and extra salesforce space to our club. In other markets we're in the process of planning similar actions, and in some cases have or expect to acquire some adjacent land to be used for expanded parking at those locations.

Finally, as reported in our 10-Q, subsequent to the end of the quarter we entered into a contract to acquire a build-to-suit distribution center in Miami. Once completed, currently expected in the first half of 2017, we will relocate much of our current distribution operation to this new location. Not only will this new center provide improved operating efficiencies by virtue of its design, but it will insure we have long-term control over a strategically critical element of our business.

And I know John will have a few comments about Q2 but let me now speak to our March sales. March sales decreased 4.2% to $227.8 million, and four-week comp sales ending March 27 decreased 5.4%. Excluding Colombia comp sales decreased 3.1%.

This month, in which Semana Santa and Easter fall compared to the year-earlier period has a measurable effect on the year-to-year comparison, given that state warehouse clubs are closed and the shopping behavior of members in our markets over the Easter weekend. Easter Sunday this year fell on the last day of our comp period, March 27. Easter year last year was on April 5.

As such, we believe it is more instructive to view March and April together, as we have done in prior years. For example, last year FY15, March comps were 7.3%, followed by April at 0.02%, or a 3.8% combined.

Before I conclude I would just like to add one more comment. As I travel and visit our operations in our different countries, I always come back optimistic from the things I see and the efforts and dedication of our teams. Even though we face very good competitors in our markets, I am reminded that PriceSmart offers a particularly unique and differentiated shopping alternative for the small business members and household members. I also see further opportunities for us to improve our execution of the club philosophy, finding efficiencies in our buying, distribution, operations, and our other functional disciplines to better serve our members.

Thanks again for joining us today. After John's remarks we will take your questions.

Thank you, Jose Luis. Let me highlight a few brief additional items with respect to our financial results for the second quarter.

Net income in the quarter of $25.9 million resulted in earnings per share $0.85 compared to $0.82 a year ago. The lower sales and decreased merchandise margins as a percent of sales in the Colombia segment resulted in an operating loss of $1.7 million and a net loss of $2.2 million or approximately $0.07 per share.

While the net loss was an approximate $0.04 per share improvement over last year that improvement was largely from reduced foreign exchange losses. Performance in the non-Colombia segments when added together resulted in net income of $28.1 million or approximately $0.92 per share, approximately $0.01 less than last year.

Total consolidated warehouse gross profit margins in the first quarter were 14.2% of net warehouse sales, a reduction of 35 basis points from the same period last year. In Colombia our efforts to reduce the impact of higher peso prices associated with the strong US dollar resulted in a 132 basis point reduction in margins in Colombia compared to the year-ago quarter.

Membership income increased 3.6% on total membership account growth of 6.1%. The disparity primarily reflects the impact of the translation of the Colombian peso-priced membership when translated back to US dollars. The US dollar membership income recognized for a membership in Colombia in Q2 was 27% less than a year ago.

Total SG&A expense as a percent of sales increased 34 basis points with two additional warehouse clubs operating in the quarter compared to a year ago. Higher deferred comp expense associated with stock awards granted in the first quarter hit the G&A line, along with additional spending in the buying and information technology areas.

Of the foreign exchange losses incurred in the quarter, $388,000 related to the devaluation of the Honduran lempira, including a one-time adjustment related to the remeasurement of a portion of a bank loan in Honduras not covered by a non-deliverable forward. We recognized income from unconsolidated affiliates of $429,000 related to the sale of land owned by the Company's real estate joint venture in Panama.

The effective tax rate for the quarter was 31.7% compared to 35.3% last year. The difference resulted from a reduced loss in Colombia for which no tax benefit is realized, and a lower proportion of US taxable income which has a higher statutory rate compared to the tax rates in our foreign jurisdictions.

We ended the quarter with a strong balance sheet and $173 million in cash and equivalents. During the quarter, cash increased $33 million from the end of November. Cash from operations in the quarter contributed $67.7 million, of which $24.5 million was from reductions in inventory net of accounts payable.

We used $14.5 million in the quarter for investing activities in the construction of our Chia, Colombia club and other capital projects. And we used another $10.6 million in the payment of a cash dividend to shareholders at the end of February.

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

(Operator Instructions)

We'll go first to Dave King with ROTH Capital Partners.

Thanks, good morning, guys. First off, in terms of the warehouse club gross margin and the outlook for that, and obviously with Colombia down, I think, 132 basis points year on year, how should we be thinking about how to think about that line item going forward, assuming you're starting to get some benefits now, or at least less pressure is a better way of saying it, in Colombia?

And then given some of the initiatives you have to produce more goods locally, how should we be thinking about that over the near term? Have you seen any improvement since quarter end? And then just how you think about it longer term.

Yes, longer term, obviously we're going to continue to improve our margins in Colombia. At this point we're definitely committed for the long term and we don't really want to start trying to get [avantas], even with the conversion of local items. We are looking at, first, improving our sales figures. And obviously, as you said, if we continue to see a more stable currency, we will be able to get back some of those margins that we were at some point lower in Colombia.

But at this point we don't really have any drastic change. Our commitment has been really to keep pushing our sales. And even on the local merchandise, the margins are not that higher compared to our import merchandise. It's not that the conversion of local gives us a higher margin rate. Definitely what we are looking at doing when we convert items to local, the first priority is to obviously drive incremental sales and keep pushing that line, Dave.

Dave, I'd add one more thing to that. I think we're at this point anniversarying when we started really taking the margins down in Colombia. So, I think, as you indicated, 132 basis point change year over year. In this past quarter it was a much higher difference in Q1. And I think we're now seeing that as we go into Q3 here, and compared to Q3 a year ago, we'll see even a smaller change on a year-over-year basis. So, I think we're coming up to that anniversary of the actions we took, the pricing actions we took, which really took into place rate March, April, May last year.

Okay, that's great color, guys. Thank you for that. And then maybe switching gears to the G&A increase, John, I think you touched on it a little bit. It sounds like it was deferred comp and then some tax spend. Was the deferred comp a catch up or was that a higher run rate? How should we be thinking about the level of G&A? Was any of that outsized? Or this the good run rate to be using going forward?

It's just in the run rate now, David. It was a grant that we did in Q1 and will be in the run rate.

Okay, thanks for that. And then one more for me and I'll step back. In terms of the March sales and the Easter closings, obviously that had an impact, so thanks for sharing that, Jose Luis. Do you guys have any color on how the weeklies trended over the course of the month? Was it stronger in the earlier? What were the weekly comps in the earlier part of the month versus the latter part where the closings would have affected it? Is there any way to guide us towards how to think about the impact so far before we see April?

I'm not sure I understand the question. Jose Luis?

Obviously the start of April, as people get ready for Semana Santa, we always see some increases. We actually take some -- we see higher sales as people get ready to leave on vacation and they prepare. Especially a lot of the clubs in that main seat is where people go out for the week or for the weekend,. We see some incremental sales in preparation for that. And then it slows down.

So, we definitely saw a stronger comp figure or sales figure at the beginning of the month and then it slowed down, with the effect obviously of the closing dates on everything in the last week, which is what had driven the March sales more towards the negative comp. And as I said last year we comp a 7.3%. So, it was a strong month of March last year, so we were going against the opposite.

Because Easter flipped the other way the year before. Easter falling into April or March, we historically see quite a big difference between March and April because of how that moves.

That makes sense. And then you may not have this but in terms of number, is there a sense of how many days or how many stores were closed in the month of March or how many stores were closed for a day during the month of March?

All clubs were closed for good Friday.

March 25, I think.

Correct. And then some of our clubs do what they call Easter Monday, which obviously that weekend is soft on sales and then the Caribbean clubs, like Jamaica, Barbados, and I believe some in other markets, closed also for what they call -- I think they call it Easter Monday. And that's basically it. It's more a Caribbean effect rather than Central America, where pretty much all clubs operate as regular for that Easter Monday.

And those closures will fall into April.

Yes, in the April comp.

And then I remember there was a couple that, I think, for Holy Saturday, I think you called it, that closed? Or is that not?

I think we're open on Saturday but there's no shopping.

Yes, it is pretty soft but we are open. We only close Friday.

Okay, that's really good color. Thanks for all of that and good luck for the rest of the year.

We'll take our next question from Pablo Vallejo with Scotiabank.

Hi, good morning. I've got a couple questions regarding, first one, when we speak about the product mix we are aware that import products are around 52% of COGS. Given the change in the Colombian peso what would be that mix for the Colombian stores as of today or right now?

Interestingly enough it's at that level in Colombia. If you went back a year ago it was probably more like 60/40 -- 60 imported, 40 local. And now we're right about at, I think, 53/47, when I looked at the latest information.

That's correct. And obviously, Pablo, as we keep converting some items, we're going to see that number on the local side going up. It's been working actually very positive for us, as I pointed out. We started seeing an increase in some of the comp, increasing local item sales. So, it's working as we expected.

Okay, thank you. And moving on to G&A, just to follow up on G&A, with the increase of 14.6% there, you mentioned purchasing in IT. Was the increase in headcount there, was it for existing capacity or just foreseeing what the growth will be and then you allocate these new resources to it?

I think we made some investments there, particularly in IT. I think the buying is very much to support the business. I think, quite frankly, it would have less impact as a percent of sales. If the Colombian sales translated back at a higher rate, I think we wouldn't be seeing that year-over-year basis point increase in what corporate G&A is as a percent of sales. So, I think it is being exacerbated a little bit by the fact that we have a year-over-year decline in US dollar sales in Colombia.

Okay, very clear. Thank you. And one last question where there's not much guidance in store openings in every jurisdiction, but I was wondering if you can provide any indication of change in efforts that might be undertaken for store expansion in Colombia specifically.

Obviously we have it. We don't disclose, Pablo, as you correctly mentioned in your first comment, but we keep looking at opportunities. Definitely Colombia, obviously we're trying to focus more on the big cities, Bogota, Medellin. And in the rest of the markets we're also looking at opportunities.

We are pretty sure very soon we will probably be announcing some positive things on other markets, obviously, because that's something we keep doing, analyzing markets where we can see an opportunity to continue growing. So, definitely we didn't stop it. Permits and all those things take a little longer, for the most part.

We're also looking, as I mentioned in my comments, we're doing expansions of sales floors and parking decks in existing locations. Barranquilla is actually one of the first ones that will be finished, pretty much the first one that will be finished with a parking deck and obviously bigger sales floor as a result of an analysis that we have done in some particular clubs and cities. So, we will be working on more and more of those expansions, which actually we believe are a good way to keep growing our existing sales without cannibalization.

So, it's a combination of both looking for new sites and the opportunities in existing markets. And we will keep doing things in terms of those kind of expansions.

All right, thank you. I don't know if you can disclose this or you've mentioned it before, but how much is the expansion in Barranquilla in terms of square footage or as a percentage of the store?

In Barranquilla, we're actually adding about 70 to 80 parking spaces in that specific location. And in terms of sales floor space, I believe we're adding like 800 meters, something like that. So, it's going to be a good expansion in terms of allowing us to provide better exposure to our current merchandise mix. And obviously the parking, which is one of the things that are sometimes a challenge when you look at some of our clubs that get pretty busy on some of the weekends.

That's the plan for this one. And we're trying to do a similar concept in the other locations that we're looking at opening. So, it's about 8,800 square feet, what we're adding to the building.

Perfect, thank you very much.

(Operator Instructions)

We go next to Thomas Vester with LGM Investments.

Hi, Jose Luis and John. Always great to talk to you on these calls. First question would just be on the distribution center. It is a fairly big amount of money. Clearly you've got the money on the balance sheet. Also, when you subtract your debt. So, that's good to see. But can you just indicate how much savings you're getting by terminating the lease on your existing distribution facility? If I understand it correctly, that is leased. And when you can do that, so when that saving will hit the P&L.

We did enter into this agreement, Thomas, for a build-to-suit. It is not built yet so we continue to operate in our current distribution center. And even when it is completed and we move a substantial amount of our operation from our existing site to this new more efficient site some portion of our operation will remain in that site for some time. The lease runs for a few more years so we will do that. We are working out how we would then sublet the space that we have and be focused on our new site as well as utilizing some portion of the old site. We're probably a good year-plus away from that.

Okay, understood. And then just secondly, when we plug in the operating margin rate for Colombia, also the EBITDA rate, you turned EBITDA March negative now in Q2 for Colombia. And the operating margin really did a good effort to try and stay positive and trend upwards after your grand opening of the free clubs. But then it really turned around and it's really gone sharply downwards since in the last couple of quarters. And on top of that, we clearly notice the negative same-store sales in Colombian peso in Q2.

Can you elaborate a little bit on what -- I guess you're comfortable with the situation, at least that's the sense I get from this call, and that's clearly good, but can you get a sense of when you will start getting uncomfortable? Because for the last couple of quarters, clearly if one [clocks] your same-store sales in Colombian peso to, let's say, Exito that provides public same-store sales figures for their concepts in Colombia, you have been outperforming them. But now we are looking at a low performance here in Q2.

Can you comment a little bit on that, what to expect. And maybe it would be helpful if you could say a little bit about your same-store sales in the mature Colombian stores. So, how much of this negative same-store sales in Colombia in Q2 was driven by the anniversary effect and how much was driven by the pressure on the consumer in Colombia?

I know that was an awful long question. And just to make it a little bit longer, can you add on a little bit of comment on Exito bringing in the [aside] format to Colombia, if that is something you expect an impact from.

Okay, I'm going to try to elaborate on your 15 questions, but let me see. To start, I would say that we're comfortable with that condition in Colombia. I would say we believe we have things under control. We don't like, obviously, looking at local currency. We're not happy with that decrease that we had in this quarter of 6.5%, although we have a lot of things in place that we believe are going to turn around that number into the positive, into the black numbers, hopefully very soon.

We're putting all our efforts on making that happen. And I think we will be more comfortable when we see that number, obviously, comping positive in local currency, which is our first goal. And again, it doesn't happen overnight. There's been a lot of transition and conversion of items, getting the items that we want, getting the pricing. I think there's also a lot of adjustment in the Colombian market, even in our successful.

I want to say something that is important, Thomas, to highlight. Even a lot of the US items that went up in prices, a lot of them continue to be very successful items. Obviously all the consumers and members in Colombia are going through this transition, not only with us, with every item. If you buy a car, if you buy computers, electronics, it doesn't matter, wherever you buy them the increase compared to a year ago is now about 37%. But if you look at it compared to a year and a half ago it's more than 70% because of the drastic devaluation they have.

So, it's been quite a transition and it's taken a little bit longer. Hopefully -- and this is something that every day we wake up, we hope for that stability of the currency. It's been kind of stable. I guess goes along with the oil prices, to some degree, and it's been kind of stable in the last few weeks. If we continue in that direction, we have a lot of things in place to drive that positive comp.

Every other week we have some of our clubs, and new clubs or mature clubs, in Colombia, reporting individually positive comp sales in local currency. So, that is a good indication. For the last few days, actually, some of our clubs, particularly Medellin, has also been tracking positive comp sales in local currency. I think a lot of the actions we're seeing the results there in a positive way. Hopefully that answers the first portion of your question.

The other one related to Exito and their new format, obviously, a lot like any competitor, we take those things seriously. That's a very successful format for Pao de Acucar in Brazil. It will compete definitely also in the arena for the small business member, for the pendero, for the small shop. And Makro has been actually improving because Makro is also worrying about this new format coming into Colombia. We are trying to make sure we are also ready to be able to compete with them, as we have been competing with Makro. So, it's going to be an interesting period obviously for Colombia with these guys introducing that new concept, but I believe we have good strategies in place to compete with them as soon as they open. Hopefully that answers also your questions.

Yes, thank you, Jose Luis. Maybe just two quick more. Just in terms of, on the new site or new club opening, can you comment a little bit more specifically on what has been holding it back? You review many sites. Is it the fact that the dollar value of land in Colombia hasn't come down, or in other markets where you look is it the fact that the markets are dried up, or is it just you haven't found the right match? Can you comment a little bit more specifically what has been holding it up, because there has been a decrease in new club opening announcements from your site over the last 18 months.

It is a combination of things, definitely. We're not waiting on anything to happen specifically in the currency for Colombia or other markets. All markets where we're looking at sites, the process just tends to be long because you have to have permits. And more and more every country has a lot of processes or a lot of approvals to be completed before you can get an approval for construction. So, it is more about process.

We're doing our test trying to accelerate it. We do recognize that the process has been a little slow in terms of openings. Obviously we're putting a lot of efforts to try to make them faster for all of the markets, where we are making business, realizing that we are really seeing good opportunities going forward. So, hopefully we will be able to announce more of those, Thomas. It's not for the lack of trying. We definitely keep trying and trying to get more resources to make things happen in those different markets.

Okay, great. Thanks, Jose Luis. And just a final one. You've got to bring up Panama Papers. It's everywhere. You might think I'm joking to bring it up but you have a substantial part of your operation in Panama. You also have a substantial part of your operation in Costa Rica. Panama has been booming. Sometimes it has been a little bit difficult to understand what has been driving this boom. And some of these leaks put some clarity on what can drive booms in Panama, I don't know. But have you any thoughts on that?

And then, secondly, on the Costa Rican colon, it's no secret that Costa Rica is pretty sharply tied into Panama and the currency. The Costa Rican colon looks probably a little bit more than expensive on many methods. And we've clearly seen you are taking some debt last quarter in Costa Rican colon to try and mitigate that a little bit. But just any thoughts at all on Panama and Costa Rica, that would be helpful.

Panama, you're right, its been a very good market for us, I think since, as much as I recall, probably 2007, 2008. When there was a big crisis in the states those guys didn't even feel it. There's been a lot of construction, which is a positive thing in Panama. For some of us who have been traveling to those markets for the last 10 years we have seen how many new constructures are coming along.

There's a lot of traffic, I believe, in Panama from Venezuelans that are visiting there. We actually keep seeing good signups in some of our locations in Panama. And when we look into some of those signups in membership we have found that a lot of them are from Venezuelans that are definitely moving out to Panama. In addition I would say the expansion of the Canal has been bringing a lot of positive things.

Now is that going to continue? We are actually still pretty optimistic. The retiring community is also growing in Panama. So, there are a lot of good things happening in Panama. And obviously competition keeps getting better, also. We see more stores openings from Rey, from 99, from the different competitors over there. It's been a good market for a lot of us, for all companies, and hopefully we will continue on that trend.

In terms of Costa Rica, we probably have some of the same concerns as you are sharing. There's a lot of pressure on that economy. But in the meantime we are still seeing solid growth. Tourism is still wide positive for the country.

And hopefully we will be able to continue growing in those two markets, which, as you said, they are pretty important markets. A few years ago we had about a 10% devaluation in Costa Rica. The colon went from 500 to 550, then was a little bit of a recovery and the colon got a little bit stronger. And it's been hanging in there for awhile. It's hard to predict, obviously. We're ready for anything that can happen in any market. That's our overview for those two markets.

Great. Thank you so much for your time and best of luck with Q3.

We have no further questions at this time. I'd like to turn the conference over to Mr. Heffner for any closing remarks.

Thank you, Tony. And thank you all for participating with us today. I will sign off now. Have a good day and a nice weekend.

Thank you. This does conclude today's conference. We do thank you for your participation. You may now disconnect.