Executive Summary / Key Takeaways

• Regional Market Dominance and Expansion: PriceSmart, Inc. ($PSMT) continues to solidify its position as a leading membership warehouse club operator across Central America, the Caribbean, and Colombia, with strategic plans to expand its footprint to 59 clubs by Fall 2026 and explore new markets like Chile.
• Robust Financial Performance Driven by Membership Value: The company demonstrated strong fiscal year 2025 results, including a 7.7% increase in net merchandise sales, 13.7% growth in membership income, and a 5.2% rise in operating income, underpinned by increased Platinum membership penetration and effective pricing strategies.
• Significant Investment in Technology and Supply Chain Efficiency: PriceSmart is undergoing a comprehensive digital and operational transformation, implementing advanced platforms like RELEX for inventory management and ELERA for point-of-sale, alongside expanding its distribution network to enhance efficiency and member experience.
• Resilience Amidst Macroeconomic Headwinds: Despite facing challenges suchs as foreign currency volatility, U.S. dollar illiquidity in certain markets, and geopolitical instability, PriceSmart has demonstrated adaptability through localized sourcing, strategic financing, and a robust Free Trade Zone operation.
• Differentiated Competitive Moat: PriceSmart's unique membership model, strong private label brand ("Members Selection"), and deep regional market understanding provide a competitive advantage against larger global retailers and local competitors, fostering loyalty and driving consistent growth.

A Membership Model Flourishing in Emerging Markets

PriceSmart, Inc. was founded in 1996 by Sol and Robert Price, the visionary creators of Price Club, establishing a mission to deliver U.S.-style membership warehouse club standards across Central America, the Caribbean, and South America. This foundational commitment to value and quality in underserved markets has shaped PriceSmart's enduring business model. The company's common stock began trading on the NASDAQ Global Select Market under the symbol PSMT on September 2, 1997, marking its public debut. Today, PriceSmart operates 56 warehouse clubs across 12 countries and one U.S. territory, serving over two million membership accounts and nearly four million cardholders, making it an essential retail destination in its operating regions.

PriceSmart's overarching strategy centers on three pillars: investing in new locations and infrastructure, increasing membership value, and driving incremental sales through enhanced digital capabilities. This strategy is a direct evolution of its history, leveraging its established presence and brand recognition to expand while adapting to modern retail demands. The company's unique value proposition, offering a curated selection of high-quality merchandise, including its "Members Selection" private label, at competitive prices, fosters strong member loyalty. This is particularly crucial in markets where access to such a diverse product range might otherwise be limited.

The retail landscape in PriceSmart's operating regions is characterized by a mix of international, regional, national, and local competitors. While PriceSmart does not face direct competition from U.S. membership warehouse club operators in its core markets, it competes with various formats such as hypermarkets, supermarkets, and specialty stores, including those owned by large international retailers like Walmart Inc. in Central America, Grupo Éxito (EXTO) in Colombia, and Cencosud (CNCO) in South America. Online retailers such as AmazonGlobal (AMZN) and Mercado Libre (MELI) also pose a growing competitive threat, particularly in South America. PriceSmart differentiates itself through its membership model, which promotes loyalty and contributes significantly to operating income, accounting for approximately 1.70% of net merchandise sales and 36.80% of operating income in fiscal year 2025. The company's ability to source approximately half of its merchandise from within Latin America and the Caribbean, with the balance from global suppliers, provides a distinct advantage over many local competitors.

Technological Edge and Operational Transformation

PriceSmart is actively investing in technology to enhance both the member experience and internal operating efficiencies. This strategic focus is critical for maintaining its competitive edge and supporting future growth. Key technological initiatives include the migration to the RELEX platform, the implementation of a new point-of-sale (POS) system called ELERA, and the modernization of its mobile application.

The RELEX platform, a unified supply chain and retail planning system, is designed to modernize ordering and inventory management. This upgrade is expected to be substantially operational by the end of fiscal year 2025 and fully implemented in fiscal year 2026. The tangible benefits include enhanced employee productivity, improved inventory management, reduced spoilage, and increased in-stock availability, all of which are crucial for driving sales and efficiency. For investors, this translates into potential for lower operating costs, better product availability leading to higher sales, and ultimately, improved margins.

The company is also rolling out ELERA, a Toshiba (TOSYY) product, as its new point-of-sale system. This implementation is expected to finalize in English-speaking Caribbean markets in the first quarter of fiscal year 2026 and begin in Spanish-speaking Central American markets later in fiscal year 2026. ELERA aims to achieve faster checkout times, improve employee productivity, and enhance payment option capabilities, directly impacting the in-club shopping experience and operational throughput. Furthermore, PriceSmart will begin migrating its mobile application to fully native iOS and Android architectures during fiscal year 2026. This initiative is intended to enhance speed, reliability, and accessibility for members, shortening release cycles for new features and deepening integration with its composable commerce stack. These digital improvements are vital for capturing the growing online retail market share and improving the overall omnichannel experience.

Beyond these core systems, PriceSmart is also implementing Workday's (WDAY) human capital management system, starting in the first quarter of fiscal year 2026, to replace legacy HR applications. This aims to enhance the employee experience with modern, user-friendly tools, improve processes, strengthen compliance, and provide scalable, integrated data to support future growth. These investments, while impacting general and administrative expenses in the short term, are considered "necessary investments for the future growth of the business". The strategic intent is to build a robust technological foundation that reduces operational risk, improves efficiency, and supports scalable growth, thereby strengthening PriceSmart's competitive moat against rivals who may not have the same level of integrated regional technology.

Financial Performance: A Story of Consistent Growth

PriceSmart concluded fiscal year 2025 with strong financial results, reflecting its strategic initiatives and operational effectiveness. Total revenues increased 7.2% over the prior year, reaching almost $5.3 billion. Net merchandise sales grew 7.7% to nearly $5.2 billion, or 8.5% in constant currency, demonstrating solid underlying demand. This growth was primarily driven by a 5.9% increase in transactions and a 1.7% increase in average ticket size.

Profitability metrics also showed positive trends. Operating income for fiscal year 2025 increased 5.2% to $232.5 million, compared to $220.9 million in the prior year. The total gross margin as a percentage of net merchandise sales remained largely stable at 15.7% for fiscal year 2025. Membership income, a high-margin revenue stream, saw a significant 13.7% increase to $85.6 million, largely due to a 5% membership fee increase implemented in most markets during fiscal year 2024 and a growing Platinum membership base. Platinum membership accounts, offering a 2% rebate on most items, grew to 17.9% of the total membership base as of August 31, 2025, up from 12.3% in the prior year, indicating successful targeted promotional campaigns and increased member engagement.

Digital channel sales continue to be a growth driver, reaching $306.7 million in fiscal year 2025, a 21.6% increase year-over-year, and representing 6% of total net merchandise sales. Orders placed directly through the website or app grew 22.4%, with the average transaction value increasing 3.7%. The "Members Selection" private label brand also contributed to performance, representing 28.1% of total merchandise sales in fiscal year 2025, up from 27.6% in fiscal year 2024, highlighting its role in enhancing membership value and driving sales.

From a segment perspective, Central America's net merchandise sales increased 7.5% in fiscal year 2025, contributing 460 basis points to total net merchandise sales growth. The Caribbean segment saw a 6.6% increase in net merchandise sales, contributing 180 basis points. Colombia demonstrated robust growth with an 11.4% increase in net merchandise sales, contributing 130 basis points to the consolidated total. The effective tax rate for fiscal year 2025 improved to 28.4% from 31.1% in the prior year, primarily due to tax optimization initiatives.

Liquidity and Capital Allocation

PriceSmart's financial position remains robust, supported by strong cash flow generation. Net cash provided by operating activities reached $261.3 million in fiscal year 2025, an increase of $53.7 million over the prior year. This was primarily driven by improved operating results and a lower year-over-year increase in inventory due to fewer new club openings and the timing of holiday seasonal buildup.

The company's capital allocation strategy balances growth investments with shareholder returns. Capital expenditures for fiscal year 2025 totaled $158.1 million, with $76 million allocated to growth initiatives and $82.1 million to maintenance. This reflects ongoing investments in new clubs, remodels, and supply chain improvements. Net cash provided by financing activities saw a significant shift, totaling $14.2 million in fiscal year 2025, a $164.2 million improvement from cash used in the prior year. This was mainly due to a $65.4 million increase in long-term bank borrowings, a $66.8 million decrease in treasury stock purchases, and a $27.4 million decrease in cash dividend payments.

A notable challenge for PriceSmart has been U.S. dollar illiquidity in certain markets, particularly Trinidad since fiscal year 2017 and Honduras from fiscal year 2023 through the first half of fiscal year 2025. As of August 31, 2025, PriceSmart held $59.7 million in Trinidad dollar-denominated cash and investments that could not be readily converted to U.S. dollars. To address this, the company entered into financing transactions in July 2025, including bond agreements and syndicated loans, to provide additional U.S. dollar liquidity for its Trinidad subsidiary. This proactive approach to managing currency risk is critical for ensuring smooth operations and merchandise procurement.

Strategic Outlook and Growth Drivers

PriceSmart is poised for a year of continued growth in fiscal year 2026, driven by its strategic initiatives in expansion, technology, and membership enhancement. The company plans to open three new warehouse clubs: one in La Romana, Dominican Republic (Spring 2026), and two in Jamaica (Montego Bay in Summer 2026 and South Camp Road in Fall 2026), bringing the total club count to 59. Beyond new clubs, PriceSmart will initiate expansions and remodels at select high-volume locations in fiscal year 2026 to optimize existing assets and enhance the member experience.

A significant long-term growth opportunity lies in Chile, which PriceSmart has identified as a promising new market for multiple warehouse clubs. The company has appointed a country general manager and secured an executory agreement for a potential site, actively pursuing this expansion. While no specific opening date has been announced, management is "moving quickly and managing key factors that influence our opening dates, such as permitting and construction".

The ongoing supply chain transformation is expected to yield substantial benefits. Full implementation of distribution centers in China is anticipated in the first half of fiscal year 2026, aiming to reduce landed costs and lead times through direct shipments to local markets. PriceSmart-run distribution centers are also slated to open in Trinidad and the Dominican Republic in fiscal year 2026, further improving product availability and efficiency. The completion of the RELEX platform migration in fiscal year 2026 is expected to significantly boost productivity and inventory management.

Management anticipates its annualized effective tax rate for fiscal year 2026 to be approximately 27% to 29%. For fiscal year 2026, general and administrative expenses are estimated to be impacted by $5 million for the compensation of the new Chief Executive Officer, David Price, who assumed the role on September 1, 2025, following Robert Price's interim tenure without compensation. Early indicators for the current quarter show comparable net merchandise sales for the 8 weeks ended October 26, 2025, were up 7.2% (6.5% in constant currency).

Competitive Positioning and Risks

PriceSmart maintains a strong competitive position as a regional leader in its markets, leveraging its membership model and localized strategy. Its "Members Selection" private label brand is a cornerstone of its value proposition, offering high-quality products at competitive prices that are often unique to PriceSmart in its markets. This differentiation helps foster strong customer loyalty, a key competitive moat. The company's extensive distribution network, including regional distribution centers in Miami and Costa Rica, along with planned new facilities, provides a logistical advantage in its operating regions.

Compared to global giants like Costco (COST) and Walmart's (WMT) Sam's Club, PriceSmart's strength lies in its deep understanding and adaptation to local market preferences and operational complexities in Central America, the Caribbean, and Colombia. While these larger competitors benefit from immense scale and potentially greater R&D investment in areas like AI-driven logistics, PriceSmart's focused regional strategy allows for tailored product selections and services that resonate with its specific member base. PriceSmart's gross profit margin of 32.66% (TTM) and net profit margin of 2.81% (TTM) reflect its operational efficiency within its niche, though these may differ from the larger, more diversified global players. Its P/E ratio of 24.14 (TTM) and P/S ratio of 0.70 (TTM) suggest a valuation that analysts believe offers attractive upside potential compared to peers.

However, PriceSmart faces inherent risks associated with its international operations. These include political instability and social unrest, which have historically disrupted operations in Panama, Guatemala, and Colombia. Foreign currency exchange rate volatility, particularly the devaluation of local currencies against the U.S. dollar, can impact sales and profitability, as seen with the Colombian peso in fiscal year 2023. U.S. dollar illiquidity in certain markets also poses a challenge for converting local currencies to settle U.S. dollar liabilities for imported products. The company is also exposed to tariff challenges, though its Free Trade Zone operations in Miami and Costa Rica help mitigate some of these risks. The potential impact of a new U.S. 1% tax on foreign remittances, starting January 2026, could also affect consumer spending in some of its markets.

The company's reliance on computer systems for transactions and business management exposes it to cybersecurity risks, which may be intensified by the rapid evolution of artificial intelligence and machine learning technologies. The ongoing migration from an unsupported ERP system to new packaged applications also carries implementation risks. PriceSmart's ability to effectively manage these risks while continuing its strategic investments will be crucial for its sustained success.

Conclusion

PriceSmart, Inc. stands as a compelling investment opportunity, rooted in its proven membership warehouse club model tailored for the dynamic markets of Central America, the Caribbean, and Colombia. The company's recent financial performance in fiscal year 2025, marked by robust sales growth, expanding membership income, and improved profitability, underscores the effectiveness of its strategic focus on regional expansion, digital transformation, and enhancing member value. PriceSmart's commitment to technological innovation, particularly with the RELEX and ELERA platforms, is not merely about modernization but about fundamentally improving operational efficiency and the member experience, thereby strengthening its competitive moat.

While macroeconomic headwinds such as currency volatility and geopolitical risks are inherent to its operating environment, PriceSmart has demonstrated a proactive approach to mitigation through strategic financing and localized sourcing. The company's clear growth roadmap, including new club openings and the promising entry into Chile, combined with its differentiated "Members Selection" private label brand, positions it for continued market leadership. For discerning investors, PriceSmart's blend of consistent financial performance, strategic foresight, and a resilient business model in high-growth emerging markets presents a compelling narrative for long-term value creation.