Could PriceSmart Become the Costco of Latin America?
PriceSmart (NASDAQ:PSMT) is a company most of you have probably never heard of. However, the stock has recently been volatile since reporting mixed results. After the report, it dropped over 11 percent in a trading session only to rebound into the green. That type of action catches my eye. So what is this company? Well, it owns and operates membership shopping warehouse clubs in Latin America and the Caribbean. Its warehouse clubs sell perishable foods and consumer products to individuals and businesses, as well as offers ancillary services, which include food courts and tire and photo centers.
The company faces little competition but has the ability to become the next Costco (NASDAQ:COST). I think PriceSmart will grow to be the Costco of Central America and the Caribbean. It is already on that path and only operates just over 30 stores. But you can already tell it has the same business model. Look at what Costco does. It too offers membership warehouses. Costco offers branded and private-label products in a range of merchandise categories.
Costco offers candy, snack foods, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, office supplies, cameras, garden and patio, sporting goods, toys, seasonal items, and automotive supplies. It also has dry and institutionally packaged foods, apparel, domestics, jewelry, housewares, media, home furnishings, and small appliances; as well as meat, bakery, deli, and produce. PriceSmart is following Costco’s business model. I imagine it won’t be long until PriceSmart starts selling gas like Costco, and offering more and more services.
How is PriceSmart performing? It obviously makes nowhere near as much as Costco, but it holds its own. Its third quarter saw decent sales but comps were a little soft. For the third quarter of 2014, net warehouse club sales increased 7.6 percent to $597.9 million from $555.8 million in the third quarter of 2013. Total revenues for the third quarter were $615 million compared to $571.7 million in the comparable period of the prior year.