I am a big fan of the membership model use by Costco (COST); it’s actually quite brilliant — get your customers to pay you for the privilege of shopping at your stores, suggests Chuck Carlson, dividend reinvestment expert and editor of DRIP Investor.
Of course, you have to provide value to get folks to join, which Costco does in the way of competitive prices and a good shopping experience.
Another company with a similar membership model is PriceSmart (PSMT). In fact, PriceSmart is sort of the “Costco of Lain America/Caribbean.” PriceSmart owns and operates U.S.-style membership shopping warehouse clubs in 12 countries and one U.S. territory. The firm should post higher profits and sales in 2023 and 2024.
PriceSmart, headquartered in San Diego, owns and operates 50 warehouse clubs — nine in Colombia; eight in Costa Rica; seven in Panama; five in the Dominican Republic and Guatemala, four in Trinidad; three in Honduras; two each in El Salvador, Nicaragua, and Jamaica; and one each in Aruba, Barbados and the United States Virgin Islands.
In addition, the company plans to open a warehouse club in San Miguel, El Salvador in the spring of 2023 and a warehouse club in Medellín, Colombia in the summer of 2023. The company also has e-commerce channels via pricesmart.com.
The warehouse clubs offer regionally sourced goods, essential goods, fresh produce, and private label consumer products. The company also offers prepared foods and fresh-baked goods. Clubs typically feature food courts and tire centers and services. The firm is expanding into wellness, with clubs housing pharmacies and optical departments.
Results in the fiscal first quarter ended November were solid. Total revenues exceeded $1 billion. Per-share profits were up 7% to $1.05 and beat the consensus estimate by $0.08 per share. Membership accounts increased nearly 4% in the quarter and ended the quarter at 1.76 million. The company’s 12-month membership renewal rate was nearly 88%.
To be sure, the economic environments in which PriceSmart operates can be dramatically different and volatile versus U.S. markets. Nevertheless, I think there is an opportunity here for more aggressive investors. PriceSmart is priced right for new buying.
PriceSmart shares trade at 18 times fiscal 2023 earnings estimates and 16 times fiscal 2024 estimates. Those are substantial discounts to the multiples sported by Costco. Of course, PriceSmart is not Costco. But with a similar business model and perhaps an even bigger growth opportunity, the future looks positive for these shares.
