PriceSmart - Earnings Call - Q2 2020

Transcript

Speaker 0

Good morning or afternoon, everyone, and welcome to the PriceSmart Incorporated Earnings Release Conference Call for the 2020, which ended on 02/29/2020. After remarks from our company representatives, Sherry S. Farambeg, chief executive officer and Michael McCleary, chief financial officer, you will be given an opportunity to ask questions as time permits. However, the company has requested that questions be limited to two per person. As a reminder, this conference call is being recorded today, Thursday, 04/09/2020.

A digital replay will be available following the conclusion of today's call through 04/16/2020 by dial +1 (877) 344-7529. For domestic callers, or +1 (412) 317-0088. For international callers and entering replay access code 1000000139915. For opening remarks, I would now like to turn the call over to PriceSmart's Chief Financial Officer, Michael McCleary. Please proceed, sir.

Speaker 1

Thank you, and welcome to the PriceSmart earnings call for the 2020. We will be discussing the information that we provided in our earnings press release and our 10 Q, which were both released yesterday afternoon, 04/08/2020. You can find both documents in our Investor Relations website at investors.prismart.com, where you can also sign up for e mail alerts. As a reminder, all statements made on this conference call other than statements of historical fact are forward looking statements concerning the company's anticipated future plans, revenues and related matters. Forward looking statements include, but are not limited to, statements containing the words expect, believe, will, may, should, estimate and similar expressions.

All forward looking statements are based on current expectations and assumptions as of today, 04/09/2020. 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 10 ks for the fiscal year ended August 3139, as filed with the Securities and Exchange Commission on October 2939, and the company's quarterly report on Form 10 Q for the quarter ended 02/29/2020, as filed with the Securities and Exchange Commission on 04/08/2020. The company undertakes no obligation to update forward looking statements made during this call. Now I will turn the call over to Sherry Varambegi, PriceSmart's Chief Executive Officer.

Speaker 2

Good morning, everyone, and thank you, Michael. In the spirit of not taking anything for granted, I want to thank everyone involved with this call who's made it possible to connect with our investors and our analysts so that we can inform you about our company's results for Q2 as well as tell you about our current activities. Although we're conducting this call from remote locations, I want to welcome Michael McCleary as our official ongoing chief financial officer. Michael's done an excellent job as our interim CFO since 12/10/2019. He's been with the company for sixteen years, and he has extensive experience with our business and our leadership team.

You know, they they say you really get to know a person's true colors in times of challenge and stress, and the events of the last couple of months have revealed many more of Michael's great qualities. So normally, I get right to sharing with you insights on key events that have influenced our most recent quarterly results. Our business ended the 2020 with strong results and good momentum. We were seeing benefits from many of the initiatives that we've been working on for the last year, and we were feeling pretty well positioned for what we thought the rest of this year would look like. Then just about a couple weeks into our third quarter in March, the World Health Organization recognized the novel strain of coronavirus, COVID nineteen, as a pandemic.

This virus has caused a global disruption that has touched every one of us in some manner, including our employees and members across 13 countries. So by March, it was clear to us the world had changed, and our focus quickly shifted to five main priorities. Excuse me. So priority number one, first and foremost, and as always, protect the safety and well-being of our employees and our members, and now more than ever in the face of this pandemic. Priority two, additional steps to ensure continued operations without disruption.

Priority three, take proactive measures to protect our supply chain. Priority four, get moving quickly on key projects, especially those that could expand online capabilities and find new ways to meet member demand, was changing in response to this virus. And priority five, manage cash and capital resources in the face of a much, much less predictable climate. We're now into this for a little over a month and as often happens in times of crisis and necessity, we're actually finding opportunities. We're pushing actions, new ideas, and improvements that I believe will help us shape the future of our business in very positive ways.

The following is a summary of some specific actions we've taken in response to the COVID outbreak. So as to priority one and two, our employees, members, and continued operations, we quickly off-site employees whose functions could be performed remotely with many of our key executives taking extra precautions. This was done well before government mandates and we've been able to continue supporting all operations from off-site since approximately the March. In February, we had assembled a task force representing leadership covering all aspects of our business. This leadership team is 100% on task and communicates seven days a week.

Every day, we review in detail and plan for all of the developments in each of our 13 markets. Governmental authorities in our markets have imposed or are experimenting with policies or restrictions affecting the retail sectors of our markets, and many of these have resulted in limiting access for our members and impacting our club operations. These limitations and restrictions change day to day and vary from market to market, but our team stands ready to respond real time and is nimble in finding ways to continue to serve our members while abiding by local laws and regulations. At the club level and throughout our distribution centers, we've implemented safety protocols to protect our heroes, our employees who are face to face with the public. They're on the front lines providing goods that our members really need.

We're taking preventative measures such as providing personal protective equipment for them. We're installing sneeze guards for the cashiers and in other member facing areas. We've reduced or removed in club food service. We're eliminating food sampling. We're educating our employees about best practices for good hygiene, increasing cleaning and sanitizing protocols, employing social distancing measures, taking temperatures, and mapping contacts.

That's just to name a few. We don't allow employees who exhibit symptoms or who live with people that are showing symptoms to come to work. And we've modified our sick leave policy to make sure that people can take paid time off without any concern about being absent. We're also preparing for the unknown. We're building reserve teams who don't overlap with other employees so that they can step in as needed.

We report and are transparent with our employees, our members, and the public when we're notified of a confirmed COVID case, and we follow health authority guidelines for quarantining and contact mapping. Thankfully, to date, we're only aware of a few confirmed cases among our approximate 9,000 employees, and we're really doing whatever we can to keep that number as low as possible, but we're getting prepared if circumstances change. Our third focus, protecting our supply chain. Our merchandising and distribution teams are working with suppliers to make sure items are available. And by the way, I'd like to also recognize and express my gratitude to our suppliers and our vendors because we're really working together to get through the unexpected.

We closely monitor inventories in our supply chain and upstream. While we've experienced some out of stocks on certain surge items, we've generally been able to maintain adequate levels on a majority of the products that our members need. But that's a dynamic situation and we have to keep monitoring it very carefully. And we have a contingency plan, actually a couple, in place in the event that a country or a region of strategic importance to our inventory flow is negatively impacted by the pandemic or they're experiencing related restrictions. Our distribution centers outside of The United States, especially the Costa Rica Regional Distribution Center, has played an important role in providing optionality and reducing the risk of interruption to the flow of critical merchandise to our markets.

We've placed limits on the quantity of certain key items that members can purchase such as cleaning supplies, paper products, and core shelf stable groceries so that these essential products are available to as many members as possible. And at some clubs, we've created dedicated shopping hours for our employees as well as for seniors and other individuals most at risk. Our fourth focus is, know, of course, meeting the demands of our members. Over the last few weeks, we've expedited our adoption of technological innovation and rapidly accelerated beta initiatives that allow our members to continue to shop while reducing the need for physical contact. I'm pleased to announce that we've successfully launched our online catalog that enables our members to see almost real time the availability of products for all clubs.

Then leveraging this capability to best accommodate our members within the restrictions, we've already launched our first click and go program in Costa Rica. Our members can go online, look at the catalog of products in the club, order them, pay online, drive to the club, and have the goods placed in their car, reducing almost any physical interaction with our employees. This is being rolled out very quickly to our other markets as well. In tandem with this, we're enhancing our member experience and increasing our digital connections with our members through our new PriceSmart app, which our members seem to like as we're seeing a rapid increase in the number of sign ups and renewals using the app. The talent and technology we obtained through PriceSmart's acquisition of ArrowPost has proven to play a very important role in enabling these capabilities in this compressed period of time.

At some clubs, we also provide assisted shopping, which allows a member to order order by phone for pickup or for delivery. We've increased our capacity for delivery by our own employees as well as through delivery services. In fact, in one country where retailers were ordered to temporarily close, the government granted PriceSmart permission to operate as a drive through to provide prebuilt basic commodity bags that we call smart bags while requiring minimum time or physical contact between the employee and the member. We're also working to deploy our workforce in a thoughtful manner including by developing a program to teach employees skills so that they can support our efforts to provide members with additional alternative ways to shop. PriceSmart is also working with nonprofits including Price Philanthropies to provide these basic commodity smart bags to people in need and to support the communities in which we operate.

I'm so incredibly proud of how our team has quickly adapted and is creatively responding to the challenges we're facing while preparing for what might be next. Our fifth focus, cash management. Given the uncertainty surrounding the potential impact of the outbreak on our results of operations and cash flow, we are proactively taking steps to access and preserve cash available on hand. We've also decided to delay certain capital expenditures. We plan to complete the construction of our our warehouse in Iberia, Costa Rica next month, but we postponed its opening.

With respect to our previously announced future warehouse club openings on land that we've acquired in Bogota and Bucaramanga, Colombia and in Jamaica, we've decided to suspend or not initiate the construction of those clubs for the time being. The reality is we really don't know yet how long this situation will continue, so we've curtailed discretionary spending and are considering and planning for additional cost saving measures in The US and in the markets where we operate. You'll hear more about managing our liquidity through the results. So now with that, let me turn to the original purpose of this call, our FY twenty twenty Q2 results. Total revenues were a new record for the company of $906,700,000 an increase of 6.1% over the comparable prior year period.

Net merchandise sales were $871,700,000 an increase of 6.3% over the prior year period. We did benefit from the extra day in this leap year. The second quarter increase resulted from a 5.9% increase in transactions and a 0.3% increase in average ticket. Currency fluctuations in our market had a $2,900,000 or 30 basis point 3% negative impact on net merchandise sales for the quarter. Comparable net merchandise sales increased by 0.4% with currency fluctuations impacting comparable sales negatively by 0.4%.

By segment, in Central America where we had 25 clubs at quarter end, net merchandise sales increased 8.3% with a 0.1 increase in comparable net merchandise sales. The impact of currency on total and comparable sales to the Central American REIT segment was positive 1.6% and positive 1.7% respectively. All markets within this segment showed increased net merchandise sales year on year. In Panama, we opened our sixth club in May 2019 and seventh club in October 2019. And in Guatemala, we opened our fourth club in November 2019.

Our comparable store net merchandise sales were negatively impacted by these three new club openings. In the Caribbean region where we had 13 clubs at quarter end, total net merchandise sales grew 4.9% with comparable net merchandise sales growth of 1.3%. Our Dominican Republic and Jamaica market led the way in this segment with 17.410.5% growth for the second quarter ended 02/29/2020. In The Dominican Republic, this growth was primarily attributable to the opening of our fifth club in June 2019. While in Jamaica, strong comparable net merchandise sales growth was the primary driver of growth for the second quarter ended 02/29/2020.

Jamaica, it set a new all time monthly sales record for the company. Their bakery alone did $1,600,000 in sales in the month of December, another record, which was enabled in part by the investment we had previously made to expand the club and add parking. The impact of currency on both total and comparable merchandise sales for the Caribbean segment was negative 2%. In Colombia, where we have seven clubs, net merchandise sales grew 0.2% for the quarter and there was a decrease in comparable net merchandise sales of 0.6%. The impact of currency on total and comparable net merchandise sales in Colombia was significant at negative 6.1% and negative 6.4%, respectively.

With regard to merchandise, in terms of consolidated merchandise categories, we experienced good growth in our fresh category driven primarily by growth in our prepared foods, poultry and produce departments. We also saw favorable growth in departments such as pet supplies, toys, tires, and sporting goods. However, we still have room for improvement in several other categories that include juices and drinks, health and beauty, as well as electronics and and the appliances category within hardlines. Now let's turn to membership. At the end of Q2, we continued to report very positive results.

We ended the quarter with approximately 1,700,000 accounts, also a new company record, and a 3% increase over the prior year period. Membership income was up by 9.7% during the quarter. The growth in accounts and income during fiscal twenty twenty can be primarily attributed to the opening of four new warehouse clubs compared to last year in our Central American and Caribbean markets. Membership income in our Colombian market has also been positively impacted by a 20% increase in the Diamond membership fee beginning in April 2019. Our trailing twelve month renewal rate was 8685% for the periods ended 02/29/2020 and February 2839, respectively.

Our platinum membership, which offers cash back based on purchase volume in exchange for a higher annual fee, represents approximately 4.5% of our total membership base and has been growing. Total gross margins this quarter increased to 16.6% from 16.1% in Q2 fiscal twenty nineteen. Gross margin when compared to the prior year period was impacted mostly by favorable net merchandise margins. Net merchandise margins for Q2 increased 70 basis points to 14.7% from 14% versus the same period a year ago, which is in line with our preceding two quarters and prior year's historical trends. Net income for the 2020 grew 7.6% to $25,600,000 or $0.85 per share compared to twenty three point eight million dollars or $0.79 per share in the comparable period last year.

Now remember, we ended this quarter with 45 warehouse clubs compared to 41 clubs at the end of the 2019. The new clubs include two in Panama referred to as Veraguas and Metro Park, and one in The Dominican Republic, the Bolivar Club and most recently the San Cristobal Club that opened in November 2019 in Guatemala. So now briefly turning to March sales, we released earlier this week. Net merchandise sales were $306,100,000 an increase of 17.1% versus a year ago. FX fluctuations adversely impacted net merchandise sales by 2.5%.

For the four weeks ended 03/29/2020, comparable net merchandise sales increased 15.7% with a negative FX impact of 3%. Although overall sales for the month of March 2020 increased significantly, driven by members stocking up primarily on food and essentials ahead of the potential shelter in place advisories. Sales did moderate and later decreased in the second half of the month. Toward the March, we experienced a noticeable reduction in traffic that we believe was driven by restrictive government mandates and consumer concerns about potential exposure. So to wrap up, we posted strong results for Q2 and strong sales for March.

Our efforts to recommit to the Six Rights during the preceding year was showing results on key metrics. We also recognize that a lot is changing, and there are many unknowns at this time. Therefore, it's difficult to predict when and how our members' consumption and spending patterns will adjust to a new normal. As we sit here today, we expect the impact of the pandemic and the related restrictions on our business to adversely affect traffic and sales over the next several months. And we recognize that the financial impact that COVID nineteen will have on our markets could also cause a downward trend in sales for some time.

Having said that, also see this as an opportunity. We've learned a lot in the last six weeks about what our team is capable of accomplishing. Everyone from our club and distribution center operators to the executive team, everyone at all levels. It's nothing short of inspiring. Our team has talent, resolve, and a tremendous commitment to our members and to this company.

And we have loyal members who really count on us as a trusted source of good. A lot of families depend on us, especially in times like this. So we're treating this as a call to action. We've already covered a lot of ground and made a lot of progress on several fronts that will carry us forward long after this chapter ends. And we intend to seize on the opportunities rising from this challenge to propel our business forward and position ourselves for the future.

I'm hoping you and your families stay safe and healthy. I'll now turn this over to Michael.

Speaker 1

Thank you, Sherry, and good morning or afternoon to everyone in my first earnings conference call as Chief Financial Officer. First, I would like to thank Sherry, the Board and all of my other PriceSmart colleagues for their support during my interim CFO phase, which has now led to this permanent position. However, I would also like to acknowledge the difficult times we are all facing through the COVID nineteen crisis and extend my heartfelt best wishes to everybody on this call today as I imagine you all have been either directly or indirectly impacted by this crisis. As Sherry discussed earlier, the 2020 total revenues were $906,700,000 an increase of 6.1% and gross margins rose 50 basis points to 16.6% compared to 16.1% in the 2019. Total SG and A as a percentage of total revenue were 12.3%, an increase of 50 basis points versus the same period last year.

The increase year over year was primarily driven by additional headcount related to the opening of our four newest clubs and investments in talent to support our technology development and other administrative functions. Operating income was $38,800,000 or 4.3% of total revenues in 2020 compared to $36,500,000 or 4.3% of total revenue for the same period last year. The improvement is largely due to higher net merchandising margins in the 2020 versus the same period last year, partially offset by an increase in SG and A expenses due to our four new clubs as indicated earlier. Our effective tax rate for the 2020 was essentially flat versus the prior year, coming in at 33.1% versus a rate of 32.9% a year ago. While over the last few years, we have generally provided an indication of our expectations for our full year effective tax rate, due to the current COVID related uncertainties in projecting full year results, we are unable to provide such an indication at this time.

Net income increased 7.6% to $25,600,000 with diluted earnings per share of $0.85 in the 2020 compared to $23,800,000 with diluted earnings per share of $0.79 in the second quarter of last year. Moving on to the balance sheet, we ended the quarter with cash, cash equivalents and restricted cash of $136,800,000 an increase of $38,700,000 versus the same period a year ago. Cash provided by operating activities increased $12,800,000 versus the same period last year, primarily due to higher net income and working capital improvements. Net cash used in investing activities increased by 31,900,000.0 primarily due to net increases in purchases of short term investments and construction payments during the year. Net cash provided by financing activities increased CAD44.3 million, primarily due to new long term borrowings in our Colombian and Guatemalan subsidiaries.

Turning now to the impact of the coronavirus outbreak and how this is affecting us in terms of liquidity. We are implementing measures to preserve our liquidity and strengthen our balance sheet during these unprecedented times. We are reevaluating additional needs for liquidity given the potential social and economic impacts in the markets where we operate and any resulting impacts on our results of operations and cash flow. While we cannot reasonably estimate the duration or severity of this pandemic at this time, it is likely that we will see some negative impacts, especially on sales over at least the near term. Therefore, as a precautionary measure, early in Q3, we have accessed 63,200,000 of funding available in several of our lines of credit to increase available cash on hand.

Additionally, as Sherry mentioned, we have postponed the construction and opening of four new clubs, which will reduce our capital expenditures and working capital needs significantly in the short term, while we continue to evaluate the situation and the duration of the disruption. Finally, we are working with all our merchandise and other vendors to extend payment terms and thus create additional liquidity. In closing, our business remained very strong during Q2 and we had great momentum leading into this worldwide crisis. Our second quarter results were excellent and validate the strategies we have in place are the right ones. These results highlighted that sales, margins and membership renewals continued to show strong results and strengthen the core of our business.

With that said, our environment has suddenly changed with the outbreak of COVID-nineteen. With each passing week, during this crisis, we continue to evolve and adapt to the ever changing landscape we face find ourselves in. We will continue to focus on the Six Rights, our employees, our members, and our communities. We will keep you updated as the conditions continue to progress in the coming months. As we turn to the Q and A section of this call, I would like to remind you all that we have never provided earnings guidance and with this unprecedented situation we are currently enduring, it will be even harder to give you all a good sense as to how severely and for how long our results will be impacted by the situation.

In any case, if you have any questions related to how we are executing our COVID-nineteen response initiatives, we will do our best to answer them. As mentioned at the beginning of this call, we would appreciate it if you could limit your questions to two per person. Operator, I will turn it back to you to take up to two questions from each of our callers.

Speaker 0

We will now begin the question and answer session. First question comes from Rodrigo Eccarare of Scotiabank. Please proceed.

Speaker 3

Thank you, operator, and, thanks, everyone, for the call. And, congrats, Michael, on your on your new role. I would say on on my end, I'd like to perhaps hear your thoughts on what we take, for you to revisit, store openings. And I guess, more specifically, is this related, more to the, you know, temporary disruptions, on on COVID nineteen, Or is it more related to structural concerns with regards to the region where you operate in terms of the macro, short to midterm? And I guess the second question would be on the e commerce front.

What kind of growth are you seeing, in the past few days? Any color that you can, share with us, would be great. Thank you.

Speaker 2

Morning, Rodrigo. So if I understand your first question was basically our decision to suspend some of the store openings or the club openings, and and you wanted a little color about around that. Correct?

Speaker 3

Yeah. I mean, I I guess, how how are you thinking about that? I mean, I guess, I'm I'm I'm trying to get a sense on, you know, are we are we perhaps, you know, being obviously responsible and cautious, for obvious reasons. But, you know, once disruptions cease and and everything goes back to, quote, unquote, normal, then, you know, are we looking at at at those store openings being back on the pipeline quickly, or or is it something that it'll take, you know, a few months until you're you feel comfortable, you know, putting those back on the pipeline?

Speaker 2

Well, let me put it to you this way. Before the pandemic, we were completely on track for those openings. So it wasn't anything structural or in terms of the markets themselves that led us to decide not to do it. It was the pandemic and then, of course, the resulting impact that the pandemic can and may have on these markets going forward, which is really the part that is the big unknown for all of us at this point. So, you know, with that kind of a variable at play, I I the best answer I can give you is that we're we're just monitoring it.

We're trying to get the best information we can and assess what what the impact on our markets are. And then at the appropriate time, we will we will move forward. So as of now, it seems that the most prudent thing to do in the face of this this kinda unexpected event was to suspend that and to preserve capital and focus on delivering our best performance for our members with the clubs that we have in the markets where we exist.

Speaker 3

Got it.

Speaker 2

Your second question related to e commerce growth.

Speaker 3

Yes.

Speaker 2

E commerce, it's hard to quantify. Again, this is all happening so quickly. I can tell you anecdotally that the response we're getting, track social media now, and we're we're much more connected to our members digitally. We're seeing the response and the reaction to having more online presence. You know, the fact that our members can go now online and see our products, order them, pay for them at least in our first location so far.

And that's all been extremely favorable. Now it's about building up quickly, ramping up the operational side to be able to support the demand. So I can't quantify for you what the demand is, but, you know, you can you can sort of assume that when people don't wanna leave their home or if do they leave their home, they don't wanna spend a lot of time being exposed to other people who might be carrying the virus, there's a real demand for ecommerce, and there's a real demand for all of the types of shopping that you can do that minimizes physical interaction with other people. And that's what we're focused on, and that's what we've been expediting and making great progress on in a very short period of time.

Speaker 3

And so I guess can you maybe share, you know, if if all the stores or or an x percentage of the stores have now the ability to, for for consumers to shop online and maybe, do click and collect? You know, how many stores are we looking at that that are capable of doing this?

Speaker 2

Well, it's okay. If you look at the capabilities, the first step is to make sure that all the inventory that's available in the clubs is visible online. So having the online catalog that shows, you know, a description, the price, the whether or not the product's available, that now exists in all of our countries. So so that's that's a development that's happened since this pandemic was announced. Then you add on that the ability to once you have that information, it opens the doors to the alternative ways of shopping.

One is the ability to email or or through phone conversations, contact a a PriceSmart employee, and be able to get an order or order something to be picked up or delivered. That's what we're calling assisted shopping. That's happening throughout a number of our clubs at this time. The most advanced right now is the click and collect, which is I'm sorry. The click and go, which is in we launched it in Costa Rica in our Santana Club, and that's been going extremely well.

And we have a very aggressive rollout plan to all of our other markets in a matter of weeks. So we're we, you know, we started with, one, make sure we got the kinks out and we're doing it right and, set up the protocol so that we can efficiently roll this out throughout the rest of the company.

Speaker 3

Oh, that sounds like, you guys have really, stepped it up in the last few weeks, which makes a lot of sense. And on the delivery, if I can just maybe double click on that for for a second. I think you're you're

Speaker 2

Just so you know, officially, you're on question number four, but it's okay.

Speaker 3

Go ahead. Sorry about that. I'll I'll I'm I'm just gonna leave it at that. That's okay. Glad you got me giving

Speaker 2

you a hard time.

Speaker 3

No. I know. Know. It's just that I have a lot of questions, but I'll I'll I'll let other ones take turns.

Speaker 2

That's okay. Why don't you ask that last one? That's fine.

Speaker 3

No. It's just on the delivery. I mean, you were mentioning you're using both, some aggregators, and also you were doing some of that in house. Can you can you share, more color on on both of those strategies?

Speaker 2

Yes. You know, as you know, given the fact that we operate in 13 different markets, the the best solutions vary from market to market. In Colombia, we, we partner with Rafi as one example, and and it's not a one solution for each market. It varies. We do a combination of having our own employees delivering.

We've got we secured vehicles that allow for us to be able to do deliveries. We partner with third parties, and we are right at on the brink of finalizing contracts with another major delivery service, if you will, that will be able to provide this service to our members throughout most of our markets. So it's a combination of different channels that allow us to get the product to the members.

Speaker 3

Got it.

Speaker 1

Thank you.

Speaker 2

Thank you, Rodrigo.

Speaker 0

Our next question comes from John Broth of Kansas City Capital. John, please proceed.

Speaker 4

Good morning, Sherry, Mike.

Speaker 2

Good As

Speaker 3

you

Speaker 4

tackle this COVID-nineteen issue, what kind of flexibility do you have in your cost structure at the store level? And have you been making adjustments there? Was just curious what maybe potentially some deleveraging of expenses, how you're going to try and minimize that deleveraging of expenses?

Speaker 2

Well, with regard to that, we're watching every penny as we should, you know, and Michael is doing a great job of that, and we have eliminated or reduced what we consider to be any sort of excess. But having said that, we think it's very important to have a balanced approach, especially during this time. The initial instinct may be to just hunker down and dial back on everything. But what we're actually finding is because of the situation, our team is able to move forward pretty quickly on interventions and on new initiatives that that, frankly, we didn't know we could deliver on as quickly as we have. And in that effort, we're realizing we actually need to deploy our resources and our labor in a more thoughtful way because there's opportunities here to now reskill some of our employees Mhmm.

And assign them to tasks that will support these initiatives that we believe are not only needed by our members today, but are gonna strengthen our company for the long term. So, you know, while we're watching expenses and we're being vigilant about that and and taking, you know, as responsible and as compassionate an approach as we possibly can, We're also not shy about making the right investments in the right areas that are going to get us through this stronger than we were coming into it.

Speaker 4

Okay. Okay. The second question, Cherry, what are you seeing or maybe it's a little bit early on the membership or new membership count? I saw that in Colombia, memberships were down year over year, up elsewhere. But how are your markets how your how is memberships roles as we get further and further into this COVID-nineteen?

Are we seeing any material difference in the trend that we've seen over the last couple years?

Speaker 2

Well, I can't I don't have in front of me March, but in terms I don't think we report anything in a partial month. So we're in April right now. So I I can't really share anything more on that. But but, certainly, people right now are, you know, behaving differently in terms of what they're buying, how much they're buying. We're seeing surges, and then we're seeing, you know, changes in terms of average ticket and so on.

But it's too soon for me to be able to share any kind of trend that I could predict or see emerging as a result of the membership.

Speaker 4

Okay. All right. Thank you. One last question. If the product mix shifts more to necessities as opposed to other items that aren't so essential, how does that influence your gross margins?

How does a mix shift like that?

Speaker 2

Well, I mean, we're constantly trying to manage margins appropriately. We are continually looking for ways to make sure that we are getting the best value for the member consistent with the Six Rights As we see a greater need for essentials and basic necessities, we're leveraging local vendors as well and suppliers to make sure that we are able to deliver the products that they need. So at this point, it's, again, too soon to tell what what will come out of this phase of of dramatic shift in the way that people are shopping and the the demand as well as the supply. And I but beyond that, I really don't have any more to share in terms of foresight.

Speaker 4

Okay. Alright. Lot of imponderables out there, and, I wish you the best of luck. It's it's a difficult, environment.

Speaker 2

We really appreciate, your well wishes, and and, we're doing the best we can. And we're feeling good about our ability to get through this and take care of our members and learn a lot in the process.

Speaker 4

Alright. Sure. Thank you.

Speaker 2

Take care.

Speaker 0

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker 2

Thank you. Bye bye.