PriceSmart Inc

NASDAQ:PSMT

Earnings Call Transcript 2018-Q4

[Operator]

Good day, and welcome to PriceSmart, Incorporated Earnings Release Conference Call for the Fourth Quarter of Fiscal Year 2018, ending on August 31, 2018. All participants are currently in a listen-only mode. After remarks from our company representatives, Robert Price, Executive Chairman of the Board of Directors; Sherry Bahrambeygui, Director; Jose Luis Laparte, President and Chief Executive Officer; and Maarten Jager, Executive Vice President and Chief Financial Officer, you will be given an opportunity to ask questions as time permits. [Operator Instructions]

As a reminder, this conference call is being recorded on Friday, October 26, 2018. A digital replay will be available through November 2, 2018, following the conclusion of the call by dialing 1 877 344-7529 for domestic callers or 1 412 317-0088 for international callers, and entering replay access code 10123807.

I would now like to turn the conference over to Maarten Jager. Please go ahead, sir.

[Maarten Jager]

Thank you, and welcome to our earnings call for the fourth quarter of fiscal year 2018. We will be discussing the information that we provided in our earnings press release and our 10-K, both of which we released yesterday, October 25, 2018. You can find both press releases and the 10-K 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 could 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, 2017, filed with the Securities and Exchange Commission on October 25, 2018. We assume no obligation and expressly disclaim any duty to update any forward-looking statement to reflect the occurrence of events or circumstances, which may arise after the date of this call.

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

[Jose Luis Laparte, Chief Executive Officer and President]

Good morning, everyone, and thank you for joining us today. As it was announced yesterday afternoon in our press release after discussions with the board regarding the need for a fresh perspective, on Wednesday this week I submitted my resignation as President and CEO, and the board accepted it. This was not easy after spending the last 14 years working together with such a great team, after those 14 years I accomplished what I set out to do on this company.

We were doing less than $500 million on sales, when I joined this team. And as we finished fiscal year 2018, our sales exceeded at $3 billion mark, a major milestone for our business. This journey with PriceSmart has been full of great experiences. I had the opportunity to meet and work with many people from each of our country.

PriceSmart has a great future ahead of it, and the team well positioned for growth. I am proud of the almost 9,000 employees we have in the U.S. and our 13 countries. My resignation is effective November 16, I have agreed to make myself available to Sherry Bahrambeygui, the new Interim CEO, until the end of year to ensure as more transition. I know very well for many years, and I am sure, she would do a great job working with all the team on this transition.

This is my last earnings call. And I want to thank all of you and also the PriceSmart team for all of your support. Thank you very much. And now - I'll now turning over to Sherry Bahrambeygui.

[Sherry Bahrambeygui, Interim Chief Executive Officer]

Good morning, everyone. I'm Sherry Bahrambeygui, and it's a pleasure to meet you by way of this call. I'm the Director of PriceSmart and the incoming Interim CEO. First, I'd like to thank Jose Luis for all his contributions to the company throughout the many years that he has served PriceSmart. He leaves the company on very solid footing. We've got a very strong balance sheet, very strong cash position, we have a very little leverage, and we've got one of the best-in-class teams of over 8,000 employees.

Jose Luis was exactly the right person in the history of our company, he came to us at the right time, and he was able to accomplish amazing things for us. But as the world of retailing is changing and the world of merchandising is rapidly changing. There is an agreement amongst us that it is time for a fresh perspective and a CEO, a leader who can bring a different set of skills to the company to help expedite our growth.

As the Interim CEO, I just want to briefly tell you my priorities will be to focus on - the effort to identify as best-in-class CEO for the company to take it forward in the future. To focus and invest on talent development amongst our management team and to really invest in those key players, who we feel have great gifts and talents to bring this company forward.

And also to expedite our growth strategies, to remove and accelerate our efforts in terms of our growth for the future and to be responsive to the needs of the future and the needs of our members. Removing obstacles and accelerating those efforts will include embedding and integrating the assets that we acquired, when we acquired Aeropost. Bringing their talent, and their team and their capabilities closer in line with our core business is going to be a key feature of our growth strategy for the future.

So with that, I'd like to hand this off to our executive - our new executive Chairman, Robert E. Price, who is the founder of our company and also one of the founders of the club concept over 40 years ago. He is a thought leader in our organization and he is part of what will be a very smooth transition, moving forward for the company.

[Robert Price, Executive Chairman of the Board]

Thank you very much, Sherry. I'd like to - well, good morning everyone. I'd like to comment a little bit about Sherry Bahrambeygui, who I have worked with for the past 13 years. I've the highest regard for Sherry, her integrity, her intelligence, her desire to be successful. Everything that Sherry has worked on and many of those things have been company related.

Sherry has done successfully and has benefited the company in many ways. She is the chair of the Compensation Committee. She's on the Real Estate Committee. She attends Audit and Finance Committee meetings. She has an intimate knowledge of the company. And I have tremendous confidence in her to work through this period of transition in a way that it will make sure that we come out successfully.

I'd also like to take this opportunity to thank, Jose Luis, who I've worked with for 14 years. I hired, Jose Luis, and he was absolutely the right person at the right time. He was able to take a company that was really in trouble. Although, we've gotten the balance sheet, right, we still have a lot of operational issues, and Jose Luis did a remarkably fine job of bringing this company to the point that we're doing $3 billion today. So I thank you, Jose Luis, for everything you've done. And all of us, the Board of Directors and our investors and our employees, owe you a great gratitude.

My job as the Executive Chairperson, really are two main functions: one is to set the strategic vision for the company; and the second is to make sure that the CEO succession is handled properly. Those are the two things that I will devote myself to in the next few months. I do want to kind of leave it for now with and turn it back to Maarten, but we'll make additional remarks about the vision and some of our strategic considerations going forward, when Maarten has concluded his remarks. And then, we'll be open for questions from all of you.

[Maarten Jager]

Thank you, Robert. Good morning, everyone, and thank you again for joining us today. I also want to personally congratulate, Jose Luis, and leading this business $2 billion to $3 billion milestone. And I wish Jose Luis the very best in the future. This achievement underscores the strength of our business model, which is predicated on delivering excellent merchandise and outstanding value in the most efficient manner possible to our members. By focusing on efficiency, we are able to pass its value back to our members.

Historically, we've seen that manifested through an efficient supply chain, pallet-driven merchandising and large boxes with concrete floors and steels. That model remains strong, and a guiding strategic principles remain the same as we continue to harness opportunities ahead of us now, and we are continuing to advance an innovator model. Our Executive Chairman, Robert Price, he just mentioned, who will comment more on the vision for our company later.

Let me now turn to our results. First with an overview of Q4 and fiscal year, and then followed by some more color for the most recent quarter. Total revenues for $777.9 million, an increase of 6.0% over the comparable prior year period, which includes the contribution from the Aeropost business this quarter - this year - this quarter. Net merchandise sales were $741.3 million, an increase of 4.3% over the prior year period, and comparable net merchandise sales grew by 0.2%.

As a reminder, we ended the fiscal year with 41 warehouse clubs compared to 39 clubs a year-ago with the addition of the Santa Ana club in Costa Rica in October 2017 and San Isidro club in the Dominican Republic in May of 2018.

Net income for the fourth quarter of fiscal year 2018 was $19.8 million or $0.62 per share compared to $19.8 million or $0.64 per share in a comparable period last year. This result includes $0.15 per share impact of our investment in Aeropost, and the talent and capabilities, and technology and logistics that this acquisition will provide. This quarter also included a beneficial impact from updated tax reform estimates, which represented $0.06 per share. As such, these two factors combined had an EPS impact of negative $0.09 per share.

Now briefly to the full-year, before I spend further on the fourth quarter. Total revenues increased at 5.7%, net merchandise sales by 4.9% and comparable net merchandise sales by 2.3%. Net income for fiscal year 2018 was $74.3 million or $2.44 per share compared to $90.7 million or $2.98 per share in the fiscal year 2017.

However, again for the full fiscal year, the impact of our investment in Aeropost was $0.31 for share and that tax reform was a negative $0.32 per share. As such, these two factors combined had a negative impact on EPS of $0.63 per share for the full year.

Returning now back to Q4 for some more detail. The Central American region had 0.7% increase on total merchandise sales, but a decrease in comparable sales of 3.2%. The impact of transfer of sales related to the opening of the Santa Ana club in Costa Rica, negatively impacted comparable sales for Central America by approximately 100 basis points for the quarter. We have also seen a general softening of sales in Costa Rica during the last month of the quarter, as a result of economic and political uncertainty.

Panama continues to experience challenges as well, with sales in our warehouse clubs down by 5%. And Nicaragua is facing challenges at this largest crisis since the end of its civil war in 1979. General uncertainty in Nicaragua as well security concerns are leading to fewer visits in their clubs, and our members appear to be more conservative in their spending, especially within the non-food areas, resulting in a drop of sales in Nicaragua of 18.6%.

Honduras, El Salvador and Guatemala, however, all had positive comparable sales during the fourth quarter. The Caribbean region had a total merchandise sales growth of 7.9% and comparable sales of 2.2%. Trinidad and Aruba reported single-digit comparable sales growth, the Dominican Republic had negative comparable sales as a result of sales transfers from existing clubs to the new San Isidro, which opened in May 2018. The USVI have double-digit growth continuing strongly in the wake of the September 2017 hurricane.

Finally, Barbados, end of the quarter with 3.4% in sales compared to the same quarter last year. And last in Colombia, we finished with double-digit comparable sales growth of 12.9%. Net merchandise category level, we saw positive comp growth with non-foods, like toys, electronics, and computers, sporting goods, fashion and basic apparel, and also domestics.

In the food category, we have positive comps in candy, groceries, canned meat, pets, flowers and road shows. In total, the fresh areas finished with a positive comp of 3.8% compared to our comp for the company of 0.2%.

Categories with negative comps in non-foods, include computers, major appliances, hardware, automotive, housewares, tires and business supplies. And in foods, categories have negative comps for liquors, juices, soda and vegetables. Clearly, our results have been impacted by the unusual and simultaneous factors in Nicaragua, Costa Rica, Panama, and also Barbados. But even with the challenges we face in these markets, it is our obligation to find a way to reduce prices for our members by becoming more efficient as well as by buying better and testing those savings on it.

Moving onto membership, we finished the quarter with approximately 1.6 million accounts, membership income was up by 6.0%. The 12-month renewal rate at the end of August with 85%. Excluding Colombia, the renewal rate was 87%. The renewal rate in Colombia finished at the end of August at 78%, the same as a year ago.

Merchandise margins for the period came in at 14.7% versus 14.6% a year ago. And in Colombia margins have increased to 14.3% of warehouse sales versus 12.7% last year.

SG&A of our core business was a 11.8% versus a 11.7% a year ago, driven by G&A and slightly leveraging effect from the opening of the two new clubs. SG&A of the total business was 12.7% versus 11.7% a year ago. The 90 basis point difference in SG&A of these two numbers, if the impact of our investments in Aeropost and technology.

Operating income was $27.2 million versus $30.8 million a year ago. Operating income includes the impact again at the Aeropost acquisition and the ongoing investments we are making. Operating income for the core warehouse club business increased to $32.0 million versus $30.8 million a year ago, again the difference of $4.8 million is the impact of the Aeropost investments.

This quarter's effective tax rate declined to 27.5% and included a beneficial impact from updated tax reform estimates of 8.2% or $0.06 per share. We expect the effective tax rate to settle at it approximately 35% going forward. This is higher than the U.S. marginal tax of 21%, not only because of our tax - not only because most of our tax liabilities are in foreign countries bearing in approximate 30% rate, but also because we can no longer recover all of our foreign tax credits in the U.S. as a result of the recent tax reform.

Foreign exchange transactions in the revaluation of monetary assets and liabilities resulted in a $211,000 currency gain during the quarter compared to $153,000 gain in Q4 of last year.

Moving on to the balance sheet, which is very strong as Sherry mentioned. With strong cash position as well a very low leverage, which all speak to the strength of our company. Cash ended the fiscal year at $96.9 million, an increase of $6 million during the quarter, significant components of changes in cash, include cash flow from operations of $28.7 million, $23.3 million in capital expenditures and payments of $10.6 million in dividends.

While, we continue to face liquidity challenges in Trinidad, the situation has improved with the sum total of cash and cash equivalents, and short-term investments declining to $47.3 million versus $58.2 million a year ago. To better understand it changes in our cash and cash equivalents and short-term investment balances, I refer you to the 4.02 8-K filed yesterday.

I will now hand it back over to our Executive Chairman, Robert Price, to speak further about our vision and strategy for the company.

[Robert Price, Executive Chairman of the Board]

Thank you very much, Maarten. I'd like to begin by stating that the company overall condition is excellent. We are serving our members well, we have a high renewable rate in our membership. We have a strong balance sheet as Maarten just mentioned in our underlying performance as to the basic business was sound last year very good, except for the fact that the overlay of the tax and Aeropost factors created a general reduction in our earnings. But the underlying business was sound. There's something - I think is very important to emphasize to the investment community and that is the fact that during this last year, we have significantly strengthened our management team.

I'd like to specifically mention the addition of our Chief Financial Officer, Maarten Jager, who - we feel is, a tremendously strong addition to the team. I also want to mention, Ana Luisa Bianchi, who is our new Chief Merchandising Officer. Ana Luisa began with the company in Guatemala nearly 20 years ago, and has occupied a number of very important merchandising positions in our company and I believe will have a very positive impact in the buying area.

In technology, one of the most important parts of that Aeropost acquisition is the team that is now part of our PriceSmart organization, and that team both in terms of marketing, technology and overall understanding of online business. We hope will be very significant as it plays out with respect to our entire operation for our members.

And then, as I mentioned earlier the addition of Sherry, as the new Interim CEO is very, very positive. I really - I worked with Sherry and I feel that the fact that we have worked together, [worked] [ph] together well, will serve the company quite well. I think, the other thing to emphasize about our management team is that we have, I worked with some of the management groups since Price Club days. We and others would come later in terms of by our working relationship, but I have a tremendous respect and regard for the quality of our management team. And I think, it's now a matter of bringing everybody together with a common vision.

I also feel very strongly that we have to do a better job of developing the management team, so that people have upward opportunities to grow in this company and to have career improvements for the future, and I think that applies to our back office people as well as to the people in operations. I also want to mention though it didn't happen this past year, but Francisco Velasco, who is our General Counsel, who has just been a tremendous support for the company, and very, very happy with his performance and what he's done for organization.

Now, I'd like to talk a bit about the vision - the strategic vision and put it into maybe three buckets: one of which is, the basic business; the second is, what I would call an update of the format; and the third relates to new markets. When we started Price Club over 40 years ago, what we did that was different as we brought a more efficient model in terms of how we bring merchandise to customers. And that efficiency played out in terms of lower prices.

And the basic consideration for our success is how do we get products from the manufacturer into the hands of customers in the most efficient manner, consistent with paying people, who work in our organization, proper wages and benefits. That model for us is challenging, because we are dealing in small countries from a distance. And up to this point, we've really focused our entire distribution center, I mean, distribution approach other than local buying out of Miami.

We have made a strategic decision to open 165,000 square foot regional distribution center in Costa Rica, to serve Costa Rica, a number of other Central American countries. We believe based on our studies that this distribution center will have a multiple benefit to efficiency. One is, we think that we can get product to the market, less expensively by shipping directly into the market rather than through Miami. The other is that we are going to be transferring many of the functions that are currently performed in the clubs themselves into the distribution center, where we think, we can do that more efficiently.

And third, and this relates to some geopolitical global financial considerations, particularly with tariffs that we buy a considerable amount of merchandise from the Far East. And we believe that this regional distribution center will allow us to ship directly into the market into Costa Rica, and not have to deal with some of the tariff problems that could be on the horizon in the United States. So efficiency in the distribution chain will hopefully translate into lower prices and ultimately more sales.

The second area of strengthening the basics is in the back office. We have many, many procedures that we are doing not only in San Diego but throughout our company that are very labor intensive. We need to apply technology in a much more aggressive way to make in our back office more efficient, and that is a high priority for us.

And then, the final part of the basics is the buying. We have identified that we need to strengthen the buying performance in certain areas, particularly in hard lines as Maarten mentioned in his presentation. We have been seeing negative sales performance in many of our hard lines areas. We don't think that's acceptable. We think, we can do better and that's an area we've identified as a priority. So one thing is strengthening the basics, the second is updating the format.

We have a 40-year-old plus format that is great. I have to say it's great, because I kind of thought of it. But at the same time, it needs to be spruced up a bit. And the biggest change is related to technology in the way people are thinking about buying products today, and even in our markets, Amazon is impacting us, because of cross-border commerce. So we recognize that we have to figure out how that sweet spot between the traditional type of shopping that people are used to doing and businesses are used to doing, frankly, not just consumers but businesses because we sell to businesses well.

And the way people want to use technology for shopping online. And of course, regarding the acquisition of the Aeropost team and their technology and logistics, and marketing know-how. They're going to hopefully tie a very important role and helping to make that transition. And I would say even the best of them, and do you want to consider Amazon the best, are struggling with the issue of how do you connect brick-and-mortar to online in a way that really works. And I don't think anybody is totally figured it out, but as we think that's where the real issue is in terms of the future is how you make it, because people are still going to go into stores. They're not going to quit shopping in stores.

And - but how do you connect it. In our market, there are other factors that impact shopping behavior such as the fact that traffic is terrible, hard to get to locations and the other thing is for us to define property in many of these highly urban cities is very, very challenging, because of just this unavailability of it.

So what we've done is, we've - we're now piloting two new clubs that will open, when we're ready to open them. We've targeted spring time, but it may not be - we may not make it by April or May it depends if we're ready. One is - both of these will be smaller, perhaps 60% of the size of our typical club. One is located in Santo Domingo, and it's in a very high income area of the city, very urban. And the other one is in Panama, in a town - smaller town, which has direct surrounding town is called Santiago. And it is quite rural, and they're very different.

And we chose those two communities, because we wanted to learn something about how we could function, how we would use a smaller format in an urban setting, particularly in thinking about Bogota and Medellin and - where it's so challenging to get property. And in secondary cities in existing markets, where we might be able to be successful in operating, but we have to determine how the small concept works.

The key is, how we're going to combine, what we fell in the club with the online. And the online - these two clubs will not carry the full selection of products that we have everywhere else. Many of the larger items, major appliances, other hard goods items will be fulfilled from a distribution center like the distribution center in Costa Rica.

And we will use the space in the building to maximize the sale of more consumable products. So that the consumer will have the benefit of both the consumable products and the more durable or hard goods, and the choice to get delivery on those online products either in their homes, or in what they call click-and-collect, which has been used pretty successfully by target some other companies. So that, what we're going to be piloting in that market and we told our team that they need to think about these two locations almost like a new business.

This is not PriceSmart like, this is something new and different that we're going to rethink, cost structure of operations, the way we merchandise and everything suited us to determine whether or not we can come up with something that's going to respond properly to the new world in which we live. So that's one part of this future vision.

The second thing is, that we and - we've already had Costa Rica taken certain products out of our clubs that are big ticket items like appliances and mattresses. And actually, Costco is doing the same thing to make space for more consumable items, we've put in them in the regional distribution center and we will be selling those products, we think more efficiently delivered to our customers, the members than what we sell them - how we were selling them in the club. So we are gradually testing items with their current selection items, but putting them into an online format.

The third thing that we're doing and this has to do again with our regional distribution center is that we will be selected items that we don't sell in the clubs. And actually stocking some of those items in the regional distribution center that will be able to be shipped directly to members, who picked up in the club. And those would be tend to be more cube intensive items on the durable or hard good side.

And then finally - and then the next thing we're doing is that we are looking at a cross-border selection increase where out of Miami through the Aeropost logistics. We would be able to ship products to our members that we don't currently sell in the clubs.

And finally, we are studying and each of these are big projects. We are studying, how we can do, how we can offer our members home delivery or business delivery out of assortments that are in our clubs. So those are the combined ideas that relate to how brick-and-mortar and technology, online shopping can be coordinated in a way that moves this concept ahead and takes cognizant of the kind of world we are living in.

The third part of our strategy for growth has to do with new markets. And we are committed to making a more serious effort to try to enter new markets. Our constraints to now have been threefold: one has been the real estate issues that we face even in Colombia concerns and certain big South American countries as to the accessibility of getting the sites we need. The second is making sure that our management team is strong enough to handle what would be a major - addition to current workload. And the third has to do with our distribution system, and that test we're doing in Dominican Republic and in Santiago are partially being done to test concepts that we hope could work in future markets that - new markets that we're not in now.

So I think, to sum it all up, but we are going to be focusing on is our strategy is to how do we continue to improve the delivery through our current members through better buying, better efficiencies, lower prices. And how do we take advantage of technology in conjunction with the traditional brick-and-mortar warehouse club business in order to have, perhaps, more opportunities to expand existing markets as well as potentially to enter new markets.

So that's kind of the summary is the way I see it. And we're happy to take your questions.

[Maarten Jager]

Operator, we'll now turn it over to Q&A.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jon Braatz with Kansas City Hospital. Please go ahead, Jon.

[Jonathan Braatz, Kansas City Capital Associates]

Kansas City Capital. First of all, Jose Luis, I wish you the best of luck. I enjoyed working with you and - had the chance to meet with you in Bahrambeygui. I wish you the best of luck.

[Jose Luis Laparte, Chief Executive Officer and President]

Thank you.

[Jonathan Braatz, Kansas City Capital Associates]

Robert, a little bit on your strategy, you talked about you listed three or four points that you want to engage in. How much will all this cost? Can you give us an idea of what the capital investment might be to complete these tasks that you've listed?

[Robert Price, Executive Chairman of the Board]

Well, many of the things I talked about, I don't think our incremental cost at all. I think, it has to do with just getting back to basics and doing our business better.

[Jonathan Braatz, Kansas City Capital Associates]

Okay. All right. And then secondly, one of the underlying concepts that PriceSmart has always been to when you generate cost savings, you pass that on to the consumer in terms of lower prices. Are you going to deviate at all with that policy? Or you continue to pass it all on to the consumer? Or are you going to maybe keep a little bit?

[Robert Price, Executive Chairman of the Board]

I'm going to explain to you, why we have that policy. I want to tell what business reason there is. When my dad started FedMart, and then we started Price Club. We had one basic tenant, which is that we have a fiduciary responsibility to our shoppers, our members, and they have to trust us. So we want our members to develop a sense and this is happened - certainly happened to Price Club and Costco. At anything we put out for sale, is there - is they can trust the integrity of the pricing. We're not holding back. And my father also said, and I really believe this, if you're going to make a mistake in pricing, you always make the mistake in favor of the customer, not in favor of yourself.

So the third - and the third point is that we're in a competitive world. We're in a world with Amazon, forget the local guys, we've got Walmart, but you have big players, who are very fierce competitors. And one of the things that we do not want to do is create what we call an umbrella, so that we give them room to raise margin, so that they can attack us on other products. Our strategy is to take everything we can in terms the efficiency in buying and keep the lid as tight as we can. So it discourages competitors from coming into our market and for the competitors that are already there make their lives miserable. And that is the way we think about it.

[Jonathan Braatz, Kansas City Capital Associates]

Okay. Thank you, Robert I appreciate that color. Maarten, one question. In the third quarter your gross margin on Aeropost - gross margins were about 78%. On the fourth quarter, they were about 45% or something like that. What changed in terms of the margin on your Aeropost sales in the fourth quarter?

[Maarten Jager]

Jon, let me take that offline and just make sure that I get all those numbers right. And we'll get back with you later today, okay.

[Jonathan Braatz, Kansas City Capital Associates]

All right. No problem. Thank you.

[Operator]

Our next question comes from Ronald Bookbinder with IFS Securities. Please go ahead, Ronald.

[Ronald Bookbinder, IFS Securities]

Yes. Good afternoon and thank you for taking my questions. First, yes, Jose Luis, congratulations on what a terrific job you have done over the years. The stock price really shows that from when you came onboard. My first question is, this is a pretty massive plan that you're shifting to. How many years do you think it is going to take to pretty much get to most of your vision?

[Jose Luis Laparte, Chief Executive Officer and President]

Well, I'm 76 years old. My dad used to say, he doesn't buy green bananas anymore. And I guess, when you talk about it in years, it makes me nervous.

[Ronald Bookbinder, IFS Securities]

So you're planning a pretty quick transition to the new focus and execution?

[Jose Luis Laparte, Chief Executive Officer and President]

Yeah, I mean, why do you want to wait?

[Ronald Bookbinder, IFS Securities]

Exactly. Are there competitors that are aggressively coming into your territories with a similar strategy that you're trying to fend off right now? Or is this more getting out really ahead of the competition?

[Robert Price, Executive Chairman of the Board]

It's not a react - this is not a reactive strategy. This is really doing especially in the world as it is today, and trying to come up with proper answers to how you compete and how you serve your members.

[Ronald Bookbinder, IFS Securities]

So as you look at investments going forward, store growth versus online, should we look for a real slowdown in store growth as you build out and sort of shift direction to more online? And then later on, look us to market where you might need a store to help support your omni-channel vision in that market?

[Robert Price, Executive Chairman of the Board]

You can't disaggregate the stores from the online. They're really all part of a whole. And so the future is, how do you take both facets of retailing, and in our case of wholesaling and put them together in a way that works. That's what we're all of us, all the people in this - in the retail world are trying to figure out, Costco, everybody, and even Alibaba is beginning to buy stores. So it's really a question, what is that sweat spot week between - and how do you make sure that you can integrate properly the technology - the benefits of technology with the traditional ways in which people have been shopping.

[Ronald Bookbinder, IFS Securities]

With the new, greater emphasis on online, will you focus at any territories, especially stronger than others? Like, will you focus mainly in trying to build this out in Costa Rica, Panama, Colombia first before taking it to smaller markets?

[Robert Price, Executive Chairman of the Board]

Well, our two tests that we're working on, pilots, I guess, you'd call them, one is in Dominican Republic, and one is in Panama. And I think, it was just a matter of the fact that we were able to identify in each case, locations that seemed to fit of doing the pilot.

[Ronald Bookbinder, IFS Securities]

But the sort of smaller stores, I guess, you could relate them to the old Sears catalog stores. What you can…

[Robert Price, Executive Chairman of the Board]

Well, personally, Sears had a catalog and they blew it.

[Ronald Bookbinder, IFS Securities]

Yes. Sears isn't doing too well these days. But…

[Robert Price, Executive Chairman of the Board]

They kind of lost their ways, yeah.

[Ronald Bookbinder, IFS Securities]

Yeah. They used to have those tiny little stores that really didn't have any merchandise in them where they would have catalogs. And you'd come in, these in small world markets, and you pick up what you want and they order, and like you said, click and collect. And so it's just a great little point in the smaller markets. But so when looking at Colombia, we used to look at Colombia and think you guys could have 17 stores in Colombia or somewhere up that when you compare the size of the economy of Colombia to Central America. But so does that change, how you're going to be looking at the Colombian market?

[Robert Price, Executive Chairman of the Board]

No.

[Ronald Bookbinder, IFS Securities]

Okay. All right. Okay, but that's about all my questions. It's quite interesting to see the changes going on here and good luck.

[Jose Luis Laparte, Chief Executive Officer and President]

Thank you, Ronald.

[Operator]

Our next question comes from Nicolas Alfonso with Compass Group. Please go ahead, Nicolas.

[Nicolas Alfonso, Compass Group Plc]

Okay. Thank you for the presentation. My first question is about exchange rate. Currently, the Colombian peso is trading COP3,185. Will this have any effect on your following results? And the second question is about applications or the online business that is developing here strongly. Currently, trending - it's very trendy here in Colombia. Do you have any view about this?

[Maarten Jager]

I think - Nicolas, this is Maarten. We had a lot of static on the phone. I think, one of your questions was about FX rates, and the other one was about the online trends in Colombia. Let's take the second question first on the online trends in Colombia.

[Jose Luis Laparte, Chief Executive Officer and President]

Yeah. Colombia, over the - this is Jose Luis, Nicolas. Colombia, probably of all the countries, is the one more developed in terms of online business. Obviously, you have [Defalava] [ph], you have Exito, you have other retailers that have been working on strategies for online, especially the leader in food to homes and some of the electronics. It is definitely more aggressive in that country, but we haven't seen a real effects. And I don't think it is at the level of U.S. competition. So hopefully, that's what you were kind of asking about the online business.

On the other countries, there is a component of online, definitely not as developed, not in the Caribbean Islands, or not even in some of the bigger Central American countries like Costa Rica or Panama, not bigger us for in terms of business. Colombia is definitely will be run the one more competitive.

Then the other question was…

[Maarten Jager]

This is Maarten again, in terms of FX rates, I quoted you the number of the Colombia comps. We look at it, of course, on a constant currency basis, although, we are not very chatty about it. But even on a constant currency basis, our Colombia comps were double digits or 10% and change. So we're dealing quite well. Thank you.

[Nicolas Alfonso, Compass Group Plc]

Okay. Thank you.

[Operator]

Our next question is a follow-up from Jon Braatz with Kansas City Capital. Please go ahead, Jon.

[Jonathan Braatz, Kansas City Capital Associates]

Last quarter on the conference call, you mentioned that that you ship Roberts with Costa Rica through Nicaragua to Guatemala, Honduras and so on. And there were some concerns about issues going on in Nicaragua? Did you ever have any issues in the quarter moving merchandise through Nicaragua to those other countries or - and did you incur any additional costs to do so?

[Jose Luis Laparte, Chief Executive Officer and President]

Yeah, Jon, there was - obviously, the last quarter of the year was pretty rough, because that's exactly when the events in Nicaragua started. So we had a little inconsistency in our shipments during that few weeks. It got more back to normal. We did incur a little bit on more expenses, because we had to go around Nicaragua for some of the shipments. It seems that is more back to normal. Obviously, the Nicaragua is not completely stabilized yet, and it will probably take a little longer. But so far, it hasn't been as difficult as it was in Q4. We don't foresee necessarily those challenges in Q1 of this year. Again, business is, I would say, normal, but not necessarily the normal we would like to see Nicaragua like it was before May. Hopefully, we don't see more disruptions.

[Maarten Jager]

Hey, Robert, just a follow-up to you - sorry, Jon. Sorry. There was a question - I apologize. There was a question about Aeropost and the expense.

[Jonathan Braatz, Kansas City Capital Associates]

Yes.

[Maarten Jager]

The simple answer really is to look at it from a year-to-date basis, because as we disclosed in the notes in F-11 of the financials Note 1. There was a minor reclass, we made to cost of goods sold during the quarter of approximately $2 million. So you'll see that in the notes, and we can walk you through that later to just clarify that.

[Jonathan Braatz, Kansas City Capital Associates]

Okay. Thank you, Maarten.

[Maarten Jager]

So operator, I think, that was the last of the questions. Now over to the operator.

[Operator]

This now conclude the answer-and-question session. This is also conclude the conference. Thank you for attending today's presentation and you may now disconnect.

[Maarten Jager]

Thank you, John.