PriceSmart Inc. (PSMT) stock dropped to an 8-year low of $54.24 on Wednesday as investors were concerned on the investigation about the possible securities fraud violations. Also, traders remained troubled by the insider sale and were unsatisfied with the membership-style shopping warehouse club operator’s second-quarter earnings results.
Attorney firm Levi & Korsinsky began an investigation of PriceSmart on possible securities fraud violations of federal securities laws. On October 25, 2018, the company disclosed in its Form 8-K about non-reliance of its financial statement due to a balance sheet misclassification discovery.
The audit committee of the company determined the statements would need to be restated due to the misclassification. PriceSmart also expects to include in its Form 10-K that there was a material weakness in internal controls over financial accounting related to the misclassification. After this, the stock fell from $81.57 on October 25 to $69.16 on October 26, 2018.
For the second quarter, PriceSmart reported a 69% jump in earnings helped by lower provision for income taxes despite an increase in operating expenses. Total revenues increased by 1.8% as foreign currency exchange rate fluctuations negatively impacted the net merchandise sales growth.
The company has seen headwinds in US dollar reported sales which were largely impacted by a continuation of foreign currency devaluation as well as some of the geopolitical and economic impacts. PriceSmart will continue to focus on driving same-store sales, delivering real estate pipeline, and developing of the digitally enabled omnichannel platform.
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Comparable net merchandise sales, for warehouse clubs that have been open for greater than 13.5 calendar months, declined 0.9% for the second quarter. Operating income declined by 2.1% as results were negatively impacted by costs related to investments to expand omnichannel capabilities, along with results of marketplace and casillero business.
During last week, the company announced a 0.9% rise in merchandise sales for the month of April 2019. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 4% versus the prior year period. The company had 41 warehouse clubs in operations as of April 30, 2019, up 2.5% from last year, unchanged from the second quarter. Comparable warehouse sales declined by 0.5% for the month.
On May 1, PriceSmart opened a new warehouse club in Santiago de Veraguas, Panama, bringing to 42 the total number of warehouse clubs in operation by the Company. This is the company’s sixth warehouse club in Panama. This is a smaller format utilizing less square footage than more recent standard warehouse club size.
Shares of PriceSmart opened lower on Wednesday and is trading in the red territory on the Nasdaq. The stock has fallen over 33% in the past year and over 8% in the past three months.