PSMT · Read the filing

Item 1A. Risk Factors

In evaluating the Company’s business, you should consider the following discussion of risk factors, in addition to other information contained in this report and in the Company’s other public filings with the U.S. Securities and Exchange Commission. Any such risks could materially and adversely affect our business, financial condition, results of operations, cash flow and prospects. However, the risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations, cash flow and prospects.

External Factors that Could Adversely Affect Us

The ongoing global novel coronavirus COVID-19 pandemic had and may continue to have an adverse effect our business, results of operations, financial condition, and liquidity.

The ongoing COVID-19 pandemic has negatively impacted the world economy, caused widespread unemployment, significantly impacted global supply chains, and disrupted financial markets, all of which have negatively affected, and continue to create challenges in, our markets. In addition to measures we have taken voluntarily, the government authorities in our markets have taken actions to mitigate the spread of COVID-19, including travel restrictions, border closings, restrictions on public gatherings, stay-at-home orders and other quarantine and isolation measures. They also have imposed business limitations such as mandatory temporary closures, required reduced operating hours, restrictions on segments of the population permitted to shop on particular days, customer occupancy limits and restrictions on sales of “non-essential” merchandise. Many of these policies and restrictions have resulted in limiting access for our Members and have adversely impacted our club operations.

Our business depends heavily on the uninterrupted operation of our distribution facilities located in Miami, Florida and San Jose, Costa Rica, our warehouse clubs located in Colombia, Central America and the Caribbean, and our headquarters and buying operations in San Diego, California. The operation of all of our facilities is highly dependent on our employees who staff these locations, and the coronavirus could directly threaten the health of our employees. Additionally, in an effort to protect our employees, we have trained our in-club and distribution center employees about and enforced social distancing, and we have during this time shifted substantially all of our work force at our San Diego headquarters, our management and administrative personnel in Miami, and office support personnel in the countries where we operate to remote work. Finally, we continue to identify alternative distribution channels in the case of closure of one or more of our distribution facilities or upstream and downstream disruption to our supply chain. Events such as these complicate and/or threaten the way we execute and the performance of our business and could have a material adverse effect or our business and operating results.

Operating during the COVID-19 pandemic has increased our costs of operations. Among other things, we provide personal protective equipment to our employees, have employed additional cleaning and sanitizing procedures at our warehouse clubs and distribution facilities and provide transportation to employees in areas where public transportation is not currently available or is considered unsafe. We also have implemented robust protocols for screening, contact tracing, mapping and quarantining as preventative and mitigating measures. We also have additional payroll expenses associated with maintaining reserve teams of employees who remain ready if necessary to replace employees who become sick or who are required to quarantine and for employees who are in high risk groups or who are subject to quarantine. We believe these costs will continue as long as the COVID-19 pandemic is ongoing.

In addition, as a result of COVID-19 and the measures designed to contain the spread of the virus, we have faced and may continue to face delays or difficulty sourcing products, which could negatively affect our business and financial results. Certain of our suppliers have had their manufacturing operations disrupted by the coronavirus outbreak, and even where goods have been completed, they have been subject to weeks-long shipping delays. If our third-party suppliers’ operations continue to be curtailed, or transportation systems continue to be disrupted, we may need to seek alternate sources of supply, which may be more expensive. The duration and degree of production and supply chain disruption, and related financial impact, cannot be estimated at this time. If the production and distribution closures continue or increase for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows.

Table of Contents

Negative economic conditions created or exacerbated by the outbreak of the COVID-19 could adversely impact our business in various respects.

A slowdown in the economies of one or more of the countries in which we operate or adverse changes in economic conditions affecting discretionary consumer spending could adversely affect consumer demand for the products we sell, change the mix of products we sell to a mix with a lower average gross margin, cause a slowdown in discretionary purchases of goods, adversely affect our net sales and result in slower inventory turnover and greater markdowns of inventory, or otherwise materially adversely affect our operating results. Any prolonged outbreak of the coronavirus could result in the imposition of quarantines or closures of retailer locations, office spaces, manufacturing facilities, travel and transportation restrictions and/or import and export restrictions, any of which could contribute to a general slowdown in the global economy and the economies of the markets in which we operate. A significant decline in the economies of the countries in which our warehouse clubs are located may lead to decreased sales and profitability, increased governmental ownership or regulation of the economy, higher interest rates and increased barriers to entry such as higher tariffs and taxes. The economic factors that affect our operations also may adversely affect the operations of our suppliers, which can result in an increase in the cost to us of the goods we sell to our Members or, in more extreme cases, in certain suppliers not producing goods in the volume typically available for sale to us.

Employment laws and regulations in the countries in which we operate may limit our ability to effect a reduction in force to reduce our labor expenses in line with declining revenues. In some of the countries in which we operate, before we could effect a reduction in force, we would need to negotiate with labor unions, demonstrate evidence of hardship or force majeure or obtain prior government approval, which may not be given in a timely manner or at all.

Our financial performance is dependent on international operations, which exposes us to various risks.

Our international operations account for nearly all of our total revenues. Our financial performance is subject to risks inherent in operating and expanding our international membership warehouse club business, which include:

changes in, and inconsistent enforcement of, laws and regulations, including those related to tariffs and taxes;

the imposition of foreign and domestic governmental controls, including expropriation risks;

natural disasters;

trade restrictions, including import-export quotas and general restrictions on importation;

difficulty and costs associated with international sales and the administration of an international merchandising business;

crime and security concerns, which can adversely affect the economies of the countries in which we operate and which require us to incur additional costs to provide additional security at our warehouse clubs;

political instability, such as the protests and civil unrest in Colombia in 2021 and Honduras and Nicaragua in 2019 and a general strike in Costa Rica in 2018;

product registration, permitting and regulatory compliance;

volatility in foreign currency exchange rates;

general economic and business conditions; and

interruption of our supply chain.

These risks may result in disruption to our sales, banking transactions, operations and merchandise shipments, any of which could have a material adverse effect on our business and results of operations.

In 2018, the U.S. approved legislation to restrict U.S. aid to Nicaragua. In 2019, the U.S. State Department had varying strategies regarding if, when, and how it would authorize disbursements of foreign aid that had been previously approved by the U.S. Congress to Guatemala, Honduras and El Salvador. In 2021, the Vice President of the United States announced that the United States is providing $310 million in increased assistance to Guatemala, Honduras and El Salvador. However, changes in U.S. policies regarding financial assistance could cause political or financial instability in the countries we serve.

We face significant competition.

Our international warehouse club business competes with exporters, importers, wholesalers, local retailers and trading companies in various international markets. Some of our competitors have greater resources, buying power and name recognition than we have. We also face competition from online retailers who serve our markets, and we expect that this type of competition will grow and intensify in the future.

Table of Contents

In the countries in which we operate, we do not currently face direct competition from U.S. membership warehouse club operators. However, we do face competition from various retail formats such as hypermarkets, supermarkets, cash and carry, home improvement centers, electronic retailers and specialty stores, including those within Latin America that are owned and operated by large U.S. and international retailers, including Walmart Inc. in Central America and Grupo Éxito and Cencosud in Colombia. We have noted that certain retailers are making investments in upgrading their locations which may result in increased competition. Further, it is possible that current U.S. warehouse club operators may decide to enter our markets and compete more directly with us in a similar warehouse club format. Our ability to operate profitably in our markets, particularly small markets, may be adversely affected by the existence or entry of competing warehouse clubs or discount retailers.

We compete in a variety of ways, including the value and prices at which we sell our merchandise, merchandise selection and availability, services offered to Members, location, store hours, safety protocols and the shopping convenience and overall shopping experience we offer. We may be required to implement price reductions to remain competitive if any of our competitors reduce prices in any of our markets. In response to the increasing threat associated with online retailers, we are making technology investments, which may result in increases in the use of cash and reduced profitability in the near term.

Our sales could be adversely affected if one or more major international online retailers were to enter our markets or if other competitors were to offer a superior online experience.

Although online sales are currently a smaller proportion of total sales in our markets for the types of merchandise we offer than in the U.S., online shopping is becoming more prevalent in our markets as we and our competitors begin to offer more opportunities for online shopping and as delivery systems in our markets improve. COVID-19 has accelerated the growth of online sales in our markets due to government-imposed restrictions on shopping and changes in consumer preferences. While major international online retailers have not established a significant penetration in any of our markets yet, Amazon.com, Inc. continues to expand its online marketplace and make additional investments to bolster its presence in the countries where we operate. Also, it is possible that Amazon.com, Inc. or smaller regional companies will increase the penetration of online shopping in our markets, especially given the importance of e-commerce during the COVID-19 pandemic.

We continue to invest in our websites and systems with the long-term objective of offering our Members a seamless omnichannel experience. We currently offer our Click & GoTM online shopping, which includes both curbside pickup and delivery are available in all markets. Operating an e-commerce platform and fulfilment of online orders is a complex undertaking, and there is no guarantee that the resources we have applied to this effort will result in increased revenues or improved operating performance. If we do not maintain a successful and relevant omni-channel experience for our Members, our ability to compete and our results of operations could be adversely affected.

We are exposed to significant weather events and other natural disaster risks that might not be adequately compensated by insurance.

Our operations are subject to volatile weather conditions and natural disasters, such as earthquakes, hurricanes and volcanic activity, which are encountered periodically in the regions in which our warehouse clubs are located. Natural disasters could result in many days of lost sales at our warehouse clubs or adversely affect our distribution chain. For example, in early fiscal year 2018, operations at our USVI warehouse club were adversely affected by Hurricanes Irma and Maria. The warehouse club was closed for nine days, and after re-opening, the warehouse club operated with limited hours for 16 days due to a government-imposed curfew. Damaged and destroyed roads restricted traffic flow, adversely affecting customer access for some time after the hurricane. Future losses from business interruption may not be adequately compensated by insurance and could have a material adverse effect on our business, financial condition and results of operations.

We face difficulties in the shipment of, and risks inherent in the importation of, merchandise to our warehouse clubs.

Our warehouse clubs typically import nearly half or more of the merchandise that they sell. This merchandise originates from various countries and is transported over long distances, over water and land, which results in:

substantial lead times needed between the procurement and delivery of product, thus complicating merchandising and inventory controls;

the possible loss of product due to theft or potential damage to, or destruction of, ships or containers delivering goods;

product markdowns due to the prohibitive cost of returning merchandise upon importation;

product registration, tariffs, customs and shipping regulation issues in the locations we ship to and from;

ocean freight and duty costs; and

possible governmental restrictions on the importation of merchandise.

Table of Contents

Civil unrest in certain countries in which we operate may adversely affect the flow of goods through those countries. For example, in April 2021, protestors in Colombia erected roadblocks inside and between major cities and damaged public transport, businesses and state buildings, which disrupted the normal flow of goods and economic activity. In 2019, political and civil unrest in Honduras and Nicaragua resulted in roadblocks in many portions of these countries. Any restriction in the movement of goods through Costa Rica’s ports or over Honduras and Nicaragua’s highways could impair our ability to supply warehouse clubs not just in those countries, but in countries throughout the region as well.

Moreover, each country in which we operate has different governmental rules and regulations regarding the importation of foreign products. Changes to the rules and regulations governing the importation ofmerchandise may result in additional delays, costs or barriers in our deliveries of products to our warehouse clubs or may affect the type of products we select to import. In addition, only a limited number of transportation companies service our regions. The inability or failure of one or more key transportation companies to provide transportation services to us, any collusion among the transportation companies regarding shipping prices or terms, changes in the regulations that govern shipping tariffs or the importation of products, or any other disruption to our ability to import our merchandise could have a material adverse effect on our business and results of operations.

We are subject to payment related risks, including risks to the security of payment card information.

We accept payments using an increasing variety of methods, including cash, checks, wire transfers, our co-branded credit cards and a variety of other credit and debit cards. Our operations, like those of most retailers, requires the transmission of information permitting cashless payments. As we offer new payment options to our Members, we may be subject to additional rules, regulations and compliance requirements, along with the risk of higher fraud losses. For certain payment methods, we pay interchange and other related card acceptance fees, along with additional transaction processing fees. We rely on third parties to provide secure and reliable payment transaction processing services, including the processing of credit and debit cards, and our co-branded credit cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association and network operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change over time. If we fail to comply with these rules or transaction processing requirements, we may not be able to accept certain payment methods. In addition, if our internal systems are breached or compromised, we may be liable for banks’ compromised card re-issuance costs, we may be subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our Members, and our business and operating results could be adversely affected. Failures or disruptions in data communication and transfer services also could significantly impact our ability to transact payments to vendors and process credit and debit card transactions. Lastly, we or our customers may experience “spoofing” transactions, particularly with respect to wire transfers, which could cause us to make payments to impostor vendors or result in our not receiving timely payment from customers for merchandise we have sold.

We face the possibility of operational interruptions related to union work stoppages.

We currently have labor unions in three of our subsidiaries (Trinidad, Barbados and Panama). A work stoppage or other limitation on operations from union or other labor-related matters could occur for any number of reasons, including as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiation of new collective bargaining agreements. A lengthy work stoppage or significant limitation on operations could have a substantial adverse effect on our financial condition and results of operations.

Risks Associated with Our Business Strategy and Operations

Any failure by us to manage our widely dispersed operations could adversely affect our business.

As of August 31, 2021, we had 47 warehouse clubs in operation, located in 12 countries and one U.S. territory (eight each in Costa Rica and Colombia; seven in Panama; five in the Dominican Republic, four in Trinidad and Guatemala; three in Honduras; two each in El Salvador and Nicaragua; and one each in Aruba, Barbados, Jamaica and the United States Virgin Islands). We will need to continually evaluate the adequacy of our existing infrastructure, systems and procedures, financial controls, inventory and safety controls and make upgrades from time to time. Moreover, we will be required to continually analyze the sufficiency of our inventory distribution channels and systems and may require additional or expanded facilities in order to support our operations. We may not adequately anticipate all the changing demands that will be imposed on these systems. Any inability to effectively update our internal systems or procedures as required could have a material adverse effect on our business, financial condition and results of operations.

Table of Contents

We might not identify in a timely manner or effectively respond to changes in consumer preferences for merchandise, which could adversely affect our relationship with Members, demand for our products and market share.

Our success depends, in part, on our ability to identify and respond to trends in demographics and changes in consumer preferences for merchandise. It is difficult to consistently and successfully predict the products and services our Members will demand. Failure to timely identify or respond effectively to changing consumer tastes, preferences or spending patterns could adversely affect our relationship with our Members, the demand for our products and our market share. If we are not successful at predicting sales trends and adjusting purchases accordingly, we might have too much or too little inventory of certain products. If we buy too much of a product, we might be required to reduce prices or otherwise liquidate the excess inventory, which could have an adverse effect on margins (net sales less merchandise costs) and operating income. If we do not have sufficient quantities of a popular product, we might lose sales and profits we otherwise could have made.

Future sales growth depends, in part, on our ability to successfully open new warehouse clubs in our existing and new markets.

Sales growth at the existing warehouse clubs can be impacted by, among other things, the physical limitations of the warehouse clubs, which restrict the amount of merchandise that can be safely stored and displayed in the warehouse clubs and the number of Members that can be accommodated during business hours. As a result, sales growth will depend, in part, upon our acquiring suitable sites for additional warehouse clubs. Land for purchase or lease, or buildings to be leased, in the size and locations in those markets that would be suitable for new PriceSmart warehouse clubs may be limited in number or not be available or financially feasible. In this regard, we compete with other retailers and businesses for suitable locations. Additionally, local land use, environmental and other regulations restricting the construction and operation of our warehouse clubs may impact our ability to find suitable locations, and increase the cost of constructing, leasing and operating our warehouse clubs. We have experienced these limitations in Colombia and in some of our other existing markets, which has negatively affected our growth rates in those markets. Limitations on the availability of appropriate sites for new warehouse clubs in the areas targeted by us could have a material adverse effect on the future growth of PriceSmart.

In some cases, we have more than one warehouse club in a single metropolitan area, and we may open new warehouse clubs in certain areas where we already have warehouse clubs. A new warehouse club in an area already served by existing warehouse clubs may draw Members away from existing warehouse clubs and adversely affect comparable store sales performance. We operate in relatively small markets. Given the growth of our sales over the past few years, market saturation could impact the rate of future sales growth.

We might open warehouse clubs in new markets in the future. The risks associated with entering a new market include potential difficulties in attracting Members due to a lack of familiarity with us and our lack of familiarity with local Member preferences. In addition, entry into new markets may bring us into competition with new competitors or with existing competitors with a large, established market presence. As a result, our new warehouse clubs might not be successful in new markets.

Failure to grow our e-commerce business through the efficient integration of physical and digital retail channels and the investments we are making to develop a robust e-commerce platform that also supports and enhances brick and mortar sales and services could materially adversely affect our market position, net sales and/or financial performance.

The retail business is quickly evolving and consumers are increasingly embracing shopping online and through mobile commerce applications. As a result, the portion of total consumer expenditures with all retailers and wholesale clubs occurring online and through mobile commerce applications is increasing and the pace of this increase could accelerate. As demonstrated by our launch of our Click & GoTM curbside pickup and delivery service, and other ongoing investments, we are increasing our investments in e-commerce, technology and other customer initiatives. The success of our e-commerce initiative continues to depend in large measure on our ability to build and deliver a seamless shopping experience across the physical and digital retail channels. If we fail to successfully implement our e-commerce initiative, our market position, net sales and financial performance could be adversely affected. In addition, a greater concentration of e-commerce sales could result in a reduction in the amount of traffic in our warehouse clubs, which would, in turn, reduce the opportunities for cross-club sales of merchandise that such traffic creates and could reduce our sales within our clubs and materially adversely affect the financial performance of the physical retail side of our operations. In addition, our investment in e-commerce and technology initiatives will adversely impact our short-term financial performance and could adversely impact our financial performance over the longer term.

Table of Contents

Our profitability is vulnerable to cost increases.

Future increases in costs, such as the cost of merchandise, wage and benefits costs, shipping rates, freight costs, fuel costs, utilities and other store occupancy costs, may reduce our profitability. We seek to adjust our product sales pricing, operate more efficiently, and increase our comparable store net sales to offset currency rate changes, changes in tax rates or in the methods used to calculate or collect taxes on our sales or income, inflation and other factors that can increase costs. We might not be able to adjust prices, operate more efficiently or increase our comparable store net sales in the future to a great enough extent to offset increased costs. In the third and fourth quarter of fiscal year 2021, we experienced significant increases in freight costs of our merchandise sourced overseas due to the global shortage of shipping containers. Please see Part II. “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-K for further discussion of the effect of currency rate changes, inflation and other economic factors on our operations.

We are subject to risks associated with our dependence on third-party suppliers and service providers, and we have no assurances of continued supply, pricing or access to new merchandise.

We have important ongoing relationships with various third-party suppliers of services and merchandise. These include, but are not limited to, local, regional, and international merchandise suppliers, information technology suppliers, equipment suppliers, financial institutions, credit card issuers and processors, and lessors. Significant changes in the relationships or the agreements that govern the terms through which business is conducted could have a material adverse effect on our business, financial condition and results of operations. We have no assurances of continued supply, pricing or access to new merchandise, and any supplier could at any time change the terms upon which it sells to us or discontinue selling to us. One of our significant suppliers operates a warehouse club business and may in the future seek to compete with us in some of our markets. In addition, the manner in which we acquire merchandise, either directly from the supplier’s parent company or through a local subsidiary or distributor, is subject to change from time to time based on changes initiated by the supplier and for reasons beyond our control. Significant changes or disruptions in how we acquire merchandise from these suppliers could negatively affect our access to such merchandise, as well as the cost of merchandise to us and hence our Members, which could have a material adverse effect on our business and results of operations.

Our failure to maintain our brand and reputation could adversely affect our results of operations.

Our success depends on our ability to continue to preserve and enhance our brand and reputation. Damage to the PriceSmart brand could adversely impact merchandise club sales, diminish Member trust, reduce Member renewal rates and impair our ability to add new Members. A failure to maintain and enhance our reputation also could lead to loss of new opportunities or employee retention and recruiting difficulties. Negative incidents, such as a data breach or product recall, can quickly erode trust and confidence, particularly if they result in adverse mainstream publicity, governmental investigations or litigation. In particular, the propagation of negative publicity on social media, whether merited or not, can have a damaging effect on our business in one or more markets. In addition, we sell many products under our private label Member’s Selection brand. If we do not maintain consistent product quality of our Member’s Selection products, which generally carry higher margins than national brand products carried in our warehouse clubs, our net warehouse sales and gross margin results could be adversely affected and Member loyalty could be harmed.

We face the risk of exposure to product liability claims, a product recall and adverse publicity.

If our merchandise, such as food and prepared food products for human consumption, medication, children's products, pet products and durable goods, do not meet or are perceived not to meet applicable safety standards or our Members’ expectations regarding safety, we could experience lost sales, increased costs, litigation or reputational harm. The sale of these items exposes us to the risk of product liability claims, a product recall and adverse publicity. We may inadvertently redistribute food products or prepare food products that are contaminated, which may result in illness, injury or death if the contaminants are not eliminated by processing at the food service or consumer level. We package and market fresh produce products within our markets, so we may be exposed to additional risk of product liability and adverse publicity if those fresh food products are contaminated, which may result in illness, injury or death if the contaminants are not eliminated by processing at our packaging service centers.

We generally seek contractual indemnification and proof of insurance from our major suppliers and carry product liability insurance for all products we sell to or package for our Members. However, if we do not have adequate insurance or contractual indemnification available, product liability claims relating to products that are contaminated or otherwise harmful could have a material adverse effect on our ability to successfully market our products and on our financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that our products caused illness or injury could have a material adverse effect on our reputation with existing and potential Members and on our business, financial condition and results of operations.

Table of Contents

We rely extensively on computer systems to process transactions, summarize results and manage our business. Failure to adequately maintain our systems and disruptions in our systems could harm our business and adversely affect our results of operations.

Given the high number of individual transactions we have each year, we seek to maintain uninterrupted operation of our business-critical computer systems. Our computer systems, including back-up systems, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, internal or external security breaches, catastrophic events such as fires, earthquakes, tornadoes and hurricanes, and errors by our employees. If our computer systems and back-up systems are damaged or cease to function properly, we may have to make significant investments to fix or replace them, and we may suffer interruptions in our operations in the interim. Any material interruption in our computer systems could have a material adverse effect on our business or results of operations.

From time to time, we make technology investments to improve or replace our information processes and systems that are key to managing our business. The risk of system disruption is increased when system changes are undertaken. Targeting the wrong opportunities, failing to make the right investments or making an investment commitment significantly above or below our needs could result in the loss of our competitive position and adversely impact our financial condition and results of operations. Additionally, the potential problems and interruptions associated with implementing technology initiatives could disrupt or reduce the efficiency of our operations in the short term. These initiatives might not provide the anticipated benefits or may provide them on a delayed schedule or at a higher cost.

Several years ago, we began evaluating options to replace our existing Enterprise Resource Planning (ERP) system. However, due to the rapidly evolving retail landscape and technological resources, as well as our acquisition of Aeropost and the expertise that came with it, we have delayed this project as originally contemplated in order to more holistically assess our overall IT landscape and strategy. Subsequent to that assessment, we will reconsider the need, timing, scope and approach to our ERP replacement project. Not updating our systems on a timely basis could leave us at a disadvantage relative to our competitors. Our current ERP system is not supported by the developer of the software, which could increase the risk of a system disruption. In addition, there are newer versions available from the vendors of some of our other internal systems offering greater functionality and reliability, which we have not yet implemented. We also continue to rely on other systems we developed internally a number of years ago, which will require us to migrate to more industry-standard technologies. We are in the process of evaluating the state of all such systems and establishing a transition plan to newer technologies. Such a transaction will require a significant investment by us, and any failure by us to seamlessly transition these systems may adversely affect operations, Member satisfaction or sales.

Any failure by us to maintain the security of the information that we hold relating to our company, Members, employees and vendors, could damage our reputation with them, could disrupt our operations, could cause us to incur substantial additional costs and to become subject to litigation and could materially adversely affect our operating results.

We receive, retain, and transmit personal information about our Members and employees and entrust that information to third-party business associates, including cloud service-providers that perform activities for us. We also utilize third-party service providers for a variety of reasons, including, without limitation, cloud services, back-office support, and other functions. In addition, our online operations depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments. Each year, computer hackers, cyber terrorists, and others make numerous attempts to access the information stored in companies’ information systems.

The use of data by our business and our business associates is regulated in all of our operating countries. Privacy and information-security laws and regulations change, and compliance with them may result in cost increases due to, among other things, systems changes and the development of new processes. If we or those with whom we share information fail to comply with these laws and regulations, we could be subjected to legal risk as a result of non-compliance.

Table of Contents

We or our third-party service providers may be unable to anticipate one or more of the rapidly evolving and increasingly sophisticated means by which computer hackers, cyber terrorists and others may attempt to defeat our security measures or those of our third-party service providers and breach our or our third party service providers' information systems. Cyber threats are rapidly evolving and are becoming increasingly sophisticated. As cyber threats evolve and become more difficult to detect and successfully defend against, one or more hackers, cyber terrorists or others might defeat our security measures or those of our third-party service providers and obtain the personal information of Members, employees and vendors that we hold or to which our third-party service providers have access, and we or our third-party service providers may not discover any security breach and loss of information for a significant period of time after the security breach occurs. We or one of our third-party service providers also may be subject to a ransomware or cyber-extortion attack, which could significantly disrupt our operations. In the enterprise context, ransomware attacks involve restricting access to computer systems or vital data until a ransom is paid. Associate error or malfeasance, faulty password management or other irregularities may result in a defeat of our or our third-party service providers’ security measures and breach our or our third-party service providers’ information systems (whether digital or otherwise).

Any breach of our security measures or those of our third-party service providers and loss of our confidential information, which could be undetected for a period of time, or any failure by us to comply with applicable privacy and information security laws and regulations, could cause us to incur significant costs to protect any Members and/or employees whose personal data was compromised and to restore Member and employee confidence in us and to make changes to our information systems and administrative processes to address security issues and compliance with applicable laws and regulations.

In addition, such events could have a material adverse effect on our reputation with our Members, employees, vendors and stockholders, as well as our operations, results of operations, financial condition and liquidity, could result in the release to the public of confidential information about our operations and financial condition and performance and could result in litigation against us or the imposition of penalties or liabilities. Moreover, a security breach could require us to devote significant management resources to address the problems created by the security breach and to expend significant additional resources to upgrade further the security measures that we employ to guard such important personal information against cyberattacks and other attempts to access such information, resulting in a disruption of our operations.

Business acquisitions or divestitures and new business initiatives could adversely impact the Company’s performance.

From time to time we may consider acquisition opportunities and new business initiatives. During fiscal year 2018, we acquired Aeropost, Inc. (“Aeropost”). Acquisitions and new business initiatives involve certain inherent risks, including the failure to retain key personnel from an acquired business; undisclosed or subsequently arising liabilities or accounting, internal control, regulatory or compliance issues associated with an acquired business; challenges in the successful integration of operations, and alignment of standards, policies and systems; future developments that may impair the value of our purchased goodwill or intangible assets; and the potential diversion of management resources from existing operations to respond to unforeseen issues arising in the context of the integration of a new business or initiative.

We recently sold the legacy casillero and marketplace businesses operated by Aeropost. To implement this sale, we retained the technology and intellectual property rights required for the furtherance of our business interest in PriceSmart.com and related capabilities. We also retained the individuals formerly employed by Aeropost who we believed would best support PriceSmart’s objectives. The two businesses will provide transition services to each other for a period of up to four months. We could incur unforeseen expenses or other issues in connection with the separation of these businesses, including the separation of certain shared vendor arrangements and division of employees between the two businesses.

Table of Contents

Failure to attract and retain qualified employees could materially adversely affect our financial performance.

Our success depends, to a significant degree, on the continued contributions of Members of our senior management and other key operations, merchandising and administrative personnel, and the loss of any such persons could have a material adverse effect on our business.We must attract, develop and retain a growing number of qualified employees, while controlling related labor costs and maintaining our core values. We compete with other retail and non-retail businesses for these employees and invest significant resources in training and motivating them. There is no assurance that we will be able to adequately attract, develop and retain highly qualified employees in the future, or to replace retiring key executives which could have a material adverse effect on our business, financial condition and results of operations. We do not maintain life or disability insurance for our key executives.

Legal and Compliance Risks

We face compliance risks related to our international operations.

In the United States and within the international markets where we operate, there are multiple laws and regulations that relate to our business and operations. These laws and regulations are subject to change, and any failure by us to effectively manage our operations and reporting obligations as required by the various laws and regulations can result in our incurring significant legal costs and fines as well as disruptions to our business and operations. Such failure could also result in investors’ loss of confidence in us, which could have a material adverse effect on our stock price.

In foreign countries in which we have operations, a risk exists that our employees, contractors or agents could, in contravention of our policies, engage in business practices prohibited by U.S. laws and regulations applicable to us, such as the Foreign Corrupt Practices Act and the laws and regulations of other countries. We maintain policies prohibiting such business practices and have in place global anti-corruption compliance programs designed to ensure compliance with these laws and regulations. Nevertheless, we remain subject to the risk that one or more of our employees, contractors or agents, including those based in or from countries where practices that violate such U.S. laws and regulations or the laws and regulations of other countries may be customary, will engage in business practices that are prohibited by our policies or circumvent our compliance programs and, by doing so, violate such laws and regulations. Our former Aeropost subsidiary operated as a package forwarder, dealing with local customs officials in many jurisdictions in which we have not previously operated. In some countries, Aeropost operated through agents. During our ownership period, Aeropost was integrated into our compliance program; however, we had limited control over actions by Aeropost’s agents. Any violations of anti-corruption laws, even if prohibited by our internal policies, could adversely affect our reputation, business or financial performance.

We could be subject to additional tax liabilities or subject to reserves on the recoverability of tax receivables.

We compute our income tax based on enacted tax rates in the countries in which we operate. As the tax rates vary among countries, a change in earnings attributable to the various jurisdictions in which we operate could result in an unfavorable change in our overall taxes. Changes in tax laws, increases in the enacted tax rates, adverse outcomes in connection with tax audits in any jurisdiction, or any change in the pronouncements relating to accounting for income taxes could have a material adverse effect on our financial condition and results of operations. In two countries, there have been changes in the method of computing minimum tax payments, under which the governments have sought to require the Company to pay taxes based on a percentage of sales rather than income. As a result, the Company has made and may continue to make income tax payments substantially in excess of those it would expect to pay based on taxable income, and there are no clear rules that allow the Company to obtain refunds or to offset payments that are substantially in excess of taxes payable based on taxable income. Additionally, in one country, the government has alleged in the past that there is not a clearly defined process in the laws and regulations to allow the tax authorities to refund Value Added Tax (“VAT”) receivables. We, together with our tax and legal advisers, are currently appealing these interpretations. However, if we do not prevail in these efforts, we may be required to establish a valuation reserve against these tax receivables and take an accompanying charge, which would adversely affect our financial condition and results of operations. In the meantime, we are taking other actions to recover excess taxes paid or withheld and to limit further increases in these receivables, including the possibility that we might choose in one of the jurisdictions to make income tax payments using the original computation based on a percentage of taxable income in advance of a favorable court ruling.

We file federal and state tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which affects the amount of tax we pay. We, in consultation with our tax advisors, base our tax returns on interpretations that we believe to be reasonable under the prevailing circumstances. However, our tax returns are subject to routine reviews by the various taxing authorities in the jurisdictions in which we file our returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations we used to calculate our tax liability and therefore require us to pay additional taxes.

Table of Contents

A few of our stockholders own approximately 20.1%of our voting stock as ofAugust 31, 2021, which may make it difficult to complete some corporate transactions without their support and may impede a change in control.

Robert E. Price, the Company’s Chairman of the Board, and affiliates of Mr. Price, including Price Philanthropies, The Price Group, LLC, The Robert & Allison Price Charitable Remainder Trust and various other trusts, collectively beneficially own approximately 20.1% of our outstanding shares of common stock. Of this amount, approximately 76.4% (i.e., 15.4% of our total outstanding shares) is held by charitable entities. As a result of their beneficial ownership, these stockholders have the ability to significantly affect the outcome of all matters submitted to our stockholders for approval, including the election of directors. In addition, this ownership could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, possibly depressing the trading price of our common stock.

Financial and Accounting Risks

We are subject to volatility in foreign currency exchange rates and limits on our ability to convert foreign currencies into U.S. dollars.

As of August 31, 2021, we had a total of 47 warehouse clubs operating in 12 foreign countries and one U.S. territory, 37 of which operate under currencies other than the U.S. dollar. For fiscal year 2021, approximately 78% of our net merchandise sales were in foreign currencies. We may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net merchandise sales denominated in foreign currencies.

Our consolidated financial statements are denominated in U.S. dollars, and to prepare those financial statements we must translate the amounts of the assets, liabilities, net sales, other revenues and expenses of our operations outside of the U.S. from foreign currencies into U.S. dollars using exchange rates for the current period. As a result of such translations, fluctuations in currency exchange rates from period-to-period may result in our consolidated financial statements reflecting significant adverse period-over-period changes in our financial performance or reflecting a period-over-period improvement in our financial performance that is not as robust as it would be without such fluctuations in the currency exchange rates.

In addition, devaluing foreign local currencies compared to the U.S. dollar could negatively impact the purchasing power of our Members for imported merchandise in those countries. Merchandise imported into our markets is generally purchased by the Company in U.S. dollars and priced and sold in the local currency of that country. If the local currency devalues against the U.S. dollar, we may elect to increase prices in the local currency to maintain our target margins, making the products more expensive for our Members. We may also decide to reduce or modify the flow of merchandise into those markets. Depending on the severity of the devaluation and corresponding price increase (as experienced in Colombia in 2015 and 2020), the demand for, and sales of, those products could be negatively impacted.

Finally, the ability of the Company to convert local currency into U.S. dollars to settle U.S. dollar invoices can be impacted in certain markets due to economic factors or government policies creating illiquidity of the local currency. This has been the case in Trinidad in fiscal years 2017, 2020, and 2021, which led us to reduce shipments from the U.S. to Trinidad to amounts that our Trinidad subsidiary could pay for using the amount of tradeable currency that could be sourced in that market, resulting in lost sales.

As of August 31, 2021, our Trinidad subsidiary had Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately $52.9 million, a decrease of $26.7 million from August 31, 2020 when these same balances were approximately $79.6 million. The Trinidad central bank manages the exchange rate of the Trinidad dollar with the U.S. dollar. While the Trinidad government has publicly stated it has no intention to devalue the Trinidad dollar, it could in the future decide to devalue the currency to improve market liquidity, resulting in a devaluation in the U.S. dollar value of these cash and investments balances. If, for example, a hypothetical 20% devaluation of the Trinidad dollar were to occur, the value of our Trinidad dollar cash and investments position, measured in U.S. dollars, would decrease by approximately $10.6 million, with a corresponding increase in Accumulated other comprehensive loss reflected on our consolidated balance sheet. Separate from the Trinidad dollar denominated cash and investments balances described above, as of August 31, 2021, we had a U.S. dollar denominated monetary asset position of approximately $26.6 million in Trinidad (net of U.S. dollar denominated liabilities), which would produce a gain from a potential devaluation of Trinidad dollars. If, for example, a hypothetical 20% devaluation of the Trinidad dollar occurred, the net effect on Other income (expense), net on our consolidated statement of operations of revaluing these U.S. dollar denominated net monetary assets would be an approximate $5.3 million gain. While we may pay premiums or enter into financial transactions at a discount from the official government rate to convert our Trinidad dollars into U.S. dollars, we use the official exchange rate published by the Central Bank of Trinidad and Tobago to measure the U.S. dollar equivalent of Trinidad dollar-based revenues, expenses, assets and liabilities and the Trinidad dollar equivalent of U.S. dollar-based monetary assets and liabilities for financial reporting purposes, as there are no other reliable references available to translate or remeasure our revenues, expenses, assets and liabilities.

Table of Contents

Our Barbados subsidiary also began facing a U.S. dollar illiquidity situation in fiscal 2020. The Barbados dollar has a conventional fixed-peg currency arrangement, in which the Barbados dollar exchange rate is fixed to the U.S. dollar. Thus, we do not expect a devaluation of this currency at this time. However, as of August 31, 2021, our Barbados subsidiary had Barbados dollar denominated cash and cash equivalents measured in U.S. dollars of approximately $12.4 million, which cannot be readily converted to U.S. dollars for general use within the Company.

Volatility and uncertainty regarding the currencies and economic conditions in the countries where we operate could have a material impact on our operations in future periods.

Changes in accounting standards and assumptions, projections, estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of operations.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business are highly complex and involve many subjective assumptions, projections, estimates and judgments by our management. These include, but are not limited to assumptions, projections, estimates and judgements related to contingencies and litigation, income taxes, value added taxes, and long-lived assets. Changes in these rules or their interpretation or changes in underlying assumptions, projections, estimates or judgments by our management could significantly change our reported or expected financial performance.

For example, because of Accounting Standards Update ASU 2016-02 – Leases (Topic 842), which the Company adopted September 1, 2019, the Company is required to recognize a “Right-of-Use” (ROU) asset and lease liability for each of the Company’s long-term leases. Accounting Standard Codification (ASC) 842 requires that the ROU asset be designated as a non-monetary asset and the lease liability as a monetary liability. Therefore, when accounting for a lease that is denominated in a foreign currency, if remeasurement into the lessee’s functional currency is required, the lease liability is remeasured using the current exchange rate. We have leases in several of our subsidiaries in which the lease payments are denominated in a foreign currency that is not the functional currency of that entity. Therefore, we are subject to additional volatility in foreign currency exchange rates as a result of this accounting standard update. The monetary lease liability subject to revaluation as of August 31, 2021 was $35.6 million. Due to the mix of foreign currency exchange rate fluctuations during fiscal 2021, the impact to the consolidated statements of income of revaluing this liability was immaterial.

Item 1B. Unresolved Staff Comments

None.

Table of Contents

Item 2. Properties

At August 31, 2021, PriceSmart operated 47 membership warehouse clubs, as detailed below:

Own land Lease land

Location and building and/or building

COLOMBIA SEGMENT

Colombia (1) 7 1

CENTRAL AMERICA SEGMENT

Guatemala (1) 2 2

Costa Rica 8 —

El Salvador 2 —

Honduras 2 1

Nicaragua 2 —

CARIBBEAN SEGMENT

Dominican Republic 5 —

Aruba — 1

Barbados 1 —

Trinidad 3 1

U.S. Virgin Islands — 1

Jamaica (1) 1 —

(1)We are currently constructing and plan to open warehouse clubs in Guatemala City, Guatemala in October 2021, in Bucaramanga, Colombia in November 2021, and in Portmore, Jamaica in the spring of 2022. We own the land for each and expect to own the buildings upon its completion.

Although we have entered into real estate leases in the past and will likely do so in the future, our preference is to own rather than lease real estate. We lease land and in some cases land and buildings when appropriate sites within market areas are not available to purchase. The term on these leases generally run for 20 to 30 years and contain options to renew from 5 to 20 years. Years before current leases expire, we actively seek to secure lease extensions or find suitable replacement properties. We have successfully negotiated extensions in the past and believe we will continue to be able to do so in the future. As of August 31, 2021, sales floors of the Company’s warehouse club buildings occupied a total of approximately 2,335,929 square feet, of which 430,588 square feet were on leased property.

We operate two large regional distribution centers, one in Miami, Florida and the other in San Jose, Costa Rica, along with several smaller local distribution centers for the consolidation and distribution of merchandise shipments to our warehouse clubs. During fiscal year 2021, we executed a lease and began construction activities to open our third regional distribution center in Trinidad and Tobago. Our corporate headquarters is located in San Diego, California, and we maintain other regional offices in the U.S. and our international locations. We own our regional distribution center in Miami, Florida, but we otherwise lease most non-warehouse club facilities and expect to continue to lease these types of facilities as we expand. Our leases for non-warehouse club facilities typically provide for initial lease terms between five and 30 years, with options to extend. We believe this leasing strategy for non-warehouse club facilities enhances our flexibility to pursue various expansion opportunities resulting from changing market conditions. As current leases expire, we believe that we will be able to obtain lease renewals, if desired, for these present locations, or to obtain leases for equivalent or better locations in the same general area.

Item 3. Legal Proceedings

We are often involved in claims arising in the ordinary course of business seeking monetary damages and other relief. Based upon information currently available to us, none of these claims is expected to have a material adverse effect on our business, financial condition or results of operations.

Table of Contents

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock has been quoted and traded on the NASDAQ Global Select Market under the symbol “PSMT” since September 2, 1997. As of October 11, 2021, there were approximately 21,777 holders of record of the common stock.

Dates Stock Price

From To High Low

Recent Sales of Unregistered Securities

There were no sales of unregistered securities during the fiscal year ended August 31, 2021.

Dividends

First Payment Second Payment

Declared Amount Record‎Date Date‎Paid Amount Record‎Date Date‎Paid Amount

The Company anticipates the ongoing payment of semi-annual dividends in subsequent periods, although the actual declaration of future dividends, the amount of such dividends, and the establishment of record and payment dates is subject to final determination by the Board of Directors at its discretion after its review of the Company’s financial performance and anticipated capital requirements, taking into account all relevant factors, including, but not limited to, the uncertainty surrounding the ongoing effects of the COVID-19 pandemic on our results of operations and cash flows.

Repurchase of Equity Securities

Upon vesting of restricted stock awarded by the Company to employees, the Company repurchases shares and withholds the amount of the repurchase payment to cover employees’ tax withholding obligations.

Table of Contents

As set forth in the table below, during fiscal year 2021, the Company repurchased a total of 62,282 shares in the indicated months. These were the only repurchases of equity securities made by the Company during fiscal 2021. The Company does not have a stock repurchase program.

(a) Total Number of Maximum Number

Total (b) Shares Purchased of Shares That May

Number of Average as Part of Yet Be Purchased

Shares Price Paid Publicly Announced Under the

Period Purchased Per Share Plans or Programs Plans or Programs

Item 6. Reserved.

Table of Contents

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Forward-looking statements concerning PriceSmart, Inc.'s ("PriceSmart", the "Company" or "we") anticipated future revenues and earnings, adequacy of future cash flows, omni-channel initiatives, proposed warehouse club openings, COVID-19 related factors and challenges, and the Company's performance relative to competitors and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “scheduled,” “intend,” and like expressions, and the negative thereof. Forward-looking statements are only as of the date they are made, and we do not undertake to update these statements, except as required by law. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, but not limited to the risks detailed in this Annual Report on Form 10-K under the heading Part I. “Item 1A. Risk Factors.” These risks are not the only risks that the Company faces. The Company could also be affected by additional factors that apply to all companies operating globally and in the U.S., as well as other risks that are not presently known to the Company or that the Company currently considers to be immaterial.

Overview

PriceSmart, headquartered in San Diego, California, owns and operates U.S.-style membership shopping warehouse clubs in Latin America and the Caribbean, selling high quality merchandise and services at low prices to our Members. We operate 47 warehouse clubs in 12 countries and one U.S. territory (eight each in Costa Rica and Colombia; seven in Panama; five in the Dominican Republic, four in Trinidad and Guatemala; three in Honduras; two each in El Salvador and Nicaragua; and one each in Aruba, Barbados, Jamaica and the United States Virgin Islands). The Company also plans to open new warehouse clubs in Guatemala City, Guatemala in late October 2021, in Bucaramanga, Colombia in November 2021, and in Portmore, Jamaica in the spring of 2022. Once these three new clubs are open, the Company will operate 50 warehouse clubs. Our corporate headquarters, U.S. buying operations and regional distribution centers are located primarily in the United States. Our operating segments are the United States, Central America, the Caribbean and Colombia. All intercompany balances and transactions have been eliminated in consolidation.

Factors Affecting the Business

The COVID-19 pandemic has resulted in significant challenges across our 13 markets since March 2020. Many markets imposed limitations, varying by market and in frequency, on access to the Company’s clubs and on the Company’s club operations, including in some cases frequent temporary club closures, a reduction in the number of days during the week and hours per day the Company’s clubs were permitted to be open, restrictions on segments of the population permitted to shop or circulate on particular days, and significant limits on the number of people permitted to be in the club at the same time. We also experienced product mix shifts due to changing consumer habits and/or government imposed limitations on many non-food categories, decreases in purchases by many business Members, particularly restaurants and hotels, and sporadic supply chain challenges, which can impact inventory levels.

We are currently focused on these four main priorities:

Protect the safety and well-being of our employees and our Members.

Take proactive measures to protect, expand and create optionality for our supply chain options.

Expand technology-related shopping and convenience for the Member.

Apply data analytics to identify opportunities for improvement, growth and targeted marketing

We remain vigilant in adapting to the ever-evolving consumer demands emerging from the COVID experience and the apparent desire of consumers to satisfy their shopping and service needs in one location. The COVID-19 pandemic remains unpredictable in duration and intensity in our markets, and we continue to see periodic reinstatements of stay-at-home orders and other restrictions. In addition, we expect continued uncertainty in the economies of our markets as a result of the COVID-19 pandemic and expect volatility in employment trends, industry and consumer confidence and demand; volatility and liquidity of foreign currency exchange rates; volatility of commodity prices; and possible fiscal austerity measures taken by governments in our markets, which will likely impact our results for the foreseeable future. For additional information, refer to the risk factors discussed in Part I. “Item 1A. Risk Factors.”

Table of Contents

Overall economic trends, foreign currency exchange volatility, and other factors impacting the business

Our sales and profits vary from market to market depending on general economic factors, including GDP growth; consumer preferences; foreign currency exchange rates; political policies and social conditions; local demographic characteristics (such as population growth); the number of years we have operated in a particular market; and the level of retail and wholesale competition in that market. The economies of many of our markets are dependent on foreign trade, tourism, and foreign direct investments. The global and local travel restrictions and general slow-down in global economic activity, as a result of COVID-19, have significantly impacted and may continue to impact the economies in our markets causing significant declines in GDP and employment and devaluations of local currencies against the U.S. dollar. In general, positive conditions in the broader economy promote Member spending in our warehouse clubs, while economic weakness, which generally results in a reduction of customer spending, may negatively impact spending at our clubs.

During the last half of fiscal year 2021 and continuing into fiscal 2022, we saw several factors pressuring supply chains, including container shortages, port delays, and truck and driver shortages. These disruptions and shortages are impacting the timing of deliveries and leading to higher freight costs. Despite all these issues, we continue to work in a variety of different ways to hold down and/or mitigate the price increases passed on to the Members and maintain sufficient inventory. One key mitigating factor has been our expanded network of distribution centers, which has facilitated alternative routings of shipments, increased throughput, and provided flexibility to more effectively mitigate these challenges. In addition, we have made strategic investments in inventory and worked with our local vendors to source alternative products, in order to reduce future out-of-stocks on high demand items that have been impacted by these disruptions or that have been affected by electronic part shortages. We expect these conditions to continue throughout fiscal 2022, and we continue to employ these and various other strategies to maintain as much in-stock inventory and limit cost increases as much as possible. Delays in deliveries and increases in cost of delivered merchandise could impact supply of and demand for, the merchandise we sell, which could impact our sales.

Currency fluctuation can be a significant variable affecting our overall sales and profit performance, as we have experienced in prior fiscal years, because many of our markets are susceptible to foreign currency exchange rate volatility. During fiscal 2021, approximately 78% of our net merchandise sales were in currencies other than the U.S. dollar. Of those sales, 48% were comprised of sales of products we purchased in U.S. dollars.

A devaluation of local currency reduces the value of sales and membership income that is generated in that country when translated to U.S. dollars for our consolidated results. In addition, when local currency experiences devaluation, we may elect to increase the local currency price of imported merchandise to maintain our target margins, which could impact demand for the merchandise affected by the price increase. We may also modify the mix of imported versus local merchandise and/or the source of imported merchandise to mitigate the impact of currency fluctuations. Information about the effect of local currency devaluations is discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net Merchandise Sales and Comparable Sales.”

Our capture of total retail and wholesale sales can vary from market to market due to competition and the availability of other shopping options for our Members. Demographic characteristics within each of our markets can affect both the overall level of sales and future sales growth opportunities. Certain island markets, such as Aruba, Barbados and the U.S. Virgin Islands offer us limited upside for sales growth given their overall market size.

Political and other factors in each of our markets may have significant effects on our business. For example, the civil unrest in Colombia paralyzed significant portions of the country’s infrastructure as roadblocks and riots disrupted normal economic activity during the third quarter of fiscal 2021. Austerity and tax reform measures for Colombia and other Latin American countries with high national debt levels and income disparity pose a risk for political instability. Similar unrest happened in Nicaragua and Honduras in 2018 and 2019, respectively; Costa Rica also had a general strike against tax reform measures that significantly impeded regular economic activity in 2018. Events of this sort have, and may continue to have, an adverse effect on our business.

Our operations are subject to volatile weather conditions and natural disasters. In November 2020, Hurricanes Eta and Iota brought severe rainfall, winds, and flooding to a significant portion of Central America, especially Honduras, which caused significant damage to parts of that country’s infrastructure. Although our warehouse clubs were not significantly affected and we were able to manage our supply chain to keep our warehouse clubs stocked with merchandise, these natural disasters could adversely impact our overall sales, costs and profit performance in the future.

Table of Contents

In the past, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity), particularly in Trinidad. This can and has impeded our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products and to otherwise redeploy these funds in our Company and increases our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar. We continued to experience significant limitations on our ability to convert Trinidad dollars to U.S. dollars or other tradeable currencies during fiscal 2020, with a further deterioration and the problem becoming more acute in August 2020. This U.S. dollar illiquidity situation persisted throughout fiscal 2021 and we expect the situation to continue. As liquidity conditions have tightened, we have methodically raised prices on imported goods in Trinidad due to increased costs of conversion of Trinidad dollars to U.S. dollars and risks associated with continued illiquidity. We have also sought to shift the purchase of certain goods to local sources where appropriate, and we are actively seeking to exchange Trinidad dollars for tradeable currencies in order to manage our exposure to any potential devaluation. Due to the illiquidity of the Trinidad dollars, in the first quarter of fiscal 2021, we began limiting shipments of goods from the U.S. to Trinidad, and subsequently, we further limited shipments late in the third quarter of fiscal 2021 and for most of the fourth quarter due to the government’s general prohibition on sales on most non-food or non-essential items. However, in mid-August 2021, this prohibition was rescinded, and we were allowed to resume sales of these items; therefore, we began increasing our merchandise shipments to Trinidad at the end of fiscal 2021.

We continue to explore and execute several options to increase our ability to generate more reliable sources of U.S. dollars in Trinidad. These options include, but are not limited to, sourcing locally produced goods in Trinidad dollars and/or producing goods locally and exporting these items to our clubs and/or third parties in other countries in exchange for U.S. dollars. While these initiatives are being developed, we are exploring ways to finance additional imports, even if a higher level of imports exceeds the amount of U.S. dollars we are able to source in Trinidad. Alternatives we are considering include new U.S. dollar denominated loans, foreign currency exchange forwards, investing in financial instruments, and purchase and sales of commodities, which could create immediate U.S. dollar liquidity and/or fix the exchange rate of Trinidad dollars to U.S. dollars. During fiscal year 2021, we have executed approximately $17.6 million of U.S. dollar and other tradeable currency denominated loans. Some of these alternatives may not mitigate the resulting increase in exposure to a potential devaluation of the Trinidad dollar and could result in our being required to take a discount on the amount of U.S. dollars we accept in exchange for Trinidad dollars relative to what we would receive upon exchange in accordance with the official exchange rate and/or incur additional financing costs.

Our Barbados subsidiary also recently began facing a U.S. dollar illiquidity situation in fiscal year 2020. The Barbados dollar has a conventional fixed-peg currency arrangement, in which the Barbados dollar exchange rate is fixed to the U.S. dollar. Thus, we do not expect a devaluation of this currency at this time. However, as of August 31, 2021, our Barbados subsidiary had Barbados dollar denominated cash and cash equivalents measured in U.S. dollars of approximately $12.4 million, which cannot be readily converted to U.S. dollars for general use within the Company.

Table of Contents

Mission and Business Strategy

PriceSmart exists to improve the lives and businesses of our Members, our employees and our communities through the responsible delivery of the best quality goods and services at the lowest possible prices. Our mission is to serve as a model company, which operates profitably and provides a good return to our investors, by providing Members in emerging and developing markets with exciting, high quality merchandise sourced from around the world and valuable services at compelling prices in safe U.S. style clubs and through PriceSmart.com. We prioritize the well-being and safety of our Members and employees. We provide good jobs, fair wages and benefits and the opportunity for growth. We strive to treat our suppliers right and empower them when we can. We conduct ourselves in a socially responsible manner as we endeavor to improve the quality of the lives of our Members and their businesses, while respecting the environment and the laws of all the countries in which we operate. The annual membership fee enables us to operate our business with lower margins than traditional retail stores. As we are increasing technological capabilities and expanding our omni-channel shopping experience, we believe we can realize greater efficiencies in the supply chain, enhance our ability to satisfy our Members’ shopping expectations, and play a greater role in their lives. We believe we are well-positioned to blend the excitement and appeal of our brick and mortar business with the convenience and additional benefits of online shopping and services.

Growth

We measure our growth primarily by the amount of the period-over-period activity in our net merchandise sales, our comparable club net merchandise sales, total membership, income and total revenues. Our investments are geared toward enhancing Member experience while creating greater efficiencies, which enable us to offer lower prices, more services, and convenience. We believe these efforts will support membership renewals and sustained growth for the Company. However, these investments can impact near-term results, such as when we invest in technology and talent that are expected to yield long-term benefits or when we incur fixed costs in advance of achieving full projected sales, negatively impacting near-term operating profit and net income. When we open a new warehouse club in an existing market, which may reduce reported comparable net merchandise sales due to the transfer of sales from existing warehouse clubs, we do so to enhance the Member experience, grow membership and support long-term sales growth and profitability.

Financial highlights for the fourth quarter of fiscal year 2021 included:

Total revenues increased 12.2% over the comparable prior year period.

Net merchandise sales increased 12.7% over the comparable prior year period. We ended the quarter with 47 warehouse clubs compared to 46 warehouse clubs at the end of the fourth quarter of fiscal 2020. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 1.3% versus the same three-month period.

Comparable net merchandise sales (that is, sales in the 45 warehouse clubs that have been open for greater than 13 1⁄2

calendar months) for the 13 weeks ended August 29, 2021 increased 10.3%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 1.1%.

Membership income for the fourth quarter of fiscal 2021 increased 11.2% to $14.6 million over the comparable prior year period.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 18.7% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.9%, an increase of 80 basis points (0.8%) from the same period in the prior year.

Operating income for the fourth quarter of fiscal 2021 was $32.5 million, an increase of 12.0%, or $3.5 million, compared to the fourth quarter of fiscal 2020.

We recorded a $1.4 million net currency loss from currency transactions in the fourth quarter of fiscal 2021 compared to a $1.1 million net currency gain in the same period last year.

Our effective tax rate increased in the fourth quarter of fiscal 2021 to 35.5% from 28.2% in the fourth quarter of fiscal 2020. The increase in the effective tax rate is primarily related to recognition timing for the loss of benefit of foreign tax credits, which are no longer deemed recoverable.

Net income attributable to PriceSmart for the fourth quarter of fiscal 2021 was $19.5 million, or $0.63 per diluted share, compared to $20.1 million, or $0.65 per diluted share, in the fourth quarter of fiscal 2020.

Table of Contents

Financial highlights for fiscal year 2021 included:

Total revenues increased 8.7% over the prior year.

Net merchandise sales increased 8.6% over the prior year. We ended the year with 47 warehouse clubs compared to 46 warehouse clubs at the end of the fiscal 2020. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.4%.

Comparable net merchandise sales (that is, sales in the 45 warehouse clubs that have been open for greater than 13 1⁄2

calendar months) for the 52 weeks ended August 29, 2021 increased 5.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.3%.

Membership income for fiscal 2021 increased 2.8% to $56.0 million.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 18.2% over the prior year, and merchandise gross profits as a percent of net merchandise sales were 16.0%, an increase of 130 basis points (1.3%) from the prior year.

Operating income for fiscal 2021 was $158.0 million, an increase of 29.0% or $35.5 million compared to fiscal 2020.

We recorded a $5.4 million net currency loss from currency transactions in the current year compared to a $1.4 million net loss in the prior year.

The effective tax rate for fiscal 2021 was 33.3% as compared to the effective tax rate for fiscal 2020 of 32.5%. The increase is primarily driven by the comparably less favorable impact of non-recurring changes to uncertain tax positions.

Net income attributable to PriceSmart for fiscal year 2021 was $98.0 million, or $3.18 per diluted share, compared to $78.1 million, or $2.55 per diluted share, in the prior year.

Comparison of Fiscal Year 2021 to 2020

The following discussion and analysis compares the results of operations for each of the three fiscal years ended August 31, 2021, 2020 and 2019 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. For a comparison of the fiscal years ended August 31, 2020 and 2019, please see Part II. “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020 filed with the SEC on October 30, 2020. Unless otherwise noted, all tables present U.S. dollar amounts in thousands. Certain percentages presented are calculated using actual results prior to rounding. Our operations consist of four reportable segments: Central America, the Caribbean, Colombia and the United States. The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographic location, which are used by management and the Company's chief operating decision maker in setting up management lines of responsibility, providing support services, and making operational decisions and assessments of financial performance. Segment amounts are presented after converting to U.S. dollars and consolidating eliminations. From time to time, we revise the measurement of each segment's operating income, including certain corporate overhead allocations, and other measures as determined by the information regularly reviewed by our chief operating decision maker. When we do so, the previous period amounts and balances are reclassified to conform to the current period's presentation.

Net Merchandise Sales

The following tables indicate the net merchandise club sales in the reportable segments in which we operate and the percentage growth in net merchandise sales by segment during fiscal years 2021 and 2020.

Years Ended

Amount % of net‎sales Increasefromprior year Change Amount % of net‎sales

Table of Contents

Comparison of 2021 and 2020

Overall, net merchandise sales grew by 8.6% for fiscal year 2021 compared to fiscal year 2020, driven by a 4.8% increase in average ticket and a 3.6% increase in transactions. Transactions represent the total number of visits our Members make to our warehouse clubs plus the number of Click & GoTM curbside pickup and delivery service transactions. Average ticket represents the amount our Members spend on each visit or Click & GoTM order. We had 47 clubs in operation as of August 31, 2021 compared to 46 clubs as of August 31, 2020.

Net merchandise sales in our Central America segment increased 11.3% during fiscal year 2021. This increase had a 660 basis point (6.6%) positive impact on total net merchandise sales growth. All markets within this segment showed increased net merchandise sales for the twelve-month period ended August 31, 2021. Our eighth club in Costa Rica, which opened in June 2020, had a full year of sales in fiscal 2021 compared to three-months of sales in fiscal year 2020, which contributed to the increase year-over-year in our Central American segment.

Net merchandise sales in our Caribbean segment increased 1.1% during fiscal year 2021. This increase had a 30 basis point (0.3%) positive impact on total net merchandise sales growth. Our Dominican Republic market continued its strong performance this year, despite experiencing a significant foreign currency devaluation, with 15.3% growth. This strong performance was offset by our Trinidad market which had a significant decline in net merchandise sales. Trinidad sales were adversely affected during most of fiscal year 2021 because we began limiting merchandise shipments to the market due to the ongoing U.S. dollar illiquidity situation and due to significant COVID-19 restrictions that were put in place in the later part of fiscal 2021. Trinidad saw a significant rise in COVID-19 cases during the second half of the fiscal year, and the government responded by shutting down all non-essential business and activities. PriceSmart was allowed to continue selling food and other essential goods, but the government prohibited sales of most non-foods/non-essential items by PriceSmart and other local retailers. As a result, we reduced shipments of U.S. imports until the restrictions were eased. Partial lockdowns and other restrictions are still in place; however, since mid-August 2021 we have been allowed to start selling the non-foods/non-essential items again. As we currently have no restrictions on the types of merchandise we can sell in Trinidad, we began increasing imports again towards the end of August. However, we generally continue to link our imports based on the amounts of U.S. dollars we expect to source in Trinidad. Net merchandise sales for Trinidad have improved thus far during the first quarter of fiscal year 2022 compared to fourth quarter of fiscal 2021. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the Trinidad liquidity situation. Aruba also had soft sales due to this market’s ongoing economic slowdown caused by the COVID-19 pandemic due primarily to a reduction in tourism.

Net merchandise sales in our Colombia segment increased 15.1% during fiscal year 2021. This increase had a 170 basis point (1.7%) positive impact on total net merchandise sales growth. The primary driver of the increased revenue for the year was due to the additional club added to the segment when compared to the comparable prior year period. We opened our eighth club in Colombia in December 2020.

The following table indicates the impact that currency exchange rates had on our net merchandise sales in dollars and as a percentage of net merchandise sales for the year ended August 31, 2021.

Currency Exchange Rate Fluctuations for the

Twelve Months Ended

Amount % change

Net merchandise sales $ (76,330) (2.4) %

Overall, the effects of currency fluctuations within our markets had an approximately $76.3 million, or 240 basis point (2.4%), negative impact on net merchandise sales for the twelve-months ended August 31, 2021.

Currency fluctuations had a $38.5 million, or 210 basis point (2.1%), negative impact on net merchandise sales in our Central America segment for the twelve months ended August 31, 2021. These currency fluctuations contributed approximately 120 basis points (1.2%) of the total negative impact on total net merchandise sales for the current fiscal year period. The Costa Rica Colón depreciated significantly against the dollar as compared to the same period a year ago, and was a significant factor in the contribution to the unfavorable currency fluctuations in this segment.

Table of Contents

Currency fluctuations had a $27.1 million, or 270 basis point (2.7%), negative impact on net merchandise sales in our Caribbean segment for the twelve months ended August 31, 2021. These currency fluctuations contributed approximately 90 basis points (0.9%) of the total negative impact on total net merchandise sales for the current fiscal year period. Jamaica and the Dominican Republic markets both experienced currency devaluation when compared to the same periods last year.

Currency fluctuations had a $10.8 million, or 300 basis point (3.0%), negative impact on net merchandise sales in our Colombia segment for the twelve months ended August 31, 2021. These currency fluctuations contributed approximately 30 basis points (0.3%) of the total negative impact on total net merchandise sales for the current fiscal year period.

Net Merchandise Sales by Category

The following table indicates the approximate percentage of net sales accounted for by each major category of items sold during the fiscal years ended August 31, 2021 and 2020.

Years Ended August 31,

Foods & Sundries 50 % 52 %

Softlines 5 4

Other Business 4 4

Comparison of 2021 to 2020

During fiscal year 2021, our Members have started purchasing more in our non-food categories of Hardlines and Softlines after their steep decline in the second half of 2020 due to the COVID-19 pandemic. The 200 basis points (2.0%) decline in the Foods & Sundries was distributed fairly equally with 100 basis points (1.0%) to both Hardlines and Softlines. All other categories were consistent with the prior year mix.

Comparable Merchandise Sales

We report comparable net merchandise sales on a “same week” basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday. The periods are established at the beginning of the fiscal year to provide as close of a match as possible to the calendar month and quarter that is used for financial reporting purposes. This approach equalizes the number of weekend days and weekdays in each period for improved sales comparison, as we experience higher merchandise club sales on the weekends. Each of the warehouse clubs used in the calculations was open for at least 13 1⁄2 calendar months before its results for the current period were compared with its results for the prior period. As a result, sales related to our Liberia club in Costa Rica, which opened in June 2020 and our Usaquen club in Colombia, which opened in December 2020, will not be used in the calculation of comparable sales until they have been open for at least 13 1⁄2 months. Therefore, comparable net merchandise sales includes 45 warehouse clubs for the fifty-two week period ended August 29, 2021.

The following tables indicate the comparable net merchandise sales in the reportable segments in which we operate and the percentage changes in net merchandise sales by segment during the fifty-two week periods ended August 29, 2021 and August 30, 2020 compared, in each case, to the prior year.

Fifty-Two Weeks Ended

Central America 8.8 % (3.2) %

Consolidated comparable net merchandise sales 5.8 % (1.5) %

Table of Contents

Comparison of Fifty-Two Week Periods Ended August 29, 2021 and August 30, 2020

Comparable net merchandise sales for those warehouse clubs that were open for at least 13 1⁄2 months for some or all of the fifty-two week period ended August 29, 2021 increased 5.8%.

Comparable net merchandise sales in our Central America segment increased 8.8% for the fifty-two week period ended August 29, 2021. This increase contributed approximately 510 basis points (5.1%) of the increase in total comparable merchandise sales.

For the fifty-two weeks ended August 29, 2021, strong performance in the relatively smaller markets of Guatemala, Nicaragua, Honduras, and El Salvador, along with our second largest market, Panama, contributed approximately 540 basis points (5.4%) of positive impact on the segment’s comparable net merchandise sales. This increase was offset by a 30 basis point (0.3%) negative impact on the segment’s comparable net merchandise sales from our largest market, Costa Rica. During the year, Costa Rica experienced foreign currency exchange headwinds, with the Costa Rica Colón devaluing versus the comparable prior year period.

Comparable net merchandise sales in our Caribbean segment increased 1.4% for the fifty-two week period ended August 29, 2021. This increase contributed approximately 40 basis points (0.4%) of positive impact in total comparable merchandise sales.

Our Dominican Republic market continued its strong performance in the fifty-two week period, despite having a foreign currency exchange devaluation with 15.5% comparable sales growth, respectively. This strong performance was offset by our Trinidad market, which declined in comparable net merchandise sales by 10.9% for the fifty-two week period. Trinidad sales were adversely affected during most of the fiscal year because we limited merchandise shipments to the market due to the ongoing U.S. dollar illiquidity situation and the COVID-19 restrictions. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the Trinidad illiquidity situation.

Comparable net merchandise sales in our Colombia segment increased 2.4% for the fifty-two week period ended August 29, 2021. This increase contributed approximately 30 basis points (0.3%) of the increase in total comparable merchandise sales. The year-to-date increase is primarily due to year-over-year improvements in sales growth due to the comparably improved COVID-19 situation. Comparable net merchandise sales were also negatively impacted by sales transfers from existing clubs to our recent club that opened in December 2020.

The following table illustrates the impact that changes in foreign currency exchange rates had on our comparable merchandise sales in dollars and as a percentage of comparable merchandise sales for the fifty-two week period ended August 29, 2021.

Fifty-Two Weeks Ended

Amount % change

Consolidated comparable net merchandise sales $ (74,079) (2.3) %

Overall, the mix of currency fluctuations within our markets had an approximate $74.1 million, or 230 basis point (2.3%), negative impact on comparable net merchandise for the fifty-two week period ended August 29, 2021.

Currency fluctuations within our Central America segment accounted for approximately 110 basis points (1.1%) of the negative impact on total comparable merchandise sales for the fifty-two week period ended August 29, 2021. This is primarily the result of significant devaluation in the Costa Rica Colón against the U.S. dollar during the current periods compared to the same periods a year ago.

Currency fluctuations within our Caribbean segment accounted for approximately 90 basis points (0.9%) of negative impact on total comparable merchandise for the fifty-two week period ended August 29, 2021. Our Dominican Republic and Jamaica markets experienced currency devaluation when compared to the same period last year.

Currency fluctuations within our Colombia segment accounted for approximately 30 basis points (0.3%) of negative impact on total comparable merchandise sales for the fifty-two week period ended August 29, 2021. This reflects the devaluation of the Colombia peso when compared to the same period a year ago.

Table of Contents

Membership Income

Membership income is recognized ratably over the one-year life of the membership.

Years Ended

August 31, August 31,

Comparison of 2021 to 2020

The number of Member accounts at the end of fiscal 2021 was 7.2% higher than the prior year period, and it has surpassed our pre-COVID peak at the end of the second quarter of fiscal 2020 of 1,655,875 accounts. Membership income increased 2.8% compared to the comparable prior-year period.

Membership income increased across all operating segments in the twelve months ended August 31, 2021. The consolidated increase in membership income is due to an increasing membership base since the start of fiscal year 2021. Since August 31, 2020, all segments have increased their membership base. Colombia had the largest increase in membership base in fiscal year 2021 due to the opening of its eighth club in December 2020 with 10.9% growth, followed by Central America with a 9.1% increase and the Caribbean with a 0.8% increase.

We began offering our Platinum membership program in Nicaragua in October 2020 and in El Salvador in March 2021. We now offer this program in all locations where PriceSmart operates. The annual fee for a Platinum Membership in most markets is approximately $75. The Platinum Membership program provides Members with a 2% rebate on most items, up to an annual maximum of $500. We record the 2% rebate as a reduction on net merchandise sales at the time of the sales transaction.

Our trailing twelve-month renewal rate was 89.6% and 80.5% for the periods ended August 31, 2021 and August 31, 2020, respectively. With our twelve-month renewal rate at 89.6%, this has increased 200 basis points (2.0%) since the end of the third quarter and is well above our renewal rate immediately preceding the COVID-19 pandemic, which we believe is a key indicator of membership satisfaction and loyalty and demonstrates that our Members recognize the value we bring. Although we continue to see reductions in in-club traffic resulting from the COVID-19 pandemic, we have seen increased sign-ups and renewals completed online with the launch of a new online catalog and our Click & GoTM services. Approximately 16% and 6% of our membership sign-ups were completed using our online platform for the twelve month period ended August 31, 2021 and August 31, 2020, respectively. Our online platform facilitates capturing data and provides the opportunity for automatic renewal of memberships, as well as improving our digital connection with our Members.

Table of Contents

Other Revenue

Other revenue primarily consists of non-merchandise revenue from freight and handling fees generated from our marketplace and casillero operations, interest-generating portfolio from our co-branded credit cards, and rental income from operating leases where the Company is the lessor.

Years Ended

Amount Increase/(Decrease) from‎prior year % Change Amount

Comparison of 2021 to 2020

The primary driver of the increase in other revenue for the period is higher package volume in our marketplace and casillero operations, which increased due to the COVID-19 pandemic and the resulting higher ecommerce activity. We sold our marketplace and casillero operations in October 2021. Refer to Part II. “Item 1. Business – General” for further discussion regarding the sale of our legacy casillero and marketplace operations.

Results of Operations

Results of Operations Consolidated

(Amounts in thousands, except percentages and number of warehouse clubs)

Years Ended

Results of Operations Consolidated August 31, 2021 August 31, 2020

Net merchandise sales

Total gross margin percentage 16.0 % 14.7 %

Revenues

Percentage change from prior period 8.7 % 3.3 %

Comparable merchandise sales

Total comparable merchandise sales increase (decrease) 5.8 % (1.5) %

Total revenue margin

Total revenue margin percentage 17.8 % 16.7 %

Selling, general and administrative

Selling, general and administrative percentage of total revenues 13.4 % 13.0 %

Table of Contents

Years Ended

Operating income- by segment

Warehouse clubs

Warehouse clubs at period end 47 46

Warehouse club sales square feet at period end 2,336 2,270

(1)The reconciling items reflect the amount eliminated on consolidation of intersegment transactions.

The following table summarizes the selling, general and administrative expense for the periods disclosed.

Years Ended

August 31, 2021 % of Total ‎Revenue August 31, 2020 % of Total ‎Revenue

Selling, general and administrative detail:

Comparison of 2021 to 2020

Total gross margin is derived from our Revenue – Net merchandise sales less our Cost of goods sold – Net merchandise sales and represents our sales and cost of sales generated from the business activities of our warehouse clubs. We express our Total gross margin percentage as a percentage of our Net merchandise sales.

On a consolidated basis, total gross margin for the twelve months ended August 31, 2021 was 16.0%, 130 basis points (1.3%) higher than the comparable prior year period. Approximately 80 basis points (0.8%) of this increase is due to certain pricing actions we took to offset foreign currency exchange costs and COVID-related operating costs. In particular, we substantially increased the liquidity premium we factor into our sales prices in Trinidad on our imported merchandise, as we continue to experience a shortage of available U.S. dollars for exchange in that market. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for additional discussion. Of the remaining approximately 50 basis points (0.5%), 40 basis points (0.4%) of this improvement is primarily attributable to returning margin to prior levels on our non-food inventory and of our other business categories such as food services, tire center, and optical, which saw decreased demand and/or sales restrictions due to COVID-19 in the prior-year period. The remaining 10 basis points (0.1%) is the result of more focused merchandising strategies and inventory management that primarily resulted from fewer markdowns and spoilage.

Total revenue margin is derived from Total revenues, which includes our Net merchandise sales, Membership income, Export sales, and Other revenue and income less our Cost of goods sold for net merchandise sales, Export sales, and Non-merchandise revenues. We express our Total revenue margin as percentage of Total revenues.

Total revenue margin increased 110 basis points (1.1%) for the twelve months ended August 31, 2021 compared to the prior-year period, which is primarily the result of the higher total gross margins of 130 basis points (1.3%). This increase was offset by 10 basis points (0.1%) from lower revenue margins from our casillero and marketplace business in the current year compared to the prior year and 10 basis points (0.1%) from lower Revenue and other income compared the prior year.

Table of Contents

Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, pre-opening expenses, and loss on disposal of assets. In total, selling, general and administrative expenses increased $54.6 million to 13.4% of total revenue for fiscal year 2021 compared to 13.0% of total revenues for fiscal year 2020.

Warehouse club and other operations expenses increased to 9.9% of total revenues for fiscal year 2021 compared to 9.7% for fiscal year 2020, primarily due to the opening of new clubs in Colombia, Costa Rica, and Guatemala that had not reached sales maturity as of August 31, 2021. Honduras experienced currency appreciation during fiscal year 2021 which led to a slight deleveraging of expenses.

General and administrative expenses increased to 3.5% of total revenues for the current year compared to 3.2% for the prior fiscal year. The 30 basis point (0.3%) increase is primarily due to our continued investments to support our technology development, talent acquisition, and employee development. Given our strategic initiatives, we anticipate that we will continue to make investments at comparable levels (as a percentage of revenue) to further our omni-channel and technology initiatives.

Operating income in fiscal year 2021 increased to $158.0 million (4.4% of total revenue) compared to $122.5 million (3.7% of total revenue) for the same period last year. This reflects the increase in total revenue margin dollars primarily from net merchandise sales of 110 basis points (1.1%), partially offset by a 40 basis point (0.4%) decrease due to deleveraging of selling, general and administrative expenses over the comparable prior-year period.

Interest Expense

Years Ended

August 31, August 31,

Amount Change Amount

Interest expense related to hedging activity 3,655 1,239 2,416

Net interest expense reflects borrowings by PriceSmart, Inc. and our wholly owned foreign subsidiaries to finance new land acquisition and construction for new warehouse clubs, warehouse club expansions and distribution centers, the capital requirements of warehouse club and other operations and ongoing working capital requirements.

Comparison of 2021 to 2020

Net interest expense decreased for the twelve-month period ended August 31, 2021, primarily due to lower short-term borrowings compared to the comparable prior year period. We drew down on short-term lines of credit in the third quarter of fiscal year 2020 as a part of our efforts to secure adequate cash to cover contingencies arising from COVID-19 related risks. We repaid all of these borrowings by the end of the third quarter in fiscal year 2021. These savings were offset by new loans for our capital projects in Guatemala and U.S. dollar working capital needs in Trinidad. The increase in interest expense related to more hedging activity is primarily the result of a full year of interest recorded on our Colombia swaps entered into in the prior year.

Other Expense, net

Other expense, net consists of currency gains or losses, as well as net benefit costs related to our defined benefit plans and the receipt of a one-time indemnification payment from a business combination escrow account.

Years Ended

August 31, August 31,

Amount Increase‎from‎prior year Amount

Table of Contents

Monetary assets and liabilities denominated in currencies other than the functional currency of the respective entity (primarily U.S. dollars) are revalued to the functional currency using the exchange rate on the balance sheet date. These foreign exchange transaction gains (losses) are recorded as currency gains or losses. Additionally, gains or losses from transactions denominated in currencies other than the functional currency of the respective entity also generate currency gains or losses.

Comparison of 2021 to 2020

For the twelve-months ended August 31, 2021 the primary driver of Other expense, net included losses of $5.4 million associated with foreign currency transactions and the revaluation of monetary assets and liabilities in several of our markets. The foreign currency gains and losses resulted from the revaluation of net U.S. dollar assets and liabilities in markets where the local functional currency revalued or devalued against the U.S. dollar and from exchange transactions.

The primary impacts during the twelve-month period were higher transaction costs associated with converting Trinidad dollars into available tradeable currencies such as Euros or Canadian dollars, before converting them to U.S. dollars. This was partially offset by an appreciation of the Honduran Lempira, which resulted in a gain from our net U.S. dollar liability position in that market.

Provision for Income Taxes

The tables below summarize the effective tax rate for the periods reported:

Years Ended

August 31, August 31,

Amount Increase fromprior year Amount

Effective tax rate 33.3 % 32.5 %

Comparison of 2021 to 2020

For fiscal 2021, the effective tax rate was 33.3% compared to 32.5% for fiscal year 2020. The increase in the effective rate versus the prior year was primarily attributable to the following factors:

1.The comparably favorable impact of 2.5% due to a greater portion of income falling into lower tax jurisdictions;

2.The comparably unfavorable impact of 1.8% resulting from the nonrecurrence of changes from prior periods in income tax liabilities from uncertain tax position for which the applicable statutes of limitations had expired;

3.The comparably unfavorable impact of 0.4% resulting from the effect of changes in foreign currency exchange rates related to the remeasurement of our monetary assets and liabilities; and

4.The comparably unfavorable impact of 0.4% resulting from valuation allowances we were required to take with respect to deferred tax assets from foreign tax credits that are no longer deemed recoverable.

Table of Contents

Other Comprehensive Loss

Other comprehensive loss for fiscal years 2021 and 2020 resulted primarily from foreign currency translation adjustments related to the assets and liabilities and the translation of the statements of income related to revenue, costs and expenses of our subsidiaries whose functional currency is not the U.S. dollar. When the functional currency in our international subsidiaries is the local currency and not U.S. dollars, the assets and liabilities of such subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date, and revenue, costs and expenses are translated at average rates of exchange in effect during the period. The corresponding translation gains and losses are recorded as a component of accumulated other comprehensive income or loss. These adjustments will not affect net income until the sale or liquidation of the underlying investment. The reported other comprehensive income or loss reflects the unrealized increase or decrease in the value in U.S. dollars of the net assets of the subsidiaries as of the date of the balance sheet, which will vary from period to period as exchange rates fluctuate.

Other Comprehensive Loss

Years Ended

August 31, August 31,

Amount Change From Prior Year % Change Amount

Comparison of 2021 to 2020

Our other comprehensive loss of approximately $5.7 million for fiscal 2021 resulted primarily from the comprehensive loss of approximately $7.8 million from foreign currency translation adjustments related to assets and liabilities and the translation of revenue, costs and expenses on the statements of income of our subsidiaries whose functional currency is not the U.S. dollar. During fiscal 2021, the largest translation adjustments were related to the devaluation of the local currencies against the U.S. dollar for our Colombia, Costa Rica and Jamaica subsidiaries, partially offset by the translation adjustment for the appreciation of the local currency against the U.S. dollar of our Dominican Republic subsidiary. These losses were offset by approximately $2.3 million related to unrealized gains on changes in our derivative obligations.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow

Our operations have historically supplied us with a significant source of liquidity. We generate cash from operations primarily through net merchandise sales and membership fees. Cash used in operations generally consist of payments to our merchandise vendors, warehouse club and distribution center operating costs (including payroll, employee benefits and utilities), as well as payments for income taxes. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have generally been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our operations and to pay dividends on our common stock. We evaluate our funding requirements on a regular basis to cover any shortfall in our ability to generate sufficient cash from operations to meet our capital requirements. We may consider funding alternatives to provide additional liquidity if necessary. Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 11 - Debt” for additional information regarding our drawdown on our short-term facilities and long-term borrowings.

Repatriation of cash and cash equivalents held by foreign subsidiaries may require us to accrue and pay taxes. We have no plans at this time to repatriate cash through the payment of cash dividends by our foreign subsidiaries to our domestic operations and, therefore, have not accrued taxes that would be due from repatriation.

The following table summarizes the cash and cash equivalents, including restricted cash, held by our foreign subsidiaries and domestically (in thousands).

August 31, August 31,

Total cash and cash equivalents, including restricted cash $ 215,479 $ 303,771

Table of Contents

The following table summarizes the short-term investments held by our foreign subsidiaries and domestically (in thousands).

August 31, August 31,

Amounts held by foreign subsidiaries $ 50,233 $ 46,509

Amounts held domestically — —

As of August 31, 2021 and August 31, 2020, certificates of deposits with a maturity of over a year held by our foreign subsidiaries and domestically were $1.5 million in both periods.

From time to time, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity). This impedes our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products or otherwise fund our operations. Since fiscal 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradeable currencies. We are working with our banks in Trinidad and government officials to source tradeable currencies. We expect the illiquid market conditions in Trinidad to continue and are considering various measures to address the adverse effect of this situation on the Company’s liquidity. In addition, our Barbados subsidiary recently began facing a similar U.S. dollar liquidity situation. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for our quantitative analysis and discussion.

The following table summarizes our significant sources and uses of cash and cash equivalents:

Years Ended

August 31, August 31,

Net cash provided by operating activities totaled $127.2 million and $259.3 million for the twelve months ended August 31, 2021 and 2020, respectively. The decrease in net cash provided by operating activities was primarily due to the increase in our inventory position and the higher net settlement of accounts payable versus the comparable prior year period, which was partially offset by a significant increase in net income for the year ended August 31, 2021 over the prior-year period.

Inventory was $389.7 million as of August 31, 2021, compared with $309.5 million at August 31, 2020. The increase over the balances as of August 31, 2020 reflects our efforts to bring our inventory levels in-line with our sales trends. In addition, the lower balance as of August 31, 2020 reflected the rapid sell-through of merchandise as Members stockpiled items in anticipation of the impacts of the COVID-19 pandemic in the third and fourth fiscal quarter of 2020 and the reduction of certain non-food categories to align with initial consumer preferences at the start of the COVID-19 pandemic. We have made strategic investments in inventory to avoid future out-of-stocks on high volume items that have been impacted from container, commodity, and electronic part shortages. Lastly, we have one additional club in the current year. Accounts payable was $388.8 million as of August 31, 2021, compared with $373.2 million at August 31, 2020. The increase from the balances as of August 31, 2020 is largely the result of a return to our normal inventory levels compared to the prior year, operating one additional club in the current year, and the expiration of temporary extensions of vendor terms negotiated as part of our response to the COVID-19 pandemic in fiscal 2020. However, although not quite to the same extent, we have been able to permanently extend some of our vendor payment terms.

Net cash used in investing activities totaled $116.7 million and $131.2 million, respectively, for the years ended August 31, 2021 and August 31, 2020. The decrease is primarily the result of an increase in the net proceeds of short-term and long-term certificate of deposit purchases and settlements, partially offset by an increase in construction expenditures compared to the same period a year-ago. The increase in net proceeds from certificates of deposit is primarily a result of improved sources versus uses of U.S. dollars in Trinidad during our prior fiscal year, reducing our need to invest Trinidad dollars. Refer to “Management’s Discussion and Analysis – Factors Affecting Our Business” for additional discussion of the current U.S. dollar illiquidity we are experiencing in that market.

Table of Contents

Net cash used in financing activities totaled $95.1 million and net cash provided by financing activities was $75.6 million for the years ended August 31, 2021 and August 31, 2020, respectively. We use cash flows provided by financing activities primarily to fund our working capital needs, our warehouse club and distribution center acquisitions and expansions, and investments in technology to support our omni-channel initiatives. The $170.7 million shift from cash provided by to cash used in financing activities is primarily the result of a net decrease of proceeds from long-term borrowings and a net decrease in short-term borrowings compared to the same twelve-month period a year-ago. In the prior year period, we executed long-term loans primarily to finance land purchases and construction of several of our warehouse clubs and increased our short-term borrowings as part of our cash management strategy in the early stages of the COVID-19 pandemic. In the current year, our long-term borrowings were made to increase our ability to borrow U.S. dollars in exchange for payments in Trinidad dollars and to provide additional sources of tradeable currencies to support our working capital needs of that subsidiary. Refer to “Management’s Discussion and Analysis – Factors Affecting Our Business” for additional discussion of the current U.S. dollar illiquidity we are experiencing in that market.

The following table summarizes the dividends declared and paid during fiscal years 2021, 2020 and 2019 (amounts are per share).

First Payment Second Payment

Declared Amount Record‎Date Date‎Paid Amount Record‎Date Date‎Paid Amount

Short-Term Borrowings and Long-Term Debt

Our financing strategy is to ensure liquidity and access to capital markets while minimizing our borrowing costs. The proceeds of these borrowings were or will be used for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, acquisitions, and repayment of existing debt. Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 11 - Debt.” for further discussion.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on its financial condition or consolidated financial statements.

Repurchase of Equity Securities and Reissuance of Treasury Shares

At the vesting dates for restricted stock awards to our employees, we repurchase a portion of the shares that have vested at the prior day's closing price per share, with the funds used to pay the employees' statutory tax withholding requirements related to the vesting of restricted stock awards. We do not have a stock repurchase program.

Shares of common stock repurchased by us are recorded at cost as treasury stock and result in the reduction of stockholders’ equity in our consolidated balance sheets. We may reissue these treasury shares.

The following table summarizes the shares repurchased during fiscal years 2021, 2020 and 2019:

Years Ended

August 31, August 31, August 31,

Cost of repurchase of shares (in thousands) $ 5,542 $ 3,651 $ 4,604

We reissued 96,400 treasury shares as part of our stock-based compensation programs during fiscal 2021, 234,400 treasury shares during fiscal 2020 and 63,000 treasury shares during fiscal 2019.

Dividends

Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 6 - Stockholders’ Equity” for further discussion.

Table of Contents

Derivatives

Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 13 - Derivative Instruments and Hedging Activities” for further discussion.

Critical Accounting Estimates

Our financial statements are prepared in accordance with GAAP in the United States. The preparation of our consolidated financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require management to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

We evaluate our accounting policies and significant estimates on an ongoing basis, including those related to business acquisitions, contingencies and litigation, income taxes, value added taxes, and long-lived assets. We base our estimates on historical experience and on other assumptions that management believes to be reasonable under the present circumstances. Using different estimates could have a material impact on our financial condition and results of operations.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 2 - Summary of Significant Accounting Policies.”

Income Taxes

We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

As of August 31, 2021, we evaluated our deferred tax assets and liabilities and determined that a valuation allowance was necessary for certain deferred tax asset balances, primarily because of the existence of significant negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, indicating that certain net operating loss carry-forward periods are not sufficient to realize the related deferred tax assets. We also specifically considered whether foreign tax credit balances could be utilized in the foreseeable future in light of current and future U.S. tax liabilities. We have historically applied foreign tax credits, generated from taxes withheld on certain payments PriceSmart receives from our foreign subsidiaries, to reduce U.S. income tax liabilities. However, as an incidental result of U.S. tax reform, following the reduction of the U.S. corporate income tax rate from 35% to 21%, we expect foreign tax credits generated to exceed U.S. income tax liability for the foreseeable future. Therefore, for the twelve-month period ended August 31, 2021 and August 31, 2020, we have recorded valuation allowances of $11.4 million and $8.5 million against our foreign tax credits, respectively.

We are required to file federal and state income tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. We, in consultation with our tax advisors, base our tax returns on interpretations that we believe to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various taxing authorities in the jurisdictions in which we file our tax returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations we used to calculate our tax liability and therefore require us to pay additional taxes.

We accrue an amount for our estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has 50% or less likelihood of being sustained. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate. There were no material changes in our uncertain income tax positions for the period ended on August 31, 2021.

Table of Contents

Tax Receivables

We pay Value Added Tax (“VAT”) or similar taxes, income taxes, and other taxes within the normal course of our business in most of the countries in which we operate related to the procurement of merchandise and/or services we acquire and/or on sales and taxable income. VAT is a form of indirect tax applied to the value added at each stage of production (primary, manufacturing, wholesale and retail). This tax is similar to, but operates somewhat differently than, sales tax paid in the United States. We generally collect VAT from our Members upon sale of goods and services and pay VAT to our vendors upon purchase of goods and services. Periodically, we submit VAT reports to governmental agencies and reconcile the VAT paid and VAT received. The net overpaid VAT may be refunded or applied to subsequent returns, and the net underpaid VAT must be remitted to the government.

With respect to income taxes paid, if the estimated income taxes paid or withheld exceed the actual income tax due this creates an income tax receivable. In most countries where we operate, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a portion of sales processed via credit and debit cards directly to the government as advance payments of VAT and/or income tax. This collection mechanism generally leaves us with net VAT and/or income tax receivables, forcing us to process significant refund claims on a recurring basis. These refund or offset processes can take anywhere from several months to several years to complete.

In most countries where we operate, there are defined and structured processes to recover VAT receivables via refunds or offsets. However, in one country without a clearly defined refund process, the Company is actively engaged with the local government to recover VAT receivables totaling $9.7 million and $7.0 million as of August 31, 2021 and August 31, 2020, respectively. In addition, in two other countries where the Company operates, there have been changes in the method of computing minimum tax payments, under which the governments have sought to require the Company to pay taxes based on a percentage of sales rather than taxable income. As a result, we have made and may continue to make income tax payments substantially in excess of those we would expect to pay based on taxable income. The Company had income tax receivables of $11.0 million and $10.4 million and deferred tax assets of $3.3 million and $2.8 million as of August 31, 2021 and August 31, 2020, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. Similarly, we have not placed any recoverability allowances on tax receivables that arise from payments we are required to make originating from tax assessments that we are appealing, as we believe it is more likely than not that we will ultimately prevail in the related appeals.

Our policy for classification and presentation of VAT receivables, income tax receivables and other tax receivables is as follows:

Short-term VAT and Income tax receivables, recorded as Other current assets: This classification is used for any countries where our subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year. We also classify as short-term any approved refunds or credit notes to the extent that we expect to receive the refund or use the credit notes within one year.

Long-term VAT and Income tax receivables, recorded as Other non-current assets: This classification is used for amounts not approved for refund or credit in countries where our subsidiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes. An allowance is provided against VAT and income tax receivable balances in dispute when we do not expect to eventually prevail in our recovery of such balances. We do not currently have any allowances provided against VAT and income tax receivables.

Long-lived Assets

We periodically evaluate our long-lived assets for indicators of impairment. Indicators that an asset may be impaired are:

the asset's inability to continue to generate income from operations and positive cash flow in future periods;

loss of legal ownership or title to the asset;

significant changes in its strategic business objectives and utilization of the asset(s); and

the impact of significant negative industry or economic trends.

Table of Contents

Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity, which in turn drives estimates of future cash flows from these assets. These periodic evaluations could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair market value. Future business conditions and/or activity could differ materially from the projections made by management causing the need for additional impairment charges. We did not record any impairment charges during fiscal 2021 related to the loss of legal ownership or title to assets; significant changes in the Company's strategic business objectives or utilization of assets; or the impact of significant negative industry or economic trends. Loss on disposal of assets recorded during the years reported resulted from improvements to operations and normal preventive maintenance.

Goodwill

Goodwill is not amortized, but is evaluated for impairment annually or whenever events or changes in circumstances indicate that the value of a certain asset may be impaired. Generally, this evaluation begins with a qualitative assessment to determine whether a quantitative impairment test is necessary. If we determine, after performing an assessment based on the qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, or that a fair value of the reporting unit substantially in excess of the carrying amount cannot be assured, then a quantitative impairment test would be performed. The quantitative test for impairment requires management to make judgments relating to future cash flows, growth rates and economic and market conditions. These evaluations are based on determining the fair value of a reporting unit or asset using a valuation method such as discounted cash flow or a relative, market-based approach. Historically, our reporting units have generated sufficient returns to recover the cost of our goodwill. Because of the nature of the factors used in these tests, if different conditions occur in future periods, future operating results could be materially impacted. For approximately $45.1 million of certain acquired goodwill, the fair value was greater than the carrying value; any deterioration in the fair value may result in an impairment charge.

Seasonality and Quarterly Fluctuations

Historically, our merchandising businesses have experienced holiday retail seasonality in their markets. In addition to seasonal fluctuations, our operating results fluctuate quarter-to-quarter as a result of economic and political events in markets that we serve, the timing of holidays, weather, the timing of shipments, product mix, and currency effects on the cost of U.S.-sourced products which may make these products more or less expensive in local currencies and therefore more or less affordable. Because of such fluctuations, the results of operations of any quarter are not indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that our future results will be consistent with past results or the projections of securities analysts.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, foreign currency exchange rates and commodity price risk. These market risks arise in the normal course of business. We do not engage in speculative trading activities. To manage the risk arising from these exposures, we utilize interest rate swaps, cross-currency interest rate swaps, non-deliverable foreign currency forward contracts and loans denominated in foreign currencies. For a discussion of our accounting policies for derivative instruments and further disclosures, refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 13 - Derivative Instruments and Hedging Activities.”

Each market risk sensitivity analysis presented below is based on hypothetical scenarios used to calibrate potential risk and do not represent our view of future market changes. The effect of a change in a particular assumption is calculated without adjusting any other assumption. In reality, however, a change in one factor could cause a change in another factor, which may magnify or negate other sensitivities.

Interest Rate Risk

We are exposed to changes in interest rates as a result of our short-term borrowings and long-term debt borrowings. We have mitigated a portion of our interest rate risk by managing the mix of fixed and variable rate debt and by entering into interest rate swaps and cross-currency interest rate swaps to hedge interest rate risk. The notional amount, interest payment and maturity dates of the swap match the terms of the associated debt.

Table of Contents

The table below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table represents the principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, including cross-currency interest rate swaps, the table represents the contractual cash flows and weighted-average interest rates by the contractual maturity date, unless otherwise noted. The notional amounts are used to calculate contractual cash flows to be exchanged under the contracts. The weighted-average variable rates are based upon prevailing market interest rates and the outstanding balances as of August 31, 2021.

Annual maturities of long-term debt and derivatives are as follow (in thousands):

Twelve Months Ended August 31,

(Amounts in thousands)

Long-Term Debt:

Derivatives:

Interest Rate Swaps:

Cross-Currency Interest Rate Swaps:

(1)The Company has disclosed the future annual maturities of long-term debt, for which it has entered into cross-currency interest rate swaps by using the derivative obligation as of August 31, 2021 to estimate the future commitments. Therefore, the total annual commitments reflects these obligations, including the effect of the cross-currency interest rate swaps on the total-long term debt as disclosed on the consolidated balance sheet.

(2)The derivative obligations of the interest rate swaps and cross-currency interest rate swaps are included in the Total long-term debt section of this table.

Foreign Currency Risk

We have foreign currency risks related to sales, operating expenses and financing transactions in currencies other than the U.S. dollar. As of August 31, 2021, we had a total of 47 consolidated warehouse clubs operating in 12 foreign countries and one U.S. territory, 37 of which operate under currencies other than the U.S. dollar. Approximately 48% of our net merchandise sales are comprised of products we purchased in U.S. dollars and were sold in countries whose currencies were other than the U.S. dollar. Approximately 78% of our net merchandise sales are in markets whose functional currency is other than the U.S. dollar. We may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net merchandise sales denominated in foreign currencies.

Currency exchange rate changes either increase or decrease the cost of imported products that we purchase in U.S. dollars and price in local currency. Price changes can impact the demand for those products in the market. Currency exchange rates also affect the reported sales of the consolidated company when local currency-denominated sales are translated to U.S. dollars. In addition, we revalue all U.S. dollar denominated assets and liabilities within those markets that do not use the U.S. dollar as the functional currency. These assets and liabilities include, but are not limited to, excess cash permanently reinvested offshore and the value of items shipped from the U.S. to our foreign markets. The gain or loss associated with this revaluation, net of reserves, is recorded in other income (expense).

Table of Contents

Foreign currencies in most of the countries where we operate have historically devalued against the U.S. dollar and are expected to continue to devalue. The following tables summarize by country, for those countries with functional currencies other than the U.S. dollar, the weakening of the countries' currency against the U.S. dollar (devaluation) or the strengthening of their currencies (revaluation):

% Change

Revaluation/(Devaluation)

Twelve Months Ended August 31,

Guatemala — (0.64)

We seek to manage foreign exchange risk by (1) adjusting prices on goods acquired in U.S. dollars on a periodic basis to maintain our target margins after taking into account changes in exchange rates; (2) obtaining local currency loans from banks within certain markets where it is economical to do so and where management believes the risk of devaluation and the level of U.S. dollar denominated liabilities warrants this action; (3) reducing the time between the acquisition of product in U.S. dollars and the settlement of that purchase in local currency; (4) maintaining a balance between assets held in local currency and in U.S. dollars; and (5) by entering into cross-currency interest rate swaps and forward currency derivatives. We have local-currency-denominated long-term loans in Costa Rica and Guatemala; we have cross-currency interest rate swaps in Colombia and Honduras; and we have interest rate swaps in Panama and in the United States. Turbulence in the currency markets can have a significant impact on the value of the foreign currencies within the countries in which we operate. We report the gains or losses associated with the revaluation of these monetary assets and liabilities on our consolidated statements of income under the heading “Other income (expense), net.” Future volatility and uncertainties regarding the currencies in the countries that we operate in could have a material impact on our operations in future periods. However, there is no way to accurately forecast how currencies may trade in the future and, as a result, we cannot accurately project the impact of the change in rates on our future demand for imported products, reported sales, or financial results.

We are exposed to foreign exchange risks related to U.S. dollar-denominated and other foreign-denominated cash, cash equivalents and restricted cash, to U.S. dollar-denominated intercompany debt balances and to other U.S. dollar-denominated debt/asset balances (excluding U.S. dollar-denominated debt obligations for which we hedge a portion of the currency risk inherent in the interest and principal payments), within entities whose functional currency is not the U.S. dollar. As part of the adoption of the new leasing standard, we recorded several monetary liabilities on the consolidated balance sheet that are exposed to foreign exchange movements. These monetary liabilities arise from leases denominated in a currency that is not the functional currency of the Company’s local subsidiary. The monetary liability for these leases as of August 31, 2021 was $35.6 million. Due to the mix of foreign currency exchange rate fluctuations during fiscal 2021, the impact to the consolidated statements of income of revaluing this liability was immaterial.

The following table discloses the net effect on other expense, net for U.S. dollar-denominated and other foreign-denominated accounts relative to a hypothetical simultaneous currency revaluation based on balances as of August 31, 2021 (in thousands) including the new lease-related monetary liabilities described above:

(1)Amounts are before consideration of income taxes.

Table of Contents

Information about the financial impact of foreign currency exchange rate fluctuations for the twelve months ended August 31, 2021 is disclosed in Part II. “Item 7. Management’s Discussion and Analysis – Other Expense, net”.

Examples of countries where we have significant U.S. dollar net asset positions subjecting us to exchange rate losses if the local currency strengthens against the U.S. dollar are our Trinidad, Nicaragua, and Jamaica subsidiaries with balances of $26.6 million, $22.4 million and $19.6 million, respectively as of August 31, 2021. Examples of countries where we have significant U.S. dollar net liability positions subjecting us to exchange rate losses if the local currency weakens against the U.S. dollar are our Honduras, Dominican Republic, and Guatemala subsidiaries with balances of $27.8 million, $22.7 million, and $19.8 million respectively as of August 31, 2021.

We are also exposed to foreign exchange risks related to local-currency-denominated cash and cash equivalents, to local-currency-denominated debt obligations, to local-currency-denominated current assets and liabilities and to local-currency-denominated long-term assets and liabilities within entities whose functional currency is not the U.S. dollar. The following table discloses the net effect on other comprehensive loss for these local currency denominated accounts relative to hypothetical simultaneous currency devaluation in all the countries listed in the table above, based on balances as of August 31, 2021:

In addition, we are exposed to foreign currency exchange rate fluctuations associated with our U.S. dollar-denominated debt obligations that we hedge. We hedge a portion of the currency risk inherent in the interest and principal payments associated with this debt through the use of cross-currency interest rate swaps. The terms of these swap agreements are commensurate with the underlying debt obligations. The aggregate fair value of these swaps was in a net asset position of approximately $1.8 million at August 31, 2021 and approximately $44,000 at August 31, 2020. A hypothetical 10% increase in the currency exchange rates underlying these swaps from the market rates at August 31, 2021 would have resulted in a further increase in the value of the swaps of approximately $2.3 million. Conversely, a hypothetical 10% decrease in the currency exchange rates underlying these swaps from the market rates at August 31, 2021 would have resulted in a net decrease in the value of the swaps of approximately of $2.8 million.

From time to time, we use non-deliverable forward foreign exchange contracts primarily to address exposure to U.S. dollar merchandise inventory expenditures made by our international subsidiaries whose functional currency is other than the U.S. dollar. The net increase or decrease in the fair value of these derivative instruments would be economically offset by the gains or losses on the underlying transactions.

Occasionally, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity). This impedes our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products. Since fiscal 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradeable currencies. We are working with our banks in Trinidad to source tradeable currencies. We expect the illiquid market conditions in Trinidad to continue. Refer to Part II. “Item 7. Management’s Discussion & Analysis – Factors Affecting Our Business” for our quantitative analysis and discussion.

Commodity Price Risk

PSMT US Equity

PSMT · 10-K · period ended 2021-08-31

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6. Reserved.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

PSMT US Equity☆

PSMT · 10-K · period ended 2021-08-31

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6. Reserved.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

PSMT US Equity