Will PriceSmart (PSMT) Disappoint This Earnings Season? - Analyst Blog

PriceSmart, Inc. PSMT is set to report second-quarter fiscal 2014 results on Apr 9. Last quarter, it delivered a negative earnings surprise of 2.74%. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

PriceSmart's comps have been slowing down since Oct 2013 due to slowing consumer traffic. Last quarter, comps grew 7.9%, much weaker than 9.3% and 9.2% in the fourth and third quarters of fiscal 2013, respectively. Moreover, the company missed the Zacks Consensus Estimate for both revenues and earnings in the first quarter. A slowdown in comps, muted margins and a higher tax rate hurt the bottom line in the quarter.

Comps increased 6.7%, 8.4% and 5.3% in the months of Dec 2013, Jan 2014 and Feb 2014, respectively, which comprise the second quarter — suggesting lack of any significant sales improvement in the second quarter. Severe winter hurt traffic further in these three months. We believe the persistent slowdown in comps is likely to continue into the second quarter.

Earnings Whisper?

Our proven model does not conclusively show that PriceSmart is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP:  The Earnings ESP is -2.30%.

Zacks Rank: PriceSmart carries a Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks in the retail sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

The TJX Companies, Inc. TJX,with Earnings ESP of +2.99% and a Zacks Rank #3 (Hold).

Foot Locker, Inc. FL, with Earnings ESP of +0.96% and a Zacks Rank #2 (Buy).

The Buckle, Inc. BKE, with Earnings ESP of +1.27% and a Zacks Rank #3.