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.
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 56 warehouse clubs in 12 countries and one U.S. territory (ten in Colombia; nine in Costa Rica ; seven each in Panama and Guatemala; five in Dominican Republic ; four each in Trinidad and El Salvador; three in Honduras; two each in Nicaragua and Jamaica; and one each in Aruba, Barbados and the United States Virgin Islands). Additionally, the Company plans to open one new warehouse club in La Romana, Dominican Republic in the spring of 2026, and one warehouse club in Montego Bay and one on South Camp Road, Jamaica in the summer and fall of 2026, respectively. Once these three new clubs are open, we will operate 59 warehouse clubs in total. Additionally, we are continuing to advance our planned expansion into Chile, which we have identified as a potential market for multiple PriceSmart 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.
Mission
PriceSmart's mission is to provide all Members an outstanding shopping experience with high quality, exciting merchandise and services at the lowest possible prices.
Purpose
PriceSmart's purpose is 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. We aim 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 opportunities for advancement. We strive to treat our suppliers right and empower them when we can, including both our regional suppliers and those from around the world. We try to 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. We also believe in facilitating philanthropic contributions to the communities in which we do business. We charge Members an annual membership fee that us to operate our business with lower margins than traditional retail stores. As we continue to invest in technological capabilities, we are increasing our tools to drive sales and operational . We believe we are well positioned to blend the and appeal of our brick-and-mortar business with the convenience and additional benefits of online shopping and services, while simultaneously Member experience and engagement.
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Factors Affecting the Business
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 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, remittances from foreign workers located in the United States to individuals or family members in their home countries, and foreign direct investments. Uncertain economic conditions and slowdown in global economic growth and investment may impact the economies in our markets, causing significant declines in GDP and employment and devaluations of local currencies against the U.S. dollar.
Inflationary pressures could significantly impact product costs, and commodity price increases have and could again impact our financial results and could lead to reduced sales, fewer units sold, and/or margin pressure. For example, the COVID-19 pandemic resulted, directly or indirectly, in market and supply-chain disruptions, which increased the complexity of managing our inventory flow and business and resulted in substantial inventory markdowns on certain non-food product categories in the third quarter of fiscal year 2022. In addition, shipping and freight rates increased dramatically during that time. Similar challenges could reoccur in the future. While supply chains and transportation rates have normalized, we continue to work to hold down and/or mitigate price increases passed on to our Members while maintaining the right inventory mix to grow sales. One key factor has been our expanded network of distribution centers, which has facilitated alternative shipping routes, increased merchandise throughput, and provided flexibility to mitigate our supply chain challenges and risks more effectively.
Currency fluctuation can be one of the largest variables affecting our overall sales and profit performance because many of our markets are susceptible to foreign currency exchange rate volatility. For fiscal year 2025, some markets, especially Costa Rica, benefited from currency appreciation, which helped offset currency devaluations we experienced in some of the other countries. During fiscal year 2025, approximately 80.1% of our net merchandise sales were in currencies other than the U.S. dollar. Of those sales, 49.0% consisted 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. Alternatively, we may elect not to raise prices to fully cover the impact of the devaluation, adversely affecting our margins. For example, during fiscal year 2023, the currency in Colombia devalued approximately 15%, but we selectively held pricing steady or took pricing actions to mitigate declines in demand, which negatively impacted our consolidated Total gross margin percentage. 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 further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net Merchandise Sales and Comparable Sales.”
Our wallet-share 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 limited upside for sales growth given their overall market size.
We continue to face the risk of political instability which may have significant effects on our business. For example, protestors set up roadblocks in Panama during October and November 2023 as a reaction to an agreement between the Panamanian government and a mining company, disrupting traffic to our clubs throughout most of the market. In the third quarter of fiscal year 2025, Panama once again experienced widespread protests and social unrest against the government. Roadblocks in Guatemala in October 2023 related to election protests also limited access to certain of our warehouse clubs. Civil unrest in Colombia in response to tax reform and austerity measures paralyzed significant portions of the country’s infrastructure during the third quarter of fiscal year 2021.
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, similar natural disasters could adversely impact our overall sales, costs and profit performance in the future.
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At times we face difficulties in the shipment of, and the risks inherent in the importation of, merchandise to our warehouse clubs. One of those difficulties is possible governmental restrictions on the importation of merchandise. In late May 2023, disputes with Nicaraguan customs and tax authorities resulted in delays in the issuance of our importation clearance, and general delays in the customs inspection process. While this situation had occurred frequently prior to May 2023, we generally were able to plan around these import blockages and resume imports within a matter of days. However, this last delay in obtaining importation clearance resulted in our being unable to import merchandise into Nicaragua for several weeks in June 2023. While our tax clearances and imports have returned to a normal cadence, we could see delays of imports into Nicaragua again as well as in other jurisdictions in which we operate.
Our operations depend on shipping, trucking, ports and other elements of the supply chain that often rely on unionized labor. 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. For example, while it did not impact our export activities, we experienced a brief disruption to the flow of imported merchandise into our Miami distribution center operations because of the U.S. dockworkers strike in October 2024.
Current uncertainties about tariffs may have an adverse effect on our Company. The U.S. government has implemented significant tariff measures, including a baseline tariff of 10% on products from all countries and higher rates targeting specific countries. For additional information, see "Item 1A — Risk Factors — We are vulnerable to changes in the political and economic conditions such as tariffs and/or international trade wars and disruptions to remittances."
In July 2025, the United States enacted significant tax legislation commonly referred to as the One Big Beautiful Bill Act ("OBBBA"). The OBBBA makes permanent many provisions of the Tax Cuts and Jobs Act of 2017 and introduces additional changes affecting individuals and businesses. Key business-related provisions include the continuation of the 21% federal corporate income tax rate, enhancements to bonus depreciation and expensing rules, and modifications to certain international provisions, including Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income deductions. The OBBBA also includes other targeted measures, including a 1% excise tax on foreign remittances.
We have reviewed the OBBBA and continue to monitor and model its potential impact on our operations and effective tax rate. Based on our current analysis of the Company's operating profile, we do not expect material effects on our 2026 fiscal year results or to our results going forward, considering our existing tax profile. Most provisions that represent substantive changes to existing law, including adjustments to international tax regimes and certain deduction limitations, are scheduled to take effect during our fiscal year 2027.
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 one of the countries where we operate, the government made changes several years ago in the method of computing minimum tax payments, under which the government sought to require retailers to pay taxes based on a percentage of sales if the resulting tax were greater than the tax payable based on a percentage of income (Alternative Minimum Tax or "AMT"). We, together with our tax and legal advisers, appealed these interpretations and litigated our cases in the country’s court system. Nevertheless, in fiscal year 2023, we recorded a $7.2 million charge to settle the minimum tax payment dispute. To address the inherent risk of operating in a country in which tax legislation changes can significantly impact our business because of our low-margin business model and in which our ability to successfully appeal the application of these taxes is limited, we have increased prices in this market to offset or partially offset the rise in costs to comply with the annual AMT payment. These and other may or become more acute and could have a material effect on our business and results of operations.
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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. This illiquidity also increases our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar. Additionally, the Company may incur significant premium costs to convert our local currencies into available tradable currencies and U.S. dollars. For instance, since fiscal year 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradable currencies. We are working with our banks in Trinidad and government officials to convert all of our Trinidad dollars into tradable currencies. Our balance as of August 31, 2025 of Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars was $59.7 million, a decrease of $40.8 mill ion from the peak of $100.5 million as of November 30, 2020. However, as the Trinidad central bank strictly manages the exchange rate of the Trinidad dollar with the U.S. dollar and affects the level of U.S. dollar liquidity in the market through its interventions, we are subject to continued in converting our Trinidad dollars to U.S. dollars, as well as being to the risk of a potential devaluation of the currency. In July 2025, the Company entered into financing transactions to provide our Trinidad subsidiary with additional U.S. dollar liquidity needed to meet its operational needs and help reduce the in U.S. dollar sourcing due to continued foreign exchange conditions in that market. Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 11 - Debt” for additional information.
While we are currently able to source substantially all the U.S. dollars that we need in Honduras, we faced similar U.S. dollar liquidity challenges in Honduras during fiscal year 2023 through much of fiscal year 2025 and the Central bank still has strict controls there on the availability of U.S. dollars.
Financial highlights for the fourth quarter of fiscal year 2025 included:
• Total revenues increased 8.6% over the comparable prior year period.
• Net merchandise sales increased 9.2% over the comparable prior year period. We ended the quarter with 56 warehouse clubs compared to 54 warehouse clubs at the end of the fourth quarter of fiscal year 2024. Net merchandise sales - constant currency increased 9.1% over the comparable prior year period.
• Comparable net merchandise sales (that is, sales in the 54 warehouse clubs that have been open for greater than 13 ½ calendar months) and comparable net merchandise sales - constant currency for the 13 weeks ended August 31, 2025 increased 7.5%.
• Membership income for the fourth quarter of fiscal year 2025 increased 14.9% to $22.6 million over the comparable prior year period.
• Total gross margins (net merchandise sales less associated cost of goods sold) increased 9.0% over the prior year period, and merchandise gross profits as a percent of net merchandise sales remained unchanged at 15.7% from the same period in the prior year.
• Selling, general and administrative expenses increased $16.5 million or 10.1% compared to the fourth quarter of fiscal year 2024, primarily due to investments in technology, such as the RELEX and Elera projects.
• Operating income for the fourth quarter of fiscal year 2025 was $52.8 million, an increase of 7.2%, or $3.6 million, compared to the fourth quarter of fiscal year 2024.
• We recorded a $6.4 million net loss in total other expense, net in the fourth quarter of fiscal year 2025 compared to a $7.4 million net loss in total other expense, net in the same period last year due to a decrease in other expense, net of $1.0 million primarily driven by a decrease in foreign currency conversion transaction costs.
• Our effective tax rate increased in the fourth quarter of fiscal year 2025 to 32.0% from 30.4% in the fourth quarter of fiscal year 2024 primarily due to the impact of foreign exchange transactions and reduced intercompany charges during the quarter.
• Net income for the fourth quarter of fiscal year 2025 was $31.5 million, or $1.02 per diluted share, compared to $29.1 million, or $0.94 per diluted share, for the fourth quarter of fiscal year 2024.
• Adjusted EBITDA for the fourth quarter of fiscal year 2025 was $75.5 million compared to $70.7 million in the same period last year.
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Financial highlights for fiscal year 2025 included:
• Total revenues increased 7.2% over the prior year.
• Net merchandise sales increased 7.7% over the prior year. We ended the year with 56 warehouse clubs compared to 54 warehouse clubs at the end of fiscal year 2024. Net merchandise sales - constant currency increased 8.5% over the prior year.
• Comparable net merchandise sales (that is, sales in the 54 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 52 weeks ended August 31, 2025 increased 6.7%. Comparable net merchandise sales - constant currency for the 52 weeks ended August 31, 2025 increased 7.5%.
• Membership income increased 13.7% to $85.6 million.
• Total gross margins (net merchandise sales less associated cost of goods sold) increased 7.4% over the prior year, and merchandise gross profits as a percent of net merchandise sales decreased to 15.7% from 15.8% compared to the prior year.
• Selling, general and administrative expenses increased $55.9 million, or 8.9%, in fiscal year 2025 compared to fiscal year 2024, primarily due to investments in technology, such as the RELEX and Elera projects.
• Operating income was $232.5 million in fiscal year 2025, an increase of 5.2%, or $11.6 million, compared to fiscal year 2024.
• We recorded a $26.0 million net loss in total other expense, net in fiscal year 2025 compared to a $19.5 million net loss in total other expense, net in the prior year due to an increase in unrealized losses in value of U.S. dollar-denominated monetary assets and liabilities in several of our markets.
• The effective tax rate for fiscal year 2025 was 28.4% as compared to the effective tax rate for fiscal year 2024 of 31.1%. The decrease is primarily related to the implementation of certain tax optimization initiatives at the beginning of fiscal year 2025.
• Net income for fiscal year 2025 was $147.9 million, or $4.82 per diluted share, compared to $138.9 million, or $4.57 per diluted share, for fiscal year 2024.
• Adjusted EBITDA for fiscal year 2025 was $320.7 million compared to $303.6 million in the prior year.
Non - GAAP (Generally Accepted Accounting Principles) Financial Measures
The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with U.S. GAAP (Generally Accepted Accounting Principles). In addition to relevant GAAP measures, we also provide non-GAAP measures including adjusted EBITDA, net merchandise sales - constant currency and comparable net merchandise sales - constant currency because management believes these metrics are useful to investors and analysts by excluding items that we do not believe are indicative of our core operating performance. These measures are customary for our industry and commonly used by competitors. However, these non-GAAP financial measures should not be reviewed in isolation or considered as an alternative to any other performance measure derived in accordance with GAAP and may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
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Adjusted EBITDA
Adjusted EBITDA is defined as net income before interest expense, provision for income taxes and depreciation and amortization, adjusted for the impact of certain other items, including interest income and; other income (expense), net. The following is a reconciliation of our Net income to Adjusted EBITDA for the periods presented:
Three Months Ended
Years Ended
(Amounts in thousands)
August 31,
August 31,
August 31,
August 31,
Net income as reported
Adjustments:
Interest expense
Provision for income taxes
Depreciation and amortization
Interest income
Other expense, net (1)
Adjusted EBITDA
(1) Primarily consists of transaction costs of converting the local currencies into available tradable currencies in some of our countries with liquidity issues and foreign currency losses or gains due to the revaluation of monetary assets and liabilities (primarily U.S. dollars) for the three and twelve months ended August 31, 2025 and August 31, 2024.
Net Merchandise Sales - Constant Currency
As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. The translation of the operations of our foreign-based entities from their local currencies into U.S. dollars is sensitive to changes in foreign currency exchange rates and can have a significant impact on our reported financial results. We believe that constant currency is a useful measure, indicating the actual growth of our operations. When we use the term "net merchandise sales - constant currency," it means that we have translated current year net merchandise sales at prior year monthly average exchange rates. Net merchandise sales - constant currency results exclude the effects of foreign currency translation. Similarly, when we use the term "comparable net merchandise sales - constant currency," it means that we have translated current year comparable net merchandise sales at prior year monthly average exchange rates. Comparable net merchandise sales – constant currency results exclude the effects of foreign currency translation. Refer to “Management’s Discussion & Analysis – Net Merchandise Sales” and Refer to “Management’s Discussion & Analysis – Comparable Net Merchandise Sales” for our quantitative analysis and discussion. Reconciliations between net merchandise sales - constant currency and comparable net merchandise sales - constant currency and the most directly comparable GAAP measures are included where applicable.
Comparison of Fiscal Year 2025 to 2024
The following discussion and analysis compares the results of operations for the fiscal years ended August 31, 2025 and 2024 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, 2024 and 2023, 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, 2024 filed with the SEC on October 30, 2024. 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.
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Net Merchandise Sales
The following tables indicate the net merchandise sales in the reportable segments in which we operate and the percentage growth in net merchandise sales by segment during fiscal years 2025 and 2024:
Years Ended
August 31, 2025
August 31, 2024
Amount
% of net
sales
Increase from prior year
Change
Amount
% of net
sales
Central America
Caribbean
Colombia
Net merchandise sales
Overall, net merchandise sales grew by 7.7% for fiscal year 2025 compared to fiscal year 2024, driven by a 5.9% increase in transactions and a 1.7% increase in average ticket. Transactions represent the total number of visits our Members make to our warehouse clubs resulting in a sale and the total number of PriceSmart.com transactions involving home delivery or curbside pickup via the Company`s Click & Go® service. Average ticket represents the amount our Members spend on each visit or PriceSmart.com order. We had 56 clubs in operation as of August 31, 2025 compared to 54 clubs as of August 31, 2024.
Net merchandise sales in our Central America segment increased 7.5% during fiscal year 2025. This increase had a 460 basis point (4.6%) positive impact on total net merchandise sales growth. All markets within this segment had positive net merchandise sales growth for the twelve-month period ended August 31, 2025. We opened our ninth warehouse club in Costa Rica in April 2025 and our seventh warehouse club in Guatemala in August 2025.
Net merchandise sales in our Caribbean segment increased 6.6% during fiscal year 2025. This increase had a 180 basis point (1.8%) positive impact on total net merchandise sales growth. All of our markets in this segment had positive net merchandise sales growth.
Net merchandise sales in our Colombia segment increased 11.4% during fiscal year 2025. This increase had a 130 basis point (1.3 %) positive impact on total net merchandise sales gro wth.
The following table indicates the impact that currency exchange rates had on our net merchandise sales in dollars and the percentage impact of foreign currency exchange rate fluctuations on net merchandise sales growth. When we use the term "net merchandise sales - constant currency," it means that we have translated current year net merchandise sales at prior year monthly average exchange rates. Net merchandise sales - constant currency results exclude the effects of foreign currency translation. Impact of foreign currency is the effect of currency fluctuations on our net merchandise sales.
Year Ended
August 31, 2025
Net Merchandise Sales
Net Merchandise Sales - Constant Currency
Impact of Foreign Currency Exchange
Net Merchandise Sales Growth
Net Merchandise Sales - Constant Currency Growth
% Impact of Foreign Currency Exchange
Central America
Caribbean
Colombia
Consolidated total
Overall, the effects of currency fluctuations within our markets had an approximately $36.8 million, or 80 basis point (0.8%), negative impact on net merchandise sales for the twelve-months ended August 31, 2025 .
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Currency fluctuations had a $21.4 million, or 70 basis point (0.7%), positive impact on net merchandise sales in our Central America segment for the twelve months ended August 31, 2025. These currency fluctuations contributed approximately 40 basis points (0.4%) of positive impact on total net merchandise sales for fiscal year 2025. The Costa Rican colón appreciated against the dollar when compared to the prior year and was a significant factor in the contribution to the favorable currency fluctuations in this segment.
Currency fluctuations had a $24.5 million, or 180 basis point (1.8%), negative impact on net merchandise sales in our Caribbean segment for the twelve months ended August 31, 2025. These currency fluctuations contributed approximately 50 basis points (0.5%) of negative impact on total net merchandise sales growth for the current fiscal year period. This negative impact was primarily driven by the devaluation of the Dominican Peso as compared to the prior year.
Currency fluctuations had a $33.6 million, or 620 basis point (6.2%), negative impact on net merchandise sales in our Colombia segment for the twelve months ended August 31, 2025. These currency fluctuations contributed approximately 70 basis points (0.7%) of 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, 2025 and 2024:
Years Ended August 31,
Foods & Sundries
Fresh Foods
Hardlines
Softlines
Food Service and Bakery
Health Services
Net Merchandise Sales
The mix of sales by major category remained mostly steady year-over-year. Net sales of Foods & Sundries increased approximately 5% between fiscal year 2025 and 2024 but decreased by 2% as a percentage of net merchandise sales. Net sales of Fresh Foods increased approximately 12% between fiscal year 2025 and 2024 and increased by 1% as a percentage of net merchandise sales. Shifts in consumer preferences contributed to the changes in category mix.
Comparable Net 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 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. Further, each of the warehouse clubs used in the calculations was open for at least 13 ½ calendar months before its results for the current period were compared with its results for the prior period . As a result, sales related to two of our clubs opened during fiscal year 2025 will not be used in the calculation of comparable sales until they have been open for at least 13 ½ months. Therefore, comparable net merchandise sales includes 54 warehouse clubs for the 52- week period ended August 31, 2025 .
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The following table indicates 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 52-week periods ended August 31, 2025 and September 1, 2024 compared to the prior year:
Fifty-Two Weeks Ended
August 31, 2025
September 1, 2024
% Increase
in Comparable
Net Merchandise Sales
% Increase
in Comparable
Net Merchandise Sales
Central America
Caribbean
Colombia
Consolidated comparable net merchandise sales
Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the 52-week period ended August 31, 2025 increased 6.7%.
Comparable net merchandise sales in our Central America segment increased 5.6% for the 52-week period ended August 31, 2025. All of our markets in Central America had positive comparable net merchandise sales growth. The positive comparable net merchandise sales growth for our Central America segment contributed approximately 340 basis points (3.4%) of positive impact in total comparable merchandise sales.
Comparable net merchandise sales in our Caribbean segment increased 7.2% for the 52-week period ended August 31, 2025. This increase contributed approximately 200 basis points (2.0%) of positive impact on total comparable net merchandise sales. Our Jamaica market continued its strong performance in the 52-week period, with 13.1% comparable net merchandise sales growth.
Comparable net merchandise sales in our Colombia segment increased 11.8% for the 52-week period ended August 31, 2025. This increase contributed approximately 130 basis points (1.3%) of positive impact to the increase in total comparable net merchandise sales.
When we use the term "comparable net merchandise sales - constant currency," it means that we have translated current year comparable net merchandise sales at prior year monthly average exchange rates. Comparable net merchandise sales - constant currency results exclude the effects of foreign currency translation. The following tables illustrate the comparable net merchandise sales - constant currency percentage growth and the impact that changes in foreign currency exchange rates had on our comparable merchandise sales percentage growth for the 52-week period ended August 31, 2025:
Fifty-Two Weeks Ended August 31, 2025
Comparable Net Merchandise Sales Growth
Comparable Net Merchandise Sales - Constant Currency Growth
% Impact of Foreign Currency Exchange
Central America
Caribbean
Colombia
Consolidated comparable net merchandise sales
Overall, the mix of currency fluctuations within our markets had 80 basis points (0.8%) of negative impact on comparable net merchandise sales for the 52-week period ended August 31, 2025.
Currency fluctuations within our Central America segment accounted for approximately 40 basis points (0.4%) of positive impact on total comparable merchandise sales for the 52-week period ended August 31, 2025. Our Costa Rica market was the main contributor as the market experienced currency appreciation when compared to the same period last year.
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Currency fluctuations within our Caribbean segment accounted for approximately 50 basis points (0.5%) of negative impact on total comparable merchandise sales for the 52-week period ended August 31, 2025. 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 70 basis points (0.7%) of negative impact on total comparable net merchandise sales for the 52-week period ended August 31, 2025.
Membership Income
Membership income is recognized ratably over the one-year life of the membership.
Years Ended
August 31,
August 31,
Amount
% of Total Operating Income
Increase from prior year
% Change
Membership
Income % to
Net Merchandise
Sales
Amount
% of Total Operating Income
Membership income - Central America
Membership income - Caribbean
Membership income - Colombia
Membership income - Total
Number of accounts -
Central America
Number of accounts - Caribbean
Number of accounts - Colombia
Number of accounts - Total
The number of Member accounts at the end of fiscal year 2025 was 6.2% higher than the prior year. Membership income increased 13.7% compared to the prior year.
Membership income, which is recognized ratably over the 12-month term of the membership, increased in all of our segments in the twelve months ended August 31, 2025. The consolidated increase in membership income is primarily due to the $5 increase to our membership fee which we implemented on a staggered basis in most countries during fiscal year 2024 and an increase in the platinum membership base since the prior year. In our Central America segment, membership income increased compared to fiscal year 2024, primarily attributable to the $5 increase and the opening of two new clubs. In our Colombia segment, membership income rose compared to fiscal year 2024 due to an increase in membership accounts. Similarly, in our Caribbean segment, membership income rose compared to fiscal year 2024, primarily attributable to the $5 increase to our membership fee. Additionally, all of our segments have increased their membership base since August 31, 2024.
We offer the Platinum Membership program in all locations where PriceSmart operates. The annual fee for a Platinum Membership in most markets is approximately $80, depending on the market in which the Member lives. 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 of net merchandise sales at the time of the sales transaction. Platinum Membership accounts are 17.9% of our total membership base as of August 31, 2025, an increase from 12.3% as of August 31, 2024. Platinum Members tend to have higher renewal rates than our Diamond Members. During fiscal years 2025 and 2024, we ran platinum promotional campaigns, resulting in an increase in the total number of Platinum Members.
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Our trailing twelve-month renewal rate was 88.8% and 87.9% for the fiscal years ended August 31, 2025 and August 31, 2024, respectively.
Other Revenue
Other revenue primarily consists of our interest-generating portfolio from our co-branded credit cards and rental income from operating leases where the Company is the lessor.
Years Ended
August 31, 2025
August 31, 2024
Amount
Increase from prior year
% Change
Amount
Miscellaneous income
Rental income
Other revenue
Comparison of Fiscal Year 2025 to 2024
The primary driver of the increase in other revenue for the year ended August 31, 2025 was an increase in Miscellaneous income driven primarily by an increase in interest-generating portfolio revenue due to Members having higher average outstanding balances on our co-branded credit cards compared to the prior year.
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Results of Operations
Years Ended
Results of Operations Consolidated
August 31, 2025
August 31, 2024
(Amounts in thousands, except percentages and number of warehouse clubs)
Net merchandise sales
Net merchandise sales
Total gross margin
Total gross margin percentage
Revenues
Total revenues
Percentage change from prior period
Comparable net merchandise sales
Total comparable net merchandise sales increase
Total revenue margin
Total revenue margin
Total revenue margin percentage
Selling, general and administrative
Selling, general and administrative
Selling, general and administrative percentage of total revenues
Operational data
Warehouse clubs at period end
Warehouse club sales floor square feet at period end
Years Ended
Results of Operations Consolidated
August 31,
Total Revenue
August 31,
Total Revenue
Operating income by segment
Central America
Caribbean
Colombia
United States
Reconciling Items (1)
Operating income - Total
(1) The reconciling items reflect the amount eliminated upon consolidation of intersegment transactions.
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The following table summarizes the selling, general and administrative expense for the periods disclosed:
Years Ended
August 31, 2025
Total Revenue
August 31, 2024
Total Revenue
Warehouse club and other operations
General and administrative
Pre-opening expenses
Loss on disposal of assets
Total Selling, general and administrative
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 as a percent of net merchandise sales for fiscal year 2025 decreased to 15.7% compared to 15.8% for fiscal year 2024.
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 a percentage of Total revenues.
Total revenue margin increased to 17.4% from 17.2% for the twelve months ended August 31, 2025 compared to the prior year.
Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, preopening expenses, and loss (gain) on disposal of assets. In total, selling, general and administrative expenses increased $55.9 million compared to the prior year, and increased as a percentage of total revenues by 20 basis points (0.2%) to 12.9% of total revenues for fiscal year 2025 compared to 12.7% of total revenues for fiscal year 2024.
Warehouse club and other operations expenses remained unchanged at 9.5% of total revenues from the prior fiscal year.
General and administrative expenses increased to 3.4% of total revenues for the current year compared to 3.2% for fiscal year 2024. The 20 basis point (0.2%) increase is primarily due to investments in technology, inclusive of $3.7 million related to transformation and growth projects, such as RELEX and Elera. Additionally, the Company incurred approximately $1.6 million of one-time expenses associated with Chief Financial Officer transition costs, as well as $1.1 million related to the relocation of the San Diego corporate headquarters.
For fiscal year 2026, we estimate that general and administrative expenses will be impacted by $5.0 million for the compensation of our Chief Executive Officer.
Operating income in fiscal year 2025 increased to $232.5 million (4.4% of total revenues) compared to $220.9 million (4.5% of total revenues) for the prior year.
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Interest Income
Interest income represents the earnings generated from interest-bearing assets held by PriceSmart, Inc. and our wholly owned foreign subsidiaries. These assets include investments in fixed income securities and deposits held with financial institutions. The interest income is derived from the interest payments received on these assets, which serve to enhance our overall financial returns.
Years Ended
August 31,
August 31,
Amount
Change
Amount
Interest income
Interest income decreased for the twelve-month period ended August 31, 2025 primarily due to a decrease of yields when compared to the prior year.
Interest Expense
Years Ended
August 31,
August 31,
Amount
Change
Amount
Interest expense on loans
Interest expense related to hedging activity
Less: Capitalized interest
Interest expense
Interest expense reflects borrowings by PriceSmart, Inc. and our wholly owned foreign subsidiaries to finance new land acquisition and construction for new warehouse clubs and distribution centers, warehouse club expansions, the capital requirements of warehouse club and other operations, and ongoing working capital requirements.
Interest expense decreased for the twelve-month period ended August 31, 2025 , primarily due to lower debt balances for a majority of the fiscal year and higher capitalized interest partially offset by higher interest expense related to hedging activities when compared to 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 other items considered to be non-operating in nature.
Years Ended
August 31,
August 31,
Amount
Change
Amount
Other expense, net
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.
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For the twelve months ended August 31, 2025, the primary drivers of Other expense, net were $14.9 million of transaction costs, associated with converting the local currencies into available tradable currencies before converting them to U.S. dollars in some of our countries with foreign exchange liquidity issues. Additionally, during the twelve months ended August 31, 2025, our markets contributed $9.2 million of losses due to revaluation of monetary assets and liabilities (primarily U.S. dollars).
Provision for Income Taxes
The tables below summarize the effective tax rate for the periods reported:
Years Ended
August 31,
August 31,
Amount
Change
Amount
Current tax expense
Net deferred tax benefit
Provision for income taxes
Effective tax rate
For fiscal year 2025, the effective tax rate was 28.4% compared to 31.1% for fiscal year 2024. The decrease in the effective rate versus the prior year was primarily attributable to the implementation of certain tax optimization initiatives at the beginning of fiscal year 2025.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) for fiscal years 2025 and 2024 resulted primarily from foreign currency translation adjustments related to 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.
Years Ended
August 31,
August 31,
Amount
Change From Prior Year
% Change
Amount
Other Comprehensive Income (Loss)
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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. We also have returned cash to stockholders through a semiannual dividend, a one-time special dividend in the third quarter of fiscal year 2024, and by repurchasing shares of our common stock pursuant to the stock repurchase program we commenced in the fourth quarter of fiscal year 2023 and completed in the first quarter of fiscal year 2024. 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 available short-term facilities, short-term and our long-term borrowings, and any repayments.
Repatriation of cash and cash equivalents held by foreign subsidiaries may require us to accrue and pay taxes for certain jurisdictions. If we decide to repatriate cash through the payment of a cash dividend by our foreign subsidiaries to our domestic operations, we will accrue taxes if and when appropriate.
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,
Amounts held by foreign subsidiaries
Amounts held domestically
Total cash and cash equivalents, including restricted cash
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
Amounts held domestically
Total short-term investments
As of August 31, 2025 and August 31, 2024, there were no certificates of deposit with a maturity of over one year held by our foreign subsidiaries or domestically.
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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. For instance, since fiscal year 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradable currencies. We are working with our banks in Trinidad and government officials to convert all of our Trinidad dollars into tradable currencies. Our balance as of August 31, 2025 of Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars was $59.7 million. While we are currently able to source substantially all the U.S. dollars that we need in Honduras, we faced similar U.S. dollar liquidity challenges in Honduras during fiscal year 2023 through much of fiscal year 2025 and the Central bank still has strict controls there on the availability of U.S. dollars. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” and "Quantitative and Qualitative Disclosures about Market Risk" for quantitative analysis and discussion.
Our cash flows are summarized as follows (in thousands):
Years Ended
August 31,
August 31,
Change
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rates
Net increase (decrease) in cash, cash equivalents
Net cash provided by operating activities totaled $261.3 million and $207.6 million for the twelve months ended August 31, 2025 and 2024, respectively. Net cash provided by operating activities increased primarily due to a net change in our various operating assets and liabilities which contributed $19.4 million. Shifts in working capital resulting from changes in our merchandise inventory and accounts payable positions contributed $17.7 million to the overall increase. The primary cause of this was a lower year-over-year increase in inventory compared to the prior year due to two additional clubs that opened in fiscal year 2025 compared to three in fiscal year 2024. Additionally, an increase in net income without non-cash items contributed $16.6 million of cash provided for the twelve months ended August 31, 2025.
Net cash used in investing activities totaled $128.9 million and $175.5 million for the twelve months ended August 31, 2025 and August 31, 2024, respectively. The $46.6 million decrease in cash used in investing activities is primarily due to a net decrease in purchases less proceeds of short-term investments of $35.4 million and a decrease in additions to property and equipment of $10.4 million. We opened two warehouse clubs during fiscal year 2025 compared to three warehouse clubs in fiscal year 2024.
Net cash provided by financing activities totaled $14.2 million and net cash used in financing activities totaled $150.0 million for the twelve months ended August 31, 2025 and 2024, respectively. The $164.2 million shift from cash used in to cash provided by financing activities is primarily the result of a $65.4 million increase in proceeds from long-term bank borrowings net of repayments of long-term bank borrowings, a $66.8 million decrease in purchases of treasury stock, and a $27.4 million decrease in cash dividend payments. During the fourth quarter of fiscal year 2025, the Company entered into loan agreements in the United States as well as its Trinidad and Guatemala subsidiaries for $92.9 million. Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 11 - Debt” for further discussion. During the first quarter of fiscal year 2024, the Company repurchased shares of common stock under a share repurchase program. Additionally, during fiscal year 2024, the Company paid a special dividend in April 2024 in addition to the Company's annual cash dividend declared in February 2024.
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The following table summarizes the dividends declared and paid during fiscal years 2025, 2024 and 2023 (amounts are per share):
First Payment
Second Payment
Declared
Amount
Record
Date
Date
Paid
Amount
Record
Date
Date
Paid
Amount
On February 6, 2025, the Company's Board of Directors declared an annual cash dividend in the total amount of $1.26 per share, with $0.63 per share paid on February 28, 2025 to stockholders of record as of February 18, 2025 and $0.63 per share paid on August 29, 2025 to stockholders of record as of August 15, 2025. The declaration of future dividends (ongoing or otherwise), if any, 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 the uncertain macroeconomic conditions on our results of operations and cash flows.
Capital Expenditures
Capital expenditures were $158.1 million for the year ended August 31, 2025, with maintenance and growth expenditures of $82.1 million and $76.0 million, respectively. Capital expenditures for fiscal year 2024 were $168.5 million, with maintenance and growth expenditures of $72.3 million and $96.2 million, respectively. In the third quarter of fiscal year 2025, we purchased land and plan to open our sixth warehouse club in the Dominican Republic, located in La Romana. Maintenance expenditures are typically for operational fixtures and equipment, building refurbishment, solar, technology and other expenses. Growth expenditures are for new clubs, purchases of previously leased clubs, investments to move existing clubs to better locations, supply chain improvements, and major remodels and expansions.
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, dividends 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.
Future Lease and Other Commitments
We place a strong emphasis on managing future lease commitments related to various facilities and equipment that support our operations. Based on our current liquidity and cash flow projections, we believe we will have sufficient cash to cover future lease commitments. As of August 31, 2025, we have signed one lease agreement for a facility to be built by the lessor which has not yet commenced. Refer to Part II. "Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 9 - Commitments and Contingencies" for further discussion.
Derivatives
Please 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.
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.
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Repurchase of Common Stock and Reissuance of Treasury Shares Related to Employee Stock Awards
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 and apply the proceeds to pay the employees' tax withholding requirements, not to exceed the maximum statutory tax rate, related to the vesting of restricted stock awards. The Company expects to continue this practice going forward.
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 in the future.
The following table summarizes the equity securities repurchased as part of the Company's stock-based compensation programs during fiscal years 2025, 2024 and 2023:
Years Ended
August 31,
August 31,
August 31,
Shares repurchased
Cost of repurchase of shares (in thousands)
We reissued 65,000 treasury shares as part of our stock-based compensation programs during fiscal year 2025, 3,000 treasury shares during fiscal year 2024 and 6,333 treasury shares during fiscal year 2023.
Share Repurchase Program
In July 2023 we announced a program authorized by our Board of Directors to repurchase up to $75 million of our common stock. We began repurchases in the fourth quarter of fiscal year 2023 and successfully completed the share repurchase program in the first quarter of fiscal year 2024. We purchased a total of approximately 1,007,000 shares of our common stock under the program. The repurchases were made on the open market pursuant to a trading plan established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which permitted us to repurchase common stock at a time that we might otherwise have been precluded from doing so under insider trading laws or self-imposed trading restrictions. We have no plans to continue repurchases or adopt a new repurchase plan at this time. However, the Board of Directors could choose to commence another program in the future at its discretion after its review of the Company’s financial performance and anticipated capital requirements. During fiscal year 2025, the Company did not repurchase shares under a share repurchase program.
Share repurchase activity under the Company’s repurchase programs for the periods indicated was as follows (total cost in thousands):
Years Ended
August 31,
August 31,
Number of common shares acquired
Average price per common share acquired
Total cost of common share acquired
For further information, refer to Part II. “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
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Critical Accounting Estimates
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. Management continues to review its accounting policies and evaluate its estimates, 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.
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, 2025, 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. 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, 2025 and August 31, 2024, we have recorded valuation allowances of $7.0 million and $12.5 million against our foreign tax credits, respectively.
We are required to file federal and state income tax returns in the United States and income tax and various other tax returns in multiple foreign jurisdictions, each with changing tax laws, regulations and administrative positions. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. We record the benefits of uncertain tax positions in our financial statements only after determining it is more likely than not the uncertain tax positions would sustain challenge by taxing authorities, including resolution of related appeals or litigation processes, if any. We develop our assessment of an uncertain tax position based on the specific facts and legal arguments of each case and the associated probability of our reporting position being upheld, using internal expertise and the advice of third-party experts. However, our tax returns 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, taxing authorities may challenge, and in some cases presently are challenging, the interpretations we have used to calculate our tax liability. In addition, any settlement with the tax authority or the outcome of any appeal or litigation process might result, and in some cases has resulted, in an outcome that is materially different from our estimated liability. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate. Variations in the actual outcome of these cases could materially impact our consolidated financial statements.
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Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income. There were no material changes in our uncertain income tax positions for the period ended on August 31, 2025.
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, depending on the country.
The Company's continued persistent efforts to recover the entirety of its VAT receivables resulted in significant refunds during fiscal year 2025. In one market, the Company was successful in collecting $4.8 million in cash refunds for periods extending from fiscal years 2018 to 2020. In another market, the Company received approval for an additional $4.3 million in cash refunds for periods extending from fiscal years 2019 to 2020.
Minimum tax rules, applicable in some of the countries where the Company operates, require the Company to pay taxes based on a percentage of sales if the resulting tax were greater than the tax payable based on a percentage of income (Alternative Minimum Tax or "AMT"). This can result in AMT payments substantially in excess of those the Company would expect to pay based on taxable income. As the Company believes that, in one country where it operates, it should only be ultimately liable for an income-based tax, it has accumulated income tax receivables of $10.5 million and $10.9 million and deferred tax assets of $3.9 million and $3.4 million as of August 31, 2025 and August 31, 2024, respectively, in this country.
The Company’s various outstanding VAT receivables and/or income tax receivables are based on individual procedures or appeals with their own set of facts and circumstances. The Company consults with legal and tax advisors regularly to understand the strength of its legal arguments and probability of successful outcomes in addition to its own experience handling these complex tax issues. While the rules related to refunds of income tax receivables in some of the countries where the Company operates are unclear and complex, the Company has not placed any type of allowance on the recoverability of the remaining 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 pursuant to tax assessments that we are appealing because we believe it is more likely than not that we will ultimately prevail in the related appeals. There can be no assurance, however, that the Company will be successful in recovering all tax receivables or deferred tax assets.
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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 Prepaid expenses and 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 evaluate quarterly 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.
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 significant impairment charges during fiscal year 2025 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.
