Unlocking Growth in Chile: PriceSmart's Strategic Move to a Prosperous Market

Chile's economic stability and its burgeoning middle class are positioning it as a prime destination for retailers seeking untapped growth. For PriceSmart (NASDAQ: PZZ), a leader in membership warehouse clubs across Central America, Chile presents a compelling opportunity to replicate its success in a market with strong consumer demand and favorable trade ties to the U.S.

A Proven Track Record in Underpenetrated Markets

PriceSmart's Central American operations exemplify its ability to thrive in emerging markets. As of Q2 2025, the company operated 30 warehouse clubs in the region, with net merchandise sales rising 5.4% year-over-year and comparable sales up 5.6%. This growth was driven by a focus on local sourcing (50% of products) and strategic investments in distribution centers, which reduced costs and improved supply chain efficiency. The region's 1.9 million membership accounts, with an 87% renewal rate, underscore strong customer loyalty.

Chile's middle-class population, which grew to 47% of households in 2024, offers a similar opportunity. With a GDP projected to expand 2.5% in 2025 (), the market is ripe for a retailer that combines affordability with trusted quality—a hallmark of PriceSmart's model.

Strategic Advantages: Economic Stability and U.S. Trade Ties

Chile's economy is underpinned by robust trade relationships. Its Free Trade Agreement (FTA) with the U.S. eliminates tariffs on most goods, giving PriceSmart a competitive edge in sourcing. Additionally, Chile's membership in the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) diversifies its trade partnerships, reducing reliance on China.

The country's political risk rating of 82/100 (among the highest in Latin America) reflects stable institutions and low public debt (). This stability contrasts with the volatility seen in other emerging markets, making Chile an attractive base for long-term investment.

Mitigating Currency Risks: Lessons from the FTZ

PriceSmart's Free Trade Zone (FTZ) operations in Costa Rica and the U.S. have insulated it from currency fluctuations and tariffs. In Chile, the company could leverage similar strategies, such as storing imported goods in bonded warehouses until final sale, thereby avoiding customs duties. This approach would protect margins in an environment where 60% of Chile's exports are tied to volatile commodities like copper.

Valuation: A Stock Undervalued Relative to Growth Prospects

PriceSmart's P/E ratio of 21.75 and EV/EBITDA of 10.52 are below industry averages, suggesting the stock is undervalued (). Its dividend yield of 1.16%, consistent for 19 consecutive years, adds a steady income stream. While recent dividend cuts in 2024 raised concerns, the Q2 2025 dividend increase to $0.63 semi-annually signals renewed confidence in cash flow.

Risks to Consider

• Political uncertainty: Chile's 2025 presidential election could introduce policy shifts, though its institutional strength mitigates extreme risks.
• Commodity dependency: Copper prices and China's demand could impact Chile's economy, indirectly affecting PriceSmart's sales.
• Competition: Existing retailers like Walmart and Cencosud pose challenges, though PriceSmart's membership model offers a unique value proposition.

Conclusion: A Compelling Investment Thesis

PriceSmart's entry into Chile aligns with its strategy of targeting underpenetrated markets with strong middle-class demographics and favorable trade conditions. The stock's low valuation and consistent dividend history make it a compelling buy, particularly for investors seeking exposure to Latin America's growth story. Chile's economic stability and the company's proven operational model position PriceSmart to deliver above-average returns over the next five years.

Investment Recommendation: Buy PriceSmart with a target price of $120 (based on a P/E expansion to 25x 2026 earnings). Monitor Chile's political climate and commodity prices as key risk indicators.