Party City share price adjustment amid affected sales period

Shares of Party City PRTY, -8.51% dropped 7.8% in pre-market trading yesterday (Thursday 11 March 2020), after the party goods retailer reported a fourth-quarter adjusted profit, revenue and same-store sales that missed expectations, as the COVID-19 pandemic damaged sales. The net loss narrowed to $96.4 million, or 88 cents a share, from $268.8 million, or $2.88 a share, in the previous period.

Excluding non-recurring items, adjusted earnings per share fell to 25 cents from 51 cents and missed the FactSet consensus of 31 cents. Total revenue dropped 11.4% to $648.2 million, below the FactSet consensus of $659.2 million, with total retail sales falling 8.3% given store closures. Brand comparable sales decreased 5.9%, while the average estimate of two analysts surveyed by FactSet was for a 5.5% decline. For the first quarter, the company expects total revenue of $397 million to $410 million, below expectations of $426 million, while brand comparable sales are expected to increase 26% to 31%. The stock has run up 41.3% over the past three months through Wednesday, while the SPDR S&P Retail ETF XRT, 1.23% has climbed 50.0% and the S&P 500 SPX, 0.97% has gained 6.4%.

Brad Weston, chief executive officer of Party City said: “We are very pleased with how our organisation navigated 2020, swiftly pivoting to meet the evolving needs of our customers, all while prioritising the health and safety of both our associates and our customers during this pandemic. Throughout the year, we made important strides on our five strategic initiatives, innovating and elevating our customer experience while also significantly improving our financial position and flexibility with our actions to reduce debt and extend maturities. I am extremely proud of all that has been accomplished thus far and the hard work and commitment demonstrated by the entire team as we continue to transform the business.

Weston continued, “We enter 2021 in a substantially stronger position, armed with greater consumer insights and a solid foundation to build upon as we further our mission to deliver The Party Platform by advancing the building blocks that we put in place in 2020. We remain intensely focused on our customer and more effectively operating and leveraging our unique North American vertical model as we continue our transformation and further strengthen our industry leadership position.”

Fourth Quarter Summary:

  • Total revenues were $648.2 million, a decrease of 11.4% on a reported basis and 11.7% on a constant currency basis
  • Total Retail sales decreased 8.2% on a reported and 8.3% constant currency basis, impacted by closures related to our store optimization program and the impact of COVID-19, offset partially by the benefit from the 53rd week
  • The total number of corporate Party City stores was 746 as of December 31, 2020 compared to 777 a year ago.
  • Brand comparable sales for the 14 weeks ended January 2, 2021 versus 14 weeks ended January 4, 2020 decreased 5.9% due to the impact of COVID-19, especially on seasonal celebrations.
  • The Company’s Retail segment included a 53rd week of operations in the fourth quarter and full year, which contributed approximately $40 million to revenue, approximately $12 million to Adjusted EBITDA and approximately $0.08 to adjusted diluted earnings per share (See “Non-GAAP Financial Information”).
  • North American digitally enabled sales increased 27.1% including BOPIS, curbside pickup, and delivery.
  • Net third-party Wholesale revenues decreased 23.0% or a decrease of 24.0% in constant currency, driven by lower third-party sales including softer franchise store performance, and the impact of international COVID-related restrictions.
  • Total gross profit margin decreased 1,454 basis points to 25.7% of net sales driven primarily by a year-end seasonal inventory disposal of $88.3 million, which aligned inventories to the Company’s new seasonal assortment strategy of targeting higher in-season sell-through of merchandise and reducing annual inventory carry-over. Excluding certain items not indicative of core operating performance, gross profit margin decreased 50 basis points to 39.7% of net sales mainly due to deleverage on occupancy costs.
  • Operating expenses totaled $281.1 million or $242.4 million lower than the fourth quarter of 2019. Excluding certain items not indicative of core operating performance, operating expenses totaled $200.5 million, or 31.1% of revenue, a reduction of $4.8 million compared to the fourth quarter of 2019, primarily driven by cost management to reflect lower revenues and reduced retail store count.
  • Interest expense was $13.1 million during the fourth quarter of 2020, compared to $26.0 million during the fourth quarter of 2019 mainly due to lower amount of debt outstanding.
  • Reported GAAP net loss was $96.4 million, or a loss of $(0.88) per diluted share.
  • Adjusted net income was $27.5 million, or $0.25 per diluted share, compared to adjusted net income of $47.8 million, or $0.51 per share, in the fourth quarter of 2019. (See “Non-GAAP Financial Information”)
  • Adjusted EBITDA was $77.3 million, versus $119.5 million during the fourth quarter of 2019. (See “Non-GAAP Financial Information”)

 

Full Year Summary:

  • Total revenues were $1.851 billion, a decrease of 21.2% on a reported basis and a decrease of 21.3% on a constant currency basis
  • Total Retail sales decreased 21.1% on both a reported and constant currency basis, due to the COVID-19 pandemic, with a brand comparable sales decline of 16.5%
  • 2nd half 2020 Brand comparable sales decreased 0.5%
  • North American digitally enabled sales increased 35.4% including BOPIS, curbside pickup, and delivery
  • Net third-party Wholesale revenues decreased 21.6% on a reported basis and 21.7% on a constant currency basis.
  • Total gross profit margin decreased 1,017 basis points to 25.7% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin decreased 290 basis points to 34.2% of net sales mainly due to deleverage on occupancy costs.
  • Operating expenses totaled $1.358 billion. Excluding certain items not indicative of core operating performance, operating expenses totaled $616.4 million, or 33.4% of revenue, a reduction of $82.0 million compared to 2019, primarily due to lower retail operating expenses as a result of the lower store count, lower Wholesale selling expenses and the temporary benefits from cost cutting related to the pandemic.
  • Interest expense was $77.0 million during 2020, compared to $114.9 million during the 2019.
  • Reported GAAP net loss was $528.5 million, or $(5.24) per share.
  • Adjusted net loss was $49.2 million, or a loss of $0.49 per diluted share compared to adjusted net income of $43.4 million, or $0.46 per share, in 2019. (See “Non-GAAP Financial Information”)
  • Adjusted EBITDA was $95.5 million, versus $269.2 million during 2019. (See “Non-GAAP Financial Information”)

 

Balance Sheet Highlights:

As at the end of 2020, the Company had $119.5 million in cash and approximately $176.5 million of availability under the ABL Facility, for total liquidity of $296.1 million.

In addition, the principal balance of debt net of cash on December 31, 2020 was $1,253.6 million versus $1,684.8 million in the prior-year period. The principal balance of debt is used for the purpose of all leverage ratio calculations under our debt agreements.

MORE NEWS
PHil Grabo
 
After six years of valued and appreciated work at Grabo, Phil Bardsley, UK business development manager, will leave the company....
MAD Product
 
Following rapid growth in the UK, US and Australian markets, MAD Product has expanded its team with a new creative product developer....
Boland 2
 
In March 2024 Boland launched its new catalogue featuring hundreds of new items of party wear for young and old alike. ...
B&LLAs
 
The finalists in the Product, Property, Retail and Rising Star categories for the Brand & Lifestyle Licensing Awards 2024 have officially been revealed....
Morph Costumes 2
 
The co-founder and ceo of Morph Costumes recently joined host Sebastian Schieke on the popular podcast....
Licensing for retail
 
A survey at the recent Licensing for Retail Day has highlights retailers has provided insight into the role licensing plays in retail business strategies....
Get the latest news sent to your inbox
Subscribe to our daily newsletter