Mar 24, 2020
Party City Holdco Inc. released financial results for the quarter, year ended December 31, 2019

Party City Holdco Inc. released financial results for the quarter and year ended December 31, 2019. “2019 was a challenging year due to a confluence of events, including both external headwinds and execution issues, that impacted both sales and margins. As we look ahead, we are taking actions in our retail business to improve our operating model and performance, which is at the core of our plans to return our total business to growth. We will continue to focus on executing against our strategic priorities, keeping the customer at the forefront of our decision-making process across areas including product development, merchandising, marketing, store and online operations. We believe we are positioning ourselves to maximize the potential of our vertical model and drive sustainable long-term growth,” James M. Harrison, chief executive officer, stated.

Full Year Summary

  • Total revenues decreased 3.2% on a reported basis and 2.7% on a constant currency basis.
  • Retail sales decreased 3.4% on a reported basis and 3.2% on a constant currency basis, principally due to the negative impact of helium shortages, the sale of our 65 Canadian retail stores prior to the Halloween season, the impact of reduced sales from 55 stores identified for closure in conjunction with our 2019 store optimization program, and soft Halloween sales at our Party City stores and temporary Halloween stores. We ended the year with 777 company-owned stores and 98 franchise stores.
  • Brand comparable sales decreased 3.0% for the year.
  • North American e-commerce sales increased by 2.8% and by 14.8% when adjusted for buy online pickup in store sales.
  • Net third-party wholesale revenues decreased 2.6% on a reported basis or increased 1.3% after adjusting for the impacts of currency and store acquisitions.
  • Total gross profit margin decreased 470 basis points to 35.9% of net sales primarily due to a combination of markdowns in conjunction with our store optimization program and provisions against inventory recorded in conjunction with such program (130 bps); the impact of aggressive promotions during the second half of 2019 (100 bps); the impact of  the helium shortage on costs and sales mix (100 bps); flow through of higher freight and distribution costs during the first three quarters of 2019 (60 bps); sales mix shifts including the growth in mass market and grocery channel sales (50 bps); and the remainder principally due to sales deleverage.
  • As a result of a sustained decline in our market capitalization, we recognized non-cash pre-tax goodwill and tradename impairment charges during the year ended December 31, 2019 of $562.6 million against the goodwill associated with our retail and wholesale reporting units.
  • Operating expenses, excluding the store optimization expenses, goodwill impairment charges and gain from the sale-leaseback transaction, totaled $732.2 million or $18.4 million higher than 2018. The increase is primarily the result of the annualization of costs associated with store acquisitions in the second half of 2018.
  • Interest expense increased by $9.2 million to $114.9 million versus the prior year, principally due to the August 2018 high yield debt offering.
  • Reported GAAP net loss was $532.9 million, versus net income of $122.8 million during 2018.  Reported diluted loss per share was ($5.71), versus diluted earnings per share of $1.27 during the prior year.
  • Adjusted net income totaled $43.4 million, or $0.46 per share, compared to $156.8 million, or $1.61 per share, in the prior year.
  • Adjusted EBITDA for the year was $269.2 million, compared to $400.1 million in 2018.

Fourth Quarter Summary

  • Total revenues decreased 9.2% on a reported basis to $731.6 million and decreased 9.1% on a constant currency basis.
  • Total retail sales decreased 12.4% on both a reported and constant currency basis, principally due to the sale of our 65 Canadian retail stores prior to the Halloween season, the impact of reduced sales from 55 stores identified for closure in conjunction with our 2019 store optimization program, and soft Halloween sales at our Party City stores and temporary Halloween stores.
  • Brand comparable sales decreased 5.1% during the fourth quarter including approximately 70 basis points of headwinds from the New Years Eve timing shift.
  • North American e-commerce sales increased by 2.1% on a reported basis and 14.7% when adjusted for buy online pickup in store sales.
  • Net third-party wholesale revenues increased 5.0% in constant currency.
  • Total gross profit margin decreased 500 basis points to 40.3% of net sales primarily due to an increase in promotional activity at retail for everyday and seasonal products  (180 bps); the inventory markdowns and provisions recorded in conjunction with our previously discussed store optimization program (130 bps); overall impact of helium (80 bps); sales deleverage (50 bps); and the remainder principally due to sales mix shifts, including the growth in mass market and grocery channel sales.
  • As a result of a sustained decline in our market capitalization, we recognized non-cash pre-tax goodwill and tradename impairment charges during the year ended December 31, 2019 of $562.6 million against the goodwill associated with our retail and wholesale reporting units.
  • Operating expenses, excluding store impairment charges and goodwill impairment charges, totaled $216.7 million or $9.2 million higher than the fourth quarter of 2018, principally the result of a legal settlement and increased marketing spend.
  • Interest expense was $26.0 million during the fourth quarter of 2019, compared to $29.2 million during the fourth quarter of 2018 driven by the debt pay down as a result of the previously announced Sale-Leaseback and Canadian Tire transactions.
  • Reported GAAP net loss was $268.8 million or ($2.88) per share.
  • Adjusted net income was $47.8 million, or $0.51 per share, compared to $103.4 million, or $1.08 per share, in the fourth quarter of 2018.
  • Adjusted EBITDA was $119.5 million, versus $188.9 million during the fourth quarter of 2018.

Balance Sheet Highlights as of December 31, 2019

The Company ended the quarter with $1,669 million in debt (net of cash) and approximately $356 million in availability under its asset-based revolving credit facility.

Store Optimization Program

During the fourth quarter of 2019, the Company recorded $3.2 million of charges related to the previously announced store optimization program, which included the closing of 35 Party City locations in fiscal 2019. After year end, the Company closed 20 stores for a total of 55 store closures as part of its store optimization program.

Fiscal 2020 Outlook

The Company provided the following financial guidance for fiscal year 2020, which excludes the potential impact of COVID-19:

  • Total revenue expected to be down in the mid-single digit percentage range
  • Brand comparable sales to be down in the low single digit percentage range
  • GAAP net income of $38 to $54 million
  • GAAP diluted EPS of $0.41 to $0.58
  • Adjusted EBITDA of $250 to $270 million
  • Adjusted net income of $47 to $63 million
  • Adjusted diluted EPS of $0.50 to $0.68
  • The Company will continue to prioritize paying down debt in 2020

The Company has reconciled Non-GAAP outlook measures to the most directly comparable GAAP measures later in this release. See “Non-GAAP Information” and “Reconciliation of 2020 Outlook” for a more detailed explanation, including definitions of the various Non-GAAP terms used in this release.


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