Sales trends improved throughout quarter; June brand comparable sales down -6.5% and July brand comparable sales positiveSubstantially all stores reopened as of June 22Successful exchange offers and reset of capital structureELMSFORD, N.Y., Aug. 06, 2020 (GLOBE NEWSWIRE) — Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter ended June 30, 2020.Brad Weston, Chief Executive Officer, stated, “Against a difficult, pandemic impacted backdrop, our teams continued to execute with discipline and demonstrate their resilience as we adapted quickly to changing operating conditions in the second quarter. We made progress on our key strategic priorities including the rapid launch and expansion of additional customer fulfillment options, as well as relevant merchandising and marketing strategies that resonated with our customers and reflected their evolving approach to celebrations. We also took significant steps to strengthen our financial position and just last week successfully completed our exchange offers that enabled us to extend our debt maturities, reduce our leverage and increase our liquidity.”Mr. Weston continued, “As our stores reopened, overall business trends improved, and we have seen a continuation of that improving trend so far in the third quarter, driven in large part by a very successful graduation season, as well as kids’ birthday, including strength in balloon sales. However, the environment remains highly uncertain and, as we head into the important third quarter and Halloween selling season, we remain disciplined in our approach to managing the business, continuing to prioritize preservation of our financial health and liquidity, while staying flexible so we can swiftly react to changing operating conditions. With focused execution of our strategic priorities, we are moving forward with our plan to stabilize the business and reposition Party City for enduring success.”Second Quarter Summary:Total revenues decreased 54.8% on a reported basis to $254.7 million and decreased 54.6% on a constant currency basis.Total Retail sales decreased 56.3% on a reported basis and 56.3% on a constant currency basis, principally due to the temporary closure of all the Company’s retail stores during the quarter.The Company began reopening stores on May 1, 2020, in accordance with state and local health ordinances, and as of June 12, 2020 had reopened 85% of its stores. By June 22, 2020, substantially all stores were re-opened.Brand comparable sales decreased 52.4% in the second quarter due to the loss of store operating days for all of April and most of May. For the month of June, brand comparable sales were down 6.5%. When looking at the cohort of stores that were open for the entire month of June, including BOPIS (buy online, pickup in store), curbside pickup, and same day delivery, brand comparable sales for this cohort increased 6.3%.North American e-commerce sales increased 83.2% including BOPIS, curbside pickup, and delivery, and increased 3.3% excluding BOPIS, curbside pickup, and delivery.Net third-party Wholesale revenues decreased 50.3% or 49.5% in constant currency and maintained approximately 70% of prior year sales volume in the month of June.Total gross profit margin decreased 3,094 basis points to 6.2% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin decreased 1,860 basis points to 19.4% of net sales mainly due to deleveraging from lower sales caused by the temporary closure of stores.Operating expenses totaled $142.4 million or $24.1 million lower than the second quarter of 2019. Excluding certain items not indicative of core operating performance, Operating expenses totaled $115.7 million or $41.0 million lower than the second quarter of 2019, primarily due to the temporary store closures during the second quarter of 2020 and resulting cost reductions implemented in response to the COVID-19 pandemic.Interest expense was $25.4 million during the second quarter of 2020, compared to $30.2 million during the second quarter of 2019 driven by lower interest rates and the pay down of debt associated with the proceeds from the sale leaseback and Canadian retail transactions.Reported GAAP net loss was $130.0 million, or a loss of $1.39 per share.Adjusted net loss was $61.3 million, or a loss of $0.66 per share, compared to adjusted net income of $20.2 million, or $0.22 per share, in the second quarter of 2019. (See “Non-GAAP Financial Information”)Adjusted EBITDA was a loss of $42.8 million, versus $81.0 million during the second quarter of 2019. (See “Non-GAAP Financial Information”)Balance Sheet Highlights:As of the end of the second quarter on June 30, 2020, the Company had $154.1 million in cash, $1,743 million in debt (net of cash) and approximately $136.1 million of availability under the ABL Facility, for total liquidity of $290 million.Reset of Capital Structure:The previously announced exchange offers (the “Exchange Offers”) that the Company commenced on June 26, 2020, settled on July 30, 2020 with the participation of approximately 84.7% of the Company’s outstanding existing notes, including approximately 93.5% of 6.125% Senior Notes due 2023 and approximately 78.6% of 6.625% Senior Notes due 2026.Through the Exchange Offers, participating holders received a combination of:approximately 15.9 million shares of common stock of the Company, par value $0.01 per share (the “Exchange Shares”);approximately $156.7 million of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by Party City Holdings Inc., a wholly owned indirect subsidiary of the Company (“Holdings”), and secured by first-priority liens on all assets of Holdings and its subsidiaries that currently secure the Company’s existing senior credit facilities; andapproximately $84.7 million of 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (the “Second Lien Anagram Notes”) issued by Anagram Holdings, LLC and Anagram International, Inc., wholly owned indirect subsidiaries of the Company (together, the “Anagram Issuers”), and secured by second-priority liens on assets of the Anagram Issuers and their subsidiaries guaranteeing such notes, subject to certain agreed upon exceptions.In addition, in connection with the previously announced rights offering and private placement related to the Exchange Offers (together with the Exchange Offers, the “Refinancing Transactions”), (i) the Anagram Issuers issued $110.0 million of 15.00% PIK/Cash Senior Secured First Lien Notes due 2025, secured by first-priority liens on assets of the Anagram Issuers and their subsidiaries guaranteeing such notes, subject to certain agreed upon exceptions; and (ii) Holdings issued an additional $5.0 million of First Lien Party City Notes.The Refinancing Transactions have the combined effect of deleveraging the Company’s balance sheet by approximately $463 million including raising $100 million in new capital to increase its financial strength and support the Company’s global operations and ongoing transformation initiatives. The accompanying supplemental earnings material, available on the Company’s investor relations website, contains further information, including on pro-forma debt and cash. Given the completion of these transactions, interest expense, assuming currently prevailing interest rates and the current pro-forma capital structure, is expected to be reduced by approximately $10 million on an annualized basis. In addition, approximately 15.9 million shares are being issued, which increases shares outstanding by the same amount.Store Optimization Program:In 2019, the Company initiated a store optimization program under which the Company identified approximately 55 Party City stores to be closed. In addition, 21 stores were identified in 2020 for closure at a future date. The Company also recorded an impairment charge for open stores where sales were affected by COVID-19. In conjunction with the program and store impairment, the Company’s Retail segment recorded $1.2 million and $8.9 million of store impairment and restructuring charges in the second quarter of 2020 and 2019, respectively.Fiscal 2020 Outlook:During the remainder of 2020, the Company plans to close approximately 21 stores, open 4 new stores, with approximately 6 new store openings planned to shift into 2021.In 2020, the Company continues to plan to invest approximately $35-$40 million dollars in capital expenditures, with approximately one third invested in its retail segment, and the balance invested in its manufacturing and distribution capabilities.Full year 2020 interest expense is expected to be approximately $80 million. This is approximately $25 million below our original expectation of $104-$106 million at the start of the year and before COVID-19 related guidance withdrawal. The reduction is due to approximately $5 million in partial year impact of the Exchange Offers, as well as approximately $20 million in the one-time elimination of the August 2020 semi-annual interest payments for the senior notes participating in the Exchange Offers.Full year 2020 depreciation & amortization is expected to be approximately $77 million.As a result of the continued disruption and uncertainty caused by the COVID-19 pandemic, the Company is not providing any additional financial outlook information at this time for fiscal 2020.Conference Call Information:A conference call to discuss the second quarter 2020 financial results is scheduled for today, August 6, 2020, at 8:00 a.m. Eastern Time, and the Company has posted certain supplemental presentation materials to its investor relations website. Investors and analysts interested in participating in the call are invited to dial 866-270-1533 (U.S. domestic) or 412-317-0797 (international) approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investor.partycity.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. The webcast will be accessible for one year after the call.Website InformationWe routinely post important information for investors on the Investor Relations section of our website, http://investor.partycity.com/. We intend to use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.Non-GAAP InformationThis press release includes non-GAAP measures including Adjusted EBITDA and Adjusted Net Income/Loss and Adjusted Earnings per Share. We present these non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA: (i) as a factor in determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) because our credit facilities use Adjusted EBITDA to measure compliance with certain covenants. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in tables accompanying this release. We also evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results. We also provide free cash flow, defined as Adjusted EBITDA less capital expenditures, and net debt leverage, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, Excluding Current Portion, subtracting Cash and Cash Equivalents and dividing by Adjusted EBITDA for the trailing twelve month period. Adjusted Earnings per Share is calculated by dividing Adjusted Net Income by the Weighted Average Number of Common Shares-Diluted. We believe providing these non-GAAP measures provides valuable supplemental information regarding our results of operations and leverage, consistent with how we evaluate our performance. In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as a means to evaluate the results of its core operations. Other companies in the Company’s industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.Forward-Looking StatementsThis press release and the commentary in the conference call to be held today each contains forward-looking statements. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance, including Party City’s expectations regarding its ability to maximize the potential of its plans to open and close stores, plans to invest capital expenditures, and anticipated interest expense and depreciation and amortization expense for fiscal year 2020. The forward-looking statements contained in this press release are based on management’s good-faith belief and reasonable judgment based on current information, and these statements are qualified by important risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those forecasted or indicated by such forward-looking statements. These risks and uncertainties include: potential risks and uncertainties relating to the ultimate geographic spread of COVID-19; the severity of the COVID-19 pandemic; the duration of the COVID-19 pandemic; actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact; the potential negative impacts of COVID-19 on the global economy and foreign sourcing; the impacts of COVID-19 on our financial condition and business operation; our ability to compete effectively in a competitive industry; fluctuations in commodity prices; our ability to appropriately respond to changing merchandise trends and consumer preferences; successful implementation of our store growth strategy; decreases in our Halloween sales; the impact of helium shortages on our financial performance; disruption to the transportation system or increases in transportation costs; product recalls or product liability; economic slowdown affecting consumer spending and general economic conditions, including as a result of the COVID-19 pandemic; loss or actions of third party vendors and loss of the right to use licensed material; disruptions at our manufacturing facilities; and the additional risks and uncertainties set forth in “Risk Factors” in Party City’s Annual Report on Form 10-K for the year ended December 31, 2019 and in subsequent reports filed with or furnished to the Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, outlook, guidance, results, actions, levels of activity, performance or achievements. Readers are cautioned not to place undue reliance on these forward looking statements. Except as may be required by any applicable laws, Party City assumes no obligation to publicly update or revise such forward-looking statements, which are made as of the date hereof or the earlier date specified herein, whether as a result of new information, future developments or otherwise.About Party CityParty City Holdco Inc. is the leading party goods company by revenue in North America and, we believe, the largest vertically integrated supplier of decorated party goods globally by revenue. The Company is a popular one-stop shopping destination for party supplies, balloons, and costumes. In addition to being a great retail brand, the Company is a global, world-class organization that combines state-of-the-art manufacturing and sourcing operations, and sophisticated wholesale operations complemented by a multi-channel retailing strategy and e-commerce retail operations. The Company is the leading player in its category, vertically integrated and unique in its breadth and depth. The Company designs, manufactures, sources and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery throughout the world. The Company’s retail operations include approximately 850 specialty retail party supply stores (including franchise stores) throughout North America operating under the names Party City and Halloween City, and e-commerce websites, principally through the domain name PartyCity.comPARTY CITY HOLDCO INC.
CONSOLIDATED BALANCE SHEETS
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OPERATING METRICS(a) Wholesale share of shelf represents the percentage of our retail product cost of sales supplied by our wholesale operations.
(b) Manufacturing share of shelf represents the percentage of our retail product cost of sales manufactured by the company.
(c) Party city brand comparable sales include North American e-commerce sales.
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