ELMSFORD, N.Y., Nov. 07, 2019 (GLOBE NEWSWIRE) — Party City Holdco Inc. (NYSE:PRTY) today announced financial results for the third quarter ended September 30, 2019, as well as total revenue for fiscal October 2019.
James M. Harrison, Chief Executive Officer, stated, “Our third quarter and October results were disappointing as many of the tailwinds that we expected failed to materialize. The negative impact of helium shortages was felt across the business on both the top and bottom line including a 210 basis point headwind to third quarter brand comparable sales. However, we are encouraged that our retail operations have approached a 100% in stock helium position since we began the fourth quarter, resulting in abating helium headwinds at retail and a bounce-back in the helium impacted categories.”Mr. Harrison added, “While our Halloween performance was soft in stores, our digital business, which includes Buy Online Pick-Up In Store and marketplace, showed strong growth. We are carefully analyzing our Halloween results and addressing the underlying issues and opportunities we have identified to improve the business going forward. We have revised our full year outlook to reflect the third quarter and October shortfalls. This 2019 outlook includes a significant impact from temporary headwinds like the helium shortages and the flow through of previously capitalized excess freight and distribution costs. Combined, these two factors impacted EBITDA by $45 million in 2019, representing approximately half the total year over year decline. These temporary headwinds notwithstanding, we are not satisfied with our performance this year and our entire team is focused on driving improvement and returning the business to positive comparable growth and top of mind consumer relevance,” Mr. Harrison concluded.Third Quarter Summary:Total revenues decreased 2.3% on a reported basis to $540.2 million and 1.5% on a constant currency basis.Total Retail sales decreased 1.7% on a reported basis (1.5% on a constant currency basis) principally due to headwinds from the helium shortage.Brand comparable sales decreased 2.6% during the third quarter due to approximately 210 basis points of headwinds from the helium shortageNorth American e-commerce sales increased by 11.6% on a reported basis and 14.9% including Buy Online Pickup In Store. Net third-party wholesale revenues increased 0.2% on an adjusted basis when excluding the impacts of franchise store acquisitions and currency. Third-party international wholesale sales increased by 3.9% on a constant currency basis.Total gross profit margin decreased 590 basis points to 30.6% of net sales primarily due to the overall impact of the ongoing helium shortage, including increased cost (180 bps); inventory markdowns and provisions recorded in conjunction with the Company’s previously discussed store optimization program (160 bps); higher freight costs associated with product imported during the second half of 2018 as the China tariffs caused temporary operational disruptions (130 bps): an increase in promotional activity at retail for everyday and seasonal products (100 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 the Company’s market capitalization, the Company recognized a non-cash pre-tax goodwill impairment charge at September 30, 2019 of $259.1 million against the goodwill associated with its retail and wholesale reporting units.Operating expenses, excluding the goodwill impairment charge, totaled $185.2 million or $13.6 million higher than the third quarter of 2018, principally the result of a higher store count and the store impairment and restructuring costs associated with our store optimization program.Interest expense was $29.4 million during the third quarter of 2019, compared to $27.7 million during the third quarter of 2018 driven by the impact of higher borrowings and the Company’s August 2018 high yield refinancing.Reported GAAP net loss was ($281.7) million or ($3.02) per share.Adjusted net (loss) income was ($25.7) million, or ($0.28) per share, compared to $7.4 million, or $0.08 per share, in the third quarter of 2018. (See “GAAP and Non-GAAP measures”)Adjusted EBITDA was $17.1 million, versus $59.4 million during the third quarter of 2018. (See “GAAP and Non-GAAP measures”)Fiscal October 2019 UpdateFor fiscal October 2019 (for the Company’s retail segment, fiscal October 2019 consisted of the five-week period ended November 2, 2019), the Company reported total revenue of $432.6 million, or 7% below the same period of last year, excluding the prior year Canada retail revenue to adjust for the Canadian Tire Corporation transaction. Total Retail revenue decreased approximately 8%. Brand comparable sales, which include Company-owned Party City stores in the U.S and North American e-commerce operations, decreased 4.9%. When looking at retail’s Halloween product sales for the third quarter and October combined, there was a 3.2% overall decline year over year. North American e-commerce sales increased by 15.3% including Buy Online Pickup In Store while Halloween City sales per store decreased 20.8% from the prior year.During the Halloween season, the Company operated 256 temporary Halloween City stores, compared to 239 in 2018. Balance Sheet Highlights as of September 30, 2019:The Company ended the quarter with $2,004 million in debt (net of cash) and approximately $152 million in availability under its asset-based revolving credit facility.Store Optimization Program:During the third quarter of 2019, the Company recorded $7.3 million of charges related to the previously announced store optimization program which includes the closing of approximately 55 Party City locations in fiscal 2019. As of September 30, 2019, the Company closed 34 stores.Fiscal 2019 Outlook:The Company is updating its fiscal 2019 outlook and currently expects:Total revenue of $2.35 to $2.38 billionBrand comparable sales decline 2% to 3%GAAP net loss of $183 to $176 millionGAAP diluted EPS of $(1.94) to $(1.86)Adjusted EBITDA of $300 to $310 millionAdjusted net income of $79 to $86 millionAdjusted diluted EPS of $0.84 to $0.91Net debt by end of year of approximately $1.5 billionThe 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 2019 Outlook” for a more detailed explanation, including definitions of the various Non-GAAP terms used in this release._____________________Conference Call InformationA conference call to discuss the third quarter 2019 financial results is scheduled for today, November 7, 2019, 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) and (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 contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events or our future financial or operating performance and include Party City’s expectations regarding revenues, brand comparable sales, Adjusted EBITDA, Adjusted net income/loss, adjusted diluted earnings per share, average common shares outstanding and the effective tax rate. 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: 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; 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, 2018 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. Party City Holdco 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 900 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.com.Source: Party City Holdco Inc.PARTY CITY HOLDCO INC.
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