Party City Announces Third Quarter 2020 Financial Results; Total Revenue for Fiscal October 2020
Total Sales of $533.8 million for Third Quarter; Brand comparable sales growth of 8.3%, highest in 9 years
Net Income of $239.7 Million; Adjusted EBITDA of $49.2 million up 187% from Third Quarter 2019
Better Than Expected Halloween and October PerformanceELMSFORD, N.Y., Nov. 09, 2020 (GLOBE NEWSWIRE) — Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the third quarter ended September 30, 2020, as well as total revenue for fiscal October 2020.Brad Weston, Chief Executive Officer, stated, “We are very pleased with our better than expected third quarter performance, highlighted by the continued strength in our core business. Against a pandemic-impacted environment, we delivered $534 million in sales, including an 8.3% brand comparable sales increase, a stabilization in our Wholesale revenues and an almost threefold increase in Adjusted EBITDA over the prior year period.”“The strides we are making to increase relevancy and elevate our customer experience across channels continue to strengthen our position of authority when it comes to celebrations. In addition, these results reflect the consumers’ desire and willingness to celebrate and are a testament to the agility and discipline with which we are operating the business.” Mr. Weston added.Third Quarter Summary:Total revenues were $533.8 million, a decrease of 1.2% on a reported basis and a decrease of 1.6% on a constant currency basis.Total Retail sales decreased 1.3% on a reported basis and 1.5% on a constant currency basis, with a brand comparable sales increase of 8.3%, offset primarily by the divestiture of 65 Canadian retail stores in October 2019 as well as the impact of 76 store closures from the company’s store optimization program throughout 2019 and 2020. The total number of corporate Party City stores was 739 as of September 30, 2020 compared to 843 a year ago.Brand comparable sales increased 8.3% in the third quarter due to strength in our core business particularly in the balloon, birthday, and entertaining categories.North American digitally enabled sales increased 36.0% including BOPIS, curbside pickup, and delivery.Net third-party Wholesale revenues decreased 0.8% or a decrease of 1.6% in constant currency, with continued improvement in independent and franchise customer trends. Total gross profit margin increased 250 basis points to 33.1% of net sales. Excluding certain items not indicative of core operating performance, gross profit margin increased 250 basis points to 34.4% of net sales mainly due to occupancy leverage, lower sales promotions, and favorable sales mix.Operating expenses totaled $160.2 million or $25.0 million lower than the third quarter of 2019 (excluding the goodwill impairment charges in 2020 and 2019). Excluding certain items not indicative of core operating performance, operating expenses totaled $152.4 million, or 28.6% of revenue, a reduction of $23.6 million or 400 basis points compared to the third quarter of 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 $13.4 million during the third quarter of 2020, compared to $29.4 million during the third quarter of 2019 mainly due to $12.2 million in forgiveness of certain semi-annual interest as a result of the debt exchange refinancing transaction completed in July 2020.Reported GAAP net income was $239.7 million, or $2.24 per share.Adjusted net income was $11.0 million, or $0.10 per diluted share, an improvement of $0.38 per share compared to adjusted net loss of $25.7 million, or $0.28 per share, in the third quarter of 2019. (See “Non-GAAP Financial Information”)Adjusted EBITDA was $49.2 million, versus $17.1 million during the third quarter of 2019. (See “Non-GAAP Financial Information”)
Fiscal October 2020 Update:For fiscal October 2020 (for the Company’s retail segment, fiscal October 2020 consisted of the five-week period ended October 31, 2020), the Company reported total revenue of $364.3 million, or 15.9% below the same period of last year. Total Retail revenue decreased approximately 16.0%. Brand comparable sales, which include Company-owned Party City stores in the U.S and North American e-commerce operations, decreased 2.9% with Halloween declines partially offset by continued strength in core categories. North American digitally enabled sales, including BOPIS, curbside pickup, and delivery increased 30.2%. The remaining decrease was due to a strategic reduction in store count versus the prior year period. During the month of October 2020, the Company operated 740 total Party City locations vs 778 in the prior year period, and 25 temporary Halloween City stores, compared to 256 in 2019.Mr. Weston continued, “Our Halloween results were ahead of our expectations, driven by strong results within décor and better than expected sales of costumes, despite the challenges of a pandemic-impacted backdrop. We are very proud of our entire Party City team who delivered an exceptional Halloween experience for our customers, despite the backdrop. We are particularly encouraged by the performance of our core categories into October, which demonstrate the strength and resiliency of our business and the traction we are seeing from our strategic initiatives, both of which bode well for our future performance.”“We continue to relentlessly focus on our customers as we work to fulfill our mission of creating joy and making it easy to create unforgettable memories. We look forward to building on our progress as we close out the year in a substantially stronger competitive and financial position,” concluded Mr. Weston.Balance Sheet Highlights:As of the end of the third quarter on September 30, 2020, the Company had $170.6 million in cash and approximately $178.5 million of availability under the ABL Facility, for total liquidity of $349.1 million.In addition, the principal balance of debt net of cash on September 30, 2020 is $1,323 million. The principal balance of debt is used for the purpose of all leverage ratio calculations under our debt agreements. The following table shows the bridge from the balance sheet debt to the principal balance of debt:Outlook:The Company is providing the following fiscal Q4 2020 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:Total revenue of $675 to $695 millionBrand comparable sales flat to down a low single digit percentageGAAP net income of $30 to $37 millionGAAP diluted EPS of $0.28 to $0.35Adjusted EBITDA of $80 to $90 millionAdjusted net income of $33 to $40 millionAdjusted diluted EPS of $0.31 to $0.37Interest expense of approximately $15 million, with cash interest payments of approximately $9 millionEnding corporate store count is expected to be approximately 740 storesCapital expenditures of approximately $13 to $18 million in Q4 2020 and approximately $45 to $50 million for the full yearD&A of approximately $19 million in Q4 2020 and approximately $76 million for the full year.Principal balance of debt, net of cash at end of year of approximately $1.3 billionFiscal 2020 will contain an additional, non-comparable “53rd week” in the fourth quarter. The 53rd week is expected to contribute approximately $35 million in sales, approximately $7 million in adjusted EBITDA, and approximately $0.05 in adjusted diluted EPS.
Conference Call Information:A conference call to discuss the third quarter 2020 financial results is scheduled for today, November 9, 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 830 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.
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