Party City Reports Fourth Quarter and Full Year 2020 Results

Generated Higher Operating Cash Flow in 2020
Versus Prior-Year Period Despite COVID-19 ImpactsFourth Quarter Results Driven by Strength in Core Categories and Strong
New Year’s Comparable SalesWith Completion of Recent Debt Financing, Company has Significant Runway
to Further Advance Strategic PrioritiesELMSFORD, N.Y., March 11, 2021 (GLOBE NEWSWIRE) — Party City Holdco Inc. (the “Company” or “PRTY”; NYSE:PRTY) today announced financial results for the quarter and year ended December 31, 2020.  Brad Weston, Chief Executive Officer of Party City, stated, “We are very pleased with how our organization navigated 2020, swiftly pivoting to meet the evolving needs of our customers, all while prioritizing 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.”Mr. 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 basisTotal 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 53^rd weekThe 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 basisTotal 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 deliveryNet 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 of 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. The following table shows the bridge from the balance sheet debt to the principal balance of debt:Subsequent Events:As previously announced, subsequent to year end, the Company completed an offering by its wholly-owned subsidiary Party City Holdings Inc. (“PCHI”) of $750 million aggregate principal amount of 8.75% senior secured notes due 2026 (the “Notes”).The Company intends to use the net proceeds from the offering to repay all outstanding borrowings under its term loan facility maturing 2022, to pay related fees and expenses and for general corporate purposes, which may include debt repurchases.   As a result, the Company’s next material debt maturities are in July 2025.In January 2021, the Company closed the previously disclosed sale of a substantial portion of its international operations.Outlook:Due to the continued uncertainty regarding the ongoing impacts of the COVID-19 pandemic and the associated complexity of forecasting, the Company is providing select annual 2021 guidance for financial measures that it believes it can reasonably forecast including interest expense, capital expenditures and store openings and closures.FY 2021 Interest expense of approximately $90 to $100 millionFY 2021 Capital expenditures of approximately $70 to $80 millionFY 2021 10 Net new stores (15 new openings and 5 closures)The Company is providing the following fiscal first quarter 2021 outlook. This outlook is subject to potential consumer and marketplace volatility due to the COVID-19 pandemic:Total revenue of $397 to $410 millionBrand comparable sales increase of 26% to 31% compared to first quarter 2020*GAAP net loss of $24 to $16 million with an assumed Q1 tax rate of 25%Adjusted EBITDA of $10 to $17 million* Represents comparable sales for the 13 weeks ended April 3, 2021 compared to the 13 weeks ended April 4, 2020. On a fiscal or unshifted basis, brand comparable sales for the 13 weeks ended April 3, 2021 compared to last year’s fiscal quarter ended March 28^this expected to increase in the range of 9 – 14%.Conference Call InformationA conference call to discuss the fourth quarter 2020 financial results is scheduled for today, March 11, 2021, 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 844-757-5731 (U.S. domestic) or 412-542-4126 (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. 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 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. 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 and include Party City’s expectations regarding its ability to maximize the potential of its vertical model, the ability to drive long-term growth, revenues, brand comparable sales, net income, Adjusted EBITDA, and Adjusted net income. 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 COVID-19 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, 2020 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.