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 shortage
- North 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 Update
For 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 billion
- Brand comparable sales decline 2% to 3%
- GAAP net loss of $183 to $176 million
- GAAP diluted EPS of $(1.94) to $(1.86)
- Adjusted EBITDA of $300 to $310 million
- Adjusted net income of $79 to $86 million
- Adjusted diluted EPS of $0.84 to $0.91
- Net debt by end of year of approximately $1.5 billion
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
2019 Outlook” for a more detailed explanation, including
definitions of the various Non-GAAP terms used in this release.
_____________________
Conference Call Information
A 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 Information
We 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 Information
This 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 Statements
This 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 City
Party 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.CONSOLIDATED
BALANCE SHEETS(In thousands, except share
data)
|
|
|
September
30, |
|
December
31, |
|
|
|
|
2019 |
|
|
2018 |
|
ASSETS |
Unaudited |
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
34,572 |
|
$ |
58,909 |
|
|
Accounts receivable, net |
|
168,124 |
|
|
146,983 |
|
|
Inventories, net |
|
760,179 |
|
|
756,038 |
|
|
Prepaid expenses and other current assets |
|
75,919 |
|
|
61,905 |
|
|
Assets held for sale |
|
172,189 |
|
|
- |
|
|
|
Total
current assets |
$ |
1,210,983 |
|
|
1,023,835 |
|
|
Property, plant and equipment, net |
|
241,413 |
|
|
321,044 |
|
|
Operating lease asset |
|
827,817 |
|
|
- |
|
|
Goodwill |
|
1,358,137 |
|
|
1,656,950 |
|
|
Trade names |
|
534,611 |
|
|
568,031 |
|
|
Other intangible assets, net |
|
46,258 |
|
|
60,164 |
|
|
Other assets, net |
|
12,578 |
|
|
12,323 |
|
|
|
Total
assets |
$ |
4,231,797 |
|
$ |
3,642,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS’
EQUITY |
|
|
|
Current liabilities: |
|
|
|
|
Loans and notes payable |
$ |
461,016 |
|
$ |
302,751 |
|
|
Accounts payable |
|
140,112 |
|
|
208,149 |
|
|
Accrued expenses |
|
166,609 |
|
|
161,228 |
|
|
Liabilities held for sale |
|
48,618 |
|
|
|
Current portion of operating lease liability |
|
140,781 |
|
|
- |
|
|
Income taxes payable |
|
- |
|
|
25,993 |
|
|
Current portion of long-term obligations |
|
13,498 |
|
|
13,316 |
|
|
|
Total
current liabilities |
$ |
970,634 |
|
|
711,437 |
|
|
Long-term obligations, excluding current portion |
|
1,564,098 |
|
|
1,621,963 |
|
|
Long-term portion of operating lease liability |
|
747,079 |
|
|
- |
|
|
Deferred income tax liabilities |
|
147,904 |
|
|
174,427 |
|
|
Other long-term liabilities |
|
16,305 |
|
|
87,548 |
|
|
|
Total
liabilities |
$ |
3,446,020 |
|
|
2,595,375 |
|
|
|
|
|
|
|
|
Redeemable securities |
|
3,351 |
|
|
3,351 |
|
Stockholders’ equity: |
|
|
|
|
Common stock (94,448,333 and 93,622,934 shares outstanding and
121,629,237 and 120,788,159 shares issued at September 30, 2019 and
December 31, 2018, respectively) |
|
1,211 |
|
|
1,208 |
|
|
Additional paid-in capital |
|
928,749 |
|
|
922,476 |
|
|
Retained earnings |
|
231,597 |
|
|
495,777 |
|
|
Accumulated other comprehensive loss |
|
(52,043 |
) |
|
(49,201 |
) |
|
|
Total Party
City Holdco Inc. stockholders' equity before common stock held in
treasury |
|
1,109,514 |
|
|
1,370,260 |
|
|
Less: Common stock held in treasury, at cost (27,180,904 and
27,165,225 shares at September 30, 2019 and December 31, 2018) |
|
(327,086 |
) |
|
(326,930 |
) |
|
|
Total Party
City Holdco Inc. stockholders' equity |
|
782,428 |
|
|
1,043,330 |
|
|
Noncontrolling interests |
|
(2 |
) |
|
291 |
|
|
|
Total
stockholders’ equity |
|
782,426 |
|
|
1,043,621 |
|
|
|
Total
liabilities, redeemable securities and stockholders’ equity |
$ |
4,231,797 |
|
$ |
3,642,347 |
|
|
|
|
|
|
|
PARTY CITY HOLDCO INC.CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except share and per share data,
unaudited)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
|
|
2019 |
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
538,345 |
|
$ |
550,840 |
|
|
$ |
1,611,149 |
|
|
$ |
1,614,049 |
|
|
Royalties and franchise fees |
|
1,886 |
|
|
2,206 |
|
|
|
6,089 |
|
|
|
7,832 |
|
|
|
Total
revenues |
|
540,231 |
|
|
553,046 |
|
|
|
1,617,238 |
|
|
|
1,621,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
373,413 |
|
|
349,641 |
|
|
|
1,065,511 |
|
|
|
996,084 |
|
|
Wholesale selling expenses |
|
16,084 |
|
|
17,538 |
|
|
|
50,929 |
|
|
|
53,581 |
|
|
Retail operating expenses |
|
111,595 |
|
|
103,833 |
|
|
|
302,756 |
|
|
|
285,019 |
|
|
Franchise expenses |
|
3,274 |
|
|
862 |
|
|
|
9,813 |
|
|
|
8,624 |
|
|
General and administrative expenses |
|
43,062 |
|
|
42,239 |
|
|
|
126,497 |
|
|
|
136,230 |
|
|
Art and development costs |
|
5,927 |
|
|
5,573 |
|
|
|
17,568 |
|
|
|
17,278 |
|
|
Development stage expenses |
|
2,728 |
|
|
1,622 |
|
|
|
7,966 |
|
|
|
5,620 |
|
|
Gain on sale/leaseback transaction |
|
- |
|
|
- |
|
|
|
(58,381 |
) |
|
|
- |
|
|
Store impairment and restructuring charges |
|
2,574 |
|
|
- |
|
|
|
25,817 |
|
|
|
- |
|
|
Goodwill Impairment |
|
259,100 |
|
|
- |
|
|
|
259,100 |
|
|
|
- |
|
|
|
|
|
817,757 |
|
|
521,308 |
|
|
|
1,807,576 |
|
|
|
1,502,436 |
|
|
|
(Loss) income from operations |
|
(277,526 |
) |
|
31,738 |
|
|
|
(190,338 |
) |
|
|
119,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
29,424 |
|
|
27,705 |
|
|
|
88,857 |
|
|
|
76,481 |
|
|
Other expense, net |
|
2,047 |
|
|
5,696 |
|
|
|
6,643 |
|
|
|
9,076 |
|
|
|
(Loss)
income before income taxes |
|
(308,997 |
) |
|
(1,663 |
) |
|
|
(285,838 |
) |
|
|
33,888 |
|
|
Income tax (benefit) expense |
|
(27,252 |
) |
|
777 |
|
|
|
(21,809 |
) |
|
|
9,443 |
|
|
|
Net
(loss) income |
|
(281,745 |
) |
|
(2,440 |
) |
|
|
(264,029 |
) |
|
|
24,445 |
|
|
Add: Net(loss) income attributable to redeemable securities
holder |
|
- |
|
|
(8 |
) |
|
|
- |
|
|
|
402 |
|
|
Less: Net loss attributable to noncontrolling interests |
|
(212 |
) |
|
(28 |
) |
|
|
(352 |
) |
|
|
(87 |
) |
|
|
Net
(loss) income attributable to common shareholders of Party City
Holdco Inc. |
|
(281,533 |
) |
$ |
(2,420 |
) |
|
$ |
(263,677 |
) |
|
$ |
24,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
$ |
(39,902 |
) |
$ |
(2,003 |
) |
|
$ |
(18,212 |
) |
|
$ |
20,889 |
|
|
Add: Comprehensive (loss) income attributable to redeemable
securities holder |
|
- |
|
|
(8 |
) |
|
|
- |
|
|
|
402 |
|
|
Less: Comprehensive loss attributable to noncontrolling
interests |
|
(213 |
) |
|
(35 |
) |
|
|
(364 |
) |
|
|
(108 |
) |
|
|
Comprehensive (loss) income attributable to common shareholders of
Party City Holdco Inc. |
$ |
(39,689 |
) |
$ |
(1,976 |
) |
|
($ |
17,848 |
) |
|
$ |
21,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)income per share attributable to common shareholders of
Party City Holdco Inc. - Basic |
$ |
(3.02 |
) |
$ |
(0.03 |
) |
|
$ |
(2.83 |
) |
|
$ |
0.26 |
|
|
Net (loss) income per share attributable to common shareholders of
Party City Holdco Inc. - Diluted |
$ |
(3.02 |
) |
$ |
(0.03 |
) |
|
$ |
(2.83 |
) |
|
$ |
0.26 |
|
|
Weighted-average number of common shares-Basic |
|
93,346,448 |
|
|
96,494,565 |
|
|
|
93,271,392 |
|
|
|
96,449,011 |
|
|
Weighted-average number of common shares-Diluted |
|
93,346,448 |
|
|
96,494,565 |
|
|
|
93,271,392 |
|
|
|
97,684,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
PARTY CITY HOLDCO INC. RECONCILIATION OF ADJUSTED
EBITDA(In thousands, unaudited)
|
|
Three Months
Ended September 30, |
|
Nine Months
Ended September 30, |
|
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
(281,745 |
) |
|
$ |
(2,440 |
) |
|
$ |
(264,029 |
) |
|
$ |
24,445 |
|
|
|
Interest
expense, net |
|
29,424 |
|
|
|
27,705 |
|
|
|
88,857 |
|
|
|
76,481 |
|
|
|
Income
taxes |
|
(27,252 |
) |
|
|
777 |
|
|
|
(21,809 |
) |
|
|
9,443 |
|
|
|
Depreciation
and amortization |
|
19,155 |
|
|
|
16,974 |
|
|
|
62,380 |
|
|
|
57,786 |
|
|
EBITDA |
|
(260,418 |
) |
|
|
43,016 |
|
|
|
(134,601 |
) |
|
|
168,155 |
|
|
|
Non-cash
purchase accounting adjustments |
|
- |
|
|
|
2,154 |
|
|
|
2,757 |
|
|
|
2,696 |
|
|
|
Store
impairment and restructuring charges (a) |
|
8,694 |
|
|
|
- |
|
|
|
54,960 |
|
|
|
- |
|
|
|
Other
restructuring, retention and severance (b) |
|
(73 |
) |
|
|
951 |
|
|
|
5,248 |
|
|
|
3,105 |
|
|
|
Goodwill
impairment (c) |
|
259,100 |
|
|
|
|
|
259,100 |
|
|
|
|
|
Deferred
rent (d) |
|
446 |
|
|
|
2,468 |
|
|
|
(1,042 |
) |
|
|
3,623 |
|
|
|
Closed store
expense (e) |
|
2,326 |
|
|
|
825 |
|
|
|
3,424 |
|
|
|
3,430 |
|
|
|
Foreign
currency losses (gains), net |
|
646 |
|
|
|
(314 |
) |
|
|
486 |
|
|
|
128 |
|
|
|
Stock option
expense (f) |
|
409 |
|
|
|
550 |
|
|
|
1,150 |
|
|
|
1,492 |
|
|
|
Non-employee
equity based compensation (g) |
|
129 |
|
|
|
(13 |
) |
|
|
387 |
|
|
|
352 |
|
|
|
Undistributed income in equity method investments |
|
7 |
|
|
|
(279 |
) |
|
|
(195 |
) |
|
|
(580 |
) |
|
|
Corporate
development expenses (h) |
|
4,588 |
|
|
|
3,057 |
|
|
|
11,782 |
|
|
|
8,409 |
|
|
|
Non-recurring consulting costs (i) |
|
- |
|
|
|
624 |
|
|
|
- |
|
|
|
12,243 |
|
|
|
Refinancing
charges (j) |
|
- |
|
|
|
5 |
|
|
|
- |
|
|
|
6,237 |
|
|
|
Restricted
stock units - time-based (k) |
|
610 |
|
|
|
470 |
|
|
|
1,543 |
|
|
|
722 |
|
|
|
Restricted
stock units - performance-based (l) |
|
560 |
|
|
|
889 |
|
|
|
1,036 |
|
|
|
1,482 |
|
|
|
Non-recurring legal settlements/costs |
|
194 |
|
|
|
5,091 |
|
|
|
1,795 |
|
|
|
6,237 |
|
|
|
Gain on
sale/leaseback transaction (m) |
|
- |
|
|
|
- |
|
|
|
(58,381 |
) |
|
|
- |
|
|
|
Other |
|
(76 |
) |
|
|
(44 |
) |
|
|
216 |
|
|
|
(295 |
) |
|
Adjusted EBITDA |
$ |
17,142 |
|
|
$ |
59,445 |
|
|
$ |
149,665 |
|
|
$ |
211,199 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin |
|
3.2 |
% |
|
|
10.8 |
% |
|
|
9.3 |
% |
|
|
13.1 |
% |
|
|
|
(a) During the nine months ended September 30, 2019, the Company
initiated a store optimization program under which it plans to
close approximately 55 Party City stores during the course of 2019.
In conjunction with the program, during the first nine months of
2019, the Company recorded the following charges: inventory
reserves: $25,987, operating lease asset impairment: $14,149, labor
and other costs related to closing the stores: $6,327, property,
plant and equipment impairment: $4,680 and severance: $661. The
charge for inventory reserves was recorded in cost of sales in the
Company’s statement of operations and comprehensive (loss) income.
The other charges were recorded in store impairment and
restructuring charges in the Company’s statement of operations and
comprehensive (loss) income. Additionally, during the process of
liquidating the inventory in such stores, the Company lost margin
of $3,156. |
|
|
|
|
|
|
|
|
|
|
|
(b) Amounts
expensed during 2019 principally relate to executive severance and
the write-off of inventory for a section of the Company’s Party
City stores that is being restructured. |
|
|
|
|
|
|
|
|
|
(c) 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 $259,100 against the
goodwill associated with its retail and wholesale reporting
units. |
|
|
|
|
|
|
|
|
|
|
|
(d) The “deferred rent” adjustment reflects the difference between
accounting for rent and landlord incentives in accordance with GAAP
and the Company’s actual cash outlay for such items. |
|
|
|
|
|
|
|
|
|
|
|
(e) Charges incurred
related to closing and relocating stores in the ordinary course of
business. |
|
|
|
|
|
|
|
|
|
(f) Represents
non-cash charges related to stock options. |
|
|
|
|
|
|
|
|
|
(g) Principally
represents shares of Kazzam awarded to Ampology as compensation for
Ampology’s services. See the 2018 Form 10-K for further
discussion. |
|
|
|
|
|
|
|
|
|
(h) Primarily represents start-up costs for Kazzam (see the 2018
Form 10-K for further discussion) and third-party costs related to
acquisitions (principally legal and diligence expenses). |
|
|
|
|
|
|
|
|
|
|
|
(i) Non-recurring consulting charges related to the Company's
retail operations. |
|
|
|
|
|
|
|
|
|
|
|
(j) During February 2018, the Company amended the Term Loan Credit
Agreement. In conjunction with the amendment, the Company wrote-off
$0.3 million of capitalized deferred financing costs, original
issue discounts and call premiums. Further, in conjunction with the
amendment, the Company expensed $0.8 million of investment banking
and legal fees. |
|
|
|
|
|
|
|
|
|
|
|
(k) Non-cash charges for restricted stock units that vest based on
service conditions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(l) Non-cash charges for restricted stock units that vest based on
performance conditions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(m) During June 2019, the Company reported a $58.4 million gain
from the sale and leaseback of its main distribution center in
Chester, New York and its metallic balloons manufacturing facility
in Eden Prairie, Minnesota. The aggregate sale price for the three
properties was $128.0 million. Simultaneous with the sale, the
Company entered into twenty year leases for each of the
facilities. |
|
|
|
|
|
PARTY CITY HOLDCO INC. RECONCILIATION OF ADJUSTED NET
INCOME(In thousands, except share and per share
data, unaudited)
|
|
Three Months
EndedSeptember 30, |
|
Nine Months
EndedSeptember 30, |
|
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
$ |
(308,997 |
) |
$ |
(1,663 |
) |
$ |
(285,838 |
) |
|
33,888 |
|
|
Intangible
asset amortization |
|
3,553 |
|
|
591 |
|
|
10,528 |
|
|
7,959 |
|
|
Non-cash
purchase accounting adjustments |
|
424 |
|
|
1,659 |
|
|
4,200 |
|
|
2,622 |
|
|
Amortization
of deferred financing costs and |
|
|
|
|
|
|
|
|
|
original
issuance discounts (a) |
|
1,222 |
|
|
6,268 |
|
|
3,511 |
|
|
9,834 |
|
|
Store
impairment and restructuring charges (b) |
|
8,694 |
|
|
- |
|
|
54,960 |
|
|
- |
|
|
Other
restructuring charges (c) |
|
(263 |
) |
|
809 |
|
|
2,822 |
|
|
809 |
|
|
Goodwill
impairment (d) |
|
259,100 |
|
|
|
|
259,100 |
|
|
|
|
Non-employee
equity based compensation (e) |
|
128 |
|
|
(13 |
) |
|
386 |
|
|
352 |
|
|
Refinancing
charges (a) |
|
- |
|
|
- |
|
|
36 |
|
|
- |
|
|
Non-recurring consulting costs (f) |
|
- |
|
|
624 |
|
|
|
|
12,243 |
|
|
Stock option
expense (g) |
|
409 |
|
|
550 |
|
|
1,150 |
|
|
1,492 |
|
|
Gain on
sale/leaseback transaction (h) |
|
- |
|
|
- |
|
|
(58,381 |
) |
|
- |
|
|
Restricted
stock units - performance-based (i) |
|
560 |
|
|
889 |
|
|
1,036 |
|
|
1,482 |
|
Adjusted (loss) income before income taxes |
|
(35,170 |
) |
|
9,714 |
|
|
(6,490 |
) |
|
70,681 |
|
|
Adjusted
income tax (benefit) expense (j) |
|
(9,459 |
) |
|
2,364 |
|
|
(2,117 |
) |
|
17,213 |
|
Adjusted net (loss) income |
$ |
(25,711 |
) |
$ |
7,350 |
|
$ |
(4,373 |
) |
$ |
53,468 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted net (loss) income per common share -
diluted |
$ |
(0.28 |
) |
$ |
0.08 |
|
$ |
(0.05 |
) |
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common
shares-diluted |
|
93,346,448 |
|
|
97,714,252 |
|
|
93,271,392 |
|
|
97,684,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) During February 2018, the Company amended the Term Loan
Credit Agreement. In conjunction with the amendment, the Company
wrote-off $0.3 million of capitalized deferred financing costs,
original issue discounts and call premiums. The amount is included
in “Amortization of deferred financing costs and original issuance
discounts” in the adjusted net income table above. Further, in
conjunction with the amendment, the Company expensed $0.8 million
of investment banking and legal fees. The amount is included in
“Refinancing charges” in the table above. |
|
|
|
|
|
|
|
|
|
(b) During the nine months ended September 30, 2019, the
Company initiated a store optimization program under which it plans
to close approximately 55 Party City stores during the course of
2019. In conjunction with the program, during the first nine months
of 2019, the Company recorded the following charges: inventory
reserves: $25,987, operating lease asset impairment: $14,149, labor
and other costs related to closing the stores: $6,327, property,
plant and equipment impairment: $4,680 and severance: $661. The
charge for inventory reserves was recorded in cost of sales in the
Company’s statement of operations and comprehensive (loss) income.
The other charges were recorded in store impairment and
restructuring charges in the Company’s statement of operations and
comprehensive (loss) income. Additionally, during the process of
liquidating the inventory in such stores, the Company lost margin
of $3,156. |
|
|
|
|
|
|
|
|
|
|
|
(c) Amounts expensed during 2019 principally relate to
executive severance and the write-off of inventory for a section of
the Company’s Party City stores that is being restructured. |
|
|
|
|
|
|
|
|
|
(d) 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 $259,100 against the
goodwill associated with its retail and wholesale reporting
units. |
|
|
|
|
|
|
|
|
|
|
|
(e) Principally represents shares of Kazzam awarded to
Ampology as compensation for Ampology’s services. See the 2018 Form
10-K for further discussion. |
|
|
|
|
|
|
|
|
|
(f) Non-recurring consulting charges related to the Company’s
retail operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(g) Represents non-cash charges related to stock
options. |
|
|
|
|
|
|
|
|
|
(h) During June 2019, the Company reported a $58.4 million
gain from the sale and leaseback of its main distribution center in
Chester, New York and its metallic balloons manufacturing facility
in Eden Prairie, Minnesota. The aggregate sale price for the three
properties was $128.0 million. Simultaneous with the sale, the
Company entered into twenty year leases for each of the
facilities. |
|
|
|
|
|
|
|
|
|
|
|
(i) Non-cash charges for restricted stock units that vest
based on performance conditions. |
|
|
|
|
|
|
|
|
|
|
|
(j) Represents income tax expense/benefit after excluding the
specific tax impacts for each of the pre-tax adjustments. The tax
impacts for each of the adjustments were determined by applying to
the pre-tax adjustments the effective income tax rates for the
specific legal entities in which the adjustments were
recorded. |
|
|
|
|
PARTY CITY HOLDCO INC. RECONCILIATION OF 2019
OUTLOOK(In millions, unaudited)
|
|
|
|
|
|
|
Full year
2019 |
|
|
|
Outlook |
Net loss: |
|
($183 |
) |
- |
|
($176 |
) |
|
Gain on sale - Leaseback and CTC transactions, net of tax: |
|
(53 |
) |
|
|
Store
impairment and restructuring charges, net of tax: |
|
|
46 |
|
|
|
Goodwill
impairment, net of tax |
|
|
249 |
|
|
|
Intangible
asset amortization, net of tax: |
|
|
10 |
|
|
|
Amortization
of deferred financing costs and original issuance |
|
|
|
|
|
discount, net of tax: |
|
|
3 |
|
|
|
Non-cash
purchase accounting adjustments, net of tax: |
|
|
3 |
|
|
|
Equity based
compensation, net of tax: |
|
|
2 |
|
|
|
Other
restructuring charges, net of tax: |
|
|
2 |
|
|
Adjusted net income: |
|
|
79 |
|
- |
|
$ |
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss: |
|
($183 |
) |
- |
|
($176 |
) |
|
Income taxes: |
|
|
22 |
|
- |
|
|
28 |
|
|
Interest
expense, net: |
|
|
116 |
|
- |
|
|
114 |
|
|
Depreciation
and amortization: |
|
|
83 |
|
- |
|
|
80 |
|
EBITDA: |
|
$38 |
|
- |
|
$46 |
|
|
Gain on sale
- Leaseback and CTC transactions: |
|
|
(84 |
) |
|
|
Store
impairment and restructuring charges: |
|
|
62 |
|
|
|
Goodwill
impairment |
|
|
259 |
|
|
|
Corporate
development expenses: |
|
|
8 |
|
- |
|
|
10 |
|
|
Other
restructuring, retention and severance: |
|
|
6 |
|
|
|
Equity based
compensation: |
|
|
5 |
|
|
|
Non-cash
purchase accounting adjustments: |
|
|
3 |
|
|
|
Closed store
expense: |
|
|
3 |
|
|
Adjusted EBITDA: |
|
$300 |
|
- |
|
$310 |
|
|
|
|
|
|
|
PARTY CITY HOLDCO INC. SEGMENT
INFORMATION(In thousands, except percentages,
unaudited)
|
Three Months Ended September 30, |
|
|
2019 |
|
|
|
2018 |
|
Total Revenues |
Dollars in thousands |
|
Percentage of Total Revenues |
|
Dollars in thousands |
|
Percentage of Total Revenues |
Net
Sales: |
|
|
|
|
|
|
|
Wholesale |
$ |
383,424 |
|
71.0 |
% |
|
$ |
424,569 |
|
76.8 |
% |
Eliminations |
|
(214,546 |
) |
(39.7 |
)% |
|
|
(249,409 |
) |
(45.1 |
)% |
Net wholesale |
|
168,878 |
|
31.3 |
% |
|
|
175,160 |
|
31.7 |
% |
Retail |
|
369,467 |
|
68.4 |
% |
|
|
375,680 |
|
67.9 |
% |
Total net sales |
|
538,345 |
|
99.7 |
% |
|
|
550,840 |
|
99.6 |
% |
Royalties
and franchise fees |
|
1,886 |
|
0.3 |
% |
|
|
2,206 |
|
0.4 |
% |
Total revenues |
$ |
540,231 |
|
100.0 |
% |
|
$ |
553,046 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2019 |
|
2018 |
Total Revenues |
Dollars in thousands |
|
Percentage of Total Revenues |
|
Dollars in thousands |
|
Percentage of Total Revenues |
Net
Sales: |
|
|
|
|
|
|
|
Wholesale |
$ |
992,793 |
|
61.4 |
% |
|
$ |
988,129 |
|
60.9 |
% |
Eliminations |
|
(552,421 |
) |
(34.2 |
)% |
|
|
(524,689 |
) |
(32.3 |
)% |
Net wholesale |
|
440,372 |
|
27.2 |
% |
|
|
463,440 |
|
28.6 |
% |
Retail |
|
1,170,777 |
|
72.4 |
% |
|
|
1,150,609 |
|
70.9 |
% |
Total net sales |
|
1,611,149 |
|
99.6 |
% |
|
|
1,614,049 |
|
99.5 |
% |
Royalties
and franchise fees |
|
6,089 |
|
0.4 |
% |
|
|
7,832 |
|
0.5 |
% |
Total revenues |
$ |
1,617,238 |
|
100.0 |
% |
|
$ |
1,621,881 |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
2019 |
|
2018 |
Total Gross Profit |
Dollars in thousands |
|
Percentage of Total Revenues |
|
Dollars in thousands |
|
Percentage of Total Revenues |
Retail |
$ |
128,692 |
|
34.8 |
% |
|
$ |
151,860 |
|
40.4 |
% |
Wholesale |
|
36,240 |
|
21.5 |
% |
|
|
49,339 |
|
28.2 |
% |
Total |
$ |
164,932 |
|
30.6 |
% |
|
$ |
201,199 |
|
36.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2019 |
|
2018 |
Total Gross Profit |
Dollars in thousands |
|
Percentage of Total Revenues |
|
Dollars in thousands |
|
Percentage of Total Revenues |
Retail |
$ |
436,761 |
|
37.3 |
% |
|
$ |
482,609 |
|
41.9 |
% |
Wholesale |
|
108,877 |
|
24.7 |
% |
|
|
135,356 |
|
29.2 |
% |
Total |
$ |
545,638 |
|
33.9 |
% |
|
$ |
617,965 |
|
38.3 |
% |
|
|
|
|
|
|
|
|
PARTY CITY HOLDCO INC. OPERATING METRICS
|
|
|
Three Months
Ended September 30, |
|
LTM |
|
|
|
|
|
2019 |
|
2018 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Store Count |
|
|
|
|
|
|
|
|
Corporate Stores: |
|
|
|
|
|
|
|
|
|
Beginning of
period |
865 |
|
814 |
|
862 |
|
|
|
|
New stores
opened |
0 |
|
7 |
|
9 |
|
|
|
|
Acquired |
3 |
|
41 |
|
6 |
|
|
|
|
Closed |
(25) |
|
- |
|
(34) |
|
|
|
|
End of
period |
843 |
|
862 |
|
843 |
|
|
|
Franchise Stores: |
|
|
|
|
|
|
|
|
|
Beginning of
period |
98 |
|
134 |
|
97 |
|
|
|
|
New stores
opened |
- |
|
0 |
|
2 |
|
|
|
|
Sold to
Party City |
- |
|
(37) |
|
0 |
|
|
|
|
Closed |
- |
|
0 |
|
(1) |
|
|
|
|
End of
period |
98 |
|
97 |
|
98 |
|
|
|
Grand Total |
941 |
|
959 |
|
941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30, |
|
Nine Months
Ended September 30, |
|
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
Wholesale Share of Shelf (a) |
78.3% |
|
77.2% |
|
78.0% |
|
77.8% |
Manufacturing Share of Shelf
(b) |
25.4% |
|
25.3% |
|
26.7% |
|
26.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended September 30, |
|
Nine Months
Ended September 30, |
|
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
Brand comparable sales (c) |
(2.6) % |
|
(1.0)% |
|
(2.0)% |
|
0.5% |
|
|
|
|
|
|
|
|
|
|
(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. |
|
|
|
|
|
|
|
|
|
Contact:
ICR
Farah Soi and Rachel Schacter
203-682-8200
InvestorRelations@partycity.com
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