Party City ups store closings; Q2 disappoints as lack of helium dents sales

Party City Holdco reported earnings and revenue that missed Street expectations as a helium shortage continued to take a toll on store sales.

The company increased the number of stores it plans to close this year from approximately 45 locations to 55. It also announced it is selling its 65-store Canadian division to Canadian Tire Corp,

Party City’s net income totaled $48.4 million, or $0.51 per share, for the second quarter, up from $19.3 million, or 29 cents per share, in the year-ago period. Adjusted EPS of $0.22  per share missed analysts’ expecations of $0.37.

Total revenues increased 0.5% to $563.9 million, falling short of the $572 million analysts had forecast. Retail sales increased 2.9%, driven primarily by year-over-year square footage growth from store acquisitions that took place during the last 12 months. Same-store sales decreased 2.1%, due to approximately 200 basis points of headwinds from the helium shortage.

Net third-party wholesale revenues decreased 0.7% on an adjusted basis when excluding the impacts of franchise store acquisitions and currency. The impact of the helium shortage on the segment’s metallic balloons business more than offset strong domestic sales to the non-party store channel.

“Overall, in the second quarter we continued to experience headwinds from direct and indirect impacts of the helium shortages and higher helium costs in many of our markets,” said James M. Harrison, CEO, Party City Holdco, which operates operates more than 900 stores throughout North America under the names of Party City and Halloween City. “Additionally, results were negatively impacted by the flow through of temporarily higher freight costs incurred in late 2018 and non-recurring inventory markdown costs associated with planned store closures.

Harrison expressed confidence regarding the second half of the year.

“We are in a very strong in-stock position for the key Halloween selling season and expect second half tailwinds including an extremely strong IP calendar, a Thursday Halloween and benefits from supply chain investments that we made following disruptions that impacted the business in 2018,” he said.  “This, combined with our continued focus on executing against our growth strategies across the business, gives us confidence in an improved second half.”

For fiscal 2019, Party City expects revenue of $2.40 billion to $2.45 billion, less than the $2.48 billion forecast by analysts.