Party City loss widens amid elevated costs; ‘headwinds’ to continue

Party City Holdco Inc. reported a bigger-than-expected first-quarter loss as supply chain and inflationary challenges took a bite out of its bottom line.

Despite the current headwinds, which Party City believes will continue throughout 2022,  the company remains committed to an "aggressive" rollout of its next-generation store prototype this year and beyond. During the first quarter, the retailer opened 35 next-gen stores, giving it a total of 130 locations that feature the new model

"We continue to see strong performance from these stores, which are averaging a mid-single-digit sales increase compared to control stores with a run rate that delivers a payback period on each store of less than 24 months on average," CEO Brad Weston said on the company's earnings call.   

Party City has targeted approximately 100 to 125 next-gen remodels or openings for 2022,  resulting in about one-third of the fleet being converted by the end of 2022.

The company had a net loss of $26.9 million, or $0.24 per share, for the quarter ended April 3, after a loss of $14.1 million, or $0.13 per share in the year-ago period.  The adjusted loss of $0.22 per share was greater than analysts’ estimates of a $0.12 per share loss.

In addition to soaring freight costs and the omicron variant which put a dent in celebrations early in the year,  Party City continues to be challenged by ongoing problems in the helium market. In the U.S., a plant that produces 8% of global helium has been dealing with operational issues since last year. It shut down totally in January 2022, and could reopen in June. Several foreign plants that produce helium have also had problems.

Total sales edged up 1.4% to $433.0 million, missing estimates of $435.8 million. Total retail sales increased 2.3%, primarily driven by strong comparable sales increases in seasonal categories.

Brand comparable sales increased 2.1%. Net third-party wholesale sales decreased 1.6%.

The total number of corporate Party City stores was 759 as of March 31, 2022 compared to 751 in the prior-year period

"As expected, our bottom-line results were impacted by elevated costs, including greater than anticipated freight and commodity cost pressures that ramped later in the quarter," stated Weston. "As we look to the remainder of 2022, we expect supply chain and inflationary headwinds to continue, which is reflected in our updated outlook. While we navigate this near-term turbulence in costs, we are being very thoughtful with our mitigating actions on the pricing front, along with delivering an improved customer experience.”

[Read More: Graduation events set for comeback, says Party City]

Party City is guiding for sales of $2.225 billion to $2.300 billion, or an increase of approximately 2.5% to 6.0% versus 2021. Analysts are looking for sales of $2.300 billion.

Party City Holdco’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. In addition to our retail operations, the company is one of the largest global designers, manufacturers and distributors of decorated consumer party products, with items found in retail outlets worldwide.