Party City Announces First Quarter 2016 Financial Results
- Adjusted earnings per share of $0.04 vs. $0.03 loss in Q1 2015
-
Vertical integration strategy continues with acquisition of costume
manufacturer - 19 franchise stores in Southwest acquired
- 2016 outlook reiterated
ELMSFORD, N.Y.–(BUSINESS WIRE)–Party City Holdco Inc. (“the Company” or “Party City”) (NYSE:PRTY) today
announced its financial results for the quarter ended March 31, 2016.
“We are pleased with our first quarter results, which were generally in
line with our expectations,” said James M. Harrison, Chief Executive
Officer. “Our share of shelf exceeded 75%; our total gross margin
expanded 90 basis points and we continued to make progress executing
against our growth strategies. Earlier this year, we announced the
acquisition of Festival, a costume manufacturer located in Madagascar,
which expands our vertical model and will help fuel margin expansion. We
also saw positive momentum in international markets where wholesale
revenues grew 6% on a constant currency basis and we continued to gain
traction with new wholesale customers outside the party supply channel.
Finally, we recently acquired 19 franchise locations in the quarter,
broadening our corporate-owned territory and increasing our owned store
base to 731. Given these factors and our solid first quarter results, we
are reiterating our full-year guidance for 2016.”
Highlights for the first quarter:
-
Total revenues of $458 million were flat on a constant currency basis,
or down 0.9% on a reported basis.-
Retail sales increased 2.6% on a constant currency basis (2.0% on
a reported basis) driven by 38 net new Party City stores added in
the past twelve months, offset in part by lower brand comparable
sales in line with our expectations (noted below). -
Brand comparable sales decreased 1.5% as anticipated due primarily
to Easter Sunday (a day on which our stores are closed) moving
from Q2 2015 into Q1 2016, as well as the continued lapping of
strong sales of product related to Disney’s Frozen in Q1 2015. -
Net third-party wholesale revenues decreased 5.4% on a constant
currency basis (7% on a reported basis) principally due to the
impact of the acquisition of 23 franchise stores in Dec ‘15/Jan
‘16 (resulting in the elimination of previously reported third
party sales), lower sales of Grasslands Road gift products
associated with the de-emphasis and reorganization of this
division and lower wholesale sales of Frozen related product to
mass market and other retailers.
-
Operating expenses increased 4.6% to $150.4 million, driven primarily
by retail operating expenses resulting from the higher store count and
additional advertising spend. Wholesale selling expenses declined 7.5%
due to cost savings related to a reorganization of our gift sales
group and foreign currency translation. -
Adjusted EBITDA decreased to $46.5 million compared to $49.5 million
in the first quarter of fiscal 2015 in line with expectations. -
Adjusted net income improved to $4.8 million, compared to a loss of
$2.9 million for the first quarter of fiscal 2015. The current quarter
net income includes interest savings of $15.8 million resulting from
debt reduction and refinancing during 2015. Adjusted diluted income
per share improved to $0.04 compared to a loss of $0.03 in the first
quarter of fiscal 2015. -
During the quarter, the Company opened two new stores, acquired 19
franchise stores and closed two stores. At March 31, 2016, there were
731 corporate stores and 181 franchise stores for a total store count
of 912, as compared to 693 corporate stores and 205 franchise stores
for a total store count of 898 at March 31, 2015.
Balance sheet highlights as of March 31, 2016:
The Company ended the first quarter with $1,806 million in debt (net of
cash) resulting in net debt leverage of 4.8 times and approximately $297
million in availability under its asset-based revolving credit facility.Fiscal 2016 Outlook:
Party City anticipates full year 2016 total revenue of $2.35 to $2.42
billion, and brand comparable sales to range between flat to slightly
positive. Adjusted EBITDA guidance is in the range of $390 to $405
million, adjusted net income expectations are in the range of $140 to
$150 million, and adjusted diluted net income per share between $1.17 to
$1.25. Additionally the Company is targeting net debt leverage to be
below 4 times by the end of 2016._______________________________________
Conference Call Information:
A conference call to discuss first quarter fiscal 2016 financial results
is scheduled for today, May 12, 2016, at 8:00 a.m. Eastern Time.
Investors and analysts interested in participating in the call are
invited to dial 877-201-0168 (U.S. domestic) and 647-788-4901
(international), and enter conference ID# 3204387, 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 and analysts in comparing our performance across reporting
periods on a consistent basis by excluding 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 a table accompanying this release. 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 ongoing
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; 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 latest Form 10-K 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. (the “Company” or “Party City Holdco”) 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 approximately 180
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.PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31, 2016 2015 ASSETS (unaudited) Current assets: Cash and cash equivalents $ 33,157 $ 42,919 Accounts receivable, net 116,512 132,287 Inventories, net 585,858 564,259 Prepaid expenses and other current assets 56,533 50,450 Total current assets 792,060 789,915 Property, plant and equipment, net 278,201 272,420 Goodwill 1,584,023 1,562,515 Trade names 568,342 568,712 Other intangible assets, net 85,039 89,157 Other assets, net 6,783 9,684 Total assets $ 3,314,448 $ 3,292,403 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Loans and notes payable $ 181,094 $ 126,136 Accounts payable 97,314 111,616 Accrued expenses 134,531 146,319 Income taxes payable – 8,504 Current portion of long-term obligations 14,499 14,552 Total current liabilities 427,438 407,127 Long-term obligations, excluding current portion 1,643,738 1,646,121 Deferred income tax liabilities 276,247 276,667 Deferred rent and other long-term liabilities 51,147 49,471 Total liabilities 2,398,570 2,379,386 Stockholders’ equity: Common stock (119,318,854 and 119,258,374 shares issued and
outstanding
at March 31, 2016 and December 31, 2015, respectively)1,193 1,193 Additional paid-in capital 905,747 904,425 Retained earnings 39,795 40,189 Accumulated other comprehensive loss (30,857 ) (32,790 ) Total stockholders’ equity 915,878 913,017 Total liabilities and stockholders’ equity $ 3,314,448 $ 3,292,403 PARTY CITY HOLDCO INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands,
except share and per share data)
UNAUDITEDThree Months Ended March 31, 2016 2015 Revenues: Net sales $ 454,286 $ 458,195 Royalties and franchise fees 3,454 3,910 Total revenues 457,740 462,105 Expenses: Cost of sales 287,767 294,274 Wholesale selling expenses 15,842 17,125 Retail operating expenses 86,709 80,314 Franchise expenses 3,563 3,459 General and administrative expenses 38,926 37,652 Art and development costs 5,377 5,277 Total expenses 438,184 438,101 Income from operations 19,556 24,004 Interest expense, net 22,652 38,479 Other income, net (2,978 ) (1,421 ) Loss before income taxes (118 ) (13,054 ) Income tax expense (benefit) 276 (4,529 ) Net loss ($394 ) ($8,525 ) Comprehensive income (loss) $ 1,539 ($20,852 ) Net loss per common share-Basic – ($0.09 ) Net loss per common share-Diluted – ($0.09 ) Weighted-average number of common shares-Basic 119,291,974 94,096,525 Weighted-average number of common shares-Diluted 119,291,974 94,096,525 PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED EBITDA
(In thousands)
UNAUDITED
Three Months Ended March 31, 2016 2015 Net loss ($394 ) ($8,525 ) Interest expense, net 22,652 38,479 Income taxes 276 (4,529 ) Depreciation and amortization 20,889 20,151 EBITDA 43,423 45,576 Non-cash purchase accounting adjustments 1,401 1,818 Management fee – 930 Restructuring, retention and severance 67 640 Deferred rent 1,983 1,405 Closed store expense 1,420 261 Foreign currency (gains) losses (3,164 ) 1,202 Equity based compensation 948 396 Undistributed loss (gain) in unconsolidated joint venture 147 (91 ) Gain on sale of assets – (2,660 ) Other 308 18 Adjusted EBITDA $ 46,533 $ 49,495 PARTY CITY HOLDCO INC.
RECONCILIATION OF ADJUSTED NET INCOME (LOSS)
(In thousands)
UNAUDITED
Three Months Ended March 31, 2016 2015 Loss before income taxes ($118 ) ($13,054 ) Intangible asset amortization 4,145 4,769 Non-cash purchase accounting adjustments (a) 1,956 2,658 Amortization of deferred financing costs and original issuance
discounts1,274 3,074 Management fee – 930 Equity based compensation 948 396 Gain on sale of assets – (2,660 ) Adjusted income (loss) before income taxes 8,205 (3,887 ) Adjusted income tax expense (benefit) (b) 3,446 (1,000 ) Adjusted net income (loss) $ 4,759 ($2,887 ) Adjusted net income (loss) per common share – diluted $ 0.04 ($0.03 ) Weighted-average number of common shares-diluted 120,141,598 94,096,525 (a) As a result of its acquisition by THL and Advent, the Company
applied the acquisition method of accounting and increased the value
of certain property, plant and equipment. The impact of such
adjustments on depreciation expense increased the Company’s
expenses. These property, plant and equipment depreciation amounts
are included in “Non-cash purchase accounting adjustments” for
purposes of calculating “adjusted net income,” but are excluded from
“Non-cash purchase accounting adjustments” for purposes of
calculating adjusted EBITDA since they are included in depreciation
expense.(b) Represents the income tax expense/benefit using the rate in
effect after considering the adjustments.PARTY CITY HOLDCO INC.
SEGMENT INFORMATION
(In thousands)
UNAUDITED
Three Months Ended March 31, 2016 2015 Total Revenues Dollars in
thousandsPercentage of
Total RevenuesDollars in
thousandsPercentage of
Total RevenuesNet Sales: Wholesale $ 259,821 56.8 % $ 250,716 54.3 % Eliminations (125,091 ) (27.3 %) (105,793 ) (22.9 %) Net wholesale 134,730 29.4 % 144,923 31.4 % Retail 319,556 69.8 % 313,272 67.8 % Total net sales 454,286 99.2 % 458,195 99.2 % Royalties and franchise fees 3,454 0.8 % 3,910 0.8 % Total revenues $ 457,740 100.0 % $ 462,105 100.0 % Three Months Ended March 31, 2016 2015 Total Gross Profit Dollars in
thousandsPercentage of
Net SalesDollars in
thousandsPercentage of
Net SalesRetail $ 124,026 38.8 % $ 119,476 38.1 % Wholesale 42,493 31.5 % 44,445 30.7 % Total $ 166,519 36.7 % $ 163,921 35.8 % PARTY CITY HOLDCO INC.
OPERATING METRICS
UNAUDITED
Three Months Ended March 31, 2016 2015 Share of Shelf (a) 75.4% 71.6% Store Count Corporate Stores: Beginning of period 712 693 New stores opened 2 3 Acquired 19 2 Closed (2) (5) End of period 731 693 Franchise Stores: Beginning of period 200 208 Opened 1 – Sold to Party City (19) (2) Closed (1) (1) End of period 181 205 Grand Total 912 898 Brand comparable sales (decrease) increase (b) -1.5% 5.2% (a) Share of shelf represents the percentage of our retail product
cost of sales supplied by our wholesale operations(b) Party City brand comparable sales include North American
e-commerce sales.Contacts
Party City Holdco Inc.
Deborah Belevan, 914-784-8324
VP of
Investor Relations
InvestorRelations@partycity.com -
Retail sales increased 2.6% on a constant currency basis (2.0% on