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)
    UNAUDITED

     
    Three 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
    discounts
    1,274 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
    thousands

    Percentage of
    Total Revenues

    Dollars in
    thousands

    Percentage of
    Total Revenues

    Net 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
    thousands

    Percentage of
    Net Sales

    Dollars in
    thousands

    Percentage of
    Net Sales

    Retail $ 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

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