January 19, 2017 | 1:00 PM by Jay Kunstman | jkunstman@jaguaranalytics.com

Party City Holdings (PRTY) – Waiting to Spook Investors Again

Founded in 1986, Party City is the largest retailer of party goods in the United States and Canada, operating over 900 company-owned and franchise outlets under the Party City, Halloween City, and Factory Card & Party Outlet brands. The company’s revenue is broken down by these categories:

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In early April 2015, the company went public after pricing its IPO at $17/share. Its stock price would ultimately only reach an all-time high of $22.33 in the summer months. Needless to say, performance has been underwhelming. Since its IPO, it has only exceeded consensus EPS estimates in 2 out of 6 occasions, missed consensus Revenue on all occasions, and only raised full year earnings guidance once (Table shown below).

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Let’s take a look at the company’s most recent Q3 earnings results from November 10th:

EPS of $0.12 vs $0.13 estimate – Miss
Revenue of $557M vs $585.1M estimate – Miss
Lowered EPS Guidance
Retail Sales decreased increased 2.4%
Brand Comparable Sales increased 1.2%
Brand Comparable Sales Guidance cut to flat to down 25bps
Everyday Category increased 4%
E-Commerce Same-Store Sales increased 9%
Gross Profit Margins increased 110 basis points

Management also said that for the five-week period ending November 5th, retail sales were lower by 7% and brand comparable sales were down 6.4%. CEO James Harrison said, “With respect to the month of October, the two day Halloween shift from Saturday to Monday this year, as well as the backdrop of a more distracted consumer, resulted in the negative Halloween brand comp, as we saw less overall participation on the adult side of the business.”

Certain analysts believe that in 2017, the company won’t face the same Halloween ordeal again:

Credit Suisse – “With a more normalized seasonal calendar in 2017 (specifically, not facing the same type of Halloween shift again), we would expect more stable comp trends in the low-single digit range.”

JPMorgan – “The holiday calendar normalizes in 2017 (see Figure 1), as 1Q benefits from more spread-out buying events while the Halloween shift to Tuesday from Monday in 4Q should be inconsequential.”

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However, based on the commentary from Party City’s CEO, assumptions could be made that if Halloween were to fall on another weekday, comparable sales may fall again. If participation was low for a Monday, do you think individuals would be excited for a Tuesday? BAML is in the camp of this thinking:

“Expectations for another subdued Halloween this year (represents 25% of sales) given that it will fall on a Tuesday. As was the case in 2016 (Halloween on a Monday), this will likely limit adult participation and parties. While we do not expect the same magnitude of year-over-year pressure (October comps were down “very low double-digits” and also hurt by the election), we do believe it keeps comp growth restrained in 4Q17. “

Obviously, this event will not be a major factor for Party City earnings until later this year. But, it should be a catalyst to keep an eye on as it does represent 25% of annual sales.

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