Can Party City Find Reasons To Celebrate Post-Bankruptcy?

Party City will exit bankruptcy with its debt load reduced by almost $1 billion and nearly 800 stores intact now that it has received approval from the U.S. Bankruptcy Court for the Southern District of Texas. The retailer will follow its Plan of Reorganization to emerge with a stronger capital structure and more liquidity to help it pursue renewed profitability.

Party City filed for Chapter 11 bankruptcy in January due to retail-wide pressures like the COVID-19 pandemic and global supply chain uncertainty, as well as more specific challenges like the 2019 helium shortage. At the time, it had slightly more than 800 stores, but the company shuttered “less productive locations” and renegotiated leases during the proceedings as part of its efforts to cut costs.

The pandemic in particular took a significant toll on operations as parties were put on hold. Adjusted EBITDA for Q3 2022, the last period reported before Party City entered bankruptcy, was $2.4 million. In comparison, the retailer reported an adjusted EBITDA of $119.5 million for Q4 2019 and $188.9 million for Q4 2018.

However, more and more people are opening up to events, which could bode well for party supply sales. As of May, 67% of consumers were comfortable with going out to a party or social event, according to data from Morning Consult. Rising interest in social gatherings will be key to Party City reversing its initial decline and rebuilding its business.

Party City will also likely lean into its next-gen stores, which offer features including dedicated checkout for balloons, fresh signage, and a design aimed at reducing clutter. The company had been opening its next-gen stores, largely through remodeling, through the end of Q3 2022 when they accounted for 174 locations in its fleet, according to data shared on a call with investors. Redesigned stores saw a mid-single-digit sales increase on average and paid back the cost of the remodel within 24 months. Party City was aiming to have this layout make up the majority of its footprint within the next several years.

Party City is emerging from bankruptcy at the right time to take advantage of the Halloween surge. The retailer operated 149 seasonal Halloween pop-ups in 2022, up from 90 in 2021, though it has yet to announce how many it will have this year. Taking full advantage of costume sales in a post-COVID environment could be key in enabling the revived Party City to hit the ground running.