DISCUSSION

Will bankruptcy enable Party City to succeed for years to come?

January 19, 2023Written by George Anderson

Party City Holdco, the parent company of Party City, on Tuesday filed for Chapter 11 bankruptcy protection. The retailer also said it had entered into an agreement with creditors who hold more than 70 percent ($900 million) of its secured first lien notes in a debt for equity swap. Getting the creditors on board was crucial to Party City’s plan to restructure its business. The retailer has secured a $150 million loan from its creditors with half expected to go to paying employee wages and vendor invoices. Party City has been buffeted in recent years by changes in consumer behavior, store closures and supply chain challenges tied to the pandemic. A shortage of helium has also weighed heavily on a company that counts balloons among its key sales drivers. The chain, which currently operates more than 800 stores (700+ corporate), has closed 28 locations and is evaluating others to determine if they warrant continued investment. Party City in November reported a one percent decline in total third quarter sales with same-store revenues down 3.6 percent. The chain’s comps were up 11.2 percent compared to the third quarter in 2019. Brad Weston, Party City president and CEO, said in a statement that the company has made “significant strides” in transforming its business and that new funding will put the “business on stronger financial footing for the future.” The Chapter 11 filing follows previous steps that Party City has taken to put its financial house in order. Mr. Weston, speaking on the chain’s November earnings call, pointed to reasons for optimism, including a rebound in balloon sales, which were up 62 percent compared to the same period in 2019. He called Party City’s balloon business “a key differentiator” in the company’s strategy. “Our focus on driving strong improvements to quality and innovation in our assortments as well as thoughtful pricing as we seek to offset higher expenses continues to strengthen sales performance versus the pre-pandemic timeframe,” he said. Party City’s CEO was also upbeat about the retailer’s next gen stores (primarily remodels) and its omnichannel capabilities. “We opened 15 next-gen stores in Q3, totaling 174 Next-Gen stores as of the end of the quarter,” said Mr. Weston. “These stores continue to average a mid-single-digit sales increase versus control stores with a run rate that delivers a payback period on each store of less than 24 months on average.”

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