Party City Announces Third Quarter 2017 Financial Results; Reports Total Revenue, Retail and Wholesale Sales and Brand Comparable Sales for Fiscal October 2017

Party City Holdco Inc. (NYSE:PRTY) today announced financial results for the third quarter ended September 30, 2017, as well as total revenue, retail and wholesale sales and brand comparable sales for fiscal October 2017.

For the quarter ended September 30, 2017, the Company reported total revenues of $560.1 million, up 0.6% from the prior year period or up 0.3% on a constant currency basis. Income from operations increased 1.3% to $37.4 million and adjusted EBITDA (see "Non-GAAP Information") increased slightly to $66.1 million. Reported GAAP diluted earnings per share were $0.08 in the third quarters of both 2017 and 2016. Adjusted diluted earnings per share increased 8.3%, to $0.13 from $0.12 in the third quarter of fiscal 2016 (see "Non-GAAP Information").

James M. Harrison, Chief Executive Officer, stated, "Our bottom-line performance in the third quarter once again demonstrated the inherent benefits of our unique vertical model. Despite modest topline growth, and slightly softer than expected retail brand comps, in part driven by the hurricane disruptions, we delivered solid financial performance which was largely in-line with expectations, as we focused on the core fundamentals of gross margin expansion and disciplined cost control, resulting in Adjusted EPS growth of over 8%.”

Mr. Harrison continued, "We are encouraged by the progress made on our strategic growth initiatives during the quarter, and remain focused on enhancing the shopping experience both in our stores and online. We are also encouraged by the comp sales performance across our permanent stores and the improved trend for the core Everyday business. However, our web business experienced platform performance issues that negatively affected traffic levels on our site and drove the overall brand comp sales decline in the quarter, and we are aggressively addressing these issues.”

For fiscal October 2017 (for the Company’s retail segment fiscal October 2017 consisted of the five-week period ended November 4, 2017), the Company reported total revenue of $475 million, or 5.5% above the same period of last year. Growth in the month was driven both by the retail segment (revenue of $419 million, a 4.0% increase) and the wholesale segment (sales of $56 million, a 20% increase). Brand comparable sales, which include Company-owned Party City stores in the U.S. and Canada and North American e-commerce operations, decreased 1.4%.

During the Halloween season, the Company operated 272 temporary Halloween City stores, compared to 270 in 2016.

"We are also pleased to announce today that our Board of Directors approved a $100 million share repurchase program, as our consistent free cash flow affords us the opportunity to return value to shareholders, while we also remain focused on reinvesting in the business, pursuing accretive acquisitions, and paying down debt. This authorization gives us the flexibility to make opportunistic share repurchases as we continue to allocate capital in a balanced and disciplined manner to drive shareholder returns,” added Mr. Harrison.

Highlights for the third quarter:

• Total revenues of $560.1 million, including a $5 million hurricane-related headwind, increased 0.6% on a reported basis or 0.3% on a constant currency basis.
• Wholesale share of shelf¹ increased 290 bps to 78.0% during the third quarter, principally due to increased manufactured share of shelf.
• Reported net income of $10.1 million or $0.08 on a per share basis, compared to $10.2 million, or $0.08 per share in the prior year period. Adjusted net income increased 8.4% to $15.2 million, or $0.13 on a per share basis, from $14.0 million, or $0.12 per share, in the prior year period. Both reported EPS and adjusted EPS reflect an approximate $0.02 per share hurricane and foreign exchange-related headwind, offset partially by $0.01 per share of tax rate favorability.
• Adjusted EBITDA increased slightly to $66.1 million, despite $2.5 million of hurricane related headwind.
• Free cash flow² increase of nearly 11%, to $49.1 million.

"Based on our year-to-date performance, we are updating our full year guidance. Looking ahead, we remain focused on executing our retail initiatives as well as elevating our e-commerce capabilities which, combined with the power of our vertical model, will drive sustainable top and bottom line improvement.” Mr. Harrison concluded.

Third quarter summary:

• Reported net income of $10.1 million compared to $10.2 million in the third quarter of 2016.
• Adjusted net income increased 8.4% to $15.2 million, compared to $14.0 million for the prior year quarter.
• Adjusted EBITDA increased slightly to $66.1 million, despite approximately $2.5 million of hurricane headwind, compared to $66.0 million in the third quarter of 2016.
• Reported diluted earnings per share totaled $0.08, flat with the prior year quarter. Adjusted diluted income per share increased 8.3% to $0.13 from $0.12 in the third quarter of 2016, despite $0.02 per share hurricane and foreign exchange-related headwind, offset partially by $0.01 per share of tax rate favorability.
• Total revenues of $560.1 million, including a $5 million hurricane-related headwind, increased 0.6% on a reported basis or 0.3% on a constant currency basis.
• Retail sales increased 4.7% on a reported basis (4.5% on a constant currency basis) driven primarily by increased store count through acquired franchise stores (36), one acquired independent store and new store growth (20 net new Party City stores) in the past twelve months.
• Brand comparable sales, adjusted for the approximate 140 basis points negative impact of the hurricanes, decreased 1.2% during the third quarter.
• Net third-party wholesale revenues decreased 6.1% on a reported basis (decreased 1.6% on an adjusted basis when adjusting for currency effect, as well as the impact of eliminating $9.8 million in intercompany sales for the 36 franchise store acquisitions over the last twelve months).
• Total gross profit margin increased 40 basis points to 35.9% of net sales, primarily due to higher share of shelf and reduced product costs.
• Operating expenses totaled 29.5% of revenues (an increase of 20 basis points from Q3 2016), and increased 1.1% over the third quarter of 2016 to $165.2 million.
• The effective tax rate was 25.7%, compared to 33.9% in the third quarter of 2016. The decrease in the effective tax rate was principally due to discrete items related to uncertain tax positions, stock option exercises and return-to-provision adjustments, partially offset by the impact of state tax rate changes on deferred tax liabilities.
• During the quarter, the Company opened six new stores and closed one store.

Balance sheet highlights as of September 30, 2017:

The Company ended the quarter with $1,730 million in debt (net of cash) resulting in net debt leverage³ of 4.3 times and approximately $372 million in availability under its asset-based revolving credit facility.

Share Repurchase Program:

The Company also announced today that its Board of Directors has approved a share repurchase program under which the Company may purchase up to $100 million of its outstanding common shares from time to time, depending upon a variety of factors, including market and industry conditions, share price, regulatory requirements and other corporate considerations, as determined by the Company from time to time. The authorization expires on November 12, 2018, subject to extension or earlier termination by the Board of Directors. The Company may purchase shares of its common stock in open-market and/or privately negotiated transactions in accordance with applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, and repurchases may be executed pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934. The authorization may be suspended or discontinued at any time without notice.

Fiscal 2017 Outlook:

For full-year 2017, the Company is adjusting its guidance as follows:

• Total revenue of $2.36 to $2.39 billion
• Brand comparable sales flat to down 1%
• Adjusted EBITDA of $400 to $410 million
• Adjusted net income of $146 to $151 million
• Adjusted diluted EPS of $1.21 to $1.25*
• Net debt leverage of approximately 3.5x by the end of 2017
• GAAP net income of $121 to $126 million
• GAAP diluted EPS of $1.00 to $1.04*

* The above outlook excludes any impact from potential share repurchases made by the Company.

The Company has reconciled Non-GAAP outlook measures to the most directly comparable GAAP measures later in this release. See "Non-GAAP Information" and "Reconciliation of 2017 Outlook” for a more detailed explanation, including definitions of the various Non-GAAP terms used in this release.

_____________________

¹ The percentage of our retail product cost of sales supplied by our wholesale operations

² Defined as adjusted EBITDA less capital expenditures

³ Defined as net debt to adjusted EBITDA

Conference Call Information

A conference call to discuss the third quarter 2017 financial results and fiscal October 2017 sales is scheduled for today, November 9, 2017, at 8:00 a.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (833) 241-4256 (U.S. domestic) and (647) 689-4207 (international), and enter conference ID#99511792, 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 in comparing our performance across reporting periods on a consistent basis by eliminating 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 tables accompanying this release. We also evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We calculate constant currency percentages by converting our prior-period local currency financial results using the current period exchange rates and comparing these adjusted amounts to our current period reported results. We also provide free cash flow, defined as Adjusted EBITDA less capital expenditures, and net debt leverage, which is calculated by adding Loans and Notes Payable, Current Portion of Long Term Obligations and Long Term Obligations, Excluding Current Portion, subtracting Cash and Cash Equivalents and dividing by Adjusted EBITDA for the trailing twelve month period. Adjusted Earnings per Share is calculated by dividing Adjusted Net Income by the Weighted Average Number of Common Shares-Diluted. We believe providing these non-GAAP measures provides valuable supplemental information regarding our results of operations and leverage, consistent with how we evaluate our performance. 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 core 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. 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 over 900 specialty retail party supply stores (including approximately 150 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20171109005120/en/