Party City (PRTY) Tops Q2 EPS by 1c, Revenues Miss; Offers FY18 EPS/Revenue Outlook

Party City (NYSE: PRTY) reported Q2 EPS of $0.40, $0.01 better than the analyst estimate of $0.39. Revenue for the quarter came in at $561 million versus the consensus estimate of $563.91 million.

• Total revenues increased 3.0% on a reported basis to $561.0 million and 2.3% on a constant currency basis.
• Retail sales increased 2.9% on a reported basis (2.6% on a constant currency basis), driven primarily by square footage growth from store acquisitions.
• Brand comparable sales increased 0.1% during the second quarter despite headwinds from a shift in the timing of Easter (first quarter 2018 versus second quarter 2017). Excluding the shift, underlying brand comparable sales increased by approximately 1%.
• Net third-party wholesale revenues increased 3.5% on a reported basis or 3.6% on an adjusted basis when adjusting for the impacts of currency and franchise store acquisitions. The increase was primarily driven by continued strength in core international markets and strong performance in the foil balloon category.
• Total gross profit margin increased 40 basis points to 41.0% of net sales. Continued strong gross margin expansion in retail, as a result of increased manufactured share-of-shelf1, the benefit of our retail productivity efforts and positive product mix, was partially offset by a decline in our wholesale segment due mostly to increased freight and distribution costs, higher wages in our distribution center and emerging commodity cost inflation.
• Operating expenses totaled $166.1 million or 29.6% of revenues, representing a decrease of 20 basis points from Q2 2017, largely due to further realized savings associated with improved productivity and efficiency in our stores.
• Reported net income of $28.0 million compared to $25.0 million in the second quarter of 2017.
• Adjusted net income increased 17.7% to $39.2 million as the impact of tax reform was partially offset by higher interest expense.
• Adjusted EBITDA of $96.6 million was slightly higher than the second quarter of 2017.
• Diluted earnings per share totaled $0.29, compared to $0.21 in the prior year quarter. Adjusted diluted income per share increased 42.9% to $0.40 from $0.28 in the second quarter of 2017.

James M. Harrison, Chief Executive Officer, stated, “I am pleased with the solid second quarter results that were in-line with our expectations on both the top and bottom line. In the quarter, we delivered 3% topline growth, grew income from operations by almost 8% and increased Adjusted EPS 43%. These results again demonstrate the strength of our vertical model, the continued benefit of our cost discipline and productivity initiatives combined with operational progress on all fronts, reinforcing our position as a world-class vertical retailer.”

Mr. Harrison continued, “As we enter the third quarter, we continue to make good progress on our strategic growth initiatives and are well-positioned for the upcoming Halloween selling season. The recent announcements of the expansion of our seasonal pop-up store offering with 50 Toy City locations and our seasonal pilot program with Amazon will only strengthen the offer for customers. Given performance to date and the outlook for the second half of the year, we are reiterating our full year 2018 guidance.”

GUIDANCE:

Party City sees FY2018 EPS of $1.76-$1.87, versus the consensus of $1.84. Party City sees FY2018 revenue of $2.44-2.49 billion, versus the consensus of $2.48 billion.

• Total revenue of $2.44 to $2.49 billion
• Brand comparable sales growth of approximately 1%
• Adjusted EBITDA of $415 to $430 million
• Adjusted net income of $172 to $183 million
• Adjusted diluted EPS of $1.76 to $1.87
• Net debt leverage2 of approximately 3.8 times by the end of 2018
• GAAP net income of $143 to $154 million
• GAAP diluted EPS of $1.46 to $1.57

For earnings history and earnings-related data on Party City (PRTY) click here.

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