Party City (PRTY) Misses Q4 EPS by 1c, Revenues Miss, Brand Comp. Sales Down 2.9%; FY19 EPS Views Below Consensus, FY19 Revenue Mid-Point Guidance Below Estimates

Party City (NYSE: PRTY) reported Q4 EPS of $1.08, $0.01 worse than the analyst estimate of $1.09. Revenue for the quarter came in at $805.63 million versus the consensus estimate of $817.91 million.

• Total revenues increased 2.0% on a reported basis and 2.5% on a constant currency basis.
• Retail sales increased 4.3% on a reported basis (4.5% on a constant currency basis), driven primarily by square footage growth from franchise and independent store acquisitions.
• Brand comparable sales decreased 2.9% in the quarter. The North American e-commerce sales that are included in our definition of brand comparable sales increased by 11.9% versus the fourth quarter of 2017 and by 32.5% when adjusted for “buy online pickup in store” sales.
• Halloween City sales per store (excluding Toy City sales at such locations) increased approximately 14% over the prior year quarter.
• Net third-party wholesale revenues decreased 5.9% on a reported basis and increased 0.3% after adjusting for the impacts of currency and store acquisitions.
• As expected, total gross profit margin decreased 160 basis points, to 45.3%, due to increased freight and distribution costs and increased commodity pressures, including higher helium costs.
• Operating expenses increased 1.2% to $207.5 million due to the store acquisitions and wage inflation. Operating expenses as a percentage of revenues were 20 basis points lower than during the fourth quarter of 2017.
• Interest expense increased by $7.1 million versus the prior year quarter, principally due to higher LIBOR rates, increased debt levels and the impact of the Company’s August 2018 debt refinancing.
• Reported GAAP net income was $98.4 million, versus $185.0 million during 2017. Reported diluted earnings per share were $1.02, versus $1.58 during the prior year. During 2017, reported net income and reported diluted earnings per share included approximately $90 million of non-recurring income tax benefits related to Tax Reform.
• Adjusted EBITDA for the quarter was $188.9 million, compared to $197.4 million in the fourth quarter of 2017 (see “GAAP and Non-GAAP Measures”).
• Adjusted net income totaled $103.4 million, compared to $94.1 million in the fourth quarter of 2017, as the Company benefitted from Tax Reform (see “GAAP and Non-GAAP Measures”).
• Adjusted diluted earnings per share totaled $1.08, compared to $0.81 in the prior year quarter (see “GAAP and Non-GAAP Measures”).

James M. Harrison, Chief Executive Officer, stated, “Our topline results for the fourth quarter were slightly below expectations in large part due to helium supply pressures that persisted from the third quarter, while gross margins were inline and Adjusted EBITDA and Adjusted EPS came in within our expected ranges as we exercised disciplined cost control. For the year, despite some unexpected temporary operational challenges in the back half, we delivered topline growth of 2.4%, with Adjusted EPS of $1.61 and Adjusted EBITDA of $400 million, both of which were within our annual guidance. Operationally, 2018 was an important foundational year as we made integral investments across the business to enhance our positioning as a world class retailer and we made meaningful progress against our key growth strategies to strengthen the business for fiscal 2019.”

Mr. Harrison continued, “As we begin fiscal 2019, we plan to capitalize on tailwinds that will present themselves, including a Thursday Halloween, significant new licensed properties and benefits from supply chain investments that we made following disruptions that impacted the business in 2018. We will continue to stay focused on our strategic priorities, which will drive better run stores and e-commerce businesses, continue to improve operational execution and generate increased cash flow to reduce debt as we focus on creating long lasting shareholder value.”

GUIDANCE:

Party City sees FY2019 EPS of $1.61-$1.72, versus the consensus of $1.85. Party City sees FY2019 revenue of $2.49-2.54 billion, versus the consensus of $2.54 billion.

For 2019, the Company provided the following financial guidance:

• Total revenue of $2.49 to $2.54 billion
• Brand comparable sales of about 1%
• GAAP net income of $135 to $145 million
• GAAP diluted EPS of $1.42 to $1.53
• Adjusted EBITDA of $405 to $418 million
• Adjusted net income of $152 to $162 million
• Adjusted diluted EPS of $1.61 to $1.72
• Net debt leverage1 by the end of 2019 approximately half a turn lower than at the end of 2018

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

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