When planning for a special event like Valentine’s Day, St. Patrick’s Day, graduation, Fourth of July, Thanksgiving, Christmas, New Year’s and especially Halloween most people head to Party City to get decorations, party supplies and costumes. Want balloons? The first place thought of is once again Party City. But between the pandemic, supply shortages, rising costs, inflation and increased competition the largest party supply business in the country is having a hard time.They lost $199 million in 2022. On Tuesday, January 17, 2022, they applied for bankruptcy protection so they can reorganize according to extensive reports from CNN and CNBC.
Troubled times began in 2017. Between then and 2022, the company has had an 8% drop in sales and they are carrying a $1.67 billion debt load. The good news is that unlike many businesses filing for bankruptcy, their business is stable according to CNBC. While sales were down by 3.2% in 2022 over the previous year, they were up 11% from 2019.
Party City has brought in Alix Partners Consulting to help manage their reorganization. Headquartered in New York City, Alix Partners Consulting is a financial advisory and global consulting firm best known for its work in turning around failing companies by helping them with urgent performance improvement, complex restructuring, risk mitigation and accelerated transformation, as well as strategic planning. In 2018, Forbes listed them as one of the best in their business.
Part of the reorganization of Party City will include closing weak performing stores and cutting their workforce by 19%. Currently they have 16,330 full and part time employees, as well as 240 temporary employees working in 823 stores. They own 770 of their store buildings and the company is hoping to move out of 28 store locations that they do not own.
According to CNBC, “Party City said Wednesday it struck an agreement to reduce its debt and has already received support from a group holding more than 70% of its first lien debt to move forward with its bankruptcy plan, according to court papers and a filing with the U.S. Securities and Exchange Commission.”
The company has also been able to secure $150 million in bankruptcy financing, and they have asked the U.S. Bankruptcy Court in South Texas to allow them to spend half of the funds to pay wages and vendors, according to CNN.
Currently they are trading for 37 cents per share on the New York Stock Exchange, which they are considering delisting from until the value of their stock raises above $1.
Sliding sales began when stores such as Walmart, Target and Amazon began carrying more costumes and party supplies. Then came the pandemic when Party City had to shutter stores during many crucial celebration activity periods, which continued to go uncelebrated for almost two years as people stayed away from large group events. With that came supply shortages followed by rising inflation and increased interest rates.
One of the things that hit them the hardest was a shortage of helium. It is the balloon business that distinguishes them from local market competitors.
Part of this issue is admittedly their own fault. When others were investing money into creating a strong online presence, Party City management chose to invest in their stores instead. When the pandemic drove people to pretty much exclusive internet shopping, they were unprepared.
Another miss was the temporary Halloween store market, which they eventually reacted to when Spirit Halloween pop-ups began encroaching on their permanent locations. They now have about 149 temporary Halloween shops that they set up during the season beginning in late September.
Reuters notes, “Troubled retailers often seek bankruptcy protection following the holiday season to take advantage of the cash cushion provided by recent sales.”
The news agency also noted that Party City reported that “expedited restructuring” is expected to be completed in the second quarter of 2023. Its subsidiaries outside of the United States, its franchise stores, and its Anagram business were not part of the bankruptcy proceedings, the company told Reuters, adding that its stores would continue to remain open.
Shares of Party City jumped 10% premarket Wednesday and remained halted by midday, according to CNBC.