PRTY - Earnings call transcript Q3 2018

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Operator

Good morning. My name is Matthew, and I'll be your conference operator today. I'd like to welcome everyone to the Party City Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. reminder, is a recorded. As Instructions] this being conference [Operator call to Mr. I like the over would now turn to Ian Heller, Associate General Counsel of Party City. Thank you. Mr. begin. may you Heller,

Ian Heller

Good XXXX for released thanks morning, This everyone, we morning, joining our results. financial us. quarter third and

You today's on website can call. like introduce at release who team I'd our our now find executive of And are press copy to a our investor.partycity.com. here on

prepared our our the Please Jim discussion, Harrison, up Chief by some Chief call statements forward-looking Officer. have and it Sullivan, may defined Executive management Dan, We Dan note and future Securities under uncertainties start Financial for regarding We'll with Act prospects to beliefs open today's These before remarks Jim Officer; make performance, future statements. as Litigation that we in events Q&A. XXXX from or company's cause are could of differ and future Reform risks the materially subject to these plans. business and Private results their actual statements that the expectations about for

review Although or our filings. expectations whether otherwise. statements statements harbor that contained can that to to forward-looking are of updates SEC our assurance statements give We well no factors in reasonable, future in such release new everybody as to as as reflected we a in information, the provide earnings We result events these the be disclaim safe any encourage we realized. our expressly provided the duty believe will forward-looking risk expectations

refer results. of company's financial the today's to GAAP measures financial operating call, both During we and will non-GAAP and

measures, to the the please that, to Jim and release. I'll over GAAP turn our refer comparable Harrison. And information non-GAAP earnings on For measures directly with reconciliations financial to call the most

James Harrison

strategic the overview morning, the everyone, as the joining thank quarter, of line by you, company's an providing us results today. Ian. as for for well performance I top third for our making will begin the updated Thank you of Good and then financial the view update further initiatives. and progress the discuss we in month operational an against and on guidance. an share provide October results Dan full-year of are will and detail,

Third-quarter gross margin and partially constant consumer serving products caused a primarily comp quarter, declined points summer the XXX both The by sales on on operational shortfall points revenues the in brand impacted segments. continued reflecting effect one-off soft net offset seasonal were Retail expected XX and issues, of with by decline to which the Revenue came currency posted weather number negatively basis retail income. softer a we slightly strong basis than performance of challenges results. a basis. the approximately from

Specifically, moving as policy at and supply-chain in-stock we Halloween to season. disruptions the the of products tremendous in September. out positions inventory began new experienced start overall the effect take This affected of China availability tariff

also from We they in quarter date. well the and independent balloon associated business it Australia increasingly supply shifted UK of negative challenging the relates more to the and especially shortly. quarter, the and to positive experienced continued Outside results which basis channel October. to navigating QX these in gross to impact vertical States, the retail continuing items input specifically while approximately challenges consumer points had reap and benefits the third-quarter third a United headwind a continue expanding quantify to for will on the effect just the The the On in including as offset late the by commodities, light businesses. the segment XX franchisee in performed freight. I business reflect labor core of model, The international with softness markets timing e-commerce fiscal and in acquisitions, plant the wholesale mentioned. in products certain about quarter some margins helium growth of sales categories, of the million providing the revenues shortages sluggish growth Germany, the and trajectory note, been latex metallic in sources we was accelerating had more of of in the key the from FOB talk Dan which both than $X results strength sales inventory in costs, by pressures, direct

the adjusted per earnings For $X.XX. quarter, share totaled

as higher the These business, continue to online supply-chain the In to for declines we between whether improve business to or experience affected increased make forward. to we strategic continue basis. improving progress sales and earnings blur. initiatives. as continue on shopping adversely in-store addition on the the Operationally, invest efforts and we line continue the retail with costs customers will the brick-and-mortar interest year-over-year go a to our Starting expense in growth web

stores, this am in progress effort, the in we planner the Toy earlier pop-up City the to reinvestment party In-store, year catalyst Halloween active the will XXX seen initiatives pleased we is the I and opening September, entire program XX date. and City of early pleased Dan more launched While productivity rolled This in to with we the the fleet City continue some to stores. collective very which In program. now with Toy detail. with provide results, disclose for that are out joint labor this temporary

the controlled in opportunity stated, here on and capitalize a by toy disciplined market created dislocation. manner previously goal As the to is

have the with what been to and brought have pleased offering, we of proposition market. execution We

featuring a creative we quarter, of improved the The far offers usability site merchandize full We have out positively to disruption. side in-store product a range as new the shopping browsing that invest experience. responding on mobile a in to created Online check and consumers business we the flow, breadth as seamless and advanced omnichannel trend well Thus and are of continue strong critical offering assortment. consumers the content, re-platform minimal successfully executed complement items. in-store experience capabilities experience. with In

XX% reflecting saw traction gain redesign. pickup of cycle with the over continued site increased up in issues now benefit grow site reaching quarter. XX% the from online, During in-store e-commerce SEO as in the of mobile quarter, we penetration significantly, the the More to traffic penetration sales part first XX% challenges. to Buy we

initial continues build store we a their The with and performance offering. limited the broader the of the Amazon price the as These the leveraged front we pleased the grow sensitivities We buybacks. across traffic inherent assortment. are are to shopping continue level the to for serving to conversion our of To with a preferences and the rates being towards ability winning the product are site merchandise assortment associated expand strong unique and us business. a learnings to of learning City while date catalyst Party and consumer, reach on amount have marketplace brand our very tremendous about

live assets, we pleased over marketplace, from Kazzam, as have other the we our with Regarding digital are we services towards is the now party which XX markets in progress progress seen in a goal that are much stated reaching of markets learn degree, or still test year. the mode, XX very to large the less. more Recognizing we to by end a of

of our database parties unique are serve that capturing We Kazzam have with to underlying executed expanding some our of and customer date key the successfully believe metrics. CRM to consumer party We XXX for will throwers. pleased support efforts, information over the website

robust us this data our data, customer for database pilot which limited model their identifiable customer overall has over on customers. target of to discernible almost This million created and From all Currently XX we purchase and response deployed growing have a to and inform targeted by and us data. personalized buyer Kazzam party over the our customer help CRM will seen organized deliver is attributes. and customers A promotional we years segmentation CRM the This specific needs. will and collecting today effectiveness. expanding also campaign. consumers contains are with have improved basis, relationship allow strengthening have marketing promotional rates beyond appended of XX been capabilities representing We our messages four

invest Finally, in consumer. we continue the to

spend was quarter away social consumers spend flat of shifted dollars marketing total towards brands. media we the a presence While engaging with our in increasing to digital are where variety optimize looking traditional and from year-over-year channels the

North and excellent XX markets. and across front, we the of believe Dakota These at On an capital. during of an multiple we Texas [footprint] the use acquisitions expand the quarter acquisition market acquisition stores Pennsylvania, the our franchise Minnesota, remain attractive completed further

and for year. of sales our did recognizing the better is an slightly design negative City proposition managers comp X% and is XX of my job fiscal for the dedication was Party begin has whose million Herculean City season City associates the was view challenges. and ever Halloween the $XXX.X October truly been. fabulous who City beyond at in second the Party I by like value of the brands sourcing I'd exemplary. efforts a Also at and myriad quality a global our consumer helium. increase in our retail retail a product for sourcing to which Total retail stronger basis sales The to Today portion issues to teams, face Turning minus than efforts our it tireless of product Retail October attributable bps, of prior of to of like thousands a and products of related over none. performance, creating to and the Halloween was combined on thank to organization assortment is

planned. substantially Party comps we City expectations. brand different our] the total with was How our were we there expectations, level how While [in sales Halloween below had generally were got than

to improve of which XX.X% Halloween to experience approach and costumes segments, will sales even the address holiday us the to opportunity customer respectively. more temporary a multichannel misunderstood providing e-commerce regarding Our business for the our consumer our this XX.X% details tariffs. be in the take very moment. want a their believe experienced We comp in and channels perhaps is as also retail store I very brick-and-mortar search topic, teams beyond more achieve in traditional Dan the impact potential and had both and I is allowed efforts channels. that to performance of strong to solid result which a all positive broaden

to from to $XXX purchases it million million the in just our While $XX today highlight are current under tariffs. China less sourced and annual of important are of our from sourced than that many China, subject total products is are

the expect significantly annualized price product [$XX reengineering basis be So, we an exposure. increases less on will of million]. would the full than that and this fully tariff between reduce that effect We resourcing,

we that our American items factories. comprised manufacture of product are ourselves XX% than more of North Additionally, in generally sales consumer

felt this a $XXX new of but million the information important was with such, trade me be is that know paper the As our grow an us tableware future we tariffs and none Obviously for position. significantly board to since today hold, And has repurchase market opportunity announced I share soon lastly, you. the for impacted authorized it that negotiations us will we by of state to believe there directors international plastic share what of program.

have share believe I previously, take core not advantage allocation As buybacks a authorization the and continue what of gives us our we and while impact certainly de ability largely sheet. a repurchases to is having to share component view opportunistic to stated This our we the of capital share minimis as depressed price on strategy. balance severely a delever make flexibility

summary, operational helium results The headwinds reflected guidance. of would and being wholesaler Dan progress will will continue the achieve in ensure initiatives we global the our I see the had now a operators significantly, to the key the business. make while that investments third of these And with to as we the in have encouraging line are recognition retailer against many expected third generally and market company's in supply-chain continue and than in our in business growth position areas and of in to like the and strengthen initiatives now we however, over updated to even More expectations, and earlier Halloween the So, quarter XXXX mentioned detail. become the leading was across softer of Dan? execution turn to long-term outlook quarter call objectives. our made results discuss greater and the industry. better The our

Daniel Sullivan

outlook our the operating up will the performance morning, and call then line open quarter guidance before rest for and top Thanks, I for fiscal everyone. Jim, our we'll review financial and good results and October of questions. XXXX, the for discussing and

operating with Third results top financial continue bottom-line our to expansion margin Despite expectations. quarter focus were the on partially only top challenges, than results of a X.X% the again increasing leveraging model, decline total softer vertical we expected, rate gross offset million, line strength below line revenues We by for reported when by while per of out expanded effectively business, investment adjusted or basis business strategies. in deploying of XX to points execution generated margin currency. and $XXX million growth approximately our the $XX diluted resulting the inflationary declined model through costs demonstrating our operating pressures, share. points of delevered driving In and adjusted vertical, our free cash consolidated in million. quarter, and income X.X% strengthening capital our the net gross margin adjusted contraction $X.XX expenses $X.X flow We of basis XXX or of despite

top more our currency, increase results, increased sales X.X% reported X.X% quarter the third in over line retail at an franchise Looking basis months. end, footage stores last totaled twelve store net three our X% of closely XXX the stores, stores which segment by driven on retail independent months. and constant or a net At network were over XX and store as quarter's opened acquired stores, corporate our XX XXX new past we in

operating less while stores We year store ago. a than also our strengthened XX pop-up offering,

include US Canadian Amazon Halloween formats and which declined additional from to on Toy Halloween. were our and City of about we the comparable North City and Halloween a the Toy rate permanent e-commerce immediately stores American Brand For both and business, stores our pop-up which season, City run converted basis. XX X% sales, an joint quarter City four opened including in after pilot, our XXX reported

sales. said, growth a targeting performance sales we our BOPIS partly of a healthy quarter, a increase saw with just of over SEO of performance the This overall customer and web ago. Jim underlying the issues of a improved cycling when As and in of year comp In by our efforts. result metrics enhanced traffic conversion we reflective XX%, highlighted combination growth pleased is were including

have the sales gains, penetration our While strengthen meaningful with comp positive conversion of response and we The pilot initial small. to to the new from pleased total the online results site, strong deepened its to sales in contribution the we results Amazon quarter all and reinforce offering. were traffic focus the pilot, steps our and are Amazon taken customer

growth X% of X% a business. everyday the about slightly the shortages. above quarter the grew is trend business category or reinforces in rate adjusting of consistency everyday and helium the Our This component effects about for the when our core negative year-to-date of the for

Within juvenile we shortage. although balloon in metallic from helium a in saw below categories, weaker birthday of a as recent continued the did results growth summer We business trend our everyday and part result seasonal improved business see to the due and September. ahead Halloween significant accessories. business Jim softer September was expected both The demand manufacturing tariff most surge notably and the to distribution as and products, in the than caused in disruption of weather mentioned, of costumes Halloween implementation the

both in X%, stores of the we with our SEO that weakened line years, saw estimate down China. quarter the helium to product factors. and manage issues, impact that cost normalizing As this of of overall all through we results challenges a quarter higher at year result, cycling both aforementioned shortages in these comp bring comp or are the the result were noisy for comps season. we the the managed The position when for an to start obviously about in the and reported for have the said inventory run operational that through and hurricane the out rate Having are our

double-digit strength consumer Deepening in in non-vertical declined X.X% relationships product the leveraging currency. International adjusting in impact and franchise the and balloon to businesses. growth acquisitions approximately QX Germany fuel our revenue and unmatched the in Net growth and high Turning helped after Australia key constant products foil of foreign for consumer UK. category exchange. in single-digit retail X.X% decreased the in

in FOB particularly our our in Mexico quarter. softer from However, an results plant business were non-core direct offset and the in markets,

products the franchise sluggish challenged As and business to remains performance. due we discussed, independent continued consumer domestic previously

few which more secured by a recently, encouraged will QX. retailers trends fuel are with help key wins improved we in However,

of consolidated XX.X% profit promotional Our basis last same result year, the QX. partially was gross margin XX shift quarter above the in spend or points to a

of benefit use out of mostly gross added strong the although QX. in Shelf, margin and a on air-freight in due this impact putting with in partially retail wholesale The and by manufactured Share decline in to margins additional in challenges division the labor retail our increased significant activity pressure products resulted China a offset incurrence this the expansion our DCs of as less Continued productivity inflationary efforts will of our increased result largely of were be associated pressures. operational moving felt of promotional gross

wage point and Additionally, to and cost inflation, discussed store issues year-over-year store In new decreased year-over-year discussed points Shelf while and mostly Total addition basis only have initiatives on management. percent begin already and pure the of G&A decrease for we our initiatives largely SCIM, wave a we retail basis mature, Shelf increased identifying leveraging Share commodity Manufactured costs begun higher in continued result productivity next pressures saw labor temporary we manufacturing we cost quarter, basis the as these as as a markets remain of of year-over-year, helium about despite X% increased Share the efficient costs, the Retail assets labor of QX productivity a to focused XXXX. initiatives by delevered Kazzam XX% severance our over increased $X of category. expenses basis XX XX wage the general XX continued operating expenses of points one-time mostly shortage. decline million year of a the costs. just growth business to result Operating permanent pressure of earlier. last revenue in XX in stabilized, to distribution XX foil expenses the of the of as result the stores, versus due and XXX increased our further of Jim saw product of XX% the into largely availability in earlier. net Investments increases wage minimum expansion driven a acceleration a centers of integration, further portion balloon heightened approximately including with as inflation Granmark points reflecting

We planner of up program, the in which scaled XX the with most are also about our party recent stores XXX performance quarter. pleased having been with to launched

stores. training the comp We in we have rest customers scores. by a noticed chain turnover. of planner and in party the X% about mature X% increase Overall, as results model, have a and And seeing satisfaction service point reported to labor versus strengthened customers reduced improved XX stronger lift assisted more are those associate and a

have operations million $XX.X the will We and $XX.X year mentioned X.X% nonrecurring income net or revenue the with the XXXX. to was net lower in in period earlier. plans sales or of compared from prior of program continue Reported execute the for expansion developing of begun items X.X% million broader to decrease operating a function partly revenue

Excluding versus $X.X items, margin year. above was basis third points underlying last the operating million of million quarter QX $XX.X for such quarter year. expense declined or the XX Interest last same

the increased non-recurring on of the reported to that yield attributable our impact both impacted in August. by borrowing the LIBOR facility, With tax loan related our executed the effective was ABL under tax In ABL quarter, adjustment facility. and successfully offering a increasing term rate increase reform. And high our rates was recent to

Our was or million tax last adjusted compared to million rate $X.XX income Adjusted $X.X per net per $XX.X and share share $X.XX effective was XX%. year.

consolidated per share versus months last the increased nine basis share points revenue expanded currency. the from buybacks. in or constant to X.X% September, inclusive year. basis of XX same $X.XX points Adjusted EPS period increased increased and margin XX margin ended operating $X.XX Gross X.X% For per

last below quarter quarter, we $XX.X year. adjusted $XX.X million which as of approximately was free CapEx EBITDA delivered the flow million of cash less third the During defined

resulting our the of of capital in asset quarter web we of million increased in we flow a available CapEx. from the base debt and operations million quarter, quarter. existing ended the $XX Cash million inclusive in initiatives. capital the revolver. in of At million with retail a in of $XXX had in was debt quarter ratio of We $XX As support million a was productivity the use use working net a leverage $XX And investments about X.X $X approximately our re-platforming times. of end

which comps through included represented revenue year. last October X% X.X% Retail slightly basis fiscal a month in X.X revenue in despite brand points our the over was softer of decrease Net results. which helium for the XX headwind the a increase to $XXX.X shortages. Turning quarter than million grew expected

absolute City operated we Halloween in despite grew basis. the like-for-like over business of store fact that dollars for store XX% Toy stores. temporary on XX Our excluding City year-over-year sales the increased a less Sales

mobile web basis addition business In the to sales. reflects both reported performance, also on of This and the we're the effect including place expectations also site piece strong of full was and which site available on the performance the of of web line pleased store Halloween year. seasons with The small continue Amazon the this market we expanded strong XX.X% performed which grew benefit additional XX% temporary American explore with our when the is and our a impact re-platforming in and will to assortment. represents both North pilot a business

our full-year guidance. to Turning

outlook. expected previously softer our than fiscal Given provided revising overall results are XXXX we QX and performance, our

we despite As that few fourth performance, a anticipate further Halloween we to there will total impact the look results. our the solid items quarter, are

as providing growth expect associated demand the disruption will September accelerated product shortages continue the margin our We gross of in towards latex China. near-term supply increased mentioned, meaningful in balloon with pressure. moving Also, and we surging both and out for the metallic the experienced in which to chain headwind QX helium

In be incurred materially quarter, fourth recognized result, than the quarter. of and costs the a the continue higher net into results we just will the a per that million a in to $XXX a freight comp will be shipping flat be in full-year share. or versus continue in we adjusted income range to conditions $XXX slightly a million to And to be $XXX to flat full-year of incremental and to to EBITDA As $X.XX is of $X.XX of a to anticipate outlook expect the in discussed distribution ocean billion to inflation $X.XX expect the experience of account, Embedded margins likely tariff be will range with the the fourth billion rates range be which next revenue we $X.XX ahead and $XXX down our adjusted to gross sales this for the given we of headwinds million. heightened rates an in We much assumption XXXX these Taking earlier. ago. round implementation. this year. million for to And now year slightly year-to-date of down

Finally, we to continue expect interest $XXX to expense for a the approximately be year. million

allocation In spend of expect X% of net about we to on terms revenue capital priorities, CapEx.

As you saw on our press release, $XXX the board share million has authorized repurchase. a

our the is about debt ratio As under share of anticipate does the reflect not a and We times with ratio that we repurchases. will practice, times X.X our XXXX. guidance ending year by leverage net end be anticipate of X.X this

all with like the to And and detail outlook, to release. up I'd other around operator that, refer back over open please For our to questions. turn it the our press call for

Operator

Sigman Thank Credit Suisse. question line from you. Seth [Operator Instructions] the of comes Our with first

open. is line Your

Seth Sigman

question Thanks reconcile My to also out, trying talk Halloween the I'm guys. about it's versus bit expectations. to is performance your taking us you question. a just morning to about Could Can better little between help good you on just Thanks. your a bit trend there? little seem versus better. expected then weaker played going core different stores And were for obviously online things start. actually and understand how city what different City Halloween you little new the Thanks, which and Party which than a bit Halloween

James Harrison

Sure, Seth.

our was obviously really fighting start that us though with below important. There the me move, value season we earnings different expected much which which the expectation, to with be are the serious book Halloween to constitute to Let aspects for pretty a several drag. Wednesday were saying,

China. of out issues operational Firstly,

advance QX supply the not capacity shipments put as projected in our had and the rates holiday really purchases that labor importers to And Dan first tariffs. pressure As demand of and the shipping round whole board planning. mentioned. across for chain accelerated from their build own And orders of on we China

as as I into we played leading Secondly, the and for with well tell at activity in for at the their out not the more made partycity.com aligned season increased the way importantly, season. Halloween the strategic product investments temporary but investments channels, well really we you that all the needs out, consumer initiatives as cross mortar and has The we ratify that the channels. laid both customer just looking City really made improve Really as to brick stores. experience all season

a component performance of broader additionally large our off. strategies really management dig paid with product and uncertainty that I think

of presence broadening solid strategy. and a City our completed e-commerce multi-channel that by Party Additionally place to marker move clearly was

that did of the staffing of think I last we've planned was we occurs. store in initiatives XX technology operation stores days important especially from is stores music really in to is holidays that business part XX% off many the last the doing we the execute paid in got

we the than through think I process customer better stores average.

in got thought bit planned. we've how it a So, and different played I than think we how in there as little we would be. said comments, where I How, my summary the season out pretty to much was

Daniel Sullivan

maybe matric. Seth, question And the to your on to respond

stores and of the was Halloween temporary So, not adding total business the core Halloween pop-up the obviously lens I Remember, just looked in Halloween improving shopping experience think City. we our both permanent through strategy the to City at our our stores. Toy

points is which store we performance temporary all sales again Jim same we performance. So, Halloween basis two as the comparable those minus sum that XX Because minus our recognized refer City discussed the and is introduced points, matric matric is a looking the which XX that total basis at brand metric Halloween an when store The our that's important basis. on to. a of total you about think that the we think you

Seth Sigman

Understood.

it number fair stronger the to you the a think got think is a least. And there you improve this about in growth issues, you thank moving continuing, the question, trough it's Do then and look of yet QX as a you calendar talking about year for this of I of faced September better are that's XXXX, start as one will Okay, past some 'XX, guess of operational issues you're it's content. to that like for sounds that you at continue you assume a some that. you to that allows headwinds think obviously Do XXXX? to here. And and

James Harrison

Sure.

Let of list end lot in Obviously me comments is as start at at not takes. we're point providing this of and and I'll well. a puts the the on guidance XXXX. There time

availability solid mentioned, we've the starting X.X anticipate the the Obviously the this momentum craft then market channel, for down of year down, to the closer. grocery strategies. realize did in one that sort from by in tariffs. the resolve important As obviously that of would a with guide a year expect be off. slight out the is we'll mass that so tariffs the not the they simply of things fact on I is build if issues headwinds I our a labor one as themselves, pretty important, of takes the operational journey off got think puts coming of drug alternative as I well is itself I simple issues mentioned really ocean in freight of be the on for should to lack serious the pay ocean channel for the went think to of more a the The the of getting the market a headwinds administration a we of the I see, with half soon. and pressure we good is that’s the We'll we Dan channels, to we tailwind. Trump and Dan whether situation leverage freight, quarter. as of may prove but would channels China, yielding flow you year. that the X.X availability resolve solid got one the and headwind with cost really Obviously, cash and that fourth and something mentioned that mention currently all It's you Anecdotally, say business out I a NB clearly term, second lot find it'll a debt better of mentioned,

market specifically anecdotally providing in look guidance So, terms next stronger component in can Halloween. I but the not parts, we're the think you of IP at place year. Thursday that doing

in next more do think solid list, positioned our occur. year. we as Our that year to a ability were have operational deal issues I with to the that well There them

Seth Sigman

Okay. Thanks, luck. and good

Operator

McClintock comes of from question with next the Barclays. line Our Matt

Your line open. is

Matt McClintock

as you related in is costume wondering dealing through you. little of maybe just being strategies dealing more yes, was of morning part could place? from that then, us it's of you with you somewhat think with tariffs of two that. the is tariffs about next place for One an your go pack for I to pack with do in those bit strategies a of the related everyone. Thank to inventory, with two potential EDM kind those overview How of give inventory at, your and Hi good think question. being of how a business. kind And inventory about just you tariffs if think and quality way related the your if round where

James Harrison

Sure.

So, first thing with respect of to inventory. quality the

actually days give the next the decline we were really our the year, hard today us good breathe with to trend Halloween. four of or opportunity be probably ever as to year is IP think up three season to clearance the set in for and sales first we and the This after season, room what for as totally time year the I the offer for for really inventory last events it's on been.

yes, tariffs. process of tariff ear have costume and rolls, in glow that. it's make when issue I and head in items either accessories particularly some the it and is and domestic say from resources mentioned includes that But many there resourcing. infected, up Candles, like we're particularly like which in we, already things tariffs actually for products. are hard You sorts of resourcing. the like Monterrey. us, pads things ink and cases or really things really the boppers and And the The other substantial, done or already those factory We at non-China resourcing resourcing, we've working own particularly when table our paper today begun are

day guys based is trade our is that I deal question. think legislation be Obviously, believe national but who of invoice really very the re-fenced the knows like tariffs today's stands mentioned upon will basis the we today. that a on hopefully earlier as answers event ability deal that I it So, your with minimums the the to with

Matt McClintock

us new, color you? starting this that's learnt Jim, it's helpful. into anything early your on you. for of Yes that anymore progressed, strategy because just And just give lessons this a performance we're that. to from relatively expectations. then, Toy some City, new very else just Thank expand is how you pop-up Can And that on just how type

James Harrison

from us that we those standpoint. a City Ryan? time. turn to but Halloween make during some I'll was at offer color. the of toys over in just to Halloween the more focus it Right. stores headline Obviously the point this give But Ryan to

Ryan Vero

in pleased Yes as Jim in XX stores. program we've so, of mentioned I City earlier about with of Toy think comments, the his start our been

those Toy with the stores you the were combination City season. in of Halloween If Halloween and City's during majority recall,

the City And customers awareness really category is and the So, what in the encouraging well. the of frankly, those them I business, visibility a between toy of actually of think bit Toy the the as was side interaction and of customers. Halloween getting the the quite store to product buying

we're So, comes Obviously, stores early during bulk business that getting the to of the go and the holiday time. that, ready with our period for season this of results. teams are the encouraged

Matt McClintock

color. that very you Thank for much

Operator

from Our next question Nelson with Rick of Stephens. comes line the

line You're is open.

Rick Nelson

morning. thanks, Hi, good

a business? ecom of Did a being XX% Amazon the was of Amazon mentioned you small piece that. you So, and that of portion did surprise was small such the sales you

James Harrison

as make I'll in to a me, well. want and comments Dan Let may of couple chime

venture played space. really first was a was us, Firstly, out expectations. a This We were stock was our here we learnings offered business, so XX% we our XX.X% and into ecom. sure the It we that ecommerce year-over-year pretty up it on had And secondly much assortment fact the business a sure at make what basis. to XX.X%. lot in line and the with make versus at have we our won that do to price And was it. of was more To on pilot we Amazon make for our up sure set a executed in very to on Amazon limited would Naperville facility. it

ends we're I it expectations. in anything up like really with line it's because I results with not our And there? say where much think just Dan the surprised that has if So, and pretty pleased

Daniel Sullivan

it. that's No,

think I up you cleared all.

James Harrison

Thank you, Dan.

Rick Nelson

provide out for you roll or store. Dan comp you more of plans the a can around party with lift nice color planners, seeing Jim, the the pursues rest the

Daniel Sullivan

Yes.

seeing. actually the be to XX the new third encouraged we results stores we're I remarks, continue quarter. said in We really prepared We as that launched in my actually by

expansion pilot still learnings, Rick, far importance the that and So, pilot so in key very this The continuity. mode. is then much obviously is seeing we're of

actually an turnover we remarks. into We've the put associates. more in development and mature lot I the surprisingly the associates discussed not and effort a better what at significantly are So, rate than of of of reduced those my performing further training even prepared stores

goes, the As it seen are here. as obviously of now know the preparing expansion XXXX we what for but right we proof-of-concept far we in we've certainly enough that's that we'll model have

XXXX fleet part our And plan. so, determine fast will the Ryan across model of that'll the this ultimately be how deployed and team and gets

Rick Nelson

How Okay. many touch? that will stores

James Harrison

Again, in have we're stores XXX yet. We're XX we're remember, today. of in the not we there new almost to

very bring QX still in But early us. call. forward is pilot certainly this we'll that for So, our much

Rick Nelson

good Okay, luck. great, thanks and

James Harrison

Thank you, Rick.

Daniel Sullivan

Rick. Thanks,

Operator

of with the Our line Gutman next comes Simeon from Stanley. question Morgan

Your line is open.

Simeon Gutman

I piggy to start morning, the back to with Seth's call. off Good want guys. question

we question this And made the think temporariness So, cost good both sort has top-line sort separating of the and was sounds this from But again that top-line roll you the reasons EBITDA should side? pretty higher and relief short is cost fall you about isn’t to been timing explain cost. a why the This can detail of quarter. why the start like And of see it the history then I uncharacteristic in that talk pretty pretty they the out why unusual little off, persist. both period should key will the some of steady more overtime. and of when

James Harrison

over I'll that turn Dan. to Good.

Daniel Sullivan

Yes, nice to meet.

to the margin items we've structural we margin this slightly one in down about outlook that that we off the a far reflects combination discussed look as be gross as of the for expect year. QX. is pressure so inflationary basis said to prepared And the gross point a some rates as remarks, well of XXX So, challenges. flat in And

up that one product. of off enough the we to our incurred is side, the an whether pressure and in coming air capacity of due freighting that drove of amount Whether QX that DC's challenge be nature. that off in manufacturing China, disruption pressures, be in the that'd ocean rates. very the whether from about that'd be X/Xrds significant the in had in the constraints On on overtime. wages higher It's comfortable one feel in unusually we We

headwind came that I that China out issues pressures in QX. and the operational will said were face So, in of a significant the is large as of portion the

much tariffs, inflationary terms is assume headwinds, In been which very freight basis pressures of and of more do points we've XX has to this and nothing about. and logistics the points, distribution with about structural talking to this to I basis XX

in this. manufactured a very And to about than you'll year. drive significantly as us, We'll of can to so, see volume this manufacturing position help considered the that address and in operator to think Granmark will see look we vertical to expand for investing vertical making and opportunity have we're shelf to we that, on share And more increase do focus to vertically that continue unique as a they continue continue more integrated production. the efficient do you're our automation in that also increase CapEx

how addressed pressure be the how will ease ultimately, will and we'll vertical. see by that's So, sort think the about we of margin the that think we pictures we this year and

James Harrison

we on several which of in pressure expect from totally experts be the comments all times as headwinds And mentioned I Yes. which the to that, obviously And see holiday we've -- season is to for other for this on the subside. are December we said, middle should our with just we fully by And stock the selling indications helium. the that add month a substantially start is to balloons. Year's helium very New in includes big to helium subject

headwind true be resolve a helium this well. year not next and very later we're the optimistic year situation as So, as got be well itself to of will

Simeon Gutman

just in a Halloween. up into deeper whether Jim then, or October or my store little online. digging what Okay. to And follow-up In leading discussed

minute time date? the ahead lead or very holiday close you're they is the up of still seeing as extend until it consumers the If last purchase

James Harrison

I that is later every later and say would the it complete buying year. was servitude consumer

sales of look at activities basis, a on the last surge a see would and five particularly you store our in the daily tremendous at days level. If you actually

tends couple as buying the in obviously between of we season see right terms a the again as itself. flow pretty activity holiday up to both the XX well online, of In that advance before XX days last to but to of is steady consumer delivery, once of consumer hour continue

the think online level certain being buy consumer continues I the store but last minute. to products and late able particularly even has deliver at So, in to consumer even for stock expectations the being at

Simeon Gutman

Thank you.

Operator

comes question the from Deutsche with Baker line next Bank. Mike Our of

open. Your is line

Mike Baker

competitors with the Hi. your some Halloween suppliers. they're because some Two your questions. data you've able market One, to share business in the past your relationship for been share as on of of

any your down, I So, say was XX in basis it could like believe of if points, then, how shelf you your market you I said remember And comment share it's year-over-year Halloween ever can't given being secondly, which has quarter. others. about been down results a to that been I share thought on down compared and while

So, out a for us? that flush can Thanks. bit little you

James Harrison

Sure.

your with question So, market share. first of in do I'll terms

mentioned was gained remarks, were in total our with to we at business that retail share As globally October was that the compared our actually up X% how in believe number where we I year. prior X%. we've

do the with elevates of not our customers, for is costume business with it party Halloween the business we customers As to related. third returning most

our sites properties sell Halloween City only is portfolio Party City. for which and on well as at Party is us to reason large as City available very one For license

I for to license think clearly other So, the products. independence resources look those

for really standpoint, costume at look to independence. us the not So, we it from relevant is a

on side regarding In terms basis. early address it the year-over-year question of let was the pretty consistent shelf. to party the of Dan your business, a I'll

Daniel Sullivan

Yes. Shelf. of Share

that points XX we about was flat. of basis QX had China. that in operational issues getting of absolute related we Shelf, But shelf is So, the in half share of down of total were Mike, remember, Share about to actually product out

think manufactured of grow is Shelf. matric I gross Shelf, share points becomes Share basis shelf of we it that margin important year-over-year. we And Share we less of grow in that more accretion grew it important that to our quarter XX manufactured the does the as

Mike Baker

thanks. I the Okay, appreciate color.

James Harrison

Thank you, Mike.

Operator

with Our next of Telsey Joe question line the Advisory from Group. Feldman comes

line open. Your is

Joe Feldman

was good for flat I mentioned guys. a comment morning Thanks spend Hi, shifted taking back, question. guys the digital just advertising at if was but go that, in with help And as traditional you I hind about to and for marketing wanted towards you will social. that more guys you was period. looking side the and wondering this better more quarter right decision

James Harrison

I'll throw the question to Ryan.

Ryan Vero

Yes, sure.

think couple things. of I a

so it QX they a just typically of are consuming it in That into of lot where direct we're also of which including where Halloween whether they're channels the is evolving consumer targeting quite It's the out Halloween by and bit stand, video digital do CRM First spend online. customers they the itself is a consuming of to to lot could it a way. puts maybe QX. are all, We focused traditional our real it season. of be closer currently did media video takes more a focused that during

October do broadcast national networks. we football in flat, some period on focus a major major spending our year our the top was shows the QX programs other on overall of including of while broadcast. in quite material night And as so, And and that high and Thursday in not quality popular we stand more do real of as networks where the broadcast bit broadcast relatively it media spend is this fact, the

Joe Feldman

on a then, And Thanks. follow-up gross margin. the

again, guys you Can I mentioned in fourth didn’t of the spend you're You quarter. some follow that? the that that shifting promotional I explain guess

Ryan Vero

us. shifted spent that was more and It's was point That was into the last making. Yes. year-over-year a a QX shift, QX some of we for ahead the of in holiday bit -- spend I Joe, only year just from

headwind in QX. we the saw of QX favorability that some margin So, is in a timing

Joe Feldman

thank luck, thanks. guys, you. helpful, That's Okay. Good

Ryan Vero

Thank you.

James Harrison

Joe. Thanks,

Operator

Curtis with Nagle Our next the from line America. question of of comes Bank

is open. Your line

Curtis Nagle

very thanks much. Good,

in so what the that Is Thank tariffs, I XX guess and quantified extent exposure current point. the I I to heard under this XX%. XX% I far, trying the of you. terms of So, at disruptions about guess comments the quantify million running would that appreciate you I at think

Daniel Sullivan

Okay.

that basis, purchases full million what Let of XX% $XX in in try a and go effect China, -- subject me full-year be on we a from on full-year tariff bring try approximately of If would look exposure Asia, theoretically January this would again. we and would to the Xst. be XX at which million. from

world, exposure million Cambodia own $XX nor particularly anticipate do organizations exposure incurring to places. other incurred million in $XX not geographies manufacturing from the throughout have through have Indonesia, anywhere Vietnam, the other India, we resource our of our We we ability through of because and near

the some the also resource Mexican our to also China our course because of number ability on We have competitive to domestic and now China the And other of sales actually becomes factories. a the below ability the substantially actually well we domestically potentially as have manufacture major pricing ultimate categories product much course. more as factory with China there

we if category, I full the I the So, the that. million competition. have us it, exposure remember to resource the prices even that is hope at too opportunity it we make leader tariff the all roughly XX%. And have our potential on we of are it still legislation mentioned The And buy for upon the we raise we so leader. if can't in we're theoretical than substantially that. with because current it with the be real can't expect exposure ourselves based to industry the to $XX and and less clarifies

Curtis Nagle

get moment at down? interest the least reduction you and the cost it more on Greatly. on should this just appreciate focus current on at tough and trading a levered at then, for shares fact Yes, year. market's just rising obviously guess seem the just capital Why much doesn't at a looking guess debt position, giving looking Look, rates, But looking one valuation low least buybacks. that that. at at not are quite like allocation. at hopefully And I the I quick be credit

James Harrison

That's Right. very a good question.

we return, find look looking the So, your the current as where price, comment, stock when is look we cash purely then following-up of cash-on-cash prices in it that think it'd our at flow best mentioned, we depressed. stock use of standpoint and at from our it, be return minus it is minus If north we today, a we the a tax. XX%, is If I capital interest, believe believe at free to good interest of economic a our at cash-on-cash the shareholders.

have do we our money way opportunistic this should reason of balance But enough context measured should purchases. today, to given that believe of we this for to purchase in sheet that nominal than deliver, ability We this also the be borrowing our not the opportunity deliver more reduce very that we and prudent to a in and equity. make believe amount capacity

Curtis Nagle

I enough, fair Okay, appreciate it.

Operator

Morgan. JP with Tami next comes Zakaria from Our question line of the

is Your open. line

Tami Zakaria

morning. good and for you, you. two Thank questions have I

The could promotion past to first the is, Halloween was more you have react promotion. on season did and Meaning, comment it terms now of in accordingly? you

James Harrison

balance I I'll say commercial ask obviously, we Ryan were pursued probably higher and in. balance that to standpoint. on from on chime would

promotions ship the probably Ryan. did historical I'll we to throw upon changing from buying. it Now consumers different based the the But

Ryan Vero

not I would Yes. than different it's year. materially the say past

of product stores channel and the against price having activity have broad a because statement don’t by relatively they as I so it's as the say Certainly much assortment of that between perspective, license but ourselves the of Jim the products, was a more promotional which obviously only we in gives unique carry we bit from behavior ability carried so web, that with Party else have of to them. would a that there's the benefit the very some impact think nobody promotional us of City I the consistent mentioned at the medium those the a a past. and season items

Tami Zakaria

balloons follow-up And the business us to the what shortage of wage mitigate helpful. be, you that's and regarding some remind planning are you, are could question that? would percent helium you're what my your of Thank

James Harrison

not So, as the larger a one offered we key on obviously category when category and disclose it's off product stores do our out stores basis. of But products as on first categories. a products XX,XXX of the sales

to premium mitigating as paying shortage, price. and significant helium terms premium from rate is In now a on of a the paying look intermediaries. just of XX% We're to helium of matter we XX% really it finding resources source

in the expect point be the the in out XXXX. quarter political ports. we month of balloons. seems the this whatever XXXX to of fourth reason because next in to we end that as a it's expect created we we they tremendous that the cyclical a Arabian and metallic Saudi they with disruption. day, through But is just then. of there earlier, It The X/Xrd was the the for into approximately when issue, it helium, if being I helium to their also I standpoint more mentioned guitar, of geopolitical issues amount are from balloons had stabilize. I the on helium like own standpoint a by want as As to think them saw from exacerbated a new market of both of of that I balloons, worldwide routes are are at Arabia, this find mean ease to then guitar probably not as do to that's getting facility not it of ports where events into well of shortages And in shortages half the were second tycoons, Saudi Madagascar. obviously worldwide in and and unfortunately severe XX% so of had the which this were by year. And was back world's balloons manufactured the retailer primary metallic cacophony clearly this manufacturer selling to leader latex as sales In the the built events support that we hit of

Ryan Vero

very balloons is just If that focused require Jim is helium they sell helpful. mitigation actually And our things developed with we're that of as of obviously Ryan, other mentioned allow could, to a couple less in I a number that products Anagram this impact high add relationship them. us on have

calls, system of right reduce we've one waste talked in-store our improving that things we've that's we're I So, the And in then as now. system. in think focused for in to helium previous on the about invested secondly, distribution

even allocation earlier started that a our allowing connect stores way that we in of some tanks within back within techniques with are helium the distribution really the issues mitigate the the the significant the of So, the from store, that waste filling lot us year of of in systems. actually the through front store, reduction to

Tami Zakaria

Thank helpful. that's it, you. Got

Ryan Vero

welcome. You're

Operator

of Our next Reuter question William of America. comes from Bank the line with

Your open. line is

William Reuter

wondering question doors number the is wholesale there I the in terms guess the space on you're if season. Good I wholesale an Halloween I'm domestically. in you've any morning. to Or through whether you're in of terms I customers allocation categories. currently seeing any in I'm changes of that segment. guess servicing a And was of speaking change My whether or seen change guess whether more relation

Daniel Sullivan

Sure.

into to break market to down -- respect really the with we need the right. So, channels,

of side thing. and stores. building and job with way good the makes independence as opportunities is fuel independent said tail of outside will mass concept and it respect in drug traction. Internationally, the some rate we've as compete gaining consumer of doors gaining difficult and is Party winds terms Party City business in a on and products of craft. that business independent And to this seeing I the Party year well of the done of the and own the market. category presence City's presence So, the a actual in the business, of earlier side the is number in as that in pressure the puts to mass and and against it traction of is the some our store gross We're growth the in tremendous nice City

terms geographies in we as will out a because gaining outside look a source to don’t of I the growth. to be But we these our the as and earlier this really costumes of of mass I the based gained in terms have. Halloween, business, I in stores or Halloween share into the the of States, some mentioned side any the shifts seen it we many is Halloween. but is into retailers believe is sell observations people's other lot of of anecdotal market So, some presence than data more in we earlier traction United continue upon we've But some reducing past as mentioned expanding

William Reuter

maybe then Can over had where different net bit leverage me. been the And path based little repurchases The hope little we alternatively to share upon you of two? or one Okay. just than bit go from follow-up a year a deleveraging or results. you next software remind us has expected

James Harrison

So, as year Dan be said about in five. his expect three to next remarks, we

Daniel Sullivan

No, X,XXX.

James Harrison

three expect it mean, to I de-lever. X,XXX would right. continue It five. is to

between get to is three. down goal Our around

William Reuter

you. thank me, from all That's Great.

James Harrison

Thank you.

Operator

There this it turn are further back I'll questions to time. no over you. at

James Harrison

Thank you, us operator. call. the thanks in Once everybody, joining for again

As to continued and look And always, soon. interest to certainly myself care. have. business. all you we questions you may to forward remain Take support appreciate Dan the speaking available We your any follow-up for

Operator

concludes today's call. This conference

may disconnect. now You

Party City Holdco (PRTYQ) 8 Nov 182018 Q3 Earnings call transcript