Q1 2020 Party City Holdco Inc Earnings Call
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I would now like turn the conference over to our Vice President and Deputy General Counsel. Please go ahead, Sir. Thank you operator, good morning, everyone and thanks for joining us.
This morning, we released our first quarter Twentytwenty financial results.
Got a copy of our press release, our website and Investor Party City Dot com.
Now I'd like to introduce our executive team we're here on today's call.
Yes, Brad West <unk>, our Chief Executive Officer, and Todd Vogensen, our Chief Financial Officer.
Well start to call. What's your prepared remarks by Brian talked before we open it up for QNX.
Please note that in today's discussion management may make forward looking statements regarding your beliefs and expectations cookies Peach performance future business prospects for future venture plants.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe that the expectations reflected in these forward looking statements are reasonable we can give no assurance that such expectations that we realized.
We expressed we disclaim any duty to provide I'll keep <unk> forward looking statements, whether as a result of new information you events or otherwise.
We urge everyone to review the Safe Harbor statements provided in our earnings release as well as the risk factors contained or sq feet.
During today's call, we will refer to both GAAP and non-GAAP financial measures are they compete operating financial results.
More information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures. Please refer to here internally.
And with that I'll turn the call over to Brad Washington.
Thanks, Dan.
Good morning, everyone and thanks for joining us today.
Hey, these are challenging times for our country and indeed, the world is an understatement.
It was 19 endemic and swept across the globe exacting heavy human toll, but also showcasing the bravery dedication and compassion of the people on the front lines of this battle, including our first responders healthcare workers and medical provider.
We are deeply grateful to though.
Well recently you pulling ahead of the last few weeks served as a tragic reminder of the deep rooted in longstanding issues around racism in our country.
We need change.
The party city that starts by listening to our associates and customers as we work to develop a meaningful and sustainable approach.
Being bridge these painful divides.
Against this challenging backdrop, our team members have demonstrated great resilience and flexibility and I want every one of them to know how grateful we are for their efforts.
As we navigated the last several weeks and continued to respond to changing conditions, we do so with our amazing team as well as our customers at the center of our decision making.
I will now provide an overview of the company's response to cope with 19 outbreak followed by an update on our key strategic initiatives then Todd will review, our first quarter financial results and share some go forward thoughts.
Our response to cope with 19 in navigating the current environment has been centered on three key areas.
One.
Regarding the safety and well being up our employees and customers.
No.
Serving our financial health and liquidity.
And three adapting our strategic initiatives within the context of the current environment.
Beginning with the safety of our employees, which have been and remains our top priority.
With this in mind, we acted swiftly in close to our stores on March 18, well our headquarter associates were asked to work from home.
During this time a party city Dot Com website remain fully operational and we quickly open for curbside pickup in 300 stores were state and local regulations allowed.
In addition, contactless delivery was made available to customers by associates, who followed strict help in sanitation protocols for their safety and the safety of our customers.
Increased health and safety protocols were also followed at our distribution in manufacturing facilities that were operational.
Second.
Regarding our financial health and liquidity was and remains the top priority and accordingly, we took swift and aggressive action on cost capital deployment, and working capital management, which Tom will review that.
Moving to our initiatives.
We remain focused on the five critical strategic initiatives to stabilize the retail business that I discussed on our yearend call in March.
They represent our biggest opportunities to drive increased relevancy with consumers because they focus on how we engage with our customers to make it easy for them to create unforgettable memories.
Well the reality of the backdrop has shifted the timing of some of our priorities the strategy remain the same.
We have adapted quickly to changing operating conditions modifying our initiatives to increase their relevancy in an environment, where social distancing could remain a priority.
Heading into Q2.
Living our new store format was a key priority.
Pandemic necessitated a quick habit.
Given the importance of expanded customer fulfillment options that allow for contact list purchases, we celebrate a crucial elements of our omni channel initiatives, including curbside pickup in same day delivery with balloon pickup and delivery key to our efforts I'm proud of the way our genes have responded and the speed.
Joe di with which these initiatives were launched into expanded in a closed store environment.
Let me give you an update on each of our key initiatives.
Number one developing a more relevant in store experience.
We plan to open our first three next generation prototypes towards the end of March which had to be postponed.
And the fact that our stores can be overwhelming and time consuming to navigate.
In these first prototypes were piloting changes to the in store experience, including a new shop in shop store layout with improved product adjacent sees and it didn't know more curated product assortments reduced inventory as well as new services and experiences.
By declaring the stores and providing them more edited assortment the customer will have the store environment that it's easier to shop.
The most focus probably be balloons, including a separate checkout to provide balloon customers with more personalized service well speeding up transactions for non balloon customers in the existing to you.
The first three pilot stores are now opening this month and we plan to pilot 10 to 15 next generation prototype stores this year.
I look forward to providing our customers new brand experience and these critical Nexgen store pilots will provide new customer insights that will inform how we shape the in store experience into the future as we make strategic decisions on how our stores that serve consumers needs.
I am confident we will optimize our learning as we plan for a broader rollout in 2021.
Number two wyndham balloons.
Those are a key differentiator for party city with our unparalleled assortment in the innovation in large part due to our unique manufacturing capability.
We have the opportunity to better leverage disadvantage with the improved in store experience as well as an improved digital experience and home delivery.
On the heels of our successful balloon delivery pilot expedited by the current environment, we now offer balloon and total party delivery capabilities at over 500 store locations.
We're very encouraged by the customer uptake of our curbside delivery services, which are driving increased balloon transactions and average order value.
A key component a winning in balloons successfully integrating the category in seasonal celebrations. Great example of this is the graduation season, where we are seeing strength, both online and in our stores Our party city Dot Com graduation thing balloon sales have almost tripled versus last year.
Drivers of this growth or a combination of innovative new products, such as our new 50 inch airlines item as well as compelling value on bundles of traditional best sellers.
Number three.
Dressing price value perception in key categories.
Last fall, we embarked on this initiative with the implementation of price reductions in our solid color tableware products and the results have been very strong with marketing dollars turning positive within months of the price actions.
We're leveraging those learning as we execute go forward action plans to capitalize on the opportunity to sharpen our value perception in the highest impact categories.
We're prioritizing categories and skews the key value indicators have strong price elasticity and are highly competitive.
Building on the success Weve experience, we will roll out additional price reductions over the next few months.
We will mitigate their margin impact by simultaneously, reducing our promotional spend.
That's an occasion based retailer we need to drive trust with consumers through the right price value every day, rather than attempting to drive transactions through short duration promotions that are only relevant to select customers.
Number four improving our customer engagement selling culture.
Improving customer engagement and our selling culture, it's critical but in a closed store environment. We've focused on initiatives in the actions to improve engagement through our marketing messages, our merchandising approach as well as our digital initiatives, including expansion that fulfillment options for customer orders to date, while our overall.
Marketing budget has been drastically reduced given the environment, we have increased our performance spend year over year end or returning seven an extra returns on our dollar and conversion to sales.
Even as we pulled back on overall marketing spend we've been working to ensure that our marketing messages in digital and social channels are particularly relevant to the current environment and align with our enhanced digital and omni channel focus.
During the time when our stores were closed and stay at home orders were in place, we adjusted rapidly to meet customer needs in the moment.
Well people were social distancing and birthday parties showers and other groups celebration, we're being canceled we quickly pivoted adapting our offering can go to market approach to meet our customers evolving needs and enable them to still celebrate life's important milestones in a safe manner.
We operated in venture in a box to help parents with board kids at home and birthday in a box as well as drive by birthday products that included value add how to instructions with video support to eight customers in adapting to these new celebration methods. We also saw spiking customer interest in personalized products.
Such as long signs and banners used to celebrate loved ones.
As we moved into graduation season, we've continued to augment our online assortment to adapt in new ways in which these celebrations are taking place.
As part of our efforts are focused messaging on the occasion, rather than a single skew we created several web and marketing executions featuring graduation focus been yet.
Which allows us to be increasingly inspirational and aspirationally instead of just transactional on our site.
These interactive vignettes were featured in our marketing communication across email banner ads in our home page.
No casing 10, plus skews arranged and inspirational setting a room with tableware balloons personalized signage in a series of favors the one could scroll over to see the details and click to add to cart.
Customers responded well as they get both relate to and shop. This approach with greater ease in May we experienced costs of approximately 50% in graduation in conversions in the low teens versus low single digits last year.
Improving engagement with our customers do digital communication methods in an increasingly personal way will drive loyalty and increased transactions overtime.
Number five.
Build on our omni channel platform.
Our focus has been on ensuring we offer our customer multiple options for their purchases. In addition to our online store.
As I discussed earlier, an area, where we made rapid progress in a short amount of time, what's the enabling and expanding a customer fulfillment options. Despite a closed store environment.
Our party city Dot Com website remain fully operational while our storage will close.
Within a few weeks of closing, we piloted curbside pickup in a handful of stores and quickly expanded the service, where we were allowed to under local regulations.
We saw strong buy online pick up in store growth in 2019 with sales through this channel up approximately 90%.
After quickly expanding our curbside pickup capabilities, we saw a buy online pick up in store growth of over 500% in may as customers stopped convenient and touches ways to secure products.
With the addition of curbside pickup we have seen by online pickup in store penetration remain significantly higher than prior year in our reopen stores and we believe this trend will continue as customers seek more convenient options.
So I picked up is also helping drive our balloon business, which represents almost 50% of demand through this channel.
We now have curbside pickup available in all stores and offering delivery, including balloons in the majority of them.
Additionally, we continue to make improvements to our website, including skew level delivery detail options and expanded delivery window options by time and days a week.
While curbside pickup and delivery work in our plans were being piloted we reacted swiftly to pivot to the customers need and accelerate their launch an expansion.
We will continue to enhance our capabilities further evolution of the physical and digital shopping experience that will drive increasing share of wallet.
Our first quarter concluded that the end of March, but certainly feels like a lifetime ago.
Todd will discuss our first quarter results in a moment, but before I turn the call over to him I want to give you an update on our store reopening and what we're currently seeing.
We have taken a major and phased approach to reopening our stores grounded in the health and safety of our associates and customers.
As of today, we have over 85% of our stores open.
Activity at these stores for the reopen period and including buy online pick up in store is approximately 80% of last year's corresponding period volume on average with performance building through the reopened period and the most recent ways of openings outperforming that earlier ways.
Hard to predict performance trends for the coming weeks and months, but we remain very disciplined in our approach to running the business incurring expenses and spending capital.
On the wholesale side of our business given the essential nature of some other products, we manufacture and supply just certain retailers like grocery stores mass and dollar stores also were deemed essential with stores opened throughout this period.
Jordi of our manufacturing and distribution facilities remained open throughout this crisis.
We quickly implemented strict health and safety protocols.
The outside of the crisis across our facility and they remain in place.
As franchise and independent retail customers reopen their stores and as customer demand increases for party supplies sales for our wholesale business are recovering.
In summary.
As I look at what we've already accomplished through the first months of the year on our customer facing initiatives that underpin our five prong strategy to stabilize our retail business.
I'm pleased with the early results.
Along with everything that is to come I look forward to the growing impact of our initiatives, which will drive the success of party city.
Environment remains highly uncertain and we're managing liquidity and expenses with continued discipline, even as we push forward on our key strategic priorities to drive business improvement.
Now I'd like to turn the call over to Todd to discuss the first quarter results in greater detail.
Thanks, Brad and good morning, everyone today I'll focus on the key highlights of our first quarter in recent performance and then I'll provide an update on our financial position.
The full details regarding our first quarter 2020 financial results. Please refer to our earnings press release in the accompanying slides, which are available on the Investor Relations section of our website.
As Brad just discussed our number one priority throughout the pandemic has been the health and safety or associates customers in communities.
As a result, we temporarily closed our retail stores on March 18.
Through the end of February or party city brands comparable sales were down 1%, reflecting solid sequential improvement in year over year sales trends relative to the fourth quarter comp decline of down 5%.
Our results for the full quarter showed significant headwinds in March from Cowen 19, including the closure of all stores for March 18th through the end of the corridor as well as a significant pull back and franchise and independent orders for our wholesale segment.
Consolidated revenues for the quarter were down 19.3% for 19.0% on a constant currency basis.
And comparable sales for the quarter were down 17.1%.
A retail segments first quarter net sales declined 20.3%.
And 20.2% on a constant currency basis.
With strong new year's Eve and Super Bowl performance more than offset by the impact of Kobin 19.
Our wholesale segment was also negatively impacted in the last two weeks of the corridor as many of our third party retail customers temporarily closed their stores.
Overall net wholesale revenue decreased 16.5% in the first quarter or 15.6% on a constant currency basis.
From a profitability standpoint, adjusted gross margin declined by 320 basis points, primarily driven by a de leverage of occupancy and others semi fixed costs. In addition to increase tooling costs.
Which was partially offset by reduced promotional discounts.
Adjusted operating expenses declined by $13 million and was driven largely by the temporary store closures during the quarter.
Adjusted EBITDA was $11.9 million compared to 51.5 million in Q1 2019.
Adjusted net loss for the quarter was $26.4 million compared to adjusted net income of 1.1 million last year.
And adjusted loss per share was 28 cents compared to adjusted EPS of one cents no prior year.
Turning to our balance sheet.
Ending inventory was down 17.5% year over year, primarily driven by a reduction in store count and ongoing inventory management.
Importantly, the composition of this inventory is largely everyday in nature with most of the remaining seasonal component relevant tour consistent beyond the current year.
As a result, we do not expect significant inventory exposure related to the cobot 19 disruption.
As we announced in our release on March 27, we made the decision to proactively draw down 150 million on her $640 million asset base revolving credit facility.
As a result to the draw down at the ended the first quarter.
$382 million outstanding under our revolving credit facility and total ending net debt was $1.76 billion, we had $194 million in cash cash equivalents, which when combined with $71 million borrowing availability resulted in total liquidity at quarter end.
$265 million.
In our announcement on April eight we outlined several actions that we have taken to aggressively manage expenses inventory and capital expenditures to help preserve our financial health and flexibility.
From a cost perspective, we put levers across spending categories.
These include payroll expense.
During the store closures, we made it difficult decision to furlough a majority of our team members. This included 90% of our store employees and 70% of our wholesale manufacturing and corporate employees. We continued to provide health benefits are furloughed employees and we established the TCH I employee assistance fun.
For both active and furloughed employees, who were temporarily experiencing economic hardship due to the pandemic.
Additionally, Brad and I, along with the remainder of the executive team to temporary base salary reductions and the board of directors elected to forego their respective second quarter cash retailers.
We've also significantly reduced non payroll expenses, including advertising and other store expenses.
In terms of occupancy we're working closely with her landlords on rent relief.
Please note that what we've successfully negotiated payment deferrals this won't materially affect RPL in Q1, or QQ has deferrals don't change the total cash payments over the life at least.
If they manage working capital in inventory, we canceled orders and negotiated receipt delays.
Grateful for the collaboration and partnership of our longstanding vendor partners.
We should have enabled the success of these efforts.
And we made significant reductions on capital expenditures.
Our 2020, Capex forecast is now $35 million to $40 million down from 62 million last year.
The Capex and 2020 is focused on selected next generation stores that Brad discussed as well as high priority investments in equipment and technology.
For our outlook given the uncertainty around the duration and trajectory of the cobot 19 related disruption. Please note that we're not providing additional outlook for 2020 today.
However, we thought it would be helpful to provide some data points recorded music.
As Brad mentioned, we are reopening stores through a phased in measured approach with increased sanitation protocols.
Our reopenings has been heavily concentrated in the last weeks of May and we're encouraged by the initial reopening results we've seen.
Sales it reopens stores, including buy online pickup in store.
At approximately 80% of corresponding prior year volumes on average our E commerce business, including focus generated record performance for the duration of our store closures and continues to deliver strong performance in this early phase of reopening.
Given the loss of store operating days for all of April and most of May overall retail comparable sales trends through June seven.
Or down approximately 70% with wholesale third party sales declining directionally consistent with this number.
As of Sunday June seven.
Our liquidity position was approximately $230 million split roughly equally between cash and ABL availability.
This coupled with the action to conserve cash and bolster our financial position.
Preserve a financial health and flexibility as we continue to reopen stores and resumed our operations.
Finally on May 28, we're pleased to announce the execution of the transaction support agreement with holders of over 52% in principle amount or 850 million in senior notes.
The contemplated transactions would have the effective reducing our total debt that's $450 million as well is raising $100 million in new capital to support our operations and transformation initiatives.
We expect to commence the exchange offered by the end of June.
In summary, well these are challenging times in the environment remains highly uncertain.
We'll continue to manage liquidity and expenses with discipline, even as we push forward on our key strategic priorities to drive long term business growth.
And with that I'll turn the call over to the operator to start the queuing they session.
Thank you we wouldn't I'll begin my question answer session.
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And so they just first question, ladies and gentlemen comes from Simeon Gutman, whereas Morgan Stanley. Please go ahead.
Hey, good morning, I wanted to first ask about the the bondholder agreement to the extent you can comment I think we read that 98% of bondholders need to agree just want to make sure that that a statement is correct and I see there was 52% in the first release, 54% as of today, So how I get <unk>.
What's the progression or how do you get to that full amount then again.
Like me, if I'm wrong in any of those statistics.
You got said those specifics exactly right. So I the way the process should work or is it was planned out was that we would sky you get the initial by end of a significant portion of the bondholders, which we did at over 50%.
And now we go through the process or the more nitty gritty I.
Agreements that will go along with that and then have a launch of the transaction, where that's the point at which you and I hope to see a lot more of the bondholder signed up to get to closer to that 100% and that's a fairly normal process. So I.
At this point, we're really in the process drafting those agreements and then from there the transaction. If it goes forward would would progress towards getting more and more of the bondholder signed up.
Got it okay, and I guess shifting to the business I wanted to ask two two and just two parts and nobody My last question first the the the stores or the run rate of running at about 80% of productivity can you talk about the range I'm sure. There's a lot of different stores at different stages of opening if you can speak to.
The ones that lets say had been opened along with in states that had been open I'm curious where those are normalizing and then I think Brad mentioned and the pricing strategy lowering price offsetting with promotions I guess, Brett how how well do you understand the elasticity of demand I'm sure well at this point, but are these are these categories, where you think we're losing share.
Or just not gaining as much as you should and what other categories in which you're gonna be doing this.
Yeah, Thanks, Simeon so related to the 80%.
And the run rate you know the ones that open we started opening stores on May onest. The ones that opened on May 1st if you think about where we were.
At the time, you know in that in that period or they opened at a lower base as we've moved progressive Lee opening stores every week. They continue to open at a higher base and so the stores that have opened more recently open open much stronger.
In ER and returning closer to.
Normal levels and so we see the progress geographically, it's been very interesting because there isn't really a geographical impact per se, but we do see that in order areas that were most impacted by cobot 19, the stores opened a little bit slower where there was less impact to covert 19.
They opened at much higher level.
Related to your pricing question.
You know we have a very firm handler.
Sensity or at the skew level and at a the category level as I mentioned last time, we invested in and analytics team.
It really really is supported this decision.
Making and you know we firmly believe that this investment is positioned as a really to to be more competitive.
And to gain share it's hard to say in the past a weather or pricing has cost us or were helped us, but where we have implemented this as I mentioned in my remarks, we've seen very good results related to the other categories I'm not going to go into into all the specifics of those categories, but I.
I can tell you.
That they are the ones that demonstrate on multiple levels, one is or demonstrate opportunity on mobile multiple levels I should say one is high last at city.
Who is they are highly competitive and three or they demonstrate that they are either trip drivers or significant to the average basket, which really makes a P value indicators, we started with our solid colored table, where as I mentioned before.
Before back in September while this while tableware is only about 17% of our total business, it's in more than 40% of the consumers baskets and so it's a it's it's a category that is a key value indicator because they do know their relative value based on the competitive level.
Okay. Thanks, good luck.
Our next question comes from sub segment with Credit Suisse. Please go ahead.
Hey, guys. Good morning, Thanks for taking my question I want to follow those lots points there.
The recent stores opening up a little bit stronger or maybe closer to normal levels. I think was the comment I know I believe that store sales and focus as well, but not the rest of on buying I just want to clarify that so when you add it all up should total comps to be closer to flat or even positive in those markets just as you've seen them.
Okay.
Yeah, I don't want to good too deep into a our overall second quarter.
Results, but what I will tell you do you got it right. In this instance, we are talking we did include the number of.
BOPUS and or buy online pickup at curbside.
Along with store sales, so you've got a real sense.
Of what's happening at stores typically in going forward, we'll think about this more as part of our part of our digital number.
When you add all the components of how consumers.
Our shopping us a you know we're we're pleased with.
How demand is rebounding.
Okay, just just in that context, when you look at the performance it maybe break it down between transactions and basket.
So you were not in a normal demand scenario right now and maybe activities don't fully go back to normal you don't have the gatherings necessarily but you obviously still have events you talk a little bit more about our they're encouraging signs that maybe transactions are picking up but you're not seeing the bigger baskets, yet or you know how do we think about some of the components within that.
A great question set then and let me it's mixed and so let me break that down a little bit when we see sales rebounding gets transaction driven so you know if I say that that sales or store start a little bit slower.
And then have picked up speed as we've moved through the past four or five weeks. Those are transaction driven I can't tell you that we are seeing positive average order value a in addition.
You know there's there are thought process or there is that consumers are for the sake. The views are looking for more one stop shop or they want to make it condense number of trips or when they leave their house and you know, it's an opportunity for us to continue to message to consumers.
How much of their party basket, we can supply.
Okay, Alright, thanks, and best of luck.
Our next question today Crusher, William Reuter with Bank of America. Please go ahead.
Good morning, you mentioned in a in the current quarter, you're seeing a 70% decline and wholesale revenues do you get Jensen for how much of this is due to the store closures of those customers versus lower demand.
Yeah I.
Well had cut.
[noise], Yes, I would say, we said a directionally consistent with retail comparable sales and so there's there's different dynamics on the wholesale side.
The independent and.
Franchise retailers certainly are starting to open just like we are.
Probably didnt have the as a general statement benefit or some of the capabilities. We had so maybe off to a little bit slower start than our retailer or retail stores would be.
But then we do have also on the wholesale side.
An imbalance or what are considered the central retailers and then us dollar store grocery.
That has provided a nice base for us as we've done through this it is fair to say most people's purchases in those essential retailers have shifted a bit away from party during the pandemic, but there was still a solid base there and so as we go forward that solid base continues or starts to expand and.
We are setting see encouraging signs on the the more franchise an independent customers. So similar in that I, just seeing the recovery happens seeing that there is that.
Hi base of our underlying customer that is as returning and starting to show up in the sales trends.
It's just to add related to the party specialty in franchise you know it makes sense.
As both our retail business and wholesale businesses are.
Focused on the same and party consumer for the most part based on this consumer discretionary spending environment. The two parts of our business are highly correlated in that way.
Yeah that makes sense and then I'm just as a follow up you gave some helpful. Color you know on both the two channels I don't think I heard and though I apologize if I missed it but may E. Commerce did you give us what that growth rate wise or our decline was.
No we didn't get into that level of specificity, but certainly I you know a source being closed there was demands online I online as for most people works best when stores are open it's treated more like an omni channel sex that become.
The nation to buy online pickup in store, which obviously is buy online.
And our ecommerce volume, we had a significant amount of volume going through our web and that really provided a nice baseline for us as we went through the month.
Okay I'll pass the others. Thank you.
Our next question comes from Rick Nelson with Stephens. Please go ahead.
Correct correct fairborn, it perhaps I heard you [laughter] Claire Halloween, no where near current environment what are your tops.
About the upcoming season.
Yeah. Thanks, Rick you know, obviously, we're not providing.
Any forward looking guidance or so we're not going to get I'm, not going get too specific or with the numbers. You know obviously as people think about holiday seasons, whether it's Christmas or Halloween for us in the back half of the year. The situation is certainly fluid.
Therefore, we're approaching Halloween really building and flexibility flexibility.
To meet different levels of potential demand.
We bought conservatively as we went into this year and have appropriate carryover.
From 2000 from last year into this year 2019 in 2020.
We plan to go into the Halloween season conservatively.
Knowing we have the ability to refill in demand product a if demand comes in stronger than expected. A you know we certainly believe Halloween is going to happen in some form and it is likely.
Could be different regionally across the country based on a you know what local community mandates and how different communities.
He'll about their safety in relation to Halloween.
We believe the kids costume business will continue.
Even if its celebrated a in home or we anticipate hollering decorating to continue probably the most unknown pieces is what the environment will be for adult parties and as we've talked about following our last Halloween, we're definitely going to continue to expand our omnichannel offering.
It really be prepared to meet the consumer where the consumer customer wants to engage a weather in store curbside online and through delivery.
Great. Thanks for that color are.
Carry us or what you're saying you're now hotel.
I love her hollaway, and what those orders, becoming airlift press card with her.
Just some color as to what's your stroke from competitor so for Pollo World series.
Yeah, I would just say you know on our manufacturing and intercompany as well so basis, obviously, a lot of our Halloween product, we manufacture ourselves and so weve continued.
To flow that product and we've continued to flow the product a four or other wholesale customers and you know have have a positive outlook regarding that.
Correct, Yeah, Oh, Hello, right task care about those although categories house or like it's quite strong if you could speak to the profitability of there I know Youve got purchase new you were him of supplier agreements or how the year over year Mark.
<unk> SAR comparable items.
Yeah. So the balloon category as we've talked about before is approximately 20% of our business. Its high margin category. You know so it gets close to a third of our retail.
Margin, obviously people are using a balloons as a as a key component of their celebration and we're seeing that pick up in that category in our retail business as well as our.
In a gram and wholesale businesses, which is is encouraging you know it wouldn't it wouldn't be a party city called without talking of helium and I can tell you that we are able to meet 100% of our helium needs.
As you said, we have multiple contracts with many vendors.
There are in the one to five years, depending on on the helium vendor and as we've discussed we have two wells generating an increasing about of helium. So we are very well positioned for the higher demand. We're seeing in balloons that we anticipate will be ongoing.
Craig.
Cokes and good luck.
Our next question today comes from Joe Feldman with Telsey Advisors. Please go ahead.
Yeah. Thanks, good morning, guys. So.
Can you share a little more colorant on.
What is selling it sounds like balloons are starting to pick up and sort of make sense to me I guess, you know as graduation season, and it's it's sort of an easy way to decorate but like ours are you seeing other of the traditional party categories. I mean, I I would think it's you know a lot of little kids are not gathering for parties.
These days like <unk>, what are you seeing.
Are you selling but maybe through the product categories. If you take us through that.
Yeah, and obviously you know we pivoted really as we move as we moved along and understanding exactly what it is that that consumers want.
Balloons, and personalization or seeing a big boost in sales balloons share of the businesses is up as I just mentioned.
Personalized products continue.
To perform well up double digits for the year demand is driven both by graduation and new opportunities.
Such as drive by celebrations and.
An increase in outdoor parties.
And now you know as we've seen even even virtual parties.
We certainly learned or that you know regardless of a pandemic people are still celebrating the special events in their lives other just doing it it differently.
And you know, there's clearly a looks like a pent up demand around kids birthdays or as well now is people are starting to gather a more you know we're prepared for.
We're prepared to.
React to consumer demand and I think we've demonstrated a than we can make marketing online and assortment ships that consumers respond to really quickly.
[music].
Got it thanks for that and then I guess the other follow up ahead on that the price investments that you're making I guess, how should we think about that impact on on profitability going forward I mean, it will be.
A significant number or is there a way to think about the gross margin and what kind of headwind that might be on on on gross margin going forward.
[noise]. So you know, we'll see ultimately out margin plays out and how consumers react to the product that we take a price reaction or price reductions to typically.
And when we when we do that testing for these are we piloted diesel dubious analysis, you know, we're addressing categories, where you know we anticipate.
There will be a unit increase and that unit increase can help mitigate any any loss to sales or margin at retail and then if you think about the broader vertical pipeline our ability to realize increased margin with increased unit.
Is it as much faster than on a vertical.
Retailer [laughter]. What's most important is is how we're really delivering price value to the consumer and that is as I said really shifting to building trust with consumers that were priced right.
Every day I think in the past we've been overreliance on promotions and the challenge with promotions in our category take for example, you know at 20% off coupon.
If you're not wearing occasion based retailer and if you're not having a party than that 20% coupon at a party store is not going to get you a off the couch. We also don't believe.
Necessarily giving us a day in day out competitive advantage, it's really just spending a margin dollars with the consumer that was going to shop you.
So our strategy is really truly best.
In price, where we believe the consumer sees the value in those products and you know really sets the tone for the entire assortment.
Got it that makes sense. Thanks, guys. Good luck with this quarter. Thank you.
And our next question today comes from Genentech generally with Goldman Sachs. Please go ahead.
Hi, good morning, Thanks for taking my question.
If you fall at first on Halloween I'm curious about how I know you said, you're planning conservatively for the holiday Inn and trying to building sounds like <unk>.
How are you changing your merchandising mix versus last year I know that there were some headwinds around next and not necessarily having the right products. So are there any products or categories here.
Being or de emphasizing everything about planning for this year season. Thanks.
Thanks Gena.
You know I talked a little bit about this before and you know a reiterate some of it related to.
Our key learnings coming out of glass Halloween and and that's that you know when it relates to sort of costume in a bag. We did see a shift to online both to our <unk> within our own business as well as to competition and what works what we're trying to do and how we merchandise.
The store and merchandise ourselves on line. This year is more of a emphasis on how you really personalized and customized costume, we're seeing that as a broad trend.
Not only across a you know sort of the D. I why aspects.
In Society, but then also related to how people are dressing up and less reliance on.
Cost him in a bag, so we're bringing our in mixing our costumes.
And our Assortments in new and interesting way with with vignettes around key categories in our stores and we're bringing all those accessories and when you think about accessories, you know, whether its wigs or make up or masks and those kind of things closer to the costumes and mixing them in ways that help a customer.
Together a cost too.
And so there will be greater emphasis on kind of mixing and matching it making your own.
In our marketing efforts in our merchandising and in our online experience, we're going to lean into a social media from a marketing perspective, and influencers as well as a you know how how we prevailed.
Message to consumers supported by how to videos.
And the like getting those were some learnings we took out a last year and believe it was really resonate with the consumer as we thought about how we merchandise.
The assortment.
Okay, great. Thanks, we hope everyone will be trick or treating this year.
Well I have to also asked on me I'm, just a health and the next can be inventory right now.
Think about that balance that's easier and has no impact on margin can you update I say give us a size that how much do you still feel like you have to clear favorite you would categorize.
Ladies and all and is there any opportunity to carry some of that more.
All right again, maybe into 2021.
Yeah. Our inventory is is largely evergreen a in nature and you know outside of of Halloween or not or non Halloween seasonal business is a much smaller piece of our business the than Halloween.
And so you know almost all of it can really be be carried a carried and we do not expect cobot related mark write downs or markdowns.
Okay. That's great and then just finally I know you talked about plans for closures.
He asked at that point, or maybe where you see piano second quarter on the number of stores that are generating or [laughter] remember exactly that's positive you've got this point I'd just remind us how many really that's coming up for renewal and 2020 and 2021 and that's it from me. Thank you.
Yeah the.
We have all of our stores reopened.
And related to closures we have.
We did announce earlier that we have 21 stores.
We are closing this year those stores are currently open for business and in.
In their closure or a process.
You know related to overall real estate and how we think about closures you know we're constantly examining other store freed from a sales and profitability optimization.
Perspective, and we are regularly engaged in rigorous analysis at store level in that market levels is we look at.
Market shifts.
Co tenancy viability of centers and the opportunity to reposition stores and we look thoroughly at what opportunities we have to recapture share. If we do close stores and gain share where we can it's really this process that has resulted in the store openings store relocations and.
Store look closures in the past.
And that will continue.
You know is as we see it stores are really required for curbside pickup. They facilitate delivery are in there certainly a convenient for four balloons are related to leases or for the balance of this year and into next year, we have close to 100.
Releases that will be you know up for renewal and we will be aggressively negotiating a those as we go along.
Great. Thanks, so much.
[noise] Kinda next question today personal Carla Casella with JP Morgan. Please go ahead.
Hi, I'm one follow up on Janets question and do you pay April and May ran <unk>, if not when when you really have to take that.
[noise], yeah, so as a general segments.
No since our stores were not open and snacks generating revenue across April and much of May I mean, we did not pay rent and head to head talk to our landlords about that and same thing as a general statement for June that we've been in a lot of conversations with our landlords.
We actually have agreements with them for.
Oh about two thirds, we're still papering some of that but it's about two thirds of our landlords, we do have agreements to.
The per rents on several months worth of rent with most of that being paid back and deferred into 2021.
So it's an ongoing process as you can imagine but from a cash flow perspective.
I think there's been good participation goods I meetings of the mind on how we do manage cash flow.
For real estate in the short term versus long term and and so that's a just ongoing process for us.
Okay, Great just on another deferral item are you changing or deferring any in your hand, both and then they are relatively low this quarter, but I'm wondering if that changes next and that's.
I'm.
No element changing turns with any of your vendors coming out of coating.
Yeah, I think for this quarter in particular, you noticed that they were down versus last year I think that is purely timing and so as we look forward, yes, we've been working with vendors very proactively.
And either delaying shipments I tooling payment terms are negotiating different payment terms and I. We've had a lot of our vendors for a lot of years and they they understand the environment have been.
Very cooperative as we go through that process. So I see some combination of either delaying receipts to be closer to when the selling seasons our or.
Extending out payments and a lot of cases, so I wouldn't expect sad payables talents to increase as we go through the Halloween season.
Just as a matter of course and again everybody that we're working with understands that cash flows at a premium at this point.
Okay, Great and then I had a follow up on the hearing and.
Can you talk about how you've got ample supply and long term relationships, but can you just talk about the overall helium pricing in the Mark exit for you know thinking about how your customers on the wholesale side are seeing here and maybe you know how your rates may differ from the overall market rate.
Yeah, it's hard to speak to what the overall market rates I'm, specifically look like.
I believe we mentioned before that as we went into 2020.
We were going to see a in aggregate about a 14% increase.
In helium prices 2020 over 2019, obviously with fluctuations in demand we continue.
To negotiate and renegotiate or those and anticipate that not only ourselves would have.
100% helium, but that the helium market has largely recovered yet available to I really just about a all of our wholesale customers as well.
Okay, great and that pricing still hold you look for 14% increase and we think your customers are they are thing that's similar.
And is it pretty hard even through the then that same corridors.
Our pricing is pretty even through the next several quarters, we will continue.
As our contracts expire to renegotiate those good it would be a difficult for me to project what the market is pay.
Okay, and how much have year supply is coming from your own.
That's the plan you talked down.
Oh that fluctuate geographically and fluctuates a overall.
So you know are dependent exact number on that it moves as we you know helium as to be moved around geographically it. So.
We optimize contracts and wells.
Sort of intermittently.
Okay, great and that's not going to do come just to clarify the two combined give us more than 100% of our anticipated needs.
Oh, that's great, okay, great that size and fun and they just on the on the balloon front [noise].
I have a sensor how much as important business plenty spring events and whatever all canceled because of and then cancellation universe as.
Well be picked up in just later, maybe in second quarter with any of that demand shifts from one carried into Q.
I know our graduation [laughter], Yeah, you know and since we really you know Tobin 19 stores shutdowns happened just two weeks.
Prior to the end of our first quarter I don't think that so events moving from one quarter to the other isn't necessarily is as relevant is the fact that people buy balloons pretty close to need a if you think about how long balloons are filled with air lease.
Last or they don't last as long.
Helium balloons in oil last longer people buy very close to need.
So we believe what we're seeing is is balloon purchases.
For for parties in Fourq celebrations in a beds are happening in in the next two days relative to when their purchase.
Certainly graduation is a.
Usually more of a may early June event, or our numbers would say that customers have pushed some graduations out I think we'll see that a in the news as well and are experiencing that ourselves. They graduation is is Ben.
Extended a bit.
But as we reported graduations been very healthy part of our credit business.
Okay, great. Thank you so much probably take out.
So when he's done a rock music.
This concludes the question answer session I'd like to turn it back over to Rob's question for any final remarks.
Thank you everybody for joining us today in closing.
In what has been an unprecedented operating environment you know our team has really stepped up to the challenges responding swiftly.
And aggressively taking the necessary actions.
To effectively navigate this crisis period. They did this while simultaneously executing against key elements of our strategic plan to transform the business in position it for a longer term growth in market share gains I personally want to thank each and every one of them for their resiliency and commitment.
During this incredibly challenging time.
And again, thank you all for joining us today stay safe and well and so we look forward to updating you next quarter. Thank you.
And thank you Sir This concludes todays conference call. Thank you all for attending today's presentation. You may now disconnect your lines and I have a wonderful.