Q2 2020 Party City Holdco Inc Earnings Call
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Today's presentation, there will be an opportunity to ask questions.
Soft goods, which then you my three Star then one on your telephone keypad.
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Please note this event is being recorded.
I would now like to tend to conference I'd like to Mr., <unk>, Vice President and Deputy General Counsel. Please go ahead.
So operator, good morning, everyone and thanks for joining us.
This morning, we released our second quarter Twentytwenty financial results.
I find a copy of our press release on our website at Investor A party city Dot com.
Now I'd like to introduce our executive team core here in today's call.
Hi, Brad West in our Chief Executive Officer, and Todd Vogensen, Our Chief Financial Officer.
Well start the call what your prepared remarks by Brighton Todd before we open it up for QNX.
Please note that in state discussions management may make forward looking statements regarding their beliefs and expectations about the company's future performance future business prospects for future venture [noise].
These statements are subject to risks and uncertainties that could cause actual results could 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 will be realized we expressly disclaim any duty to provide updates to our forward looking statements whether as a result in new information future events or otherwise.
Urge everyone to review the Safe Harbor statement provided in our earnings release as well as the risk factors contained in our SEC filings.
During today's call, we will refer to both GAAP and non-GAAP financial measures of the company operating financial results for more information regarding our non-GAAP financial measures and reconciliations most directly comparable GAAP measures. Please refer to the earnings release and with that I'll turn the call over to Brad Washington.
Thank you.
Good morning, everyone and thanks for joining us today.
Good night team continues to impact the light and likelihood of so many across the globe at our Hearts go out to all of them.
We look forward to the day when that's endemic no longer pose a threat.
In addition, our country continues to wrestle with social Justice issue.
On this front your party city, we've been working to understand how we as a company can make a difference Barr associates and customers.
We've established an internal diversity and inclusion actually board and appointed a dedicated leader who is now evaluating our current state and will lead the creation and implementation of a form of diversity and inclusion strategy in the coming months.
Against this difficult backdrop, our teams continued to demonstrate their resilience as they adapted quickly to changing operating conditions and work to advance our strategic priorities in strengthening our financial position.
I'm very pleased with the progress we made in our ability to deliver improving performance through Q2 and into July.
In addition, the successful completion of our debt exchange post quarter end with a landmark development for a company that the significantly improved our financial flexibility.
I will discuss this in more detail along with our financial and operational performance for the second quarter.
Todd will then review our second quarter financial results in more detail and provide thoughts on how we're approaching the remainder of 2020.
On our last call in mid June I shared that we had begun to process reopening of stores, while prioritizing associates in customer health and safety.
With our brick and mortar stores closed in April and for most of my retail sales declined 56% in Q2.
Total brain comp for Q2 declined 52.4%.
Ecommerce performance was a clear stand out with growth, including buy online pick up in store curbside pickup and delivery of 83.2% for Q2, as we quickly pivoted to focus on our online business and launch new fulfillment options for our customers.
As you might expect early April was the most difficult period of the quarter and then as we quickly launched an expanded fulfillment options, including curbside pickup in same day delivery, we saw sequential improvement as we move through Q2, which accelerated stores began reopening.
As a result for the month of June our brand comp sales were down 6.5%. If we look at the cohort of stores that were open for the entire bumped. The June comps are these stores, including buy online pickup in store curbside pickup in same day delivery were up 6.3%.
This performance was driven by a very successful graduation season, including personalized products as well as kids birthday and strengthen balloons.
Improving trends carried into July as consumers continue to celebrate in new and unique ways using balloons and other decorative items for cars in front yards in dry by celebrations as well as in home decorating for small more private celebrations.
Our wholesale business declined 50% Q2 as franchise in independent retail customers contended with the same pandemic headwinds to demand in store operations during the quarter.
A bright spots in the quarter, what's the resilience of our anagram balloon business, which generated moderating sales decline throughout April and May followed by a double digit increase in revenues in June.
On a consolidated basis second quarter total sales were down 54.8%.
Fixed cost de leverage was a significant gross margin headwind and why we move swiftly to curtail expenses. The significant sales decline resulted in operating in the losses for the quarter.
On the bottom line loss per share was 66 cents and adjusted EBITDA was a loss of $42.8 million.
Todd will discuss our Q2 financial results in more detail in a moment.
Let me now discuss the progress we made in Q2 against our key initiatives.
Number one developing them more relevant in store experience.
Due to store closures, we delayed the opening of our first three nexgen prototype stores to June.
During July we also remodeled our five lots they get stores and three of our Kansas City stores in this prototype and the current plan remains to open 20 to 25 total nexgen stores in 2020, primarily remodels.
We're addressing the fact that our stores can be overwhelming and time consuming to navigate.
The changes to the in store experience, we're piloting including a new shop in shop store layout with improved product, Jason sees edited to more curated product assortments reduced inventory as well as new services and experiences.
Well. This initial stores have only been opened a handful of weeks the feedback from our customers and our store associates has been enormously positive.
By declaring the stores, bringing down the siteline and providing them more edited assortment.
Customers are telling us they believe we've expanded the store and are carrying more merchandise.
The reality is we've reduced the number of skews and the inventory by more than 20%.
Customer comments regarding the ability to locate product, but the party components together and overall ease of Shopability I've been resoundingly positive.
Our store associates are also extremely pleased that the improvement are making it easier to operate the store, thereby creating more time to engage customers.
The separate balloon shop in shop with dedicated checkout provides more personalized service well speeding up transactions for nonbeliever customers in the existing Q has also been extraordinarily positive.
Unlike the so these stores I'm, especially pleased to see the additional energy and theater, a balloon being filled in bouquets being created to the delight to everyone in the store.
It's a true epicenter of joyful emotion in the store, which is exactly what we were seeking to create.
Well, it's too early to celebrate success, we're extremely pleased with the initial results and the insights we're gaining from the customer feedback the operator feedback and the performance metrics across categories.
Number two wyndham balloon.
This is a critical initiative for us given our market leadership position as a manufacturer wholesaler and retailer this dynamic category.
Clearly the Nexgen store prototype is delivering on our goal to make balloons and even stronger key differentiator for our brand.
Our unparalleled balloon assortment and innovation, coupled with an improved in store experience and further strengthened by elevated and expand the digital experience in delivery capabilities will enable us to better leverage the inherent strengths of our vertical balloon business and expand our balloon upside across our anagram wholesale.
Okay and retail businesses.
Innovation is a critical component of our billings growth.
We're producing and supplying differentiated and inspiring products that are resonating with consumers.
New product introduced in the past several months are driving over 20% of sales growth in the category.
Additionally, our marketing and merchandising teams are elevating the balloon shopping experience and inspiring customers with improved product presentation, both in stores and online.
New innovation in the digital space is also driving engagement in Q2, we launched a new online digital balloon brocade builder experience, including premium balloon bouquet offerings.
Buying balloons online with the ability to pick them up in store Act curbside or have them delivered the same day is also increasing balloon demand.
In Q2, we made progress expanding each of these options.
Balloons were more than 50% of our buy online pickup in store curbside picked up in same day delivery sales.
As consumers continue to see unique outward ways to express themselves balloons remain an integral part of everyday celebration as well as she lives a bit.
We continue to build relevance by providing consumers everyday reasons to celebrate with bulletins.
Number three.
Dress price value perception in key categories.
Based on success from price reduction, we executed last fall in our solid colored tableware products in late June we lowered prices on approximately 3000 skews across a broad selection of people were.
They related products and seasonal items.
As we experienced in the initial fall 2019 price reductions the customers noticing in responding favorably with unit volume increasing in large enough quantities to create accretive gross profit dollars to the vertical supply chain.
We're monitoring the performance daily and initial results are surpassing our expectations.
Based on the continued favorable consumer response, we're accelerating efforts to test additional product categories for future price reduction.
Jim in previously in effective promotions.
Notably has an occasion based retailer we know 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.
Improve our customer engagement selling culture.
During Q2, and a largely closed store environment, we focused on initiatives and actions to improve customer engagement through our marketing messages, our merchandising approach as well as our digital initiatives, including expansion of fulfillment options for customer orders.
Im extremely pleased with our teams customer centric shifts which have resulted in significant progress in our ability to be a valuable partner in bringing joy and creating memorable moments for our customers.
Each has been well received in highly utilized and collectively they've made a significantly more relevant to consumers, even this stores reopened and their enhancing our results today.
From a digital perspective, we've made dramatic shifts in content, which are designed to make the experienced inspirational aspirational and more engaging to make it easier to create unforgettable memories.
First is the use of enhanced visual merchandising on our website.
Using inspirational content with tagged in shoppable than yet, which customers have immediately gravitated towards.
Other new features include how to videos theme how to program supported by product in fuse content and influencer sharing including summer camp at home.
Backyard Olympics in graduation in birthday party reduce as well as podcasts and relevant and gain and consumer content, including recipes virtual parties and activity agendas.
We leaned into consumers expanded appetite for public expressions of joy, such as parades front yard in porch displays.
As we pivoted back to an open store environment, we're continuing our efforts to engage customers of partners in providing solutions for their party needs with increased associate training, along with scorecard metrics in incentive rewards focused on customer service.
Number five.
Build on our Omnichannel platform.
As our stores reopened customers desire for buy online pickup in store curbside pickup and delivery remained strong.
Perfect pickup is available in all of our stores and all but a handful of our stores now offer same day delivery.
We saw 324% growth in buy online pickup in store, including curbside pickup during Q2 and 436% growth in June.
Our extended delivery program, including more convenient customer delivery windows is helping drive our balloon business and uniquely positions us to attract new customers.
We expect customers to continue to seek both contact list and more convenient ways to purchase products and consolidate their shopping trips.
We will relentlessly optimize these experiences to drive customer loyalty and continued sales growth.
To that end, we introduced enhance customer communication options for these new services and our piloting additional procedures to expedite the curbside pickup process to make this option seamless and even more convenient for customers.
In summary, we made a lot of headway against our five key initiatives in a very short in challenging period of time and we'll continue to keep you updated on our progress.
On the wholesale side of the business. We're also seeing performance recover both domestically and internationally. However, the pace and rate of improvement have not yet accelerated to the level of our retail performance.
Similar to our retail business, we saw north American wholesale trend improved throughout Q2, preserving approximately 70% of prior period sales for the month of June and tracking ahead of that rate for the month of July.
International business performance slightly exceeded this north American performance.
Within wholesale in North America, Anagram was a meaningful outperformer with performance returning to positive territory in June with the month posting strong double digit increases.
From a domestic channel perspective mass in grocery were our strongest channels.
We remain confident that wholesale will continue to rebound to more normalized levels over time as our retail partners reopened stores and resume full operations.
As we sit here today, we currently have 100% of our stores reopened and much like we indicated on our last call. We saw performance building through the reopened period with the latter ways of openings outperforming the earlier waves.
This is reflected in our improved June comp performance of negative, 6.5% and the building of that performance that we've seen thus far in Q3.
While we were encouraged by this improvement.
And the early progress, we're making against our strategic priorities armed Uzi ASM is tempered by the environment of continued uncertainty.
This includes uncertainty around first potential future waves and spread of the virus.
Second.
Consumer confidence in spending once the initial stimulus impact is behind us.
And third consumer behavior, and appetite for celebrations, including Halloween as we entered the seasonally important second half of the year.
And finally, our debt exchange offering.
As you are aware in June we commence the exchange offering that we first announced in late May in order to improve our financial health and flexibility.
I will speak to the specific details, but I am extremely pleased that we successfully completed this exchange and accomplished the three financial goals, we set out to achieve through the transaction, which were one extend our debt maturities.
Two.
Reduce our leverage and three increase our liquidity.
Notably the completed transactions have the combined effect of reducing our total debt by $463 million as well as providing a $100 million in new capital to support our operations and transformation initiatives.
In summary.
Q2 was a challenging quarter, we responded swiftly taking the necessary action from an operational as well as an expense and liquidity standpoint.
We simultaneously worked diligently to execute against our strategic priority and strengthen our financial position through the debt exchange process that is now complete.
We're pleased to have all of our stores now open.
And be in position to meet customer celebratory needs across channel.
Encouraged says we are with recent business trends given the environment, we remain extremely disciplined maintaining a conservative posture from an expense cost capex and working capital standpoint, as we plan the second half, including Halloween season that we currently expect to be down year over year.
We're controlling what we can and staying nimble and ready for a range of scenarios.
While demand is unknown, we're bullish on the changes we have made to our Halloween go to market strategy, including significant improvements to our assortment in store merchandising pricing marketing and digital experience as well as the in store customer experience, which will include our new curbside pickup and delivery options.
All of these initiatives are laser focused on the customer and will dramatically improve their experience with party city during the fun and exciting Halloween time.
And now I'd like to turn the call over to Todd to discuss the second quarter results in greater detail.
Thanks, Brad and good morning, everyone.
Today I'll focus on the key highlights of our second quarter and recent performance and then I'll provide an update on our financial position.
For full details regarding our second quarter in 2020 year to date financial results. Please refer to our earnings press release in the accompanying slides, which are available on the Investor Relations section of our website.
The impact of covert 19, or second quarter results was significant given the loss of store operating days for all of April and most of May.
In addition to its impact on retail store sales. The pandemic related disruption also resulted in a significant pullback in franchise and independent orders for our wholesale segment.
Consolidated revenues for the quarter were down 54.8% or 54.6% on a constant currency basis and brand comparable sales for the quarter were down 52.4%.
Our retail segment second quarter net sales declined 56.3%, both on a reported and constant currency basis.
E Commerce continued to deliver strong performance with growth of 83%, which includes store fulfilled digital sales from curbside pickup buy online pickup in store and same day delivery.
Our wholesale segment, which includes international was also negatively impacted in the second quarter as many of our third party retail customers temporarily closed their stores.
Overall net wholesale revenue decreased 50.3% in the second quarter were 49.5% on a constant currency basis.
Trends in our wholesale business also continued to improve throughout Q2, albeit at a somewhat slower pace than retail driving revenues to approximately 70% of prior year sales for the month of June with July tracking ahead of that rate.
Moving down the piano adjusted gross margin rate declined by 1800 60 basis points, mainly due to deleverage from lower sales caused by the temporary closure of stores.
We expect sales dynamics will continue to be the primary driver of margin rate change for the remainder of the year.
Adjusted operating expenses declined by $41 million or 26% from last year, driven largely by the temporary store closures during the quarter and the resulting cost reductions implemented in response to the covered 19 pandemic.
Our quick transitioned to curbside pickup enabled us to deliver sales improvements that were better than our expectations.
And while there was an associated investment in store labor in the net impact on profitability was positive.
Even as we prudently add back costs with the reopening of stores and ramping of sales. We will continue to manage both expenses and capital with great discipline as we navigate the second half of the year.
From a profit perspective, adjusted EBITDA was a loss of $42.8 million compared to income of $81 million in Q2 2019, adjusted net loss for the quarter was $61.3 million in Q2 2020 compared to adjusted net income of $20.2 million last year.
And adjusted loss per share was 66 cents compared to adjusted EPS of 22 cents in the prior year.
Turning to our balance sheet inventory was down 19% year over year at the end of Q2 due to both our proactive steps to manage the timing of orders to be more aligned with Halloween product sales and due to fewer stores from the Canadian retail divestiture and the 2019 store optimization program.
Importantly, the composition of inventory is largely long lived in nature with most of the seasonal items relevant beyond the current year.
As a result, we do not expect significant inventory exposure related to the coded 19 disruption.
At the ended the second quarter, we had $326 million outstanding under our revolving credit facility and total ending net debt was 1.74 billion.
We had $154 million in cash and cash equivalents, which when combined with $136 million of revolver availability resulted in total liquidity at quarter end of $290 million.
Our ending liquidity represents an increase of $25 million compared to the ended the first quarter.
Throughout the quarter preservation of our financial health and flexibility remained our top priority and accordingly.
We continue to aggressively manage expenses inventory and capital expenditures.
As I outlined on our last call, we took actions to cut back on both payroll and non payroll expenses, including working with landlords to effectively manage occupancy expenses.
In addition, and by far the most significant development on this front was the successful completion of our debt exchange offering which I'll discuss in a moment.
In terms of capital expenditures, we continue to plan for is significantly reduced 2020 capex budget.
Which is expected to be $35 million to $40 million down from 62 million last year.
We will continue to prioritize spend related to select nexgen stores as well as important investments in equipment and technology.
Also as we've previously disclosed last year, we generated $130 million and proceeds from the sale of our Canadian stores to Canadian tire.
We've reinvested a significant portion of these proceeds in assets for our business and we expect to deploy the remaining balance of those proceeds in the near future.
Any proceeds from this transaction that have not been invested or committed for investment by October onest would need to be used for paydowns of our term loan at par value under the terms of that agreement.
Regarding the previously announced debt exchange offer the offering expired on July 27th with approximately 84.7% existing notes validly tendered and accepted for exchange by the company.
Importantly, this includes more than 93% of the 2023 notes, meaning that a significant amount of our 2023 notes now mature in 2025 in 26, which provides a strong pathway to refinancing our term loan that is due in 2022.
Through the exchange offer participating holders of our 2023 in 2026 notes received a combination of 15.9 million shares of common stock.
$84.7 million of second lien notes due in 2026 in issued by anagram.
And 161.7 million of senior secured first lien notes due 2025 issued by party Citi Holdings. In addition.
The company generated $100 million, new liquidity through 110 million in first lien notes due in 2025 and issued by anagram as well.
As a result of this successful transaction, we materially reduced our total net debt from $1.74 billion to $1.28 billion and extended our maturities out to five years or more from the transaction closing.
Accompanying slide deck includes a table the details our debt and cash pro forma for the completion of this exchange offer.
As Brad mentioned the exchange offering has the combined effect of de leveraging our balance sheet by approximately $463 million.
And raising approximately $100 million in new capital to increase our financial strength and support our global operations and ongoing transformation initiatives.
Also as a result, 2020 interest expense assuming current interest rates is expected to be approximately $80 million.
This is about $25 million below our original expectation of $104 million to $106 million for the year.
The reduction is due to $5 million and partial year impact of the exchange offers as well as $20 million and the onetime elimination of the August 2020, semiannual interest payments for the senior notes that participated in the exchange offer.
On a pro forma annualized basis, we expect interest expense decreased by $10 million.
In addition shares outstanding will increase by $15.9 million.
Given the continued uncertainty around the duration and trajectory of cobot 19 related disruption, we're not providing additional 2020 outlook at this time.
So in summary, the.
The second quarter was challenging one given the peak covert related impact and disruption across the business. Despite this we're proud of how quickly and nimbly our teams pivoted to the changing operating conditions positioning us to capitalize on a successful graduation season, and strong kids birthday demand including below.
In sales.
As Brad discussed we're encouraged by the sequential improvement we saw as the quarter progressed and into July as we made the necessary adjustments to our business.
However, we head into the seasonally important Q3 with appropriate conservatism given the still pervasive nature of the pandemic in our country and the resulting impact on the safety and desirability of group celebrations, including Halloween.
While we are re imagining the holiday as consumers undoubtedly are too we are planning the season to be down year on year and stand ready to chase should demand exceed our expectations.
We will continue to manage liquidity and expenses with great discipline, even as we push forward on our key strategic priorities to drive the stabilization of our business and long term growth.
With that I'll turn the call over to the operator to start the Kunaev session.
Thank you Jay we will now begin mcquiston application.
Asked the question you may free standing one on your telephone keypad.
If you think they define please pick up your handset, while placing the K.
So with all your question please.
Okay.
At this time, we'll pause momentarily to assemble have lost that.
Your next question comes from Thank segment with Credit Suisse. Please go ahead.
Hey, guys. Good morning, Thanks for taking the question.
I wanted to talk about E. Commerce, I think that was one of the bright spots in the period you made a lot of changes there a lot of the ecommerce growth seems to be centered around the store right delivery and pick up and curbside two questions. One what are you learning about how the customer likes to shop in your category and why they would rather pick it up in the store.
It is getting get shipped and I'm thinking beyond even just balloons and then second more about the capacity of that model. How can you handle peak periods of volume with this model what do you learning about and how are you planning. Thanks.
Thanks, Thanks Seth.
It's it's certainly been interesting to see the customers immediate appetite for buy online pickup in store.
In curbside pickup.
We have adjusted our our label models.
Such that we can handle some of the additional strain that puts on store associates.
But we because we had tied before the stores were really open to ramp up this capability.
It went pretty seamlessly and we've learned a really really operate that certainly the driver of that activity is.
Three especially.
Also beyond that I think the consumers just continues to look to consolidate their trips.
We see in our our purchase basket in our average order value that we're continuing to become more of a one stop.
Destination and I think those two activities are really driving the consumers mindset that party city is that destination, they can get everything they need.
They can get conveniently.
So so we're pleased with the consumers' response, and we're pleased with our operating capabilities to create an increasingly better experience at curbside, we're continuing actually to invest in in that experience for the consumer we see that is something that is going to be around for awhile.
And we see opportunities to continue to add technology add capabilities that will continue to make that even better experience you on what's probably partially just a contact free environment today.
Okay. All right. That's helpful. And then my follow up question is just around the gross margin in the performance in the quarter I.
I think you talked about some of the factors, but can you help us understand as sales improved in June and into July did you also start to see an improvement in the gross margin trend.
And then the second part of it is just stepping back.
Oh no lot of factors here last year, yet healing in this year fixed cost leverage and bunch of other things do you have a sense as to what your normalized gross margin could look like and when you could potentially get there.
Sure. So this is Todd.
I'd say as we look back across Q2, and even for the rest of year that number one.
Impact on leverage is going to be that sales sales volume.
We have a lot of puts and takes between.
Helium costs in Q2 that were higher we start wrapping around on the hue and cost increases in Q3, so that starts to abate a little bit.
We do have.
Some mixed benefit from balloons, where we have the benefit of.
Just plain higher margin rates within the product categories.
And host other things but.
Sales Leverages interview, the number one factor and I would think that all of our other.
Variable margin elements should tend to wait out to be.
Relatively flattish to maybe slightly better when we look at the impacts of less promotions and and the unit volume increased from.
Cost reductions in the store, so we're not giving investors.
That guidance going forward, but.
So you.
With we can get back to point of normalized sales.
You should be looking at.
Margin rate that is improving over time.
Okay.
Okay. Thank you.
Good luck.
Thank you.
Your next question comes from Simeon Gutman with Morgan Stanley. Please go ahead.
Good morning, everyone. My first question is on June which seems to be the restart for you officially.
Can you talk about how it compared to your expectations and I'm more curious around the predictability of the business.
As opposed to know how good you are forecasting at this point and then can you clarify July it sounds like is still positive.
Can you say, if it's accelerated or decelerated versus the June run rate.
Yes, so we're still in the process of closing July.
I really can't share more details on that performance at this time.
Yeah.
July brands comparable sales were positive, but sales trends remain fluid.
In obviously, we're looking at.
Q3.
And just not going to go into to that level of detail certainly our customers are celebrating.
In different ways.
With parades driveway parties virtual celebrations in.
In the stores has reopened we're seeing the categories.
Really improving.
Sequentially.
In broad base level of success, which like I said is accelerated.
Into into July.
As we move through the month of June we saw continued upswing in sales by week early in the month that was driven by sales reopening in this all server storage reopening in as all stores reopened in the back back half of a month.
We saw continued improvement.
We also saw the mix of those sales adjust from early in the month being much more driven by online in bike card side, and then as we sequentially moved through the month and as weak sequentially move through July.
We saw that find a more predictable.
Rate in pace penetration.
Sales and saw how good balance with the stores. So what we're seeing is something varies.
Consistent.
Consistently improving.
And consistently a stabilization in our mix of sales.
Okay and then my follow up is.
Can you remind us what percentage of of the party retail sales are balloons, how is that looking to like at present, because I assume the mix of the business is changing as you mentioned, Brad it's fluid and then what are what are we lapping I think we can figure out from the prior year, but what are you lapping in terms of the balloon category in terms of.
Of growth or decline from the prior year and if you can distinguish between Q3 in Q4.
That will be helpful.
Let me answer the first but not quite sure I understood. The second but let's do the first part and then we can we can come back.
We said in the past that the looms is 20% of our retail sales on an annualized basis.
Sure weights released by quarter, depending on the number of factors as you would speculate in Q2 balloons was higher than it's typical Q2 penetration.
Based on the types of celebrations.
That are happening as well as our improved execution, which quite frankly require it really creates further runway.
As we discussed back in March we saw early success in our same day balloon delivery initiative pre pandemic.
And now with an increasing curbside pickup same day delivery is part of our expanded omni capabilities. The bloom category is definitely benefiting from the ability for customers to more easily procure them.
So what was the second part of your question Simon.
I guess, it's simple ways, what were balloon comp nor revenues down and last year's third quarter and last year's fourth quarter.
Yes, so balloon comps.
As we were challenged with helium back in the third quarter and fourth quarter of last year.
If you recall, we were really seeing the rebound of helium.
In Q3.
But at that time, our our business really pivots to Halloween in the Blue business as you can imagine a really drops in penetration as we went into fourth quarter, we really saw the the balloon business start to.
Pick back up it was never particularly negative it was just not as significantly positive in our business prior to our helium shortage challenges.
Okay. Thanks, Brian.
Thanks again.
Your next question comes from Rick Nelson with Stephens. Please go ahead.
Hi, Thanks, good morning.
They're here.
You know trued up or color on how your propping per Halloween.
Hi.
You are saying, it's going to be down any feel for magnitude them, how you see consumers.
Caliber Callaway.
Yeah. So we're not really providing forward looking guidance, it's not going to get to specific with the numbers.
For a financial PML expense management, you know we are being protective.
So even though we see it down.
We're planning Halloween, where we're really just trying to avoid.
Over spending against potentially decreased demand.
But I would say the situation is really fluid and we have to be fluid.
We're approaching Halloween really building in flexibility.
To meet all variables in potential demand.
We bought conservatively.
And have appropriate carryover from 2018 to 2020, we plan to go into the Halloween season conservatively.
Knowing we we have the ability to really refill in demand product.
If demand proves to be stronger.
Than expected, we certainly believe Halloween is going to happen in some form.
It's likely to be different regionally across the country based on what local communities mandate and how people in different communities really feel about the safety of Halloween activities.
We believe the kids costume business will continue.
Even if celebrations occur at home.
And if the weight consumers are decorating today, we anticipate that Halloween decorating will be the robust the more unknown piece is what the environment.
We'll be for adult parties.
We'll continue to expand our omnichannel offer and be prepared the to meet the customer where the customer wants to engage obviously, whether that's in store online.
Through pickup at the store or through delivery.
Rick I'd tell you that we're certainly bullish on the approach that we've taken.
To completely revamp our Halloween assortments are really to capitalize on our on our breadth of of costumes in the digital experience, which is going to be full of inspirational ideas how to videos.
Really related to the latest dress up ideas.
As well as our in store merchandising or marketing or new lower pricing.
In the new buy online pickup in store buy online pick up big curbside and and delivery options that will all be major improvements.
Over last year. So I can tell you that if demand is there we will definitely capitalized.
Great.
Transfer that is.
Capello up her consumer ship something like them to our curbside pickup is there opportunity is.
It is the cost structure.
Many people from a store or.
Could cover peer expense.
Okay. Thanks.
Yeah.
So first and foremost let me just.
Remind everybody that we want to serve customers the way that they want to shop and purchase from us.
Therefore, we're absolutely channel agnostic.
Curbside pickup of an online order is margin favorable.
As it eliminates the shipping and packaging expense.
So for high penetration continues the profitability of our E Commerce business.
Should improve as well.
We did sacrifice some efficiency and profitability for the sake the speed of the launch an expansion as some of these fulfillment capabilities recently.
And it was the right thing to do in the customer response was was good but.
Our focus is to be increasingly efficient.
From a cost standpoint, so we're going to continue to assess the margin mix and and work to reduce the cost of fulfillment.
In every channel and that includes the store.
I think Seth asked a similar question about you know our pivot to that in our efficiency around the pivot to that we're learning a as as we go when we have a lot of learnings, we're starting to understand as we take pressure off some of the operations in our stores with our assortment improvements our reduction in inventory.
We know that does free up hours of that can free up hours for customer engagement, whether that is assisting a customer in the idle or assisting them make curbside or preparing.
Delivery or buy online pickup in store order so.
Work in progress, but we firmly have our arms around it and continue to find efficiencies everyday.
Great. Thanks, a lot and good luck.
Thanks, Rick.
Your next question comes on Tommy is that Korea, Let's JP Morgan. Please go ahead.
Hi, Thanks for taking my question.
So on the same day delivery from stores.
Could you comment on how useful syndrome.
Those orders.
Meaning whether you're partnering with any third party.
To do the actual delivery and how does that impact to margin profile of the business.
Yeah. So our our partner today is both shipped in hurts, we premiered primarily rely on on hurts for bands for.
Large balloon orders, but more than 90% of our.
Of our delivery is through shipped.
And the delivery fee for that is is 999.
Free for orders over over $35.
The average.
<unk> costs.
The us.
Is around $12.
And so so the economics of it are proving to be very good.
The driver of that is are the is it's our highest ASV.
Deliveries and.
Because a lot of that is balloons. It drives a higher it will be in it drives a high margin.
Got it that's super helpful. And then just quickly.
It's historically Baptists cooler.
An important season for you.
And what are you seeing in terms of back to school shopping.
Yes back to school actually is not particularly big season for us.
Outside of our regular everyday.
Business during that time period.
Really we get some business from teachers.
Preparing with decorations for classrooms.
Obviously that will be a little bit different this year.
A lot of teachers, we anticipate as happens with virtual parties online if theres virtual learning.
Theres still a decoration element that happens so with that especially.
In smaller.
The class a younger classroom environments, but.
Relative to the dollar volume that we see from back to school. It it's it's low.
Got it. Thank you so matson best of luck.
Thanks, Tim.
So.
Yes.
Your next question comes on carrier thousand with Telsey Advisory Group. Please go ahead.
Yeah, Hi, good morning, guys.
I wanted to ask a little more about pricing and I guess, where are you in the the effort like are you at a point, where you want to be and how are you guys getting there, meaning like or who are you.
Marketing again, so you're trying to be like a certain percentage within a range of Walmart or dollar stores or for grocers that I guess, how should we think about where you are in this kind of evolution.
Yeah. So you know like I said, we've lowered prices on approximately 3000 skews.
Really focused on our kids birthday, Assortments tableware solid tableware seasonal tableware and decorated tableware as well as costumes and accessories and we are looking to.
Expand the penetration of those changes we're planning additional reductions on another large numbers skews.
Prior to the Halloween selling season.
We remain acutely in tune with price elasticity, both historically and in in the current environment.
Really not seen any significant changes that would erode our confidence in our analysis or the outcomes are seeing.
I would say that were the next group of changes is going to be a significant and in more than the last again, we're looking at key value indicators.
Like elasticities, what really are the truck drivers and the basket builders.
And how did they perform we now have data that allows us to see elasticities hit the that's a skew level and the category level.
We see the opportunity to touches many is.
Third of our of our total skews and touch you know two thirds of our categories in terms of benchmarking our real competition.
Is Walmart target.
And dollar stores for everyday party products.
We don't benchmark against any one of them singularly and we're not targeting specific range, we're really driven by our own performance elasticity that we that we see really guides us because that's what determines helps us determine where the sales.
The margin can end up we want to be competitive, but we also know that we don't have to be exactly at the prices of competition like Walmart or dollar stores, because we offer as a specialty retailer we offer a broader level of choice or more store attained is incredible in the cat.
Gory.
And so and we're a one stop shop destination.
So we don't have to be at those competitors prices.
We just need to find the space, where consumers really the elasticity level, where consumers trust us and we're driving unit.
Increases in gross profit dollar increases.
Yes, Thats really helpful. Thank you and then another question on.
With regard to the the stores. The next Gen stores I know, it's very early but it sounds like it's really off to very good start.
I know at the moment I think you said, you're only targeting returning 25 stores for next year.
I guess it is that.
Upper acceleration is if you really liking what you see in the back half of this year like is there opportunity to accelerate that and.
Securities with what our cost is to.
Kind of upgrade to the store to this next gen model that year.
Mike.
So you know, we originally and hope to do 35 to 45, which was going to be kind of mapping out our capacity of getting all of the learnings.
That we sought to achieve both from how does the store performed with with customer feedback how does the store performed from a sales perspective across categories. How do we learn what the right capital expenditure.
For the stores is since they are predominantly remodel and and we are focused on making them. It is impactful as possible in his capital light a possible manner.
We had to truncate that activity because of the pandemic.
And so you know where we initially thought we might not hit 20 to 25 done.
But within the acceleration or business great early performance in our desire to get as many.
Learnings as possible this year to inform 2021 in beyond we have pushed that number up to about all we can accomplish.
Obviously, we're moving into early fall Halloween prep season, then Halloween.
And then to holiday Inn, so we're pushing as many into the pre Halloween period as possible. We think that will give us as many learnings as we can again, both on the sales uplift side, the operating side as well as the the cost side, all things yet to be learned and determined our desire clear.
Really is to accelerate these as fast as possible when we find the right mix of of all the things that we're working on as you said the initial performance while early is still really positive.
Both on the sales side in the customer feedback side, but I can tell you having just gotten the first three open.
At the end of June and then more in July.
In an environment that we're in we're learning we're learning a ton.
And we're right in the midst of an important learning.
Same period.
Got it that's helpful. Thanks, Good luck with this quarter again.
Thanks Sherri.
Your next question comes on Carla Casella with JP Morgan. Please go ahead.
Hi, Thank you for taking my questions.
I'm wondering and he can give us a sensing your bad debt expense related to retailers and then I'm not saying, how many of your customer doors.
Remain closed and if you're expecting to close permanently lost outside.
[noise] I'm sorry, I meant noted the first part of your question.
Hi that bad debt expense related to your wholesale customers.
Yes, yes at this point.
It's been minimal we've had a couple of customers that we're in trouble one franchisee of that.
To close stores and so we've taken a cautious approach, but it just has not been.
Material at this point.
In terms of.
Overall retail.
We are continuing to see that there's demand out there so.
Independent stores and franchise stores are ramping up at a slower pace than our retail.
We have a lot of initiatives underway that are gaining traction we have.
A lot of capabilities that others might not and were taking advantage of that.
But nothing until like we're positioned welcome wholesale perspective.
You have a sense for how many of your wholesale customer stories, there are still close.
Most of them up and now just like Yours, Oh, yes. Most of them are open now at this point.
Okay, and then just one other one on cash flow and.
Harris Act I'm wondering if you got any.
If you quantified the benefit and then if you expect any working capital benefits for the remainder of this year Orient 21 related to tax.
Changes for tax related care that.
Hi, Karen.
We're at the size where.
We haven't seen as.
A lot of the impacts flowed through to our own benefits. So.
There are some impacts in terms of type products were able to delay.
Our tax payment.
From from April ROE and into Q2, so it was relatively small.
But I Wouldnt say believers anything material on the site, but but you would need to worry about some of modeling perspective.
Okay, great. Thank you.
Thank you.
I didn't know the timely haslett question today I would like to turn the conference that guy that to Mr., Brad Mason for any closing remarks.
Thank you everybody for joining us today in conclusion, our second quarter and the weeks following have been pivotal for our company.
We achieved a number of critical accomplishments that position us for success, both the near in the near term and the long term.
Driving an unparalleled experienced in the parties to rebrand underpins our entire strategy to stabilize and revitalize our retail business and I'm proud of the enormous progress. We've made on this front against each of our five strategic priorities. The resilience in agility of our teams have been on full display with rapid launch and expand.
Engine of additional customer fulfillment options and merchandising and marketing strategies that are resonating in this current environment.
We expanded our omnichannel capabilities dramatically enhanced our digital experience made meaningful strides to address our customer value perception opportunity and launched important new store format prototypes all in an extremely difficult environment. Our customers response to these actions have not only been positive but.
Exceeded our expectations.
In addition, the debt exchange, which significantly reduces our overall debt.
Extends our our bond maturities natural and putting the boot adds liquidity.
Has meaningfully improved our financial flexibility it really enables us to continue to invest in and make progress against the opportunity. We see for our brand is we seek to establish party city as the undisputed go to destination for customers to create joy in make unforgettable memories.
That said I'd like to reiterate that the environment remains uncertain.
With an ended this pandemic not yet insight. So we remain very disciplined in our approach to managing expenses and capital as preserving our financial health and liquidity remains our top priority.
The same time, we're staying flexible so we can adapt quickly to changing operating conditions with focused execution of our strategy priorities.
We are moving forward with our plan to stabilize the business and reposition party city for enduring success and thanks again, everybody for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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