Q2 2021 Party City Holdco Inc Earnings Call
Good morning, and welcome to the party city and Q2, 2021earnings conference.
All participants will be in listen only mode.
Should you need different Street P signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be and opportunity to ask questions.
To ask a question you may place John and then 1 on your telephone keypad.
To withdraw your question, Keith and I don't think too.
Good day.
Do you think is being reported out and all.
And I to turn the conference and event, Eric Wang VP Treasurer and Investor Relations. Please go ahead.
The conference is now being recorded.
The conference is no longer being recorded.
The conference is now being recorded.
The conference is now being recorded.
The conference is now being recorded.
Pardon me, ladies and gentlemen, it appears we have lost connection to our Speaker line. Please stand by while we connect thank you for your patience.
[music].
Pardon me, ladies and gentlemen, this is the conference operator, we've reconnected the speakers and we'll go ahead and continue.
For your patients.
Thank you operator, good morning, everyone and thanks for joining.
This morning, we released our second quarter 2021 financial results.
And a copy of the press release and our website at Investor Day, Our party city Dot com.
Now I'd like to introduce our executive team and Gore here on todays call we.
We have Brad Weston, our Chief Executive Officer.
And Todd Bogan Center, Chief Financial Officer.
We'll start the call with your prepared remarks by Brad and Todd before we open it up for Q&A.
Please note that in today's discussion management may make forward looking statements regarding their beliefs and expectations about the company's future performance.
But your business prospects or future events and plant.
These statements are subject to risks and uncertainties that could cause actual results.
To differ materially from this day.
Although we believe 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 of new information future events or otherwise.
We urge everyone to review the Safe Harbor statements provided and 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 and the company's operating and financial results.
For more information regarding our non-GAAP financial measure and reconciliation to the most directly comparable GAAP measures.
Please refer to the earnings release.
And with that I'll turn the call over to Brad Weston.
Thank you Eric.
Morning, everyone and thank you for joining us today.
I'll begin our call with a review of the highlights of our second quarter performance.
And then I will discuss the operational progress, we're making against the strategic priorities that support our purpose to inspire joy and make it easy to create unforgettable memories.
Todd will provide more detail on our financial performance as well as some outlook commentary before we open up the call to your questions.
Our second quarter was better than expected with consolidated total sales up 110%.
And then $36 million.
Retail sales were $444 million with brand comparable sales, increasing 118% were up 19% relative to 2019, and our wholesale business was up 30% year over year from the quarter.
During the quarter, we anniversaried the bulk of the pandemic store closures and April and May with April being the most impacted in Q2.2020.
The momentum we saw in March continued into Q2 as the economy opened up and restrictions subsided driving and improvement inability to celebrate.
Overall relative to Q1, we're very pleased with the acceleration we saw and the business. The consistency we saw each month of the quarter and Q2.
And the continued strength and our core categories.
Compared to 2019, which we view as the most recent normalized year given the pandemic impact on 2020 trends across the business. We're very consistent and this trend continued into July with results for the month very solid compared to both 2019 and 2020.
If you're very encouraging and highlights of the quarter to mention are.
Performance was broad based we again saw strong performance from our core everyday categories, which continues to bode well for us given consumers rely on party city, most for our everyday core celebratory product.
Our seasonal business performed better than during the pandemic and continues to improve as people return to celebrating seasonal holidays. They didn't celebrate last year.
In Q2, we were particularly pleased with the performance of graduation.
Our teams consistently executed providing the consumer with the Assortments both in store and online in a way that continues to better meet their shopping needs.
We continued to see strong momentum within our digital business digital continues to be a bright spot with digitally enabled sales up strong double digits versus 2019, primarily reflective of digital strength in our core categories.
Our wholesale business has begun to rebound, albeit not as strong of a rebound as retail.
Canada has continued to lag given the more restrictive environment and pandemic related measures. However, the recent easing of restrictions serves well for the gradual recovery and that market.
And at Graham continues to perform extremely well and we're increasing production capacity to keep pace.
From a profitability perspective, we are pleased with the EBITDA increases year on year and versus 2019, as we leverage gross margin and operating expenses on our sales increase.
And finally, we ended the quarter with net debt down approximately $500 million versus last year as we continue to remain committed to reducing debt over time.
On the I'll discuss the progress we made in Q2 on advancing the fundamental building blocks of our transformation strategy, which our product innovation and quality in store experience being celebration occasion obsessed and focus on our north American vertical model.
Starting with product innovation.
As we focus on bringing product freshness and innovation to market, we continue to leverage consumer insights and data to drive our decision.
In 2021, we've reset 5 categories Party favors girls birthday boys birthday and.
And B and solid tableware.
These resets created the opportunity to introduce customer driven innovation that is having a meaningful impact on the performance of these businesses.
And we introduced over 1000, new products across these core categories.
A great example of the innovation I noted is our 20 person tableware kits now available in stores for $20 and our team identified a customer pain point of putting together table settings for larger events.
These new kits provide all her tableware and needs to host a party of up to 20 people with color options that allow her to put her own personal scale on the event at a great value.
We also brought exciting innovation and graduation assortment with new yard signs and it can be personalised, which helped the category grow 16% over 2019.
We're investing and product quality.
Our work to improve product quality and complements our work on innovation.
These improvements are resonating with consumers that new product is delivered.
We're capitalizing on the consumers' desire to purchase better quality across products that can carry higher price points at similar or expanded gross margins.
As an example, we've made improvements to both the product and the packaging for our table where he tensile.
The structural rigidity of the product has improved 26%.
Combat breakage, which is a major frustration point for customers.
Additionally, packaging was upgraded to allow for more convenient storage of any unused product and it's recyclable.
Moving to in store experience in Q2, we opened or remodeled 16, nextgen stores, bringing our total to 57% to date.
We plan to have 41 additional next gen stores by the end of 2021Inc.
<unk> 23, new store openings in Q3, bringing our expected year end total to 98.
We are pleased with the results our nextgen stores are producing as we continued to innovate and refine the prototype.
In fact, our remodeled stores are averaging a sales percent increase of mid single digits compared to their control stores.
Our current pro forma capital spend is approximately $250000 for remodeled store and it is only a $150000 after tenant improvement allowances.
In addition, the more curated assortments lower shelf heights, and more shovel formats allow us to carry roughly $100000 less and inventory, while still generating the higher sales.
Even when assumptions vary from the norm, we generally get payback period of each store of less than 3 years.
Based on the continued strength, we see and our Nextgen store performance lift we remain committed to and aggressive rollout plan in 2020.2 and beyond.
Next being celebration occasion obsessed.
We are on plan and to update all major categories. This year and believe customers will be delighted with the changes we're making.
We remain committed to our plan of introducing an unprecedented level of innovation across all major categories. This year as we strengthen our relevancy.
Each of the resets this year and produce meaningful lift and performance of the category ranging from mid single to strong double digit increases.
As we continue to grow our relevancy with consumers and we're building trust and increasingly becoming their destination for all things celebrations.
Our improved understanding of consumer needs and a stronger integration of data and your processes is accelerating our critical learnings and ability to execute.
Do that and we're focused on growth across key metrics that demonstrate our increased relevancy.
Our seasonal categories are now achieving significantly improved sell throughs, resulting in improved inventory turns and gross margin returns on inventory while exceeding sales plan.
These improvements are driven by greater focus on key items and more curated assortment.
Which improves not only shop ability for the customer, but also improved deficiency for store associates.
The teams are staying disciplined and lean on inventory in 2020, 1 as we invest and our merchandize planning and inventory management functions.
Finally.
Focusing on our North America vertical model.
We continued to leverage our streamline north American vertical model, making ongoing improvements to our integrated supply chain, including increased capacity and our manufacturing plants and improved throughput and our distribution centers.
As you are aware there are broadly discuss supply chain headwinds across the industry.
While we have seen some albeit minimal disruption receipt delays, we are finding alternatives and working through the challenges.
Most importantly, we are ready for the important Halloween season, including new innovation and quality improvements in this important category.
We currently expect a substantial increase and Halloween city stores relative to last year with current expectations of between 80, and 100 stores leveraging the insights from last year.
In terms of our outlook the operating environment remains dynamic. So we are not providing a formal outlook for full year 2021.
Inflationary headwinds are now part of the broader economic landscape and we're managing them at every level of our business.
Rising freight and raw material costs, along with increasing labor wages are incorporated in our forecast.
Our pricing power in both the retail and wholesale markets allows us to meaningfully mitigate rising costs with appropriate price adjustments.
Our detailed pricing analytics and broad marketplace vantage point, including price elasticity at each point of distribution along with our knowledge of the role of each SKU and category in the basket and our test and learn protocols allow us to make highly informed pricing decisions. These capabilities.
And are increasingly important given intensifying inflationary pressures as Todd will discuss.
So in summary.
And we're very pleased with our strong second quarter results and sequential acceleration of the business.
The quarter was highlighted by encouraging trends at retail and online and a recovery well underway at wholesale.
We have demonstrated consistent strength and our core everyday categories for the last 4 quarters, which is a testament to our continued focus and disciplined execution of our transformation strategy and the resulting relevancy strides debt position us well to capitalize on continued growth and demand over the near.
And long term.
As we look to the back half of the year, while the environment remains dynamic we are well positioned for the upcoming Halloween season, and are prepared for a variety of demand scenarios from an assortment and inventory perspective.
Our teams are focused and we are excited about our refined marketing improved go to market position and elevated omni channel capabilities.
And now I'd like to turn the call over to Todd to discuss the second quarter results and our 2021outlook in greater detail.
Thanks, Brad and good morning, everyone.
Today I'll focus on the key highlights of our second quarter performance and then I'll discuss how we're approaching the rest of fiscal 2020.1.
For full details regarding our financial results. Please refer to our earnings press release, and the accompanying slides, which are available on the Investor Relations section of our website.
As Brad discussed we are very pleased with the acceleration we saw in the business and the broad based strength and the second quarter.
Consolidated revenues were up approximately 110% versus the prior year period.
Brand comparable sales increased approximately 118% driven primarily by strong performance and our core categories versus 2019 brand comparable sales increased 19%, including a 28% increase and our core categories.
Additionally, e-commerce delivered strong growth and the second quarter and the percentage of our sales that originated online representing approximately 13, 6% of our mix and increase of 310 basis points versus 2019.
Wholesale revenue from the second quarter increased 33% versus 2020, primarily due to the COVID-19 pandemic impact and the prior year period.
This increase was partially offset by the divestiture of a significant portion of our international operations and the first quarter of 'twenty 'twenty 1.
Excluding the impact and the divestiture wholesale revenues increased 97% versus the prior year period or 1% versus 2019.
Importantly, we were pleased by the improving sales trends, we delivered to our franchise and independent customers and the second quarter as Covid related restrictions continue to subside.
Although it's still early and the recovery we have strategies in place that are focused on driving growth and our wholesale business overall and we're encouraged by the resulting revenue growth.
Adjusted gross margin rate from the second quarter expanded 2100 basis points from the prior year period, and 270 basis points versus 2019.
Driven primarily by sales leverage on fixed costs and favorable product mix, partially offset by increased cost of delivery services and just.
And operating expenses were approximately $151 million and increase of $35 million from the prior year period, and a 1700 basis point improvement, primarily driven by more normalized sales and expense levels.
As a result adjusted income from operations was $69 million compared to an adjusted loss from operation of 65 million last year and adjusted income from operations of $59 million and Q2.2019.
Adjusted EBITDA was $86 million and the second quarter compared to a loss of $43 million in 2020 and adjusted EBITDA of 81.002 million 19, and second quarter adjusted earnings per share was 29 cents compared to an adjusted loss per share of <unk> 66 cents from the prior year period and did.
Adjusted earnings per share of <unk> 22 cents in 2019.
Turning to our balance sheet and cash flow.
Inventory was down 33% year over year, driven primarily by 2 strategic items that we've previously discussed, namely the disposal and seasonal inventory and the fourth quarter of 2020 and order to drive higher in CS and sell through and less annual inventory carryover.
And as well as the international inventory that was sold as part of the international business divestiture.
Together these items accounted for approximately $154 million of reduced inventory, resulting in a year over year decline of approximately 9%. Excluding these 2 items.
We continue to prudently manage our working capital and we expect ongoing opportunities to improve inventory levels.
Year to date through the second quarter operating cash flow improved approximately $63 million versus the prior year period.
Primarily by higher net sales and improved operating income.
We were also pleased with liquidity, which ended the quarter at approximately $269 million comprise.
Comprised of 84 million and cash and $185 million and revolver availability.
In addition, our principal balance of debt net of cash was approximately $500 million lower than the prior year period at $1.26 billion.
Now, let me turn my comments to our outlook.
We remain optimistic about the trends throughout our business and the prospects for continued economic growth.
We also recognize that the macro environment still has a high level of uncertainty given current inflation and COVID-19 trends.
Therefore, we're not providing specific annual sales and earnings guidance. However in todays earnings release.
We did provide our sales and earnings outlook for the third quarter.
And the third quarter, we expect consolidated sales to be approximately $490 million to $515 million with a brand comp sales increase and a high single digit percent range versus the comparable 13 week period, and 'twenty, and 'twenty, where and mid teens percent increase versus the comparable period in 2009.
<unk>.
And lastly, we expect Q3, adjusted EBITDA to be and the range of $35 million to $45 million.
There are a few elements to note relative to our expectations for the third quarter first as a reminder, with the sale of our international operations in January of 'twenty, 'twenty, 1 and the reason impact on our revenue and other financial metrics as we shared previously and Twentymo team the international business generated approximate.
And $250 million and revenue with an immaterial amount of profit.
However for the third quarter modeling purposes. It is important to note that.
And the divested international business generated approximately $80 million and revenue and 6 million of EBITDA during the third quarter of 2019.
Like many in the industry, we are experiencing heightened inflationary impacts on our business and.
Including freight and labor cost headwinds.
With the continued challenges facing all global supply chains, our logistics team has taken prudent actions to ensure high end stock rates for our Halloween season.
We feel confident that we're well positioned to fully support our holiday strategies, but we also expect to incur higher freight costs over the near term.
We are taking additional pricing actions as mentioned earlier by Brad as well as other cost mitigation actions to limit the overall impact on our profitability.
It is also important to note that we expect our pricing actions to offset some third quarter headwinds, but do you have a more significant benefit to fourth quarter results.
While the nature of inflation is still quite dynamic based on our current plans. Our guidance includes the estimated third quarter impact of overall inflation net of our mitigation efforts can be $7 million to $12 million.
Taken together the inflation headwinds and divestiture of our international business is expected to impact our Q3, EBITDA by $13 million to $18 million.
In terms of Capex for the full year 2021.
We now expect Capex spend and the range of $80 million to $90 million up from the previous expectations and $70 million to $80 million with the increase primarily related to capacity investments and supportive anagrams grub.
So in summary, we're really pleased with our second quarter financial and operational performance and remain encouraged by the underlying momentum of the business.
Our team's disciplined execution of our key growth priorities has positioned us to capitalize and the opportunities we see for the business and the back half of the year.
And with that I'll turn the call over to the operator to start the Q&A session.
Thank you we will now begin the question and answer the question.
Ask a question you May press Star then 1 on your telephone keypad.
People are using a speakerphone please pick up your handset before pressing the key.
To restore your question. Please press Star then 2.
At this time, we will pause momentarily to assemble the right.
The first question comes from Rick Nelson from Stephens. Please go ahead.
Mark.
What.
To follow our apartment commentary about July.
Oh.
Hum.
How they're tracking and Burton Shrewsbury high single digit comp.
Mid teens.
Compared to pre pandemic 2019.
And if you'll remember bill less in 2020, Our July and Q3 are our Q3 comps I should say, we're in the high single digits and our trend in Q2 was then.
You know 19% versus 2019.
As I said in my remarks July continues.
To be very strong both on top of 2019 is our trend continues as well as on top of our strong 2020, and and we really attribute that to.
The underpinnings of the transformation strategy that we.
And put into place in addition to.
The strong overall consumer demand debt that we've seen broadly at retail and that's really across all 3 segments of our business retail digital.
And now seeing our wholesale business coming back as we would have been as we said we anticipated.
And the categories to ensure that we're maximizing those so we're extremely bullish we havent pegged and exact number.
For 2022, obviously, we're looking at all of the remodel opportunities as well as new store opportunities as we look ahead to 2022 and.
And beyond our continued desire is to upgrade the majority of the chain over the next several years. So it will be as aggressive as we can.
Thanks for that.
And ask you.
The outlook for Halloween.
We're planning.
And for that to get any insight.
No wholesale operators criminals too.
And what's your customers are thinking about Halloween.
Yes.
We're not we're not going to talk directly to how we're thinking about.
Halloween as it falls in and.
And to the fourth quarter.
Theres a lot of factors.
Fluids.
Halloween.
We have a lot more learnings and customer insights and data relative to prior years, we have a new merchandising.
And store team that has built over the last 18 months.
And that are ready to.
2 that are executing well, leading up to Halloween and excited to get going with this a really fun and important season.
We continue to improve our product assortment and our merchandising.
And techniques in the store, our marketing and our digital content all of which I believe it made real progress over our past.
Go to market strategies, and our investment and proving them on all fronts will certainly increase our relevancy.
In Halloween worse, we're ready for any level of demand as we are sort of and are still in a volatile and dynamic.
<unk>.
Our wholesale outlook relative to Halloween.
And is stable consistent and.
It looks like everybody is sort of feeling the same as we will have to see what.
Consumer participation as an alloy and but we are ready.
Great.
And good luck.
Thank you. The next question comes from William Reuter from Bank of America. Please go ahead William.
Good morning.
The first question was on the 7 to 12 million and the third quarter inflation impact did that include the impact of higher freight costs or was that just on product itself.
Yeah and that was just.
And it includes all the freight cost as well as any inflation pressures on raw materials are based product and.
Our biggest impact for us really is that supply chain.
And the pressure that we're seeing really everybody's seeing.
Yeah, and then given lead times I would imagine you guys have pretty good perspective on what that number might look like for the fourth quarter can you share what that number might look like and I guess are you contracted with regard to your afraid at this point for the second half of the year are you generally purchasing and the spot market.
So at this point, we're not giving Q4 guidance, but I think it's fair to say the pressures that we're seeing.
On the supply chain front have been building during the year. So.
We would expect to continue to see that through the rest of the year and.
Hi.
And everything works, we match up our costs with our inventory flow. So given the timing of Halloween and you are going to see.
A little bit more flow through from those costs. In Q4. We also said we should have better opportunity to mitigate some of those costs with pricing actions in Q4. So both of those 2 things kind of.
Coming together to net out as we get into the fourth quarter.
In terms of I E.
Managing versus contracts.
And those shortages really acute.
From a container perspective from a shift perspective.
So what we're hearing from most retailers as debt.
And whether you have a contract or not youre going to be facing the same pressures and that's fairly well what we are seeing we have contracts in place.
We are still in a position, where we need to look for alternative ways to bring goods in and Fortunately for US we have a strong supply chain team that's been able to get ahead of that and put us in a really good position for Halloween where.
Even though there is cost pressure, we feel good about our in stocks and she'll give that were positioned well from a product perspective for the season.
Okay and then just lastly from me given strong demand during the second quarter. I guess, you mentioned that July continues to go well what is there and impact on third quarter sales from out of stocks currently meaning would your revenue guidance be higher by X percent, if you'd had as much inventories you would like right now.
Listen our you know, there's certainly supply chain constraints and and volatility across categories and it's interesting.
Because we've experienced those even in <unk>.
Q1 and Q2.
Relative to supply constraints and shortages that have been and the market.
As we came out of.
The height of the pandemic and our business is sustained.
Very well through those.
They're spotty.
And 1 covering 1 category recover as well and another 1 may be challenged a little bit, but we do not see any negative impact relative to that and our.
Our <unk>.
July results or.
In Q3.
Great I'll pass to others. Thank you.
Thank you. The next question comes from Joe Feldman from Telsey Advisory Group. Please go ahead Sir.
Great. Thanks, guys for taking the questions.
I wanted to ask you.
About product innovation and and are there other things you can share with us there.
Like you mentioned that now 20 pack tableware, which makes a lot of sense and you manage to get the price down to 20 Bucks and like a buck a person basically.
Can you are there other areas, where there are some big opportunities like that that you are targeting right now.
So these are the things Joe.
The introductions that we made that I talked about were primarily and girls and boys birthday Sabers and.
And candy, we eliminated some nonproductive skus curated some new items.
That really allowed us to gain relevancy with our consumers and and we replaced.
I said old product with new product in many instances those were really glean from just consumer feedback focus groups.
Putting putting product in front of.
Consumers and and really understanding the.
And the sales data as well as the consumer insights and what Theyre looking for where some of the friction points may be in the product, thereby or some of the gaps in the assortment that we have as we look at every single category I can tell you that we are finding opportunities for new innovation, we're finding opportunities.
And to improve our quality and the good news is when we approve our quality, it's either doing it without impacting cost or.
If we do have any cost adjustments and therefore price adjustments.
Our our margin neutral or margin enhancements and their and places that we know based on our price elasticity data and modeling and the consumer is willing to accept a higher price.
To pay for the value, they're getting and the innovation and the quality.
So they've been extraordinarily well received we have some and the pipeline.
And this is just a mindset and how we operate our assortments and our merchants and product development teams.
Really think about their opportunities to to build relevancy.
Okay. That's helpful. Thank you.
And then wanted to ask can you share a little more color on the pricing actions you mentioned that youre planning to take.
Third quarter.
Was that meant to say that you're taking prices up or down or I guess I was a little confused by that statement and.
Areas, you're planning to do that.
So let me start that answer by by state and his I often do that.
And we've been still practices to be extremely price aware and our data and analytics around price elasticity and and basket analysis and the category level and down to the SKU level allows us to make really smart decisions. When we talked in 2020 about our initiatives to stabilize our.
And our retail performance we outlined.
Poor pricing perception as a barrier to being relevant with consumers that work included lowering our prices to be more competitive in most cases, but it did also include taking price increases where the analytics really showed it was appropriate.
So based on that as we address.
Changing prices related to cost headwinds just like we do constantly.
Use a test and learn approach to adjust prices to mitigate those headwinds and a way that makes sense to our customer and our long term growth goals and as I said and our remarks, we have a broad view of the market. So we have the ability to really understand price elasticity throughout the <unk>.
Supply chain.
And as the category defining brands.
We have pricing power that will allow us to find the right pricing equilibrium.
Got it got it okay, and so continue to just optimize on that front that makes sense.
And then you know.
With regard to the supply chain pressures that others have asked about are there any particular categories that you are seeing them and the pressures on her.
And where you can maybe and what the alternatives.
And those areas.
I would use the best way to think about them as.
There are various supply and demand base.
And where our demand has shifted.
We've shifted our ability to get product through our own manufacturing capacity.
Or are sourcing capacity to meet those needs and so we're ramping up capacity, where we have high demand and.
So.
<unk> is really coming.
Through through demand changes.
So you can tell and the categories that we're talking about having.
And the highest level of performance therefore.
Driven by the highest levels of demand are the places where we're really working on capacity to continue to maintain that dominik.
Okay. That's helpful. Thanks, and good luck with the third quarter. Thank you.
Yes.
Thank you. The next question comes from James G&A line.
From Goldman Sachs. Please go ahead, Hey, Gena.
Hi, Thanks for taking my questions. The first 1 is just a follow up on me and inflation headwind for the third quarter and assuming that includes helium, but and if we could just talk about helium specifically how much of a headwind that is for the balance of the year and remind us on hedging.
And any early outlook, how we should think about that for 'twenty 2.
Sure.
So if you.
Looking at our T V and just pure helium cost per cubic foot.
And Q1 and Q2 versus 2019, we were wrapping around on some headwinds there, but as we move into Q3, we're on a much more level playing field, we've got contracted rates for helium.
And I any increases that are and therefore.
And for for helium and put US right back in line with 2019, and so we're not really seeing any inflationary pressures there.
And really would not expect to see any as we go into 2022 either.
So we have gone out and put long term contracts in place.
And we've been partnered with a couple of wells directly and based on that we're feeling.
Yeah.
Secure with the amount of supply we have and the price that we have it at.
Okay, great. Thank you and <unk>.
And then I just wanted to ask about balloons and the store just because it's such an important traffic driver. If we can talk about that for a minute.
And specifically, how you're working through that experience and the store, whether customer service and merchandising location and checkout et cetera and.
And I'm curious, how just the retail balloon sales and customer trends that youre seeing comparing now as we compare back relative to maybe 2019, basically there still might be some upside and and opportunity here in this category and in store.
And our balloon demand continues to be very strong and as we've talked about this as a driver of our of our sales.
This year as well as our highlights of Q3 and in 2000, and we had strong balloon sales throughout 2020 and.
And now into 2021 and <unk>.
You know like to see and love seeing the ongoing demand relative to your to your question around the experience.
In the stores, we continue to focus on the key items and the assortment that is driving those sales and ensuring that we have.
Adequate capacity inadequate quantities to drive those sales is a focus of the <unk>.
Experienced and the store has changed some degree with the.
And the onset of buy online pickup and store.
And balloon delivery, which about both now available.
To consumers that puts a different operating dynamic on the stores that we have.
Adjusted for to make that.
Experience seamless as consumers, both preorder balloons for their parties come in and pick them up.
As well as come in and build a book is a balloons with our sales associates to personalize them further.
Or their own parties.
A lot of the innovation that we brought them to market around larger stand up balloons larger letters and numbers as.
And as well as very topical and seasonal items.
Our are doing well and also our pre made bouquets.
And which we make ahead of time for the consumers for the walk and consumer relative to.
Things that are happening.
In the marketplace at the time, whether Thats graduation, and fourth of July and those types of occasions, we're ready for the consumer and have product waiting for them.
Great. Thanks, so much that's helpful.
Thank you and the next question comes from Hale Holden from Barclays Keith Great. Pease go ahead here.
Good morning. Thank you I just had 2 questions can you remind us the 80 to 100 Halloween stores that Youre planning and how that compares to 2019.
In <unk> and Anthony and we had a profit and.
From 2019, we had approximately 250.
And in 2020, we had 25.
And.
And then I was wondering if you had seen any changes since you talked about July regionally through and you ask where perhaps there might be more COVID-19 outbreaks or if there it was pretty even performance across the country.
Yes. It is.
As cases have increased and and restrictions have been put in place and certain areas, we've not seen and impact to our overall, our overall business and geographies that are being watched closely like Florida as areas of California, the deep south.
We've seen a bit of a slowdown to the increase in these areas.
But the increase in sales over 2019, and those areas are still very strong.
Great good to hear and thank you very much.
Yeah.
Thank you, ladies and gentlemen, I'm just putting another reminder, if you would like to ask a question. Please press Star then 1 if you would like to ask a question Keith Christa been button and the next question comes from Karen Martin from from Jefferies. Please go ahead Sir.
Good morning, and just wanted to circle back on the Halloween inventories. So just so were clear that you are fully in stock and you feel that you have the goods either in transit or and your warehouses or in your stores. So that you are ready for the Halloween season correct.
Yeah. So we have a we have a view of of every every place we have product in.
And the supply chain, we have product and our stores, we have product and our D. C is.
And we have a product on the water and so.
As we look at our in stocks.
Relative to prior years are we can look at 2019.2020.
We're in we're in solid position.
Okay, and then in terms of the wholesale portion that you produce for all and how long do your customers.
Customers need to order in terms of advanced times like when do you get a good read on that traffic.
So the majority of our wholesale orders for Halloween.
Come in anywhere from November to approximately <unk>.
January and February of the prior year.
Okay. So so debt that is already done and so you have a good read on that correct absolutely.
Okay, and then when we look at and <unk>.
Full year.
And our calculation and you should be positive free cash flow. This year can you talk to kind of the day uses you mentioned, adding some capacity and anagram paying down debt.
Where are you prioritizing your uses of cash here.
Absolutely focused on making sure that we can be paying down debt first and foremost has to come funding internal operational growth initiatives. So of course, we're doing that and and.
And making sure that we have the right levels and working capital for the business, but from a pure.
A capital allocation perspective debt.
Pay down is top of the list and and should continue to be.
Thank you very much guys I appreciate it.
Alright. Thank you. Thank you.
Thank you. The next question comes from Michael Okay, and that's from Jpmorgan. Please go ahead Michael.
Hey, good morning, and congrats on the quarter.
Just 1 question regarding any sort of deferred rent during COVID-19 and has that all been repaid on and if not is there any update on how much is remaining.
Absolutely. So I, we still haven't gotten out there and we were really scheduled.
And we paid off over the course of 2021, so we paid another $15 million in Q2.
And we have another $17 million left that will be a really mostly over the course of the second half.
Great. Thank you and just as and second question and guests and any sort of changes the size of parties that are happening or anything that kind of gives color to that.
Yeah, you know, we have places and our basket analysis that we can we can see that and and certainly we are seeing and some of the quantities being <unk>.
Purchase that there is a return.
2 larger quantities of sizes of parties.
Which obviously bodes well for the breadth of product and the average order value and a and a basket, which we're pleased with.
Great. That's all from me and thank you and good luck.
Thank you. This concludes our question and answer fish and I would like to turn the conference back over to Brad Robinson for closing remarks.
Yeah.
In closing, we're pleased with the ongoing momentum and our business.
As we update and improve our product assortments and inventory position, our relevancy with celebration consumers continues to expand.
Our relentless focus on consumer insights as well as both forward looking and performance based data are informing our decision, making and improving our ability to inspire joy and make it easy for our customers to create unforgettable memories.
As we move into the back half of the year, we will continue to make progress on our strategic initiatives to further drive our performance I want to thank you for joining US. This morning, and let you know we will be participating and the Goldman Sachs retail conference in September and look forward to seeing some of you there have an excellent day.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
And.