Q3 2022 Party City Holdco Inc Earnings Call
Yeah.
[music].
Good morning, Good afternoon, and welcome to the <unk> 22 earnings call. My name is Adam and I'll be your operator today.
He'd like to answer your questions. During the Q&A portion of today's call you may do so by pressing star one.
Your telephone keypad I will now hand over to Ian Heller to begins. Please go ahead when you're ready.
Thank you operator, good morning, everyone and thank you for joining us.
This morning, we released our third quarter 2022 financial results.
You can find a copy of our press release on our website at Investor that Party City Doug.
Now I'd like to introduce our executive team who are here on today's call, we have Brad Weston, our Chief Executive Officer.
And Tom Wilkinson, our Chief Financial Officer.
We'll start the call with some 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 future business prospects or future events or plans.
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 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 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's operating and financial results for more information regarding our non-GAAP financial measures 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 Ian good morning, everyone and thank you for joining us today.
We started our strategic transformation work just prior to the pin debit and have continued to make good progress against the key supporting initiatives. Despite the headwinds our industry has faced.
As part of this journey, we focused on bringing all of our business functions together into one P. C. H I fully integrated to focus on the end consumer is the celebrations pace across all of our channels.
Our position in the market is unparalleled and being celebration occasion obsessed has improved our brand relevancy and our revenue trajectory versus the pre transformation period.
Consumers recognize and appreciate our ability to inspire joy and help them make easy to create unforgettable memories and we look forward to our transformation, we're continuing to drive performance improvements and growth over the long term.
For the third quarter, we achieved results that were broadly in line with our expectations against the macro backdrop that has our core customer facing significant inflationary pressures.
In addition, despite these challenges we delivered a flat comp sales retail performance for the month of October and our Halloween revenue was up across the enterprise on top of a strong 2021 Halloween.
Turning to our Q3 highlights.
Overall during Q3, we saw topline results largely in line with expectations generating total sales of $502 million down one 6% from last year.
Our gross margin was in line with our expectations.
We saw continued cost pressures in Q3, as we continued to navigate through the global helium dynamics and increased freight costs.
These temporary headwinds negatively impacted gross margin and adjusted EBITDA by approximately $34 million in the quarter.
Adjusted EBITDA for Q3 was $2 4 million versus $42 4 million last year.
Inventory at the end of Q3 was $746 million or up 43%.
Importantly, the majority of the incremental inventory is replenishment or everyday product.
Doesn't carry markdown risk.
Drilling down further.
Retail sales decreased 1% with brand comparable sales decreasing three 2% or an increase of 11, 2% versus 2019.
Our core categories improved 180 basis points sequentially and continued to perform very well versus pre pandemic.
A number of our seasonal businesses saw a solid performance in Q3, and we were pleased with our results and our patriotic and summer categories.
For the quarter, our overall seasonal sales were up two 8% versus prior year.
Our comparable sales in core categories declined three 7% in the quarter versus 2021, but were up 23, 6% versus 2019.
Compared to 2019, our retail balloon business in particular performed very well up nearly 62% due to the emphasis we put on this category is a key differentiator is our strategy.
Our focus on driving strong improvements to quality and innovation in our assortments as well as thoughtful pricing as we seek to offset higher expenses continues to strengthen sales performance versus the pre pandemic time frame.
Our next Gen stores continued to perform very well.
We opened 15 Nextgen stores in Q3 totaling 174 next gen stores as of the end of the quarter.
These stores continue to average a mid single digit sales increase versus control stores with a run rate that delivers the payback period on each store up less than 24 months on average.
We continue to anticipate ending 2022 with 175 to 180, Nextgen store remodels or openings in the chain.
Customers continue to take advantage of our omnichannel capabilities and the convenience of multiple fulfillment options.
Digitally enabled sales represented approximately 13% of our retail sales in Q3, as we continued to deliver an enhanced customer experience through new digital offerings.
We again achieved a very strong two 9% conversion rate, which we expect to continue to accelerate with continued optimization within our new web platform.
The new balloon builder continues to build momentum our conversion rates and average order value continues to improve as customers increasingly enjoy the experience.
While the demand backdrop in our wholesale business remains relatively stable our wholesale business was down three 6% in Q3 with continued sales strength at Canadian tire offset by declines in the ground as the industry manages the tight helium supply conditions, which I will address further in a moment.
Moving on to October and Halloween performance.
For the month of October comparable sales were flat versus prior year and up 12, 3% versus October 2019.
Given the challenging environment, we are in we're pleased with the results.
Positive Halloween season performance.
Partially be attributed to our strong inventory position going into and throughout the season.
Customers continued to respond to our efforts to improve product quality drive meaningful innovation and create a more immersive Halloween experience.
Our focus on Halloween decor translated into strong sales throughout the season. We're also pleased with our costume accessories performance.
We offered elevated quality and unique innovation in the Halloween category as consumers sought products to make their costumes truly unique and personalized we had a number of strong core everyday categories, including solid tableware candy and categories that complete Halloween baskets, such as cocktail decorations.
Entertaining and lighting.
This year, we operated 149 Halloween city pop up stores versus 90 last year, we continue to test learn and improve to deliver.
A better experience for the customer and remain bullish about our ability to grow sales and profitability of this channel and continue to see the immersive pop up experience is a great complement to our party city stores.
As we said in July .
<unk> in the supply chain and our product flow has put short term pressure on our EBITDA results.
As expected we saw continued elevated freight costs in the quarter, especially as we brought in Halloween product earlier than last year.
In terms of the broader freight market freight spot prices are moderating and well off their recent highs. However, given how our inventory turns we would not expect to see the associated benefit until later in 2023.
Helium costs have increased as global supply has been slower to recover than expected.
As discussed last quarter, we are.
We're in an advantaged position from the helium supply perspective, given the work we've done to diversify our supplier base and enter into multiple well partnerships as well as long term supply agreements that have meaningfully improved our ability to source helium.
Total industry supply however is not returning as rapidly as we would like to see.
<unk> and tight helium supply and some out of stocks through the rest of the industry as well as higher costs for all.
This is impacting anagram sales in the near term, which will impact Q4 revenue and EBITDA.
In addition to these challenges in October our product sales mix with softer performance in our core everyday categories, coupled with positive performance in Halloween resulted in the mix headwind to margin.
Based on our performance to date and with two months remaining in the fiscal year, we are updating our full year expectations.
This updated outlook takes into account third quarter results that were broadly in line with our expectation and October results, including Halloween performance that while positive fell short of our expectations.
And it factors in our expectation that inflationary headwinds will continue to persist over the balance of the year.
Our updated outlook for adjusted EBITDA is between $130 million to $150 million.
Given the broad macroeconomic landscape.
We're intently managing what is in our control.
And intensifying our focus on reducing structural costs and increasing operating efficiencies.
And we've begun implementation of annualized targeted cost reductions of $30 million, which youre.
<unk> to be fully realized next fiscal year. These.
These cost reductions will help offset inflationary expense pressures and the risk of recessionary consumer spending behavior.
Work is underway to drive expense savings across various areas of the company, including retail store efficiencies marketing expenses information technology contracts professional services raw materials.
Logistics and operational costs and corporate payroll.
Additionally, we reduced our corporate workforce by approximately 19%, which includes the elimination of <unk> 73 existing roles and 87 open malls that have not.
That build over the past several months.
In addition, we're continuing to evaluate strategic price increases to offset cost increases.
This intensified focus includes streamlining our organization implementing new ways of driving synergy across our businesses with updated processes and systems more robust and integrated inventory management capabilities, greater supply chain visibility and efficiencies and enhanced capabilities.
The combined all significantly expand our ability to become more demand driven while simultaneously, becoming more efficient and reducing SG&A expenses.
At the same time, we're continuing to move forward in building on our topline momentum and are focused on the growth initiatives with the strongest near term upside and market expansion opportunities, namely.
Continuing store conversions to the next generation prototype.
So in the near term we are moderating the pace of conversions to reflect the current environment.
Delivering more compelling solution selling offerings to our wholesale customers.
And continuing to evolve our Halloween city pop up store channel to drive growth and market share.
To support these efforts, we're making some organizational adjustments to further align with our strategy, including two senior appointments that I will highlight now.
Sean Thompson, our executive Vice President and Chief Commercial Officer has become president and Chief commercial officer of PCA.
Continuing his leadership of our overall commercial go to market strategy, and now, adding marketing and e-commerce to his leadership responsibilities.
We've also hired Peter Smith, as our Chief operations Officer to increase efficiency in our end to end product pipeline, including manufacturing sourcing inventory optimization and supply chain efficiency.
Peter was most recently the executive Vice President global supply chain and Carters childrens clothing.
In closing we are executing on a number of actions to best position <unk> to build on the progress we've made and navigate the continuing inflationary macroeconomic environment.
This means an intensified effort on cost reduction while prioritizing a more focused set of strategic growth initiatives in the near to medium term.
We expect to enter 2023 and this next phase of our evolution as a leaner more efficient organization sharply focused on driving profitable long term growth and value creation through our continued transformation.
And now I'd like to turn the call over to Todd to discuss the third quarter October and Halloween results as well as our 2022 outlook in greater detail.
Thanks, Brad and good morning, everyone.
Today I'll focus on the key highlights of our third quarter results as well as our October and Halloween performance and then I'll discuss how we are approaching the last week of our fiscal year.
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.
We delivered third quarter results that were largely in line with our expectations, including sales that continued to demonstrate strength versus pre pandemic timeframes.
Offset on the bottom line by temporary cost headwinds that pressured profitability.
For the third quarter consolidated revenues decreased one 6% versus the prior year period, primarily driven by.
Continued pressure on retail sales as we lapped 2021 strong performance. In addition to helium driven declines at anagram.
Partially offset by continued growth in the rest of our wholesale business.
Adjusted gross margin rate for the third quarter decreased approximately 420 basis points from the prior year period.
Given primarily by freight labor raw material and product cost increases.
We estimate that these inflationary and supply chain pressures many of which are transitory in nature.
<unk> negatively impacted gross margin by approximately 680 basis points.
Additionally, helium costs in the quarter represented an approximate 100 basis point headwind versus the prior year.
As we previously mentioned, we continue to adjust pricing across the business, which served as a sizable offset to the inflationary pressures in the quarter.
Adjusted SG&A expenses were approximately $173 9 million or 34, 6% with net sales.
A 370 basis point increase versus the prior year, primarily due to higher store labor costs as a result of wage rate growth.
Yeah.
As a result, adjusted operating income was a loss of $13 million compared to operating income of $27 million in Q3 last year.
Adjusted EBITDA was $2 4 million in the third quarter compared to $42 $4 million last year.
And third quarter adjusted loss per share was $1 39 compared to adjusted earnings per share of <unk> in the prior year period.
In terms of tax expense, we recorded a quarterly tax provision in our third quarter results of $195 million.
As we've discussed previously in accordance with GAAP, we apply an annual tax rate to a quarterly income.
The use of the annual rate applied to our quarterly earnings resulted in a $174 million benefit in the second quarter, which reversed in the third quarter, resulting in an abnormally high $195 million income tax expense in the third quarter.
Our year to date tax rate is negative three 6% a much more normalized result.
You can find additional disclosures and our third quarter 10, Qs tax footnote, which we will file with the SEC after market close today.
Now turning to our balance sheet and cash flow metrics inventory was up approximately $226 million or 43% year over year.
As we've discussed given the continued broader supply chain challenges, we strategically brought in inventory early to ensure that we're well positioned ahead of Halloween.
And to rebuild our in stock levels.
Versus last year, approximately $40 million of the higher inventory levels is associated with inflation.
And approximately $67 million was driven by Halloween receipts.
We continue to feel good about the quality of our inventory.
Just increases are in replenishment or everyday categories, such as balloons kids birthday solid tableware.
Which are all largely evergreen in nature and do not carry any meaningful markdown risk as a result.
Year to date.
Net cash used in operating activities was $286 million.
Versus net cash used in operating activities of $74 million in the prior year period.
The higher cash usage was largely driven by an increase in working capital levels as well as the decline in operating results.
Now, let me turn my comments to the outlook.
<unk> for Q3 were at the lower end of our guidance.
October results and positive Halloween performance, while encouraging given the current backdrop.
Well short of our original expectations.
When combined with the challenging operating environment at anagram we.
We believe it is prudent to update our 2022 guidance.
As a reminder, our.
<unk> does not assume any impact from situations, we cannot reasonably predict with any certainty.
Such as Covid variance, increasing geopolitical instability or other macro disruptions.
However, our outlook does include what we've seen so far in terms of the macro backdrop, along with the mitigation measures that we've put into place.
For fiscal 2022, we now expect net sales to one 4 billion to $2 $1 9 billion or a change of approximately negative 1% to positive 1% versus 2021.
Brand com and the range of approximately negative 3% to negative 1%.
GAAP net loss of approximately $199 million to $184 million.
And adjusted EBITDA of approximately $130 million to $150 million.
In terms of capital expenditures, we now expect our 2022 spend to be in the $90 million to $100 million range or approximately 60% to $70 million net.
Tenant improvement allowances.
And lastly.
We expect to complete between 80% to 85, New next generation stores in 2022.
Our 2022 guidance assumes $90 million and cost headwinds from incremental supply chain costs.
Inclusive of higher freight costs into marriage.
<unk> million dollars in incremental material input costs.
$20 million of higher helium expense all against 2019 levels for a combined headwind of $160 million.
While we still believe many of these headwinds are transitory.
Current macro backdrop makes it difficult to predict when they will alleviate.
Please note that each of these cost pressures are embedded in the underlying cost of the related inventory, meaning that items like freight are included in our current inventories and even if near term freight costs decline.
The elevated costs from earlier in 2022 will be a headwind well into 2023.
Until the underlying inventory is sold.
Combined with an expectation that the inflationary pressures our core consumers facing will make her a choppy demand environment as we head into 2023.
We've taken certain cost actions in anticipation as Brad outlined.
Let me now turn to liquidity.
We ended the quarter with $122 million in total liquidity comprised of $30 million in cash and $92 million of revolver availability.
At quarter end, we had a principle balance of debt net of cash of $1 67 billion.
Our cost actions will drive approximately $30 million in annualized savings improving our liquidity position as we navigate what could be a challenging macro environment in 2023.
So in summary.
We're pleased with our third quarter results, which were largely in line with expectations and we were able to drive solid October and how we'll lead performance in this difficult inflationary environment.
The operating environment remains challenging with temporary but persisting cost headwinds and the consumer is feeling the effects of the significant inflationary pressures.
We're taking actions to streamline our organization and align our cost structure as we position ourselves to continue to navigate the current environment.
This combined with our strategic growth initiatives.
Gives us confidence in our ability to continue to execute against our transformation strategy as we increase our relevancy for all things celebratory.
With that I will turn the call over to the operator to start the Q&A session.
Thank you as a reminder, if you'd like to ask a question on today's Q&A session. Please press star followed by one on your telephone keypad now.
To ask a question. Please ensure your headsets fully put in and that Youre on mute locally.
I quickly wanted to ask a question.
And our first question today comes from William Reuter from Bank of America. William. Please go ahead. Your line is open.
Good morning.
The first is in your prepared remarks, you discussed potentially taking some additional strategic price increases I guess can you discuss how you feel that you are currently priced in or maybe which items you may have greater ability to take further price increases.
Yes consumer reaction to prices is very dynamic so.
We're constantly testing pricing, we do enough. So that we have a really good understanding of price elasticity at the category and SKU level as well as competitions.
Pricing and we've been encouraged by our pricing power, but as you can imagine we're also being Judy.
Judicious in this.
Environment so.
We continue we're willing to take price actions now and in the future. In fact, we took a number recently.
Our view of price elasticity demonstrates that.
Have a positive dollar profitability.
Impact.
We like to focus is where is the least the elasticity.
Often that comes through where we are.
Competitively priced.
Where we're able to differentiate in the marketplace, because we provide a very unique experience to consumers.
Got it.
Then Todd when you were discussing gross margin you mentioned transitory costs of 680 basis points and then later you referred to transitory but persistent.
Challenges here I guess and then you I think that's something that can be difficult to figure out when things will go away but.
At a minimum I would expect that some of these will have gone away a year from now do you have any sense, whether maybe that could be half of that 680 or any kind of an early estimate for us to try and start to help.
Our next model for next year.
Sure so.
I think you got the point that a lot of those costs are embedded in our inventory now so.
Surely rollout immediately they roll up as much drilling inventory rolls out which.
Depending on the category can be fairly quick or it can take a good chunk of 23 to two rollout.
But when we look at the things that are most likely to provide cost.
Released.
Probably freight transportation come to the top of the list we're already seeing.
Spot market rates in the freight market that are favorable to where we would have been.
Call it six to nine months ago.
And so that's encouraging.
Encouraging.
The rest of the cost actions are just frankly, a little bit difficult to predict at this point.
So we will have to work through the beginning of next year.
Measure those as we make progress.
Okay, and then lastly from me your inventory was up $226 million you were helpful in giving us what component of that was due to inflation.
I guess, you said you feel good about the inventory by two questions here number one there have been some years in the past where you had the end of your markdowns are.
<unk>.
Right down should we not expect that this year and then two is there any who can help us think about how your inventory numbers may come down over the next year.
Sure so.
First.
You are right. We did not have any intention of having a large inventory write down this year. The inventory that we have on hand is.
Virtually key item this is fresh inventory.
Some of the cost $40 million is just pure.
Not units is just your installation costs.
We had $67 million that was related to Halloween again.
Any Halloween inventory that is carryover is going to be key items.
We'd expect to cover next year.
So.
Largely we are feeling good about the quality of our inventory.
Largest increases really are in categories like balloons birthday solid tableware.
Largely evergreen in nature and it just doesn't carry a meaningful markdown risks as a result so.
So we would expect as we go into next year. The net working capital is going to be.
Source of cash for us as we do work through this inventory.
How much is something that will probably be talking more about as we get into 2023 guidance on our next earnings call, but this deal of our past.
Inventory write downs.
Right.
I have been around seasonal product.
So our practice now is that we can liquidate all of the inventory, we do not want to carry forward with a normal.
Operating seasons, which is very different.
And our fundamental change.
Management team has implemented successfully too.
To ensure that we don't have those seasonal product challenges at the end of any given year.
Brad and Todd Thank you.
Thank you.
The next question comes from Joseph Feldman from Telsey Advisory Group. Please go ahead. Your line is open.
Yeah, Hi, good morning, guys.
Quick questions for you so with regards to the core business.
Where do you think is driving the slowdown I mean, I get the economy, but.
Little kids still haven't birthday parties.
Our have gathering slowed relative to last year I'm, just kind of wondering why you think the.
Why it has been slower.
No I think the biggest issue is we did see a significant surge in those everyday categories in 2021.
Coming out of the pit.
Thanks.
Period so.
The thing to keep in mind is our career within categories.
Drivers of 2021.
Celebrations.
Or if you compare them to 2019 or pre pandemic levels, our core everyday categories are over over 20%.
And so very strong versus that that time period.
In stocks continue to improve as the inventory has come in and our positions on key items is.
Approved which would set us up better I think there is always a little bit of change in consumer demand around.
Their behavior around parties and how people will celebrate the good news is they are they are celebrating.
And our balance our seasonal categories have come back.
Quite nicely.
Got it got it thanks and then.
Can we with regard to the helium cautions.
I guess.
Sure.
Can you dive a little deeper into what's going on there because I guess I was under the impression that you guys have very good supply because you've partnered with wells like you said and you have good supplier partnerships as backups.
My understanding was you wouldn't happen to be buying too much of a spot price. These days so.
Maybe you could share a little more thought there and also whats driving the shortage worldwide.
That's I know, it's impacting medical devices.
Just curious what youre seeing thats going on there.
Yes.
We can take a little bit of a holistic view to those helium questions for pretty city stores the supply has improved.
Fortunately in relatively good position from a supply standpoint, all of those players coming in.
And a bit higher cost than last year and as we stated last quarter. The US Bureau of land management plan is now up and running which has improved our supply.
In Qatar plants resumed operations after being taken offline for maintenance in the beginning of the year. It was two things <unk> and.
The impact as we've discussed through the first part of the year and it did impact.
Where we bought spot in there a bit.
In Q2 for Q1 and Q2 for graduation.
Not had to purchase in the spot market since then.
The total global supply is not returning as rapidly as we would like.
<unk> is in tight supply.
Some out of stocks for the rest of the industry as well as higher costs.
For auto.
'twenty two is expected to be a year of.
Transition from tighter supply the ample supply due to the start of production.
From Gazprom in Russia, which has the potential to increase global helium supply roughly third.
But after a brief start up in September of last year that plant experienced a fire in an explosion and thats not the helium production facility out of commission.
And Unfortunately, we did not have a view of.
When that facility will be back up and running and while that is not a facility.
Wood supply.
Pretty city or necessarily the broader U S industry.
It does have a significant impact on the global supply because there are countries that wood supply.
From that factory.
Okay. Thank you and then I mean, presumably you guys are able to take advantage of that you have the supply in.
Demand for balloons down it sounds like Youre balloon businesses, Okay at the core party city stores or did I not hear that right.
So we are it is advantaged.
Position really.
Given the work that we've done to diversify our supplier base and enter in.
To a number of well partnerships and we have long term supply agreement. So that's meaningfully through our ability to source helium.
<unk> are pretty city stores.
The challenge is Ruby elsewhere.
Elsewhere in the market.
Okay. Okay.
And then.
One last one from me just with regards to Halloween.
I'm just curious what you guys saw from a competitive standpoint was Halloween broadly below expectations or was it more just you guys were a little disappointed it came out at the low end.
We've heard.
Anywhere from.
Somewhat positive to lackluster, we don't have to read on.
Competition, yet we do continue to see.
Online competition improves the experience, particularly around selling.
Costumes in a bag.
Rounding out the costume looks with accessories, and an easy to shop easy to purchase.
Mid <unk>.
But.
Up to this point, it's still relatively early.
Generally speaking competitors looked pretty consistent to the way they looked last year promotional activity was relatively.
Similar to last year, and so we've heard very mixed results.
Yes. Thank you good luck guys this quarter.
Sure.
Thanks, Joe.
The next question comes from call remarks from Jefferies. Currently your line is open. Please go ahead.
Good morning.
So I wonder if I look at the cost headwinds that you had $160 million in total that's up about $10 million from last quarter, but guidance is down 40% to $50 million.
Is that delta that we're looking out for the rest of that mess.
Yes.
Yes, Chris.
It's really sales driven so we have a combination of things going on in the sales front where.
Q3 sales came in at the lower end of expectations.
How do we.
We went in with.
With positive expectations, particularly around our east.
Susan Halloween city.
Franchise.
And Halloween city, both performing better than.
Maybe historical averages as we go back to prevent that pandemic times or even back to 2020 times.
Hi, good.
Definitely was lower than our expectations over the last year and so.
We are reflecting that and then any ground.
Yes.
With.
Hey, Liam.
By being what it is in the market in general that just creates a little bit of demand pressured for Alameda for Grand.
Grand balloons.
Being a manufacturing facility any shortfall in sales was through very quickly to the bottom line at anagram.
Okay.
This is the third guidance revision this year I mean, what are the elements of this business that you feel you have control and visibility over and kind of where are you dependent on outside forces and how much confidence do you have in that $130 million to $150 million.
Target with one quarter to go in the year.
Yes, I think.
<unk>.
Certainly overall demand this year has been unpredictable and I think you've heard that from a lot of retailers.
And so that that has created.
We'll see.
Exactly.
Where this where the overall.
Guidance should come in.
But in addition, we've just seen a lot in the way.
And supply chain pressures, probably beyond what we would have initially.
Forecasted going into Q4, the benefit we have of having only two months left in the quarter as well.
No.
Cost increases are built into our inventory currently so we have the ability to.
Forecast that with some level of comfort.
Then.
Majority of the quarter at this point.
With 50%.
So Halloween October are significant volume months.
Okay.
That does now that we're through that give us a lot more visibility into where we're going to end up from a top line perspective.
So a lot more confidence in that $130 million to $150 million for the full year.
Okay, and then just lastly, when we look at liquidity to $122 million today or at the end of the quarter, where are we today with the kind of the Halloween working capital release.
How do you feel about liquidity with the 23 million.
Majority of those six seven and eight notes.
<unk> III coming up.
Yes.
Yes, so in terms of as Halloween inventory.
We actually did manage to have.
Reasonable sell through so we're.
Better position than we would have been really any of the years 2020 and prior.
Last year was extraordinarily tight for Halloween as you recall, there were a lot of supply chain disruptions, but taking.
Taking that kind of anomaly aside.
We actually ended up in a position where Halloween inventory is.
Better than we've seen historically and in particular better on.
Inventory that has.
A good sale ability it's really good.
As you can have an everyday items in our seasonal category there everyday key items that.
We would expect to carry in next year's assortment.
That I think is a positive and generally as we look at it.
As we look at it.
The entity.
Number of levers that we continue to grow working capital will be.
The benefit to US next year as we work through some of our inventory.
We continue to have the ability to manage capital and risk.
Capex expense and then you've heard some things today around cost discipline.
Announced.
$30 million in savings.
We clearly are focused on how we run the business efficiently.
And so that provides us opportunities on the cost side.
As you've seen from us in the past.
We continue to be open to it.
We're actively looking at.
Alternatives for financing and so.
We do have a lot of levers out there and we continue to manage those levers proactively.
Thank you very much guys I appreciate it.
Yes.
The next question comes from Carla Casella from Jpmorgan. Please go ahead. Your line is open.
Hi, Good morning. This is Mike on for Karl Thanks for taking my questions. Once we had was it sounded like one of your earlier question that you said it.
Trillium supply your party city stores was.
I'm pretty good position is there any differentiation of that versus I guess generically anagram anagram type customers.
So I think embedded in that.
<unk> previous answer is that.
How we manage our overall <unk>.
Apply our individual.
Contracts and the things that we've done to ensure our party city.
Retail stores are in good helium supply have all benefited us.
<unk> customers rely on.
Similar network, but.
Acquire helium.
<unk> been a bit different.
In a different fashion different contracts different.
Rangers in those so those customers have been.
More greatly impacted.
By the challenging supply conditions across the industry and globally, which is.
Has put pressure on their ability to sell products to consumers to customers their customers who have lapsed helium.
Got you Okay. Thank you and then I don't know it doesn't disclose what percentage of anagram sales actually go into those party city stores versus I guess third party.
We have generally.
In the past that pretty city as an advisor to 40% of anagrams total sales. So integrating this had a significant amount of third party business there.
Thank you.
And have you guys said, what the cost of helium today is kind of looks like.
Versus pre pandemic and pre kind of a spike we saw in 2019.
This is certainly higher.
So.
Pre 2018.
Two.
2019, 2020 type levels, we saw.
It's pretty significant step up in the amount are priced.
And then now with the shortage in the industry spot rates for helium is an UN contracted rates for EMEA ever.
Coming under more pressure.
Similar to earlier mentioned.
Overall cost pressures that we saw in 2022 and helium cost.
Has gone up in terms of cost pressure for the year by about $10 million versus what we would have seen previously.
And that is indeed.
Some of those costs.
Are flowing through that we're having to pay the two.
Be able to put ourselves into a good position from the slides edition on helium.
Thank you and sorry, the last one from US have you guys thought about.
Any ability to raise debt at danaher, unbox and refinancing up those.
First lien second lien notes.
Yeah.
Probably not appropriate to.
Yes.
Hey, Bob says about what might be out there I think we have shown that.
We're active in looking at what options are.
We continue to have an open to listen but.
I wouldn't want to get too far in terms of.
Talking about any any specifics.
Great that's all from us thank you.
Again.
Our final question today comes from Hale Holden from Barclays. Please go ahead. Your line is open.
Hi, Good morning, Thanks for taking my call I had two questions. The first one is.
You implied for next year.
The number of next Gen stores would be lower.
I was wondering what youre thinking on that or how much you were pulling back versus the prior plans.
Yes.
Yes.
We'll moderate pace for Nextgen store openings and Remodels.
Really given the broader volatility in the macro environment.
We'll be disciplined.
Capital expenditures in light of the macro.
Macro challenges and so.
It's too early to really tell exactly where it will come in on Nextgen stores.
Remain we continue to be pleased.
With the performance the performance is similar to what we discussed.
Previous quarters, and Thats delivering mid single digits.
Increases or lift over control stores.
And continuing on from a cost perspective.
To provide feedback that is within 24 months across the average average store Nextgen store.
Too early to tell for next year.
Great. Thanks, and my second question was.
On anagram and helium supply for.
Retail partners that you sell into.
Hi.
Is it sort of your impression that the decline there is all helium driven or is it potentially consumer driven or.
Lower baskets and consumer buys.
So our our based on our balloon business at party city retail stores.
Which is very robust versus pre pandemic levels.
To be a mainstay of our overall everyday category.
And.
A differentiator for us in the market and traffic driver.
We believe we're well positioned.
But also realize that our perspective is.
It's based on that performance, it's more a lack of helium.
Availability to those.
For those customers of the inner ground.
It is any type of slowdown.
<unk>.
Demand at least that's our perspective.
Based on our party city stores.
Okay. Thank you very much I appreciate it.
Okay.
This concludes today's Q&A session. So I'll now hand back to <unk> question for concluding remarks.
Thank you operator.
Credibly proud of our teams.
You need to rise to the challenges created by the market volatility over the past few years <unk> managed through a rapidly shifting business environment.
Of which has been beyond their control.
I recognize the hard work and resilience of the entire <unk> team.
Dedicated to our customers and the success of our business have a great day.
This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
Yeah.