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Party City Holdco (NYSE:PRTY)
Q1 2021 Earnings Call
May 10, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, everyone and welcome to the Party City Q1 2021 earnings conference call. [Operator instructions] At this time, I'd like to turn the conference call over to Ian Heller, vice president and deputy general counsel. Please go ahead.

Ian Heller -- Vice President and Deputy General Counsel

Thank you, operator. Good morning, everyone and thanks for joining us. This morning, we released our first-quarter 2021 financial results. You can find a copy of our press release on our website at investor.partycity.com.

Now, I'd like to introduce you to our executive team who are here on today's call. We have Brad Weston, our chief executive officer; and Todd Vogensen, 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 reconciliations from those directly comparable GAAP measures, please refer to our earnings release. And with that, I'll turn the call over to Brad Weston.

Brad Weston -- Chief Executive Officer

Thank you, Ian. Good morning, everyone and thank you for joining us today. I'll start by reviewing our financial and operational results for the first quarter of 2021 and then discuss our progress and plans around our purpose to inspire joy and make it easy to create unforgettable memories. We will deliver on this purpose through advancing the fundamental building blocks of our strategy.

Todd will then elaborate on our financial results and provide some thoughts on how we're approaching the remainder of 2021. We are pleased with our first-quarter performance with consolidated total sales up 2.7% on a constant currency basis to $427 million. As a reminder, we anniversaried the onset of the pandemic and subsequent store closures late in Q1 when social gatherings were suppressed for a significant portion of the quarter this year. To that end, we are enthusiastic about how the business transitioned post-Christmas with a strong New Year's Eve performance and the cadence of our business improving as we move through the quarter.

Compared to 2019, March was the strongest month, and this momentum carried into April. The strength in the business was broad-based with continued strong performance from our core everyday categories and better-than-expected performance from our seasonal categories. I am pleased with how our teams are executing against our strategic priorities and navigating the challenges of the environment, including tight supply chain conditions. For the quarter, retail sales were $333 million, with brand comparable sales increasing 35.9% and up 0.4% relative to 2019.

Our core business was up 11.2% in the quarter versus 2019, allowing us to drive sales in the quarter that is traditionally heavy in a variety of unique in-person parties and celebrations for adults and children. Despite suppressed social gatherings for the vast majority of Q1, we were encouraged by our better-than-expected seasonal performance, including Super Bowl, Valentine's Day, 100 days of school, Dr. Seuss Day, St. Patrick's Day and Mardi Gras, among others.

Digitally enabled e-commerce sales continued to perform very well, with healthy double-digit growth both year over year and versus 2019. Stores are the hub of our omnichannel business and strategy, with balloons fundamental to the overall experience. The percent of our sales that originated online represented 14.3% of our mix in Q1, an increase of 440 basis points versus 2019, knowing that broadly across retail the majority of shopping trips start online today, we're focused on leveraging our full omnichannel model and the strength of each of our channels to provide customers flexibility and the convenience of multiple fulfillment options. Our overall wholesale business was down 15.8% in the quarter, impacted by the January 2021 sale of a substantial portion of our international business and the smaller impact from the 2020 exit of our gifting business.

Excluding these two factors, the wholesale business was essentially flat to prior year despite the challenges of the pandemic on celebrations, especially in markets like Canada, which is an important market for us and remains largely shut down. Importantly, Anagram continued to have solid results in Q1. Much like our retail business, we were very encouraged by the sequential improvement in wholesale performance versus 2019. January and February felt the impact of soft franchise and independent channels, but March and April improved dramatically.

From a profitability perspective, we saw strong flow-through on the sales increase, as you can see from our adjusted EBITDA performance. Despite the impact of the New Year's Eve shift into Q4 2020, which was $9 million to adjusted EBITDA, we generated adjusted EBITDA of $32.4 million in Q1. And from a balance sheet perspective, as previously announced, during Q1, we refinanced our term loan, which was set to mature in 2022, extending our next meaningful maturity to 2025. I'll now discuss the progress we made in Q1 on advancing the fundamental building blocks of our purpose to inspire joy and make it easy to create unforgettable memories, namely product innovation, in-store experience, being celebration-obsessed and focusing on our North American vertical model.

Starting with product innovation. As we focus on product innovation, we are continuing to leverage consumer insights and data as we reinforce our position of authority when it comes to celebrations. Throughout 2021, we will introduce an unprecedented level of innovation across all of our major categories. A great example is our birthday favors category.

Through a detailed understanding of the consumer, we successfully repositioned this category, injecting innovation to accurately reflect the giftable items moms are seeking for their parties. While early, we are pleased with the initial results. Investing in quality. Complementary to our work on innovation is a relentless focus on leveraging consumer and market insights to elevate our assortment quality.

Our opportunity is to deliver better quality across products that can carry higher price points at similar or expanded margins. We're beginning to see these improved products resonate with customers. As we saw recently for our Easter program, we upgraded the quality of our wearables assortment and significantly beat our sales and sell-through plans. Moving to in-store experience.

As expected, In the first quarter, we opened or remodeled 19 next-gen stores, bringing our total to 41 to date. Currently, results are providing strong ROI. And as a result, we're planning to open another 16 next-gen stores in Q2, totaling 57 by the end of the first half of this year, with the targeted payback period on each store of less than three years. We will continue to execute next-gen stores with new stores and remodels throughout the back half of this year.

And we continue to assess the long-range plans for conversion of the majority of our store fleet, which we will be able to accomplish within our historical annual capital spend range. We continue to be pleased with the performance of core categories, entertaining, birthdays and balloons. As I mentioned earlier, 2021 will see unprecedented levels of innovation and quality upgrades throughout our assortment. This is the result of better understanding consumer needs and a stronger integration of data in our processes.

We will be updating all major categories this year and believe customers will be delighted with the changes we're making. The innovation and quality product upgrades being made will impact both our next-gen stores as well as our existing stores, strengthening our relevancy and overall shopping experience. After making adjustments to our seasonal assortments in 2020, this year is off to a good start. We intend to stay disciplined and lean on inventory in 2021.

We've invested in our merchandise planning and transportation teams, which has driven a significant improvement in our sell-through performance and inventory turns in key seasons while achieving sales targets. Finally, focus on our North America vertical model. We continue to leverage our streamlined North American vertical model. Our improvements to our supply chain remain a work in progress, and we will provide updates as we have some to share in subsequent quarters.

As you are aware, there are broadly discussed supply chain headwinds across the industry. As a result, we have seen some, albeit minimal disruption and receipt delays. However, we're actively finding alternatives and working through these challenges. In terms of our outlook, the operating environment remains dynamic, so we're still not providing a formal outlook for the full year.

That said, we're pleased with the momentum we have seen quarter to date. And Todd will discuss the specifics of our second-quarter outlook shortly. We are confident in our overall positioning as we head into the summer and graduation season, and we're focused on the right priorities to fortify our industry-leading position as life begins to return to some sense of normal and in-person celebrations gradually resume. So in summary, I am pleased with how our organization is executing, as is reflected in our financial performance and the progress we're making against our strategic priorities.

And now, I'd like to turn the call over to Todd to discuss the first-quarter results and our 2021 outlook in greater detail.

Todd Vogensen -- Chief Financial Officer

Thanks, Brad and good morning, everyone. Today, I'll focus on the key highlights of our first-quarter performance, and then I'll discuss how we're approaching the rest of fiscal 2021. For 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're pleased with our first-quarter results and the broad-based strength in our business trends.

As I mentioned on our last call, the 53rd week in 2020 shifted a significant portion of New Year's Eve sales into the fourth quarter of fiscal 2020, which would otherwise have fallen in the first quarter of fiscal 2021. This resulted in first-quarter headwinds of approximately $32 million in sales and $9 million in EBITDA compared to last year. Please also note that our first-quarter results include the impact from the divestiture of our international wholesale and retail operations, which closed at the end of January. With that in mind, for the first quarter, consolidated revenues were up 3.1% versus 2020.

Brand comparable sales increased approximately 35.9%, driven primarily by strong performance in our core categories, which were up 49% in the quarter. Versus 2019, brand comparable sales increased 0.4%, including an 11.2% increase in our core categories. Wholesale revenue declined 15.8% on a reported basis versus first-quarter 2020 and 29.6% versus 2019, primarily driven by the January sale of our international operations. Anagram, our balloon manufacturing business, continued to deliver strong growth with a 49.7% increase in domestic third-party revenues.

In Q1, Anagram's growth was offset by pockets of softness in the remainder of our wholesale business. Sales into Canada declined sharply due to government-mandated lockdowns, which continue to be in effect and will be a headwind for the near term. The balance of our wholesale segment was down 20% in the first quarter, driven primarily by declines early in the quarter. We're encouraged by improving sales trends with our franchise and independent customers in March and April as COVID-related restrictions continued to lift, similar to the change in trends we've generated in the retail segment.

Adjusted gross margin rate for the first quarter expanded 200 basis points from the prior-year period, primarily due to favorable product mix and fewer retail sales promotions, partially offset by increased costs in delivery services. Adjusted operating expenses were $138.8 million, a decrease of $9 million from the prior-year period and a 320-basis-point rate improvement, primarily driven by disciplined expense management and leverage on higher sales. As a result, adjusted income from operations was $14.7 million compared to an adjusted loss from operations of $7.3 million last year. Adjusted EBITDA was $32.4 million, compared to $11.9 million in Q1 of 2020.

And adjusted net loss per share was $0.05, compared to an adjusted loss per share of $0.28 in the prior-year period. Now, turning to our balance sheet and cash flow. Inventory was down 32% year over year, driven primarily by two strategic items. First, our previously disclosed $88 million disposal of seasonal inventory in Q4 of 2020 in order to drive higher in-season sell-through and less annual inventory carryover.

Second, $66 million in international inventory that was sold as part of the previously announced international business divestiture. We continue to prudently manage our working capital, and we expect ongoing opportunities to improve our inventory levels. Q1 operating cash flow improved by approximately $25 million versus prior-year period, driven primarily by higher net sales, improved operating income and favorable working capital changes. We're also pleased with where we ended the quarter with a liquidity position of approximately $213 million, comprised of $84 million in cash and $129 million in revolver availability.

Our principal balance of debt, net of cash, was approximately $457 million lower than the prior-year period at just over $1.3 billion. As you're aware, in February, we completed the refinancing of our term loan that would have matured in 2022 by the offering of senior secured notes, the transaction, which emphasizes our focus on strengthening our financial health and flexibility. Importantly, we now have no meaningful debt maturities for over four years. Let me now turn my comments to our outlook.

We remain optimistic about the prospects of the sustained economic recovery in 2021 and the eventual return to normal. However, we recognize the business risks remain elevated from the COVID-19 pandemic. So given these factors, in the interim, we are not providing specific annual sales and earnings guidance. However, in today's earnings press release, we did provide our sales and earnings outlook for the second quarter.

In the second quarter, we expect our consolidated sales to be approximately $475 million to $490 million, with the brand comp sales increase in the 92% to 97% range versus the comparable 13-week period in 2020 or a mid- to high single-digit increase versus the comparable period in 2019. Lastly, we expect Q2 adjusted EBITDA to be in the range of $60 million to $70 million. For 2021, there are a couple of unique items that will impact our performance, which we just wanted to highlight for your modeling purposes. As a reminder, with the sale of our international operations in January of 2021, there will be an impact on our revenue and other financial metrics.

As we shared previously in 2019, the international business generated approximately $250 million in revenue with an immaterial amount of profit. However, for modeling purposes, 2019 EBITDA for the divested business was slightly more skewed toward Q2 and Q3. And lastly, as mentioned on our last earnings call, we still expect transportation cost headwinds, net of our mitigation work, of approximately $8 million to $10 million for the remainder of fiscal 2021. So in summary, we are extremely pleased with our financial and operational performance in the first quarter.

And we believe the overall strength of our business and progress against our initiatives positions us well for the remainder of the year. And with that, I will turn the call over to the operator to start the Q&A session.

Questions & Answers:


Operator

[Operator instructions] And our first question today comes from Seth Sigman from Credit Suisse. Please go ahead with your question.

Seth Sigman -- Credit Suisse -- Analyst

Hey, everybody. Good morning. Great quarter and nice progress. I'm curious, obviously, Party City is positioned to benefit from the reopening across the country.

I'm more curious about market share performance, specifically in March and April. Do you feel like the improved execution and the many strategic initiatives that's helping you take more than your fair share? And how are you thinking about that? Thank you.

Brad Weston -- Chief Executive Officer

Thanks, Seth. We certainly saw an uptick in our business as we mentioned in March and April versus January and February. What we try to keep a close eye on is the difference between our core business and our seasonal business. Our core businesses remained strong, even through Q3 and Q4 of last year and into Q1 of this year, and that has been a tremendous focus for us.

And we feel like we're doing really well from a market share perspective. Our seasonal businesses have continued to beat our expectations. They've gradually improved through Q3, Q4 and into early spring. So really anticipate that as we -- things open up, people start returning to normal celebrations that we'll continue to see that trend.

Seth Sigman -- Credit Suisse -- Analyst

OK. All right. That's great. And then my follow-up question is around the flow-through of the business.

For Q2, you are guiding to higher sales versus 2019, which is encouraging, but slightly lower adjusted EBITDA margin. I think, Todd, you mentioned international and maybe transportation costs as part of that. Any other drags that we should be thinking about here versus 2019? And how do those ease I guess as we move through '21?

Todd Vogensen -- Chief Financial Officer

You captured the big ones. We had mentioned last quarter that the results are just a little bit of helium cost pressure when we look back versus the last couple of years. That normalizes as we get into Q3. And then omnichannel costs, there's a little bit of delivery costs that is embedded in the model.

And those normalize as well as we get into -- well, as more volume picks up into those categories. So those are really the biggest things that we look at. Truthfully, we've set up that cost structure so that we -- we're in a position with our occupancy where we can gain leverage really quickly, where our costs are -- had been reset, say, at the wholesale level and the manufacturing levels. So the flow-through on incremental sales should start to be very strong particularly as we get into the second half.

Seth Sigman -- Credit Suisse -- Analyst

OK, that's great. All right. Well, thank you very much.

Todd Vogensen -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Rick Nelson from Stephens. Please go ahead with your question.

Rick Nelson -- Stephens Inc. -- Analyst

Hi. Good morning. So perhaps any insight into how you're planning from fourth-quarter Halloween 2021? You mentioned some supply chain challenges. How significant those are to date and your expectations as to how you mitigate those challenges.

Brad Weston -- Chief Executive Officer

Yeah. Thanks, Rick. There's still a lot of unknowns for the back half, hence, not providing guidance. With regards to Halloween, we learned a lot last year.

We made additional refinements to our go-to-market strategy across our assortments, our in-store merchandising, our digital experience and marketing based on those learnings that are really designed to improve our results. So for everything in the back half, including Halloween, we've positioned our bias to prepare for a range of results. So we're confident that we've planned and positioned our inventory appropriately. And if consumer behavior continues to show the sort of rebound of celebrations and social gatherings, then we're positioned really well.

With regards to your supply chain question, this is obviously broadly discussed issue in the industry. It's hard to say exactly how long it's going to last. However, one thing I would want everybody to note is that we were making supply chain investments to really help mitigate any circumstances that were coming. We were also working really hard on driving more efficiency into our supply chain before we entered this more difficult environment and so as we drive our vertical model.

So we are already focused on opportunities to really take time and cost out of the system, all of which are really mitigating any challenges. And thus far, we've only seen minor disruptions. We feel good about the positioning relative to delivery on Halloween as that product leaves ports, gets on the water and have scheduled arrival. So we're feeling positive about that.

Rick Nelson -- Stephens Inc. -- Analyst

I also would like to ask about the next-gen stores, how those are performing from a comp standpoint, the economics compared to the rest of the chain.

Brad Weston -- Chief Executive Officer

Yeah, I'll speak to the top line and Todd can talk a little bit about what we're seeing in capex. The next-gen stores are outpacing comp growth in the balance of the chain. And balloon comp growth continues to be about double on the balance of the chain with quite a bit higher balloon sales penetrations. When you think about the fact that we didn't really open the first one until last summer and the small number by the time we got into the fall season, we're pleased with what we're seeing in terms of performance, the returns we're seeing and the customer reaction, which is really supporting our decision to expand.

We're still learning a great deal and constantly modifying the prototype. And if you digest the fact that we're -- over the last year, we've been creating a new prototype in the midst of a pandemic and overhauling our assortments and inventory levels, you can appreciate the complexity. And I think that just lands two thoughts before Todd comments and that is if we weren't excited by the results, we certainly wouldn't be moving forward in the fashion that we are. But I'd also say that we aren't at the point where we should model those results.

Todd Vogensen -- Chief Financial Officer

Yeah, I think that's exactly right. And at the same time, we are seeing those results that are encouraging. The stores are outperforming chain averages. And customer feedback has been very strong.

From a landlord perspective, it really -- there are very, very few, if any, that have not participated in the cost of the remodels themselves. So that helps with the cost structure dramatically. Remodel already is significantly less expensive than a new store. But then with the landlord participation, it really does minimize that overall cost.

And the cost for next-gen stores, from a capital perspective, are included in our overall capital budget of $70 million to $80 million. So we're not going to break them out specifically at this point and give more detailed economics. They're embedded in what is an overall normal run rate for us. And within that, I think Brad mentioned in his script we're getting a payback of less than three years on these remodels.

So the performance is such that they are paying back capital quite quickly.

Brad Weston -- Chief Executive Officer

And I think if you look at how -- if you look at the numbers of what we're implementing in Q1 and the Q2 numbers as I mentioned we'll be continuing to expand in the back half.

Rick Nelson -- Stephens Inc. -- Analyst

That's great and thanks for all the color. And good luck as we push forward.

Brad Weston -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Joe Feldman from Telsey Advisory. Please go ahead with your question.

Joe Feldman -- Telsey Advisory Group -- Analyst

Hey, guys. First, on the top line, were there any other regional trends that you've noticed or any differences across the regions, maybe where things are a little more open than areas where they're less?

Brad Weston -- Chief Executive Officer

So as resistance subside, we see potential growth opportunities really across all regions. On a two year basis, the Northeast has trailed the pace of recovery versus the rest of the country. I'd say our geographic results are choppy on multiple levels when you look at pandemic and helium history impacts, etc. So -- but we're not seeing anything in the current business that would lead to any outsized risk or opportunities with any of our regional performance.

Joe Feldman -- Telsey Advisory Group -- Analyst

Got it. Got it. That's good. And then on inventory, again, I know you've talked about supply chain hiccups that -- well, more than hiccups, that are happening to the industry right now.

But you mentioned like there's a few categories where it feels like you're a little lighter. And I was just curious if there was anything you could share detail-wise or maybe from a competitive standpoint, you don't want to, but where you might be light and if you're actually missing some sales in those categories?

Brad Weston -- Chief Executive Officer

So I wouldn't say that we see anything where we're missing any sales. As you can imagine, demand has changed a little bit by category versus where we were with pre pandemic and even during the pandemic. So those aren't significant, but demand has a little bit of an impact on our supply chain flow. And then there's some supply constraints in some areas.

We don't -- we're managing all of those. We are constantly looking at more multiple sources of supply to ensure that we're covering our needs. So we're focused on demand where it's been, where it is today and where we see demand by category in the near term and long term and then making the supply adjustments that we need to.

Joe Feldman -- Telsey Advisory Group -- Analyst

Got it. OK, thanks and good luck with the second quarter guys.

Brad Weston -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Jenna Giannelli from Goldman Sachs. Please go ahead with your question.

Jenna Giannelli -- Goldman Sachs -- Analyst

Hi, good morning. Thanks for taking my question. So I'm curious a little bit on just the strong brand comp and the retail sales. Obviously, better than expectations and a very strong trend.

I'm curious if you could just break that down a little bit more for us. Are you seeing some of the trends that you saw last quarter in terms of smaller gatherings, different mix? Has pricing been a tailwind or transactions and traffic just up? Any color on some of the KPIs underlying those strong sales trends would be great.

Brad Weston -- Chief Executive Officer

Yeah, I think the biggest thing, as I said before, to pay attention to or what really encourages us is our core everyday categories, that being entertaining and balloons and solid tableware and birthday products. Those continue to be the strength of our business. And to me, that tells me that gatherings and the milestone celebrations that we want to be there for the customers their destination for a one-stop shop and our ability to sell them solutions for those occasions that we're meeting those needs. The big -- if there's a drain in any categories, this has been true through the pandemic.

If it's related to social gatherings and it's a seasonal business, where people typically gather for parties, and I mentioned several in the first quarter like Super Bowl and Mardi Gras and St. Patrick's Day, as you can imagine, those have been a little bit more challenged. We have seasonal products, specific seasonal product for those celebrations as well as some of our core assortment is tie-ins for those. And those have been the most challenging.

But the good news is, as things open up, we're seeing continued improvement. And we saw -- they beat our expectations through the first quarter. I think they were the biggest challenge in Q4. We're not seeing any price resistance.

Obviously, we did a lot of work last year in getting our prices right for the consumer and being properly competitive. And the unit productivity that we're seeing in those in the production of margin dollars combined with our reduction in promotions is really driving a good margin as well.

Jenna Giannelli -- Goldman Sachs -- Analyst

Great. That's helpful and encouraging. I just have one more just on the inflationary pressures. I know you called out transportation cost is something to watch into the rest of the year.

But I'm curious if you've seen labor and wages, availability of labor, has that been a headwind, starting to be a headwind as we think about the rest of '21? That's it for me. Thank you.

Todd Vogensen -- Chief Financial Officer

Sure. So as I -- as we look out there to wages, there's clearly wage pressure. And what we're doing is going along and measuring, making sure that we're maintaining a competitive position but also mitigating where possible. So anything that we have seen, we have included in our guidance and it's in there.

I'd also say, on the wage side, just historically, federal minimum wage gets a lot of press. The truth is local minimum wage laws had been increasing fairly ratably over time, and we've been keeping pace with that and with local markets. So the difference in minimum wage pressure. Historically, it is probably not as significant as you would expect.

So at this point from everything we're seeing, the current trends seem manageable.

Brad Weston -- Chief Executive Officer

And related to the freight side of your question, Jenna, I would say that we're -- we stated in Q1, we stated again now that we've accounted for those. We see those staying fairly in line with what we have discussed. And so I feel like those are under our control right now.

Jenna Giannelli -- Goldman Sachs -- Analyst

Very helpful. Thank you.

Operator

Our next question comes from Carla Casella from J.P. Morgan. Please go ahead with your question.

Carla Casella -- J.P. Morgan -- Analyst

Hi. I'm wondering if you could talk to your pop-up strategy. How many you -- how you're looking at doing them in 2021 versus how that would compare to '20 or '19 in terms of just number and size and any different scope of the stores.

Brad Weston -- Chief Executive Officer

Yeah and just to clarify, by pop-up you mean Halloween City, Halloween pop-up stores?

Carla Casella -- J.P. Morgan -- Analyst

Exactly. Yes, exactly.

Brad Weston -- Chief Executive Officer

Yeah, for strategic reasons, I'm not going to disclose what our current plans are. As you know, in 2020, we reduced our numbers significantly for two reasons. One was not knowing what the conditions for 2020 Halloween were going to be and taking a conservative approach to our capital outlay. And then most importantly, though, we really wanted to retrench and test a few pilots that would allow us to understand how we could compete better with competition in that arena.

And as I mentioned in past conversations that we really did learn a lot coming out of our pop-up pilots last year. That encouraged us to do more this year. And so we'll see significant growth but I can't get into specific numbers right now. We think those learnings will facilitate a better performance.

Carla Casella -- J.P. Morgan -- Analyst

OK, great. And then just you talked about Canada. Can you just give us a little bit of the magnitude? How big is that business now as a percentage of your total wholesale? And I'm assuming you don't have -- I don't -- I can't remember if you kept any retail in Canada.

Brad Weston -- Chief Executive Officer

I -- We didn't. So we had 65 stores that we ended up selling in Canada. That would have been right at the very beginning of Q4 2019. And then since then, we've expanded into some shop-in-shops with Canadian Tire.

I would say the bulk of the volume at this point still coming through those Canadian stores, just given the fact that -- well, that economy has been shut down due to COVID concerns for a good chunk of the last several months and continues to be. So we haven't given out specific metrics necessarily on how big the sales are. But if you extrapolate the 65 stores, you're going to get a good baseline to work from.

Carla Casella -- J.P. Morgan -- Analyst

I guess I'm just trying to think more longer term. Is Canadian business, is that 10% of wholesale, 20% longer term or maybe pro forma what it would have been before COVID, if it was a wholesale business?

Brad Weston -- Chief Executive Officer

If it was a wholesale business. So the Canadian stores have a very similar structure with U.S. where about 80% of what they're selling was coming through wholesale, so the 65 stores. So it would have been proportional with -- again, with what you would have seen for the U.S.

stores. And yes, that Canadian relationship called for a significant increase in the amount of sales of wholesale into Canada just because of the Canadian Tire penetration. So think about it growing and becoming our biggest wholesale customer is certainly where it was at on the even short- to medium-term map had we not run into these issues with COVID.

Carla Casella -- J.P. Morgan -- Analyst

OK, that's helpful. Thank you so much.

Brad Weston -- Chief Executive Officer

You bet. 

Operator

Our next question comes from Karru Martinson from Jefferies. Please go ahead with your question.

Karru Martinson -- Jefferies -- Analyst

Good morning. Just circling back to the Halloween inventory, it's certainly positive. We're feeling good of what's on the water now. But when does that inventory kind of have to be in your warehouses so that it can reach the stores just from a timing perspective?

Brad Weston -- Chief Executive Officer

Well, as you can imagine, we -- Halloween really starts to get out on the floor early. Early sets are in August. And then we -- that set grows through August and September. And so product starts to really hit those stores over the course of June and July.

Karru Martinson -- Jefferies -- Analyst

OK. And then there's...

Brad Weston -- Chief Executive Officer

And in our warehouse in that time period.

Karru Martinson -- Jefferies -- Analyst

And given the shipping cadence here, you don't have any concerns about that inventory getting in, correct?

Brad Weston -- Chief Executive Officer

Well as like everybody we've had to manage those -- the timing. And with different environment than we've seen over the last couple of years, it's certainly taken quite a bit of work, but very proud of the team on the execution that we've seen thus far and feeling very positive about where we are right now.

Karru Martinson -- Jefferies -- Analyst

OK. And when you look at the reopening trade, are you seeing your digital remaining as strong as it had been? And how are customers responding to the offering that you have?

Brad Weston -- Chief Executive Officer

Yeah, we continue to see strength in our digital business, digitally enabled sales, whether that is shipping out of our DC. Or what we've all seen is the activity around buy online, pick up in store and buy online and pick up at curbside, and our delivery business continuing to be something that the consumer sees as very favorable. And in this category, seeing favorability there as well. It might not be as big as some other categories from a penetration perspective because our stores are often the hub of getting helium and getting balloons.

And the ability to come in and pick your balloon bouquet, fill it with helium and take it home is -- has and will be a driver to store traffic, but we're certainly seeing growth in penetration of our digital business and substantial growth.

Karru Martinson -- Jefferies -- Analyst

And just on helium, we're fully stocked. We have no supply issues, correct?

Brad Weston -- Chief Executive Officer

That is correct. And we have a good outlook on helium.

Karru Martinson -- Jefferies -- Analyst

Thank you very much guys. Appreciate it.

Operator

Our next question comes from William Reuter from Bank of America. Please go ahead with your question.

William Reuter -- Bank of America Merrill Lynch -- Analyst

Good morning. I'm curious to hear if you have seen any sort of a boost in your retail sales around the timing of when stimulus checks are sent out. Do you see any sort of indicators there?

Brad Weston -- Chief Executive Officer

So that's a good question. We certainly have not had anything that would allow us to sort of tie. We've seen some retailers talk about the fact that they've seen an uptick in business in stores where they've been able to track where stimulus checks have dropped, and that is not something that we have seen. Obviously, the consumer has some spending.

We're seeing that broadly across retail. We know that, that is some combination of pent-up demand, a combination of stimulus checks, combination of increased savings accounts. And we certainly expect that we are a beneficiary of some combination of that. Our ability to parse out the amounts that you would sort of attribute to each of those would be extraordinarily difficult.

But we are happy that the consumer has discretionary income. We believe we're the beneficiary of that, like every other category, and also believe that the consumer is continuing to celebrate. Obviously, during the pandemic, they found different ways to celebrate which contributed to our overall good results. And we would anticipate that now as things open up that we'll be the beneficiary of that as well.

William Reuter -- Bank of America Merrill Lynch -- Analyst

OK. And then I know you weren't willing to share a whole lot on the pop-up stores, but the last I heard in terms of your permanent stores, it was 15 new ones, offset by five closures. I didn't hear any reference to that in the prepared remarks. Did I miss it or is that still the plan?

Todd Vogensen -- Chief Financial Officer

No, that is still the plan. We had given guidance last time for 15 new stores and five closures as well as capex of $70 million to $80 million for the full year and those still are valid estimates.

William Reuter -- Bank of America Merrill Lynch -- Analyst

Perfect. Thanks a lot.

Operator

And our next question comes from Hale Holden from Barclays. Please go ahead with your question.

Hale Holden -- Barclays -- Analyst

Good morning. Thanks for taking the call. I just had two following up on Bill's question on helium. I understand your supply is good, but I was wondering if you could give us an update on what your sourcing costs were and kind of what you were thinking for the remainder of the year.

Todd Vogensen -- Chief Financial Officer

Sure. So for helium, we are -- we have put ourselves into a position where we have longer-term contracts for our supply that give us little bit of flexibility and a fair amount of flexibility actually on the upside of demand increases, we have the supply there. With those contracts, we're largely in a state where we know what our prices are going to be. There's some up and down.

But as a general statement, we have good visibility into those costs, depending on mix of which suppliers we use. So we saw an increase in our average cost as we went into the second half of '19. That was pretty significant in the 40% to 50% range. And since then, within a certain realm we've generally stayed in that range and would expect to across the rest of this year.

Hale Holden -- Barclays -- Analyst

Great. And then my last question was, understanding that you don't want to talk about how many pop-up Halloween City stores you're doing, but generally, I was hoping you could talk about how competitive you think Halloween will be this year. It feels like it could be fairly explosive growth, but a lot of people chasing it. And I was wondering how you thought the competition was going to react.

Brad Weston -- Chief Executive Officer

I would say that the -- it's hard to know what the competition is going to do. The biggest challenge with 2020 was the lack of trick or treaters and Halloween school activities. We would anticipate this year being more kid and family friendly if the pandemic allows more normalized activity and we would anticipate being the beneficiaries of that.

Hale Holden -- Barclays -- Analyst

OK, great. Thank you very much.

Operator

And ladies and gentlemen, at this time, am showing no additional questions. I'd like to turn the floor back over to the management team for any closing remarks.

Brad Weston -- Chief Executive Officer

Thank you, operator. Let me close by saying that each of our efforts over the past five quarters have been focused on increasing our relevancy with consumers as the destination for celebration solutions as we inspire joy and make it easy to create unforgettable memories. Our entire PCHI team, which continues to grow in talent and capability, is driving performance that increasingly exceeds expectations across our business. Our strategy is producing the desired outcomes and I'm proud of the team's execution.

We appreciate your interest in Party City and look forward to updating you on our progress next quarter. Thank you.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Ian Heller -- Vice President and Deputy General Counsel

Brad Weston -- Chief Executive Officer

Todd Vogensen -- Chief Financial Officer

Seth Sigman -- Credit Suisse -- Analyst

Rick Nelson -- Stephens Inc. -- Analyst

Joe Feldman -- Telsey Advisory Group -- Analyst

Jenna Giannelli -- Goldman Sachs -- Analyst

Carla Casella -- J.P. Morgan -- Analyst

Karru Martinson -- Jefferies -- Analyst

William Reuter -- Bank of America Merrill Lynch -- Analyst

Hale Holden -- Barclays -- Analyst

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