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Party City Holdco (NYSE:PRTY)
Q3 2021 Earnings Call
Nov 09, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to the Party City third quarter 2021 earnings call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Eric Warren, treasurer and head of investor relations at Party City. Please go ahead.

Eric Warren -- Treasurer and Head of Investor Relations

Thank you, operator. Good morning, everyone, and thanks for joining us. This morning, we released our third 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 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 and 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'll 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 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.

Brad Weston -- Chief Executive Officer

Thank you, Eric. Good morning, everyone, and thank you for joining us today. I'll begin our call with a review of the highlights of our third quarter results as well as our October and Halloween season performance. 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 financial performance as well as our outlook commentary before we open up the call to your questions. Our Q3 results came in at the high end of our expectations with total sales of $510 million, brand comp sales of 7.5% year over year and adjusted EBITDA of $42.9 million. Versus 2019, comp sales were up 14.2%. These solid results were fueled by continued strength in our core categories, demonstrating the traction of our overall strategy.

While we acknowledge macro tailwinds based on consumer spending trends, the superb execution by the entire PCHI team, securing merchandise, managing through the significant supply chain disruptions impacting the industry, and staffing the stores to meet the demand resulted in an excellent third quarter and exceptional beginning to the fourth quarter. Some encouraging highlights of the third quarter to mention are continued strength across all core categories, which experienced excellent growth on top of strong 2020 performance during the same quarter. This supports our mission of being customer and celebration obsessed and demonstrates relevancy with consumers, ensuring we are at top of mind when it comes to anything celebratory. The domestic wholesale consumer products business is regaining strength as projected, which is reflected in our Q3 results.

Anagram, a key piece of our wholesale business continues to perform extremely well, achieving record sales and profitability in the quarter. We're continuing to increase production capacity to keep pace with the increased balloon demand. From a profitability perspective, as expected, we saw inflationary pressures and we effectively managed the business in this environment, including implementing select price increases. Our pricing power is reflected in the consumers' acceptance of our pricing actions, which bodes well for us as we navigate Q4 and soon 2022.

Our commitment to serving the customer through our omnichannel focus accelerated our digitally enabled sales by 36% over 2019, and digital sales we fulfilled in stores grew by 233%. We are committed to making it easy by allowing customers to choose their preferred purchase fulfillment option. We enhanced our digital experience with new exciting solution selling and customer engagement features and initiatives that lifted our sales, driving over a 60% increase in conversion versus 2019. Now moving on to the October performance.

For the month of October, comparable sales were up 16% versus prior year and up 14% versus 2019, which was ahead of our expectations heading into the season, fueled by continued strength in our core category sales performance as well as the strong performance in our Halloween business. This result is a testament to the success of our overall strategy and positions us well for the remainder of 2021 and beyond. Also, our performance in core categories continue to gain momentum into October with comp sales versus 2019, improving 130 basis points over Q3. In particular, Favors, Pinata, Entertaining, and Candy saw the most significant improvement.

Our reset in nonseasonal candy produced the most exciting results as our customer is responding to the changes we've made in the recent reset with a 2,500-basis-point trend improvement. And our marketing approach was also more balanced this October with non-Halloween media spend in the mix, which positively influenced our nonseasonal business during the biggest birthday months of the year. We are thrilled with our Halloween results this year. Strong execution by our team and our improved Halloween go-to-market strategy was evident across all four channels of our business.

This combination of Party City retail stores, partycity.com, and Halloween City stores, along with the wholesale business, has given us a platform that is unmatched in the industry. The improvement in our overall Halloween go-to-market strategy includes upgrading our product assortments by significantly improving the newness, adding key items, improving quality, and increasing innovation, inspiring customers through product vignettes, which combine costings and related accessories in dedicated sections on our sales force as well as expanded how-to content online. These efforts reduce friction points in the shopping experience and reinforce our position of making it easy for customers to really create some compelling looks that set us apart from the competition, reinventing our Halloween City pop-up format based on tests conducted in 2020. This change yielded the strongest results we have experienced within the format to date.

These results enabled us to translate new learnings into our Party City experience and advance our execution of pop-up stores. And the improved Halloween execution also drove positive consumer product sales and strong sell-throughs for wholesale customers. Importantly, we were in a strong inventory position for the peak Halloween season. We started flowing new receipts in June with most flowing to stores in September and October.

And against an industry backdrop, where it was often challenging to find great products, we were pleased to be able to deliver for our customers this Halloween season. And we enhanced our product margins year over year due to the work we've done to consistently reduce our carryover inventory as well as the reduction in promotional discounts. So overall, it was a great October, led by our core business and strong Halloween performance across all four channels despite the market backdrop. We are very encouraged by this year's results and believe we have even more opportunity for next year as we build on this year's success.

And so I will now discuss the progress we made in Q3 on advancing the fundamental building blocks of our transformation strategy, which are product innovation and quality, in-store experience, being celebration obsessed, and focusing on our North American vertical model. Starting with product innovation. Fresh product and innovation are important to inspiring fun and new ideas for celebrations. We're leveraging consumer insights and data to drive our assortment decisions, which is accelerating growth in important categories.

In 2021, we've reset five categories: Party Favors, Girl's Birthday, Boy's Birthday, Candy, and Solid Tableware. Within these resets, we've introduced over 1,000 new products driven by consumer-led innovation. During the remainder of 2021 and into 2022, we will reset the remaining categories in our portfolio, and we'll launch a similar number of innovative items as well as significant quality improvements. We're also investing in product quality, which is an important complement to the work in innovation.

We're capitalizing on our consumer's desire to purchase higher quality items across products that can carry higher price points at similar or expanded margins, and it has been very well received by the consumer. We continue to see strong results from our effort to drive meaningful innovation and upgraded quality. As an example, in our Halloween season, the team established a partnership with Academy award-winning makeup artist, Christian Tinsley. These products featured innovative special effects makeup items that offer consumers the quality level similar to a movie production.

We supplemented these products with strong how-to digital content with featured tutorials by Christian showing customers how to apply the product to achieve a realistic look. The combined impact of quality, innovation, and then our strong digital content resonates with customers and reinforces our authority as a specialty retailer. Moving to in-store experience. In Q3, we opened or remodeled 18 next-gen stores, bringing our total to 74 to date.

We plan to have 21 additional next-gen stores by the end of 2021, bringing our expected year-end total to 95. We continue to be pleased with the results our next-gen stores are producing as we innovate and refine the prototype. In fact, our remodeled stores are averaging a mid-single-digit sales increase compared to control stores. Even when assumptions vary from the norm, we generally target payback period on each store of less than 24 months on average.

So based on our continued strength we see in our next-gen store performance, we remain committed to an aggressive rollout plan in 2022 and beyond with approximately 100 to 125 next-gen remodels or openings target for 2022, which would result in about one-third of the fleet being converted. Next, being celebration/occasion obsessed. We are steadfastly focused on our relevancy with consumers as we build trust and increasingly become their destinations for all things celebrations. This is strengthened by our commitment to our plan of introducing an unprecedented level of innovation across major categories this year.

Our focus on differentiating our core categories have paid off, which we see in the core metrics that demonstrate improved relevancy. And our seasonal categories are now achieving significantly improved sell-throughs, resulting in an improved inventory turns and gross margin returns on inventory all while exceeding sales plan. In both our core and seasonal categories, the improvements are driven by greater focus on current trends, key items, and more curated assortments, which improves not only shopability for the consumer but also efficiency for store associates. Our stronger integration of data into our processes and our improved understanding of consumer needs is accelerating our ability to execute and produce stronger results.

And our commitment to serve the customer in their preferred method has driven results in omnichannel sales that outpace our overall performance. And finally, focusing on our North American vertical model. As we leverage our North American vertical model, we are investing in our leadership, infrastructure, and resources throughout the supply chain network. Importantly, we're increasing capacity in our manufacturing plants as we focus on strengthening our domestic capabilities and execution.

While there are broad-based supply chain headwinds across the industry, we're finding alternatives and then work through these challenges. As an example, we are adjusting our order timeline throughout the supply chain and continue to find transportation alternatives to mitigate what we expect will be continuing volatility. We are less than two months away from the end of fiscal 2021, and what a year it has been. I'm very proud of how our teams have navigated an uncertain and dynamic environment across our manufacturing operations, stores, and our supply chain that -- as we continue to better leverage our unique North American vertical model.

They did this while making measurable progress against each of the fundamental building blocks of our transformation strategy, all of which better position us to strengthen our market position and further our share gains. As we prepare to close out the year, we feel good about our positioning for the holiday season, and our teams across the business are heads down, timing, and getting ready for 2022. We will continue to update and improve our product assortments and inventory position as we expand our relevancy with consumers and elevate their experience with us. Given the still dynamic operating environment, we will remain flexible and agile with our learnings from this year, which gives us increased confidence in the trajectory of our business as well as our inflation mitigation strategy.

To that end, as we sit here today, we also anticipate that the supply chain headwinds to persist into 2022. Importantly, we are heavily invested in delivering an improved customer experience as well as exercising our pricing power in the celebrations market by expanding our already strong understanding of where the consumers expect to increase pricing. We have seen success already on this front as reflected in our strong recent results. And now, I'd like to turn the call over to Todd to discuss the third 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 third quarter results as well as our October and Halloween performance, and then I'll discuss how we're approaching the last few weeks 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. As Brad discussed, we are very pleased with our third quarter results that came in at the high end of our outlook, and we're thrilled with our October and Halloween performance.

For the third quarter, consolidated revenues were down approximately 4.4% versus our prior year period, driven by the divestiture of a significant portion of our international operations in the first quarter of 2021. This was partially offset by strong core retail and wholesale sales growth. Retail net sales increased 8.9% versus last year and 8% versus the third quarter of 2019 due to our strong brand comp, along with better performance within an increased number of Halloween City stores. Brand comparable sales increased approximately 7.5% year over year, driven primarily by these strong performance in core categories.

Versus 2019, brand comparable sales increased 14.2%, including a 27.9% increase in our core categories. In terms of e-commerce, the percent of our sales that originated online were approximately 14.2% of our retail sales mix, an increase of 140 basis points versus 2019. Wholesale revenue for the third quarter decreased 33.6% versus 2020, primarily due to the divestiture of our international operations in the first quarter of 2021. Excluding the impact of the divestiture, wholesale revenues increased 7.8% versus our prior year period of 14.5% versus 2019.

We were pleased by the improving sales trends we delivered with our franchise and independent customers in the third quarter. Wholesale remains an important and strategic part of our business. We're focused on driving continued growth, and we're encouraged by the third quarter performance. Adjusted gross margin rate for the third quarter expanded approximately 175 basis points from the prior year period, driven primarily by the divestiture of our lower-margin international operations and leverage on the retail occupancy costs.

Our adjusted operating expenses were approximately $158 million or 31% of net sales, a 230-basis-point rate increase versus the prior year, primarily driven by the international operations divestiture as well as increased investments in store labor. As a result, adjusted income from operations was $28 million, compared to $32 million last year and adjusted loss from operations of $2 million in the third quarter of 2019. Adjusted EBITDA was $43 million in the third quarter, compared to $49 million last year and $17 million in the third quarter of 2019. As a reminder, we -- our divested international business generated adjusted EBITDA of approximately $8 million in the third quarter of 2020 and $6 million in the third quarter of 2019.

And third quarter adjusted earnings per share was $0.02, compared to $0.10 in the prior year period at adjusted loss per share of $0.28 in the third quarter of 2019. Now turning to our balance sheet and cash flow. Inventory was down approximately 17% year over year, driven primarily by two strategic items that we've discussed here previously, mainly the disposal of seasonal inventory in the fourth quarter of 2020 in order to drive higher in-season sell-through and less annual inventory carryover 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 and our year-over-year increase of approximately 7%, excluding these two items.

We continue to prudently manage our working capital and we expect ongoing opportunities to improve working capital levels. Year to date through the third quarter, net cash used in operating activities increased to $74 million from $57 million in the prior year period due to an increase in seasonal inventory and related costs as well as the repayment of deferred rents from 2020. We are pleased with our ending liquidity position, which increased by approximately $90 million during the quarter to $356 million, comprised of $61 million in cash and $295 million of the revolver availability. We ended the third quarter with the principal balance of debt net of cash of approximately $1.37 billion, which was approximately $41 million higher than the prior year period.

Now let me turn my comments to our outlook. We also remain optimistic about these trends throughout our business and the prospects for continued economic growth. We also recognize that the macro environment, it is not without uncertainty given the current inflation and COVID-19 rules. These factors are reflected in our sales and earnings outlook for the fourth quarter, which was included in today's press release.

In the fourth quarter, on the heels of a strong October, we expect our consolidated sales to be approximately $685 million to $700 million with the brand comp sales percentage increase in the high teens versus the comparable 13-week period in 2020 and the low-teens percentage increase versus 2019. Lastly, we expect Q4 adjusted EBITDA to be in the range of $100 million to $110 million, up from $77.3 million in 2020. There are a few items to highlight related to our expectations in the fourth quarter. First, for modeling purposes, it's important to note that the divested international business generated approximately $59 million in our revenue in the fourth quarter 2020 and $65 million in 2019 with an immaterial amount of EBITDA in both years.

Second, like many in the industry, we are experiencing heightened inflationary impacts on our business, including freight and labor cost headwinds. With the continued challenges facing all global supply chains, our logistics team has taken prudent action to ensure high in-stock rates for this holiday season. We feel confident that we are well-positioned to fully support our holiday strategies. We also expect to incur higher freight costs over the near term.

We are taking additional pricing actions as well as other cost mitigation actions to limit the overall impact on our profitability, and we expect that our pricing actions to offset the majority of the fourth quarter headwinds. While the nature of inflation is still quite dynamic, based on our current plans, our guidance includes the estimated fourth quarter impact of overall inflation, net of our mitigation efforts in the range of $5 million to $10 million. Note that in the third quarter, total net inflation headwinds were approximately $9 million, which was in line with our expectations of $7 million to about $12 million. In terms of capex, we're on track to finish the year with capex spend in line with our prior expectation of $80 million to $90 million, which includes investments in our next-generation stores as well as capacity investments in support of Anagram's growth as previously discussed.

So in summary, we are very pleased with our third quarter and October results as well as the outlook for the balance of the year, which highlights the improving trajectory of our business. Our fourth quarter guidance reflects this strengthening top line, which will provide improved occupancy leverage as we also anniversary the sale of our international business. These benefits should be partially offset by shrinking net input cost headwinds as our pricing actions begin to have a more material mitigation impact. And with these net input cost headwinds down from the third quarter and expected to improve further as we go into 2022.

Overall, we are bullish in our positioning and our ability to capitalize on the many opportunities we see for the business in the final quarter of the year and beyond. And with that, I'll turn the call over to the operator to start the Q&A session.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Rick Nelson from Stephens. Please go ahead.

Rick Nelson -- Stephens Inc. -- Analyst

Good morning. [Inaudible] follow up on the October strength that you pointed to. Can you break that down between Halloween sales and the non-Halloween categories?

Brad Weston -- Chief Executive Officer

Thanks, Rick. Halloween results are embedded in the October performance and we were extremely pleased with our Halloween results and it was positive on a cost basis to both 2020 and 2019. So we're focused on maximizing the season, really leveraging all four of our channels, which is a significant competitive advantage for us between Party City stores, partycity.com, Halloween City pop-up stores, and our consumer products wholesale business. So most importantly is -- our overall strategy is really focused on increasing relevancy for all things celebratory, and our core category businesses is key to that.

And as we've said, we're on occasion obsessed and focused being relevant to consumers across our core business, and we're seeing the payback on that strategy and continued strong performance of our core business. And that business is less volatile than seasonal and in higher margin, which is positive. So very pleased with consistent strength in core and thrilled with our improved Halloween execution go to market and despite that drop and that is -- everybody facing and having less some business even on the table. So Halloween is now low double digit of our annual performance versus over 20% just a few years ago.

And it's a function really of the success we're seeing in our core business where we had and continue to have the most significant opportunity to differentiate.

Rick Nelson -- Stephens Inc. -- Analyst

Thanks for that. [Inaudible] are you willing to break out that kind of core category comp for [Inaudible] and what you're seeing in October?

Todd Vogensen -- Chief Financial Officer

So core -- this is Todd. So core category performance has been even improving as we've gone into the month of October. It's up over 100 basis points as we went into the month and I had been running up almost 28% going through Q3. So a very strong performance across the core just like we've been seeing across all the quarters this year.

Rick Nelson -- Stephens Inc. -- Analyst

Great. Thanks. Thanks for that. Also the next gen-stores, you have provided some financials around.

I'm curious about the early learnings, what categories are performing the best and if you're seeing a top lift above the controlled store. If you could speak out sort of to the profitability of those stores that would be helpful.

Brad Weston -- Chief Executive Officer

Let me quickly address the categories, then I'll let Todd talk to the profitability component. Like we said, we're seeing really strong mid single digit comp increases versus the controlled stores. It's been maintaining in that range to even improving. These stores continue to get better the longer they're open and the more the consumer recognizes them.

The the outsized balloon performance continues, which as we've talked about in the past was deliberate, as we intended to continue to differentiate the experience with the overall balloon experience and the sales we can generate with that category. We continue to very -- be very pleased with each of the core categories. Birthday continues to perform extremely well. And the resets that I talked about in our prepared remarks, particularly in candy and in favors have both been well received in the legacy store but they're outstanding in really core components of the next-gen experience in addition to balloon.

Todd Vogensen -- Chief Financial Officer

And from a performance perspective, so as Brad said getting great customer reaction to these stores and we're really seeing it come through the financials. So for remodels, we're seeing our sales growth, compared to controlled stores, growing in the mid single digits so there's good lift on the top line. And then on the bottom line, we're still targeting that payback period of less than 24 months on average for those stores. So I -- with our investment in capex of about $150,000 after tenant improvement allowances and the ability to lower our inventory by $100,000, I -- we were able to pay back that investment pretty quickly and continuing to see that good solid trajectory on the top line.

Brad Weston -- Chief Executive Officer

And obviously with those results is why we're bullish on proceeding with executing over 100 of them next year.

Rick Nelson -- Stephens Inc. -- Analyst

Sounds good. Finally, if I could ask you about the manufacturing share of shelf. It looks like that was down a bit sequentially and year over year. If you could speak to those drivers.

Brad Weston -- Chief Executive Officer

Yeah, manufacturing share of shelf, you get a little bit of timing in there and seasonal mix coming in to Q3. Included in that manufacturing share of shelf are going to be things like balloons and paper plates and so forth. I -- going into Q3, I -- we get a lot figure lift in categories like candy and costumes. And so just naturally from a mix perspective, the share of shelf comes down.

We've also had a good run on a lot of our core manufactured goods in Party City. So I would say nothing that's longer term. Just more of the timing of the year and timing of shipments.

Rick Nelson -- Stephens Inc. -- Analyst

Very good. Thanks a lot and good luck.

Operator

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

Joe Feldman -- Telsey Advisory Group -- Analyst

Hey, guys. Thanks for taking the question. I wanted to follow up on inflation that you talked about. And it sounded like, if I heard right, that the headwind will be a little less in the fourth quarter than the third quarter.

And I guess I was wondering if you could talk to that a little bit. Is that more a function of the pricing actions that you're planning to take because you're just seeing a little less pressure out there relative to where we were in the third quarter.

Todd Vogensen -- Chief Financial Officer

It really is -- just like we talked about in the third quarter, we were just getting going on our pricing actions. And as we move into Q4, those pricing actions have a little bit more time to be in our stores. We have more time to do the things that we're doing to test and make sure we're getting the right improvements and the right increases at the right points. And also from a wholesale perspective, as you put it a price increase, that's for a new purchase order.

So it just takes time for those price increases to turn into actual shipments. So what we're seeing now is a little bit more traction on the amount of time the price increases have been out there, and that's providing mitigation over the majority of our input costs and that's what you're recognizing when you're seeing that the net impact is lower in Q4. It should be even lower as we go into 2022 and we get more time for some of those pricing actions to take effect. The underlying input cost trends, I have not been going down.

It still is -- very definitely inflationary headwinds. I think the key for us is we've been able to show we do have the pricing power to be able to offset those increases and put ourselves in a position where any input cost headwinds can be mitigated through price.

Joe Feldman -- Telsey Advisory Group -- Analyst

That's helpful. Thanks. And then just to dig a little deeper on those pricing actions, are you -- can you share -- I know you're selective where you do it and I'm curious just you know how much those increases are. Like on average, are you taking prices up 3%, 4%, 5%, or is there a way to look at it that way? And also which -- is it starting to hit all categories or is it still selective?

Todd Vogensen -- Chief Financial Officer

Yeah, I would just remind us that we're extremely price aware and we have data not just at the category level but at the SKU level that allows us to make really smart decisions for the business and customer providing us that pricing power. We're monitoring price constantly. It's fluid and ongoing -- an ongoing path to mitigating any of the input costs. And we've talked a lot about our pricing methodology over time and we're constantly monitoring competition and have detailed the elasticity data and basket data that we leverage to make those pricing decisions really whether we're reducing prices or increasing prices.

We do that based on that algorithm of inputs and so we're constantly testing prices to understand the impact of any decisions we make before we execute anything. So we're heavily invested in understanding where the consumer is receptive to price adjustments and how they'll impact our performance. And obviously we've had success with price increases already as reflected in our strong Q3 results. We have more tests under way, which will be a lever as we continue to thoughtfully and strategically deploy price increases to help mitigate any cost headwinds as we move into next year.

I would not put a percent on it necessarily but more how we're reacting with the methodology and we realize that we need to offset a significant amount of the input costs with price. We're happy with the customer's reaction to this point. Obviously as we look at different categories, each category has different elasticity based on competition and based on supply and demand in a lot of ways. And so it's fluid and it's going to continue to be fluid.

Joe Feldman -- Telsey Advisory Group -- Analyst

Got it. Thanks for that description. That's helpful. And then just maybe to shift gears to Halloween for a minute.

I was just curious if you could share what you saw from a competitive standpoint this Halloween. Were there any surprises any newness? Was it generally a strong season for everyone or do you think you maybe took some share during the season?

Brad Weston -- Chief Executive Officer

Well, I'd say that with our increase in our Halloween City presence versus last year and strong Party City performance, we had a great Halloween. It's difficult to know exactly what the market did given that this particular event has pretty spotty data but we're very pleased with our overall Halloween performance across all four channels. We believe our multichannel approach is a huge advantage for us. Clearly you saw our mix of those who seemed to struggle with product throughout the season and you saw those who were in better shape from the beginning and we certainly saw a lot of late deliveries everywhere.

But as I mentioned in our prepared remarks, we were very pleased with our inventory press then. While some products came later than originally planned, it ended up flowing really nicely to meet the demand for the season.

Joe Feldman -- Telsey Advisory Group -- Analyst

Thanks. No, that's great. Thanks and good luck with the rest of the quarter, guys.

Brad Weston -- Chief Executive Officer

Thank you.

Operator

The next question comes from Jenna Giannelli from Goldman Sachs. Please go ahead.

Jenna Giannelli -- Goldman Sachs -- Analyst

Hi there. Thanks for taking my question. I just want to talk about inventories and a little bit overall the health and just the mix. Down quite a bit versus last year.

I was curious how much of this was sort of deliberate to counter your efforts around inventory reduction and how much is supply chain related. And then as we think about the 4Q sales guide, is there any constraints embedded in that number as we think about modeling into next year and potential upside? Thanks so much.

Todd Vogensen -- Chief Financial Officer

Sure thing. And on inventory, I -- looking at the reported numbers, there's a couple of things that you probably just need to normalize for. Last year, you recall in Q4, we took a write off for seasonal inventory that we're no longer going to carry over from year to year. That plus the fact that international is no longer a part of our inventory, those two things together, about $150 million worth of inventory that's just out of the system and permanently out of the system at this point.

So giving us better invested capital going forward. Once we normalize those, our inventory actually was up year over year by about 7%. So up in line with our comp sales and I think going back to Brad's point I -- in looking at a lot of other folks as we went through the Halloween season and we felt like we had really done the right things to be in stock in Halloween to have the right products. And while everyone wishes they would have more, I think we actually felt like we were in good position and we're in good position going forward into the holiday period.

Jenna Giannelli -- Goldman Sachs -- Analyst

Thanks. That's helpful contact. And then just on wholesale, it looks like we're starting to see the pace of that recovery pick up. Is that fair? And can you talk a little bit about what's driving that? Are you seeing that increase volume with your existing customers, who wants to come in or ones return.

Just the pace you're recovering on the wholesale part of the business. Thanks.

Todd Vogensen -- Chief Financial Officer

Sure. So wholesale actually -- you're right, I -- it's seeing good traction. We ended the quarter with wholesale sales up by almost 8% to last year and continuing to see really an increase in trajectory across the wholesale business. Anagram continues to do well.

Really with record sales and record profits at Anagram, that's been a great story for us. But then broadly across the overall wholesale business, I -- all the all the balls are moving in the right direction.

Brad Weston -- Chief Executive Officer

Yeah, I would just add that we're also taking advantage of this point in time to really make investments and bolster our capabilities in wholesale business to support future leadership or future growth, excuse me, through adding and sort of upgrading our leadership talent, our own capabilities, and our capacity in our manufacturing facilities. So we feel good about the anticipated rebound and is pleased with the wholesale business trajectory.

Jenna Giannelli -- Goldman Sachs -- Analyst

Great. Thank you. And then just one final one, just a clarification question to make sure I heard accurately. Was that a 60% percent increase in conversion or digital conversion that I heard relative to 2019? And in fact that they --

Brad Weston -- Chief Executive Officer

Yes, that was.

Jenna Giannelli -- Goldman Sachs -- Analyst

OK. That's a big number. I mean, so maybe some of the key initiatives or things that you've changed to drive that number and could there be even more on that front? That's it for me. Thank you.

Brad Weston -- Chief Executive Officer

Yeah, it is a big increase and we've got a little bit over the balance of last year into this year on some of the digital changes that we've made. We continue to really involve -- evolve and improve our our entire digital experience with some new exciting features and initiatives, which customers are responding to that, and we saw that in our our sales results and obviously being impacted by that strong conversion. We also launched enhanced solutions-selling capabilities that really allow customers to shop by a theme or family of comics, which brings products to life on the web in a highly curated manner that matches store's visual merchandising. And for Halloween we really focused on engagement with consumers and some clumsy ways, and that included the introduction of an interactive social chat bot, the use of augmented reality, allowing customers to virtually try on masks, and then share their looks in social media and shoppable videos of some of our top license costumes.

And so we continue to invest in our digital strengths and we'll continue to roll out improvements that really enhance the inspirational content, the engagement, and always our pursuit to make it easy for the customer to achieve what they want.

Jenna Giannelli -- Goldman Sachs -- Analyst

Thanks so much. Good luck.

Brad Weston -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Carla Casella from JPMorgan. Please go ahead.

Carla Casella -- JPMorgan Chase and Company -- Analyst

Hi. Great. Thank you for taking my question. Just on the Anagram side of the business, did you disclose Anagram EBITDA performance? It sounds like balloons are doing very well.

And then is there any thought about refinancing out that expensive Anagram debt?

Todd Vogensen -- Chief Financial Officer

So Anagram's performance this year has been actually phenomenal. So I already just nine months into the year have have record EBITDA performance for Anagram, which is terrific. I -- in terms of looking at our debt, really what we've tried to do with the term loan refinance that we did in the first quarter is to sort of set ourselves up where we have a longer runway to go for the next major maturity that comes up in the end of the debt stack. So at this point, we're very focused on executing against our strategies and obviously continue to look to pay down debt, but those are the major priorities for us right now.

Carla Casella -- JPMorgan Chase and Company -- Analyst

OK. Great. And then just following up on Jenna's wholesale question, how do you disclose the number of wholesale doors you service today versus where that would've been pre-pandemic?

Todd Vogensen -- Chief Financial Officer

We have not updated that number. It's still thousands upon thousands of doors, so we have a very broad reach and continue to.

Carla Casella -- JPMorgan Chase and Company -- Analyst

OK. Great. And then just some granularity in the Halloween, the same-store sales or the strength and the growth that you saw. How much of that was -- is there any way you can give us a sense for whether your costume comparisons were up year over year or if it's in other products or if it was driven by just the pop-ups specifically?

Brad Weston -- Chief Executive Officer

Yeah, the pop-ups are not in our cost number. And so those outside of that number. I would say just a little bit of color on Halloween, year over year we continue to see increased demand for decor and decorating elements. A lot of our decor products was actually among the latest to deliver in -- for us and the market overall.

And that business usually develops earlier in the season, so while we're pleased with decor, we're bullish that -- we're bullish on the future. I would say that Halloween is of increasingly adult-driven business from from our vantage point and that really plays to our strength to focus to be more trend right.

Carla Casella -- JPMorgan Chase and Company -- Analyst

OK. Great. And just one last one if you -- how is the helium supply in the quarter? Did you see any of your stores or your customer's stores troubled by any helium supply chain issues?

Brad Weston -- Chief Executive Officer

No we're not seeing any helium supply issues currently or on the horizon. Every now and then, we may have an isolated incident based on a late delivery or some other isolated issue but we have no -- we really don't see any helium supply issues at this point.

Carla Casella -- JPMorgan Chase and Company -- Analyst

And is the price of helium today, is that comparable to '20? I'm assuming it's below '19 type levels but is it comparable to '20 or pre-pandemic?

Todd Vogensen -- Chief Financial Officer

Yeah, the beauty of what the company did back in '19 when there were shortages is to enter into long-term supply agreements. So with those supply agreements, that's kept the the actual cost of helium pretty consistent quarter to quarter to quarter, and continues to be the case.

Carla Casella -- JPMorgan Chase and Company -- Analyst

Great. Thank you again.

Todd Vogensen -- Chief Financial Officer

Thank you.

Operator

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

Karru Martinson -- Jefferies -- Analyst

Good morning. Just on the inventory front, good position for holiday. Where do you see the supply chain starting to normalize? As we come up for the seasonally slow first quarter, do you see yourself catching up at that point? And how would we think about pricing going into '22?

Brad Weston -- Chief Executive Officer

Yeah, so supply chain -- regarding the supply chain disruptions, I think we all know that it's pretty broadly discussed issue in the industry and what we see is the bottleneck really created by the pandemic. So it will subside eventually. The big swings in supply and demand kind of need to smooth themselves out I think to the touch points in the logistics progress -- process. It's hard to say exactly how long it will last.

However, we're making supply chain investments to help partially mitigate the impact and the teams are doing an excellent job of navigating the difficult supply chain environment. As I mentioned as we sit here today, we anticipate supply chain headwinds to persist into 2022 and we continue to use price to mitigate those headwinds. We started that price work in Q3, which had a positive impact on netting those litigation costs down. We'll see additional impacts through price in Q4 and that will increase as we move into '22.

Karru Martinson -- Jefferies -- Analyst

OK. And then when you look at the ratings for the bonds here, CCC on both sides. Given the improvement and given the key Halloween season now behind us, are you in discussions with the rating agencies in terms of the upgrade?

Todd Vogensen -- Chief Financial Officer

Well, this is a general statement were I consistently in conversations with rating agencies just as a matter, of course, to make sure that they're staying updated on our business and keep in mind the communication open. So we obviously clearly are always talking to them about what our profile looks like as well as where we're headed, and that's that that should continue to be the case.

Karru Martinson -- Jefferies -- Analyst

And just housekeeping wise, the extra week last year, the $12 million EBITDA benefit, that flows into the first quarter of '22 this year or next year?

Todd Vogensen -- Chief Financial Officer

That would have -- it was in Q4. We had an extra week effectively in the fourth quarter because of the retail calendar. So you can look at it as just being purely incremental to Q4 last year and and then it normalizes out.

Karru Martinson -- Jefferies -- Analyst

OK. Thank you very much guys. Appreciate it.

Todd Vogensen -- Chief Financial Officer

All right. Thank you.

Operator

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

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

Good morning. You talked about increasing manufacturing domestically or potentially shifting. Last time I knew you had about $250 million of product that came from Asia. Is the numbers similar to that as of today? And I guess what types of shifts are we discussing here?

Brad Weston -- Chief Executive Officer

So, yeah, and I don't have the exact number sitting here with me but we don't see any significant changes in our Asia production. We're constantly looking at what sourcing options that we have, constantly looking at opportunities to upgrade or establish additional long-term partnerships, particularly as we're focusing on quality and innovation within the supply chain. The references to increase capacity in our U.S. manufacturing plants is really around how do we continue to increase capacity to meet demand in our business because the categories that we do manufacture domestically are among our best, including Anagram.

And so it's important for us to ensure that we have the right level of capabilities and the right resources to continue to expand capacity in those plants.

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

OK. And then in two ways, you discussed kind of pricing. You discussed increasing prices to offset inflation and then you also talked about increasing the quality of your products. Can you talk about how units were in that context and what types of changes you're making in those two pricing, I guess, factors?

Todd Vogensen -- Chief Financial Officer

Yeah, I would say that if there is innovation or quality that we're adding to the product that drives costs any higher than that we know that the marketplace will take on the higher average unit retail for that quality and for that innovation. We've seen that in our results and the consumer has a strong appetite for newness and when we introduced withing our curated assortment additional upgraded quality or new innovation, the consumer really responds. And often those demand the higher price and the good news is we can deliver those at the same or higher gross margins based on the elasticity associated with the quality and the innovation. There are places throughout our assortment where we do have cost increases on product related to freight materials and labor.

And so we're looking at price as another lever to mitigate a significant portion of those [Inaudible].

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

OK. And then just lastly for me. On the Halloween pop-ups, you did more than last year. You're still way below what you did in years past.

It sounds like you were successful. I guess, am I right in hearing that they were EBITDA positive? And I certainly know that there's a lot of variables there in terms of how many stores you open next year, but in the event that the real estate opportunities were similar to this year, would you expect to expand in the number? Thanks.

Brad Weston -- Chief Executive Officer

Yes, and we're not prepared prepared with the number at this point but I will tell you we are very pleased with our Halloween City performance. Our sales in the average store at Halloween City were at record levels. Our learnings from last year when we pulled back and chose to really lean into edgier, scarier, more adult-oriented products than we do in our Party City stores, along with updated store merchandising techniques all really resonated with the customer. So given the success in the business that we think was potentially even less on the table with the increase in demand and the implications of shifting to the adult business and weekend parties that will still exist with the Monday Halloween, we feel very good about '22.

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

Thanks. That's all for me.

Operator

There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Brad Weston for any closing remarks.

Brad Weston -- Chief Executive Officer

Thank you for all of your questions. In closing, I want to reiterate my gratitude to the entire PCHI team for their commitment to our vision and strategy and the extraordinary execution and superior results during a volatile operating environment. In particular, I'm extremely proud of supply chain leadership and the entire supply chain team throughout the network for their execution in creating availability of Halloween product for consumers and exceeded the performance of the broader market. In coming out of the dynamic Halloween season, we're also now well positioned for Christmas and New Year's eve as consumers continue to create joyful celebrations with friends and family.

Have an excellent day.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Eric Warren -- Treasurer and Head of Investor Relations

Brad Weston -- Chief Executive Officer

Todd Vogensen -- Chief Financial Officer

Rick Nelson -- Stephens Inc. -- Analyst

Todd Vogensen -- Chief Financial Officer

Joe Feldman -- Telsey Advisory Group -- Analyst

Jenna Giannelli -- Goldman Sachs -- Analyst

Carla Casella -- JPMorgan Chase and Company -- Analyst

Karru Martinson -- Jefferies -- Analyst

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

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