Shares of Party City (NYSE:PRTY) were falling today after the festivity-themed retailer turned in a disappointing fourth-quarter earnings report as comparable sales slipped, due in part to ongoing helium supply challenges. As a result, the stock was down 10.7% as of 11:21 a.m. EST.
The nation's largest party-supply retailer said comparable sales fell 2.9% in the period, though e-commerce sales including "buy online pick up in stores" sales, which are included in the comparable sales figure, were up 32.5%.
Total revenue, which includes its wholesale segment, was up 2% in the quarter to $805.6 million, which was well below estimates at $817.9 million. Gross margin was down 160 basis points in the quarter to 45.3% due to increased freight and distribution costs and higher commodity and helium costs. Though operating income was actually down in the quarter, adjusted earnings per share increased from $0.81 to $1.08 due to a lower tax rate and a significantly reduced share count after a large stock repurchase in December 2017. That result missed estimates by a penny.
CEO James Harrison acknowledged the sales weakness, saying, "Our topline results for the fourth quarter were slightly below expectations in large part due to helium supply pressures that persisted from the third quarter."
Separately, Party City said CFO Dan Sullivan would be stepping down as of March 22 to pursue other opportunities. Chief Accounting Officer Michael Correale will serve as the interim CFO while the company searches for a permanent replacement.
Looking ahead to 2019, the company noted tailwinds, including Halloween taking place on a Thursday, and forecast comparable sales growth of 1% for the year. It also called for $2.49 to $2.54 billion in revenue, up from $2.43 billion in 2018, and adjusted EPS of $1.61 to $1.72, a modest improvement over $1.61 last year.
That guidance, however, was worse than analyst expectations of $2.54 billion and adjusted EPS at $1.85. Given the weaker-than-expected guidance and poor comps in the fourth quarter, it's not surprising to see the stock falling today. However, shares look cheap at a P/E of less than 7, making today's sell-off arguably a buying opportunity.