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Why Party City Stock Just Crashed 59%

By Rich Smith - Nov 7, 2019 at 12:21PM

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Investors were hoping for a small profit, but they got a huge loss instead.

What happened

Party supplies chain Party City Holdco ( PRTY 4.05% ) reported its third-quarter 2019 earnings this morning, and its stock is in free fall -- down an astonishing 59.4% as of 11:35 a.m. EST.  

As you can probably guess, the news wasn't good.

Heading into earnings, analysts had predicted Party City would report only a penny per share in adjusted (i.e., pro forma) profit on $551.1 million in sales but, in fact, the news was much worse. Sales came in a bit short at $540.2 million, while earnings, well, there weren't any.  

Instead, Party City lost $0.28 per share (albeit, again, pro forma).

Sad clown standing behind a white wall.

Image source: Getty Images.

So what

Sales for the quarter declined 2.3% year over year, but the really bad news had to do with earnings. As if the pro forma earnings miss weren't bad enough, Party City produced GAAP results (that's earnings calculated according to generally accepted accounting principles) literally 100 times worse than a year ago. Q3 GAAP profits plunged from a $0.03-per-share loss in Q3 2018 to a $3.02-per-share loss in Q3 2019.

Ouch.

Now what

Management tried to blame the abysmal results on "the negative impact of helium shortages... across the business," but also noted that the company's "Halloween performance was soft in stores." On the first point, management said it has returned to "a 100% in stock helium position since we began the fourth quarter." On the second point, it said, "We are carefully analyzing our Halloween results and addressing the underlying issues and opportunities we have identified to improve the business going forward."

Nevertheless, the company's new earnings forecast for 2019 is disappointing. Management believes this year will wrap up with sales of no more than $2.38 billion, a same-store sales decline of 2% to 3%, and a GAAP net loss of between $1.86-$1.94 per share.

On an adjusted basis, earnings could be positive $0.84 to $0.91, but seeing as Wall Street is still looking for that number to be $1.28 by year-end, it looks like a near certainty that Party City will miss earnings this year.

No wonder investors are fleeing in droves.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Party City Holdco Inc. Stock Quote
Party City Holdco Inc.
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