Party City Files For Chapter 11 Bankruptcy

Key takeaways

• In an attempt to save the business, Party City has filed for chapter 11 bankruptcy.
• When the pandemic closed down in-person celebrations, the company struggled financially since they relied on social gatherings for revenue.
• Party City is one of many retailers that have been experiencing difficulties lately, and this bankruptcy could be a preview of what’s to come in the retail space in 2023.

Party City Holdco Inc., the parent company of the popular decorations retailer Party City, filed for Chapter 11 bankruptcy protection on January 17, 2023. This makes Party City another casualty resulting from soaring inflation and shifts in consumer spending habits.

We will look at what this bankruptcy filing means for Party City and the factors that brought the company to this point. Plus, here’s how Q.ai can help when big companies get shaken up like this.

Party City files for bankruptcy

Party City filed for bankruptcy protection on January 17, making it the most recent retailer to not survive the current macroeconomic tailwinds. Many analysts are concerned that this could be a preview of what’s in store for other major retailers as inflation numbers remain high and concerns of a possible recession loom.

The popular retailer was a household name for many who relied on them for party decorations, Halloween costumes, and celebration balloons. However, in recent years, the company had to deal with pandemic restrictions, supply chain issues, high inflation and an increase in competition that led to its debt load becoming unmanageable.

Before the pandemic closures, the company was performing well financially as the business grew and reached a revenue of about $2.35 billion in 2019. By November of last year, executives knew that the retailer was in trouble, and it hired the retail consulting firm AlixPArtners to determine how to proceed.

The company eventually made an agreement to reduce the debt and receive support from a group that holds over 70% of its first lien debt to proceed with the bankruptcy process. This pre-negotiated agreement with the bondholder group for an “expedited restructuring” is supposed to be completed during the second quarter.

Party City reported $1 billion in assets and $10 billion in liabilities during the bankruptcy filing.

It’s worth noting that Party City has landed a $150 million bankruptcy loan with the intent of using half of the financing to promptly pay employees and vendors on top of other expenses.

Party City gets access to $75 million

A judge recently granted Party City immediate access to $75 million of a $150 million loan. Judge David R. Jones from the U.S. Bankruptcy Court for the Southern District of Texas approved the financing package despite opposition from creditors like Mudrick Capital Management.

Party City will use the cash to continue its operations as it will have the resources to continue paying employees and suppliers. The final hearing about the debtor-in-possession loan regarding the rest of the financing will occur on February 14, 2023.

There are over 800 company-owned and franchised Party City stores across North America. In November, the company announced plans that they were going to reduce the corporate workforce by 19% when it was revealed that losses for 2022 could reach $200 million.

Party City stock was delisted

On January 18, 2023, it was announced that trading would halt and the stock would be delisted, effective immediately. Back in December, Party City was aware of the risk of being delisted from the NYSE because the stock had dropped under an average price of $1 per share for 30 trading days.

What happened to Party City?

The company has struggled in recent years as restrictions followed by soaring inflation completely changed consumer spending habits regarding discretionary purchases. Here are some of the factors that have contributed to the present-day situation.

Party City is aiming to restructure its debt

The party isn’t technically over just yet, as the company is using the bankruptcy procedure to restructure its debt while keeping a smaller amount of stores open across North America.

CEO Brad Weston attempted to paint an optimistic future with this statement in an investor press release:

“As we take this important step to put our business on stronger financial footing for the future, we are as committed as ever to inspiring joy by making it easy for our customers to create unforgettable memories. We appreciate the commitment of our team members and the continued support of our partners as we further enhance our position as the ‘go to’ one-stop-shop for celebrating life’s special moments.”

As of the period ending on September 30, 2022, Party City had $1.67 billion in debt with a liquidity of $122 million.

The company lost revenue during the pandemic era

When the world shut down, folks weren’t celebrating major milestones like graduations, proms, and retirements since many restrictions were in place. Many analysts pointed out how the company burned through cash to keep the roughly 800 stores open instead of focusing on the growth of an e-commerce platform.

Sales for the third quarter of 2022 had dropped 3.2% on a year-over-year basis but were still up 11.2% compared to 2019. According to court documents, the party goods retailer is hoping to end 28 store leases.

Other factors hurting Party City

When COVID-19 restrictions loosened, the company had to deal with the same issues as other major retailers, from a labor shortage to supply chain issues. One of the unique issues for Party City was the problem with the helium shortage that led to the price of helium going up. Balloons are a key business driver for Party City, and this cut into sales at the worst time.

To make matters worse, Party City had increased competition from large retailers like TargetTGT
and WalmartWMT
that started offering more decoration options. On top of the major retailers, more e-commerce brands and dollar stores entered the space. The competitive landscape led to a shrinking market cap for Party City.

Other notable retail issues

Party City isn’t the first retailer to struggle, as many major retailers have faced financial hardships in the last year or so. For example, Stitch Fix and Carvana thrived during the pandemic and now face a grim outlook.

Here are a few other retailers that are currently having issues with navigating the economic tailwinds.

Bed Bath & BeyondBBBY

It’s being reported that Bed Bath & Beyond is considering increasing its legal team in order to declare bankruptcy in the coming weeks. When the news of a possible bankruptcy came out, BBBY stock dropped 30% to $1.31 by the end of the trading session.

Previously, this meme stock became a pandemic darling for retail investors looking to band together to prop up stocks.

GameStopGME

The video game retailer hasn’t been performing well either, as several business strategies like NFT projected haven’t played out as expected. While it hasn’t been confirmed yet, reports are that GameStop could be going through its fifth round of layoffs since 2022.

How should you be investing?

It feels like it’s riskier than ever to be investing your money. As an investor, you have to be highly concerned about a company declaring bankruptcy since the stock would drop to zero, and you’ll likely never see your money again.

The good news is that Q.ai takes the guesswork out of investing. It uses artificial intelligence to scour the markets for the best investments for all risk tolerances and economic situations. Then, it bundles them in Investment Kits, like the Emerging Tech Kit, that make investing simple and strategic.

Best of all, you can activate Portfolio Protection anytime to protect your gains and reduce your losses, no matter what industry you invest in.

The bottom line

It’s essential to look over a company’s fundamentals to see how they’re performing financially. Party City has faced numerous issues in recent years, from weak sales to a helium shortage. We will be monitoring the situation to see how the bankruptcy proceedings continue.

The company published a message assuring customers, vendors and investors that they plan on staying in business. The goal is for the company to move on from bankruptcy, but there’s no telling what the overall economy has in store.

Download Q.ai today for access to AI-powered investment strategies.