Party City files for bankruptcy as inflation dampens sales

Party City — the leading U.S. party goods and Halloween supplies specialty retailer — has filed for Chapter 11 bankruptcy protection to cut debt following dwindling sales.

The company, based in Woodcliff Lake, New Jersey, said that its franchise stores, subsidiaries outside of the U.S. and its foil balloons Anagram business are not part of the restructuring and will remain core components of its business.

The chain is planning an expedited restructuring that it said would substantially lower its debt and free up cash.

The company has secured a commitment for $150 million in debtor-in-possession financing. It said the financing, which is subject to court approval, would provide ample cash to continue operations.

In November, the New York-based chain warned in its third-quarter earnings report that due to an uncertain economic environment, the company could not make assurances that it could generate enough cash or that future borrowings would be sufficient to repay indebtedness or fund other liquidity needs.

Party City had net debt of $1.75 billion as of Sept. 30 and cash of just $29.8 million. The company used $286.4 million of net cash for operations in the first nine months of 2022, compared to $73.6 million in the prior year period. The increase was primarily attributable to increased inventory purchases and higher freight and raw materials costs.

Third-quarter net sales fell 1.6% to $502.2 million compared to the prior year. Same-store sales slid 3.2% on an annual basis. 

The net loss widened to $373 million from $2.8 million. 

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The New York-based chain operates more than 800 company-owned and franchise stores throughout North America.

"We delivered third quarter results that were broadly in line with our expectations against a macro backdrop that has our core customer facing significant inflationary pressures," CEO Brad Weston said, adding that transitory cost headwinds continue to pressure the company's bottom line. 

The stock has been on a slide since closing at $10.76 per share in June 2021. Last month the company received a continued listing standards notice from the New York Stock Exchange because it failed to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period.

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Party City was straddled with $1.5 billion of debt financing when private equity firm Thomas H. Lee Partners bought most of the company in 2012 for $2.69 billion from Advent International, Berkshire Partners, Weston Presidio and company management. The company then went public in 2015.

The Wall Street Journal first reported earlier this month that Party City had been in talks with bondholders to turn debt into equity as it tries to trim the balance sheet and better position itself amid the current economy.

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Bed Bath & Beyond

The move comes just after beleaguered Bed Bath & Beyond warned that it may also need to file for bankruptcy protection. 

The New Jersey-based company, once seen as a powerhouse home goods retailer, has been struggling with lackluster sales for years as it fails to compete with the likes of Target and Walmart. 

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The company is currently looking at several options, including selling assets or restructuring its business in bankruptcy court. But it acknowledged that even those efforts may not be successful.

"There is substantial doubt about the company’s ability to continue as a going concern," the retailer said in a statement. 

Last month, even Twitter CEO Elon Musk said his investment has been "in the fast lane to bankruptcy" since before his takeover in May.

The Associated Press contributed to this report.