EX-99.1 3 y91461exv99w1.txt PRESS RELEASE [PARTY CITY LOGO] NEWS RELEASE Contact: Linda M. Siluk Chief Financial Officer (973) 983-0888 Ext. 492 FOR IMMEDIATE RELEASE Investors: Edward Nebb Comm-Counsellors, LLC (203) 972-8350 PARTY CITY CORPORATION ANNOUNCES FIRST QUARTER FISCAL 2004 RESULTS AND PRELIMINARY OCTOBER SALES ROCKAWAY, NEW JERSEY, NOVEMBER 7, 2003 - PARTY CITY CORPORATION (NASDAQ: PCTY), America's largest party goods chain, today announced its operating results for the first quarter of fiscal 2004 ended September 27, 2003. FIRST QUARTER RESULTS Net sales for Company-owned stores increased 12.6% to $102.6 million from $91.1 million in the first quarter of fiscal 2003. Total chain-wide net sales (which include aggregate sales for the collective group of company-owned and franchise stores) increased 9.6% to $206.4 million from $188.4 million in the same period of the prior fiscal year. Same-store sales for the quarter increased 3.9% and 3.3% for company-owned and franchise stores, respectively. Same-store sales for the same period last year were 3.4% and 5.9% for company-owned and franchise stores, respectively. Reflecting the seasonality of the business, the Company posted a net loss of $2.0 million, or $0.12 per basic and diluted share, compared with a net loss of $1.7 million, or $0.11 per basic and diluted share, in the same period last year. Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $752,000 compared to $1.4 million in the first quarter of the prior year. - more - Gross margin declined as a percentage of sales to 27.6% from 29.3% in the comparable quarter last year for two primary reasons: a high level of promotional activity in July and August, and the continued emphasis on the clearance of discontinued merchandise as part of the Company's strategic focus. Further, average inventory decreased 6.8% from the same period last year, reflecting efforts to reduce the amount of excess inventory. Store operating expenses as a percent of sales decreased to 25.2% from 26.0% in the same period last year due in large part to both a decrease in store opening expenses and a decrease in grand-opening advertising expense. Fewer stores were opened in the first quarter of fiscal 2004 compared with the same period last year. General and administrative expenses for the quarter as a percentage of sales remained relatively flat with last year at 8%. Franchise profit contribution increased 16.2% to $2.7 million from $2.3 million in the comparable period last year, reflecting increases in revenue from royalties and leverage on expenses directly related to the franchise business. PRELIMINARY HALLOWEEN SEASON RESULTS Based on preliminary information, the Company currently expects to report chain-wide net sales of $242 million for the five-week period ended November 1, 2003, which includes the Halloween selling season. This would represent a 13.9% increase from $212 million in the comparable period last year. Net sales for Company-owned stores are expected to increase 12.4% to $114.7 million for the applicable period, from $102.1 million for the same period last year. Same-store sales for the five-week period are expected to be approximately 7.2% for Company-owned stores and approximately 11.7% for franchise stores. Final sales results for this period will be reported on November 12, 2003. MANAGEMENT PERSPECTIVE Nancy Pedot, Acting Chief Executive Officer of Party City Corporation, commented, "The Company's performance in the first quarter of fiscal 2004 and throughout the key Halloween season benefited from initiatives to improve the flow of merchandise to our stores and enhance our customers' shopping experience. These early initiatives are elements of our overall strategic road map to enhance our business processes, sharpen the focus of our product assortment, become a greater `event' resource for our customers, and attract the additional talented people we need to accomplish our mission." - more - 2 Ms. Pedot concluded, "Going forward, we plan to expand the practices we successfully applied during the past season while implementing additional aspects of our strategic road map to enhance profitable growth and shareholder value." STORE GROWTH AND CHAIN UPDATE During the first quarter the Company opened six stores and closed one store compared with 25 openings and no closings during the same period in the prior fiscal year (which included 11 stores acquired in Seattle and two acquired from franchisees). The Company also added 12 franchise stores in the first quarter of fiscal 2004. Party City Corporation is America's largest party goods chain. Party City currently operates 247 Company-owned stores and has 253 franchise stores in the United States and Puerto Rico. To learn more about Party City, visit the Company's website at http://www.partycity.com. Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the competitive environment in the party goods industry in general and in the Company's specific market areas, inflation, changes in costs of goods and services and economic conditions in general. Those and other risks are more fully described in the Company's filings with the Securities and Exchange Commission. (Tables Follow) 3 PARTY CITY CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
QUARTER ENDED SEPTEMBER 27, SEPTEMBER 28, 2003 2002 -------- -------- (unaudited) (unaudited) STATEMENT OF OPERATIONS DATA: Total revenues .............................. $ 106,975 $ 95,006 ========= ========= Company-owned stores: Net sales ................................. $ 102,620 $ 91,124 Cost of goods sold and occupancy costs .... 74,328 64,425 --------- --------- Gross profit .............................. 28,292 26,699 Store operating and selling expense ....... 25,879 23,698 --------- --------- Company-owned stores profit contribution .. 2,413 3,001 General and administrative expense ........ 8,159 7,302 --------- --------- Retail loss contribution .................... (5,746) (4,301) --------- --------- Franchise stores: Royalty fees .............................. 3,908 3,647 Franchise fees ............................ 447 235 --------- --------- Total franchise revenues .................. 4,355 3,882 Total franchise expense ................... 1,659 1,562 --------- --------- Franchise profit contribution ............. 2,696 2,320 --------- --------- Operating loss .............................. (3,050) (1,981) Interest expense, net ....................... 200 885 --------- --------- Loss before income taxes .................... (3,250) (2,866) Benefit for income taxes .................... (1,300) (1,130) --------- --------- Net loss .................................... $ (1,950) $ (1,736) ========= ========= Basic and diluted loss per share ............ $ (0.12) $ (0.11) ========= ========= Weighted average shares outstanding -- basic and diluted .......... 16,599 16,396 ========= =========
4 PARTY CITY CORPORATION AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION)
SEPTEMBER 27 SEPTEMBER 28 JUNE 28, 2003 2002 2003(1) ------------ ------------ ------- (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .................................................... $ 4,603 $ 5,241 $ 3,372 Merchandise inventory ........................................................ 93,227 94,760 65,908 Other current assets, net .................................................... 22,360 21,402 21,900 --------- --------- --------- Total current assets ...................................................... 120,190 121,403 91,180 Property and equipment, net .................................................... 50,495 54,941 52,819 Goodwill ....................................................................... 18,614 19,062 18,614 Other assets ................................................................... 5,234 4,392 5,386 --------- --------- --------- Total assets .............................................................. $ 194,533 $ 199,798 $ 167,999 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................................. $ 64,841 $ 69,864 $ 37,960 Book overdraft ............................................................... 1,548 3,391 4,126 Accrued expenses and other current liabilities ............................... 24,823 23,893 24,998 Advances under Loan Agreement ................................................ 15,171 16,136 11,229 --------- --------- --------- Total current liabilities ................................................. 106,383 113,284 78,313 Long-term liabilities: Deferred rent and other long-term liabilities ................................ 10,034 10,310 10,264 Senior Notes ................................................................. -- 9,083 -- Commitments and contingencies Stockholders' equity: Common stock $.01 par value, authorized 25,000,000 shares; issued 17,425,070, 17,010,465 and 17,296,807 shares, respectively ................... 174 170 173 Additional paid-in capital ................................................... 43,821 40,597 43,178 Retained earnings ............................................................ 40,061 28,183 42,011 Treasury stock, at cost (747,012, 284,000 and 747,012 shares, respectively) .. (5,940) (1,829) (5,940) --------- --------- --------- Total stockholders' equity ..................................................... 78,116 67,121 79,422 --------- --------- --------- Total liabilities and stockholders' equity ................................ $ 194,533 $ 199,798 $ 167,999 ========= ========= =========
(1) The June 28, 2003 condensed consolidated balance sheet was derived from the Company's audited consolidated financial statements. 5 PARTY CITY CORPORATION AND SUBSIDIARY STORE AND OPERATING DATA (IN THOUSANDS, EXCEPT STORE DATA)
QUARTER ENDED SEPTEMBER 27, SEPTEMBER 28, 2003 2002 ------------- ------------- OPERATING DATA: Increase in Company-owned same store sales (a) ... 3.9% 3.4% ========= ========= Increase in franchise same store sales (a) ....... 3.3% 5.9% ========= ========= Average sales per Company-owned store ............ $ 429 $ 427 ========= ========= OTHER INFORMATION: Depreciation and amortization .................... $ 3,802 $ 3,372 ========= ========= CASH FLOW PROVIDED BY (USED IN): Investing activities ............................. $ (1,448) $ (10,385) ========= ========= Financing activities ............................. 4,462 16,973 ========= ========= BALANCE SHEET DATA: Working capital .................................. $ 13,807 $ 8,119 ========= ========= Total assets ..................................... 194,533 199,798 ========= ========= Borrowings (b) ................................... 15,171 25,219 ========= ========= Stockholders' equity ............................. 78,116 67,121 ========= ========= STORE DATA: COMPANY-OWNED: Stores open at beginning of period ............ 242 209 Stores opened ............................... 6 23 Stores closed ............................... (1) -- Stores acquired from franchisees ............ -- 2 --------- --------- Stores open at end of period ................ 247 234 --------- --------- Average Company-owned stores open in period ... 245 224 FRANCHISE: Stores open at beginning of period ............ 241 242 Stores opened ............................... 12 7 Stores sold to Company ...................... -- (2) --------- --------- Stores open at end of period ................ 253 247 --------- --------- Average Franchise stores open in period ....... 248 244 Total stores chainwide ........................ 500 481 Chainwide sales - in thousands ................. $ 206,449 $ 188,385 ========= =========
(a) Same store sales for company-owned and franchise stores are subject to material differences based on the age of the respective stores for each group. New stores historically have had higher same store comparable sales. (b) The borrowings at September 27, 2003 and at September 28, 2002, respectively, are net of an unamortized debt discount of $0 and $1.1 million, respectively. - more - 6 PARTY CITY CORPORATION AND SUBSIDIARY RECONCILIATION OF EBITDA TO NET INCOME AND CASH PROVIDED BY OPERATING ACTIVITIES (IN THOUSANDS) (UNAUDITED) A reconciliation of EBITDA to net income follows for the periods indicated:
QUARTER ENDED SEPTEMBER 27, SEPTEMBER 28, 2003 2002 ---- ---- EBITDA (c) ...................... $ 752 $ 1,391 Depreciation and amortization ... (3,802) (3,372) Interest expense, net ........... (200) (885) Benefit for income taxes ........ 1,300 1,130 ------- ------- Net loss ........................ $(1,950) $(1,736) ======= =======
(c) Our definition of EBITDA is earnings before interest, taxes, depreciation and amortization. We believe EBITDA provides additional information for determining our ability to meet future debt service requirements. EBITDA should not be construed as a substitute for net income or cash flow from operating activities (all as determined in accordance with generally accepted accounting principles) for the purpose of analyzing our operating performance, financial position and cash flows as EBITDA is not defined by generally accepted accounting principles. We have presented EBITDA, however, because it is commonly used by certain investors and analysts to analyze and compare companies on the basis of operating performance and to determine a company's ability to service and/or incur debt. Our computation of EBITDA may not be comparable to similar titled measures of other companies. Because we also consider EBITDA useful as a liquidity measure, we present the following reconciliation of EBITDA to our cash flow from operating activities:
QUARTER ENDED SEPTEMBER 27, SEPTEMBER 28, 2003 2002 ------------- ------------- EBITDA ....................................... $ 752 $ 1,391 Interest expense, net . ...................... (200) (885) Benefit for income taxes ..................... 1,300 1,130 Non-cash interest ............................ 40 250 Deferred rent ................................ (123) 259 Equity based compensation .................... 124 138 Provision for doubtful accounts .............. (63) (301) Other ........................................ 4 (312) Changes in assets and liabilities: Accounts payable, accrued expenses and other current liabilities ........... 24,128 34,905 Merchandise inventory ...................... (27,319) (38,487) Other long-term liabilities ................ (107) 37 Other current assets and other assets ...... (319) (2,939) -------- -------- Net cash used in operating activities .... $ (1,783) $ (4,814) ======== ========
We use EBITDA to determine our executive compensation plan which bases incentive compensation payments on our EBITDA performance measured against budget. EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA only supplementally. See the Statements of Cash Flow to be included in our 10-Q for the first quarter ended September 27, 2003. # # # 7