PRESS RELEASE

PARTY CITY CORPORATION ANNOUNCES SECOND QUARTER
AND SIX MONTHS FISCAL 2004 RESULTS

Rockaway, New Jersey, February 6, 2004 – Party City Corporation (Nasdaq: PCTY), America’s largest party goods chain, today announced its operating results for the second quarter of Fiscal 2004 ended December 27, 2003.

Net sales for Company-owned stores increased 8.4% to $175.3 million from $161.6 million in the second quarter of the prior fiscal year. Same-store sales for the quarter increased 3.7% for company-owned stores and 7.0% for franchise stores. The variation in same store sales growth for franchise versus Company-owned stores was due largely to inventory depth during the Halloween season. Total chain-wide net sales (which include aggregate sales for the collective group of Company-owned and franchise stores) increased 9.5% to $366.4 million from $334.7 million in the comparable period last year.

The Company reported net income of $19.3 million, or $0.98 per diluted share, an increase of 28.2% compared with net income of $15.1 million, or $0.76 per diluted share, in the same period last year. Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $36.4 million, rising 15.0% compared with $31.6 million in the same period last year.

Gross margin as a percentage of sales declined slightly to 40.3% for the second quarter ended December 27, 2003 from 40.6% in the same period last year, primarily due to the continued emphasis on the clearance of discontinued merchandise as part of the Company’s strategic focus. Merchandise clearance and inventory reduction initiatives also led to a decrease of 15.7% in average inventory per store compared with the same period last year. Store operating expenses as a percent of sales decreased to 20.7% from 21.2% in the same period last year, largely due to reductions in store opening expenses and

grand-opening advertising expenses. General and administrative expenses as a percent of sales decreased to 4.3% from 5.2% in the same period last year, primarily reflecting higher expenses in the second quarter of last year associated with the Company’s new logistics initiative and professional fees related to the implementation of a new information system. Franchise profit contribution increased 16.3% to $5.7 million from $4.9 million in the comparable period last year, primarily reflecting increases in royalties from the increased franchise store base and same store sales increases. Interest expense decreased to $112,000 for the second quarter of Fiscal 2004 from $2.8 million in the same period last year, due to the repurchase of outstanding senior notes in the second quarter of Fiscal 2003.

Net sales for Company-owned stores increased 10.0% to $277.9 million for the six months ended December 27, 2003 from $252.8 million in same period of the prior fiscal year. Same-store sales for the recent six-month period increased 3.8% for Company-owned stores and 5.7% for franchise stores. Total chain-wide net sales (which include aggregate sales for the collective group of Company-owned and franchise stores) increased 9.5% to $572.9 million from $523.1 million in the comparable period last year.

Party City recorded net income of $17.3 million, or $0.88 per diluted share for the first half of Fiscal 2004, up 30.2% compared with net income of $13.3 million, or $0.67 per diluted share, in the same period last year. EBITDA was $37.1 million, a 12.5% increase compared with $33.0 million in the same period last year.

Gross margin declined as a percentage of sales to 35.6% for the six months ended December 27, 2003 from 36.5% in the same period 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. Store operating expenses as a percent of sales decreased to 22.4% from 22.9% in the same period last year, again due to a decrease in store opening expenses and grand-opening advertising expenses. Fewer stores were opened in the first six months of Fiscal 2004 compared with the same period last year. General and administrative expenses as a percent of sales decreased to 5.6% from 6.2% in the same period last year, reflecting expenses incurred in the second quarter of last year for the new logistics initiative and information system implementation. Franchise profit contribution increased 16.3% to $8.4 million from $7.2 million in the comparable period last year, reflecting increases in royalties from the increased franchise store base and same store sale increases. Interest expense decreased to $312,000 for the six months ended December 27, 2003 from $3.7 million in the same period last year, reflecting the repurchase of outstanding senior notes in the second quarter of Fiscal 2003.

Nancy Pedot, Chief Executive Officer of Party City Corporation, commented, “Party City’s financial performance during the second quarter of Fiscal 2004 was primarily driven by a strong Halloween season. We made progress in areas that will be important to our future success, including the reduction of per store inventory. To produce profitable growth and enhanced shareholder value on a consistent basis, however, we will continue our strategic focus on improving our merchandise assortment, shopping experience, and business processes, plus attract additional talented people to our team, the short-term effect of which may reduce our reported earnings.”

During the six months ended December 27, 2003, the Company opened six stores and closed one store compared with 30 openings (which included 11 stores acquired in Seattle and two acquired from franchisees) and no store closings during the same period last year. The Company also added 13 franchise stores in the first six months of Fiscal 2004.

Party City Corporation is America’s largest party goods chain. Party City currently operates 247 Company-owned stores and has 254 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.

PARTY CITY CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME


		Quarter Ended				Six Months Ended

		December 27,		December 28,		December 27,		December 28,
		2003		2002		2003		2002

Statement of Income Data:
Total revenues		$	182,560	$	168,191	$	289,535	$	263,197

Company-owned stores:
	Net sales	$	175,304	$	161,648	$	277,924	$	252,772
	Cost of goods sold and occupancy costs		104,705		95,974		179,033		160,399

	Gross profit		70,599		65,674		98,891		92,373
	Store operating and selling expense		36,290		34,288		62,169		57,986

	Company-owned stores profit contribution		34,309		31,386		36,722		34,387
	General and administrative expense		7,498		8,403		15,657		15,705

Retail contribution			26,811		22,983		21,065		18,682

Franchise stores:
	Royalty fees		7,216		6,503		11,123		10,150
	Franchise fees		40		40		488		275

	Total franchise revenues		7,256		6,543		11,611		10,425
	Total franchise expense		1,562		1,646		3,221		3,208

	Franchise profit contribution		5,694		4,897		8,390		7,217

Operating income			32,505		27,880		29,455		25,899
Interest expense, net			112		2,824		312		3,709

Income before income taxes			32,393		25,056		29,143		22,190
Provision for income taxes			13,103		10,006		11,803		8,876

Net income		$	19,290	$	15,050	$	17,340	$	13,314

Basic earnings per share		$	1.14	$	0.90	$	1.03	$	0.80

Weighted average shares outstanding — basic			16,867		16,803		16,856		16,600

Diluted earnings per share		$	0.98	$	0.76	$	0.88	$	0.67

Weighted average shares outstanding — diluted			19,624		19,896		19,620		19,904


			December 27,			December 28,			June 28,
			2003			2002			2003

ASSETS
Current assets:
	Cash and cash equivalents		$	20,550		$	3,273		$	3,372
	Merchandise inventory			60,281			69,189			65,908
	Other current assets, net			25,263			26,339			21,900

		Total current assets		106,094			98,801			91,180
Property and equipment, net				48,715			55,878			52,819
Goodwill				18,614			19,172			18,614
Other assets				5,201			4,087			5,386

		Total assets	$	178,624		$	177,938		$	167,999

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	34,458		$	44,890		$	37,960
	Accrued expenses and other current liabilities			36,062			28,656			24,998
	Book overdraft			—			6,654			4,126
	Advances under Loan Agreement			—			4,114			11,229

		Total current liabilities		70,520			84,314			78,313
Long-term liabilities:
	Deferred rent and other long-term liabilities			9,905			10,683			10,264
Commitments and contingencies
Stockholders’ equity:
	Common stock $0.01 par value, authorized 40,000,000 shares; issued 17,721,850, 17,113,873 and 17,296,807 shares, respectively			177			171			173
	Additional paid-in capital			44,611			41,366			43,178
	Retained earnings			59,351			43,233			42,011
	Treasury stock, at cost (747,012, 284,000 and 747,012 shares, respectively)			(5,940	)		(1,829	)		(5,940	)

		Total stockholders’ equity		98,199			82,941			79,422

		Total liabilities and stockholders’ equity	$	178,624		$	177,938		$	167,999


					Quarter Ended						Six Months Ended

					December 27,			December 28,			December 27,			December 28,
					2003			2002			2003			2002

Operating Data:
	Increase in Company-owned same store sales					3.7	%		1.9	%		3.8	%		2.5	%
	Increase in franchise same store sales					7.0	%		2.9	%		5.7	%		4.0	%
EBITDA (a)					$	36,395		$	31,641		$	37,147		$	33,032
Other Information:
	Depreciation and amortization				$	3,890		$	3,761		$	7,692		$	7,133
Cash flow provided by (used in):
	Investing activities				$	(2,071	)	$	(4,817	)	$	(3,529	)	$	(15,202	)
	Financing activities					(14,402	)		(21,880	)		(9,940	)		(4,907	)
Balance Sheet Data:
	Working capital				$	35,574		$	14,487		$	35,574		$	14,487
	Total assets					178,624			177,938			178,624			177,938
	Borrowings					—			4,114			—			4,114
	Stockholders’ equity					98,199			82,941			98,199			82,941
Store Data:
	Company-owned:
			Stores open at beginning of period			247			234			242			209
				Stores opened		—			5			6			28
				Stores closed		—			—			(1	)		—
				Stores acquired from franchisees		—			—			—			2

				Stores open at end of period		247			239			247			239

			Average Company-owned stores open in period			247			236			245			230
	Franchise:
			Stores open at beginning of period			253			247			241			242
				Stores opened		1			1			13			8
				Stores closed		—			(8	)		—			(8	)
				Stores sold to Company		—			—			—			(2	)

				Stores open at end of period		254			240			254			240

			Average Franchise stores open in period			253			247			251			245
			Total stores chainwide			501			479			501			479
		Chainwide sales – in thousands			$	366,419		$	334,711		$	572,868		$	523,096

(a)

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 net cash flow provided by 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 (“GAAP”). 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.

RECONCILIATION OF EBITDA TO NET INCOME AND
CASH PROVIDED BY OPERATING ACTIVITIES
(in thousands)
(Unaudited)

Because we consider EBITDA useful as an operating measure, a reconciliation of EBITDA to net income follows for the periods indicated:


	Quarter Ended						Six-Months Ended

	December 27,			December 28,			December 27,			December 28,
	2003			2002			2003			2002

EBITDA (a)	$	36,395		$	31,641		$	37,147		$	33,032
Depreciation and amortization		(3,890	)		(3,761	)		(7,692	)		(7,133	)
Interest expense, net		(112	)		(2,824	)		(312	)		(3,709	)
Provision for income taxes		(13,103	)		(10,006	)		(11,803	)		(8,876	)

Net income	$	19,290		$	15,050		$	17,340		$	13,314

Because we also consider EBITDA useful as a liquidity measure, we present the following reconciliation of EBITDA to our cash flow provided by operating activities:


			Quarter Ended						Six-Months Ended

			December 27,			December 28,			December 27,			December 28,
			2003			2002			2003			2002

EBITDA (a)			$	36,395		$	31,641		$	37,147		$	33,032
Interest expense, net				(112	)		(2,824	)		(312	)		(3,709	)
Provision for income taxes				(13,103	)		(10,006	)		(11,803	)		(8,876	)
Non-cash interest				40			1,304			80			1,554
Deferred rent				(117	)		128			(240	)		387
Equity based compensation				24			614			148			752
Provision for doubtful accounts				(77	)		(301	)		(140	)		(602	)
Other				6			356			10			44
Changes in assets and liabilities:
	Accounts payable, accrued expenses and other current liabilities			(20,691	)		(16,949	)		3,437			17,956
	Merchandise inventory			32,946			25,572			5,627			(12,915	)
	Other long-term liabilities			(12	)		(37	)		(119	)		—
	Other current assets and other assets			(2,869	)		(4,769	)		(3,188	)		(7,708	)

		Net cash provided by operating activities	$	32,430		$	24,729		$	30,647		$	19,915

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.


	Contact:	Linda M. Siluk
		Chief Financial Officer
		(973) 983-0888 Ext. 492

FOR IMMEDIATE RELEASE	Investors:	Edward Nebb
		Comm-Counsellors, LLC
		(212) 699-2745