Store Impairment and Restructuring Charges

12 Months Ended

Dec. 31, 2019

Restructuring and Related Activities [Abstract]

Store Impairment and Restructuring Charges

Note 3—Store Impairment and Restructuring charges

Each year, the Company typically closes approximately ten Party City stores as part of its typical network rationalization process and in response to ongoing consumer, market and economic changes that naturally arise in the business. During the year ended December 31, 2019, the Company performed a comprehensive review of its store locations aimed at improving the overall productivity of such locations (“store optimization program”) and, after careful consideration and evaluation of the store locations, the Company made the decision to accelerate the optimization of its store portfolio with the closure of approximately 55 stores which are primarily located in close proximity to other Party City stores. These closings are expected to provide the Company with capital flexibility to expand into underserved markets. In conjunction with the store optimization program, during the year ended December 31, 2019, the Company recorded the following charges:

	December 31,
	2019
Inventory reserves	$	21,284
Operating lease asset impairment		14,943
Property, plant and equipment impairment		4,680
Labor and other costs incurred closing stores		8,754
Severance		661
Total	$	50,322

Such amounts represent the Company’s best estimate of the total charges that are expected to be recorded for such items. As the Company closes the stores, it records charges for common area maintenance, insurance and taxes to be paid subsequent to such closures in accordance with the stores’ lease agreements. However, such amounts are immaterial.

The fair values of the operating lease assets and property, plant and equipment were determined based on estimated future discounted cash flows for such assets using market participant assumptions, including data on the ability to sub-lease the stores.

The charge for inventory reserves represents inventory that is disposed of following the closures of the stores and inventory that is sold below cost prior to such closures. The charge for inventory reserves was recorded in cost of sales in the Company’s statement of operations and comprehensive loss. The other charges were recorded in Store impairment and restructuring charges in the Company’s statement of operations and comprehensive loss.

The Company cannot guarantee that it will be able to achieve the anticipated benefits from the store optimization program. If the Company is unable to achieve such benefits, its results of operations and financial condition could be affected.