Friday, November 8, 2019
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Or one quarter to lose it all
Every business has some element of seasonality. Some are more extreme than others.
Ice cream shops at the Jersey Shore need to have a big summer. Ski lift operators in Colorado need to have a big winter. Retailers need to nail the holiday shopping season, and so on.
For Party City (PRTY), that season is Halloween. And this year, they blew it.
"Our third quarter and October results were disappointing as many of the tailwinds that we expected failed to materialize," CEO James Harrison said in the company's earnings release.
Helium shortages that have pressured the business for some time didn't abate. Tariffs hurt the business. Markdowns hurt the business. And perhaps worst of all, per-store sales at the company's pop-up Halloween City shops fell 20.8% from last year.
In October 2019, the company logged revenue of $432.6 million, down 7% from last year. The company also cut its annual guidance for the second quarter in a row.
Shares of the company fell 67% on Thursday as a result.
And while Party City's struggles since going public in 2015 are not confined to this quarter — the stock is down 90% — this year’s execution miss during the company's most important quarter serves as a warning to the broader retail sector ahead of the 2019 holiday season.
This year, the time between Black Friday and Christmas Eve is as short as possible at just 26 days. Last year, in contrast, there were 32 days between the two.
Analysts and companies have already cautioned that this holiday shopping season could be pressured by the quick turnaround from the unofficial start of the holiday shopping season until the last day retailers are open before Christmas.
Analysts at eMarketer forecast that U.S. holiday season retail sales should pass $1 trillion for the first time this year, but that estimate covers sales for all of November and December.
And while a record year is expected, “rising tariffs, trade war tensions, stock market volatility and dampening consumer sentiment all weigh on the season’s growth potential,” said eMarketer analyst Andrew Lipsman.
“A shortened calendar between Thanksgiving and Christmas also presents a challenge.”
In response to this year’s calendar challenges, many retailers have already started their holiday sales. (And, without starting too much of a firestorm, the Morning Brief supports Christmas music beginning November 1.)
So while giants like Target and Walmart are pushing the calendar limitations year’s shopping season, not all retailers may be successful in overcoming the learned consumer behavior of shopping for gifts between Thanksgiving and Christmas.
And Party City’s struggles during their most important season should come as a warning to investors who could be faced with unpleasant surprises from some retailers in the new year.
What to watch today
10 a.m. ET: Wholesale Inventories month-on-month, September final (-0.3% prior)
10 a.m. ET: University of Michigan Sentiment, November preliminary (96.0 expected, 95.5 prior)
Investors wooed to invest in Saudi Aramco with $100B dividend [Yahoo Finance UK]
Disney 4Q earnings top expectations, stock jumps [Yahoo Finance]
Gap CEO Art Peck to step down [Reuters]