Dive Brief:
- Party City's helium business is expecting to take a beating this quarter as spot rates spike amid logistical headaches, executives said on an earnings call.
- Executives told analysts that, even after working to diversify and secure helium sources since 2018, they expect to pay higher-than-expected prices to meet peak balloon season tied to graduations in Q2.
- The company posted an operating loss of $20 million for the quarter while higher supply chain, material, merchandise and labor costs led to a profit margin hit, and higher store and corporate labor costs increased operating expenses.
Dive Insight:
Analysts on the company's Q1 conference call Monday peppered executives with questions about the $7 million hit management expects to take on helium as spot rates spike. The helium cost pressures the company is feeling differ significantly from past years and is largely due to logistical issues in the market, according to Party City executives.
Few if any retailers are quite as tied to balloons as Party City. The company makes $92 million from its balloon distribution channel, and is revamping its store fleet to, in part, bring more attention to its balloon service.
The pressures from helium add to across-the-board supply chain challenges for many retailers. At Party City, executives said, the company has already brought in more Halloween inventory or has that inventory in transit, compared to last year, when supply chain issues spiraled for many categories. The company also plans to charter its own ships, as it did last year.
For Q1, Party City missed analyst estimates for sales and profit, according to Seeking Alpha. Along with a drop in traffic from omicron in January, executives said in March they began seeing consumers reacted to price inflation, the end of stimulus payments, war in Europe and headlines around interest rate hikes.
The various challenges led the company to cut its outlook for the year slightly, with roughly $50 million in sales dropped from top-line guidance compared to earlier estimates.
In the year ahead, Party City plans to remodel up to 125 stores in its next-generation format, introduce hundreds of new products and launch a new website.
