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Party City - Initiating Coverage (Part One)
Jory M. Eisenberg, CFA, FRM - Senior Analyst - Special Situations
James Goldstein, CFA - Senior Analyst - Retail & Gaming
Noah Schucking - Analyst - US Retail
EXECUTIVE SUMMARY
- We initiate coverage on Party City (PRTY) in a two part series. Party City is a vertically integrated supplier of party products that maintains a dominant market share in helium-filled foil balloons with products sold in retail stores, online and through a variety of international sales channel partnerships. In Part 1 of this report, we analyze Party City’s two business segments, discuss its recent financial performance and analyze its capital structure. In Part 2, we present a five-year projection model and will establish recovery value expectations and trade recommendations.
- Since the Company’s initial IPO back in 1996 (subsequently taken private and re-IPOd in 2015), the Company has grown topline revenue at an 11.5% CAGR, experiencing recession-resistant growth in revenue while preserving strong mid-teen EBITDA margins even throughout the Great Financial Crisis in 2008-10. Post-COVID, customer demand continues to remain persistent, bolstered in part by its leading market share of the highly profitable foil balloon business.
- Continued pressures on EBITDA margins related to ongoing helium shortages, supply chain disruptions and continued operating cost inflation, may continue to weigh on EBITDA margins.
BUSINESS DESCRIPTION
Party City considers itself to be the leading party goods company by revenue in North America and the largest vertically integrated supplier of decorated party goods globally. Through its retail footprint consisting of 756 company-owned store locations, 70 franchise locations in addition to seasonal pop-up stores and website, Party City aims to be a one-stop solution for all party-related, holiday and seasonal purchases. Between its retail and wholesale segments, the Company manufactures, distributes and sells a wide assortment of party products, filling customer demand for party products and solutions both within the U.S. and in 100+ international markets.
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