Party goods provider Party City Holdco Inc. (PRTY) dramatically missed its consensus estimates for the 2022 third quarter. It missed revenue estimates by 2.5% and its EPS by a substantial margin.

According to a survey by the National Retail Federation and Prosper Insights & Analytics, around 166.30 million people are estimated to shop during the 2022 Thanksgiving holidays.

Moreover, the company reduced its sales outlook for the third time in 2022. PRTY expects its full-year revenue to range between $2.14 billion to $2.19 billion, lower than its earlier guidance range of $2.15 billion to $2.23 billion. Also, PRTY is desperately trying to reduce its costs and expenses to save more amid uncertain macro conditions.

CEO Brad Weston said, “We are focused on $30 million of savings, with work already underway to deliver this target in 2023, including a corporate workforce reduction of 19% through a combination of position eliminations and not backfilling a significant number of open positions. We regret the impact on our employees who are affected.”

PRTY has lost 54.8% over the past month to close the last trading session at $0.73. It has lost 86.9% year-to-date and 88.7% over the past year.

Here is what could shape PRTY’s performance in the near term:

Weak Financials

PRTY’s net sales came in at $502.19 million for the third quarter that ended September 30, 2022, down marginally year-over-year. Its gross profit came in at $158.45 million, down 13.7% year-over-year. Moreover, its loss from operations came in at $153.53 million, compared to an income of $20.05 million in the year-ago period.

In addition, its net loss and loss per share increased substantially year-over-year to $372.99 million and $3.29, respectively.

Mixed Analyst Sentiment

For 2023, analysts expect PRTY’s revenue to increase marginally year-over-year to $2.15 billion. However, its revenue is expected to decrease 2.6% year-over-year to $680.30 million for the quarter ending December 2022 and marginally year-over-year to $2.14 billion in 2022.

Its EPS is expected to decrease 62.5% year-over-year to $0.15 for the quarter ending December 2022 and 300% year-over-year to negative $1.36 in 2022.

Poor Profitability

PRTY’s trailing-12-month gross profit margin of 14.44% is 59.6% lower than the industry average of 35.73%, while its trailing-12-month EBITDA margin of 2.40% is 78.3% lower than the industry average of 11.05%.

Also, its trailing-12-month negative net income margin of 11.90% is lower than the industry average of 5.12%. Its trailing-12-month ROTC and ROTA of negative 0.26% and 8.96% are lower than the industry average of 6.65% and 4.69%, respectively.

POWR Ratings Reflect Bleak Prospects

PRTY has an overall rating of F, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PRTY has an F grade for Stability, consistent with its beta of 2.74.

It has a D grade for Quality, in sync with its lower-than-industry profitability margins.

In the 46-stock Specialty Retailers industry, PRTY is ranked last.

Click here for the additional POWR Ratings for PRTY (Growth, Value, Momentum, Sentiment).

View all the top stocks in the Specialty Retailers industry here.

Bottom Line

PRTY witnessed a dismal financial performance in its last reported quarter. Moreover, it slashed its near-term sales guidance amid widespread macro headwinds. Furthermore, the stock closed its last trading session near its 52-week low of $0.72. Given its poor profitability, PRTY might be best avoided.

How Does Party City Holdco Inc. (PRTY) Stack up Against Its Peers?

While PRTY has an overall POWR Rating of F, one might consider looking at its industry peers, The ODP Corporation (ODP), which has an overall A (Strong Buy) rating, and TravelCenters of America Inc. (TA), Torrid Holdings Inc. (CURV), and Arko Corp. (ARKO), which have an overall B (Buy) rating.

PRTY shares were trading at $0.72 per share on Wednesday morning, down $0.01 (-1.98%). Year-to-date, PRTY has declined -87.07%, versus a -14.41% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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