Party City Tops IPO Price, Finally, With Lessons For Retail

(Bloomberg) -- Party City shouldn't break out the confetti and balloons just yet. But the party goods maker does have something to celebrate: Its stock finally rallied last week past $17 -- the share price it set when it went public back in April 2015.

This milestone helps erase the memory of a crummy public-market debut: Party City's stock popped after its IPO but then sank 67 percent through February to around $7 a share, as the company posted losses and missed Wall Street forecasts.

Now, it seems Party City is finding its groove. On Thursday it reported a 5 percent increase in second-quarter sales from a year earlier, and earnings swung to 19 cents a share from a loss of 20 cents a year ago. Its e-commerce sales rose by 16 percent, from 4.5 percent growth in the first quarter.

A look at what's fueling growth for the relatively small retailer, which brought in $2.3 billion in revenue last year, could be instructive for other, bigger chains struggling for growth. 

Party City stands out from other chains because, along with the 730 retail stores it operates, it is building up a big wholesale business. The vertically integrated company manufactures its own balloons and other party supplies to stock its own stores, but 30 percent of sales come from selling goods to big-box retailers such as Walmart and Staples. 

Making its own goods helps Party City boost profit margins -- a lesson apparel and grocery chains making private-label clothes and food are learning. Party City said Thursday it aims eventually to have its own manufactured goods make up half the products in its stores.

This practice also helps the company get a jump-start on fast-moving trends. Much as fast-fashion brands Zara and H&M have done with clothing, Party City doesn't wait for one of its vendors to catch on to a trend -- say, in Party City's case, mini-chalkboards or gingham prints. As soon as it sees something trending on social media sites such as Pinterest or Instagram, it can design and stock goods in stores within weeks, instead of months. That helped the company pounce on the recent Pokemon Go craze, for example.

The company is very much attuned to what it calls "Pinterest Anxiety"-- the idea that dinner parties and children's birthday celebrations are no longer just experienced by the attendees. Now there are also people watching on the web, as this story on digital wedding crashers artfully illuminates.

People want to turn get-togethers into Instagram-worthy events, replete with themed props and carefully selected decor. Hosting a Summer Olympics or Republican National Convention watching party? Party City's got you covered (though maybe it should re-think those creepy Ted Cruz masks).

In other words, Party City has figured out a way to tap consumers' growing preference for spending money on experiences over stuff to sell them, well, stuff. 

Party City, which was levered up by private equity firms with previous stakes in the businesses, still has $1.8 billion of debt on its balance sheet. But the company is smartly paying it down, while it continues to invest in bolt-on acquisitions and growing online sales. 

Right now, e-commerce represents just 7 percent of sales, a number poised to balloon as the company puts some real dollars behind building out its website. Indeed, the average web transaction is about 2.5 times what it is in stores. It's also expanding abroad to Mexico, Australia and Europe.

For Party City investors, it's not time to go home yet. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Its stock finally rallied past its $17 IPO share price

To contact the author of this story: Shelly Banjo in New York at sbanjo@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.