Party City Holdings Inc. stock plunged more than 61% on Monday after the retailer reported an earnings miss driven by a variety of factors, including higher freight and port fees and problems with the global helium supply.
Early in the year, omicron was a challenge, putting the kibosh on many gatherings, though Valentine’s Day, the Super Bowl, St. Patrick’s Day and Mardi Gras gave seasonal business a boost. By March, the company
says inflation was putting pressure on consumers.
Supply chain disruption has also created hurdles and additional costs.
“While we expected freight to be a headwind in the first quarter, freight costs did not abate quite as we had predicted given ongoing supply chain challenges,” said Chief Executive Brad Weston on the earnings call, according to FactSet.
“In addition, we incurred greater-than-expected port fees given delays in the unloading of containers.”
Taken together, Weston says the additional fees impacted gross profit by $12 million.
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The company was also hit by problems in the global helium market. In the U.S., a plant that produces 8% of global helium has had operational issues since 2021 and completely shut down in January 2022. Operations could resume in June.
Two of the four plants in Qatar were shut down for maintenance in March, and restarted in April. Qatar produces 35% of the global helium supply.
And a Gazprom plant in Siberia exploded.
“Although Russia only produced 3% of the global helium supply in 2021, this facility was expected to contribute a significant amount of global helium in the coming years,” said Weston.
“As a result of these factors, all major helium suppliers have instituted allocations, which have resulted in a need for us to tap the spot market to augment our near-term helium needs.”
While the company says it has been able to find the helium to meet demand, it’s coming at a higher cost, and impacted gross profit by $2 million.
This isn’t the first time that Party City was hit hard by soaring freight costs and helium supply problems. The company says it has diversified its helium supply and is now taking steps to improve customer engagement, including a new website coming in early June.
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First quarter net loss totaled $26.9 million, or 24 cents per share, after a loss of $14.1 million, or 13 cents per share. Adjusted loss of 22 cents per share was wider than the FactSet consensus for a 12-cents-per-share loss. Sales of $433.0 million were up from $426.8 million and also missed the FactSet consensus of $435.8 million.
“As we look to the remainder of 2022, we expect supply chain and inflationary headwinds to continue, which is reflected in our updated outlook,” Weston said in an earnings statement.
Party City is guiding for sales of $2.225 billion to $2.300 billion. The FactSet consensus is for sales of $2.300 billion.
Party City stock is down 78.8% for the year to date.