Helium Shortage Hits Party City, Which Is Closing 45 Stores This Year
Party City is planning to close about 45 of its roughly 870 stores in 2019.
The party supply specialist has not specified yet which locations will get the ax, but the company did say that the closures will be nationwide and that they will allow it to focus on its profitable locations.
"Each year, Party City typically closes 10-15 stores as a part of our prudent network optimization process and in response to ongoing consumer, market and economic changes that naturally arise in the business," Party City Holdco CEO Jim Harrison said during the company's earnings call on May 9. "This year, after careful consideration and evaluation of our store fleet, we’ve made the decision to close more stores than usual in order to help optimize our market level performance, focus on the most profitable locations and improve the overall health of our store portfolio."
After the store closures this year, the company believes it ought to be able to open as many as 200 stores in the United States and Canada in better locations than the ones closing.
Party City is also testing smaller-format stores in four markets. Those locations measure 7K SF to 10K SF and are designed to fill what the company sees as voids in smaller markets.
Harrison said the international helium shortage was to blame for Party City’s 1.4% drop in comparable-store sales during Q1 2019 compared with a year earlier.
According to Harrison, the shortage negatively affected the company's latex and metallic balloon sales, creating a 200-basis-point headwind for comp-store sales during the quarter.
"In reviewing the first quarter, I want to begin by providing an update on helium," Harrison said.
"As most of you are aware, balloons are a key product category for both our consumer products and retail businesses. As expected, the shortages we saw in the second half of 2018 have persisted, and we continue to expect it to create a Q2 headwind as well."
Helium, an element that is an inert gas at room temperature and which has a number of industrial uses, is in short supply. Most of the world's supply is produced in a few places — the Texas Panhandle, Wyoming and Qatar — and at least one of them, the Texas source, is near depletion, Gas World reports.
The industry is trying to bring new capacity online, but it is not clear whether that will ameliorate the shortage any time soon.
Party City has gone as far as advising customers that they might not be able to buy helium-filled balloons at some of its locations, suggesting alternatives such as air-filled balloons.
Despite current shortages, Harrison struck an optimistic note about his company's future access to helium. As of March 31, the company had secured about 15% of its annual requirement from alternative sources, he said.
"More importantly ... we have signed a multi-year letter of agreement with a new source of helium [that] we believe will provide additional quantity of helium beginning in Q3, thereby eliminating the shortfalls we are experiencing," Harrison said, adding that the new supply should allow the company to return to normal levels of balloon sales.
In dealing with the rising cost of helium in recent years, the company has been able to mitigate the problem by passing the cost along, Harrison said.
Investors have not been especially happy with Party City recently, with company shares taking a beating. A year ago, they were trading at $15.45/share, while the most recent price was about a $8/share.