Party City Seen Improving on Last Year's Q3; Halloween a Potential Headwind for Q4

Party City Holdco (PRTY) is expected to report that third quarter 2016 earnings and revenue will improve over last year when it releases its results before Thursday's opening bell.

As many as 11 analysts surveyed by FactSet are looking for adjusted earnings of 12 cents per share on revenue of $584.9 million. Comparable-store sales are projected to increase 1.7%, according to FactSet.

During the same quarter last year, the Elmsford, NY-based party goods retailer earned 10 cents per diluted share on revenue of $555.4 million. Brand comparable-store sales fell 3.6%

Goldman Sachs recently initiated coverage of the stock with a "neutral" rating and $17 price target.

The firm is "constructive" on the company's prospects, but views the current share price as fair in front of a slower back half for earnings growth relative to its "solid" second quarter.

"We are encouraged by the secular growth of Halloween as a spending event; vertical integration, supported by bolt-on acquisitions that should continue to drive margins higher; and balance sheet deleveraging, which represents a tailwind to EPS and frees up cash for more productive use," Goldman wrote in a note.

Goldman noted that Halloween fell on a Monday this year, which may present a headwind to Party City's fourth quarter, which makes up the majority of full year EBIT. Fewer people are likely to buy party equipment and celebrate when the holiday falls outside the weekend.

But the firm noted that multi-year comparisons are tough: Halloween fiscal October same-store sales grew 3.3% in 2015, increased 8.3% in 2014 and rose 7.1% in 2013. Halloween represents 25% of Party City's revenue and the fourth-quarter overall makes up 35% of annual sales.

"There is limited data and no company guidance that attempts to quantify the impact of a shift from Saturday to Monday, which has
not occurred in over a decade, but PRTY does expect a headwind, notably in adult spend, and chose to open fewer Halloween City 'pop-up' stores in part due to this issue," the firm added.

Additionally, Goldman said international growth is a nascent, but promising opportunity for the company. The retailer is focused on Mexico, the U.K., Australia and continental Europe through a variety of business models including franchise agreements and standalone stores.

Shares of Party City fell 10 cents to $15.30 today. The stock is up more than 18% year-to-date. 

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