Party City Could Be Going Bankrupt?
Party City received a poor analysis from CreditRiskMonitor and their chance of bankruptcy looks much higher than other stores in the same sector
Party City, everyone’s favorite party store, could be in trouble. A financial analysis of the retail world was recently released and it contained some bad news for the retail giant. And it appears the party store’s financial woes may very well result in bankruptcy in the near future.
According to FRISK scores recently released by CreditRiskMonitor, Party City joins the ranks of 17 other retailers facing a heightened bankruptcy risk for the next 12 months. FRISK scores reflect the likelihood of a company declaring bankruptcy within a year. According to Retail Dive, the score accounts for data such as financial metrics, internal analytics, and trading volatility.
And in this case, stores want as high of a score as possible. The lower score reflects the worst possible financial outcome. Companies scoring a 1 have an increased risk of filing for bankruptcy, which ranges from a 9.99% to a 50% chance.
Unfortunately, the news is not too surprising. As the go-to source for party supplies and Halloween costumes, the pandemic hit the company particularly hard. Sales took a major blow with the cessation of parties and social gatherings.
To make matters worse, Party City did not enter the pandemic in a top financial state. So the drastic drop in sales hit the company extra hard. As social circles and the economy re-opened, they saw a resurgence in sales, but it was not quite enough.
Last year, only three retailers found themselves holding that unwanted ranking. But this year, the outlook is far worse. There are currently 18 stores with a FRISK ranking of 1, including Party City.
So what exactly would bankruptcy mean for Party City? Well, the short answer is that it depends on how they file. Chapter 7 bankruptcy is indicative of extreme financial trouble and typically results in the liquidation of the company.
But, Chapter 11 bankruptcy is the more common option for businesses. And this road offers an organization the ability to restructure to regain a profitable position. So, while it is not welcome news, companies can move past it.
Whether Party City will overcome its current financial predicament remains unknown. Despite a resurgence in social gatherings, the company has struggled with significant supply chain issues and inflation-related woes. One of the major setbacks, according to Best Life, is the helium shortages plaguing the nation.
Additionally, increased energy, shipping, and product costs have led to higher operating costs. These issues, combined with other external factors, resulted in a major drop in second-quarter sales. That quarter, sales fell by nearly 5%.
In August, Telsey Advisory Group analysts noted that the dip likely resulted from “a sales slowdown attributed to consumers traveling more and taking celebrations on the road, as well as lapping government stimulus and the reopening of the country last year.” If that is the case, Party City’s woes may be far from over. As consumers are facing growing inflation, they are spending less.
So, even with Halloween and the winter holidays approaching, the retailer could be hard-pressed to overcome this current hurdle. The next twelve months will ultimately show how they fare. And if you are a Party City fan, now might be a great time to show some support and stock up on supplies!
