Major Retailer Appears Headed For Bankruptcy

The beloved chain blames high inflation and struggling sales for its recent dismal performance.

The party may be over at Party City.

Beloved theme and costume retailer Party City  (PRTY) - Get Free Report is said to be considering bankruptcy within weeks, and is talking to bondholders about converting its debt to equity to help shore up its balance sheet.

The company is also exploring restructuring through AlixPartners LLP, the Wall Street Journal reported on Friday. 

But the efforts may be too little, too late. Last month, Party City was warned by the NYSE that its stock price was not in compliance with its trading criteria. For reference, all stocks listed on NYSE must trade at or above $1 over a 30-day period. When a stock falls below that threshold, it risks being delisted. As of the time of this writing, Party City is trading at around $0.17.

Party City Hit Amidst Retail Bankruptcies

The New Jersey-based company had been trading below $1 for nearly 2 months before it began seeking liquidation options. Following the news of a prospective bankruptcy, its stock plummeted nearly 60%, bringing it to a market cap of only $20 million. 

For reference, bedraggled retailer Bed Bath and Beyond  (BBBY) - Get Free Report has a market cap of nearly 5 times that -- $112 million as of this writing. The home and kitchen retailer has plenty of troubles of its own, announcing it would consider "obtaining relief under the U.S. bankruptcy code," on Thursday. That stock is down 47% this week on the news. 

It's Been Tough For Some Brick And Mortar Retailers

Party City has been plagued with business difficulties for years. But recent shifts in shopping behaviors and supply chain constraints have exacerbated its issues. Shortages of helium, which the company needs a regular supply of to fill inexpensive party props like balloons, have squeezed margins and poor Halloween sales, which is typically the stores' bumper season, dragged down earnings.

The retailer showed some signs of life in 2022, after it brought on former Carter's  (CRI) - Get Free Report executive Peter Smith as COO. Both Smith and Party City CEO Brad Weston were charged with the mammoth task of overseeing and optimizing "manufacturing, sourcing, inventory optimization and supply chain efficiency." Ultimately, this came down to cutting costs by $30 million and cutting 19% of the company workforce. 

Their best efforts proved largely ineffective as a way to salvage the business, however. 

"Looking ahead, we anticipate the current macro backdrop to persist and are taking action to best position the business in this environment and for the longer term," Weston said in the Q3 earnings call in November.

A Backdrop of Bankruptcies This Year

As supply chain constraints and inflated pricing for raw goods and materials continue to squeeze companies, many legacy retailers are feeling hit the hardest. 

A recent release by legal intelligence column JD Supra listed its top 10 retailers to watch for bankruptcy this year; all but 1 are traditional brick and mortar goods stores. The tenth is AMC  (AMC) - Get Free Report, which has a whole host of its own issues. Others to watch include Gap  (GPS) - Get Free Report, Kohl's  (KSS) - Get Free Report, Joann Fabric  (JOAN) - Get Free Report, and Rite Aid  (RAD) - Get Free Report.