Party City to begin auctioning off store leases (updated)

A month after filing for Chapter 11 bankruptcy protection, Party City Holdco Inc. is looking to shrink its retail footprint as part of an expedited financial restructuring.

In a Feb. 16 filing with U.S. bankruptcy court, the Woodcliff Lake-based operator of 800-plus stores said it is working with A&G Real Estate Partners to auction off leases for 12 underperforming locations in six states. In coming weeks, additional lease auctions will follow, with the total number of closures depending on the outcome of ongoing negotiations with landlords, according to A&G.

The first tranche – which range in size from 9,000 square feet to 28,000 square feet and are a mix of freestanding sites and stores in shopping plazas – includes locations in New York, Missouri, Michigan, Oregon, Oklahoma and West Virginia, A&G said.

In its court filing, Party City also identified 10 more leases that will be auctioned as part of the next phase, including one New Jersey location – in Woodland Park at McBride Lenox Plaza Shopping Center. The list also identifies stores in Texas, New York, Georgia, West Virginia, Louisiana, Michigan, Iowa and Illinois.

“Given the high cost of new construction in today’s marketplace, the lack of new development, and the strong attributes of many of these Party City locations, we expect good interest from local and regional tenants who see this as an opportunity to open in a fully built-out retail box and begin doing business within three months,” said Andy Graiser, co-president of A&G.

According to A&G, uses that have begun to show interest in the locations up for auction include dollar stores, gyms, local retail and specialty businesses, and medical practices.

The New York City-headquartered real estate advisory and services firm is also helping Party City evaluate its lease portfolio strategy as the retailer looks to reduce debt as well as optimize capital structure and liquidity.

“Our work on our lease portfolio is moving very quickly, with a plan for us to exit locations that do not meet the key financial metrics required for our go-forward fleet,” said Marc Ehle, Party City’s executive vice president of enterprise operations.

After Party City filed for bankruptcy in January, a federal judge granted immediate access to $75 million of $150 million debtor-in-possession financing, enabling the retailer to continue operating in the near term. The company also entered into a restructuring agreement with a bondholder group that will enable Party City to substantially reduce its $1.67 billion debt load.

The reorganization is expected to be completed in the second quarter of 2023, according to Party City. Its subsidiaries outside of the U.S., its franchise stores, and its Anagram business are not part of the bankruptcy proceedings.

In discussing the company’s most recent quarterly report in November, Party City Chief Executive Officer Brad Weston said inflationary pressures were continuing to impact consumers’ ability and willingness to spend money on celebrations. He also said inventory levels have been affected by ongoing supply chain woes in addition to helium shortages.

As of Sept. 30, 2022, Party City reported $1.67 billion in debt, with available liquidity of $122 million, made up of $30 million in cash and $92 million of revolver availability. For the third quarter of Fiscal Year 2022, Party City recorded total net sales of $502.2 million, a 1.6% decrease from Q3 2021.

Party City hasn’t yet reported its fourth quarter or 2022 full-year earnings.

Following flat sales during its crucial Halloween season, Party City went into cost-cutting mode, with the goal of trimming $30 million from retail store efficiencies in areas such as information technology, contracts, marketing, raw materials and professional services. Additionally, the company reduced its corporate workforce by 19% through a combination of position eliminations and leaving open positions unfilled, Weston said.

Founded 36 years ago in East Hanover, Party City is the largest retailer of party goods in the U.S., Canada and Mexico. It operates more than 900 company-owned and franchise outlets under the Party City, Halloween City, Toy City, Factory Card and Party Outlet brands. However, the company has struggled to keep pace with changing consumer behavior in recent years, particularly amid the growth of e-commerce and big box retailers.

Since 2019, the company has been working on large-scale changes, such as restructuring its debt and closing 55 stores. As of last month, the chain operated 823 stores, 770 of which were company-owned.

Editor’s note: This story was updated at 1:35 p.m. ET Feb. 20 clarify the order of the states that would see store closures.

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