Party City - The Rise and Fall...And Rise Again

this episode is brought to you by Nord VPN it's the service that I used to protect myself on the web and they have this special offer for my viewers 75% off a three-year plan simply go to Nord VPN comm / company man to get it oh and for a short time you can use the code company man to get one extra month for free it's all in the description hey everyone are you familiar with Party City you know what I'll get to that in a minute let's just get this party started all right what do we need drinks and snacks of course maybe some music maybe some flashing lights all right no flashing lights and you know what a party really needs a bunch of party themed nonsense napkins that say happy birthday and party hats balloons confetti you know what I'm talking about and where do you buy all that stuff the party's over by the way but seriously where do you buy all of it because there's not that many options sure you can go to Walmart or some other local store and see what they have to offer but it'll be limited if you want to do it right you got to go to Party City because well nobody has more party for Less right now they are by far the largest chain of these specialty stores go ahead try to think of another one I guarantee anything else you can think of is either significantly smaller or out of business completely in 1986 there was a man named Steve Mandell and he spent the last 14 years of his life as the president of a firm that others would hire to sell their products some of those products were these party supplies I was talking about he saw that there was no major competition in that industry like I said the local stores would have a section dedicated to it but it wasn't their specialty and any store where it was their specialty was a small independent stores Steve gathered together 125,000 dollars and opened a fairly small location in New Jersey he called that store Party City and that was the start of it now very early on it became apparent that Halloween going to be a big part of their business so much so that Steve decided to dedicate a quarter of his store just to Halloween products and he would stock Halloween products all year round it looked like he was right about there being a demand for stores like this because it was successful from the very beginning after a couple of years he started franchising locations and opening more of his own a large emphasis on franchising helped the chain grow 258 locations by 1993 at that point he started taking it easy on the franchising a bit and put more of an emphasis on company owned stores but either way after only 10 years of business in 1995 that they had 148 locations that generated over 23 million in sales and over 1 million in income this is some crazy expansion there's evidence that shows that children's parties along with parties in general were becoming more popular over this time which would expand the market for their products which is always good but it was really good because there was very limited competition in that expanding market early in the next year they became a public company when they sold 1.7 million shares for $10 each they used the proceeds to help fund the opening of an additional fifty two locations that year their revenue had reached forty eight point five million dollars with three point seven six million in profits in 1997 it's a similar story just let me give you a few more numbers the opening of 75 more stores helped raise their revenue to 141 point 7 million dollars and their profits were now 7 point 7 million Steve Mandel was still in charge and at this point he said that their plan was to soon grow to 1,000 possibly 1,500 locations in the near future remember when they first sold their stock to the public the price was $10 a share in early 1998 it was up to $34 that's where things took a turn within about a year that stock price was down to $3 and they were considered to be on the brink of bankruptcy so what do you think happened an obvious answer is that the expanding too quickly I mean this is some aggressive expansion but how would that be harmful they jumped headfirst into an industry that was mostly untapped and arguably expanding you might guess that a competitor caught on to their success and started challenging them well who was that competitor as I said in the beginning they still don't have much competition 20 years later through all of this their sales were growing due to more locations opening but also their sales at the existing locations were generally increasing as well they were pulling in more profits than ever before so why would expanding like this be harmful now admittedly there were some issues meeting earnings expectations which is never good when it comes to stock price but their real issue was internal more than anything else they had expanded so quickly that they failed to have proper systems in place to track their inventory which I know doesn't sound nearly as bad as it actually was here's how the stock market works you're free to buy all these stocks but how do you know which ones are going to go up well you don't but how do you make an educated guess you generally look at the reports that they release the 10 Q's in the 10 K's those have all the information you need to know about how they're doing the company puts them together the auditors come in and do their best to assure that it's all accurate and then the potential investors can use them to decide whether or not they want to invest these reports include their income statement and balance sheet and everything else one of the items on the balance sheet is inventory the company needs to have a handle on their inventories so they can report it on that balance sheet and then the auditors can come in and make sure it's right and the potential investors can use it to help determine the state of the company since party city didn't know what their inventory numbers were the whole system fell apart and they had to delay the release of the report by a few months when a report is delayed by months it's detrimental to that stock the investors get very nervous because they have nothing to review and determine the state of the company plus just the fact that it's delayed must mean something's up in addition to that debt covenants when a company takes on debt the people lending it to them off have conditions that have to be met maybe part of the agreement will say that they have to maintain a certain level of profitability or the current ratio has to be in a certain range when party city failed to release their statements they broke these agreements there was no telling if they actually met these conditions or not plus once they did file their reports they were so adversely affected by all of this they failed to meet some of the requirements anyway to support everything I just said here's a few statements from the late report that they filed in July of 1999 the company was unable to issue audited financial statements for the year ended December 31st 1998 in timely file it's 1998 annual report on Form 10-k with the SEC primarily because of difficulties associated with taking the year and physical inventories and the related reconciliation process then skip ahead of sentence as a result of failure to file the form 10-k by March 31st 1999 the company was in default of Nasdaq's continued listing requirements trading in the company stock was halted on May 6th 1999 and the company was delisted on July 20th 1999 that's a word you don't want to see D listed and then the second paragraph says that they changed their fiscal year as a result of all of this this was clearly very bad for them as a result of the financing agreements the second paragraph the company's failure to issue its consolidated financial statements on a timely basis is a default under the credit agreement in addition to this default the company did not meet certain of its financial covenants including those related to minimum levels of profitability net worth liquidity fixed charge coverage and others consequently the company's debt was subject to acceleration it goes on from there it's amazing how affected they were by this inventory incident and then there were also class-action lawsuits being filed that claimed that some previous information in these reports was either false or misrepresented in addition to accusations that some insiders sold their stock just before the delay was announced and the stock plummeted these were bad times they were in trouble with the SEC the exchanges the intent stirs the creditors and had very little money remaining to operate their business let me tell you what brought it back because it was three major things one and they got rid of Steve Mandel he was the chairman and CEO through all of this it's unclear how much was his faults but he was in charge when it happened so letting go of him instilled confidence the second thing they raised almost ten million dollars by selling a bunch of company owned stores to franchisees the third thing was probably the biggest Michael Tenenbaum he's an investor that arranged this huge deal that provided the company with 37 million dollars through both the sale of stock warrants and loans from there the company was able to get back on track they returned to the stock market started tracking their inventory properly and filing their reports on time and today are bigger than ever this episode was originally going to be part of my bigger than you know series because party City is huge I still want to make that video in the future but for now I'll give you a brief overview of their continued expansion back when they were going through all those troubles they were hanging around below 400 locations by 2005 they were over 500 and they were taken off the market when they were bought by some private equity firms this is when they were joined with other companies that helped strengthen their business as a result today they're very vertically integrated meaning most of the products that they sell in their stores are made and brought to them by businesses that they own that's the part that I'll focus more on in the future but for today I'll just say that they currently have almost 900 locations they're mostly in New York and California or somewhere in the Midwest but they're everywhere they have locations in 46 states and even some in other countries I also want to mention their continued reliance on Halloween for two reasons one is because I find it interesting and two because it's Halloween well maybe not for you as you watch the video but this was posted on Halloween happy Halloween everyone I found it interesting because for almost all other retailers Christmas is their busiest season but not for party city 20% of all domestic sales are held related and they own Halloween city it's one of those Halloween stores that pop up in abandoned buildings every year in 2017 there were 272 of them across the United States let me know in the comments do you want to see that follow-up episode that talks about how big they've grown but more importantly what do you think of that rise and fall and rise again specifically the fall it's amazing how impactful something like failing to keep track of inventory can actually be like I said it wasn't the entire cause of their issues but it was a big part of it and any other thoughts you have about any of it please leave them in the comments I'd like to hear what you have to say and can I talk about today's sponsor for a minute because this is important it's Nord VPN and they offer security on the Internet when you're on the web all your information is out there people can learn your location and passwords and that's scary I hear reports about this all the time hackers are after your air miles to sell on the dark web come on now I don't want to have to worry about this I have things that I want protected that are more important to me than my air miles north 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Channel: Company Man

Views: 347,309

Rating: 4.9321165 out of 5

Keywords: Party City, Party, Business, Stock

Id: Kn73EBuiPvk

Length: 12min 58sec (778 seconds)

Published: Wed Oct 31 2018

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