Dive Brief:

• Party City reported a "disappointing" third quarter on Thursday, in the words of CEO James Harrison. Revenue was down 2.3% year over year, to $540.2 million, and retail sales down 1.7%. Comp sales were down 2.6% in Q3, which ended Sept. 30.
• Worse, the party retailer reported in the same press release that its October sales — with the all-important Halloween holiday — fell 7% to $432.6 million, while retail sales fell 8%. Comps were down 4.9% for the month despite a 15.3% increase in e-commerce. Halloween City sales per store decreased 20.8% from the prior year.
• The company's earnings announcement, which included reduced sales and profit estimates for the year, led to a sell off of Party City stock, with share prices down by as much as 67% since Wednesday. Sustained declines throughout the year in the company's market cap — a measure of its total value on the stock market — led the company to post a $259.1 million write-off in goodwill during Q3.

Dive Insight:

Debtwire retail analyst Philip Emma described the market's perception of Party City's performance as "a disaster" in an emailed client note. Along with the precipitous drop-off in stock price, market prices for the company's debt are also "down substantially," Emma noted.

As for the great helium shortage of 2019, the company said shortages knocked 1.8% of its margins, which fell a total of 5.9% in Q3. But Harrison said in a statement that "retail operations have approached a 100% in stock helium position since we began the fourth quarter, resulting in abating helium headwinds at retail and a bounce-back in the helium impacted categories."

Explaining the shoddy Halloween sales, Harrison said in an analyst call that tailwinds the company had expected did not materialize. Specifically, he pointed to stronger in-stock position that made little difference in sales, as well as a lack of consumer awareness around characters from upcoming movies — namely Frozen and the Lion King — that the company had licensed for costumes.

Harrison also said that costume sales are rapidly moving online, while younger shoppers "look for unique ways to dress up and display their creativity on social media" — presumably another way of saying that millennials, Gen Zers and Gen Xers are assembling their own costumes rather than buying them whole. To capitalize on this trend, Harrison said Party City should increase its costume accessories business, noting the brand's "unique product offering for Halloween dress up, outside of costumes, is a perfect source of inspiration and product to meet this demand."

Harrison did say that the company doesn't believe it has lost market share in the bricks-and-mortar channel for Halloween gear. But that might not be of much consolation given the huge downward shift in Halloween City sales. As Emma noted in an interview, Halloween makes up sizable chunk of Party City's business, and once the holiday is over it can't make those sales back up until next October.

The poor physical sales might point to bigger competitive problems in the Halloween market. And while the company's online sales are increasing, they aren't doing so fast enough to make up for the brick-and-mortar slowdown.

"I'm looking at that and going, 'That's a huge problem,'" Emma said of the Halloween sales drop-off.