Annual Report

This year was all about strengthening our foundation.

Our vertical model. Our omni-channel strategy. Our unique product assortment.
Our numerous digital platforms. Our retail stores.

Taking insights from our updated CRM platform, we learned more of what makes our consumers tick.

We expanded our offerings – heading deeper into alternative channels and creating personalized product experiences.

Brand visibility is up, having brought the party to Amazon and picked up more licensing agreements with major brands.

With our redesigned website and enhanced in-store experiences, we’ve even changed the way we interact with consumers, making the entire process more seamless.

More clearly than ever, we understand the partiers of today, tomorrow and beyond. Wherever they go, however they celebrate, we’re ready.

From Our CEO

Dear Shareholders, Customers and Employees:

At Party City, we strive to “Make Every Occasion a Celebration” for our customers. We continue to deliver on this goal through our unmatched positioning in the party goods industry with our national retail store footprint, growing e-commerce platform and distribution in more than 40,000 rooftops around the globe. Our expansive assortment both in-store and online, global presence, and wholesale and manufacturing capabilities differentiates Party City and positions us well to gain share of the party wallet of the customer celebrating life’s occasions.

While fiscal 2018 was not without its challenges, I am proud of how our teams navigated those challenges to deliver another year of solid performance and growth for Party City. Importantly, we continued to invest in key areas across the business to better position our Company for consistent long-term growth.

Key 2018 highlights include:
  • Grew revenue by 2.2% in constant currencies driven by our diverse business model;
  • Increased e-commerce comparable sales by ~18%. when including Buy Online Pick-Up In Store sales;
  • Broadened international presence while realizing 1.7% constant currency growth in international wholesale revenues driven by almost 9% constant currency growth in core commercial markets of Australia, Europe, the UK and Mexico;
  • Increased retail store base by 63 net new stores, totaling approximately 8% in net square footage growth, including 58 franchise and independent acquisitions;
  • Leveraged manufacturing assets and expanded product personalization capabilities;
  • Grew adjusted EPS to $1.61 per share from $1.24 per share.

2018 was an important foundational year in which we made meaningful progress against several growth strategies as we continue to target our goal of becoming a world-class vertical retailer. We focused on the customer shopping experience at our retail locations, implementing retail productivity initiatives within our stores, thereby improving the operational performance of the stores, simplifying store operating procedures, improving the flow of product and optimizing labor. The savings associated with these initiatives have served as a catalyst for reinvestment into the Party Planner program at the store level, enhancing the level of customer engagement and elevating our customer experience.

As the lines between brick-and-mortar and online continue to blur, we have expanded our e-commerce presence while improving the shopping experience for our customers. We completed a broad site re-platforming in 2018 that included improved product visuals and site content. This re-platforming has resulted in better usability, easier check-out flow and a more facile browsing experience for consumers, especially when using their mobile devices. We also have leveraged this technology to support the consumers’ desire to seamlessly shop the category through the expansion of our Buy Online, Pick-Up In Store program, as well as improved product availability checks online.

In October, we announced the expansion of our digital initiatives with the creation of a Party City-branded storefront on Amazon Marketplace. This move has allowed us to further expand the reach of our brands and unique product offerings, while complementing the partycity.com website.

We also invested to improve and expand our CRM capabilities in 2018. These efforts have and will continue to allow us to gain a deeper understanding of our consumer and create more targeted marketing campaigns, delivering a more personalized experience for our consumers.

In 2018, we also made progress on our consumer products business. Domestically, we gained significant new customers in both the grocery and mass channels as we continue to diversify our customer mix beyond the franchise and independent party specialty retail channel. Our North American consumer products business was also successful in increasing penetration into non-traditional party channels, or alternative channels, including movie theaters, zoos and sporting and entertainment venues. Internationally, we deepened our relationship with key retailers in Australia, Europe, the UK and Mexico. Education and curation of the SKU assortments are creating inroads in many new markets.

As I look at the road ahead, I am excited for the future of Party City. In 2018, we made much-needed investments in support of our top and bottom line objectives. These investments across all pillars of the business are generating operational efficiencies in manufacturing, distribution and retail, positioning us well for 2019 and beyond. Party City is a highly profitable, cash generative business and in 2019 our capital allocation priority will be debt pay-down, as we remain disciplined in executing our strategies and driving lasting shareholder value.

In closing, I would like to thank our more than 20,000 year-round team members who are dedicated to serving our many customers and consumers. I am truly grateful for their efforts. Finally, on behalf of our board and the entire Party City team, I want to thank you, our shareholders, for your ongoing support.

Sincerely,

ceo signature

James Harrison

Our Vertical Model

Better Prepared.
Better positioned.

Party City is so much more than a retailer. With our vertically integrated business model, we are the only party goods supplier to control the value chain from manufacturing to retail.

This year, our role in every part of this process was enhanced through new acquisitions and our ever-growing omni-channel strategy. Modern developments across our core business lines are preparing us for an even more profitable future.

Manufacturing icon

Manufacturing

Manu-
facturing

Our capabilities in design, innovation and manufacturing are stronger than ever. We benefit from a ~200-person design team that helps us speed products to market more quickly than other party goods suppliers.

Currently, about 25% of our retail business is manufactured in-house and focuses primarily on high-volume party essentials. This year, our self-manufactured share of shelf increased by 30 basis points.

Wholesale icon

Wholesale

In 2018, our wholesale business expanded, particularly in North American consumer products, as we dove deeper into both the grocery and mass channels.

Nearly 80% of what we sell through our retail business is supplied through our wholesale business.

Retail icon

Retail

Our retail business continues to be the premier destination for party goods, as we now have more than 900 locations (including franchise stores). We also open between 250-300 temporary Halloween City stores per year in North America.

In 2018, sales grew 4.3% as a result of increased store count, an improved in-store experience and online initiatives. Our retail business currently represents two-thirds of Party City’s total revenue.

In-store Experience

The Spirit of Our Stores.

Productivity Initiatives

Our stores are where we cultivate a rewarding experience for both consumers and employees. This year, we introduced productivity initiatives that took it to the next level, helping us achieve even greater operational excellence.

Our initiatives were deployed across our full fleet of stores in three waves.

icon cash register

Front end optimization (new storage, cashier and inventory systems)

icon presentation

Procedural simplification and an enhanced labor model

icon cash

Operating cost minimization and waste reduction

Party Planner Program

With the savings from our productivity initiatives, Party City had the opportunity to invest in a new Party Planner Program at the store level. It focuses on facilitating a more service-driven culture by eliminating non-value tasks and promoting sales-oriented associates.

In 2018, we piloted the program across 150 select stores. Associates were trained to be true salespeople who could assist and inspire customers to plan unique events. Yielding higher customer satisfaction, the program has proved to be a clear opportunity for growing consumer baskets.

Online Experience

Building Up The Party Online.

Our e-commerce platforms are #1 in the party goods space for a reason. We continuously cater to the growing digital needs of our tech-savvy consumers. Our digital improvements have been well-received, as web traffic and conversion rates continue to climb.

18% +

Comp sales

(Including BOPIS)

40K +

Skus sold online

Platform Refresh

In 2018, we launched an innovative customer-driven web design with enhanced functionality. The site now features improved search functionality, streamlined navigation, greater mobile responsiveness, and more company-published and user-generated content.

To make the online shopping process as simple as possible, we have also optimized product availability checks and the check-out process.

BOPIS (Buy Online, Pick Up In-Store)

Party City’s customer-centric approach extends to our initiatives surrounding BOPIS. Just in time for Halloween 2018, we leveraged the new technology of our website to support the customer’s desire to shop seamlessly. This meant adding the capability to process full payment online, testing self-checkout and enhancing our online balloon experience.

We decided to bring the party to Amazon. One of our biggest moments this year was the introduction of a Party City-branded storefront to the world’s largest online shopping center: Amazon Marketplace. It serves as a complement to our current website with an offering that is widely viewed, easily accessed and constantly broadening.

Since the beginning of 2018, this product assortment has expanded to include Halloween, Christmas, New Year’s and selected everyday products, primarily in the form of coordinated kits.

Customer Relations Management

Learning How Customers
Like To Party.

One of the ways we are delivering more personalized customer experiences is through our CRM platform. It provides us with a deeper understanding of the party goods consumer, their important moments and purchasing behavior.

In 2018, we built our platform to be more robust, as it now includes more effective measures for capturing customer information. After four years, we now have a database with purchase information from over 25 million identifiable customers. It is helping us produce highly-targeted content across our digital platforms including email campaigns, seasonal promotions, curated online suggestions, and more.

341M +

total transactions over the last 3.5 years

332K +

business customers with SIC code identification

25M +

Active customer profiles

DIVERSIFICATION

Celebrating
anywhere.
Any way.

9%

alternative market sales growth

30K +

SKUs SOLD IN-STORE

20%

of consumer products business is licensed

5%

DTR licenses with major specialty suppliers

Product Personalization

Consumer demands in the party goods category have continued to change. They are now orienting towards products with the capacity to be personalized. In 2018, we took this opportunity to create more customizable product assortments. So far, the results are extremely encouraging.

New Channels of Trade

This year, we stretched our business even further outside the world of specialty party stores. Equipped with new capabilities and new product offerings, particularly in North America, we are entering more and more alternative party markets: Movie theaters. Zoos. Sporting and entertainment venues. And others.

Product Development

Party City’s product selection remains unrivaled and it’s still expanding – particularly in the seasonal categories. In 2018, we began offering a more curated core assortment for the customers of Halloween City. The addition of animatronics has provided these customers with a more theatrical in-store experience. As a result, Halloween City sales per store increased by ~14% versus 2017.

Our offering has also further diversified Party City within the toy category. We experienced positive results from our pilot program: 50 Toy City pop-up stores. Even more promising was the consumers’ reaction to our expanded toy offering in select permanent stores.

License Expansion

Part of what makes Party City’s product offering so unique is our license portfolio. We proudly benefit from channel exclusivity on the vast majority of licensed products. And in 2018, we expanded DTR (direct-to-retail) licensing agreements for our online marketplace.

By aligning with key movie releases, we have also strengthened our license portfolio, positioning ourselves for even greater profitability in 2019.

International Growth

Hosting New Markets.

~ 9%

constant currency growth in core markets

Our vertical model extends far beyond our locations in North America. Having nurtured 20+ year relationships with key vendors, we have sourcing, manufacturing and distribution capabilities across four continents.

In 2018, we placed an even stronger emphasis on customer acquisitions in new and existing global markets.

Our strategy was underscored by three key drivers:
  • Deepened relationships with key retailers (Canada, Australia, Europe, the UK and Mexico)
  • Education and curation of SKU assortments
  • Strong positioning in the foil balloon category
Community Impact

Party with
purpose.

Celebrations can be meaningful in ways beyond the standard. For Party City, they have come to be a source of strength and support for our communities.

Since 2011, we have been continuously promoting charity campaigns and new partnerships with organizations that are out to make a difference.

In 2018, we collaborated with Wounded Nature, a non-profit organization focusing on removing debris from hard to reach coastal habitats. Our associates gave back to the local communities by engaging in multiple clean-up volunteer events.

$18M

raised in donations and fundraising

~$600K

business customers with SIC code identification

party city employees
We proudly support:
Cleveland Clinic
Make A Wish
Adaptive Sports Foundation
St. Jude Children's Research Hospital
Boston Children's Hospital
Boys & Girls Clubs
Camp Sunshine
Wounded Nature
University of Vermont Children's Hosptal
Dyslexic Advantage
American Heart Association
Children's Hospital Colorado
Memorial Sloan Kettering Cancer Center
Sesame Street
Financial Highlights

Wrapping up the year.

Party City’s vertical model and global scale remain at the core of our growth strategy. They presented multiple levers for driving our 2018 financial performance.

Over the year, we recognized several fiscal strengths:Cost management discipline. Debt refinancing. Share repurchasing. And timely retail acquisitions.

Party City has brought on 58 franchise and independent stores across Maryland, Pennsylvania, Minnesota, North Dakota and Texas.

History of Consistent Growth

For more than 20 years, we have sustained industry-leading profitability. This trend continued in 2018:

2.4%

Consolidated Revenues

4.3%

Retail Sales Growth

58

New Franchise & Independent Stores

Corporate Info

Board of Directors

as of April 1, 2019.

Norman S. Matthews Chairman of the Board
James M. Harrison Director & Chief Executive Officer
Todd M. Abbrecht Director
Steven J. Collins Director
William S. Creekmuir Director
Douglas A. Haber Director
Lisa K. Klinger Director
Michelle Millstone-Shroff Director
Gerald C. Rittenberg Director
Morry J. Weiss Director

Executive management

James M. Harrison Director & Chief Executive Officer
Michael Correale Interim Chief Financial Officer
Ryan T. Vero EVP, President – Retail
Michael P. Harrison Sr. Vice-President & General Manager –
North American Consumer Products Group
Board of Directors

80 Grasslands Road
Elmsford, NY 10523

Annual Meeting

The Annual Meeting of Shareholders of Party City Holdco Inc. will be held June 6, 2019 at 10:00 a.m. local time at 100 Grasslands Road, Elmsford, NY 10523

TRANSFER AGENT
AND REGISTRAR

ComputerShare

Stock

Since the Company’s initial public offering on April 16, 2015, shares of Party City have been quoted on the NYSE, and currently trade under the symbol “PRTY”.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Ernst & Young LLP
New York, New York

INVESTOR RELATIONS

InvestorRelations@partycity.com