Party City Holdco Inc.
Q4 2021 Earnings Call Transcript

Published: 28 Feb 2022

[Operator:]

Good morning, and welcome to the Party City Fourth Quarter 2021 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Eric Warren, Treasurer and Head of Investor Relations at Party City. Please go ahead.

[Eric Warren:]

Thank you, Operator. Good morning, everyone, and thanks for joining us. This morning, we released our fourth quarter and full year 2021 financial results. You can find a copy of our press release on our website at investor.partycity.com. Now I'd like to introduce our executive team who are here on today's call. Brad Weston, our Chief Executive Officer; and Todd Vogensen, our Chief Financial Officer. We'll start the call with some prepared remarks by Brad and Todd before we open it up for Q&A. Please note that in today's discussion, management may make forward-looking statements regarding their beliefs and expectation about the company's future performance, future business prospects or future events and plans. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that such expectations will be realized. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events or otherwise. We urge everyone to review the safe-harbor statements provided in our earnings release as well as our risk factors contained in our SEC filings. During today's call, we'll refer to both GAAP and non-GAAP financial measures of the company's operating and financial results. For more information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to the earnings release. So with that, I'll turn the call over to Brad Weston.

[Brad Weston:]

Thank you, Eric. Good morning, everyone, and thank you for joining us today. I'll begin our call with a review of our financial and operational results for the fourth quarter and 2021, and then discuss our go-forward plan on our strategic initiatives that support our purpose to inspire joy and make it easy to create unforgettable memories. Todd will then elaborate on our financial results and provide some thoughts on how we're approaching 2022 before we open the call to your questions. Our transformation process began in 2020 as we focused on executing strategies to stabilize our business and determine our path to market expansion, 2021 was an important year in our transformation process. Despite the continued challenging and volatile backdrop, the business performed extremely well as the consumer returned to social gatherings, celebrations and parties while we continue to implement significant operational and capital structure improvements. We delivered a strong year of financial and operational results. Total sales increased 17%. Retail sales increased 28%. Adjusted EBITDA increased over 178% to $266 million and adjusted earnings per share increased to $0.68 per share compared to a loss last year. Key among our operational accomplishments were

[Todd Vogensen:]

Thanks, Brad, and good morning, everyone. Today, I'll focus on the key highlights of our fourth quarter results and full year performance. And then I'll discuss how we're approaching fiscal 2022. For full details regarding our financial results, please refer to our earnings press release and the accompanying slides, which are available on the Investor Relations section of our website. We're pleased with our fourth quarter results, which met our expectations and marked a solid end to 2021, a year in which we delivered strong financial results with both top and bottom line growth while making meaningful operational progress, as Brad discussed. More importantly, we achieved this growth in the face of a volatile operating backdrop. Now turning to review of our results, for the fourth quarter, consolidated revenues increased 7.7% versus the prior year period. The strong retail sales growth was partially offset by the divestiture of a significant portion of our international operations in the first quarter of 2021. Retail net sales increased 12.6% versus last year and 3.4% versus the fourth quarter of 2019, driven by a strong brand comparable sales increase in our core everyday categories and Halloween. Brand comparable sales increased 17.8% year-over-year as strength in core categories and Halloween has partially offset by Omicron related softness. In kids’ birthday as well as New Year's Eve categories in the last few weeks of the quarter versus 2019, fourth quarter brand comparable sales increased 10.8%, including a 22.8% increase in our core categories. The strong core category performance has been a recurring theme in our results throughout the year and is a direct result of the work that we've been doing to increase our relevancy and improve the ease of purchase. In terms of e-commerce, the percent of our retail sales that originated online, including BOPIS, was approximately 14.5% of our retail sales mix, an increase of 270 basis points versus 2019. Wholesale revenue for the fourth quarter decreased 13.7% versus 2020 and primarily due to the divestiture of our international operations in the first quarter of 2021. Excluding the impact of the divestiture, net third-party wholesale revenues increased 30.3% versus the prior year period, driven by strong performance at our Anagram balloon division. We continued to be pleased by the improving sales trends we delivered with our franchise and independent customers in the fourth quarter. Our Canadian sales have also showing meaningful improvement, starting to reverse previous trends associated with lingering COVID related restrictions, also remains an important and strategic part of our business, and we're pleased with the fourth quarter performance and are focused on driving continued growth into 2022. Adjusted gross margin rate for the fourth quarter expanded approximately 120 basis points from the prior year period driven primarily by the divestiture of our lower-margin international operations and leverage on retail occupancy costs, partially offset by higher freight and raw material input costs. Adjusted operating expenses were approximately $197.5 million or 28.3% of net sales, a 260 basis point rate decrease versus prior year primarily driven by leverage on higher sales levels and partially offset by increased retail wage rates. As a result, adjusted income from operations was $89.8 million compared to $58.6 million last year. Adjusted EBITDA was $105.2 million in the fourth quarter compared to $77.3 million last year; and fourth quarter adjusted earnings per share was $0.40 compared to earnings per share of $0.25 in the prior year period. For the full year, consolidated revenues increased 17.3% which includes a retail sales increase of 28% and brand comparable sales increase of 34.2%, reflecting strength in our core categories and highlighting the traction our strategy is gaining and a wholesale revenue decline of 14.4% driven primarily by the sale of our international business in the first quarter of 2021. Excluding the impact of the divestiture, Wholesale revenues increased 25.3% versus the prior year. Adjusted gross margin rate increased approximately 450 basis points to 38.9%, primarily due to higher retail sales mix and the divestiture of lower-margin international operations, partially offset by approximately 120 basis points of headwinds from freight and input cost inflation. And adjusted operating expenses were $644.6 million or 29.7% of sales, a decrease of 360 basis points versus the prior year driven by leverage on higher sales and partially offset by approximately 50 basis points of headwinds from wage inflation. For the full year, these measures resulted in adjusted income from operations of $201 million compared to $20.6 million last year. Adjusted EBITDA of $266.3 million compared to $95.5 million in 2020 and adjusted earnings per share of $0.68 compared to an adjusted loss per share of $0.49 in the prior year period. Now turning to our year-end balance sheet and cash flow. Inventory was up approximately 7.5% year-over-year, driven in part by proactive delivery of 2022 seasonal merchandise, increased unit costs driven by higher input and freight expenses as well as increases in transit times, all of which were partially offset by the previously announced inventory write-down in Q4 of 2021. During the year, net cash provided by operating activities decreased to $51.9 million from $77.2 million in the prior year period, driven by an increase in seasonal inventory and the related freight as well as the repayment of rents that were deferred from 2020. We ended the year with $255 million in liquidity comprised of $48 million in cash and $207 million of revolver availability. Turning now to our capital structure. We ended the year with a principal balance of debt net of cash, $1.3 million. In 2021, we took steps to strengthen our financial health and flexibility. As a reminder, in February, we completed the refinancing of our term loan that matured in 2022 through the offering of senior secured notes. Concurrently, we extended the maturity of our revolving ABL to 2026. And we maintain considerable flexibility to further optimize our capital structure, having no material debt maturities until the third quarter of 2025. Now let me turn my comments to the outlook for 2022. As Brad mentioned, January was off to a slow start as Omicron weighed on sales, particularly in the Northeast. As the surge has slowly waned, we've seen a recovery in line with our full year guidance, and we remain optimistic about the year as a whole. Acknowledging that there still remains uncertainty around various macro factors particularly supply chain and input cost headwinds, we believe that we have enough flexibility at this point to provide annual guidance. Please note that our guidance does not contemplate impacts from potential future COVID variants or other macro disruptions. We are assuming that the existing macro inflationary environment remains somewhat constant throughout 2022, and our outlook includes the mitigation measures that we've put into place. With that in mind, we're providing the following expectations for 2022. Net sales of $2.275 billion to $2.35 billion or an increase of 5% to 8% versus 2021. Brent comp growth of approximately 2% to 4%, 100 to 125 next-generation stores with a combination of new openings and remodels. GAAP net income of approximately $64 million to $83 million, assuming a full year tax rate of 27%. Adjusted EBITDA of approximately $275 million to $300 million, which, at the midpoint, assumes percentage growth in the high single-digit range and relatively flat adjusted EBITDA margin rate versus 2021 despite the significant inflationary pressures that we're facing in 2022. Please also note that included in our EBITDA estimate is approximately 40 basis points of impact from software expenses, which historically had been capitalized, but will now be accounted for as an operating expense due to our continued migration to the cloud and cash interest of approximately $95 million to $105 million. In terms of capital expenditures, we expect our 2022 spend to be in the $120 million to $130 million range, with balanced spend across our NXTGEN store rollout, web and e-commerce enhancements, store facilities capital and ongoing investments in our manufacturing and supply chain assets as well as our new headquarter building with our HQ capital spend partially offset by significant tenant improvement allowances and state tax incentives in the short term and largely offset by the same factors in the long term. In addition to this annual outlook, we also wanted to provide some color around the first quarter to help you build your models. First, due to the temporary disruption from the Omicron variant earlier in the quarter, combined with input cost headwinds for which additional offsets ramp up later in the year, we expect Q1 adjusted EBITDA to be down materially versus the prior year. As a reminder, the divested international business generated approximately $18 million in revenue in the first quarter of 2021. Since we sold the business in the first quarter of 2021, this is the last quarter where we need to mention this year-over-year impact. As highlighted earlier, we will also incur approximately $2 million of incremental software expense in the first quarter. In line with our plans coming into 2022 and given recently improving demand trends, we expect to continue investing in the business to reinforce the foundation for long-term growth, especially in the areas of digital platforms, information technology and supply chain. In the first quarter, we expect these strategic initiatives to impact EBITDA by approximately $2 million to $3 million. The continued evidence of demand strength and traction in our initiatives outside periods of virus surges, gives us confidence in our strategy and our full year expectations. Importantly, we expect adjusted EBITDA trends to improve in the second half of the year as our mitigation and additional planned pricing actions take hold and as we anniversary some of the most significant increases from the prior year period. While the pricing mitigation is expected to be well short of our input cost inflation in Q1, based on the current expected levels of input cost inflation and planned pricing actions that we have strong line of sight to, we expect to deliver a full year of adjusted EBITDA growth despite substantial inflationary pressures facing our industry. So in summary, we are very proud of our team's execution in 2021, and we're very pleased with the results for the year. We're entering 2022 in a strong financial and operational position and are confident in our ability to continue to execute against our transformation strategy. We look forward to building on our progress in 2022 and beyond. And with that, I'll turn the call back over to the operator to start the Q&A session.

[Operator:]

The first question comes from Rick Nelson with Stephens. Please go ahead.

[Rick Nelson:]

Hi, thanks a lot get into the first quarter trends a bit if we could. I think you mentioned January got up to a slow start, but things have picked up some more color around that maybe since the war, again, in Ukraine, have you seen any change in sales trends?

[Brad Weston:]

Yes, Rick. Good morning. So as we mentioned, sales Omicron really started to pick up and get traction beginning in the Northeast, really in the middle of December, right before Christmas. And so that's when we started to see a little bit of pressure in demand. As we've seen in the past, when there are restrictions that are localized or even broader or there are pressure put on social gatherings. It certainly does impact our demand, and we saw that at the very end of the last half of December. As we all know, that continued into January and really lasted the full month of January. It was across the country, but as we said, mostly or most profoundly in the Northeast. That's where we saw the greatest impact sort of right in line with how cases really played out. And then since it's coming out of January and coming into February, we really saw demand pick up. And in fact, we had an excellent Super Bowl and Valentine's Day period as we noted. We did not see a tail off really in demand since the Ukraine/Russia situation elevated last week. And so our eyes have really been on the pandemic related to demand.

[Rick Nelson:]

Great. Thanks for that. So I'd like to dig into the product cost inflation and also on the labor side, how significant are these inflationary pressures and your ability to pass those higher costs?

[Todd Vogensen:]

Absolutely. So we had talked about the net impact in Q4 being $5 million to $10 million, and it was. So it ended up being an impact to gross margin of about 120 basis points and 50 basis points to SG&A. What we're seeing thus far from all the testing we've been doing is that we do have a lot of pricing power. So we do have the ability to increased price and in certain areas of the stores, we're testing into it, seeing that there's not a lot of resistance. So that gives us a lot of confidence that as we roll out those price changes and we get further into the year, we would expect the pricing to be offsetting inflation by the time we get into the second half. For the first half, we're just at the point where all those costs are really rolling through the P&L now. They had gone into our inventory. And now in Q1, we'll get the full brunt of those costs. That's happening at the same time that Omicron was weighing on our sales in January. So that creates a headwind in Q1 would be looking at $8 million to $12 million of inflation headwind in Q1. And so that's the short term. Long term, obviously, a much better story as we do get into the back half, and we're able to roll out the pricing changes more fully.

[Brad Weston:]

Yes. And I would just add to that, that we've become, as we've talked about in the past, extraordinarily price aware. We have a good understanding of our pricing data and price elasticity at both the category level as well as the SKU level. And so our pricing actions are really ongoing and we continue to test price continue to maintain an understanding. And as Todd said, we're demonstrating that we do have pricing power and the customer has been responsive and all that bodes well as we continue to navigate this dynamic environment.

[Rick Nelson:]

Thanks very much, Brad and Todd. Okay, good luck as we push forward.

[Brad Weston:]

Thanks, Rick.

[Operator:]

The next question comes from Joe Feldman with Telsey Advisory. Please go ahead.

[Joe Feldman:]

Hey, good morning guys. Thanks for taking the question. I wanted to ask about the NXTGEN stores. And thanks for the updated color on what are you seeking the progress there. What are the – some of the enhancements that you are planning to make this spring? You talked about trying a few new things. And I was just kind of curious if you could share any little preview of that with us.

[Brad Weston:]

Sure. As I mentioned, we're extraordinarily pleased with the NXTGEN stores that we've opened thus far. And I think one of the things we've talked about is that we will relentlessly learn we will relentlessly improve and that, that should be something that is always ongoing. As we've accumulated a lot of customer feedback, a lot of data around the performance and a lot of insights from our customer we're perpetually as I said, assessing how we continue to improve. We see the biggest opportunity is to continue to create more inspiration in the store. And one of the things that the customer gets excited about in their feedback, is there ability to visualize the art of the possible I think in the past, we've maybe been less inspirational online and in our stores. And when they're able to see something that they can create that they maybe did not think was possible on their own they love to take that as inspiration and they love the aspirational elements of what they can do. And so we're going to continue to create additional digital and merchandising elements in the store that help them to do that. We've talked a lot about our success with balloons in that store and have an opportunity to continue to expand our balloon assortments and continue to add to the do-it-yourself elements that the customers really responded to. We also see an opportunity to enhance the seasonal presentations at the front of the store featuring newness and innovation in key items that are working really well for us. And then the last thing I would add is continuing to add ease to the shopping experience in this case, particularly around the checkout process and building on the separate balloon checkout is that has been a win for us as well.

[Joe Feldman:]

Got it. That's really helpful. Thank you. And then – with regard to the year, and thank you for the guidance that you gave, I guess, Maybe, Todd, within the guidance, how should we think about the complexion of it maybe gross margin versus SG&A? Is it – I guess it sounds like maybe more pressure on the gross margin in the first half versus the second half, given the pricing that you talked about? Or I'll let you answer, but just, I guess, the complexion of those two line items would be helpful.

[Todd Vogensen:]

Absolutely. So when we step back and look on a full year basis, we actually expect improved gross margins, resulting both from fixed cost leverage on a sales increase as well as the benefit of the pricing and other inflation mitigation factors. So gross margin, you're right, a little bit of pressure in the very short term. But as we go across the year, a lot of good new stories there. Operating expense since the midpoint of the guide was about flattish margin rate, I would say, operating expense you would see a little bit of pressure as we go across the year. But the two big drivers really are – and we talked about it, there's 40 basis points of headwind from the SaaS move where we have software that used to be capital that now will be expensed as we move to the cloud as well as investments that are meant to support our strategy growth initiatives that Brad discussed along with wage inflation. So when you add up those three operating expense, you're probably going to see a little bit more pressure than gross margin, roughly offsetting each other as we go across the year.

[Joe Feldman:]

Got it. That's really helpful. Thanks. And then I guess just one final quick one. With regard to the CapEx, you did call out the new headquarters is a decent chunk. I was just wondering how much of a chunk of the CapEx that is? Is it $20 million, $30 million? Or can you share that with us?

[Todd Vogensen:]

I think the best way to think about capital is once you take out – there's two ways to think about it. One, for that headquarters, it's going to be partially offset by tenant improvement allowances and state tax incentives in the short term. And in the long term, actually, all but less than $5 million of it is going to be offset by that funding. So the net cash out it actually ends up being a very small piece. To take a step back, up until now, we really have had a pretty difficult challenge of operating in four office buildings in three states, and really opposite side of the country. So what we're looking to do is bring the teams together from Rockaway in New Jersey, Elmsford, New York, Pleasant in California into one location. And so lot of unrealized synergies that come out of that, opportunities for collaboration and innovation along the way. So it's really that big driver towards creating a one PCHI, one Party City Holdings culture. And so it will be – one of those things that is very foundational for us as a corporation, and it does end up being less than $5 million over the long term from a capital perspective.

[Joe Feldman:]

That’s great. Thank you so much. And good luck with this quarter.

[Brad Weston:]

Great. Thank you.

[Operator:]

The next question comes from William Reuter with Bank of America. Please go ahead.

[William Reuter:]

Hi. The first is in the prepared remarks when you discussed the inventory write-downs, there was some sort of kind of conclusionary statement that seem to indicate that given where we are with evolving strategies, we shouldn't expect to see these write-downs next year or the year after. Did I understand that correctly?

[Brad Weston:]

Yes. If we back up to the work that we did in 2020 and 2021, 2020, we really addressed our seasonal inventory challenges and learned to run our seasonal business much differently by bringing in the amount of receipts we needed to drive a really an optimized our sell-throughs and really optimize productivity Gym . And as we went into 2021, we were extraordinarily focused on our everyday categories. We talked during the year about resets in major categories that turned out to be very positive to our overall business, very positive from both a revenue side as well as an inventory turn from a Gym perspective. And so after those two significant pieces of work, we've now rightsized our inventory to the operating level that we believe is – will drive the right level of efficiency. And so it's fantastic to have those behind us.

[William Reuter:]

Okay. That's helpful. And then, Todd, I appreciate your discussion around first half, second half gross margins as well as operating expenses. I guess I'm curious what level of sequential improvement we're going to see from the first to the second and really on the margins here, I'm sure that the first quarter Omicron impact on sales is going to be greater. But based on the timing, will we see a substantial improvement from one to two? Or is it really the third quarter where we start to see big improvements?

[Todd Vogensen:]

Yes. I think Omicron in Q1 clearly was a significant temporal anomaly for us. So that is going to have a much bigger impact than anything else in our guidance. And yes, so you would expect to see improvement in that year-over-year trend as we go into Q2. Second half is where it really all starts to come together where you really do see the pricing offsetting the inflationary costs, and we see all those mitigation actions really starting to take hold, but you should see incremental improvement as we do go into Q2.

[William Reuter:]

Okay. And just to be clear, the incremental improvement is not just in sales, incremental improvement is also in gross margins?

[Todd Vogensen:]

That is correct. Yes.

[William Reuter:]

All right. Thank you.

[Todd Vogensen:]

Thank you.

[Operator:]

The next question comes from Jenna Giannelli with Goldman Sachs. Please go ahead.

[Jenna Giannelli:]

Hi, there. Good morning. Thanks for taking my question. On the 2% to 4% comp guide, I guess I just want to better understand, I mean, is that mostly pricing? Is that the best way to think about it? Or should we – I guess I wanted to better understand the underlying volume demand expectations for the year and how to balance pricing benefits, wholesale recovery, NXTGEN success with kind of underlying volume demand in the business and how you're thinking about it?

[Todd Vogensen:]

Absolutely. So there is an element of pricing built into the comp for sure. And we would expect from a comp perspective to be looking at, let's call it, 100 basis points to 150 basis points of benefit for comp sales little bit larger than that on total sales as we get the benefit from wholesale and everything else. But from a comp sales perspective, you get, call it, 100 basis points to 150 basis points of benefit off of pricing. There is a little bit of benefit baked in from our NXTGEN stores. We do – we're continuing to see that mid-single-digit growth in those stores. And looking at doing conversions mostly of 100 to 125 stores this year. So that does help, but then above and beyond that, the guidance does assume that demand is continuing to increase. So when you look at that midpoint of the 2% to 4%, it does still include especially as we get past Omicron seeing underlying unit demand continue to increase across the company.

[Jenna Giannelli:]

Okay. Beautiful. No, that's helpful. I appreciate that detail. And one other one I have on just kind of thinking about the full year, given some of the puts and takes in 2021 when factoring in the write-down of inventory, working capital. I guess when we think about the normalization of some of these items, how are you thinking about your propensity to generate free cash flow this year and a positive potential usage for that free cash flow? And that's it for me.

[Todd Vogensen:]

You bet. So yes, we would look at generating positive free cash flow this year. Our capital spend, like I mentioned before, we do have a significant amount of it that is offset by tenant improvement allowances. And with the $275 million to $300 million of EBITDA that should put us in good stead. We would look for our working capital to be about flattish with the end of this year. So that puts us in positive territory, and we would – number one, use of cash after our internal capital is always going to be debt pay down. So I think we're continuing to look at how we can continue to improve our debt position and leverage ratio.

[Jenna Giannelli:]

Excellent. Thank you. Appreciate it.

[Todd Vogensen:]

Thank you.

[Operator:]

The next question comes from Karru Martinson with Jefferies. Please go ahead.

[Karru Martinson:]

Good morning. Just on that free cash flow, do we get the tax refund here in the fourth quarter? Or is that something that's going to drop in the first quarter?

[Todd Vogensen:]

The tax refund we filed for in Q3, we're expecting to receive shortly actually. So this is something that likely should flow into Q1. And for everyone's memory, we do have a receivable from the IRS of $55 million. So see I expecting to see that shortly.

[Karru Martinson:]

Okay, good. And then when you said you pulled forward some seasonal inventory, how is the landscape out there? I think the big question is how far, in advance, do you guys have to plan for Halloween and other big seasonal events? And how should that cadence go through the course of the year for working capital?

[Todd Vogensen:]

Yes. So for working capital, we are – you saw it at the end of Q4, our inventory was up, and it was up really driven by three big factors. Part of it is buying ahead on seasons. And so we have gotten ahead of it. We've got a much more proactive calendar this year than we've had in the past. And so that will allow us an extra, call it, 30 days or so, maybe longer on some seasons where we can be buying ahead and making sure that inventory comes in on time. And then from an overall inventory value perspective, there's of course, input costs that are now built into that inventory base that were there at the end of Q4. So we'll just be wrapping around on it as we get to Q4 of this coming year. So all that leads us back to the flattish working capital.

[Karru Martinson:]

Okay. And in terms of getting products, you mentioned the 30 days. When we look out to Halloween and the all-important seasonal period at year-end, when do we need to kind of place those orders get that product on ships in order to make it for this year?

[Brad Weston:]

When you think about Halloween, those orders have all been placed. They're actually placed sort of during and pretty closely following the Halloween time period as soon as we've analyzed and digested – fully digested our results. So they're well in production as we speak. And then the timing of the shipping varies. Obviously, we've put a little bit more slack in the rope this year on all of the time lines of orders all the way through production that gives us a little bit of cushion, like I said. And then obviously, we have learned and continue to learn all of the elements of logistics that learnings from last year in past years that are firmly put into place now to ensure we have products.

[Karru Martinson:]

Thanks. Good. Appreciate it.

[Brad Weston:]

Thank you.

[Operator:]

The next question comes from Oliver Brotman with JPMorgan. Please go ahead.

[Oliver Brotman:]

Hey, good morning. This is Oliver Brotman on for Carla Casella. Thanks for the question. So my first question, currently, you're capitalized through Anagram and Party City. Do you see a benefit of keeping those structures separate or benefit to consolidating them in 2025, 2026 when the bonds mature?

[Todd Vogensen:]

Yes. I think we're continuing to look at what the overall structure, is this right for us. The structure we have with the Anagram notes was exactly what we needed at the time, which was really at the peak of the pandemic when stores were closed and we were looking to reduce the amount of debt outstanding. So was a really positive – was a really positive move for us. Whether we need that long term, I think we would love to move to a more traditional debt structure, but we're going to have to just evaluate what the opportunities are that are available for us and make sure we're making the right long-term move for the company.

[Oliver Brotman:]

Great. Thanks fore that. And then sorry, my second question is on marketing and promotional cadence in 2022. Just will it change given the strength you're seeing in balloons and changes you made to Halloween assortment?

[Brad Weston:]

We've learned quite a bit about promotional activity over the last couple of years and what it does for traffic and for revenue. And one of the guiding principles in our business that's most important to understand related to promotions is we're very occasion-based. And when you have a need for our product and services, then you're not driven by promotional activity. And if you don't have sort of an occasion need, then promotions aren't necessarily going to gets you off the shop Party City. And so we've been able to really ramp down our promotional activity. We do some small promotions online, but – our focus is mostly to be priced right for the customer and every day and be there when we need – when they need us.

[Oliver Brotman:]

Thanks so much. That’s all from me.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Brad Weston for any closing remarks.

[Brad Weston:]

Thank you, operator. In closing, I'd like to again thank our entire team for their dedication to our mission and strategy and their extraordinary execution in a challenging operating environment. We are so proud of all they've accomplished in 2021 across our manufacturing operations, our stores, e-commerce and supply chain, while continuing to better leverage our unique North American vertical model in navigating an uncertain and dynamic environment. As we transition into 2022, we feel great about what has been put in place over the course of the last two years during the pandemic, which has increased our relevancy, improved our brand and reinforced our ability to positively impact our customers' lives with new capabilities. So thank you for your time, for your questions and have a joyful day.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.