Party City Holdco Inc.
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[Operator:]

Good morning, and welcome to the Party City Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ian Heller, Vice President and Deputy General Counsel. Please go ahead.

[Ian Heller:]

Thank you, operator. Good morning everyone, and thanks for joining us. This morning, we released our fourth quarter and full year 2020 financial results. You can find a copy of our press release on our website at investor.partycity.com.

[Brad Weston:]

Thank you, Ian. Good morning everyone, and thank you for joining us today. I'll review our financial and operational results for the fourth quarter and 2020 and then discuss our progress and go forward plan on our five strategic initiatives. Todd will then elaborate on our financial results and provide some thoughts on how we are approaching 2021. Before turning to our results, I'm going to start by expressing my deepest gratitude to the entire PCHI team for their hard work and contributions throughout the year. I could not be more proud of all they accomplished in 2020, rising to the challenges presented by the global pandemic and positioning us to win despite the environment. Their grit and determination during these unprecedented times, allows us to maintain continuity of our retail and wholesale operations, while continuing to meet the changing needs of our customers, who look to continue celebrating in unique and different ways. And they did all this while simultaneously executing against our strategic initiatives, driving progress against each one, enabling our improved financial performance, and setting the stage for further progress and improvement in 2021.

[Todd Vogensen:]

Thanks, Brad, and good morning everyone. Today, I'll focus on the key highlights of our fourth quarter and full year performance, and then I'll discuss how we're approaching fiscal 2021. 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. As Brad discussed, we're pleased with how the organization navigated the environment during the fourth quarter and throughout 2020, as we swiftly pivoted to meet the needs of the evolving customer demand. Despite the challenging operating environment, we made strong progress and advanced our strategic initiatives, both operationally and financially. Despite the pandemic, we generated higher free cash flow in 2020 than we did in 2019, and we ended 2020 with approximately $296 million in total liquidity. The fact that we were able to improve our cash flow during this challenging environment, speaks highly to the discipline and focus with which we operate our business. Now turning to our results. As a reminder, fiscal 2020 in our Retail segment included a 53rd week, creating a calendar shift, with the full year retail calendar ending on January 2, 2021 versus December 28, in 2019. This pulled a significant portion of New Year's Eve sales into the fourth quarter of fiscal 2020, which would have otherwise fallen into the first quarter of fiscal 2021. So in 2020, the 53rd week contributed $40 million in revenue, approximately $12 million in adjusted EBITDA, and approximately $0.08 in adjusted diluted EPS. For the fourth quarter, consolidated revenues were down 11.4%, which includes brand comparable sales decline of 5.9%, the impact of 77 store closures from our 2019 and 2020 store optimization program, and wholesale revenue decline of 24% on a constant currency basis. The brand's comparable sales decline was reflective of the rapid surge in COVID-19 cases that Brad discussed, and importantly though, comparable sales for our core everyday categories during the quarter were up 6.5%. The Q4 Wholesale decline included four primary components; first, international revenues including Canada, which declined sharply due to government mandated lockdowns throughout the quarter. Second, mass and value customers domestically, who had been performing solidly, but were also impacted by the overall softness in party supply demand during the quarter. Next franchisees and independents who as a general statement has lagged our Party City retail stores throughout the COVID timeframe. And finally our balloon manufacturing business, Anagram, as we've said before, Anagram's innovative designs and market strength have resulted in strong relative category performance, but we did have some shipments move out of Q4 and into Q1, resulting in third-party revenues down 6.2% in the fourth quarter. Adjusted gross margin rate for the company declined 50 basis points in the quarter to 39.7% from adjusted gross margin of 40.2% in the prior year period, and primarily due to fixed costs due to leverage on the sales decline. Adjusted operating expenses were approximately $200 million, a decrease of $5 million from the prior year period, largely from our expense management in response to the revenue declines in the quarter. So as a result, adjusted income from operations was approximately $59 million compared to adjusted income from operations of $91 million last year. Adjusted EBITDA was approximately $77 million dollars compared to $120 million in Q4, 2019, and earnings per share was $0.25 on an adjusted basis compared to adjusted EPS of $0.51 in the prior year period. For the full year, consolidated revenues declined 21.3% on a constant currency basis, which includes brand comparable sales decline of 16.5%, primarily reflecting the impact of COVID-19 on our business, 77 store closures in 2019 and 2020 related to our store optimization program, and wholesale revenue decline of 21.7% on a constant currency basis, as both domestic and international customers contended with the same pandemic headwinds to demand and store operations throughout the year. Adjusted gross margin rates declined 290 basis points to 34.2% from adjusted gross margin of 37.1% in the prior year, primarily due to deleverage on fixed costs and the sales declines. Adjusted operating expenses were approximately $616 million, a decrease of $82 million from the prior year, driven largely by our proven management of expenses throughout the year as well as temporary benefits from cost cutting relating to the pandemic. As a result, for the full year, adjusted income from operations was approximately $21 million compared to adjusted income from operations of $178 million last year. Adjusted EBITDA was $96 million compared to $269 million in 2019, and adjusted loss per share was $0.49, compared to adjusted earnings per share of $0.46 in the prior year period. Turning to the balance sheet. Inventory was down 37.4% year-over-year due to three primary drivers; first, we had $88 million in our previously disclosed disposal of seasonal inventory in the fourth quarter as we made the strategic decision to target higher end season sell-through and less annual inventory carryover. Next, $66 million in international inventory that was sold as part of the previously announced sale of a substantial portion of our international business, then finally, ongoing working capital management, which included realizing the benefits of an optimized brick-and-mortar store base. The details of the inventory write-down and the sale of international operations will be included in the 10-K which would be filed later today. Now as we look forward to 2021, we continue to plan for improved inventory turns through more curated assortments and improved seasonal sell-throughs, and just overall core inventory management. At the end of 2020, our balance sheet and liquidity position was significantly improved versus 2019, as a result of multiple actions that we took to strengthen our financial health this year. These include the sale of a substantial portion of our Amscan International business which closed in January, the successful exchange offer transaction completed in July, last year's sale of our Canadian stores, and our ongoing working capital management. As of the end of year, we reduced the principal balances of debt net of cash by approximately $430 million versus prior year period. Our year-end liquidity position of approximately $296 million was comprised of $120 million in cash and $177 million in revolver availability. We are very proud of all that we've accomplished this year. This strengthened the business and our financial health. Subsequent to quarter end in February, we completed the refinancing of our 2022 term loan through the offering of senior secured notes, which is just yet another step to strengthen our financial health and flexibility, and to provide the runway to implement our strategic priorities. To that end, we feel confident as we're entering 2021 in an even stronger financial position. So now let me turn my comments to how we're thinking about 2021. We're optimistic about the prospects for sustained economic recovery in 2021 and the eventual return to normal. We recognized that the business risks remain elevated from the COVID-19 pandemic. So given those factors, in the interim we're not providing specific annual sales and earnings guidance. We are however providing select annual guidance for interest expense and capital expenditures. We expect interest expense to be in the $90 million to $100 million range for the full year. In terms of capital expenditures, we expect our 2021 spend to be in the $70 million to $80 million range, with balance spend across our next-gen stores, web and e-commerce enhancements, store facility investments, and ongoing investments in our manufacturing and supply chain assets. In terms of sales and earnings. While we're not providing full year guidance, since we are about 75% on the way through our first quarter, we have provided our outlook for the first quarter in today's earnings press release. Based on quarter-to-date results, we expect our consolidated sales for the first quarter to be approximately $397 million to $410 million, with a brand comp sales increase in the 26% to 31% range compared to the 13-week period in 2020. Now as I mentioned, 2020 was a 53-week year for our Retail segment, which creates a shift in the calendar weeks causing New Year's Eve to move into the fourth quarter of 2020, and so the first quarter of 2021. If we un-shifted last year's New Year's timing, Q1 comparable sales that is in our guidance would still show an increase of 9% to 14%. Quarter-to-date, we continue to see strength in our core categories as Brad mentioned earlier. This core strength has allowed us to drive strong demand through a traditionally heavy and mini holidays that can end up being meaningful to our business, including things like Super Bowl, Valentine's Day, a 100 Days of School, Dr. Seuss Day, St. Patrick's, Mardi Gras and several others. So the strength in our core also bodes well as we look for return to some form of normal as our current cost structure should enable strong leverage, even on modest comparable sales growth. For the first quarter, there are a few unique items that will impact our performance which we did want to highlight for your planning purposes. First is the impact of New Year's Eve, which we estimate is $9 million in EBITDA that was shifted into 2020, due to the 53rd week. Next, a couple of cost factors, two evolving areas that we get asked about frequently, our helium and omni-channel delivery costs. The total of those two elements is a headwind of approximately $6 million in the first quarter, relative to 2018 and 2019 levels. As others have discussed there are transportation cost headwinds that we are looking to mitigate ourselves. Net of our mitigation work, we expect those headwinds to adjusted EBITDA to be $8 million to $10 million for the full year of fiscal 2021, with the bulk of those costs expected to be recognized in the second quarter through fourth quarter. And finally, as we confirm today, we did complete the sale of a substantial portion of our international operations at the end of January. The revenues for those operations were approximately $250 million in 2019 and $55 million in the first quarter of 2020 with an immaterial amount of EBITDA in both periods. So, those amounts are going to impact our revenue and metrics as we wrap around down the transaction and continue throughout 2021 to wrap around. We clearly have a lot of moving pieces in our financials. The bottom line is that we are exceeding our expectations in 2021 thus far and the positive signs that we're seeing in our strategic initiatives and core business give us reason for optimism as we progress through the year. So in summary, 2020 was an unprecedented year, but we are very proud of all that we've accomplished to advance our strategic priorities and to enhance our financial health, while still maintaining the continuity of our retail and wholesale operations. We finished 2020 as a better and stronger company and are well positioned to capitalize on the opportunities ahead of us in 2021 and beyond. And with that, I'll turn it over to the operator to start the Q&A session.

[Operator:]

The first question comes from Seth Sigman of Credit Suisse. Please go ahead.

[Seth Sigman:]

Everybody, good morning, and thanks for taking the question. Hey, Brad, you mentioned some regional differences, I was hoping that you can elaborate on that. What are you seeing in markets that are, I guess considered more open right now? And are there any other leading indicators that you can point to? For example, I think most recently you talked about unit volume being similar, but sort of a trade down lower ticket selling smaller kits. Is that something that you're starting to see reverse? I'm just curious how you're seeing, the spring shape up here. Thanks so much.

[Brad Weston:]

Yes, as we said in our, hi Seth, as we said in our January release, COVID-19 cases had a greater impact than expected on customer behavior in the colder months of November and December, which was evidenced by underperformance in regions like the Northeast. As we know, outdoor activities are more conducive to social gatherings as we saw in Q3, so the cold weather impact was certainly there. One of the questions you referenced about units is, we did recently at ICR in January, talk about how our business improved when we got past that Christmas holiday where we know that in November and December, school and office activities and holiday gatherings were a drag on Q4, but our core business was really good. The New Year's Eve example is that, we sell party kits for New Year's Eve in increments of 10, 25, 50 and 100 party guests. We just experienced lower sales, because in a little bit lower sales in New Year's Eve, because we saw a significant increase in the 10 person kit, while the larger kits had declined. As we moved into the celebrations that Todd mentioned, such as Valentine's Day, Super Bowl, et cetera, those were impacted by smaller gatherings. Mardi Gras, obviously very large gathering, and now we're right in that St. Patrick's Day period. But our core business remains really strong. And so the notion that we can have a really good result, with our core categories, driving our business around those celebration occasions, versus seasonal, really bodes well for us.

[Seth Sigman:]

Okay, thank you for that. That's very helpful. My follow up question is around the gross margin and the recovery opportunity, because I do think that's one of the biggest long term opportunities here. If you think about your pricing work seems like, based on what you said, is largely behind. Your inventory sounds like it's cleaner. Hopefully sales are on a better trajectory. And how should we be thinking about the opportunity for gross margin, I guess in ‘21, and then thinking longer term as well? Thank you.

[Todd Vogensen:]

Sure, thanks, it's Todd. So in terms of gross margin, at this point we have done a number of things that put us in a good position from a margin perspective. We've continued to rationalize some of the promotions in retail. We've looked at how we optimize cost structures across our wholesale manufacturing plants. So margin at this point, it's a comment that Brad made earlier, we really have set that cost structure so that even with modest sales increases, we see that leverage start to flow through really quickly. So the big driver of margin improvements likely will be the top line, but it just does not take that much in the way of top line growth to result in leverage that does flow through and does drive leverage to the bottom line.

[Seth Sigman:]

Okay, thanks very much.

[Operator:]

The next question is from Rick Nelson of Stephens. Please go ahead.

[Rick Nelson:]

Hi, thanks. Good morning. Thanks for taking my question. Brad, any insight into how you're planning for Halloween 2021? At this point, I realize you don't have guidance out there, but any color around that would be helpful?

[Brad Weston:]

Yes, clearly we're not going to talk too much about any detail around Halloween is a big period in our back half of our year. What I'll tell you is that we had a lot of really great learnings last year. We made some changes to our in-store experience, to our digital experience and to our marketing, which all created a better than expected Halloween for us. We're going to take those learning’s. Our inventories are obviously cleaner, as we mentioned, is our write-down on seasonal was -- had Halloween as a piece of it, and so our newness and freshness and some of the innovation that will come into all of our categories will be improved this year. And to answer your question on Halloween City, we had a lot of really good learnings in Halloween City, as well. And as we talked about before, we piloted several different ways to be more competitive with that experience. And we're going to take those learnings and turn that into a more aggressive posture this year.

[Rick Nelson:]

Perfect. The next-gen stores, if you could speak to the comps, there may be versus the rest of the chain, I mean, can you, you can chat on economics. And I know you mentioned new stores would incorporate the next-gen, can -- have how many new stores are you thinking about for 2021?

[Brad Weston:]

Yes, let me address a little bit of, sort of the experience on our reaction and Todd can talk a little bit about cost in return and how we're thinking about that. We really focused, as I've talked about before, on optimizing those assortments, optimizing the inventory levels and getting a shop-in-shop environment where we really focus on celebration occasions and then use versus, just categories of product. As we set out to do that, in mostly in the back half of the year last year, we opened 22 next-gen stores, and had quite a bit of learnings. Clearly, we would have liked to have learnings from the entire year, instead of just the back half. But those results as we've modified them have made us increasingly optimistic and bullish about the concept, especially based on the customer reactions that we're getting as well as the easier operating model that it provides to our associates. We're bullish enough to tell you that we opened 20 and we will have opened 20 in Q1, not ready to discuss exactly what the final number is going to be for ‘21, because we're still working through that, but we're getting a lift. We're finding optimization by category. We're finding optimization in cost and we're excited to continue to be aggressive with this rollout. Todd?

[Todd Vogensen:]

Yes and the only things that I would add are, the overall capital expenditure guidance we gave about $70 million to $80 million does include the cost in the next-gen remodels or new stores this year. So that tells you where -- we're bullish as Brad said. We're marching forward, but we're also managing the overall costs in a very efficient way. Remodels cost is a pretty significant amount less than new stores. And so, we're making sure that we're doing things and getting to the point in the process where we can cross engineer maybe some of the things that we're doing much more effectively. We do have in the plans for the coming year 15 new stores approximately and approximately 5 closures. So we continue to do our real estate work around where we might have whitespace or nodes of opportunity and where it's probably better to be optimizing out of space. I would say at this point that is going to be an ongoing part of the strategy. We continue to see opportunities on both sides of that equation where our store footprint has really, is in a position where it's spread out appropriately, and we can fill in, in markets where there is a demographic that's growing, that's an opportunity for us.

[Brad Weston:]

One thing Rick I might add to that is, we were certainly expecting that the customer reaction would be very positive to the next-gen stores. Our associate reaction would be very positive to the next-gen stores. One thing that's really been exciting is, landlord response to our next-gen stores. People are -- they're obviously eager in this environment to have something new. And when we're a brick and -- when our stores are the hub of our omni-channel experience in our ability to draw consumers in to their centers with helium and helium balloons and the excitement that comes with family shopping in that environment, they are coming to the table with tenant allowances that keep us in line and tie back to what Todd said about our overall capital expenditure with this rollout.

[Rick Nelson:]

Very good. So overall do you see the store count higher in 2021, lower or about where you are today?

[Brad Weston:]

We would expect to see a net 10 increase across the course of the year, so not a material move one way or the other. Like I said, we've gone through our geographies and feeling like we've gotten good spacing on our stores and relative good density and it's more an opportunistic move for us. Same, we've gotten the question about franchisees and would we look at acquiring franchisees, same concept applies I think, while there may be opportunities where there's a franchisee that we can work with to get a deal that gets us in a market and owning stores efficiently, that's something we are open to, but there certainly is no big push to go out and spend money on franchise stores or anything like that.

[Rick Nelson:]

Great, thanks for answering the questions and good luck as we push forward.

[Brad Weston:]

Thanks, Rick.

[Todd Vogensen:]

Thanks, Rick.

[Operator:]

The next question is from Carla Casella of JP Morgan. Please go ahead.

[Carla Casella:]

Hi, my question relates to the inventory adjustment that you took. It's a little higher than what you had guided. Can you just say what changed from the last time you got it until today's reporting?

[Todd Vogensen:]

Yes, thanks for asking the question. This is Todd. So we had said that we were going -- we have disposed of about $80 million in inventory and we did. As we were going through and doing the final tie-outs we identified a little bit of additional inventory that we were not able to physically dispose of, but wanted to reserve for that was in exactly the same category, seasonal inventory that we didn't see the need for next year, especially as we were going through and doing all of our post mortems on Halloween. So I would characterize it more as final reconciliation and cleanup than anything more broad.

[Carla Casella:]

And can you give us any sense of what kind of inventory, how much of it is Halloween or costumes versus how much of it maybe party goods that you've changed the skew assortment?

[Todd Vogensen:]

It's -- so all of the investment or the inventory that we're talking about was seasonal inventory, so that will cut across everything from Valentine's, New Year's, Easter and so forth. The bulk of it was Halloween. Halloween is obviously the bulk of our seasonal sales, but also as we're shifting the focus of our Halloween City stores, there was opportunity within that as well. So a large portion of that is indeed Halloween inventory.

[Carla Casella:]

And then are you done with the process of evaluating it or do you think we could see further charges into 2021?

[Todd Vogensen:]

I wouldn't go so far as to predict if there may or may not be charges. If we do, there was a charge, we would take it. But we are absolutely continuing to look at inventory. I think there continues to be opportunity. Particularly we've looked at seasonal, but as we go more into some of our core categories, there's opportunity to be more efficient with our inventory. And we're going through that process of analyzing it and figuring out what that might look like going forward. At the very least, without a doubt, we are committed to turning our inventory quicker to having more newness, and ensuring that we have what it is that she's looking for on our shelves, and it's easily shoppable.

[Carla Casella:]

Okay, that's great. And then did you provide -- I know you have in the past same-store sales excluding e-com?

[Todd Vogensen:]

I do not believe that we provided that specifically. The digitally enabled sales were up 27%. So we did have that in there. To be really honest, I think we would love to move away from segregating stores versus digital, because the overlap is getting so intense. The amount of digital sales that are ending up being fulfilled in-store, at curbside is becoming a pretty significant portion of our digital sales. So that that dynamic means we'll probably move away from segregating. And this year given COVID, it just felt like the right thing that we had to do to show what the true digital orders were, but it would probably shift away from that in the future.

[Carla Casella:]

Okay, and did you say the digital penetration this quarter?

[Todd Vogensen:]

No, we did not break that out separately. We have said it was 10% in the past. Clearly we're getting more activity online and so the goal for us is really to translate those online interactions into ideation, into party planning that can then be a drag the store ship or an order online. I don't know that we have a strong preference on that. It's where really she wants to buy from so, so no we didn't break out specifically the amount of e-commerce penetration, but the online activity clearly growing significantly.

[Carla Casella:]

Okay. And actually one other financial question, so you've got some cap, you get into CapEx, and you've got some exciting investments between next-gen and renovating stores. How much of your CapEx would you call maintenance at this point?

[Todd Vogensen:]

Yes, it's so it's such a hard thing. In the past, we've said we were in the $30 million to $40 million of maintenance CapEx. 2020 clearly, we pulled back pretty significantly and you saw our CapEx get down to 50. There was a little bit of, what I would call, growth or initiative CapEx in there. So that $30 million to $40 million for modeling purposes is probably a good starting point for you.

[Carla Casella:]

Okay, thank you so much.

[Brad Weston:]

Absolutely.

[Todd Vogensen:]

Thanks, Carla.

[Operator:]

The next question is from Joe Feldman of Telsey Advisory Group. Please go ahead.

[Joe Feldman:]

Yes, hey, guys. Thanks for the questions. Actually I wanted to follow up on something that inventory questions that Carla was asking. So you're trying to turning it faster and even again in ‘21. I guess my question is, down 30% 38% for the year that seems low to me. And I guess, I'm curious as to where it should end up maybe, like could you give us, like should it be down 5% at the end of '21 or is it going to be up a little relative to 2020 or how should we think about the level of inventory at the end of the year?

[Brad Weston:]

Yes, we're not, it is probably getting a little bit further than where we're at this point, since we're still going through the analytics. I would say, as you look at cash flow for the year, we did carry over some deferred ramps from 2019 about $40 million that we'll be paying back in the course of 2020 more frontend weighted. That should be at least offset by inventory efficiencies as we go through the year. The exact amount we're, like I said, still working through some of the details, particularly in the core categories, but there is opportunity there. I would say just as maybe making that numbers seem a little bit more tangible, we did have the $88 million of seasonal inventory we wrote off. There's about $66 million of inventory in international which now obviously moves outside the company and then we did have our 77 store closures. So roughly 10% of the chain, where that inventory obviously goes away with the stores. So we did have some structural elements as well as just plain core inventory management, which should be ongoing.

[Joe Feldman:]

Got it. Yes, that makes some sense. Thanks for clarifying that. And then, two other quick ones, the next-gen prototype, I guess the question I have is more about, are there things -- I know you're learning a lot in those stores, but are there things that you've learned that you can quickly roll out to the rest of the chain that might actually have a nice impact this year in terms of the business?

[Brad Weston:]

Yes, I made a comment in our prepared remarks that many, much of those learnings, we can roll into our legacy stores. It doesn't quite provide the environment or the layout that we'd like to, but our reduced assortment, our reduced inventory can bring our planogram’s down quite a bit and make them more shoppable, more reachable for the average consumer that we're not, we weren't executing to in the past. So the pictures might still be higher, but the height of the product will be reachable instead of going all the way to the top. That will be the most significant change in the shopping experience. But we will continue to roll all of our assortment rationalization in our curated assortments across the chain.

[Joe Feldman:]

Got it, thank you. And then just, the one other one, Brad, I know you have mentioned more to come on it, but I'll ask anyway. You mentioned this social commerce and making more of a play there and selling through social media. I guess, if you could share any more color, like is a particular, is this Instagram or I don't know, Facebook, or how are you guys kind of approaching that to go forward? Thanks.

[Brad Weston:]

Well, if you think about the places in our category shows up, sort of the best and the most. Yes Pinterest, yes Instagram, yes Facebook and now, even TikTok are elements where our brand shows up. So when we look at that, and we look at the inspiration we're able to provide, and the amazing ideas, and the innovation in product and the ability to showcase customers using the product and doing amazing things, really gives us the ability to translate those into some levels of commerce, where that's available. Our brand shows up great on social media and so that's a, that remains an opportunity for us.

[Joe Feldman:]

Got it. That makes sense. And thanks and good luck with this quarter. Thank you.

[Brad Weston:]

Thanks, Joe.

[Operator:]

The next question is from Jenna Giannelli of Goldman Sachs. Please go ahead.

[Jenna Giannelli:]

Hi, thanks for taking my questions. My first one is just on the wholesale business. You outline the four factors that really drove the decline. I guess first question was, were all of those roughly equal and did that include any divestitures in there? And then I guess, as a follow on, I mean, this is the first quarter it seems that we saw that level of divergence between retail and wholesale, so granted, the comparability versus the prior year was a little bit different. But was there anything that kind of changed for one versus the other? Do you see it as, more temporary or permanent in nature, specifically related to the value customer, you spoke about? Thanks.

[Brad Weston:]

Sure. So definitely not all equal. It's fair to say the franchising independent stores has kind of a rougher go of it versus our retail stores. That's been true, really throughout the pandemic. It makes sense because there's just not the same infrastructure around omni-channel and so forth. So it has been a little bit slow go on that footprint, though we're still working closely with those teams. International has had a lot of headwinds. In International I'm including Canada in that we've gone back and forth on that in the past. So, for both Canada as well as our European and Australian businesses, there just have been a lot of fairly significant government shutdown, regulations requirements, and so that's just a natural barrier for wholesale that we wouldn't necessarily see in the U.S. store base. And then for the others, it kind of follows along a similar path with what we see in our retail business. There's during the quarter, clearly, as we got into more of the seasonal timeframe, more of that celebration timeframe, where there's both work and family celebrations that were scaled down, there were just headwinds there and that translated itself across all the customers.

[Jenna Giannelli:]

Okay, thanks. That's super helpful. And then just a follow up to make sure I understood correctly. The $6 million headwind expected that's just for the first quarter for helium and omni, is that?

[Brad Weston:]

That's correct. Yes, that's the total of the two.

[Jenna Giannelli:]

Okay. And then would you feel comfortable breaking these out if it leans more towards, one or the other? I mean, I guess because I've been thinking about 21 helium is sort of flattish to relative to 19 is not an incremental headwind. Is that wrong? Is that not the right way to think about it? And then I guess, based on the visibility that you have, should we in fact model it in as a headwind for the full year off the 19 base?

[Brad Weston:]

As you're comparing back to 2019, there is an increasing cost there, but 2019 was -- had a lot of ups and downs. But as a general rule, helium costs have kind of settled into a level that is, it's a good 40% to 50% higher than where it historically had been pre the shortage. So there will be a little bit of headwind there, I would say for the $6 million. I said, it was one that was dramatically more or less than we probably would have put more emphasis on that. So you can, assume it's relatively spread.

[Jenna Giannelli:]

Okay, great.

[Brad Weston:]

I think another way to think about helium too is back in ‘19, the helium shortage really extended through the first half of 2019 and the recovery really started in late Q3 and Q4 of 2019.

[Jenna Giannelli:]

Okay, all right, perfect. That's helpful. And then just finally on CapEx, I know you did the broad strokes breakdown of the spend, but just maybe a little more granularity on what specifically you'll be spending on this year that you didn't spend on last year, and how that might flow through to top line as we go through the back of the year?

[Brad Weston:]

Not sure. So, from a capital spending perspective, a few things versus last year first, we obviously pulled back quite a bit on storage facilities, what I would call semi maintenance spend. And so, you're going to see a little bit more investment in things like air conditioners and things that make our stores fresh and the way that they should be, it will be pretty spread. And that we are going to have more in the way of e-commerce and technology spends as we get going more on some of the e-commerce capabilities that Brad talked about. And then next-gen stores we would expect to ramp up across this year with 15 new stores as hiring is done a little bit, so it a little bit of new stores. But I would, just as a general rule of thumb technology is probably a little bit more meaningful to the overall total.

[Brad Weston:]

I mean, you can imagine we're doing quite a bit of work as we planned, our capital expenditures to really ensure that they're focused on the investments that are going to drive future results in a little bit more of a surgical way than we may have done in the past.

[Jenna Giannelli:]

Thanks for all the color.

[Brad Weston:]

You bet. It’s my pleasure.

[Operator:]

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

[William Reuter:]

Hi, thanks for taking the question. It was good to hear about the retail tailwinds here in the first quarter. I think it implies that wholesale is going to be a little bit weaker than maybe I was expecting. in the guidance for both revenue and brand comps. What does that imply for wholesale?

[Brad Weston:]

Well, we were probably getting further than we would normally go in terms of guidance. I would say if this helps, we would expect to continue to see portions of the business like the franchise in independence. I perform short of what our retail performances until there is more of a comeback from the pandemic. That's just I think is a structural thing that will correct over time. And we have seen ongoing pullback or were shutdowns really. I in Canada, that have extended into the quarter as well. So tough to overcome when the economy is shutdown. Those are probably two of the more meaningful pieces. And yes, I think we see wholesale having a lot more opportunity as we get further into the year. So hopefully that gives you a little bit. It certainly once vaccines take hold and celebratory behavior is really returned to normal. Not only would we expect increased improvement in our retail business, but then in broader retail businesses than the wholesale business models.

[William Reuter:]

Okay. Yes, some companies have calculated comparable brand sales differently based upon when stores were open and closed. But I guess it does imply that wholesale is down in the second quarter or in the first quarter. Is that right?

[Brad Weston:]

I think that would be fair, with the revenue guidance we gave. I think it does clearly imply that there's headwinds there, just like there have been as we've gone through the last several quarters.

[William Reuter:]

Okay. And then just thinking about the lack of, or I guess, potential port congestion, are you expecting that you're actually short on inventory, and it may be tough to get inventory to the places you need it over the next couple of quarters if demand increases?

[Brad Weston:]

We actually have put a lot of work into supply chain, part of the capital that we're spending is around supply chain this year to improve our overall efficiency and effectiveness there, there's cost headwinds that we're talking about on the call. From a timing perspective, there are little things around availability of shipping containers, but by and large, most of our goods come into, the U.S. through East Coast sports. And because of that, we don't face the same level of pressure and congestion that maybe a lot of other retailers do. The team really has actually been doing a good job from an importing perspective, making sure that things are getting through the ports since U.S. on a timely basis. So we feel good about the flows fly there.

[William Reuter:]

Great, all right, that's all from me. Thank you.

[Brad Weston:]

Thank you.

[Operator:]

The next question is from Karru Martinson of Jefferies. Please go ahead.

[Karru Martinson:]

Good morning. Certainly hear you on the colder months hitting the outdoor gatherings. I was wondering though, in the first quarter, the impact, can even quantify the impact of the Texas storms, the weather up here and that we've had in the northeast, and I'm what was that drag on the performance?

[Brad Weston:]

So there has clearly been an impact, always quantifying whether is a as much art as science, but based on what we've seen so far, it has been a little bit more than a percentage point of impact on our quarter to-date sales. We are wrapping around on a year that didn't have a lot of weather impact last year. So that does mean, they didn't have an impact on us. And it's -- if you think about it as about a percent, that's probably a good range.

[Todd Vogensen:]

Okay. And there was a period of time where we had approximately 200 stores that were closed or had limited hours over a few days based on the severe weather that we saw which, drove up. So that's a fair piece of the chain that was impacted for a few days.

[Karru Martinson:]

Okay, and that was the there was an income tax receivable about $57.5 million. I was going to, is that cash that's coming in here during 2021 and how should we think about cash taxes for the year?

[Brad Weston:]

Yes, so we do coming off 2020 a taxable loss that we'll be claiming as part of the tax return process that typically takes place in the back half of the year and then there's a normal refund process the IRS goes through if all goes according to plan, that means that we would get that cash back this year, probably towards the later part of the year. From looking at estimated payments going forward, probably the best way to think about future cash or 2021 other cash taxes as we get back into an income position we'll be making estimated payments where our cash taxes should roughly reflect the amount of tax expense if you use that 25%-ish tax rate going through the year.

[Karru Martinson:]

Okay, and then just post the refinancing. And where do we stand today on the revolver balance and the liquidity having cleared the structure now with the refinancing that you did?

[Brad Weston:]

I think we gave the specific update on exactly where we're at from a liquidity perspective. But part of what we did do was to also extend out our ABL. So we've got the ABL in place for another five years with similar borrowing base and calculations and so forth. So the core structure has stayed the same, we did pay off a $700 million, little less than that term loan with $750 million. So that also helps provide just a little bit of liquidity to cover costs of the transaction and a little extra. So as a general statement, we're feeling good about where we're at on the liquidity perspective. We continue to manage cash tightly. But with the positive signs we're seeing as we go towards the back half of the year, I think we're feeling like we're in a solid position.

[Karru Martinson:]

Thank you very much, guys. I appreciate it.

[Brad Weston:]

Thank you.

[Operator:]

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

[Brad Weston:]

Thank you, everybody for joining us today. In conclusion, 2020 was a monumental year for us and I'm extremely proud of all that we accomplished we were keenly focused on stabilization of our retail business to which our flat brand content retail in the back half of the year as a testament, despite the pandemic impact on social gatherings. On the financial side, we made significant efforts to address our debt, which drove down the overall amount of debt and dramatically increased our financial flexibility, including the extension of our first maturity up to 2025. As we begin 2021 we're in a very different position as a company, both operationally and financially than we were just a year ago. But the building blocks for future growth that we put in place in 2020. We have a strong foundation upon which to build this year, we remain intensely focused on the consumer, and more effectively operating and leveraging our unique North American vertical model as we continue our transformation and further strengthen our industry leadership position. So thanks again everyone for joining us this morning.

[Operator:]

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