Party City is facing a shortage of helium. It also closes 45 stores

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Balloons are a big deal for Party City (PRTY). The company's mylar balloon sales fell 8% last quarter, resulting in a 1.4% drop in overall sales at Party City stores that have been open for at least a year. Sales would have increased if it were not for the balloon problems of the City Party, the company announced Thursday.
Filling balloons with helium is one of the most profitable services of the company, according to Matt McClintock of Barclays. Helium brings people into the store, and these customers usually buy other items instead of buying on Amazon (AMZN) or in another shop. But with the dwindling supplies of helium from the Earth (and the Party City), potential hot air ballooning customers have been looking for festive products elsewhere.

Party City has also announced the closure of 45 stores this year. This is triple the number of stores that the business typically closes during a given year. In a worrying sign, almost all of these stores are profitable, the company said. The company is closing its stores to improve its overall profitability, in the hope that its customers will buy in nearby Party City stores. It has about 900 in North America.

Party City ran out of helium to fill its balloons.
The Earth lacks helium for several years. Helium is formed by the atomizing power of the sun and other stars. But on Earth, helium is a finite resource.
The Earth contains helium pockets buried under a rock, but it is notoriously difficult to capture because it floats. When drilling or fracking for natural gas, energy companies capture helium and sell it. But helium represents a tiny percentage of the gases trapped beneath the rock formations.
In recent years, some drillers have claimed to find traces of helium buried underground, but these have not always been erased. Party City said that she had really begun to feel the effects in August 2018.

Good and bad news for Party City

The good news for Party City is it signed an agreement with a new helium supplier. Party City thinks the new supplier can help it recover its hot air ballooning business from the summer and hopes the stocks will last for the next two and a half years.

"We believe this new source should substantially eliminate the shortfall we are experiencing," Party City President and CEO James Harrison said in a statement.

The bad news is that Party City has declared that its helium shortage will continue until spring. This is bad timing: the month of May is an important month for balloons.

"Clearly, graduation is a great season for hot air balloons, that's no question," Harrison said in a conference call with Wall Street analysts Thursday.

And once Party City has recovered its helium, its new supplier will charge more than its last provider. It will therefore be necessary to increase the filling prices of the balloons.

Helium remains cheap and Party City does not expect that higher prices will hurt long-term sales. Harrison predicted that he could also absorb some of it over time. But he said that higher helium prices could stay here

"Over time, will the price of helium go down? Nobody knows. We'll see," Harrison said.

Harrison warned, however, that additional helium was not a safe thing. The new supplier of Party City might think it relies on a lot of helium, but it can not be sure before packaging and selling it.

"Mother Nature will eventually determine if these fields have the sufficient amount of helium to achieve the goals we have set," Harrison said. "We are convinced that expectations and estimates are solid."

Even so, the stock price climbed 10% Thursday, as investors were delighted that Party City could find another helium supplier. Shares fell 3% on Friday, driven by the broader market.

Correction: An earlier version of this story incorrectly explained why Party City closed 45 stores.

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