Party City Holdco Inc. (NYSE:PRTY) Q3 2022 Earnings Conference Call November 8, 2022 8:30 AM ET
Company Participants
Ian Heller – Vice President and Deputy General Counsel
Brad Weston – President & Chief Executive Officer
Todd Vogensen – Executive Vice President & Chief Financial Officer
Conference Call Participants
William Reuter – Bank of America Merrill Lynch
Joe Feldman – Telsey Advisory Group LLC
Karru Martinson – Jefferies
Carla Casella – JPMorgan Chase & Co.
Hale Holden – Barclays
Operator
Good morning or good afternoon, and welcome to the Party City 3Q ’22 Earnings Call. My name is Adam, and I’ll be your operator today. [Operator Instructions]
I will now hand over to Ian Heller to begin. Ian, please go ahead when you are ready.
Ian Heller
Thank you, operator. Good morning, everyone, and thanks for joining us. This morning, we released our third quarter 2022 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. We have Brad Weston, our Chief Executive Officer; and Todd Vogensen, our Chief Financial Officer. We’ll start the call with her 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 expectations about the company’s future performance, future business prospects or future events or 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 the risk factors contained in our SEC filings. During today’s call, we will 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 reconciliation to the most directly comparable GAAP measures, please refer to the earnings release.
And with that, I’ll turn the call over to Brad Weston.
Brad Weston
Thank you, Ian. Good morning, everyone, and thank you for joining us today. We started our strategic transformation work just prior to the pandemic and have continued to make good progress against the key supporting initiatives despite the headwinds our industry has faced.
As part of this journey, we focused on bringing all of our business functions together into one PCHI fully integrated to focus on the end consumer in the celebration space across all of our channels. Our position in the market is unparalleled, and being celebration occasion obsessed has improved our brand relevancy and our revenue trajectory versus the pre-transformation period. Consumers recognize and appreciate our ability to inspire joy and help them make easy to create unforgettable memories. And we look forward to our transformation work continuing to drive performance improvements and growth over the long term.
For the third quarter, we achieved results that were broadly in line with our expectations against the macro backdrop that has our core customer facing significant inflationary pressures. In addition, despite these challenges, we delivered a flat comp sales retail performance for the month of October, and our Halloween revenue was up across the enterprise on top of a strong 2021 Halloween.
Turning to our Q3 highlights. Overall, during Q3, we saw top line results largely in line with expectations, generating total sales of $502 million, down 1.6% from last year. Our gross margin was in line with our expectations. We saw continued cost pressures in Q3 as we continue to navigate through the global helium dynamics and increased freight costs. These temporary headwinds negatively impacted gross margin and adjusted EBITDA by approximately $34 million in the quarter.
Adjusted EBITDA for Q3 was $2.4 million versus $42.4 million last year. Inventory at the end of Q3 was $746 million or up 43%. Importantly, the majority of the incremental inventory is replenishment or everyday product that doesn’t carry markdown risk. Drilling down further. Retail sales decreased 1%, with brand comparable sales decreasing 3.2% or an increase of 11.2% versus 2019. Our core categories improved 180 basis points sequentially and continue to perform very well versus pre-pandemic. A number of our seasonal businesses saw solid performance in Q3, and we were pleased with our results in our patriotic and summer categories.
For the quarter, our overall seasonal sales were up 2.8% versus prior year. Our comparable sales in core categories declined 3.7% in the quarter versus 2021, but were up 23.6% versus 2019. Compared to 2019, our retail balloon business, in particular, performed very well, up nearly 62% due to the emphasis we have put on this category as a key differentiator in our strategy. Our focus on driving strong improvements to quality and innovation in our assortments as well as thoughtful pricing as we seek to offset higher expenses continues to strengthen sales performance versus the pre-pandemic timeframe.
Our next-gen stores continue to perform very well. We opened 15 next-gen stores in Q3, totaling 174 Next-Gen stores as of the end of the quarter. These stores continue to average a mid-single-digit sales increase versus control stores with a run rate that delivers a payback period on each store of less than 24 months on average. We continue to anticipate ending 2022 with 175 to 180 next-gen store remodels or openings in the chain. Customers continue to take advantage of our omnichannel capabilities and the convenience of multiple fulfillment options. Digitally enabled sales represented approximately 13% of our retail sales in Q3 as we continue to deliver an enhanced customer experience through new digital offerings. We again achieved a very strong 2.9% conversion rate, which we expect to continue to accelerate with continued optimization within our new web platform.
The new balloon builder continues to build momentum. Our conversion rates and average order value continue to improve as customers increasingly enjoy the experience. While the demand backdrop in our wholesale business remains relatively stable, our wholesale business was down 3.6% in Q3 with continued sales strength at Canadian Tire, offset by declines at Anagram as the industry manages the tight helium supply conditions, which I will address further in a moment.
Moving on to October and Halloween performance. For the month of October, comparable sales were flat versus prior year and up 12.3% versus October 2019. The — given the challenging environment we are in, we’re pleased with the results. The positive Halloween season performance can partially be attributed to our strong inventory position going into and throughout the season. Customers continue to respond to our efforts to improve product quality, drive meaningful innovation and create a more immersive Halloween experience. Our focus on Halloween decor translated into strong sales throughout the season.
We’re also pleased with our costume accessory performance. We offered elevated quality and unique innovation in the Halloween category as consumers sought products to make their costumes truly unique and personalized. We had a number of strong core everyday categories, including solid tableware, candy and categories that complete Halloween baskets such as cocktail, decorations, entertaining and lighting. This year, we operated 149 Halloween City pop-up stores versus 90 last year. We continue to test, learn and improve to deliver a better experience for the customer and remain bullish about our ability to grow sales and profitability in this channel and continue to see the immersive pop of experience as a great complement to our Party City stores.
As we said in July, the unevenness in the supply chain and our product flow has put short-term pressure on our EBITDA results. As expected, we saw continued elevated freight costs in the quarter, especially as we brought in Halloween product earlier than last year. In terms of the broader freight market, freight spot prices are moderating and well off their recent highs. However, given how our inventory turns, we would not expect to see the associated benefit until later in 2023. Helium costs have increased as global supply has been slower to recover than expected.
As discussed last quarter, we are in an advantaged position from a helium supply perspective, given the work we have done to diversify our supplier base and enter into multiple well partnerships as well as long-term supply agreements that have meaningfully improved our ability to source Helio. Total industry supply, however, is not returning as rapidly as we would like to see, resulting in tight helium supply and some out of stocks for the rest of the industry as well as higher costs for all. This is impacting Anagram sales in the near term, which will impact Q4 revenue and EBITDA.
In addition to these challenges, in October, our product sales mix with softer performance in our core everyday categories, coupled with positive performance in Halloween resulted in a mix headwind to margin. Based on our performance to date and with 2 months remaining in the fiscal year, we are updating our full year expectations. This updated outlook takes into account third quarter results that were broadly in line with our expectation and October results, including Halloween performance, while positive, fell short of our expectations. And it factors in our expectation that inflationary headwinds will continue to persist over the balance of the year.
Our updated outlook for adjusted EBITDA is between $130 million to $150 million. Given the broad macroeconomic landscape, we are intently managing what is in our control and intensifying our focus on reducing structural costs and increased operating efficiencies.
To that end, we’ve begun implementation of annualized targeted cost reductions of $30 million, which are expected to be fully realized next fiscal year. These cost reductions will help offset inflationary expense pressures and the risk of recessionary consumer spending behavior. Worst is underway to drive expense savings across various areas of the company, including retail store efficiencies, marketing expenses, information technology contracts, professional services, raw materials, logistics and operational costs and corporate payroll. Additionally, we reduced our corporate workforce by approximately 19%, which includes the elimination of 73 existing roles and 87 open holes that have not been backfilled over the past several months.
In addition, we’re continuing to evaluate strategic price increases to offset cost increases. This intensified focus includes streamlining our organization, implementing new ways of driving synergy across our businesses with updated processes and systems, more robust and integrated inventory management capabilities, greater supply chain visibility and efficiencies and enhanced IT capabilities that combined all significantly expand our ability to become more demand-driven while simultaneously becoming more efficient in reducing SG&A expenses.
At the same time, we’re continuing to move forward in building on our top line momentum and are focused on the growth initiatives with the strongest near-term upside and market expansion opportunities, namely continuing store conversions to the next-generation prototype though in the near term, we are moderating the pace of conversions to reflect the current environment, delivering more compelling solution selling offerings to our wholesale customers and continuing to evolve our Halloween City pop-up store channel to drive growth and market share.
To support these efforts, we’re making some organizational adjustments to further align with our strategy, including 2 senior appointments that I’ll highlight now. Sean Thompson, our Executive Vice President and Chief Commercial Officer, has become President and Chief Commercial Officer of PCHI continuing his leadership of our overall commercial go-to-market strategy and now adding marketing and e-commerce to his leadership responsibilities. We’ve also hired Peter Smith as our Chief Operations Officer, to increase efficiency in our end-to-end product pipeline, including manufacturing, sourcing, inventory optimization and supply chain efficiency. Peter was most recently the Executive Vice President, Global Supply Chain; and Carter’s Children’s Clothing.
In closing, we are executing on a number of actions to best position PCHI to build on the progress we’ve made and navigate the continuing inflationary macroeconomic environment. This means an intensified effort on cost reduction while prioritizing a more focused set of strategic growth initiatives in the near to medium term. We expect to enter 2023, and this next phase of our evolution as a leaner, more efficient organization, sharply focused on driving profitable long-term growth and value creation through our continued transformation.
And now, I’d like to turn the call over to Todd to discuss the third quarter, October and Halloween results as well as our 2022 outlook in greater detail.
Todd Vogensen
Thanks, Brad, and good morning, everyone. Today, I’ll focus on the key highlights of our third quarter results as well as our October and Halloween performance, and then I’ll discuss how we’re approaching the last weeks of our fiscal year. 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 delivered third quarter results that were largely in line with our expectations, including sales that continue to demonstrate strength versus pre-pandemic time frames, offset on the bottom line by temporary cost headwinds that pressured profitability. For the third quarter, consolidated revenues decreased 1.6% versus the prior year period, primarily driven by continued pressure on retail sales as we lap 2021 strong performance in addition to helium driven declines in Anagram, partially offset by continued growth in the rest of our wholesale business.
Adjusted gross margin rate for the third quarter decreased approximately 420 basis points from the prior year period, driven primarily by freight, labor, raw material and product cost increases. We estimate that these inflationary and supply chain pressures, many of which are transitory in nature, negatively impacted gross margin by approximately 60 basis points. Additionally, helium costs in the quarter represented an approximate 100 basis point headwind versus the prior year.
As we previously mentioned, we continue to adjust pricing across the business, which served as a sizable offset to the inflationary pressures in the quarter. Adjusted SG&A expenses were approximately $173.9 million or 34.6% of net sales, a 370 basis point increase versus the prior year primarily due to higher store labor costs as a result of wage rate growth. As a result, adjusted operating income was a loss of $13 million compared to operating income of $27 million in Q3 last year. Adjusted EBITDA was $2.4 million in the third quarter compared to $42.4 million last year. And third quarter adjusted loss per share was $1.39 compared to adjusted earnings per share of $0.02 in the prior year period. In terms of tax expense, we recorded a quarterly tax provision in our third quarter results of $195 million.
As we discussed previously, in accordance with GAAP, we apply an annual tax rate to our quarterly income. The use of the annual rate applied to our quarterly earnings resulted in a $174 million benefit in the second quarter, which reversed in the third quarter, resulting in an abnormally high $195 million income tax expense in the third quarter. Our year-to-date tax rate is negative 3.6%, a much more normalized results. You can find additional disclosures in our third quarter 10-Q tax footnote, which we will file with the SEC after market close today.
Now turning to our balance sheet and cash flow metrics. Inventory was up approximately $226 million or 43% year-over-year. As we’ve discussed, given the continued broader supply chain challenges, we strategically brought in inventory early to ensure that we are well positioned ahead of Halloween and to rebuild our in-stock levels versus last year, approximately $40 million of the higher inventory levels is associated with inflation and approximately $67 million was driven by Halloween receipts. We continue to feel good about the quality of our inventory. The largest increases are in replenishment or everyday categories such as balloons, kids birthday consoled tableware, which are all largely evergreen in nature and do not carry any meaningful markdown risk as a result.
Year-to-date, net cash used in operating activities was $286 million versus net cash used in operating activities of $74 million in the prior year period. The higher cash usage was largely driven by an increase in working capital levels as well as the decline in operating results. Now let me turn my comments to the outlook. Results for Q3 were at the lower end of our guidance, flat October results and positive Halloween performance, while encouraging given the current backdrop, but short of our original expectations. When combined with the challenging operating environment at Anagram, we believe it’s prudent to update our 2022 guidance.
As a reminder, our guidance does not assume any impact from situations we can’t reasonably predict with any certainty, such as COVID variants, increasing geopolitical instability or other macro disruptions. However, our outlook does include what we’ve seen so far in terms of the macro backdrop, along with the mitigation measures that we’ve put into place.
For fiscal 2022, we now expect net sales of $2.14 billion to $2.19 billion or a change of approximately negative 1% to positive 1% versus 2021. And brand comp in the range of approximately negative 3% to negative 1%. GAAP net loss of approximately $199 million to $184 million and adjusted EBITDA of approximately $130 million to $150 million. In terms of capital expenditures, we now expect our 2022 spend to be in the $90 million to $100 million range or approximately $60 million to $70 million net of tenant improvement allowances.
And lastly, we expect to complete between 80 to 85 new next-generation stores in 2022. Our 2022 guidance assumes $90 million in cost headwinds from incremental supply chain costs, inclusive of higher freight costs into Mirage incremental material input costs and $20 million of higher helium expense, all against 2019 levels for a combined headwind of $160 million. While we still believe many of these headwinds are transitory, the current macro backdrop makes it difficult to predict when they will alleviate.
Please note that each of these cost pressures are embedded in the underlying cost of the related inventory, meaning that items like freight are included in our current inventories. And even if near-term freight costs declined, the elevated costs from earlier in 2022 will be a headwind well into 2023 until the underlying inventory is sold. Combined with an expectation that the inflationary pressures our core consumer is facing will make for a choppy demand environment as we head into 2023 and — we’ve taken certain cost actions in anticipation, as Brad outlined. Let me now turn to liquidity. We ended the quarter with $122 million in total liquidity, comprised of $30 million in cash and $92 million of revolver availability.
At quarter end, we had a principal balance of debt net of cash of $1.67 billion. Our cost actions will drive approximately $30 million in annualized savings, improving our liquidity position as we navigate what could be a challenging macro environment in 2023. So in summary, we’re pleased with our third quarter results, which were largely in line with expectations and that we were able to drive solid October and Halloween performance in this difficult inflationary environment. The operating environment remains challenging with temporary but persisting cost headwinds and the consumer is feeling the effects of the significant inflationary pressures.
We’re taking actions to streamline our organization and align our cost structure as we position ourselves to continue to navigate the current environment. This, combined with our strategic growth initiatives, gives us confidence in our ability to continue to execute against our transformation strategy as we increase our relevancy for all things celebratory.
With that, I will turn the call over to the operator to start the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question today comes from William Reuter from Bank of America.
William Reuter
The first is, in your prepared remarks, you discussed potentially taking some additional strategic price increases. I guess can you discuss how you feel that you’re currently priced and maybe which items you may have greater ability to take further price increases?
Brad Weston
Yes. Consumer reaction to prices is very dynamic. So we’re constantly testing price and we do enough so that we have a really good understanding of price elasticity at the category and SKU level as well as competition pricing. And we’ve been encouraged by our pricing power. But as you can imagine, we’re also being judicious in this environment. So we continue — we’re willing to take price actions now and in the future. In fact, we took a number recently where our view of price elasticity demonstrates that it would have a positive dollar profitability impact, where we like to focus is where there is the least elasticity. Often, that comes through where we are competitively priced and where we’re able to differentiate in the marketplace because we provide a very unique experience to consumers.
William Reuter
Got it. And then, Todd, when you were discussing gross margin, you mentioned transitory costs of 680 basis points. And then later, you referred to transitory but persistent challenges here. I guess — and then you I think said something that it’s going to be difficult to figure out when these will go away. But at a minimum, I would expect that some of these will have gone away a year from now. Do you have any sense whether maybe that could be half of that $680 or any kind of an early estimate for us to try and start to help with our next model for the next year?
Todd Vogensen
Sure. So I think you got the point that a lot of those costs are embedded in our inventory now. So they don’t necessarily roll off immediately to roll up as underlying inventory rolls out, which depending on the category, can be fairly good or it can take a good chunk of 23 to roll out. But when we look at the things that are the most likely to provide cost relief, probably freight transportation come to the top of the list. We’re already seeing spot market rates in the freight market that are favorable to where we would have been, call it, 6 to 9 months ago. And so that’s encouraging. The rest of the cost actions are just frankly a little bit difficult to predict at this point. So we’ll have to work through the beginning of next year and measure those as we kind of make progress.
William Reuter
Okay. And then lastly for me. Your inventory was up $226 million. You were helpful in giving us what component of that was due to inflation. In the — I guess, you said you feel good about the inventory. My 2 questions here. Number one, there have been some years in the past where you had end of year markdowns or write-down, should we not expect that this year? And then two, is there anything you can help us to think about how your inventory numbers may come down over the next year?
Todd Vogensen
Sure. So the first — you’re right, we do not have any intention of having a large inventory write-down this year. The inventory that we have on hand is ugly key items. This is fresh inventory. Some of the costs, $40 million is just pure that’s not units. It’s just pure inflation costs and we had $67 million that was related to Halloween again. Any Halloween inventory that is carried over is going to be key items that we would expect to cover next year. So largely, we’re feeling good about the quality of our inventory. Largest increases really are in categories like balloons, birthday solid tableware, that largely evergreen in nature and it just doesn’t carry a meaningful markdown risk as a result. So we would expect, as we go into next year, the net working capital is going to be a source of cash for us as we do work through this inventory, how much is something that we’ll probably be talking more about as we get into 2023 guidance on our next earnings call. this deal of our past inventory write-downs or write-offs have been around seasonal product.
And our practice now is do we liquidate all the inventory we do not want to carry forward with our normal operating payments, which is very different and a fundamental change that this management team has implemented successfully to ensure that we don’t have those seasonal product challenges at the end of any given year.
Operator
The next question comes from Joe Feldman from Telsey Advisory Group.
Joe Feldman
A couple of quick questions for you. So with regards to the core business, like what do you think is driving the slowdown? I mean I get the economy, but aren’t loyal kids still having birthday parties and have gathering slowed relative to last year? I’m just kind of wondering why you think the — why it has been slower.
Todd Vogensen
No, I think the biggest issue is we did see a significant surge in those everyday categories in 2021 coming out of the pandemic period. So key thing to keep in mind is our core categories or drivers of 2021 celebrations are — if you compare them to 2019, our prepandemic levels or core everyday categories are up over 20%. And so very strong versus that time period. Our in-stocks continue to improve as the inventory has come in and our positions on key items has improved, which sets us up better. I think there’s always a little bit of change in consumer demand around their behavior around parties and how people celebrate the good news is they are celebrating and our balance — our seasonal categories have come back quite nicely.
Joe Feldman
Got it. And then, can we — with regard to the helium costs, like I guess what — can you dive a little deeper into what’s going on there? Because I guess I was under the impression that you guys have very good supply because you’ve partnered with wells like you said, and you have good supplier partnerships as backups. And my understanding was you wouldn’t have to be buying too much at the spot price these days. So maybe you could share a little more thought there. And also like what’s driving the shortage worldwide that’s impact? I know it’s impacting medical devices and other things. I’m just curious what you’re seeing that’s going on now.
Brad Weston
Yes. But we can take a little bit about holistic view to those helium questions. For our Karnes City stores, the supply has improved and we’re fortunately in a relatively good position from a supply standpoint, although supply is coming in at a bit higher cost than last year. And as we stated last quarter, in the U.S., the Bureau of Land Management plant is now up and running, which has improved our supply. And in cutter plants have resumed operations after being taken off-line for maintenance in the beginning of the year, and those 2 things had an impact as we discussed through the first part of the year, and it did impact pricing. — where we bought spot market product in Q2 or Q1 and Q2 for graduation, but have not had to purchase in the spot market since then.
The total global supply is not returning as rapidly as we would like, resulting in tight supply and some out of stocks for the rest of the industry as well as higher costs for all mall 2022 was expected to be a year transition from tighter immune supply to ample supply due to the start of production from Gazprom in Russia, which has the potential to increase global easy and supply about roughly a third — but after a brief start-up in September of last year, that had experienced a fire and an explosion and that not the helium production facility out of commission.
And unfortunately, we do not have a view of when that facility will be back up and running. And while that is not a facility that would supply Party City or necessarily the broader U.S. industry, it does have a significant impact on the global supply because there are countries that would supply from that factory.
Joe Feldman
Okay. And then, I mean, presumably, you guys are able to take advantage of that. You have the supply and or is just demand for balloons down? It sounds like your balloon business is okay at the core party city stores. Or did I not hear that right?
Brad Weston
We are in an advantaged position, really, given the work that we’ve done to diversify our helium supplier base and enter in to a number of well partnerships and we have long-term supply agreements. So that’s meaningfully through our ability to source elicit stores. The challenge is really elsewhere in the market.
Joe Feldman
Okay. And then, maybe one last one for me. Just with regard to Halloween, I was just curious what you guys saw from a competitive standpoint. Was Halloween broadly below expectations? Or was it more just you guys were a little disappointed it came out at the low end?
Brad Weston
We’ve heard anywhere from somewhat positive to lacklustre. We don’t have a total read on competition, yes, we do continue to see online competition, improve the experience, particularly around selling costumes in a bag and rounding out the costume looks with accessories and an easy to shop, easy to purchase manner. But up to this point, it’s still relatively early, generally speaking, competitors looked pretty consistent to the way they looked last year, promotional activity was relatively similar to last year. And so we’ve heard very mixed results.
Joe Feldman
Got it. Good luck guys this quarter.
Brad Weston
Thanks.
Operator
The next question comes from Karru Martinson from Jefferies.
Karru Martinson
So, I wonder if I look at the cost headwinds that you had the $160 million in total. That’s up about $10 million from last quarter, but guidance is down $40 million to $50 million. What’s that delta that we’re looking at for the rest of that miss?
Todd Vogensen
Yes, it’s really sales driven. So we have a combination of things going on in the sales front where Q3 sales came in at the lower end of expectations for we went in with positive expectations, particularly around Halloween City franchise and Halloween City, though performing better than maybe historical averages as we go back to prepandemic times or even back to 2020. It definitely was lower than our expectations and it’s lower than the last year. And so we’re reflecting that. And then Anagram with the pulm supply being what it is in the market in general, is that just creates a little bit of a demand pressure for how living for anagram balloons and being a manufacturing facility, any shortfall in sales flows through very quickly to the bottom line at Anagram.
Karru Martinson
Okay. This is the third guidance revision this year? I mean what are the elements of this business that you feel you have control and visibility over — and kind of where are you dependent on outside forces? And how much confidence do you have in that $130 million, $150 million target with 1 quarter to go in the year?
Todd Vogensen
Yes. I think certainly, overall demand this year has been unpredictable. And I think you’ve heard that from a lot of retailers. And so that has created some difficulty and exactly ending where this — where the overall guidance should come in. But in addition, we’ve just seen a lot in the way of supply chain pressures probably beyond what we would have initially forecasted. Now going into Q4, the benefit we have is having only 2 months left in the quarter is we know what cost increases are built into our inventory currently. So we have the ability to forecast that with some level of comfort. And then the majority of the quarter at this point, nearly 50% is done. So how we in October are significant volume months. And that does — now that we’re through that give us a lot more visibility into where we’re going to end up from a top line perspective and gives us a lot more confidence in that $130 million to $150 million for the full year.
Karru Martinson
Okay. And just lastly, when we look at liquidity, $122 million today or at the end of the quarter, where are we today with the kind of the Halloween working capital release? And how do you feel about liquidity with the $23 million maturity of those 6 notes in ’23 coming up?
Todd Vogensen
Yes. So in terms of the Halloween inventory, we actually did manage to have a reasonable sell-through. So we’re in better position than we would have been in really in the years 2020 and prior — last year was extraordinarily tight for Halloween. As you recall, there were a lot of supply chain disruptions. But taking that kind of anomaly aside, we actually ended up in a position where Halloween inventory is better than we’ve seen historically and in particular, better on inventory that has good saleability. It’s just really if you can have an everyday item in a seasonal category, they’re the everyday key items that we would expect to carry in next year’s assortment. So that, I think, is a positive.
And generally, as we look at our liquidity, we have a number of levers that we continue to pull Working capital will be a benefit to us next year as we work through some of our inventory. We continue to have the ability to manage capital and our CapEx expense. And then you’ve heard some things today around cost discipline that we announced a $30 million in savings. We clearly are focused on how we run the business most efficiently. And so that provides us opportunities on the cost side.
And then, you’ve seen from us in the past and we continue to be open to and we’re actively looking at alternatives for financing. And so we do have a lot of levers out there, and we continue to manage those levers proactively.
Karru Martinson
Thank you very much, guys. Appreciate it.
Operator
The next question comes from Carla Casella from JPMorgan.
Unidentified Analyst
This is Mike on for Karl. One of the ones we had was it sounded like one of your earlier questions, you said that the cilium supply your party city stores was in a pretty good position. Is there any differentiation of that versus, I guess, generically granogram-type customers?
Brad Weston
So I think, yes, embedded in that previous answer is that how we manage our overall supply of our individual contracts and the things that we’ve done to ensure our Party City retail stores are in good helium supply have all benefited us. Anagram customers rely on a similar network but acquire helium in a bit of a different fashion, different contracts, different arrangements in those. So those customers have been more greatly impacted by the challenging supply conditions across the industry and globally, which has put pressure on their ability to sell products to consumers or to their customers who have lacked healing.
Unidentified Analyst
Got you. Okay. And then like you guys have disclosed what percentage of Anagram cells actually go into those Party City stores versus, I guess, third party?
Brad Weston
We have generally said in the past that Party City is in the 35% to 40% of antigrams total sales. So the underground does have a significant amount of third-party business there.
Unidentified Analyst
And as you guys said what the cost of healing today is kind of looks like versus pre-pandemic and pre kind of spike we saw in 2019?
Brad Weston
It is certainly higher. So pre-2018 to the 2019, 2020 type levels, we saw a pretty significant step-up in the amount or price of helium. And then — now with the shortage in the industry spot rates for helium and even contracted rates for are coming under more pressure. Someone earlier mentioned the overall cost pressures that we saw in 2022. And in cost has gone up in terms of the cost pressure for the year by about $10 million versus what we would have seen previously, and that is indeed some of those costs that are flowing through that we’re having to be able to put ourselves in a good position from a supply decision on Helio.
Unidentified Analyst
Got you. And sorry, the last one from us. Have you guys thought about any ability to raise debt at the Anagram box and refinancing out those first and second lien notes?
Brad Weston
It’s probably not appropriate to — it’s a hypothesis about what might be out there. I think we have shown that we’re active in looking at what options are and that we continue to have an open to listen, but I wouldn’t want to get too far in terms of talking about any specifics.
Operator
Our final question today comes from Hale Holden from Barclays.
Hale Holden
I had 2 questions. The first one is you implied for next year that the number of NextGen stores would be lower. And I was wondering what you were thinking on that or how much we’re pulling back versus the prior plans.
Brad Weston
Will moderate pace for next-gen store openings and remodels, really given the broader volatility in the macro environment we’ll be disciplined with capital expenditures in light of the macro challenges. And so it’s too early to really tell exactly where we’ll come in on next-gen stores. We remain — we continue to be pleased with the performance. The performance is similar to what we discussed in previous quarters, and that’s delivering mid-single-digit increases or lift over control stores and continuing from a cost perspective to provide a payback that is within 24 months across the average store next-gen store. But too early to tell for next year.
Hale Holden
Great. And my second question was on Anagram and helium supply for retail partners that you sell into. Is it sort of your impression that the decline there is all helium driven? Or is it potentially consumer-driven or lower baskets for consumer buys?
Brad Weston
So our — based on our balloon business at Party City retail stores, which is very robust versus pre-pandemic levels and continues to be a mainstay in our overall everyday category and a differentiator for us in the market and traffic driver, we believe we’re well positioned. But also realize that our perspective is it’s based on that performance, it’s more a lack of helium availability to those customers of the Integra than it is any type of slowdown on demand at least that’s our perspective based on our Party City stores.
Hale Holden
Okay, thank you very much. I appreciate it.
Operator
This concludes today’s Q&A session. So I’ll now hand back to Brad Weston for concluding remarks.
Brad Weston
Thank you, operator. I am incredibly proud of our teams as they continue to rise to the challenges created by the market volatility over the past few years. They managed through a rapidly shifting business environment, most of which has been beyond their control. I recognize the hard work and resilience of the entire PCHI team who are dedicated to our customers in the success of our business. Have a great day.
Operator
This concludes today’s call. Thank you very much for your attendance. You may now disconnect your lines.
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