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Why Party City Stock Dropped Today

Steve Symington, The Motley Fool

What happened

Shares of Party City (NYSE: PRTY) fell 10% Monday after JPMorgan analyst Tami Zakaria reiterated her neutral rating on the party-supply retailer, but reduced her price target on the stock from $11 to $8.

So what

Zakaria did credit Party City for creating annualized interest savings of roughly $5.5 million, a benefit that stemmed from recent sale-leaseback transactions on three assets. Earlier this month, the company disclosed it had completed the sales of a distribution center in New York, a metallic balloon manufacturing facility in Minnesota, and an injected molded plastics manufacturing facility in New Mexico, and pledged all of the transactions' $128 million in proceeds to paying down debt.

Stock market chart with grey background and yellow arrow line indicating losses.

IMAGE SOURCE: GETTY IMAGES

At the same time, Zakaria argued Party City still faces "idiosyncratic risks" related to a combination of inventory and helium-supply concerns. She also cited concerns over recent executive departures, including the March resignation of CFO Daniel Sullivan (who subsequently became CFO of Edgewell Personal Care) and the departure of its retail chief in June. .

Now what

To be fair, at $8 per share, Zakaria's freshly lowered target is still 25% above Party City's current trading price. And the company did reveal signs of progress when it delivered its first-quarter earnings report in early May, including securing a new 2.5-year helium source and accelerating store closures to focus on its most profitable locations.

But considering its executive turnover and the fact the stock largely gave up its initial post-earnings gains even as the market rallied to all-time highs, it's clear the market isn't convinced Party City should be labeled a thriving business just yet. And it's no surprise to see the stock falling hard on these words of caution from Wall Street Monday.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .