According to Nancy Pedot, Party City's CEO, the same-store sales decline was largely due to under-performing Halloween sales, followed by a lackluster Christmas sales season. "Christmas is always a difficult season for us, and this year it was very competitive," she said during the company's 2Q 2005 earnings conference call on Friday. She added, however, that same-store sales of New Year's merchandise was up.

Party City also reported net income for the second quarter of fiscal 2005 of $14.7 million, or 74 cents per share, compared with net income of $19.3 million, or 98 cents per share for the same period in fiscal 2004. Besides the decrease in net sales, the company attributed the decline in income to higher expenses associated with investments in merchandising and logistics. "We're in the midst of a complex transition, but we expect it generate benefits beginning in the fourth quarter of fiscal 2005," said Pedot.

The company is undertaking a process it calls "re-setting" stores, which it started in mid-January. New merchandise is an important focus of the process, including new lines of non-seasonal items such as tableware, birthday goods, wedding accessories and balloons, among others. "It's our first new non-seasonal assortment in 18 months," Pedot noted.