by Jharonne Martis.
Halloween 2020 wasn’t much of a celebration – not many parties, and worries about children going door-to-door to trick or treat. Halloween 2021 is a different matter – and retailers are seeing a wave of pent-up demand.
For the most part, consumers still prefer to do their shopping in stores, and that was very evident this Halloween season as shoppers found empty shelves at big box retailers such as Target, Home Depot and Walmart. During its last earnings call, Home Depot said it sold out its pre-released Halloween product almost immediately.
However, luckily for procrastinators, there still seems to be a lot more Halloween merchandise available online.
In collaboration with StyleSage, Refinitiv discovered that there’s been a 42% increase in Halloween costumes and accessories items online from one year ago. Accordingly, the discount penetration, which means the percentage of Halloween-related costumes and accessories on sale, has gone up to 69%, significantly higher than its pandemic (51%) and pre-pandemic levels (45%) (Exhibit 1).
October to-date, 5% of the Halloween apparel online is completely sold out. The average discount for Halloween costumes & accessories has gone up to 19%. This is slightly higher than the pre-pandemic levels of 17%. Thus, although there’s more Halloween apparel this year, and a higher portion of this merchandise is on sale, its average discount level is holding up well relative to the previous two years.
Exhibit 1: Average Discount and Discount Penetration for Halloween Costumes & Accessories
Likewise, there is significantly more online Halloween home décor merchandise this year compared to the pandemic of 2020, when there were stay-at-home orders and lockdown restrictions. Since then, there’s been a 108% increase in Halloween home merchandise online.
Despite the considerable increase in merchandise, the average discount penetration — the percentage of Halloween décor merchandise on sale — has come down from a year ago. However, it is up to 50% compared to its pre-pandemic level of 44% (Exhibit 2).
The average discount is lower this year going into the holiday weekend, as retailers try not to hurt their margins too much in the face of higher inflation and inventory issues. For procrastinators, this means fewer discounts compared to previous Halloweens.
Exhibit 2: Average Discount for Halloween Costumes and Accessories, and Home Decorations
In the latest earnings call, Party City said they had a lot more learnings and customer insights and data relative to prior years and felt excited about the Halloween season (Source: Q2 2021 Party City Earnings Call, Aug 5, 2021).
Conversely, analysts polled by Refinitiv suggest that Halloween sales at the party goods retailer look spookier this year (Exhibit 3). Likewise, its current Q4 earnings estimate, which includes the Halloween holiday, is still below its pre-pandemic level.
Exhibit 3: Party City Revenue and Earnings Results/Estimates: 2019 – 2021
The StarMine data show that Party City scores in the top quartile for all measures related to the Value-Momentum (Val-Mo) model (Exhibit 4). The model incorporates two other valuation methods: Intrinsic and Relative Valuation models, where Party City also scores in the top quartile. The StarMine Value-Momentum (Val-Mo) model suggests that Party City ranks in the top 76% of all stocks in its region.
However, there’s likely a reason this stock appears cheap, and the saying goes, “never try to catch a falling knife.” StarMine models caution that the company has credit issues. Its Credit Risk – SmartRatios Model score has improved from a year ago but is still a weak 6 out of a possible 100. This model looks at accounting ratio analysis, utilizing both financial statement data and forward-looking analyst estimate data via the StarMine SmartEstimate.
Exhibit 4: Party City StarMine Model Scores
Trick or treat
Historically, consumers spent more on candy, followed by Halloween decorations, then costumes. So, let’s dig in deeper into the data, and see how the candy makers are expected to fare this year.
Mondelez International, the maker of Sour Patch and Cadbury chocolate, is on track to post stronger revenue than the previous two years. This suggests that its candy continues to be a favorite during the Halloween season (Exhibit 5).
Exhibit 5: Mondelez and Hershey Revenue and Earnings Results/Estimates: 2019 – 2021
Source: Refinitiv I/B/E/S data
Similarly, Hershey is on track to post stronger revenue compared to its pandemic and pre-pandemic levels (Exhibit 5). The same can be said for earnings as the legendary chocolate maker’s Q4 earnings are expected to show a 18.8% growth from pre-pandemic levels.
The StarMine Earnings Quality Score for Hershey is 85 indicating cash flow and operating efficiency levels look healthy (Exhibit 6). What’s more, it has positive stock price momentum in its favor, and the Credit Text Mining and Structural Models are in the top quartile.
The Credit Text Mining Model applies sophisticated text mining algorithms to Eikon’s company events conference-call transcripts, financial statements and other regulatory filings, Reuters News, and select broker research reports to identify language that is predictive of credit risk.
Hershey scores a strong 89 on this model. However, its Credit Risk Smart Ratio is not as strong and suggests its leverage ratios could use some improving. Still, the Credit Structural Model score of 97 suggests that the company is unlikely to default on its debt obligation over the next one-year period.
Exhibit 6: Hershey’s StarMine Model Scores
Tootsie Roll Industries
Tootsie Roll is another favorite Halloween candy, and has been in business for over a century. Its stock price has been up 8.6% this year, and since mid-August has generally underperformed the S&P 500. Moreover, StarMine’s Price Momentum Model (Price Mo) shows that Tootsie Roll’s performance in this area fall below 76% of its peers (Exhibit 7).
Although the candy maker might not have stock Price Momentum in its favor, the company performs much better in its Credit models. It scores a 76 out of a possible 100 in the Credit Smart Ratios model.
This is the most comprehensive StarMine credit model, as it combines the power of StarMine’s three credit risk models – the StarMine Text Mining Credit Risk Model, the StarMine SmartRatios Credit Risk Model and the StarMine Structural Credit Risk Model – to generate our single, final estimate of public company credit risk.
Exhibit 7: Tootsie Roll StarMine Model Scores
In general, there is more Halloween merchandise online and on sale this year than last. However, the average discount on Halloween home décor has not gone up compared to normal times. On the contrary, it has remained below the levels seen in previous Halloweens. Despite higher inflation, retailers are facing strong product demand and are trying to maintain their margins. This has not stopped consumer spending, as in-store Halloween merchandise has pretty much flown off the shelves.