Party City (PRTY) is well off of its worst levels of the day, but still down over 3% after reporting third-quarter earnings and sales for the month of October today. Third-quarter earnings per share (EPS) of $0.08 versus $0.13 was $0.10 below estimates, as sales declined 1.3% (1% on a comparable store basis) to $553 million. A lot of the weakness was beyond the company’s control, as business was impacted by short supplies of latex and helium due to the tariffs. Increased freight costs also cut into profitability.

While the third quarter is the least important one for the company seasonally, some of the same factors also hit Halloween sales, with Party City’s revenues up 2.5% and retailer revenues up 4%. However, this strictly reflected square footage expansion, and comparable store sales were down 2.8%.

Due to the disappointing results, the company guided down earnings this year to $1.60-$1.65 per share from an expected $1.83. I believe we saw the sharp bounce in the stock today, as the disappointment was already largely discounted in the sharp decline in the stock we saw over the past three months. What we are not seeing, the fears of which are causing the stock to sell for a ridiculously low multiple of 6x EPS, is deflationary pricing in Halloween costumes from Amazon.

Other positives include better gross margins despite the weaker-than-expected sales and continued strength in e-commerce. Finally, the company has authorized a $100 million share buyback, roughly 10% of all outstanding stock at current prices. Despite the weak results, I still expect the same post-Halloween relief rally we saw in the shares last year.

Continue to buy PRTY; my new buy under is $10.50 and my target is now $16 per share.