Party City Disney-fied IPO, Investors Claim

(CN) - Party City misrepresented the importance of Disney movie "Frozen" tie-in merchandise to its bottom line, causing shares to fall 25 percent in the past week, shareholders claim in a federal complaint.

Roy Jones is the lead plaintiff in the lawsuit filed in Manhattan on Nov. 18 against Party City Holdco, CEO James Harrison and CFO Michael Correale.

Party City, a party-supplies chain with more than 900 stores, held its initial public offering April 16, and raised $372 million at a share price of $17.00.

Its share price immediately rose 21 percent at its open, but traded at $11.65 on Thursday.

Shareholders claim that Party City's IPO documents contained material omissions.

"Namely, the defendants were aware, and failed to disclose certain risks in the offering documents, including the impact on the company due to: (1) soft consumer traffic trends; (2) lapping of the extraordinary performance of the Disney "Frozen" franchise from the prior year; and (3) the store reset initiative," the complaint states.

The 2013 Disney movie "Frozen" was a massive commercial success. It is the eighth-highest grossing film of all time, and was the best-selling film of the year in the U.S. in 2014.

In a November 12 conference call, Party City's President Gregg Melnick said, "Last year's "Frozen" phenomenon created an anomaly in our business. ... Moms wanted to buy products incorporating the "Frozen" images and themes because of the popularity of the franchise and not necessarily because they were having a celebration."

He admitted that the company underestimated the importance of "Frozen"'s popularity on its bottom line.

"For the quarter, we estimate that year-over-year impact that we felt from "Frozen" was probably as much as 150 basis points above what we had originally anticipated," Melnick said.

In the week since Melnick made these comments, Party City's share price fell from a high of $15.33 to $11.65, a 25 percent loss of market value.

Party City's Vice President of Investor Relations, Deborah Belevan, told Courthouse News the company has no comment on the lawsuit at this time.

The class is represented by Phillip Kim with the Rosen Law Firm.

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