Q4 2020 Inter Parfums Inc Earnings Call
Thursday Thursday Thursday
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dead dead greetings and welcome to the inter parfums fourth-quarter and full-year 1020 earnings conference call at this time. All participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder. This conference is being recorded. I will now turn the call over to Russell Greenberg Executive Vice President and Chief Financial Officer of interparfums mister.
Again, thank you Jesse. Good morning, and Welcome to our 2020 fourth-quarter and full-year conference call.
Greetings and welcome to the inter Parfums fourth quarter and full year 2020 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
As always this conference call may contain forward-looking statements which involve known and unknown risks uncertainties and other factors that may cause actual results to be materially different from the results.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder of this conference is being recorded I will now turn the call over to Russell Greenberg Executive Vice President and Chief Financial Officer of Inter Parfums. Mr. Greenberg you may begin.
These factors include but are not limited to the risks and uncertainties discussed under the headings forward-looking statements and risk factors in our annual report on form 10-K for the year ended December 31st, 2020 and other reports we file from time to time with the Securities and Exchange Commission.
Thank you Jessica.
Good morning, and welcome to our 2024th quarter and full year conference call.
As always this conference call may contain forward looking statements, which involve known and unknown risks uncertainties and other factors that may cause actual results to be materially different from projected results.
We do not.
And tend to and undertake no duty to update the information discussed.
These factors include but are not limited to the risks and uncertainties discussed under the headings forward looking statements and risk factors in our annual report on form 10-K for the year ended December 31 2020.
As usual when we would refer to our european-based operations, we are primarily talking about sales or Prestige fragrance products conducted through our 73% owned subsidiary in to perform sa when we discuss our United States based operations. We are primarily referring to the sale of prestige fragrance products conducted me through our wholly-owned domestic subsidiaries.
And the other reports we file from time to time with the Securities and Exchange Commission.
We do not intend to and undertake no duty to update the information discussed.
Of note the average dollar euro exchange rate for the 2020 fourth quarter was 1.19 compared to one point one one in the fourth quarter of 2019.
As usual when we referred to our European based operations. We are primarily talking about sales of the prestige fragrance products conducted through our 73% on French subsidiary Inter Parfums SA.
For the full year, the average dollar euro exchange rate was 1.15 as compared to 1.12 in 2019.
When we discuss our United States based operations, we are primarily referring to the sale of prestige fragrance products conducted through our wholly owned domestic subsidiaries.
The weakness in the value of the dollar versus the Euro has a favorable impact on our net sales while gross margins are negatively affected because over 45% of net sales within our European operations are actually denominated in US Dollars while almost all of their costs are incurred in Europe that scenario played out for the years of the whole but was especially pronounced in the fourth quarter when the average dollar euro exchange rate decline by almost seven months moving onto sales as we reported in January, the final quarter ended with an upside sales surprised 27% ahead of our implied guidance.
Of note the average dollar Euro exchange rate for the 2024th quarter was 1.19 compared to 1.11 in the fourth quarter of 2019.
For the full year the average dollar Euro exchange rate was 115.
As compared to 112 in 2019.
The weakness in the value of the dollar versus the euro.
Has a favorable impact on our net sales while gross margins are negatively affected because over 45% of net sales within our European operations are actually denominated in U S dollars, while almost all of the costs are incurred in Europe.
What our guidance is usually a bit conservative the lack of visibility due to the effects of the COVID-19 demek forced us to be a little bit more conservative than George how ever when we affirmed 2020 guidance in November. We did not expect to ship 184 million dollars in the final approximately forty million dollars more than the high end of our employee guidance. Fortunately. We had the finished goods inventory ready to ship and makeup sales possible.
That's scenario played out for the year as a whole, but was especially pronounced in the fourth quarter. When the average dollar euro exchange rate decline by almost seven percentage.
Moving on to sales as.
As we reported in January of the final quarter ended with an upside sales to price, 27% ahead of our implied guidance.
Our guidance is usually a bit conservative the lack of visibility due to the effects of the COVID-19 pandemic forced us to be a little bit more conservative than usual.
Beyond the search in that sales, the fourth quarter of 2020 was an anomaly in other ways to typically advertising and promotional dollars are heavily weighted to the fourth quarter in the 2019 Ford quarter advertising and promotion that was included in selling General and administrative expenses. As a percentage of sales tax was 29.3% But a 2020 it was only twenty 1.6% That was one of the primary reasons why sg&a expenses as a percentage of net sales were $49 and 5% in the final quarter of 2020 compared to 57.6% in the same. The earlier.
However, when we affirmed 2020 guidance in November we did not expect to ship $184 million in the final quarter Approx.
Approximately $40 million more than the high end of our implied guidance.
Fortunately, we had the finished goods inventory ready to ship and make those sales possible.
Beyond the surge in net sales for the fourth quarter of 2020 wasn't the anomaly in other ways to Jean.
Typically advertising and promotional dollars are heavily weighted to the fourth quarter.
In the 2019 of fourth quarter advertising and promotion that was included in selling general and administrative expenses as the percentage of sales was 29, 3%.
So in the face of the COVID-19 pandemic and the new cessation of business in the second quarter, we finished the year with relatively favorable results while the 24 and half percent decline in annual net sales resulted in a corresponding decline in income. We still achieved operating and net margins of 13000.1 per cent respectively as compared to 14.7 and 8.4% in 2019.
For the 2020, it was only 21, 6%.
That was one of the primary reasons why SG&A expenses as a percentage of net sales were 49, 5% in the final quarter of 2020 compared to 57, 6% in the same period one year earlier.
So in the face of the COVID-19, pandemic and the near cessation of the business in the second quarter. We finished the year with relatively favorable results. While the 24, 5% decline in annual net sales resulted in the corresponding decline in income we.
Some other 2020 notable figures cash provided by operating activities aggregated 65 million and working capital items on a used one point nine million in cash from operating activities, although from a cash flow perspective accounts receivable declined and approximately 10% off from that of the 2019 models Day sales outstanding increased to 86 days in 2020 compared to 69 in 2019 depend emack put tremendous pressure on many of our customers last year, but we work very closely with them extended payment terms as needed and at the end of the day we did not incur any material losses and connection with the collection of accounts receivable.
Still achieved operating and net margins of 13, and seven 1%, respectively as compared to $14 seven and eight 4% in 2019.
Some other of 2020 notable figures cash.
Cash provided by operating activities aggregated $65 million.
And working capital items, only used $1 9 million in cash from operating activities.
Although from a cash flow perspective accounts receivable declined the proud of approximately 10% from that of the 2019 levels day sales Outstandings increased to 86 days in 2020 compared to 69 in 2019.
Inventories also declined approximately 12% from the prior year and but the decline in sales and the postponement of certain product launches a significant effect on inventory days on hand which grew to 277 compared to 224 in 2019, Mainly the result of the decline in sales with the recovery in sales in the second half of two thousand and twenty expected to continue going into 2021, when we look at our new product launch schedule for 2021, which John will go into much more detail in a few minutes. We believe that our inventory levels are reasonable to support our next sales expectations.
The pandemic put tremendous pressure on many of our customers last year, but we work very closely with them extended payment terms as needed and at the end of the day, we did not incur any material losses in connection with the collection of accounts receivable.
Inventories also declined approximately 12% from the prior year.
And but the decline in sales and the postponement of.
So the certain product launches had a significant effect on inventory days on hand, which grew to 277 compared to 224 in 2019.
Our balance sheet remains very strong. We closed the year with working capital of 445 million including almost three hundred million in cash cash equivalents and short-term Investments a working capital ratio of 3.8 to one and only ten million in long-term debt.
That is mainly the result of the decline in sales with the recovery in sales in the second half of 2020 expected to continue going into 2021, and when we look at our new product launch schedule for 2021, which John will go into much more detail on a few minutes we bill.
Please that our inventory levels are reasonable to support our net sales expectations.
Finally, I'm I'm extremely pleased to repeat what was reported yesterday namely that we raised our sales our 2021 sales rep to between 650 and 660 million and are looking for diluted earnings per share the fall in the range of Summer between a dollar forty and a dollar forty-five.
Our balance sheet remains.
Very strong we closed the year with working capital of $445 million, including almost $300 million in cash cash equivalents and short term investments.
Our working capital ratio of three eight to one and only $10 million in long term debt.
Alex
Of course assumes that the average dollar euro exchange rate remains at current levels. And of course that there is no significant Resurgence in the COVID-19 pandemic.
Finally, I'm extremely pleased to repeat what was reported yesterday, namely that we raised our <unk>.
Sales, our 2021 sales guidance.
Of course, our guidance assumes a more normalized expense level both fixed and discretionary particularly in advertising and promotion which usually included in sg&a hovers right around 21%
To beat.
Between 650 and 660 million.
And are looking for diluted earnings per share the fall on the range of somewhere between $1 40, and $1 45.
Now I will trying to pull over to Sean for a closer look at how we are doing and what we're doing. Thank you.
Our guidance of course assumes that the average dollar euro exchange rate remains at current levels.
Thank you and good morning. Everyone the focus of my discussion today will be on the year as a whole coming up our performance the time of coffee recent accomplishments and then I will move on to our plans and activities for 2021 which I might add off to a very strong start as you will know no regions of the world where an affected by the the business decline off somewhere else than others.
And of course that there is no significant resurgence in the COVID-19 pandemic.
Of course, our guidance assumes a more normalized expense level, both fixed and discretionary, particularly in the advertising and promotion.
It's usually included in SG&A hovers right around 21%.
Now I will turn the call over to John for a closer look at how well youre doing and what we heard of.
Thank you Ross and good morning, everyone.
The focus of my discussion today will be on the Yale as the whole.
Two of our smaller smaller markets the Middle East and Eastern Europe experienced a 35% and 40% sales decline respecting month.
Summing up our performance from the time of Covid.
The recent accomplishments and then I will move on to our plans and activities for 2021, which I might add on after a very strong start.
If it was much less damage in our two largest market North America and Western Europe, which had from North America 18% off and Western Europe 20% sales decline somewhere in the middle. Was Asia. We're here of various sales dropped 28% off much of it attributable to the dramatic reduction in air travel, especially international flights and the corresponding impact on the track or retail business.
As you will know.
No regions of the World, where an ethic just by the.
Sure.
The business declined in all regions, so well than others.
Two of our smaller smaller markets the middle.
Listen the eastern Europe.
The experience of 35% and the 40% set of decline.
The decline respectively.
The well there was much less damage in our two largest market North America, and Western Europe, which had signed off on the.
Why would run recorded a decline in sales for here? There was one notable change in the ranking of Our Brands as coach became our said I'll just drive in 2020 bolstered by the introduction early in 2020 of Coach dreams.
18% decline in Western Europe, 20% sales decline.
Somewhere in the middle.
As you all well.
Australia of sales dropped 28% much of its attributable to the dramatic reduction in air travel, especially international flights and the corresponding impact on the travel retail business.
Summarize recent developments in November 2019. We extended our license for both the other Home B and Hollister branch and in January. I'm sure we renew that why license because as we have reported in June 2020, we welcomed very coveted and aspirational run to our website for you.
While all.
We call the declining sales probably go there was the one multiple change in the ranking of our brands as coach became our second largest brand in 2020 bolstered by the introduction of early in 2020 of coach Dreams.
Montclair which has all the makings of a superstar the nuclear Brown has accomplished to Unique fit in the world of branding it has much Faith these high-performance nuclear other way of collections Mary's extreme demands of nice natural we both of City Life expressed on the Montclair website.
To summarize recent develop months.
In November of 2019 of them.
Extended our lifestyles for both yeah that can be in the holding still branch and the.
In January of this year, we renewed our license with us.
As we have reported in June 2020.
the branch
We welcomed a very competent and that's purely channel run through a list of audio.
He's on the left wheel trajectory having adult Footwear leather boots sensors bag and backpacks as well as eyeglasses with offerings in addition to online Thursday, your site and was of overall of jewelry retailers nuclear products are sold in 219 mono-brand stores Plus app store. We've installed including duty-free retail not terribly nearly half of a mono-brand stores are in Asia we have is in high demand.
Non class, which has all of the makings of the ship desktop.
The non clear Brian has accomplished the unique feat in the world of brands, Inc. He does the merch fashion on these high performance.
Other way of collections marries the extreme demands of nice nature, we evolve of city life expressed on the most of their website.
The brand is on the an upward trajectory having added footwear of Lytham.
Well extremely enthusiastic about the launch of a fragrance for a brand which is scheduled to launch in this very beginning of the first quarter of 2028.
Such as the Bakken backpack, as where the eyeglass boost with the offerings.
In addition to online sell through more clearly coming outside and most of the one of jewelry retail.
In June flower Francis, it will require a stack of 25% in the company called a box who is the owner of orange. So he's got home from beauty products as a website of reference for all selected fragrance Brands Origins behind the key French player in the online Beauty, ma'am. We envision several benefits accruing from this agreement for one the website experience approximately 25% of your roof into thousands G making it an attractive investment.
Most of their products are sold and 200.
19 non.
Of the brand stores, plus 63 store within stores, including duty free zone.
No debt nearly half of the mono brand stores on in Asia, where the.
<unk> is in high demand.
We're extremely enthusiastic about the launch although the first fragrance for women on glad Ron which is scheduled to launch in the very beginning of the sale.
The sports style of 2022.
Also in June two of our French subsidiary on top of Thanks day, we acquire a stake of 35% in the company called the buy books moving Youll know of all regions. Besides <unk>, that's the only for beauty products.
We're working on the development of dedicated fragrance line and products designed to address specific consumer demand for distribution Channel and accelerate month. I will did you do that?
The website of restaurants of all selective fragrances runs well leasing spot things of key French player in the.
<unk> beauty market.
We envisioned several benefits accruing from the agreement.
I will new product pipeline is Rich. Let me start with our he was runs already distribution isn't first of the stands for Kate Spade New York, the young actress dancer and model is your feet your face of the brand advertising the fragrance will. Including Ulta off more than $1,200 from January with distribution in Europe the Middle East Asia and Latin America to 4.
The one the website experience approximately 25 of those tons year over year of growth in.
2020.
Making use of an attractive investment.
So we are working on the development of dedicated fragrance lines and products designed to address specific consumer flow.
This distribution channel and accelerate.
Digital development.
I will neutral the pipeline is rich let.
The longer you bronze we have MCN, but he's making the Butte with the gentlest sent back by a phenomenal advertising and promotional campaign inspired by Global Travel and freedom of movement, you know connected. Well the launching MCM store stuff later be smooth with global rollout as we got progresses and as I just mentioned more time, we boot year beginning of next year.
Let me start from he was runs already in distribution ease of assisted us the plans for Kate Spade New York.
The margin Ziegler the young actress denser on model is the feature face of the brand advertising the.
Fragrance, all now to U S retail outlets, including the.
More than 12 on the door from January we of distribution in Europe, The Middle East Asia, and Latin America from food.
Who established brands are both entirely new fragrance from you as well as extensions with regard to runs in the first half of this year mom belongs enlarging Explorer family with the flag girl, you will recall that Explorer in 2009 and was a big hit for us. And for the Jimmy Choo fragrance before you when you fragrance, I want you for women and open your own flanker fragrance for men Thursday. We begin to roll up in the first half in the second half. We've got an extension for Coach dreams and an entirely new women's line fall over and history.
The Mongol new brands, we have MCM, but he's making use of debuted with the agenda of less set back by a fundamental advertising and promotional campaign inspired by global travel and freedom of movement in the connected world the launching of MTM stocked up net there'll be small with local role.
As we go forward with this.
As I just mentioned more play of new sense with the bridge.
Yes at the beginning of the next year.
On a more established brands.
The new Sun, both entirely new fragrance from us as well as the brand extension.
With regard to our lifestyle brands in the first half of this year Montblanc.
I love you in separations are busy with answers to already in distribution is this guy and we are extremely pleased with others to date and consumer response. We have also the fact that women's fragrance. They did you do the Guess store as well as store brands major markets such as Russia and Asia in the spring from here Geoff distribution the rest of the world coming later in Spring 2020 to the gas bran is also launching affect complete men's fragrance and grooming collection beginning of the beginning with you.
The <unk> enlarging the explorer family with the.
You will recall that explore well debuted in 2019 of the big hit for us.
And for the Jimmy Choo fragrance portfolio, the new fragrance I won't true for well known in the business.
The whole flanker of fragrance for men.
We will begin to rollout in the first half in the second half we've got the an extension of coach Dreams, and then entitled the New women's landfall on.
Our U S operations on these deals.
It also has to already in distribution in the last three sky.
We are extremely pleased to be rolled out to date on consumer response.
Women's fragrance called Alibi this month in Austin Hunter store. And then the other rollout begins took both of that. We still we have new fragrance do all set to Launch.
So the bill on <unk>.
As the fragrance. The did you do get the store as well as the store brands the major markets.
Such as Russia, and Asia in the strength of what we share we have read the distribution of the rest of the world coming later in the spring 2022.
Yesterday I was told of directors decided the time was right to reinstate our quarterly cash rate of $1 per month as most of you know, the globe suspended will be done early days of depending Meek as a defensive cash management measure off.
The GAAP rents is also launching effect.
Complete men's fragrance and grooming collection beginning of beginning midyear.
Well Scott.
Women's fragrance called any by the abuse later this month.
In terms of the Honda.
The store and then the total rollout.
For who still far from being perfect. However, determined that I will have to and resources is more than sufficient to reinstate. These should be done which has in the past.
So both of the Columbia Energy Holdings still we have new fragrance duo.
Set to launch.
People did yesterday.
Although the give back to decided the time was right to reinstate our quarterly cash EBITDA.
Done.
As of yet on your weight of dollar per share.
Still which was simply, you know, like what Memories I believe there is reason for optimism in the future, especially with your arrival and distribution of accidents wage. Jimmy's mm also extend to our business hour brand portfolio has never been better. I will distribution Network and supply chain has been out long how long you had full Partners who have the past year and last and ready to resume normal business level.
As most of you know the board suspended the dividend.
Early days of the pandemic has the defensive cash management measures.
Total visibility still far from the effect.
Bob the mindset.
The outlook and results.
More than sufficient to reinstate the discussion have you done which has in the past.
We have an extremely strong financial position. And yes, we are still on the lookout for new license or positions and expansion of fact. I look forward to reporting on our progress in forthcoming releases and conference calls. So just one last thing before we move to our question. I just got some will present the Raymond James virtual institutional investors conference tomorrow March and did that in some consumer group conference on map.
I'll still what was simply the said this jewelry no level of memories I believe there is the reason for optimism in the future.
Especially if youre right hold on distribution of vaccines.
But the optimism also extend to our business our brand portfolio hasn't it it'll be the better our distribution network and supply channel has been.
Although you and a handful of partners, who have the best Jill and last stand ready to resume normalized business level.
As always.
We have an extremely strong financial position on yes, we're still on the look out well new lifestyles all acquisitions.
So now operator you can open the floor for questions.
And although the expansion opportunities.
Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation will indicate that your line is in the question. You may press star to if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key. Our first question is coming from Linda Bolton Weiser with d a Davidson. Please proceed with your question.
I look forward to reporting on our progress in the forthcoming releases and conference calls.
So just one last thing before we move to a west coast Sean on desktop.
We will present the brand on Jim's virtual institutional investors Conference Tomorrow March Phil and the GW Some consumer growth conference on March 11.
So now operator, you can open the floor for questions.
Hi.
Thank you we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation kind of indicate that your line is on the question queue.
Can you talk about what you're seeing in travel-retail some of the other Beauty companies have talked about some growth coming from the Hainan Province. Are you seeing any of that and can you tell us what percentage of Revenue travel retail for you in 2020 and Thursday and just kind of what you expect kind of in 2021. Thanks. Yes what we see this besides Hannon and off and the activities there. Honestly, it is quite slow for us. Let's not forget that China and I need you to free a strong floor skin care and makeup less than four fragrance. So my phone number
You May press Star two if he would like Trimble of your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question is coming from Linda Bolton Weiser with D. A Davidson. Please proceed with your question.
Okay.
Hi can you talk about what you're seeing in travel retail and some of the other beauty companies have talked about some.
Some growth.
Coming from the Hainan Province of are you seeing any of that and can you tell us what percentage of revenue travel retail one for you in 2020, and then just kind of what you expect them kind of in 2021 thanks.
It's still way way too early to see business coming back. They are still down 80% or 85% CO2 what the numbers were in 2019? I do not expect 2021 to be rebound for travel retail month. We in our internal plans. We do not expect this to happen before 2023 or 2024.
Yes.
What we see this.
The slides hang on and the.
The and the activities of there when the SP is quite slow for us the.
Let's not forget debt.
China on Chinese duty free.
On a strong flow of skincare and makeup the less than the fourth straight months.
So my report on the duty free the still the way way too early.
So we are we offer regarding the how much travel retail used to represent around 15% of our total package and it was down 80%
The two series of business coming back the chiller.
The down the.
80% of 85% comparing to what the numbers were in 2019 I do not expect the 2021.
Thank you. And then can you give us some sense of how the Cadence of growth of Revenue growth should be through the year? I mean obviously in second-quarter, you have the easiest comparison. So that'll be very very strong growth. But do you like are there any other launches in first quarter other than the Kate Spade? For example, Jimmy Choo with stopped the at mid-season we did in January for first time as a million-dollar have retail. In fact in one week at Macy's which is a great accomplishment for us. So we have the sales for January and February. We're very good bit of an expected already. So I think we will have of course a very easy second quarter a good first quarter. That's why we have yep.
Could be a rebound is full of the travel retail.
We you know well in general the plans, we do not expect this to happen before 2023 of the government 24.
So we all we all thought.
Regarding the how much of them.
The travel retail used to represent around 15% of that.
The total says and the it draws down the.
80%.
Thank you and then.
Can you give us some sense of how the cadence of growth of revenue growth should be through the year. I mean, obviously in second quarter you have the easiest comparison, so that'll be a very very strong growth, but do you like.
Are there any other launches in first quarter other than the Kate Spade for example.
Yes, we had the Jimmy Choo, which stopped the.
At the mid season.
both ways our guidance
We did the <unk>.
260 the launches that we have during the year are relatively split throughout the year, you know as John mentioned Jimmy Choo is in the first quarter and a sweet which actually started at the very end of 2020 is continuing to roll out through 2028 to 2021. We have a we have a little shots or girl that we launched during this court during this month next water. We have home. So it's quite we have launchers flight spread in first second. So quite unusual, as you know, we have had some lunch is from 2000 to 2021. So we have also the second sentence the new the whole new line of so, it's really almost every month.
For the first time as a million dollars of retail in the.
And when we get the Macy's, which is of great accomplishments for us So we have the.
The sales force in January and February where all of a.
Very good the Batesville.
Unexpected already.
So I think we will have the of course very easy second quarter. The good first quarter. That's why we have been able to raise the guidance.
The two.
To see on the water.
350 of 660.
Great.
The launches that we have during the year are relatively split throughout the year.
John mentioned, Jimmy Choo as in the first quarter and of suite, which actually started at the very end of 2020 is continuing to roll out through 2020 through 2021.
We of all shot we have more shots on goal of AR that we launched the joining the swap deal during the small the <unk>.
something happened
Thanks. And then finally, can I ask you in terms of your statement about a slight increase in fixed expenses and 2021 are you talking about like in single millions of dollars? Are you talking about in a percentage increase? Can you maybe quantify a little bit more the fixed expense increase what what I'm really getting at is that it was certain actions that were taken in 2020 in a in a cash saving environment certainly not only does the advertising promotion. But even even with employees traveling and things of that sort. There's a certain element of fixed expenses that we did not incur in 2020. When you look at our implied margins going into 2021. They are slightly below that that we achieved in 2020. Let's keep in mind that we generated almost dead.
Next quarter, we have come from.
So it's quite the we have launched a slight spread.
You can fill stick and ball of what.
So quite unusual.
As you know we have.
Some launches from 2000.
To 2021, so we have.
Also on the second some of the new the whole new line of.
So it's really almost every month, we have the somebody from Apple.
Okay.
Thanks, and then finally can I ask you in terms of your statement about a slight increase in fixed expenses in 'twenty and 'twenty. One are you talking about like in single millions of dollars are you talking about in a percentage increase can you maybe quantify a little bit more of the fixed expense increase.
What I'm really getting at is that there were certain actions that were taken in 2020.
What do you million more in sales in Q4 than was originally anticipated. So clearly that helped absorb quite a bit of the fish fixed expenses that we that we had. So I'm not expecting the marches. I'm expecting the margins to decline a little bit and I will guidance implies a small decline in both operating margin and net margin going into 2012.
And a cash saving.
The environment.
Certainly not only just the advertising promotion, but even even with employees traveling and things of that sort there is a certain of.
Element of fixed expenses that we did not incur in 2020, when you look at our implied.
The implied margins going into 2021, they are slightly below that that we achieved in 2020, let's keep in mind that we generated almost 40 million more on sales from Q4 than was originally anticipated.
Okay. Thank you very much.
Thank you. Our next question is coming from Wendy Nicholson with Citigroup. Please proceed with your question.
Hi, I wanted to go back just in terms of you were saying remember the Chinese consumer. I think that's a that's a paraphrase forward, you know isn't as involved in the in the fragrance categories, but it seems to me and this is sort of not COVID-19 but bigger picture. Do you still see significant opportunity for the Chinese consumer Asian consumer overall to continue to increase their consumption of understandably would take a very long time to to have them much fragrances European when but is that still something that you say growth opportunity and worthwhile thing in in terms of brand launched in Asia specifically.
So clearly that helped to absorb quite a bit of the fixed expenses that we that we have so I'm not expecting the margin I'm expecting the margins to decline a little bit on our guidance implies a small decline in both the operating margin and net margin going into 2021.
Okay. Thank you very much.
Thank you Linda.
Thank you. Our next question is coming from Wendy Nicholson with Citigroup. Please proceed with your question.
Hi, I wanted to go back just in terms of you were saying remember the Chinese consumer I think that's the that's a pair of race right.
Thank you for listening. I think it's it's it's very important to mention that even though the trouble is not what it was. It was the consumer Chinese consumer is dieing more and more pregnancies. Our rate of transmission for instance Mt. Moon is increasing month after month. So we definitely see a trend we have a young customer to buy novel American Branch European Vance. It could be a mobile or it could be honest. We could be a kombi. It's we have met your Target that is buying an engaging actively with our brand in in China.
Isn't it gets involved in the in the fragrance category, but it seems to me on this is sort of not COVID-19 related the bigger picture do you still see significant opportunity for the Chinese compute consumer Asian consumer overall.
To continue to increase their consumption of the.
I understand of what it would take a very long time to have them. So much fragrances European weighted but is that still something that you say growth opportunity and worthwhile thing and in terms of brand launch.
Asia specifically.
Thank you from Christian I think of it.
He was very important to mention that she's on the.
The <unk>.
[music] trouble the return is not what it was it was the.
The consumer of the Chinese consumer is buying more and more of fragrances our rate of penetration for instance on ease of use.
Got it. And then yeah, go ahead.
Increasing the mantra is still months, so we definitely see a trend we have the young customer.
How to do the only thing I would add is that it's one of the reasons why we we spend a tremendous amount of money to support all of the new launches that we have that are aimed for the the Asian market areas. And as I mentioned in the opening remarks as we move into 2021, the amount of spending will get back to normal more normalized levels because you do need to spend money in this market in order to help promote your products and and and bring it to those consumers, you know. Yeah, we live on the we're on the ceiling. We are stating some time last year because it was no reason to offer of the spent in advertising but this year we need to get back to the levels. We are in 2019. And that's what we are Thursday would be doing specially in China with digital advertising.
The two by novelties.
American Brian European bonds.
It could be of mobile launch would be on a suite could be of debt can be.
It's a we have the different tier.
Of the targets of it.
She is buying.
Engaging actively with all of our brands.
In China.
Got it and then yeah go ahead.
On the only thing I would add is that it's one of the reasons why we spend a tremendous amount of money to support all of the new launches that we have that are aimed for the the Asian market areas and as.
As I mentioned in the opening remarks, as we move into 2021, the amount of spending will get back to normal more normalized levels, because you do need to spend money in this market in order to help promote your products in.
Fair enough and then when I talked about the Lily Aldridge partnership and and that initiative in the past, but but we haven't talked about it for a while. We're just wanted to get an update is that initiative still alive or well less of a priority now and what what's the state of the union on on that initiative? We we reported that the results of the of that partnership were did not meet expectations that we originally had. We we re-evaluate used to lie value ating as far as you know, what is the right type of of asset to put through that kind of an environment. So it's not that we're we're looking to abandon it but we do believe that the e-commerce in the digital environment is something that is very very important for the future and Thursday. It's one of the reasons we went into the diva box acquisition. Did you want to go into some detail on that? Yes, these are box is the owner of this website down.
And bring it to those consumers.
Yes.
Well, we're on the saving.
We're saving some money that's true because there was no reason to overhaul of the spend in advertising, but the ship we need to get back to the levels, where in 2019 and the two.
That's what we'll be doing especially in China with the digital.
Fair enough and then.
And I have talked about the Lily Aldridge partnership and that initiative in the past, but we haven't talked about it for a while so I just wanted to get an update is that initiative still alive and well less of a priority now of what.
What's the state of the Union on on that initiative.
We reported the results of the of that partnership were did not meet the expectations that we originally had.
In the Box was who's today is today. The number to Webster fragments website in France may be going into the number one spot sewage in 2020 the website did something like sixty or sixty five million dollar in sales growing up at a very fast pace. The goal will be to be at a hundred million in in the next two years and the interesting thing we learn from from a yard reach that it's great to create products and yet digital distribution, but when you control the the blacksville it's even better. So today we will be creating products or programs especially for our website dead.
We are eval, we still evaluating as far as we know what is the right type of of asset to put through that kind of an environment. So it's not that we're we're looking to abandon it but we.
We do believe that the e-commerce on the digital environment is something that is very very important for the future and.
It's one of the reasons, we went into the deep of box acquisition.
Did you want to go into some detail on that yes.
Does the adult the ease of the O&M.
The website lesions of the buffer was of who's today, we used today the number of to Webster the fragrance websites in the free.
Maybe going into the number one.
But soon in 2020.
On the web.
The <unk> something like 60 of $65 million.
In the sense of.
Growing at the at the.
The very first to base the growth will be to be up the 100 million in the.
Got it fair enough. And then my very last question is just to ask how you are thinking about the new distribution Partners. I know so far as a very important come back for you, maybe also a little bit less. So but but just in terms of the new expansions of those two retail Concepts into Kohl's and Target, do you anticipate participating with that expansion across your portfolio or you being sort of rant by brand product by product picky about what goes we're just kind of the state apply. I'm wondering how much new distribution you think you'll you'll have over the course of twenty Twenty-One. Yeah for the changes in the changes in the partnership between and calls will not often. In fact All Our Brands certain brands are not will not participate in the in this role out of trying to calls dead.
In the next two years.
On the interesting thing we learn from the.
From media to reach that.
It's great to create the products geared for the.
Digital the.
The distribution, but when you control of the the blood flow.
On the bad debt, so today, we'd be creating for books of programs, especially for all of our website.
Got it fair enough and then my very last question is just to ask how you are thinking about the new distribution partners I know so far is the very important customer for you maybe I'll.
I'll talk a little bit less so, but just in terms of of the new expansions of those two retail concepts into Kohl's and target do you anticipate participating with that expansion across your portfolio are you being sort of brand by brand product byproduct picky about what goes where I'm just kind of the state of play I'm wondering how much new distribution you'd.
I think that the the the target is for.
For beneficial for us because we have more brands at Ulta almost all our brands are carried by like Alta West especially in the u s is more gift for birthday makeup and skincare.
Thank you all you'll have them over the course of 2021.
Well for us.
The changes in the changes.
Partnership between the two for awhile and of course.
Got it. Okay. That's very helpful. Thank you so much. Thank you.
Will not impact all of our brands system loans.
Thank you. The next question is coming from Steph wissink with Jeffrey's. Please proceed with your question. Good morning. Everyone Russell question for you just on the P&A. I think you mentioned in the office is down almost eight hundred basis points 770 basis points. What did you learn from having reduced levels of marketing support. And is there anything that you could carry over into twenty Twenty-One. Now, you mentioned the expected to kind of step back up towards that 21% level for the year. But anything you learned in terms of composition or ability to drive sales and customer engagement in your brands with offers of marketing support and then two follow-ups if I could the first is on home fragrance, not a category, we've talked a lot about but certainly a category we saw outperform in twenty-twenty and seems to have some momentum in the 2021 is that an area that you would be interested in exploring either through m&a or through leveraging some of your existing Brands and lastly for us is on some of those Brands where you have dead.
No we're not participating the.
Can be sort of rollout the for Stifel on two calls.
Am I seeing debt the.
The the did we still get these four would be more beneficial for us because we have more brands.
Almost all our brands all of it.
Bye bye.
With the floor, especially in the U S. The small gifts for the makeup and the skincare.
Got it okay. That's very helpful. Thank you. So much. Thank you. Thank you Wang of issue.
Thank you. The next question is coming from Steph Wissink with Jefferies. Please proceed with your question.
Thanks, Good morning, everyone.
The question for you just on the PNA. Thank.
Thank you mentioned in the fourth quarter. It was down almost 800 basis points 770 basis points.
What did you learn from having reduced levels of marketing support and is there anything that you could carry over into 2021. I know you mentioned do you expect it to kind of step back up towards that 21 per cent level for the year, but anything you've learned in terms of composition of ability to drive sales and customer engagement and your brands with a lower level of them.
Will Partnerships any opportunity to build out brand shops on some of the platforms and or partner with some of your big Brands to ensure that its portfolio is visible and customers can access it on some of these big franchise or Flagship shops on platforms like tmall or others around the world. Thank you.
Marketing support.
And then two follow ups, if I could the first is on the home fragrance category, we've talked a lot about but certainly of category. We saw outperform in 2020 and seems to have some good momentum into 2021 is that an area that you would be interested in exploring either through M&A or through leveraging some of your existing brands.
The first part with respect to to the promotion advertising it's real simple because I think it really the experience we gained is that reinforce what we already know and that is that you need to spend money to drive your business in in markets all around the world. It was a very defensive mode going in and actually postponing certain law has it didn't it didn't it wasn't something easy to do and in some cases we actually couldn't do it completely a coach dreams was already in the works once launched it back in January February the advertising programs were already running. So it was very very difficult to just automatically hold back. But what we saw as the year went on and off a sales started to pick up we did have to start putting additional dollars to work. We did not expect to pick up in sales to occur as quickly and as rapidly as it did
And lastly for US is on some of those brands, where you have global partnerships.
Any opportunity to build out brand shops on some of the dotcom platforms on <unk>.
The partner with some of your big brands to ensure that your fragrance portfolio is visible.
The customers can access it on some of these big franchise or flagship shops on platforms like tmall or others around the world.
Thank you.
The.
The first part with respect to the promotion and advertising.
Real simple because I think it really the experience we gained as the reinforced what we already know and that is that you need to spend money to drive your business.
In markets all around the world.
It was a very defensive mode going in and actually postponing certain launches.
It didn't it didn't it wasn't something easy to do.
And that's one of the reasons why you know that the the percentage spend was so much less than what we normally would have but as John said a few minutes earlier, we are going to definitely be back at least to that 21% level. That's what our budgets are calling for in the markets around the world. You do need to spend money in order to help promote your product and bring it to life to to different consumers.
And in some cases, we actually couldnt do it completely.
Coach Dreams was already in the works once we launched it back in January February the advertising programs, we're already running.
It was very very difficult to just automatically hold back, but what we sort of as the year went on and as sales started to pick up we did have the start putting additional dollars to work.
Yes.
Not spending money in advertising is not great things because we know that to push Novelties I need to invest we need to invest in India. We need to invest in in a point of point of sale to a promotion Soul because we didn't have enough new launchers and the web actually nobody in the store and many stores were closed. So how do we need to to invest millions of dollars in Los Angeles off if if the stores are closed so this was the kind of very simple thing reaction. Now, we know that adjusting accelerate sales. So even though we are not in the perfect. Well today, they are still some countries where you have a lot of moles that are closed Thursday.
We did not expect the pickup in sales to occur as quickly and as rapidly as it did and that's one of the reasons why that the.
The percentage spend with so much less than what we normally would have but as John said a few minutes earlier, we are going to definitely be back at least to that 21% level, that's what our budgets of calling for in.
In the markets around the world and you do need to spend money in order to help promote the product and bring it to two.
Two of the different consumers.
Therefore, the not spending money on advertising is not the great teams.
Because we know that.
To push the novelties are the we need to invest we need to invest in the ER.
We need to invest in the.
The point of the.
With the sale.
Promotion.
So because of the doesn't have enough of new launches.
Stores that are closed but in a semi normalized situation we saw it in the end of the fourth quarter and we saw it in January and February off upstairs because we are back into not only advertising but it's also the promotion the district purchase the to shut that off. I just thought that whole the commission two girls behind the counter all these programs that have been interrupted stopped for four months and six months actually.
Actually no version of the stores.
Many stores with the old so how do we need to.
To invest millions of dollars on the TV yourself if the.
If the stores are closed so this was the kind of the very simple.
<unk>.
Yeah.
The action now.
We know that our adjusted zinc accelerate says so even though we are most of the best take 12 today the off season.
On countries, where you have a lot of malls at the closed.
The stores that that growth, but in the semi normalized situation.
Know your second question on the home fragrances. We do not have a home division that we definitely am doing good home fragrance and the candles for some of our clients. We have started with development to last year. So we will we will see this place is in in a place for you in the first quarter of this year regarding stores and platform. We have already took half stores and e-commerce operation gas has from.com guests as a team and Thursdays is on the move. So we participate through our license, so and I will not we participate to to to recognize dead.
The resorts in the U S.
End of the fourth quarter and we saw it in January and February upsells of picking up because of well back into a sort of.
Nothing the advertising, but until sort of the promotion of the gift with purchase the.
On the push out that the.
At the store level, the the commission to the girls behind the counter all of these profiles of it has been.
The interrupted stuff for on six months actually.
No on your second question on the home fragrances.
We do not half of of home Division.
But we dishing.
All the King got named the home fragrance and the candles for several of our brands.
After the good you've locked in on two of the messenger. So we really the.
We will see the SKU Lisa and the.
Portfolio.
Says, but of course, we do also do business with Amazon and we've of the platforms.
The cost of a V shape.
Regarding our stores on the platform, we have already of our brands.
Did I answer your question?
Of.
You too. Thank you very much. Thank you Steph.
He kind of still and e-commerce operations.
<unk> has the the phone it gets the skull.
Thank you. Our next question is coming from the line of Hamed course and with the financial. Please proceed with your question. Hi, I was the first question I had was just given the amount of sales record right towards the very end of twenty. Do you know how much of that was sell through and how much of it was really just retailers more comfortable in stock inventory?
Yes, the chemo.
Still on S. We he's on the Tmall so we.
We participate a true I will license so on that well, but we felt dissipate too to the to the close enough to the.
So it's a bit of growth, we do also munis with Amazon and with the all the platforms.
I don't know. That's a good point. I think that the inventory was very low when we until the season long. Do we have to ship a lot of all the worldwide, you know the sauce to have inventory Tuesday through Thursday because we saw the image that 3 orders in January and in February most of the recall level. So we took action of low inventory going into lecture good cell phone, which is very positive for for this year in general very very very very conservative and they are flying pig.
Did I answer all your questions.
You bet. Thank you very much Inc.
The stuff.
Thank you. Our next question is coming from the line of harm of course, and with BW West Financial. Please proceed with your question.
Hi, the first question I had was just given the amount of sales that occurred right towards the very end of 'twenty.
Do you know how much of that was the sell through on how much of it was really just retailers more comfortable and stocking of inventory.
No that's true.
Good point.
I think that the inventory was very low when we until the season.
So the total of inventory was the low we have to keep a lot of all of the worldwide.
The loss to hover.
The inventory.
The self who was really because we saw the image of the.
The Village
Three of the best in January and in February.
Having a very low visibility once the cell phone started to happen. They needed to replenish the show, right and and this is continually so everybody is still being relatively club with respect to a return to to brick-and-mortar type sales. The online business is fairly consistent and we are present in almost every one of the brick-and-mortar companies that we sell them online presence and that business continues. Let's go and make sense of contact and that continues that continues to become a a bigger bigger piece of the picture off.
Most of the two Rick Golden level Mhm.
So.
So it's a competition of the.
The lowering the price.
Going into electric buses.
Good sell throughs.
She's a very pleasant before fully share.
But in general.
The the little.
Very very very conservative.
And the Op Inc.
The.
Yes, the visibility.
Having a very low visibility.
Once the sell through started to happen they needed to replenish the sharp eye.
Okay, and then the other question I was just follow up here is given that what you're talking about. What happened to for? How is that transcended to q1 wage are the retailers buying you know or giving you indications for your new releases or is it just been purely buying your existing established Brands and fragrances? Well, we we we show our our new product launches are shown to the distribution Network well in advance, so we kind of know what the what the demand is going to be and that's one of the things we do in order to talk to to monitor our our overall production, but it's just mentioned that the the sell-through through the holiday season was very strong and that's demonstrated by the continuing orders that are being replaced in January and February. So we are basically anticipating a little bit of a continuation of the of the the the growth that we started to see. Yep.
And and this is continuing so everybody is still being relatively cautious with respect to our return to brick and mortar types of the online business is fairly consistent.
And we are present in almost every one of the brick and mortar companies of yourself have an online presence and that business will continue on let's say from others.
All of that makes sense that's going on.
Okay.
And that continues that continues to become a bigger bigger piece of the picture.
Okay and then the other question I was just.
More of a follow up here is given the what you're talking about of what happened in Q4.
How is that transcended into Q1 of it.
Are those retailers buying you know of giving you indications for your new releases or has it just been purely buying your existing established brands on fragrances.
Well, we we show our our new product launches of shown to the distribution network well in advance so we kind of know what the.
The end of the year and this is really the reason the main reason for increasing our guidance and we increase did not buy a little bit. We actually substantially increased it from from I think Iraq 662 now 656 60. This is all a function of what we've been seeing over the last five or six months including January and Thursday.
What the demand is going to be and that's one of the things we do in order to to to monitor all of our overall production.
But as John just mentioned that the the sell through through the holiday season was very strong and that's demonstrated by the continuing quarters that are being replaced in January and February.
And last questions. Are you seeing any inflationary pressures as far as your input costs are concerned?
So we are basically anticipating a little bit of a continuation of the of the b.
The the growth that we started to see towards the end of the year and this is really the reason of the <unk>.
Nothing, nothing. Nothing really of of any material magnitude again. We we select components all over the world. So I you know, everybody needs to be in a relatively competitive Marketplace of companies are looking to get back into business. They want to get their factories back up and running, you know to full capacity, So it's it's actually a fairly level environment out there right now.
The reason for increasing our guidance and.
And we increase did not play a little bit we actually substantially increased it from so from I think of range of 606 tenths of now $656 60.
This is all the function of what we've been seeing over the last five or six months.
Including January and February.
And last question are you seeing any inflationary pressures as far as your input costs are concerned.
Okay. Thank you. Thank you so much.
Thank you. We have no additional questions at this time. So I'd like to pass the floor back over to mr. Greenberg for any closing comments. Thank you again Jesse and thank you all for turning it tuning into our conference call today as usual. If you do have further questions. I can be contacted by email and please stay stay. Well stay safe and thank you for joining us today. Goodbye. Ladies and gentlemen, this concludes all the concerts and webcasts. We thank you for your participation. And you may disconnect your lines at this time.
No nothing nothing nothing really of of any material magnitude.
Again, we source the components all over the world So.
Everybody needs to be in a relatively competitive marketplace.
<unk> are looking to get back into business, they want to get the factories back up and running to full capacity.
So it's actually a fairly.
Our level of environment out there right now.
Okay. Thank you. Thank you so much on it.
Thank you we have no additional questions at this time, so I'd like to pass the floor back over to Mr. Greenberg for any closing comments.
Again, Jesse and thank you all for turning it tuning into our conference call today.
As usual if you do have further questions I can be contacted by email.
Dead dead dead dead.
And please stay well stay safe and the thank you for joining us today Goodbye.
Ladies and gentlemen, this concludes today's teleconference and webcast. We thank you for your participation and you may disconnect. Your lines at this time.
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