Q4 2021 Inter Parfums Inc Earnings Call
[music].
Greetings, ladies and gentlemen, and welcome to the inter Parfums fourth quarter 2021 conference call and webcast.
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.
Please note that this call is being recorded.
I will now turn the call over to Russell Greenberg Executive Vice President and Chief Financial Officer for Inter Parfums. Mr. Greenberg you may begin.
Thank you.
Good morning, and welcome to our 2021 yearend 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.
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, 2021, 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.
Yeah.
When we refer to our European based operations, we are primarily talking about sales of prestige fragrance products.
<unk> managed through our 73% owned French subsidiary Inter Parfums SA.
When we discuss our U S. Based operations, we are primarily referring to sales of prestige fragrance products managed through our wholly owned domestic subsidiaries.
Following up on Yesterdays News release 2021 was the best year in our 33 years as a public company.
Over the course of the year, our sales exceeded expectations in every quarter, leading to record net sales of $879 5 million.
Up 23% from 2019.
And up 63% from 2020.
Moreover, as compared to 2019, our earnings per share rose, 45% to $2 75.
Okay.
As we discussed on our last conference call.
When we announced initial guidance for 2021 back in November of 2020.
It was a lack of visibility.
Modesty, all conservativism that led us to forecast around $615 million in net sales.
And $1 <unk> in EPS.
While we were delighted by the upside surprise in orders throughout the year.
We're even more delighted that we were sufficiently prepared to produce and ship the goods. Despite the continuation of the Covid pandemic and the supply chain disruptions that have been sued.
I just wanted to go back to a few points raised when we announced our 2021 third quarter results.
At that time, we stated that one of the main reasons why third quarter sales were much better than expected was because customers shifted some of their deliveries from Q4 into Q3.
Fear of supply chain disruptions that might hurt their holiday season business.
As a consequence, our third quarter advertising and promotion expenses were disproportionately low relative to sales.
And wound up with nearly a 26% operating margin.
As unusual as the third quarter was the fourth quarter was equally unusual but in a completely different way.
If you've been following our company for any length of time, you will know that historically, our spend on advertising and promotion is heavily weighted to the fourth quarter because it encourages holiday season sell through and follow on orders in the new year.
But in 2021, the fourth quarter spend on advertising and promotional items was exceptional 36% of net sales.
Cause we attempted to reach our target spend of 21% of net sales for the full year.
Despite the major advertising programs executed in connection with the large number of new product launches.
We were only at 14% of net sales through the first nine months of 2021.
And we reached 20% for the full year.
The big spend on advertising and promotion in the fourth quarter, coupled with deliveries shifting from Q4 to Q3.
Explains the modest loss in the final quarter of the year.
Back to a discussion for the full year.
European based operations gross profit margins were 67, 64, and 66% in 2021 2019, respectively.
Distribution in the U S for products that are sold by our European based operations is handled by a 100% owned distribution subsidiary.
As such those sales are direct to retailers and result in higher margins net sales of our U S distribution subsidiary increased 86% in 2021 as.
As compared to 2020. This is what gave rise to the increase in our gross margin in 2021.
The launch of new products, including Montblanc Explorer Ultra Blue I want you by Jimmy Choo coach Sunset Dreams left Florida La La.
<unk> girl and Kate Spade, New York also generated higher selling prices and higher gross margins.
The weak dollar relative to the euro as always has a margin depressing effect, which partially offset some of the margin enhancing effect from the other inputs I just mentioned.
For U S operations gross profit margin was 50, 352% and 53% in 2021 $20 19, respectively.
The 2021 rollout of new products for several of our brands, including guess, Anna Sui and Oscar de La Renta, and very importantly, MCM helped boost our gross margins as noted new products have been generating higher margins in the <unk>.
<unk> states.
SG&A expense as a percent of net sales was 46% in 2021.
And 48% in both 2020 and 2019.
The decline in 2021 was primarily due to lower than planned promotion and advertising expenses that were caused by the higher than expected sales increase.
Our operating margins came in at 17% in 2021 compared to 13% in 2020 and 15% in 2019.
We closed the year with working capital of $465 million, including approximately $320 million in cash cash equivalents and short term investments.
We had a working capital ratio of two nine to one.
The $133 million of long term debt.
Related to our inter Parfums SA new headquarters in Paris.
And the acquisition of those headquarters.
Cash provided by operating activities.
<unk> $120 million for 2021 and.
And that compares to $65 million in 2020.
At year end inventory stood at nearly $200 million compared to 160 million at year end 2020.
Some other financial points worth mentioning.
In our release, we said that 2021 was a highly productive year.
Measured in sales per employee of which we have 467 that translates into one $9 million in sales per employee.
In addition, despite the stellar growth in our business. Our 2021 Capex was a modest $5 million.
Okay.
As we announced yesterday, our board of directors approved a 100% increase in our annual cash dividend rate to $2 per share.
Of course payable quarterly.
You'll recall our board had suspended the cash dividend in 2020 during the height of the Covid pandemic.
The rate was $1 32 per share.
And then we reinstituted last February at one dollar per share.
Our board made this decision in recognition of the excellent prospects for 2022.
And for the coming years combined with our strong financial position.
All of which enables us to grow internally.
And judiciously invest in new opportunities, while rewarding our shareholders.
Yesterday, we affirmed our 2022 guidance, calling for net sales of 975 million.
Resulting in earnings per share of $3 per share.
With the usual caveat about the average dollar euro exchange rate and the COVID-19 pandemic, but.
But we also added a third caveat, namely the financial impact from the geopolitical situation in eastern Europe .
On the latter point beyond the human toll that the tragic war between Russia, and Ukraine is taking business of all kinds will be affected including ours. The.
The magnitude of the business impact due to war sanctions and price volatility is hard to predict but as per hour.
10-K in 2021, our sales in Russia totaled $43 4 million or a little bit under 5%.
Now I will turn the call over to Sean.
Thank you Russ and good morning, everyone.
I know we highlighted the many achievements of the past year in the press release issued yesterday.
Record financial results. The addition of several important new brands the successful execution of major product launches.
Acquisition of our new headquarters in Paris, and the establishment of the new Italian subsidiary among them.
There is another accomplishment that delights me, just as much namely market share gains for.
<unk> certainly happened in 2021, when our sales grew by 63% of three times, the 21% industry estimate quoted.
<unk> will deliver biggish in less than.
For 2021 growth rate for fragrance, which barely moves the needle in past years far outpaced skincare and makeup.
The timing couldn't be better because our business is nearly 100% fragrance.
So rather than diluting our consolidation into <unk>.
<unk> of the beauty business, we are laser focused on fragrance growing our existing brands and new ones still to come.
One of the reasons why fragrance says on fire ease.
Now the growth of the pandemic in which something extraordinary happens, especially in the U S where in the past consumers both in the way of fragrance. When we left home during the installation of Covid consumers increasingly both fragrance two were at home to feel good about them.
Says and as a personal self indulgence, they purchased fragrance online more than ever and they experimented with different <unk>.
Happily this trend has traction and is showing no signs of relenting.
Another favorable trend that we see developing is very strong interest by young customers in China.
We're creating fragrance while drops around their favorite high end niche brands.
As exemplified for us in Ferragamo, Montclair, and then Cleveland Hopkins.
We have and will continue to devote.
And promotional dollars to attract and retain that expanding market.
By the way when we talk about advertising and promotional dollars about 80% or more of that.
Non traditional media.
We are talking about digital social media like Instagram snapshot.
<unk> and Wechat influence sales in the beauty music actors and sports fields as well as TV Billboards.
Throughout 2021, one of the biggest challenges we faced was the disruption in the supply chain.
So far this year, we're feeling continued pressure for sourcing components and finished products.
In general we are taking the steps, we deem necessary to have sufficient inventory to meet our sales goals for 2021, 'twenty, two I'm, sorry and beyond.
As we have stated we have been carrying more inventory overall.
We had also.
We are seeing similar components from multiple suppliers and when possible manufacturing products closer to where they are sold.
We have had to become better forecast.
Future needs some items that require almost one year lead time.
At the same time, we have been investing in more sophisticated inventory management systems and added more people to the inventory management function.
In that regard our U S.
Distribution subsidiary for European based product Hasnt gone deal some shipping related issues following a change in with distributions of with bi.
But now it should be resolved soon but 2022 first quarter U S sales could be impacted.
As planned our operations in Italy.
Have helped mitigate some of the supply chain disruptions.
For example, the lab relabel shortage in the U S and France are far less effectively need to so we're moving some of our manufacturing to eat.
Well beyond I will say I got more business.
Is playing an important role as it.
<unk> of manufacturing and distribution.
Supply chain disruptions have and for the foreseeable future you will have an impact on costs.
In raw materials, such as glass cardboard wood and aluminum plus rising energy costs and of course shipping cost.
Some items have increased only 5% to 10% of the items have doubled in price. So on January one of this year, we enacted price increases ranging from 3% to 5% and another price increase of a similar magnitude will be enacted.
As we approach $1 billion in annual says we have conducted a self examination in all function.
In addition to rectifying shortcomings in inventory management, but they just mentioned we have elevated HR two C level and recruited and recruited a chief human resources officer reporting directly to me.
Attracting and retaining the best talent throughout our operation is as important.
New product launches off to our future success.
Okay.
2022 is supposed to be another record year official launch of sense for more clear the Montclair, Guam and <unk> has begun the rollout will ultimately reach 3000 doors, we have major new mens fragrance launches for coach we have open road for guests we will move.
And so what.
We've seen good year.
Most of the new product launches our brand extension of strong selling of strong selling lines for example.
This quarter lithium red Jimmy Choo.
I wont shoe forever and we have also new system since coming to market for gas below EBITDA loss page Kate Spade, New York push as Gil and then Scott.
We will also have sales of Ferragamo fragrance for the full year as opposed to three months last year.
And doing that Karen and DKNY fragrance will start on July one of this year.
We have no significant seagate.
More fragrance are being sourced and produced in Italy, and the brands travel amenities business continues uninterrupted.
To keep consumers retailers and distributors engage with the brand we have extension and meaningful the signorina and bright liver collection later this year and the new pillar is being readied for full 2023.
7004.
But we won't go where objective software I got more is to streamline distribution.
Elevate brand perception and to establish a clear business focus regarding brand market distribution and investment.
What is the outlook for our business in 2022 is exceedingly exceedingly good there may be further upside as international travel resumes in illness supply chain disruptions are largely largely behind us and the spread of COVID-19 wins of.
Of course, the duration and impact of.
The heartbreaking will in eastern Europe is a big unknown, but if you have question that we'd be happy to answer after.
We remain on the lookout for additional brands our targets names, we've established business rather than start ups.
That said, we're also open to ideas with great potential.
Could be said about the MCM in 2021 and back in time, Jimmy Choo, neither of which had established fragrance business when we teamed up.
In 2021, MCM blew through our sales budget three times of AR and Jimmy Choo is our second largest brand.
Italians fashion brand our priority for us both ones, we've established fragrance business and fragrance often.
In Milan last week for fashion week exploring potential opportunities.
Finally, many of our existing license source has multiple brands under their control.
They may seek to partner with them on several of their brands.
That brings me to what makes us an attractive partner for brand owners.
We have said before we are small, but not too small.
So that we are able to devote the attention and resources necessary to grow our licensed fragrance business, which translate into higher royalties and broader brand recognition.
Brand owners value. The fact that we are a pure play in fragrance.
Our distribution network has deep roots in 120 countries with expertise in their local market.
And.
<unk> also has a very strong balance sheet, we don't need to raise money to execute any businessman.
New Paris headquarters would be operational.
End of this month, giving us greater brand capacity and enhanced coordination of our teams.
And as I just mentioned.
This influence is not fully functional and ready to support and optimize the fragrance potential of possible additional brands.
Now operator, you can open the lines for questions.
Thank you.
Ladies and gentlemen at this time, we will conduct a question and answer session.
To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press. The star key followed by the number two if you would like to remove your question from the queue for.
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Our first question comes from Linda Bolton Weiser with D. A Davidson. Please state your question.
Yeah.
Yes, hi, good morning.
Congratulations on a great year, and I would agree your businesses like the strongest I've ever seen it in all these years. So it's really a great story.
So I guess I just wanted to start out by asking about Russia, because you do have.
A little bit more exposure than some of the other companies we cover.
What are you seeing right now I mean are you still shipping to Russia can you remind us do you use a distributor there can you just kind of give us.
Like kind of what Youre seeing right now.
Yeah of course.
Oh the question, we are using a distributor.
We are using is owned by <unk>.
Major by a major retailer.
Call it well that has 45% market share in Russia.
Who owns more than 1000 stores and all our products are sold in the <unk>.
<unk> said in his remarks.
Sales in Russia.
For 2021, we present <unk>.
First you said $40 million something like that about 40 about $43 million.
A little less than 5%.
So in our projections we have.
We are comfortable with the numbers in our hub.
In our guidance, we think that we will not we will.
Not be able to ship.
As much as last year, we have shipped already in January and February a good amount of products.
Sure.
We will have to think that.
We'll have to stop.
For how long we don't know is it two three months six months the whole year two years.
Nobody knows.
When I spoke to Russia yesterday.
We have a lot of people in the stores.
<unk> products.
The devaluation of the ruble has not been seen by a new customers yet but of course, it's a main concern for the company.
Unless you want to add something.
No I think we are approaching it very cautiously we are monitoring the situation as John indicated we revisited our our budgets and we're still comfortable with our our overall projections.
But it is something that has to be monitored on almost a daily basis.
We are working with our distributor and with our sales teams to make sure that we have as much information as we possibly can.
Another thing also.
As we are reducing our forecast for shipments in Russia, we are going to of course reduce.
Sure.
I think the expenditure in Russia, I'm thinking of a couple of TV campaigns, which were supposed to happen.
Sure, but we have put on hold for now.
So it's a pity because we had a good positioning in Russia. We had some important launch I got more has a good positioning in Russia.
But if the business is interrupted.
We'll have to we'll have to wait.
Well Linda.
What is your bigger brand in Russia. Besides ferragamo.
Long ways number one.
And then Jimmy Choo.
Vince I got move in gas.
Okay. Thank you.
And then.
Can I just ask about.
The pricing.
You gave a lot of details on that and so you've got another round coming in August I'm curious, if you've already announced that to customers and if so do you think that's going to pull forward. Some sales as they try to buy ahead of that price increase in the first half of the year.
This is a very.
Good question, because when we when we when we announced the price increase.
That will happen in January of this year, when we went on that too.
Six months before the price increase we had certain people who wanted to buy in advance and we refuse to ship to.
The.
Two level, which is higher than normal.
It will happen again, and we will monitor that carefully basically.
And let's not forget we still have a lot to lot of the supply chain issue.
So the idea is not to over stroke anybody right now inventories are fixed we have to be there.
Uh huh.
The smarter.
We put this inventory so I will not accept for people to pile up on inventory in order to two two to avoid the price increase.
Or something like that but it could happen.
Not too many people had a problem with the price increase let's not forget the first price increase that we've done in the at least five or six years.
Phil position at 222 retail placement is little bit lower than the competition. So we do not feel any.
<unk> problems. It was absolutely accepted by all our partners retailers or distributors.
Great and then just one last one from me.
I was just curious about.
The gross margin.
I mean, why was it kind of down year over year on down.
<unk> versus third quarter was it just.
Yeah.
Why was that because I thought that distribute distributors or direct us distributors would help the gross margin and that would be kind of sustainable.
Okay.
The gross margin was 63%.
For the year.
For 2021.
Which was high yield in 2020.
Uh Huh you want to go into the details of the quarters.
Yeah.
With respect to the margins our margins have been consistently better.
Pretty much quarter by quarter when you look at the.
The fourth quarter itself.
Yes, there is a slight decline in the total from 60 from <unk> 64 to about 60, just about <unk> 63, a little bit under 63, a lot of that is really just timing and mix of product when you're when you're analyzing it and getting that close it is.
Very very difficult.
Most of the shipping activity from the U S distribution subsidiary as I mentioned that sales were up almost 80%.
That is really what was driving the increase in the margin.
There is also a little bit of a negative impact because of currency fluctuation and that currency fluctuation really kind of.
Raised its head towards the end of the year.
Other than that I really.
I can't dissect it I don't really believe I can dissect it any further than that.
And going forward for this year for <unk> and 'twenty, two we do not anticipate.
Uh huh.
The margin is lower than what we had in 2021, we are working on improving the margins.
Sure.
Plus you have youre forecasting over 263, or 64% margin something like that almost exactly the same as what we have in 2021.
Our goal really is to raise the margin in the U S.
To bring that closer and closer to the type of margin that we that we can see in our European operations and this is if this is underway I looked at the numbers for the first two months in the U S where our margin is lower in Europe .
We're doing better.
In the first two months of this year comparing to last year.
As of March.
Okay, Linda yes, very good. Thank you very much. Thank you Linda for your questions.
Next.
Next our next question comes from Wendy Nicholson with Citi. Please go ahead.
Hi, guys congratulations on an amazing year.
Just to follow up.
I know, Sean you said you'd been in Milan in the fashion shows but clearly.
Lots of folks are seeing sort of the the great growth in fragrances generally and I just wanted to sort of qualitatively I mean, it looks like you guys have the bandwidth to take on more licenses and maybe acquire some more brands, but are you seeing anything different in the marketplace.
Sort of either from a royalty payment that the brands are asking for just.
Just because it feels like it could get more competitive in terms of sort of the hub.
Hunt for more brands or is.
Are you not seeing that right now.
No no no you refuse.
Some competition from other players, let's not forget that.
Well, maybe one of the smallest one.
So we are.
The <unk>.
Zone. The people are looking for more broad groups.
Looking for more grants l'oreal is looking formal runs.
Of our groups also so.
What we see is.
With them selling to new.
Newport onshore license so he's a real success story.
Took some brands that were handled by a much bigger companies and we were able to make it a much bigger for instance, mobile was we've booked and gamble doing a $50 million a year, we're not $250 million coach was handled by Este Lauder.
We're doing really well and I think which is over $100 million.
And the 100% so.
Even though.
So some some brands where with bigger companies than us I think that the attention that we can provide.
We will make will make the difference. So this is.
This is my pitch to them.
And I think that.
Italy has still some.
Some fabulous.
Session companies that do not have.
Get a fragrance.
But again there is no guarantee.
Again, we are not the only company competing for this business.
Let's wait and see but I think that the company is enjoying a nice momentum.
People feel comfortable.
We have also.
Resources to handle more in New York and in Paris.
We can absolutely take 1234 more brands.
And he'll do not increase tremendously.
Jenny.
To be interesting to see what we can do this year.
And that actually leads me exactly to the second question Ross. The statistic you threw out in terms of sales per employee of off the charts and fantastic, but is there any part of the organization, where you're feeling stretched whether it's on the distribution side the sell side. The creative side is there any part.
Where.
Because obviously I think you are a partner of choice because you've been so successful with so many brands, but is there any place where you're feeling stressed or pressured or where you might need to reinvest more would it be on the cogs side or on the SG&A side.
It's really interesting that you mentioned that.
With the with the success that we've seen over the last couple of years, especially moving moving through 2020.
And then two what it was a record year in 2021.
Human resources has really been a very very key focused area as Sean mentioned in his remarks.
We've created a sea levels.
<unk>.
For human resources here in the United States.
Finding qualified people is very difficult.
Job function today.
The world is a different place.
We have open positions that we are looking to fill.
There are opportunities and although we are hiring and we will continue to hire this is an area that we really need to.
To concentrate on a very very very very insightful.
The U S from the U S operations business, we practically doubled the business adjusted in the last couple of years and the growth trajectory is even greater than that going forward. So the human resource element is very very important to us we are.
Really challenged with it and dealing with those challenges on a daily basis.
We have increased the human resources in France with increases the department in order to make sure to to attract the right talent and to keep the tenants. We have also created the HR function in Italy.
For the same reasons so definitely.
Looking at the people hiring the right people strengthening the department and if you ask me where do we have some some stretch or I will say.
More in operation.
And then anything, especially in the U S operations.
Really too complicated and we need to have multiple like I mentioned in my remarks and inventory management.
And planning which is key.
So we are improving.
Improving our I T.
Systems, making.
Some investments.
Yes.
In the department.
The idea will be to get ready for the next step well.
Okay for now, but if you could but you are going to if we want the business.
To grow above.
And we are above the $1 billion oil, we'll have to continue to improve.
Perfect and then just last question I am sorry, the promotion and advertising as a percentage of sales for 2022.
Just the phasing of it do you still expect obviously this year. It was heavily weighted to the fourth quarter do you think it's still going to be that heavily weighted or are we going to see sort of return to more normal pattern in 2022.
I think it's still going to be heavily weighted in the fourth quarter.
Because that is the holiday season.
Spending in that period, not only facilitates your sales for the holiday season, but it also.
Support <unk> sales coming for the following year.
So.
We will target our 21% that is the target for 2023.
Im sorry for 2022 and.
But it may not be as high as the 36% that we spent in this particular fourth quarter.
But certainly will be a.
A relatively high number.
Perfect. Okay. Thank you so much.
Thank you.
Our next question comes from Steph Wissink with Jefferies. Please state your question.
Thank you and good morning, everyone I wanted to just ask a little bit about some of the the <unk>.
Data statistics, we've been seeing out there around some of the more high potency juices outperforming maybe some of the more neutralized fragrances, so talk a little bit about in your portfolio did you see the same thing did you see some of your.
Higher potency prefinancing colon that performing.
The other juices, and then secondarily are related to that.
I didn't hear I didn't hear can you repeat too slowly.
Yes, just wondering about within the mix of of your fragrance business did you see sales of perfumes and Cologne.
The more high potency.
Outperformed out of her farm versus maybe some of the other twilight setting some of the industry statistics for thing there was a trade up yeah, our higher potency.
Yes, sure a little bit about what's happening within the category realm.
Relative to kind of what's happening fragrance versus other category absolutely absolutely.
Interesting that you asked this question absolutely.
The more concentrated and makes it more expensive fragrance.
In the higher demand, we see we see that we see that started actually.
A year ago, beginning of the beginning of last year.
We see and that's why we're coming up with a more or the buffer or extreme concentrations and it seems like that in order to to go after this market.
And any intention to extend some of your fragrance licenses into the home fragrance category.
[noise], whom fragrance, we do have.
By extension we.
Do have.
Some home fragrance business.
We do some candles, we make some diffusers.
It's not a big business for us and we we we make it as a as a peripheral products too.
Smith.
The company.
<unk> does not intend to them to.
To make it to the sub segment Bates.
And my last one is really quickly John you were mentioning that your A&P spend continues to shift to more digital and I think in your opening remarks, you also talked about E. Commerce was one of the strongest channels.
Can you talk a little bit more about how you expect that to evolve over the next several years do you expect bricks and mortar to gain back some share from commerce and does that change your marketing.
Budget in terms of where the dollars are spent thank you.
Yes, yes. Thank you.
Yes, I think this trend is not going to reverse its going to be to deal we ought to.
Percent.
Digi tool MTV, we continue to spend on TV in certain markets.
This will continue we have started also.
Some some good business with Amazon and we're advertising consumer and on Amazon and the return on investment.
Great. So I think that these trends are.
You have to stay.
Uh huh.
We still have to do some some work on that.
The penetration on e-commerce , but when you put together all.
The brick and mortar partners with top website, such as Sephora dot com or <unk> Dot com and you added to the business, which we do with <unk>.
The pure E Commerce player.
It's starting to become.
Ooh.
The interesting piece of business and we have high yield by the way people just to take care of this part of the business.
Yeah.
That's what I can tell you for now.
Very helpful. As always thank you everyone.
Thank you. Thank you. Thank you.
Thank you. Our next question comes from Hamed <unk> with Gws financial Please state your question.
Hi.
Can you just talk about your AD strategy, especially at the beginning of 'twenty two.
Given that most of the year such as higher degree of spending occurred in Q4, I would expect that you would see some sort of sales benefit in 'twenty. Two so how are you going to adjust your AD spending given that kind of a high degree of spending in Q4.
Yeah, we saw who else if you want to answer Oh go ahead.
Clearly the one of the reasons for spending as much as we usually do in a normal year in Q4 is not only to drive the holiday season.
But also to help drive.
Reorders going into the new year.
As we approach because of the spend.
That we did at the end of Q4 2021, we're already seeing the benefits from Reorders and increased sales.
Just in January and February .
We're clearly on target with respect to our internal projections and clearly it is the spend that we did at the end of 2021 that is driving the increase in that business.
As John mentioned too.
There is a greater proportion of our spend is in the digital side. So we're dealing with working with Influencers working with.
Other other websites like wechat, and Instagram and so on and so forth.
This is this is where we create content so that our customers can actually see and interact if you will with the different brands and that happens throughout the year. It's just that there is a much bigger push at the end of the year because of the holiday season sales season.
I think that.
Bye.
We can see.
Just in January February and March.
We're seeing.
The positive impact of this overspending.
Spending that we've done in the in the last part of 2021 says a higher than expected in January and February .
And projections and of course much higher.
Last year.
So.
So definitely we will continue.
Two of them.
Two two.
<unk> strategy, which is to to overinvest in certain markets in the markets, which we have chosen is America.
In China now.
It was Russia as of.
Two weeks ago.
Patricia on hold.
This is where we think we have the best return on the investment.
Okay.
Got it and then the other follow up I had was.
Given the success that you had last year at $2.
$19, 520%.
Any reason to maintain a 21% spend.
Are you over crowding the AD market with spending.
I want to absolutely do continue.
At this level and why not more.
A board too.
If we're able to increase.
Our gross margin.
A ball two to leverage our G&A.
I want to spend more and more in advertising again this advertising is.
Ease of insurance that will have new customers of it products.
<unk>.
The gain in market share, so which is absolutely necessary.
Prefer to spend it and to keep it in the in the ER.
Uh huh.
Okay.
Let's put it this way I think that with this type of operating margins, but we have now 16, 17%.
You too.
<unk> good enough of course, we can always increase and maybe will increase between.
If we increase that we'd like to take some of this increase and put it to.
Thank you.
Working so we shouldnt stuff.
Absolutely.
Great. Thank you.
Thank you.
Thank you. Thank you call is there any other colo and yoga questions. I mean, sorry, there are no further questions at this time I'll hand, the floor back to you for closing remarks. Thank you.
Okay. Thank you. Thank you operator, and thank you all for tuning into our conference call.
I just wanted to add that Sean and I will be presenting virtually on March 10th at the D. A Davidson consumer conference and.
And hopefully we will be live at the Jefferies Conference Consumer conference, which runs from June 'twenty, one and June 22nd.
Tuck in.
Thank you Linda and Stefan those invitations and as usual if anyone has further questions. Please contact me by email.
Thank you for joining the call stay well and stay safe.
Thank you. This concludes today's conference all parties may disconnect have a great day.