Q3 2023 Inter Parfums Inc Earnings Call
[music].
Greetings and welcome to the Inter Parfums, Inc. Third quarter 2023 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 call. Please press star zero on your telephone.
Pat.
As a reminder, this conference is being recorded at this time I'd like to turn the call over to Vice President of the equity group and inter Parfums Investor Relations Representative Karen Daily.
Thank you Darryl.
Joining us on the call today will be chairman and Chief Executive Officer, John <unk> on behalf of the company I would like to note that 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 may be found in the company's filings with the Securities and Exchange Commission under the heading forward looking statements and risk factors in their most recent annual report on Form 10-K, or subsequent quarterly filings on Form 10-Q.
We're looking statements speak only as of the date on which they are made and inter parfums undertakes no obligation to update the information discussed.
As a reminder, inter parfums consolidated results reflect their two business segments European based operations and United States based operations.
Certain prestige fragrance products are produced and marketed by European based operations through their 72% on your French subsidiary Inter Parfums SA.
It's now my pleasure to turn the call over to John <unk>, John You may begin.
Yeah.
Thank you Kevin Good morning, everyone and welcome to our third quarter Conference call.
Sadly Michelle's mother passed away yesterday and understandably. He is unable to join us to be small thing. So I will try my best to cover his financial remarks of course, we can.
Follow up calls that doesn't just retail.
And of course, I will be able also in New York to answer.
A question I'm sorry.
Issue have stomach.
So the strength of the global fragrance market is still compelling, but no longer growing up to double digit rates from the last two plus geos Fortunately and by design I will he has to date sales growth of 27%.
Italy indicates our ability to outperform the industry and gain market share.
The success of that well new Wilton brands has been the growth catalyst for us along with excellent sinful, although well legacy brands, which we have enriched with you know that she's extensions reserve and major new product launches.
Our production and distribution partners are operating efficiently and effectively to ensure that the omnichannel pipeline of fragrance. So lives throughout the world are well stocked with merchandise.
These drives this.
Produced record first quarter net sales of 31% to $368 million, which set new records for quarterly eating it says 35 plus years as a public company.
For the quarter foreign exchange rates favorably impacted net sales by 4% and new brands represented 7% of the growth leading to strong organic growth of 20% compared to the prior year period.
Diving into the detail of our wheel business market saw the South Dakota, North America, our largest market grew sales, 29% followed by what's still in Europe, Our second largest region with 24% growth. We also have seen.
Increase in sales in our smaller markets, particularly in eastern Europe, the Middle East and lets you know America is telling you we're up at 73%.
Middle East, that's 48, and letting them really kept 42% growth in the quarter.
This is primarily really due to a smaller base of sales coupled with ongoing recovery growth economy.
Begin to.
Normalize.
Oh, Yeah Pacific So they'll just market saw growth of 20% in the latest three months period, driven by sales in Australia, and New Zealand.
As mentioned in the earnings release yesterday, we continue to see good sell out in China.
Emily for coach Moblog until like demo and labeling.
Link us to manage down our stock in trade levels, which ways, which we expect will provide.
Sufferable tailwind in 2024.
For the balance of 2023.
Can you to anticipate only modest sales growth in China. Please.
Please be reminded that China presents.
Very small portion of our business and as always we stand ready to take on this immense market opportunity when the time is right.
Yeah.
With respect to well European based operation net sales increased 18% during the course, two primarily driven by our top performing brands, which our coach and montblanc, we've cells, increasing 32% and 20% respectively compared to the prior year periods.
Coach fragrance, we are in high demand during the close to <unk>.
Nearly all of the brands fragrances, and we Unreached firmly fragrance with gods Green and coach Love.
Montblanc fragrance, so solid performance of the mobile only agenda in the explorer franchises, we've been additional boost from the extension launched earlier this year more blunt the agenda, let him.
Our owned brands also continued to generate strong says a whole chefs fragrance sales grew 21% during the quarter, surpassing 50 million year to date in 2023.
Strength in the order of a chassis line and momentum from Roche as Gil Life Love Oh.
One drug in the absence of any major launches grew sales by 6% during the quarter.
Yeah.
Moving into our U S based operations.
Net sales grew 64% in the quarter on top of a 45% growth achieved in the same period last year.
They're not Kevin you can why fragrances increased 200% compared to the first close till 2022, having joined our portfolio in July of last year.
The fashion House jewelry has become our second largest U S based brand in a new one year under our expenses.
In August we.
Introduced our first brand extension for DKNY called B didn't choose offshore street vibrant sense, which kept you in L. A and New York City lower East side and the early returns are very promising.
Well on track to launch a new blockbuster fragrance for DKNY next summer.
Guess fragrance sales increased 15, 9% during the quarter, primarily driven by the continued demand of all fragrance lines with significant growth builds upon the 45% sales increase unless you felt gupta.
Growing demand for gifts fragrances has been sparked by the rising popularity of gift fashion across the globe, particularly within the U S. We are in Asia Pacific and also Europe.
As we reported a few weeks ago. We recently launched the guess originals trio of gender inclusive fragrances and are now rolling out gas Bill every type of Huntsville.
We have been working tirelessly on innovation for gifts to ensure we get to have a successful momentum of the brand.
We have reached pipeline of fragrances planned for 2024, including a new pillar launch for guess.
Addition to guess I'm Mori elements, one with Denso and 60 Skus metallic.
Even in the absence of the new product launch first quarter, you'll see I got more fragrance sales were very strong increasing 55% compared to the same period last year due to religious he sense, coupled with sister sense senior V not and still need to fit our collections that did you did earlier this year.
Yeah.
Beyond the brands Italian boulders see I got more fragrances, a strong seller in the Americas.
New product are in the pipeline for fear I got more in 2024 by the way in two years since we commenced operation in Florence, Italy, We now have about 60 management and staff members and are expanding our brand footprint, we skipped valley, but also.
Italian affiliates will be distributing all our brands in Italy.
As I mentioned in the first quarter sales release, we initiated the phase one of our best coffee and fish. She has to distribution rollout, while we begin with early introductory distributions select markets.
I couldn't eat fragrance.
During the first quarter two we are on track to commence the maturity of the phase one distribution rollout in Europe before year round and launch phase two in Asia Pacific and let's not America during 2024.
And lastly, touching on the whole best to cover that cost our two most recent license agreements for a whole best took a very well set to begin shipping fragrance product in January 2024.
And we plan to launch our first extension of cause I E in the semester it doesn't control.
Of note, we did not buy the trejo licensees leftover inventory instead, we curative collection introduced anti entirely new fresh goods.
Also we partner with one of the top luxury retailers and distributors in the middle East.
Subject to the market for the brand to further expand the brands.
We also have some animation hand, Budd you fragrance mist and to just carefully jewel on track to see shelves.
And somehow respectively.
Yeah.
The <unk> license will take into effect in January 2024, and we have been using the time since the license was signed to develop go forward strategies and like Kevin E. We did not buy any existing inventory.
The fragrance industry remains competitive as new market participants until if a category where I'm not surprised by the increased competition as we believe there are four significant attractive elements.
Number one I think is growth the fragrance market has grown tremendously and is expected to continue to grow in the upper single digits with new consumers entering the category and existing consumers building all the fragrance wardrobe.
Yeah.
The second.
Point is resiliency.
Resiliency is a very attractive early in launch we consider it to be generally recession proof as although beauty and consumer segments site I'll do when faced with macroeconomic instability. This is reflected in our well successful.
Almost 40 years of history.
The field.
Or attractive element is what does your ability fragrances.
You're a bull entry price point for consumers, who want to invest in their favorite luxury brands without having to pictures the higher priced luxury goods.
And that's.
The demand.
As new consumers until that category. It is often rare to see these new consumer exhibit the fragrance market.
So from a license to fix either well why do we are actively scout for opportunities to add new brands that fill the compliment our prestige portfolio. We also find that rent on the house tend to seek us out because of our size I will expertise and excellent track records that.
And underserved Brent or mouse.
Often looking for.
Our portfolio both in D C and new brands is in high demand across the globe.
Additionally, all of our brands have benefited from newly launched and enhanced e-commerce site in existing markets.
Collaboration with our retail customers on the E.
From this site in fact, I will retail sales in the Americas.
Premium beauty category and invitation only prestige platform have sold by an impressive 149% you have to date through October.
The remarkable growth.
Largely attributed to the successful launches of some of our key franchises such as they're not gone and you cant away.
We're also developing and implementing omnichannel concepts and compelling content to deliver an integrated consumer experience.
Coupled with our ongoing innovation, where coffee don't see and our ability to continue to update the overall fragrance market through the end of the year.
Yeah.
So now I will tell them to our financial debt fall months.
So I will do it for the Sustainment myself, because Michelle as I said before he's not able to join us.
So let's try.
On a consolidated basis gross profit increased 29% to $245 million.
Within our European based operation gross margin declined 90 basis points, primarily due to an unfavorable product mix as we ship more gift sets in this quarter compared to prior year.
On the year to date basis gross margin declined only modestly due to the one time expense related to inventory as we reported in the second quarter.
Excluding this one time adjustment gross margin would have been in line with the nine month period last year.
You know, we're a U S based operation first quarter gross margin expanded approximately hungrier than 90 basis points from the privately from the prior year period, driven by trust price increases that more than offset inflationary impacts on components.
That's really useful production during the quarter.
Coupled with ongoing favorable Brent and Shannon mixed.
Additionally, we've I will and that sets up the fall months, we are better able to absorb fixed expense such as depreciation and point of sale expenses than at this time last year.
SG&A as a percentage of net sales declined to 42% from 41, 9% in the quarter.
On a year to date basis.
SG&A also declined 290 basis points to 39, 8% from 41, 7% in the prior year period.
European based operation first quarter, SG&A increased 18%, which is comparable to the increase in net sales and generally in line as a percentage of net sales from the prior year period.
Well U S based operation and Ginny increased 44% almost 64% increase in net sales.
Promotion and advertising are integral parts of the fragrance and beauty industry, and we have and will continue to invest heavily to support new product launches.
Our strongest sellers and to build brand awareness.
Promotion and advertising aggregate aggregate to 62.8 million.
And 152 6 million for the current full fifth quartile and for the nine months period.
Compared to 44.8, and the huddle and 25 million for the corresponding periods of the prior year.
Promotion and advertising represented 17, 1% and 15, 4% of net sales for the current three and nine month periods, respectively, as compared to 16% and 16, 1% for the corresponding periods of 2022.
As a reminder has about as part of our strategy.
Fourth quarter is typically the heaviest period for promotion and advertising and we continue to expect to deploy 21% of net sales annually, which allocates approximately the same level of promotion and advertising yesterday to the fourth quarter alone.
Well I N T expenses are included in SG&A, which ticked down slightly from the prior year period to seven 8% of net sales for the quarter again due to changes in brand mix.
Our operating margins aggregate to 23, 7% and 23, 5% for the current three and nine month periods as compared to 23% and 22% for the corresponding period of 2022.
We closed the first quarter with working capital of $549 million, including approximately <unk> hundred $84 million in cash and cash equivalent and short term investment maintaining our working capital ratio.
2.421.
We call we closed the quarter with 129 million of long term debt associated with the Paris headquarters and that costs license acquisition.
From a cash flow per stick teaser accounts receivable is up 49% from December 31 2022.
Right reasonable based on 2020 to record levels says.
And reflects the combination of high volume up shipments towards the end of the third quarter as well as some payment schedules extended going into the holiday season.
Additionally, strong collection activity resulted in days sales outstanding decreasing to 72 days at the close of the quarter from 80 days at this time that's true.
Inventory levels at September 30 increased to 20.
26% from year end 2022.
She bought although I will explore onshore sales growth.
We have learned important lessons from the supply chain issues.
Billions during the pandemic and we have aim to carry more inventory overall soft component from several suppliers that manufacture products closer to where they are sold to ensure we protect our service levels.
And finally.
Turning to our full year 2023 guidance as we announced in yesterday's release them.
Well I see them in our full year 2023, net sales guidance of $1 3 billion or growth of 20% from fiscal year 2022.
Despite geopolitical tension and the very high fourth quarter 2022 base.
We are also well excuse me without increasing earnings.
Diluted share guidance to 475 from our prior estimate of 455, which represents growth of 26% from the 378 for fiscal year 2022. Thanks.
Thanks in great part to the operating leverage.
Goodbye I will finish he can't growth.
We expect to announce our initial guidance for full year 2024 later this.
This month.
So with that operator, you can open the floor for questions.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing them historically.
One moment, please while we poll for your questions.
Okay.
Our first questions come from the line of Linda Bolton Weiser with D. A Davidson. Please proceed with your questions.
Hello.
Hi, Hello.
Hi, I was wondering.
With regard to your comments on China that your P. O S grow and so you could work down some retail inventory how do you feel about your current levels of retail inventory there in China do you think there's more reduction that needs to happen or I think it is in a good condition.
Right now thanks.
Thank you, Doug so regarding China.
This is something that we monitor on a weekly basis, we ask a registry with just give us an idea on the most important our accounts like a sephora in department stores and also the different digital operators.
We are in a much better shape than before when we see an improvement.
A week after week quarter after quarter, and we think that the inventory we'd be in a move to not more level. When we stopped oh forgive Ah in 2020 for them, but again with China. You know we have been always a subject.
Homeserve it's Eva.
We've been right two to be like that because.
It's a big country and things are changing to a super fast. So we can take also even for next year.
<unk> approach, but but I can definitely see some improvement in new England.
That's solid.
Great. Thank you and then.
Yeah, you know without Michelle here I'm not sure. If you can answer that I'm going to try I'm going to say to myself so be it would be nice to see.
Okay.
Try to answer, but again, if I if I'm.
So I don't know I will tell you I don't know one and.
We lost some money in the company to two to one so you into the next couple of hours, but go ahead Linda.
Yeah. My question is just with.
With the level of advertising that you're guiding to in the fourth quarter. It does look like gross margin is implied to be sort of improve sequentially.
So I would think it would be higher in the fourth quarter versus third quarter because of lessened gift sets and does that sound reasonable to you that it should be higher in the fourth quarter.
No I think you can't use four gross wells a piece of it you use the same margin as a as soon as the first three quarters. So you don't you shouldn't be higher but as I said.
I said, we will spend too.
Very big amount of money in advertising in the fourth quarter.
Two to ensure that the sell through it too.
The store level.
Okay and then just my final question is about I know you don't want to get detailed into 'twenty 'twenty four yet but.
I'm thinking that Roberto Cavalli, and let kotkin together at $100 million of revenue roughly is that about in the ballpark range.
Oh sure.
I hear you say you cannot answer because.
We don't.
But I think that Luca like cost has been in the fragrance business and we have disclosed or would you. How much. We were doing was a former licensee carefully also so I think that it's a it's a it's a fair number to use for now.
Okay. Thank you very much John Thank you I. Thank you pleasure.
Thank you our next questions come from the line of Ashley how guns with Jefferies. Please proceed with your questions.
Hey, Thanks for taking our question one of your competitors are still taking price can you just talk a little bit about where you are in your current pricing journey and then if you think youre thinking about the pricing youre thinking about price yeah, Yeah pricing, Yeah, where you guys are with your pricing journey and if you think consumers are going to start pushing back on price.
At all and then maybe any update you can give us on the travel retail channel.
Okay now, let's try on pricing.
We took a modest pricing.
Earlier in 2023.
Something around 5%.
Which more than offset inflationary expenses during the quarter and we do not expect to tick silver pricing actions at this time.
But because like you said, the we think that there's some consume mills will eventually resist vis a vis a price increase but by the way has been the.
Glen you gone for the last two.
Two years, so we see that our our pricing ease of use that as the right level and and we would not expect it except.
Except maybe for Justin.
Particular S K U.
We will position it to be higher but this is more for marketing reasons not to offset inflationary expense.
So that's about a pricing.
And you won't have to talk about the travel retail.
Your second question, Yeah, Yeah, we see definitely a big improvement for us in travel retail, but again as opposed to our larger competitors are.
Our business is our base is a small on the.
On the travel retail we are roughly.
That's 5% are in the beginning of the year and we're trending now there's something around the seven or 8% and.
So this needs to be improved non different you know more traffic you know, India pause I mean, everybody struggling and you can see that our business is a different kind of a more active.
So we have a we have we are quite optimistic for travel retail.
E worldwide.
If your question is more about travel retail in China.
He sees that we'd say no.
So where we want to be conservative.
And we're not a we're not putting big numbers for travel retail.
In China for Chinese travelers.
That's what I can tell you for now.
Thank you.
Thank you our next questions come from the line of current and Wolf Meyer with Piper Sandler. Please proceed with your questions.
Hey, good morning, Thanks for taking the question and congrats on a good quarter.
I'd like to just.
On the guide for the year, I mean, obviously, a pretty big step down in the topline growth for Q4, and I know theres, some really challenging comp.
Can you just provide any color on maybe why you're not pushing a little bit higher for Q4 and kind of what you're baking into the guidance for the remainder of the year and then maybe how we should think about that trajectory into 2024.
I understand it sounds like yours.
Alright. Thank you can I can try.
But I knew that you were doing somewhat.
Going to asking these questions.
We have decided to keep the level of sales that are a bit.
Cause as you said in your question.
Well against a very strong fourth quarter and that's true.
We have increased the.
The EPS numbers because.
But because of the results of the physical too of course.
But oh, we want to to maintain visa visa.
Prudence in our numbers via eases some instability in the world as you know.
Two weeks ago, we'll start to in a very important region for perfume.
At least so we have to be prudent and that's why we prefer to stay conservative you know well the guidance.
That's what I can tell you its owner.
Great. Thanks, so much and then.
Advertising and marketing spend and you're still planning for that too.
You're fairly heavy on what is your willingness if.
If we do start to see a heavier slowdown in the top line what is your willingness to maybe pull back on that spend to preserve.
The profitability of the business or is that something that youre going to continue investing in even if the top yeah. Yeah. Yeah, Yeah, we will continue to invest.
This investment is a to ensure that all our retail partners sell out what we shipped them. So we did great in the fourth quarter, because we shipped a lot a lot of products and it's absolutely necessary to do to maintain afterward.
Kris all our expenses.
To make sure that Oh, well because retailers are worldwide.
Have a great sell through.
And we can replenish inventory coming first quarter next year, So oh.
It will be a a very a shock to them. The vision to reduce are just as eager to show a little bit more profit no. We're here for the long term and we are here to to gain market share. So I'm convinced that this is the right thing to do.
Wonderful. Thanks, so much thank you.
Thank you our next questions come from the line of.
Corsage with BWXT financial please proceed with your questions.
Hello, Hi.
Hi, just wanted to see what kind of spending changes have you seen it there.
Retail level going into the holidays and are you assuming that the retailers are.
As much stock as they were last year or do you think there's ample room for them to.
Do reorders in Q4.
It's a good question.
This is also something that we're monitoring on a daily basis retailers are quite prudent Oh I'm not they have not taken a.
Massive inventory we are delivering good D. I was I was with many retailers in the last couple of weeks and you'll have.
So they haven't given us a lot of smaller all deals, but more sequence to it.
So therefore, I guess two two to receive our products are in.
Hum.
And it got down to the keys.
On the on a weekly basis and that's what we're doing so.
They are not.
They don't have a huge amount of stock, but we are continuing to buy and we have I think of all those two sheep.
To up to Christmas.
So I think it's a prudent attitude from the from retailers.
But I do not see a yield issue.
Our inventory level.
Okay and my other question was for for next year other than Kibali and Lacoste.
What are you focused on us as being important events for our inter parfums next year.
So of course carefully and that goes to all of the new brands in the portfolio, but we are going to concentrate on the the size of the biggest franchisee in the portfolio with number one being the more blunt than coach and say I got them all.
And Jimmy Choo and yes. So these are five brands we the we.
Represents 78% of our sales and.
We will continue to invest and what is very important is that this the size of big franchise will all have a blockbuster in 2004, where for three out of five we didn't launch it and you've got the bus during 2023 services a visit.
A couple of weeks, we're going to use the two.
The sales guidance for 2024.
Uh huh.
Optimistic, but a prudent because again.
Well the conditions are.
Extensions or so a month grateful for business and we have to take this into account of course.
Okay, great. Thank you. Thank you.
Thank you we have reached the end of our question and answer session.
I'm just kidding.
No because I'm not I'm not used to be things that stay. So that's why it was a boom, but then you and I hope I was able to himself Oh, the lightweight, but again I repeat T series of more in full that you need we will be happy to have the michelle's team.
So you just have to call the office.
I'm, sorry, Oh, Yeah, you wanted to pursue something against them.
No I was just going to hand, the call back over to you for closing comments.
Okay.
So before the before I end the call I wanted to touch again on recent geopolitical tensions.
As a global business with over two dozen 200, that's going to cause the glove, we do everything we can to help she bought I will manufacturers and distributors.
Ah well in support of humanitarian efforts and you know some people experiencing so much pain, we condemn the terrorist attacks in Israel and will continue to work to find more ways to provide support to our partners consumers and all of those affected by this war we hope for.
Pathway to peace soon.
And as I said, if you have additional questions. Please contact Karen the lift from the equity group, our investor relation consoles.
Telephone number under her dress can be found on our most recent earnings release.
Since this since we see our last conference call over yeah.
Michel and I Hope you have a safe and pleasant holiday season, and a prosperous new year. We look forward to the next conference call. Thank you very much and have a good day.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
Yeah.
Okay.
Yeah.
[music].
Yes.
[music].
Yeah.
[music].