Q4 2024 Inter Parfums Inc Earnings Call
Michel Atwood: A film by Michel Atwood Directed by Michel Atwood Written by Michel Atwood Director of Photography Michel Atwood Music by Michel Atwood Edited by Michel Atwood Music by Michel Atwood Music by Michel Atwood
Speaker Change: Greetings and welcome to the InterPowerForums Inc. 2024 fourth quarter and year-end conference call and webcast.
Speaker Change: 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 forward looking statements speak only as of the date on which they're made and inter parfums undertakes no obligation to update the information discussed as.
Speaker Change: As a reminder, inter parfums consolidated results include two business segments European based operations through inter Parfums SA the company's 72% of French subsidiary in United States based operations it.
Speaker Change: It is now my pleasure to turn the call over to John that's our job.
John: Thank you, Kevin and good morning, everyone and thank you for joining us on today's call.
John: 2024, it was a great year for US we closed it on the high note with a record of course, just says <unk>.
John: Our sales can be made to two 1 billion 452.
John: Adjusted earnings before <unk>.
John: Belmont was 518 that they'll diluted shares.
John: Yeah.
John: Beating our guidance of $5 15.
It wasn't so the euro we initiated distribution and sales growth with two new brands like cost and it will be able to come back.
John: We also renewed our license agreement, we think can fend off says extending our a T M.
John: The shift into the next decade.
John: And we also signed an agreement.
John: That will bring the off price fragrance business and I will do action starting 2026.
John: We have also been recognized for a number of the wells and achieve months, Michelle but the one that two of the most cloud offs was our inclusion in times magazine, well based companies with sustainable growth ranking which rewards use 500, most exemplary companies in terms of economic growth.
John: Environmental commitment over the period 2021 2022.
John: Specifically, our seven 2% owned subsidiary I'll jump off.
John: Ranked number 44 out of five Homegoods among all the companies in the world.
John: I'm talking to business.
John: Talking about the business is cyclical the second yearly new rule, Jimmy Choo, the largest brands in our portfolio increased sales by 7% largely driven by the ongoing success of the I won't shoe franchise.
John: Guess.
John: Guests also had this tender.
John: Growing 15% as a result of the continued robust default months of I guess, he fence plus the initial success, although a new pillar guess I couldnt.
John: The blood until 2025, very strong programs and momentum from the fashion House.
John: Okay.
John: They're not Karen you can why fragrances, which joined our portfolio mid 2022 generated OLED sales in excess of 100 million.
John: I would like not to take an opportunity to provide an update on Chicago.
John: As you know we took a realized <unk> three years ago.
John: And the initial focus was to clean up the distribution.
John: Which we did.
John: The largest market for fear I got more USA and Mexico.
John: And very important for US is that you are willing to launch a new blockbuster assesses the bus stops or should I got more in the last two full yes. It is called shambaugh.
John: And we plan to invest all the time.
John: One 2 million on the grounds in 2025 behind the new visual merchandising approach and then you had just a zinc company.
John: So Canada would be the first major blockbuster launch.
John: Developed with the creative vision of Mexican gum disease.
John: Oh sure I got them all.
John: And you can calculate the cool elements of the drug, especially of the newest boutique yoga and shapes the fluidity the texture and each represents a true design innovation.
John: Regarding the advertising we.
John: We showed you a just gazing uses jabil photographs film also on T. I need features she choose a tough model the top model coupled aspect of SKU.
John: Companies are all set against the backdrop of the CTF slowdowns and influence as a best place on headquarter of the brand and it expresses the vision of mud option.
John: Okay.
John: So we have a a.
John: Big Hope for it. So these are new blockbuster CMO.
John: Touching on the newest brands la cluster, but exceeded our expectation in the first year and Oh, well, Matt that's months.
John: Achieving the $84 million and says well, 6% of our total sales with strong popularity worldwide.
Not just re launched that cost or regional we redefined it's placed in the market.
John: To a blend of strategic Red Chi Chi markets inside and commercial innovation, we are transforming like us prisons setting a new standard in space.
John: In 2025. This show will also extend the original line for both men and women and the 12 12 line.
John: We got singled that took a whole best took awhile he met our expectation just yeah, you know what.
John: Prestige portfolio, I think 2% to our top line at $51 million and cents.
John: Less than 11 months.
John: We reserve and so he never did.
John: He never did fragrances and launched a new scent called switch delicious.
John: Also introduced just cover white hot and the collection of certain blood you missed.
John: In 2025, we have a very important blockbuster fragrance.
John: Park Avenue, which is called system time.
John: And our partnership with Gabelli Blunder comes at the perfect time, with new store openings widespread buzzing fashion media and social platform and fashion icons embracing it has evolved designs Kathleen resilience using the full suite.
John: And December 24.
John: We signed up for all.
John: All of Wideband names and would you still trade muscle class III fragrance and cosmetic products in 2026 until Delphi will begin commercial use of our fragrance brands today are flights fragrance for men and women are sold in department store like Factset, Neiman Marcus specialty store and Av.
John: <unk> online.
John: Our three largest markets North America, Western Europe, and Asia Pacific.
John: I think gains of 6%.
John: So I'm off on that I guess once you want to sense for Western Europe, and 3%. So all these yet the sheets in 2024 compared to 2022.
John: Middle East and Africa, Eastern Europe, and Central and South America also grew sales by 5%, 14% and 17% respectively.
John: Interesting to note is travel retail sales continued to strengthen and increase by 20% from 2023 travel retail is an important channel and our goal is to continue to focus on brand building versus trying to get quick wins for promotion.
John: As always we will continue to play out to prioritize our retail and wholesale partners consistent with our established strategy in 2024 direct sales to retailers, including travel retail represented approximately 49% of our well net says up from 47%.
John: One year earlier.
John: As previously disclosed them beginning in 2024 hour Italian hub began managing sales in Italy for all our brands. This model has demonstrated its success and we are actively exploring opportunities to expand it into new markets, including you.
John: Kate and Spain.
John: Yeah.
John: Much of the success, we achieved in 2024 is due impart to our Omnichannel services, including our E Commerce business, specifically on the Amazon and <unk>, one of the largest ecommerce channels in France.
John: So recently, we launched our own bedroom ticked up shop and why it started very small it has been gaining momentum.
John: Rapidly with purchases increasing week over week seating.
John: Since its inception.
John: Consumers are growing increasingly confident in touches in fragrances online jayson by content creators and influencers across various social media platforms.
John: Sparking your excitement around NIS and luxury sense.
The digital shift is not only should discovery, but also increased online fragrances.
John: One of our greatest strengths is our ability to stay ahead of emerging trends from the growing demand for premium ultra premium luxury fragrances.
John: The rise of multi scent collections, we anticipate what consumer wants.
John: We have seen a celgene fragrance shoes, among males, particularly among teens, along with a shift so well John Doyle neutral sense and the highly concentrated long blasting formulas.
John: Our brands are in demand across the globe.
John: As evidenced by increased increased sales in all major markets in 2024 compared to 2023.
John: We also understand the after skipped choosing the consumer's attention and time.
John: <unk> seen them to pick up the fragrance experience each cent and connect with it on a deeper emotional level.
John: These engagements, where our fragrance becomes a true reflection of that identity is the lens through which we evaluate our brands and uncover new opportunities for growth.
John: While the past two years have primarily focused on the extension in 2025, we will introduce bold new fragrances that energized our grants from new blockbusters to Pls and elevated the extension, we're crafting a high quality highly cost.
John: I'm sure it did sense.
John: Lined with evolving preferences of today's fragrance consumer house with regards to product launches in our 2025 pipeline, we have blockbusters the beautiful Ferragamo as I mentioned before also for US also for carefully.
John: But we also have fragrance duo for Karl Lagerfeld, and the new collections for DKNY saw M. C M in southern Gulf.
John: Yeah.
John: Guests will see Iconix for men installs in the spring and of course, we have extension across nearly all the rest of our portfolio, including our three largest brands Jimmy Choo, we have a new man extension.
John: And montblanc, while enlarging the multi scent collection with Starwood and we're also expanding the explorer.
John: Suddenly we explore extreme.
Boots for men a welcome to the northern Baja vision early this year.
John: In keeping with increased demand so highly concentrated long lasting sense.
John: 2025, we will also mark the creation of a first appropriately.
John: Brandon called so sitting though it is a.
John: Lection of 10 niche fragrances developed by staff Perfumers to be launched initially for a new truss elective distribution channel no more than 100 point of says we'll also open.
John: Store in Paris entirely dedicated to our brand.
John: And along with the E Commerce, a dedicated site.
John: We are associating no collection, our goal is to gain insight that can be applied across our portfolio.
John: While also strengthening our position in the robust high end fragrance market.
John: As we step into the high end fragrance market. We are also.
John: Hopefully pruning our portfolio of smaller brands in 2024 and end of 2020, probably discontinued dunhill and in 2025, the Boucheron license will expire.
John: Both of these brands represent a small part of our risk portfolio and our goal will be to make up for these losses through new brands like off White, and Societe know and although new license for a while.
Speaker Change: Oh, so growing our call Ron Foster.
Speaker Change: We are also streamlining our supply chain so our European based operation, we have historically relied on third party logistic providers for services, such as spiking shipping warehousing and are therefore humans.
Speaker Change: And in the U S. We recently decided to transition our warehouse in New Jersey, but we have operated under our own followers.
Speaker Change: 30 years to the ascend model.
Speaker Change: Although the G P L in an effort to streamline operations and reduce our overhead costs.
Speaker Change: As I will business continues to grow leveraging third party logistics partners will enhanced efficiency and enable us to better serve our customers while focusing on our core competencies. We plan to complete this transition by June 2025.
Speaker Change: Looking ahead the momentum in the global fragrance market continues its positive trajectory.
Speaker Change: But at a slower pace than in more recent years.
Well also facing a range of other headwinds, including potential tariffs regulatory challenges and currency fluctuations.
Speaker Change: On the tariff side.
Speaker Change: We source our components from multiple regions and are actively working with our suppliers, particularly in China to navigate puts on shows the Irish evolutions, we buy system components from China like plastic and metal cap.
Speaker Change: While an increase in tariffs on components remains a possibility TV share our goal is to mitigate costs. The impact. So we don't have to pass them on to our retail and wholesale partners.
Speaker Change: Additionally, as the Nixdorf Delta of American made finished goods to neighboring countries and an importer of finished goods made in Europe. We are closely monitoring potential changes in U S import and export taxes.
Speaker Change: Should these costs rise, we will explore all possible strategies to offset the impact on imports, including potential pricing adjustments.
Speaker Change: While this factor was a challenge.
Speaker Change: We believe that they do not present significant cause for concern as we believe that most of the industry is taking this approach.
On the regulatory side, our team will continue to ensure our product meets the highest standards of safety and compliance worldwide and we are all prepared to navigate the complex regulatory landscape to mitigate any potential disruptions.
Speaker Change: We are seeing unprecedented changes we have strategies in place to address them effectively and minimize disruptions. This included chemical safety.
Speaker Change: Well, we're reformulating a lot of our products as necessary to ensure compliance while continuing to innovate within safe parameters.
Speaker Change: There are few banned substances dark trivalent and menu fragrances, we expect that we need to reformulate about 80% of our formulas and packaging goes out in the next three years, we have successfully gone through a similar process when the linearity was been in the recent past.
Speaker Change: On this thing and registration the mud on the addition of cosmetics and Regulation Act called Mccraw represents a major shift in FDA of the site of cosmetics.
Speaker Change: We have implemented rigorous compliance visuals to meet more crowd requirements. So that we abide by mandatory product shifting 50, substantiation and facility registration given the focus on deregulation, while also region anticipating and prepared to navigate increased leads you said.
Speaker Change: He is activity at the state level.
Speaker Change: To close our innovative and creative expertise combined with the strength of our current fragrance market and the depth and diversity of our rental portfolio.
Speaker Change: Position us well for another year of record sales and earnings.
Speaker Change: While economic and geopolitical uncertainties prevail, our agile workforce and ability to adapt to evolving conditions.
Speaker Change: Key to sustaining our success.
Speaker Change: I will now turn it over to Michelle for a review of our financial Michelle.
Michelle: Yeah. Thank you Joe and good morning, everyone.
I will begin by discussing the consolidated results before breaking them down into our two operating units European and U S based operations.
Michelle: Overall as you've seen from our earnings release, we delivered significant top line growth, while expanding margins. We also beat our sales and earning guidance.
Michelle: As we reported consolidated net sales grew 10% in both the final quarter and the full year to 362 million.
Michelle: At 1.4 of five 2 billion, respectively for the year.
Michelle: Gross margin was broadly in line with the prior year periods at 64, 5% and a 63, 9% for the fourth quarter.
Michelle: And full year SG&A as a percentage of net sales was largely consistent with 2024 at 44, 7%.
Michelle: It's up only 10 basis points from one year earlier.
Michelle: We maintained significant investments in A&P to strengthen brand awareness stay competitive and support an ongoing growth, especially with two new brands in our portfolio.
Michelle: In total we devoted $281 million in A&P, which is 7% higher than last year.
Michelle: However, as a percentage of net sales a N. P was 19, 3%, which is below our target of 21% as we face some of our A&P investments into the first half of 2025, where we believe we will get a higher ROI.
Michelle: Yeah.
Michelle: Royalty expenses, which are included in SG&A averaged approximately 8% in 2024 generally in line with our five year run rates.
Michelle: That brings our 'twenty 'twenty four consolidated operating income before impairment loss to $279 million a year over year increase of 11% and an operating margin that is best in class at 19, 2% and slightly ahead of prior year period.
Michelle: Our effective tax rate for the year was 24, 2%, which is a blended rate between our U S. French and Italian entities. This rate improved by 60 basis points from the 24, 8% in 2023, when we had a $3 million tax assessment.
Michelle: Now moving into our different segments for our European based operations. We finished the year on a strong note achieving 6% sales increase in the fourth quarter and leading to a 10% sales increase for the year gross margins were lower by 30 basis points to 67% for the full year as a result.
Michelle: It's a unfavorable brand and channel mix, but they did expand slightly in the fourth quarter by 20 basis points, reaching 69%.
Michelle: SG&A expense to increase on a dollar basis for the fourth quarter and the full year, but decrease as a percentage of net sales by 80 basis points for the full year compared to the prior year period.
Michelle: As we say some of our A&P expenses into the first half of 2025, we expect higher ERP expenses from our European based operations in the first half of 2025 as a result of this shift as we continued to rebalance our investments across the ear to a true you're better off or why consistently with what we did in 2024.
Michelle: As previously communicated during the fourth quarter, our French subsidiary, which manages our European based brands recorded a supplemental nonrecurring noncash impairment charge of $4 million relating to Russia fashion business.
Michelle: To provide some context, when we acquired Russia in 2015, we acquired both the fragrance and the fashion business for $108 million.
Michelle: We allocated $20 million to the fashion trademarks and the balance to fragrances.
Michelle: Fragrances continues to perform out of expectation in line with our core card.
Michelle: Competency and expertise, but the fashion business has been more challenging.
Michelle: At this time, we are actively discussing and seeking alternative solutions for the Russias fashion business, which triggered this need to impair the asset.
Michelle: After this impairment, we will have $7 million on our balance sheet of the original 20 million that we started out with.
Michelle: All told net income attributable to European based operations grew 12% to $140 million for the full year.
Michelle: Now turning to U S based operations. It's a similar story, we achieved 16% sales increase in the fourth quarter, leading to a 12% gain for the year gross margin was down 60 basis points from 57, 9% in the fourth quarter of 'twenty 'twenty four but this was driven by unfavorable product and channel mix.
Michelle: However for the year gross margin expanded by 90 basis points to 57, 9% as a result of favorable brand and channel mix as John noted, we are expanding our direct to retail channel in the U S, which is gross margin accretive we will continue to focus on this strategy, while maintaining strong relationship.
Michelle: With key wholesalers as our preferred partners.
Michelle: Similar to European based operations SG&A increased on a dollar basis, but as a percentage of net sales decreased 190 basis points from the prior year's fourth quarter.
Michelle: On a full year basis SG&A as a percentage of sales increased by 70 basis points to 45% as a result of continued investment in infrastructure and employee head count to support the growth of the business as well as increased N P activities.
Michelle: Overall net income attributable to U S based operations grew 8% to $69 million for the full year.
Michelle: We closed the year in a strong financial position with $235 million in cash cash equivalents and short term investments and working capital of $582 million with 10% sales growth, we managed to keep inventory flat compared to last year as the benefit of our inventory optimization pro.
Michelle: Graham started to bear fruit throughout the year, we also significantly improved our cash conversion cycle delivering operating cash flow of $188 million in 2024, which is the equivalent to 92% of net income and this was up from 106 million or 56% of net income in 2023.
Michelle: Our long term debt approximated $157 million and was primarily driven by the loans that we took out to acquire our headquarters.
Michelle: From a cash flow perspective accounts receivable was up 17% from prior year 2023, while days outstanding increased 60 from 66 to 62 from six to 66 days in 2024 from 62 days in twenty-three. It reflects the change in our channel mix as just discussed with strong partner.
Michelle: Our ships, we do not anticipate any issues with collections.
Michelle: As announced in our press release yesterday.
Michelle: Given their confidence in our long term growth prospects operating cash generation and solid balance sheet. Our board of directors approved a 7% increase in our annual dividend to $3.20 per share up from $3 per share in 2023.
Michelle: This represents a 60% payout on 2025 expected EPS.
Michelle: Before we open the call for questions I wanted to address 2025 guidance.
Speaker Change: As al and for that matter most of our peers have stated the fragrance market momentum is continuing but at a more modest pace. While we did beat our guidance on sales and earnings in 2020 for competition slow down and their operating margins contracted as the category becomes a more competitive we're also seeing foreign.
Speaker Change: Exchange headwinds for the first time in two years with the Euro reaching 102 against the dollar in January against Ah versus one O H throughout most of 2024 and actually 109 in January 25.
Speaker Change: We already know that these FX headwinds will impact us in the first quarter of 2025 by about two points and possibly extend into the rest of 2000 and twenty-five. Despite these headwinds and eroding competitive margins we remain confident.
Speaker Change: That 2025 will be another record year and are maintaining our guidance of 1.51 billion and set net sales and EPS of $5 35 per share.
Speaker Change: Both a 4% growth across the board.
Speaker Change: We will update this guidance as the year progresses.
Speaker Change: With that operator, please open the lines for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Linda Bolton Weiser with D. A Davidson. Please proceed with your question.
Speaker Change: Yes, Hello, So I was wondering if you could talk about I think in the press release, there was a mention of Destocking in the industry and I was curious if you could give us a sense of what's going on there because I know you had that issue last year in 2024, but I thought it was complete.
Speaker Change: And that you felt things were in good shape.
Speaker Change: Can you just kind of tell us where you think that the channel inventories stand at this point. Thanks.
Speaker Change: Hello, Hello, Linda Thank you for your question.
Speaker Change: I will say that we did a good selling in November and December.
Speaker Change: Anticipating a good Christmas and through which happened by the way and then we see that in the last two.
Speaker Change: Two to three months the gap between sell in and sell out reduced.
Speaker Change: So it's not going to get as severe as it was in the whole year of 2020 for Michel you want to add something yeah, I would say as you know Linda you know we saw about a two to three points of Destocking effect with gap between ourselves and our sell out most of that.
Michel Atwood: Happen in the AR and the first nine months of the year. There was still a small difference in the fourth quarter, but it was really moderate and I think at this point in time, we're feeling comfortable that our you know the worst is behind us in this area.
Speaker Change: Yeah.
Speaker Change: Okay. It sounds good and then.
Speaker Change: That was kind of curious about when you talked about the competition just now at the end of your remarks I'm. I mean, you know the category has always been competitive big players and yourself gaining market share over time, what what do you mean by.
Speaker Change: Competition kind of changing and do you expect that you can gain market share in 2025.
Speaker Change: Okay. So Linda I mean, if you look at our you know the data is really you know we love we like to look at the outside and and understand what's really happening out. There. So we you know we are looking at our competitive peers. Obviously the ones that are publicly traded and with what we can see really as you know across the board the growth of our peer group.
Speaker Change: Has has been below the overall market. So while the market has been very very good and very very strong the sell in which is obviously reflected in our peer group sales hasnt been lower and I think this whole destocking thing is probably impacted the broader industry not just us.
Speaker Change: On the margins if you look at our trailing 12 months margins, where we've actually been able to hold our operating margins flat well, we see very clearly as most of our competitors have.
Speaker Change: Have had eroding operating margins again, it's always difficult to go into the details when you're looking at this you know based on what's been disclosed, but we are seeing a pretty strong trend of eroding margins across your competitors and I think.
Speaker Change: If you look at what's been happening in the past I think the whole industry was surprised by the market and probably was investing less and I think as the market slows down and then people start to anticipate that growth I think the category is definitely getting more competitive.
Speaker Change: Sure.
Speaker Change: Yeah, Yeah, I tend to agree.
Speaker Change: The are we going to gain market share in 2025.
Speaker Change: We think that the level of innovation that we have Uh huh.
Speaker Change: Most of the brands are he's he's quite deep in places I mean, we have blockbuster firstly I've got more.
Speaker Change: <unk> blockbuster horse us while carefully so MCM, it's an important you have a blockbuster.
Speaker Change: We are very important extensions on important brands like Jimmy Choo and Montblanc coach.
Speaker Change: Soon.
Speaker Change: Yes, I think it will continue at a more moderate pace, but a sequel, we have the tools to gain market share.
Speaker Change: Yeah.
Speaker Change: Thanks, and then just my last question is but the ferragamo blockbuster that sounds exciting.
Speaker Change: Exciting.
Speaker Change: Months or what part of the year do you think it launches and will it be a gradual rollout or more of a global launch.
Speaker Change: It is going to start to ease going to start in the second quarter, we're going to start seeing some sales in second quarter accelerating in the first quarter and Boston markets can be as I said.
Speaker Change: U S C.
Speaker Change: But.
Speaker Change: I am going to China next week to see here.
Speaker Change: The heightened market there as you know it has been quite challenging so for a while.
Speaker Change: But we've seen that we have a right to a level of promotion.
Speaker Change: We can we can.
Speaker Change: We can promote and forgive me in China also.
Speaker Change: And even though China.
Speaker Change: As you know has been.
Speaker Change: Is it.
Speaker Change: Not in terms of percentage of says well below those of our competitors and they seem to be presented on your sort of sense.
Speaker Change: For us we see that we have some possibility of some interesting possibilities visa.
Speaker Change: We should hug them, all but the largest market would be Italy. The U S and also Mexico as a market shovels dug in would be sequenced quite is quite high.
Speaker Change: Let's go ahead and Skagen.
Speaker Change: Okay. That's it for me Thanks, a lot.
Speaker Change: Thank you. Thank you to you for questions like you'll end up.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of actually how it gains with Jefferies. Please proceed with your question.
Speaker Change: Hi, Thanks for taking our questions. So just first I know you said that you would expect for this year. The market is going to remain robust, but moderate office you know the strong years, we've seen in the last the last few years. Just curious if you could maybe talk about specific markets, if you're seeing any more moderation in certain markets versus others and then.
Speaker Change: As the market normalizes, what should we expect for promotional levels. Thanks, so much.
Speaker Change: Okay. So I'll, maybe take so I actually yeah, I'll, probably take the first question I mean, if you look at our if you look at the market overall, I mean, and 'twenty 'twenty four things started off a really really strong you know and I'm going to give you a couple of data points U S was up 20% in the first quarter and and it was up also.
Speaker Change: 20% in the third quarter, what we saw is really the fourth quarter was more moderate and still very strong, but 11% growth. Okay. That's just to give you an illustration on the U S numbers.
Speaker Change: We saw that pretty much at a global level first quarter was 15%. The second quarter was 10, you know quarter three was so very stronger than quarter. Four was slower. So we finished the year at about 11% of the global level for the top markets that we track and 9% in the fourth quarter. So we did see a pretty significant.
The slowdown in that growth versus what we are what we are what we had had in the first half of the year you know going forward I think the industry is seeing you know mid single digit which is still kind of what we have historically been able to you know grow by.
Speaker Change: On promotion allergies, all you want and maybe take that and I can then chime in yeah.
Speaker Change: Yes, I don't think Oh who's here.
Speaker Change: More promotional.
Speaker Change: Promotions here in 2025, and 2000 before she is going to be in.
Speaker Change: Well most of the same level.
Speaker Change: I would like to say that Oh like Michelle mentioned.
Speaker Change: These remarks.
Speaker Change: The money that we're investing in advertising and promotion.
Speaker Change: Julia.
Strong revenue.
Speaker Change: They run on our side almost $300 million in advertising and promotion and this is without counting with our partners to distribute to all spending chase to meet another 100 million vis vis money, but spending in our markets.
Speaker Change: June year, what's going to what's going to ensure it says in the future for us.
Speaker Change: Yeah I would also just maybe build on John as we talk about promotion holiday as you know this is not a category where people typically discount on price I think where you know when you talk about promotion Audi is generally usually more about offers and we did see.
Speaker Change: An uptick in the number of gift sets in the fourth quarter, because I think a lot of the consumed there hasnt been a lot of pricing as you know we didn't they did not take a lot of pricing that we took no pricing in 2020 for and we're not planning to take pricing in 2025, but there has been a lot more pricing taken by our competitors and and I think that.
Speaker Change: For for some of those brands that are maybe price themselves a lot. They they have had to offer them more value in the form of more gift sets and I think we saw that pretty clearly in the fourth quarter.
Speaker Change: Thanks, So much that's super helpful helpful. I'll pass it on.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Green will familiar with Piper Sandler. Please proceed with your question.
Speaker Change: Hey, good morning, Thanks for taking the question I'd like to touch a little bit on kind of the building blocks of performance by brand in 2024 or so.
Speaker Change: Our understanding is the addition of <unk> added about nine points. There was maybe a headwind from Dunhill and then there is some commentary in the press.
Speaker Change: That's really sad that top 70% grew about 4%.
Speaker Change: Correct, so that means the rest of the business.
Speaker Change: I'm struggling a little bit.
Speaker Change: Can it grow as much and even with negative stuff can you touch a little bit.
Speaker Change: What's going on with some of those softer brand performances.
Speaker Change: What gives you confidence and maybe that is recovering a bit here in 2025.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Yeah. So Korean I mean inevitably you know when you are when you add a lot of brands and new brands and large brands here. What you want to focus on are the biggest parts of the portfolio. Some of the declines can be driven by a number of things. If you take a brand like like laws on for example, which is the which has declined this year. This is entirely driven by the footprint. So a lot of the law.
Speaker Change: All of our businesses in Russia.
Speaker Change: In Eastern Europe, where we know there have been there've been had been issues as well as in China, where the market has been softer so yeah inevitably I'm not you know what we want to do is really focus on our largest brands and make sure. We're growing those disproportionately and then on the little ones. We will continue to focus in and give them the right.
Speaker Change: Level of attention and investments.
Speaker Change: Sometimes it's all couldn't proceed would be driven by you know phasing of innovation and and things like that so the smaller brands typically are going to be a little always going to be a little bit more volatile because of because of their size inevitably and more sensitive to innovation and and and and geographic footprint.
Speaker Change: Yeah, Yeah to total year.
Speaker Change:
Speaker Change: I will say that we we work hard on the on the on the <unk>.
Speaker Change: Brunswick Tahoe smaller LVL, not listen Boston, but zillow smaller in size.
Speaker Change: Brands that are very important for us is a skull island Tau, we have a great footprint in the U S but.
Speaker Change: But internationally.
Speaker Change: So it is more challenging.
Speaker Change: But they are able to maintain the sales valuable so to maintain those sales on the <unk>, which is a smaller bundle so for us.
Speaker Change:
Speaker Change: But of course in this super competitive environment.
Speaker Change: So lydia not bad to maintain.
Speaker Change: The level of sales for these brands.
Speaker Change: Well sure.
They shouldn't use kiesel are even more important for these smaller.
Speaker Change: Smaller blunden depends on the on the time, Inc.
Speaker Change: The renewal point since it's a brand like MCA is going to grow in 2025, because we are a great collection.
Speaker Change: But we'll be launching the t's launching now let we have already some.
Speaker Change: The indication that.
Speaker Change: We will have some.
Speaker Change: High schools.
Speaker Change: Very helpful. Thank you.
Speaker Change: For all the color.
Speaker Change: And then maybe Michelle if you could just give us a little bit more context on why you're thinking as far as gross margin and operating margin performance over the course of the year and the puts and takes we should be thinking about from a quarterly cadence perspective.
Speaker Change: Okay. So on the top line as you know, we don't generally like to provide a quarterly guidance because we like to run our business for the next 10 years not the necessarily the next quarter overall, what I would say is on the topline. We have two factors that are going to impact us in the first quarter I'm. The first one is obviously.
Speaker Change: The loss of Dunhill, which is going to impact the first three quarters, because we phased that out at the end of September we know that that's about a point hum across the year and across the portfolio. The other thing is FX and and as you know as I indicated in my prepared remarks, you know FX last year was.
Speaker Change: Close to 109 in the first quarter are right. Now you know, we don't really know where we're going to land, but you know it oscillates between 104105. So we believe that you know just rule of thumb FX hits us by about half of that impact. So if you look at a 109 versus a 105, that's about two points okay.
Speaker Change: So we are expecting right now the first quarter to be about flat, but it's mostly driven by.
Speaker Change: The effects of the dunhill impacts on gross margins at this point in time, we're not really expecting any significant you know obviously, there's the normal seasonality of when we sell in gift sets and things like that but generally speaking and channel footprint, but generally speaking, we're not expecting any significant changes in our gross margin for the year.
Speaker Change: Nor on a by quarter basis on the SG&A side I think as you clearly are probably read through my my prepared remarks, we did face some A&P into the the first quarter I think you know behind a lot of the blockbuster launches that we have we felt that we would get a much better ROI for money.
Speaker Change: We also believe that we need to balance or spending more historically, we have spent a significant amount only in the fourth quarter and our strategy has not been necessarily to reduce the fourth quarter, but to a when we're adding dollars were adding them, where we think that we will get a better ROI and we did that successfully this year in the first quarter and we will most probably continue to do that.
Speaker Change: That again next year.
Speaker Change: So you you can expect that that A&P will be higher and more than likely the the the operating margins will erode in the as a result of that in the first quarter.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Susan Anderson with Canaccord Genuity. Please proceed with your question.
Susan Anderson: Hi, Thanks for taking my question and I guess, maybe just following up on that building.
Susan Anderson: They may be looking at 2025, if you could give some color just on how.
Susan Anderson: Do you think the performance of your top brands will trend I guess should we expect the larger top brands have been.
Susan Anderson: Single digit growth.
Susan Anderson: Maybe a little bit of upside from there then is coming from the newer launches.
Susan Anderson:
Susan Anderson: Continued.
Susan Anderson: Our friend.
Susan Anderson: Maybe if you could just give some color there.
Susan Anderson: I'll I'll chime in and then maybe if you want to you can build on this I mean, if you look at if you. If you look at our innovation I think what I didn't know what the innovation clearly points to is where we're going to have significant growth, we're going to have a significant growth on gas.
Susan Anderson: We're gonna have a significant growth on ferragamo on Kibali on Lacoste on M. C M.
Susan Anderson: And on Donna Karan DKNY those brands.
Susan Anderson: Because of that's where we have significant innovation would grow disproportionately and you will see more growth from those brands are next year.
Susan Anderson: In terms of the larger brands like mobile on Jimmy Choo and coach where the pace of innovation is going to be more like a flankers like we've seen this year are the growth will be more moderate but we believe that that is the right strategy for those brands and we are ramping up our innovation program for 2026 on all three of those brands and we are looking to build those.
Susan Anderson: Brands and accelerate the growth when that happens in 2026, and then on the some of the smaller brands in our portfolio will probably continue to see some decay, including what we basically said before with Dunhill, which is a leading our portfolio and bush raw, which will eventually phase out by the end of 2025.
Susan Anderson: Al.
Susan Anderson: Yeah.
Susan Anderson: Add much.
Susan Anderson: Doctors Bronzer, Jimmy Choo Montblanc coach.
Susan Anderson: We love it.
Susan Anderson: To extend.
Susan Anderson: Where are the brands that are smaller.
Susan Anderson: Mr.
Susan Anderson: This is Uh huh.
Susan Anderson: Hum.
Susan Anderson: What we have for 2025.
Susan Anderson: Well also working on 2026 and.
Susan Anderson: 27.
Susan Anderson: You have to have.
Susan Anderson: Mr <unk>.
Susan Anderson: In Boston.
Susan Anderson: Yeah.
Susan Anderson: The global leukemia.
Susan Anderson: To a.
Susan Anderson: The growth of 4% as of today.
Susan Anderson: Five.
Susan Anderson: I know you're seeking to India.
Susan Anderson: Interesting to see that this growth will be used for.
Susan Anderson: We'll come with profitability.
Susan Anderson: I'm not going to do.
Speaker Change: Jonathan <unk> seems to have more gift sets are more promotion.
Susan Anderson: Next year, so it is going to be a vague.
Susan Anderson: Okay.
Susan Anderson: Okay, Great. That's really helpful. And then maybe I don't know if you could talk.
Susan Anderson: Talk about just kind of what youre seeing.
Susan Anderson: 2025.
Susan Anderson: The first quarters have margin I guess in general trends around fragrances.
Susan Anderson: The same dynamic between selling it.
Susan Anderson: As everyone knows beauty in general had a rock.
Susan Anderson: I guess for the year.
Speaker Change: Maybe if you could talk about.
Susan Anderson: <unk> trend and if anything has changed.
Speaker Change: There may be improved in some regions.
Speaker Change: Thank you.
Speaker Change: Sheng Zhong yeah, okay. Okay. So maybe I'm going to address your point around sell in versus sell out I think Oh I think we're seeing as we said and the first three are first nine months of the year, we did see a pretty significant difference between our sell in and our sell out it was between two to three points in the fourth quarter. It was significantly smaller.
Speaker Change: And I think at this point in time, we're feeling pretty comfortable.
I said when I got the question from Linda.
Speaker Change: You know we are I certainly believe that this is a broad based across the industry, particularly when we look at our competitive set and when we look at their sell in versus versus their sell out in the overall market. So I think this is an industry trend that probably was a carryover effect of 2023 and at this point in time I think we're feeling.
Speaker Change: Pretty good that we're there in terms of trends I think a lot of the trends have remained the same and you know in the U S and we're seeing them everywhere else, which is more men know historically fragrance has been underpenetrated in man versus female we are seeing more men a younger man entering the category. We are seeing people looking for more long lasting fragrances.
Speaker Change: And I think we will continue to see that trend I think going forward as people become more sophisticated I like to use the analogy of you start with the just you try it you start with a beer.
Speaker Change: And then you move on to craft beer and you become as you become more knowledgeable of the category I think you'll see this pretty much everywhere, whether it's with beers, whether it's with wine or whether it's with our Kodiak and we see this also what fragrances, which is as people become more knowledgeable about the category they start to invest more they start to use more.
Speaker Change: And typically they are they become more sophisticated.
Speaker Change: Joe.
Speaker Change: Mhm.
Speaker Change: Yes to answer.
Speaker Change: Your questions on the growth by quarter, we don't like to give the guidance by quarter, but.
Speaker Change: As I said, we're looking at 4% for the year when is it going to happen how is it going to happen I will say.
Speaker Change: The first and second quarter will be lower than sell them for.
Speaker Change: Because of the of the flu.
Speaker Change: Mr Rolling out of blockbuster gummy.
Speaker Change: So I'm not going to put some numbers, but I will say oh.
Speaker Change: We wouldn't be surprised if we you should soon it'll flatten the first quarter.
Speaker Change: The second.
Speaker Change: And Oh.
Speaker Change: It's better silver enforcing they'll just to get to be so 4% growth.
Speaker Change: The tissue you're going to.
Speaker Change: Achieved in 2025.
Speaker Change: Okay.
Speaker Change: Hey, great. Thanks, so much very helpful. Good luck in 2025.
Susan Anderson: Susan Thank you.
Susan Anderson: Thank you.
Speaker Change: We have reached the end of the question and answer session I would like to turn the floor back to Michelle Wood for closing remarks.
Speaker Change: Alright, Thank you very much and thank you all for joining our call today before I end the call I'd like to again, thank our teams for all their hard work in 2020 for our success is a direct reflection of our people.
Speaker Change: The unique contribution they make each day and I think you'll see the extent of our of the work that we do across the board, whether it's the brands and the geographies and the functions that get us to where we are in and behind a lot of these results.
Speaker Change: Like to also mention a couple of upcoming events. So tomorrow I will be hosting meetings at the TD Colin.
Speaker Change: Moving ahead, a beauty summit here in New York City, and then on March 7th Zhong I will be joining the D. A Davidson best of the breed conference, which is gonna be held virtually.
Speaker Change: And Linda Thanks for inviting us if you have any additional questions. Please contact Karen daily from the equity group, our Investor Relations representative for telephone number an email address can be found in our most recent earnings release and we really look forward to the next conference call in and thank you and have a good day.
Speaker Change: Yeah.
Speaker Change: Thank you and this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: