Forward Looking Information
Statements in this report which are not historical in nature are forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. In some
cases you can identify forward-looking statements by forward-looking words such
as "anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"should," "will" and "would" or similar words. You should not rely on
forward-looking statements because actual events or results may differ
materially from those indicated by these forward-looking statements as a result
of a number of important factors. These factors include, but are not limited to,
the risks and uncertainties discussed under the headings "Forward Looking
Statements" and "Risk Factors" in Inter Parfums' annual report on Form 10-K for
the fiscal year ended December 31, 2020 and the reports Inter Parfums files from
time to time with the Securities and Exchange Commission. Inter Parfums does not
intend to and undertakes no duty to update the information contained in this
report.
Overview
We operate in the fragrance business, and manufacture, market and distribute a
wide array of fragrances and fragrance related products. We manage our business
in two segments, European based operations and United States based operations.
Certain prestige fragrance products are produced and marketed by our European
operations through our 73% owned subsidiary in Paris, Interparfums SA, which is
also a publicly traded company as 27% of Interparfums SA shares trade on the
NYSE Euronext.
We produce and distribute our European based fragrance products primarily under
license agreements with brand owners, and European based fragrance product sales
represented approximately 79% of net sales for both the six months ended June
30, 2021 and 2020. We have built a portfolio of prestige brands, which include
Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin,
Moncler, Montblanc, Paul Smith, Repetto, Rochas, S.T. Dupont and Van Cleef &
Arpels, whose products are distributed in over 120 countries around the world.
Through our United States operations, we also market fragrance and fragrance
related products. United States operations represented 21% of net sales for both
the six months ended June 30, 2021 and 2020. These fragrance products are sold
primarily pursuant to license or other agreements with the owners of the
Abercrombie & Fitch, Anna Sui, Dunhill, Graff, GUESS, Hollister, MCM and Oscar
de la Renta brands.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Substantially all of our prestige fragrance brands are licensed from
unaffiliated third parties, and our business is dependent upon the continuation
and renewal of such licenses. With respect to the Company's largest brands, we
license the Montblanc, Coach, Jimmy Choo and GUESS brand names. As a percentage
of net sales, product sales for the Company's largest brands were as follows:
Six Months Ended
June 30,
2021 2020
Montblanc 21 % 21 %
Jimmy Choo 18 % 15 %
Coach 16 % 19 %
GUESS 10 % 11 %
Quarterly sales fluctuations are influenced by the timing of new product
launches as well as the third and fourth quarter holiday season. In certain
markets where we sell directly to retailers, seasonality is more evident. We
sell directly to retailers in France as well as through our own distribution
subsidiaries in Spain and the United States.
We grow our business in two distinct ways. First, we grow by adding new brands
to our portfolio, either through new licenses or other arrangements or out-right
acquisitions of brands. Second, we grow through the introduction of new products
and by supporting new and established products through advertising,
merchandising and sampling as well as phasing out underperforming products so we
can devote greater resources to those products with greater potential. The
economics of developing, producing, launching and supporting products influence
our sales and operating performance each year. Our introduction of new products
may have some cannibalizing effect on sales of existing products, which we take
into account in our business planning.
Our business is not capital intensive, and it is important to note that we do
not own manufacturing facilities. We act as a general contractor and source our
needed components from our suppliers. These components are received at one of
our distribution centers and then, based upon production needs, the components
are sent to one of several third party fillers, which manufacture the finished
product for us and then deliver them to one of our distribution centers.
As with any global business, many aspects of our operations are subject to
influences outside our control. We believe we have a strong brand portfolio with
global reach and potential. As part of our strategy, we plan to continue to make
investments behind fast-growing markets and channels to grow market share.
Our reported net sales are impacted by changes in foreign currency exchange
rates. A strong U.S. dollar has a negative impact on our net sales. However,
earnings are positively affected by a strong dollar, because over 50% of net
sales of our European operations are denominated in U.S. dollars, while almost
all costs of our European operations are incurred in euro. Conversely, a weak
U.S. dollar has a favorable impact on our net sales while gross margins are
negatively affected. We address certain financial exposures through a controlled
program of risk management that includes the use of derivative financial
instruments and primarily enter into foreign currency forward exchange contracts
to reduce the effects of fluctuating foreign currency exchange rates.
Impact of COVID-19 Pandemic
A novel strain of coronavirus ("COVID-19") surfaced in late 2019 and has spread
around the world, including to the United States and France. In March 2020, the
World Health Organization declared COVID-19 a pandemic.
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INTER PARFUMS, INC. AND SUBSIDIARIES
In response to the COVID-19 pandemic various national, state, and local
governments where we, our suppliers, and our customers operate initially issued
decrees prohibiting certain businesses from continuing to operate and certain
classes of workers from reporting to work. In all jurisdictions in which we
operate we have been following guidance from authorities and health officials.
The effects of the COVID-19 pandemic on the beauty industry began in early March
2020. Retail store closings, event cancellations and a shutdown of international
air travel brought our sales to a virtual standstill and caused a significant
unfavorable impact on our results of operations in 2020.
Business significantly improved in the second half of 2020 and has continued to
improve in the first six months of 2021, as retail stores reopened and consumers
increased online purchasing. While we expect this trend to continue, the
introduction of variants of COVID-19 cases in various parts of the world has
caused the temporary re-implementation of governmental restrictions to prevent
further spread of the virus. In addition, international air travel has remained
curtailed in many jurisdictions due to both governmental restrictions and
consumer health concerns. Therefore, despite recent business improvement, the
impact of the COVID-19 pandemic may have a material adverse effect on our
results of our operations, financial position and cash flows through at least
the end of 2021.
Recent Important Events
Salvatore Ferragamo
In July 2021, we signed a transaction agreement with Salvatore Ferragamo S.p.A.,
whereby an exclusive and worldwide license will be granted for the production
and distribution of Ferragamo brand perfumes. The license is expected to be
effective from October 2021 and will last for 10 years with a 5-year optional
term, subject to certain conditions.
With reference to the management and coordination of activities related to the
license agreement, the Company will operate through a wholly-owned Italian
subsidiary to be based in Florence, and all products will be produced in Italy.
French Tax Settlement
The French authorities had considered that the existence of IP Suisse, a
wholly-owned subsidiary of IPSA, does not, in and of itself, constitute a
permanent establishment and therefore IPSA should pay French taxes on all or
part of the profits of that entity. The French Tax Authority had notified the
Company that IP Suisse will be the subject of a tax audit covering the period
January 1, 2010 through December 31, 2018. The Company's exposure in connection
with this matter was approximately $5.8 million, net of recovery taxes already
paid to the Swiss authorities.
In June 2021, a global settlement agreement was reached with the French Tax
Authorities, whereby IPSA agreed to pay €2.5 million (approximately $3.0
million) effectively lowering the Lanvin brand royalty rate charged by IP Suisse
for the periods from 2017 through 2020. IPSA also agreed to apply the lower rate
in 2021 through 2025 and to transfer the Lanvin brand from IP Suisse to IPSA by
December 31, 2025.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Building Acquisition - Future Headquarters in Paris
In April 2021, our majority owned Paris-based subsidiary, IPSA, completed the
acquisition of its future headquarters at 10 rue de Solférino in the 7th
arrondissement of Paris from the property developer. This is an office complex
combining three buildings connected by two inner courtyards and consists of
approximately 40,000 total sq. ft.
The €125 million (approximately $149 million) purchase price is in line with
market value and includes the complete renovation of the site. As of June 30,
2021, €104.1 million of the purchase price, including approximately €2.5 million
of acquisition costs is included in building, equipment and leasehold
improvements on the accompanying balance sheet as of June 30, 2021.
Approximately €21.6 million of cash held in escrow is included in other assets
on the accompanying balance sheet as of June 30, 2021. In addition,
approximately €14.2 million in VAT credit associated with the purchase is
included in other receivables on the accompanying balance sheet as of June 30,
2021. As of June 30, 2021, the Company borrowed an additional €14.2 million
pursuant to a short-term loan equal to the VAT credit, and in July 2021, the
€14.2 million VAT credit was reimbursed by the French Tax Authorities and the
loan was repaid.
The acquisition was financed by a 10-year €120 million (approximately $143
million) bank loan which bears interest at one-month Euribor plus 0.75%.
Approximately €80 million of the variable rate debt was swapped for fixed
interest rate debt.
Anna Sui Corp.
In January 2021, we renewed our license agreement with Anna Sui Corp. for the
creation, development and distribution of fragrance products through
December 31, 2026, without any material changes in terms and conditions. Our
initial 10-year license agreement with Anna Sui Corp. was signed in 2011. The
renewal agreement also allows for an additional 5-year term through 2031 at the
option of the Company.
Origines-Parfums
In June 2020, the Company and Divabox, owner of the Origines-parfums e-commerce
platform for beauty products, signed a strategic agreement and equity investment
pursuant to which we acquired a 25% of Divabox capital for €12.5 million ($14
million), through a reserved capital increase. In connection with the
acquisition, the Company entered into a €12 million ($13.4 million), three-year
term loan payable in three equal annual installments plus interest. As a website
of reference for all selective fragrance brands, Origines-parfums is a key
French player in the online beauty market recognized for its customer
relationship expertise. This agreement should enhance the introduction of
dedicated fragrance lines and products designed to address a specific consumer
demand for this distribution channel and accelerate our digital development.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Moncler
In June 2020, the Company entered into an exclusive, 5-year worldwide license
agreement with a potential 5-year extension with Moncler for the creation,
development and distribution of fragrances under the Moncler brand. Our rights
under this license are subject to certain minimum advertising expenditures and
royalty payments as are customary in our industry. Moncler was founded at
Monestier-de-Clermont, Grenoble, France, in 1952 and is currently headquartered
in Italy. Over the years the brand has combined style with constant
technological research assisted by experts in activities linked to the world of
the mountain. The Moncler outerwear collections marry the extreme demands of
nature with those of city life. Our first fragrance launch for the Moncler brand
is scheduled for the first quarter of 2022.
Discussion of Critical Accounting Policies
Information regarding our critical accounting policies can be found in our 2020
Annual Report on Form 10-K filed with the SEC.
Results of Operations
Three and Six Months Ended June 30, 2021 as Compared to the Three and Six Months
Ended June 30, 2020 and June 30, 2019
Net Sales:
Three months ended June 30,
(In millions) 2021 2020 2019 21 vs 19%
European based product sales $ 161.2 $ 39.4 $ 125.6 28.3 %
United States based product sales 46.4 10.1 40.6 14.2 %
$ 207.6 $ 49.5 $ 166.2 24.9 %
Net Sales:
Six months ended June 30,
(In millions) 2021 2020 2019 21 vs 19%
European based product sales $ 320.9 $ 153.5 $ 269.3 19.1 %
United States based product sales 85.2 40.8 75.2 13.4 %
$ 406.1 $ 194.3 $ 344.5 17.9 %
Net sales for the three months ended June 30, 2021 rose to $207.6 million, a
significant increase in relation to the second quarter of 2020, but more
importantly up 24.9% from the second quarter of 2019. At comparable foreign
currency exchange rates, net sales increased 22.7% compared to the second
quarter of 2019. For the three months ended June 30, 2021, 2020 and 2019, the
average dollar/euro exchange rate was 1.20, 1.10 and 1.12, respectively. Net
sales for the six months ended June 30, 2021 increased to $406.1 million, from
$194.3 million in 2020 and $344.5 million in 2019.
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INTER PARFUMS, INC. AND SUBSIDIARIES
The second quarter, like the first, far exceeded expectations. Once again,
quarterly comparisons with 2019 are far more meaningful than with 2020, due to
the impact in 2020 of the COVID-19 pandemic. Among our largest brands within
European based operations, Montblanc, Jimmy Choo and Coach brand sales increased
27.3%, 64.9% and 22.4%, respectively, compared to the 2019 second quarter.
Year-to-date, Montblanc fragrances have returned to a level comparable to the
first half of 2019, the year of the launch of the Montblanc Explorer line, which
was enlarged with the rollout of the brand's Explorer Ultra Blue line in April
2021. Similarly, robust sales of Jimmy Choo's established lines combined with
the highly successful launch of I Want Choo, produced a 38.7% increase in first
half brand sales compared to the same period in 2019. Coach fragrance sales rose
33.9% compared to the first half of 2019 due to the continued strength of
established women's and men's collections and the rollout of Coach Dreams Sunset
in the second quarter. In addition, initial sales of our Kate Spade signature
collection, which debuted in the first quarter, contributed to the sales growth
Net sales for our U.S. based operations increased 14.2% in the second quarter of
2021, compared to the same period in 2019. The increase was in great part
attributable to the GUESS brand, with legacy scents along with the new Bella
Vita line driving growth. Contributing to an increase in Abercrombie & Fitch
brand sales were shipments of a new pillar, the Away duo, along with continued
strong sales of recent additions including the Authentic Night duo. In addition,
the launch of Oscar de la Renta's Alibi contributed to the top line growth
With respect to our recent MCM fragrance launch, sell-through and pending orders
are far ahead of our initial projections. Thus far, distribution has been
focused in continental Europe exclusively at the 1,900 store Douglas specialty
store chain, in the U.S. at MCM stores and high end department stores and in
better stores throughout South Korea. The rollout continues; in July 2021,
China's Sephora stores launched the product and in August, sales began in the
U.K. We have high expectations for the MCM brand and have developed a robust
innovation plan to accelerate and optimize its potential.
Net Sales to Customers by Region Six months ended June 30,
(In millions) 2021 2020
North America $ 154.5 $ 59.2
Western Europe 88.7 57.8
Asia 62.8 28.6
Middle East 34.3 19.0
Eastern Europe 33.0 9.4
Central and South America 28.6 14.2
Other 4.2 6.1
$ 406.1 $ 194.3
Our business has been especially strong in regions where lockdowns have been
lifted, stores have reopened and life has returned to near pre-pandemic
standards, most notably Eastern Europe, North America and Asia, where our sales
rose 251%, 161% and 119%, respectively. On the other hand, Western Europe, where
sales increased 53%, has not fully regained its footing and restrictions and
closures have again been imposed in connection with the third wave of COVID-19
infections. We've also seen business bounce back in Central and South America
and the Middle East, growing 102% and 80%, respectively.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Three months ended Six months ended
Gross profit margin June 30, June 30,
(In millions) 2021 2020 2021 2020
Net sales $ 207.6 $ 49.5 $ 406.1 $ 194.3
Cost of sales 75.2 22.7 148.5 78.4
Gross margin $ 132.4 $ 26.8 $ 257.6 $ 115.9
Gross margin as a percent of net sales 64 % 54 % 63 % 60 %
Gross profit margin was 64% and 63% for the three and six months ended June 30,
2021, respectively, as compared to 54% and 60% for the three and six months
ended June 30, 2020, respectively. For European operations, gross profit margin
was 67% and 66% for the three and six months ended June 30, 2021, respectively,
as compared to 57% and 62% for the corresponding periods of the prior year.
We carefully monitor movements in foreign currency exchange rates as almost 50%
of our European based operations net sales are denominated in U.S. dollars,
while most of our costs are incurred in euro. From a margin standpoint, a strong
U.S. dollar has a positive effect on our gross profit margin while a weak U.S.
dollar has a negative effect. For the three and six months ended June 30, 2021,
the weaker dollar, as compared to the corresponding periods of the prior year
had a negative effect on gross margin. However, significantly reduced lower
margin giftset sales in 2021 and new product launches with better margins
mitigated the negative effect from currency exchange rates in the period.
For U.S. operations, gross profit margin was 53% for both the three and six
months ended June 30, 2021, as compared to 43% and 50% for the corresponding
periods of the prior year. With the significant increase in sales in the first
half of 2021, we were better able to absorb expenses such as depreciation of
tools and molds and the cost of point-of-sale materials, as compared to the
corresponding period of the prior year.
Generally, we do not bill customers for shipping and handling costs, and such
costs, which aggregated $2.0 million and $3.8 million for the three and six
months ended June 30, 2021, respectively, as compared to $0.6 million and $2.2
million for the corresponding periods of the prior year, are included in
selling, general and administrative expenses in the consolidated statements of
income. As such, our Company's gross profit may not be comparable to other
companies, which may include these expenses as a component of cost of goods
sold.
Selling, general and Three months ended Six months ended
administrative expenses June 30, June 30,
(In millions) 2021 2020 2021 2020
Selling, general and
administrative expenses $ 87.7 $ 32.4 $ 162.6 $ 103.6
Selling, general and
administrative expenses as a
percent
of net sales 42 % 65 % 40 % 53 %
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INTER PARFUMS, INC. AND SUBSIDIARIES
Selling, general and administrative expenses increased 171% and 57% for the
three and six months ended June 30, 2021, respectively, as compared to the
corresponding periods of the prior year. However, as a percentage of sales,
selling, general and administrative expenses were 42% and 40% for the three and
six months ended June 30, 2021, respectively, as compared to 65% and 53% for the
three and six months ended June 30, 2020, respectively. For European operations
sales increased 309% and 109% for the three and six months ended June 30, 2021,
respectively, as compared to the corresponding periods of the prior year, while
selling, general and administrative expenses of our European operations
increased 205% and 62% for the same periods, respectively. In addition, selling,
general and administrative expenses of our European operations represented 44%
and 41% of net sales for the three and six months ended June 30, 2021,
respectively, as compared to 59% and 52% for the three and six months ended
June 30, 2020, respectively.
For U.S. operations sales increased 360% and 109% for the three and six months
ended June 30, 2021, respectively, as compared to the corresponding periods of
the prior year. At the same time, selling, general and administrative expenses
of our U.S. operations increased 84% and 39% for the three and six months ended
June 30, 2021, as compared to the corresponding periods of the prior year, and
represented 36% and 38% of net sales for the three and six months ended June 30,
2021, respectively, as compared to 91% and 57% for the corresponding periods of
the prior year.
In March 2020, at the time of initial retail store closings, certain advertising
and promotional programs were well underway and could not be halted. During the
second quarter of 2020, we severely curtailed our promotional activities and
postponed the launch of several programs originally scheduled for 2020 to 2021
along with their related advertising and promotion programs.
With sales rebounding more quickly than anticipated, we did not have the
opportunity, in early 2021, to reinvest in additional promotion and advertising
to match our historic levels. Therefore, the decline in selling, general and
administrative expenses as a percentage of sales for the six months ended June
30, 2021, as compared to the corresponding period of the prior year was
primarily due to lower promotional and advertising expenses as a percentage of
sales for the six months ended June 30, 2021.
Promotion and advertising included in selling, general and administrative
expenses aggregated $33.2 million and $55.0 million for the three and six months
ended June 30, 2021, respectively, as compared to $5.8 million and $34.4 million
for the corresponding periods of the prior year. Promotion and advertising
represented 16.0% and 13.5% of net sales for the three and six months ended
June 30, 2021, respectively, as compared to 11.8% and 17.7% for the
corresponding periods of the prior year.
As the COVID-19 pandemic recedes, we plan to invest heavily in promotional
spending to support new product launches and to build brand awareness. We have
significant promotion and advertising programs planned for 2021 and expect
promotion and advertising expense included in selling general and administrative
expense to aggregate approximately 21% of net sales for the full year ended
December 31, 2021.
Royalty expense included in selling, general and administrative expenses
aggregated $16.2 million and $31.5 million for the three and six months ended
June 30, 2021, respectively, as compared to $3.4 million and $14.6 million for
the corresponding periods of the prior year. Royalty expense represented 7.8% of
net sales for both the three and six months ended June 30, 2021, as compared to
6.8% and 7.5% of net sales for the corresponding periods of the prior year. As a
result of the COVID-19 pandemic we reached agreements with most of our licensors
to waive or significantly reduce minimum guaranteed royalties for 2020.
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INTER PARFUMS, INC. AND SUBSIDIARIES
As a result of the above analysis regarding net sales, gross profit margins and
selling, general and administrative expenses, income from operations aggregated
$44.7 million for the three months ended June 30, 2021, as compared an operating
loss of $5.5 million for the corresponding period of the prior year. Income from
operations increased to $92.6 million for the six months ended June 30, 2021, as
compared to $12.3 million for the corresponding period of the prior year. For
the six months ended June 30, 2021, our operating margin was 22.8%, as compared
to 6.3% for the corresponding period of the prior year.
Other Income and Expense
Interest expense aggregated $1.3 million and $1.6 million for the three and six
months ended June 30, 2021, respectively, as compared to $0.4 million and $1.4
million for the corresponding periods of the prior year. Interest expense is
primarily related to the financing of brand acquisitions and for the three
months ended June 30, 2021, includes approximately $0.6 million in interest
expense relating to the debt incurred in connection with the acquisition of our
new corporate headquarters in France. We also use the credit lines available to
us, as needed, to finance our working capital needs as well as our financing
needs for acquisitions.
Foreign currency gains (losses) aggregated ($0.3) million and $1.6 million for
the three and six months ended June 30, 2021, respectively, as compared to gains
of zero and $1.0 million for the corresponding periods of the prior year. We
typically enter into foreign currency forward exchange contracts to manage
exposure related to receivables from unaffiliated third parties denominated in a
foreign currency and occasionally to manage risks related to future sales
expected to be denominated in a foreign currency. Over 50% of net sales of our
European operations are denominated in U.S. dollars.
Interest income aggregated $0.8 million and $1.2 million for the three and six
months ended June 30, 2021, respectively, as compared to $0.8 million and $1.8
million for the corresponding periods of the prior year. Cash and cash
equivalents and short-term investments are primarily invested in certificates of
deposit with varying maturities.
Income Taxes
The French authorities had considered that the existence of IP Suisse, a
wholly-owned subsidiary of IPSA, does not, in and of itself, constitute a
permanent establishment and therefore IPSA should pay French taxes on all or
part of the profits of that entity. The French Tax Authority had notified the
Company that IP Suisse will be the subject of a tax audit covering the period
January 1, 2010 through December 31, 2018. The Company's exposure in connection
with this matter was approximately $5.8 million, net of recovery taxes already
paid to the Swiss authorities.
In June 2021, a global settlement agreement was reached with the French Tax
Authorities, whereby IPSA agreed to pay €2.5 million (approximately $3.0
million) effectively lowering the Lanvin brand royalty rate charged by IP Suisse
for the periods from 2017 through 2020. IPSA also agreed to apply the lower rate
in 2021 through 2025 and to transfer the Lanvin brand from IP Suisse to IPSA by
December 31, 2025.
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INTER PARFUMS, INC. AND SUBSIDIARIES
Pursuant to an action plan released by the French Prime Minister, the French
corporate income tax rate is to be cut from 33% to 25% over a three-year period
ending 2023. Excluding the global settlement referred to above, our effective
tax rate for European operations was 28% for the six months ended June 30, 2021,
as compared to 26% for the corresponding period of the prior year. The lower
effective rate in 2020 is the result of a higher percentage of income in
favorable tax rate jurisdictions where our European operations conduct business
such as Singapore, Switzerland and the United States.
Our effective tax rate for U.S. operations was 19% for the six months ended June
30, 2021, as compared to a benefit of 34% for the corresponding period of the
prior year. Due to the loss incurred in the six months ended June 30, 2020, for
federal tax purposes, we would carry back the loss to 2015 when the federal
income tax rate was 35%. Our effective tax rate in 2021 differs from the 21%
statutory rate due to benefits received from the exercise of stock options as
well as deductions we are allowed for a portion of our foreign derived
intangible income, slightly offset by state and local taxes.
Other than as discussed above, we did not experience any significant changes in
tax rates, and none were expected in jurisdictions where we operate.
Net Income and Earnings per Share
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands except per share 2021 2020 2021 2020
data)
Net income European operations $ 22,927 $ 539 $ 55,367 $ 12,232
Net income (loss) U.S.
operations 6,109 (3,522 ) 10,295 (1,916 )
Net income (loss) 29,036 (2,983 ) 65,662 10,316
Less: Net income attributable to
the noncontrolling interest 6,379 135 15,343 3,375
Net income (loss) attributable
to Inter Parfums, Inc. $ 22,657 $ (3,118 ) $ 50,319 $ 6,941
Earnings (loss) per share:
Net income (loss) attributable
to Inter Parfums, Inc. common
shareholders:
Basic $ 0.72 ($ 0.10 ) $ 1.59 $ 0.22
Diluted $ 0.71 ($ 0.10 ) $ 1.58 $ 0.22
Weighted average number of
shares outstanding:
Basic 31,653 31,532 31,642 31,531
Diluted 31,799 31,533 31,786 31,667
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INTER PARFUMS, INC. AND SUBSIDIARIES
Net income increased to $29.0 million for the three months ended June 30, 2021,
as compared to a net loss of $3.0 million for the corresponding period of the
prior year. Net income increased to $65.7 million for the six months ended June
30, 2021, as compared to $10.3 million for the corresponding period of the prior
year. The reasons for significant fluctuations in net income (loss) for both
European operations and United States operations are directly related to the
previous discussions relating to changes in sales, gross margin and selling,
general and administrative expenses, most of which was caused by the negative
effects of the COVID-19 pandemic in 2020 and the recovery experienced in 2021.
The noncontrolling interest arises from our 73% owned subsidiary in Paris,
Interparfums SA, which is also a publicly traded company as 27% of Interparfums
SA shares trade on the NYSE Euronext. The noncontrolling interest is also
affected by the profitability of Interparfums SA's 51% owned distribution
subsidiary in Spain. Net income attributable to the noncontrolling interest
aggregated 28% of European operations' net income for both the three and six
months ended June 30, 2021, respectively, as compared to 25% and 27% for the
corresponding periods of the prior year.
Liquidity and Capital Resources
Our conservative financial tradition has enabled us to amass hefty cash balances
and nominal long-term debt. As of June 30, 2021 we had $298 million in cash,
cash equivalents and short-term investments, most of which is held in euro by
our European operations and is readily convertible into U.S. dollars. We have
not had any liquidity issues to date, and do not expect any liquidity issues
relating to such cash and cash equivalents and short-term investments held by
our European operations.
As of June 30, 2021, we had a working capital ratio of 3.1 to 1. Approximately
86% of the Company's total assets are held by European operations, and
approximately $181 million of trademarks, licenses and other intangible assets
are also held by European operations.
The Company hopes to continue to benefit from its strong financial position to
potentially acquire one or more brands, either on a proprietary basis or as a
licensee. As we reported earlier, we entered into an agreement for a worldwide
fragrance license with Salvatore Ferragamo S.p.A., which is expected to close in
October 2021, when we will begin producing the suite of Ferragamo perfumes in
Italy and distributing them worldwide through a new wholly-owned Italian company
based in Florence Italy. Opportunities for external growth are regularly
examined, with the priority of maintaining the quality and homogeneous nature of
our portfolio. However, we cannot assure you that any new license or acquisition
agreements will be consummated.
Cash provided by operating activities aggregated $38.1 million for the six
months ended June 30, 2021, as compared to cash used in operating activities of
$21.3 million for the corresponding period of the prior year. For the six months
ended June 30, 2021, working capital items used $45.3 million in cash from
operating activities, as compared to $39.6 million in the 2020 period. Although
accounts receivable is up 46% from year end, the balance is reasonable based on
second quarter 2021 record sales levels and reflects strong collection activity
as day's sales outstanding is at 79 days, which is consistent with historic
norms. Inventory levels are up 5% from year end and includes inventory needed to
support 2021 new product launches.
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Cash flows used in investing activities in 2021 reflect purchases and sales of
short-term investments. These investments are primarily certificates of deposit
with maturities greater than three months. Approximately $53 million of such
certificates of deposit contain penalties where we would forfeit a portion of
the interest earned in the event of early withdrawal.
Our business is not capital intensive as we do not own any manufacturing
facilities. On a full year basis, we typically spend approximately $4.0 million
on tools and molds, depending on our new product development calendar. Capital
expenditures also include amounts for office fixtures, computer equipment and
industrial equipment needed at our distribution centers.
In April 2021, IPSA, completed the acquisition of its future headquarters at 10
rue de Solférino in the 7th arrondissement of Paris from the property developer.
This is an office complex combining three buildings connected by two inner
courtyards and consists of approximately 40,000 total sq. ft.
The €125 million (approximately $149 million) purchase price is in line with
market value and includes the complete renovation of the site. As of June 30,
2021, €104.1 million of the purchase price, including approximately €2.5 million
of acquisition costs is included in building, equipment and leasehold
improvements on the accompanying balance sheet as of June 30, 2021.
Approximately €21.6 million (approximately $25.7 million) of cash held in escrow
is included in other assets on the accompanying balance sheet as of June 30,
2021. In addition, approximately €14.2 million in VAT credit associated with the
purchase is included in other receivables on the accompanying balance sheet as
of June 30, 2021. As of June 30, 2021, Company borrowed an additional €14.2
million pursuant to a short-term loan equal to the VAT credit, and in July 2021,
the €14.2 million VAT credit was reimbursed by the French Tax Authorities and
the loan was repaid.
The acquisition was financed by a 10-year €120 million (approximately $143
million) bank loan which bears interest at one-month Euribor plus 0.75%.
Approximately €80 million of the variable rate debt was swapped for fixed
interest rate debt.
In June 2020, the Company and Divabox, owner of the Origines-parfums e-commerce
platform for beauty products, signed a strategic agreement and equity investment
pursuant to which we acquired 25% of Divabox capital for $14 million through a
capital increase. In connection with the acquisition, the Company entered into a
$13.4 million term loan, which was repaid in full in February 2021.
Effective January 1, 2021, we entered into a new license agreement modifying our
Rochas fashion business model. The new agreement calls for a reduction in
royalties to be received. As a result, we have taken $2.4 million impairment
charge on our Rochas fashion trademark. The remaining value of the Rochas
fashion trademarks is €17.1 million (approximately $20.0 million). The new
license also contains an option for the licensee to buy-out the Rochas fashion
trademarks in June 2025, at its then fair market value.
Our short-term financing requirements are expected to be met by available cash
on hand at June 30, 2021, and short-term credit lines provided by domestic and
foreign banks. The principal credit facilities for 2021 consist of a $20.0
million unsecured revolving line of credit provided by a domestic commercial
bank and approximately $30 million in credit lines provided by a consortium of
international financial institutions. There were no short-term borrowings
outstanding pursuant to these facilities as of both June 30, 2021 and June 30,
2020.
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INTER PARFUMS, INC. AND SUBSIDIARIES
In October 2019, the Board of Directors authorized a 20% increase in the annual
dividend to $1.32 per share. In April 2020, as a result of the uncertainties
raised by the COVID-19 pandemic, the Board of Directors authorized a temporary
suspension of the quarterly cash dividend. In February 2021, our Board of
Directors authorized a reinstatement of an annual dividend of $1.00, payable
quarterly. The next quarterly cash dividend of $0.25 per share is payable on
September 30, 2021 to shareholders of record on September 15, 2021.
We believe that funds provided by or used in operations can be supplemented by
our present cash position and available credit facilities, so that they will
provide us with sufficient resources to meet all present and reasonably
foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate did not
have a significant impact on operating results for the six months ended June 30,
2021.
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