INTER PARFUMS, INC. FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
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
We produce and distribute our European based fragrance products primarily under
license agreements with brand owners, and European based fragrance product sales
represented approximately 73% and 80% of net sales for the three months ended
Through our
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,
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INTER PARFUMS, INC. AND SUBSIDIARIES
As a percentage of net sales, product sales for the Company's largest brands were as follows:
Three Months Ended
March 31,
2022 2021
Montblanc 19% 20%
Jimmy Choo 15% 18%
Coach 15% 16%
GUESS 11% 10%
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
primarily sell directly to retailers in
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
The Russian invasion of
We are monitoring the effects of this conflict, including the risks that may
affect our business, and expect that we will adjust our plans accordingly as the
situation progresses. We do not expect any material credit losses as most of our
receivables on sales to
For the three months ended
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INTER PARFUMS, INC. AND SUBSIDIARIES
Impact of COVID-19 Pandemic
A novel strain of coronavirus ("COVID-19") surfaced in late 2019 and in
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 continued to improve throughout 2021 and thus far in 2022, as retail stores reopened, and consumers increased online purchasing. While we expect this trend to continue, the introduction of variants of COVID-19 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 remains curtailed in many jurisdictions due to both governmental restrictions and consumer health concerns. While COVID-19 has significantly restricted international travel in the near-term, we continue to believe that global travel retail will once again be a growth opportunity for the long-term. Lastly, the improved economy has put significant strains on our supply chain causing disruptions affecting the procurement of components, the ability to transport goods, and related cost increases. These disruptions have come at a time when demand for our product lines has never been stronger or more sustained. We have been addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. We do not expect the supply chain bottlenecks to begin lifting until later in 2022. 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 2022.
Recent Important Events Salvatore Ferragamo
In
With respect to the management and coordination of activities related to the
license agreement, the Company operates through a wholly-owned Italian
subsidiary based in
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INTER PARFUMS, INC. AND SUBSIDIARIES
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed on
(In thousands) Inventories$ 17,805 Trademarks and licenses 15,880 Other assets 3,033 Assets acquired 36,718 Liabilities assumed (958 ) Total Consideration$ 35,760 Emanuel Ungaro
In
Donna Karan andDKNY
In
Land and
In
The purchase price includes the complete renovation of the site. As of
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INTER PARFUMS, INC. AND SUBSIDIARIES
The acquisition was financed by a 10-year €120 million (approximately
Discussion of Critical Accounting Policies
Information regarding our critical accounting policies can be found in our 2021
Annual Report on Form 10-K filed with the
Results of Operations Three Months EndedMarch 31, 2022 as Compared to the Three Months EndedMarch 31, 2021 Net Sales : Three months ended March 31, (in millions) 2022 2021 % Change European based product sales$ 182.2 $ 159.7 14.0 % United States based product sales 68.5 38.8 76.7 %$ 250.7 $ 198.5 26.3 %
Net sales for the three months ended
The current first quarter was exceptionally strong for both European and
For European based operations, our largest brands, Montblanc,
During the first quarter of 2022, we debuted Montblanc Legend Red, a new Coach
signature scent and Coach Dreams Sunset extensions, and GUESS Uomowhich
contributed to the double digit brand sales gains. Many of our mid-sized brands,
including
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INTER PARFUMS, INC. AND SUBSIDIARIES
The first quarter started on a strong note and we look forward executing our
plans for the remainder of the year. Our brands are in high demand in a robust
environment for the fragrance industry. We have a large number of brand
extensions across many of our brands launching throughout the year plus
Boucheron Singulier and
Net Sales to Customers by Region Three months ended March 31, (In millions) 2022 2021 North America$ 81.5 $ 72.6 Western Europe 63.6 45.2 Asia 42.5 30.1 Middle East 24.1 18.9 Central and South America 18.3 13.3 Eastern Europe 18.0 15.9 Other 2.7 2.5$ 250.7 $ 198.5
First quarter sales in our largest market,
Gross Profit margin Three months ended March 31, (in millions) 2022 2021 European operations Net sales$ 182.2 $ 159.8 Cost of sales 60.5 55.2 Gross margin$ 121.7 $ 104.6 Gross margin as a % of net sales 66.8 % 65.5 %United States operations Net sales$ 68.5 $ 38.8 Cost of sales 31.6 18.2 Gross margin$ 36.9 $ 20.6 Gross margin as a % of net sales 53.9 % 53.2 %
For European based operations, gross profit margin as a percentage of net sales
was 66.8% and 65.5% in the first quarters of 2022 and 2021, respectively. We
carefully monitor movements in foreign currency exchange rates as almost 50% of
our European based operations net sales is denominated in
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INTER PARFUMS, INC. AND SUBSIDIARIES
For
As previously mentioned, supply chain disruptions affecting the procurement of components, the ability to transport goods, and related cost increases have and are expected to continue to have a negative impact on sales and gross margin. While we have been addressing these issues and have implemented processes to mitigate the impact, prolonged disruption could have a material negative effect on our sales and gross margin.
Generally, we do not bill customers for shipping and handling costs, and such
costs, which aggregated
Three months ended
Selling, general and administrative expenses March 31,
(In millions) 2022 2021
European Operations
Selling, general and administrative expenses $ 69.0 $ 59.4
Selling, general and administrative expenses as a
percent of net sales 37.9 % 37.2 %
United States Operations
Selling, general and administrative expenses $ 28.4 $ 15.5
Selling, general and administrative expenses as a
percent of net sales 41.5 % 39.9 %
For European operations, selling, general and administrative expenses increased
16.2% in the 2022 first quarter, as compared to the corresponding period of the
prior year, and represented 37.9% and 37.2% of net sales in the 2022 and 2021
periods, respectively. For
Promotion and advertising included in selling, general and administrative
expenses aggregated
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INTER PARFUMS, INC. AND SUBSIDIARIES
Royalty expense included in selling, general and administrative expenses
aggregated
Income from Operations
As a result of the above analysis regarding net sales, gross profit margins and
selling, general and administrative expenses, our operating margins aggregated
24.4% and 24.2% for the three months ended
Other Income and Expense
Traditionally, interest expense was primarily related to the financing of brand
and licensing acquisitions. However, in
We 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. Gains and losses on foreign currency
transactions have not been significant. Almost 50% of net sales of our European
operations are denominated in
Interest and investment (income) loss represents interest earned on cash and
cash equivalents and short-term investments. As of
Income Taxes
Our consolidated effective tax rate was 24.4% and 26.8% for the three months
ended
The effective tax rate for European operations was 25% and 28% for the three
months ended
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INTER PARFUMS, INC. AND SUBSIDIARIES
Our effective tax rate for
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
Three Months Ended
March 31,
2022 2021
(In thousands)
Net income attributable to European operations $ 39,776 $ 32,439
Net income attributable to United States operations 6,515 4,187
Net income 46,291 36,626
Less: Net income attributable to the noncontrolling interest 10,992 8,964
Net income attributable to Inter Parfums, Inc. $ 35,299 $ 27,662 Net income attributable to European operations was
The noncontrolling interest arises from our 73% owned subsidiary in
Liquidity and Capital Resources
Our conservative financial tradition has enabled us to amass significant cash
balances. As of
As of
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INTER PARFUMS, INC. AND SUBSIDIARIES
The Company is party to a number of license and other agreements for the use of
trademarks and rights in connection with the manufacture and sale of its
products expiring at various dates through 2033. In connection with certain of
these license agreements, the Company is subject to minimum annual advertising
commitments, minimum annual royalties and other commitments. See Item 8.
Financial Statements and Supplementary Data - Note 12 - Commitments in our 2021
annual report on Form 10-K. Future advertising commitments are estimated based
on planned future sales for the license terms that were in effect at
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 recently reported, we entered into a long-term global licensing
agreement for the creation, development and distribution of fragrances and
fragrance-related products under the
Cash used in operating activities aggregated
Cash flows used in investing activities in 2022 reflect purchases and sales of
short-term investments. These investments include certificates of deposit with
maturities greater than three months. Approximately
Our business is not capital intensive as we do not own any manufacturing
facilities. On a full year basis, we typically spend approximately
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INTER PARFUMS, INC. AND SUBSIDIARIES
Our short-term financing requirements are expected to be met by available cash
on hand at
In
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
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