Inter Parfums, Inc. (NASDAQ:IPAR) Q3 2023 Earnings Call Transcript

Inter Parfums, Inc. (NASDAQ:IPAR) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Greetings, and welcome to the Inter Parfums Inc. Third Quarter 2023 Conference Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. At this time, I’d like to turn the call over to Vice President at the Equity Group and Inter Parfums’ Investor Relations representative, Karin Daly.

Karin Daly: Thank you, Daryl. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar. On behalf of the company, I would like to note that this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. These factors may be found in the company’s filings with the Securities and Exchange Commission under the headings Forward-Looking Statements and Risk Factors in their most recent annual report on Form 10-K or subsequent quarterly filings on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and Inter Parfums undertakes no obligation to update the information discussed.

As a reminder, Inter Parfums’ consolidated results reflect their 2 business segments, European-based operations and United States-based operations. Certain prestige fragrance products are produced and marketed by European-based operations through their 72%-owned French subsidiary, Interparfums SA. It’s now my pleasure to turn the call over to Jean Madar. Jean, you may begin.

Jean Madar: Thank you, Karin. Good morning, everyone, and welcome to our third quarter conference call. Sadly, Michel’s mother passed away yesterday and understandably, he is unable to join us this morning. So I will try my best to cover his financial remarks. Of course, we can arrange follow-up calls upon his return as needed. And of course, I will be able to also, as I’m in New York, to answer questions if you have after the call. So the strength of the global fragrance market is still compelling but no longer growing at double-digit rates from the last 2-plus years. Fortunately, and by design, our year-to-date sales growth of 27% clearly indicates our ability to outperform the industry and gain market share. The success of our newer brands has been a growth catalyst for us, along with the excellent sell-through of our legacy brands, which we have enriched with innovative extensions rather than major new product launches.

Our production and distribution partners are operating efficiently and effectively to ensure that the omnichannel pipeline of fragrance sellers throughout the world are well stocked with our merchandise. These drivers produced record third quarter net sales, up 31% to $368 million, which set a new record for quarterly net sales in our 35-plus years as a public company. For the quarter, foreign exchange rates favorably impacted our net sales by 4%, and new brands represented 7% of the growth, leading to strong organic growth of 20% compared to the prior year period. Diving into detail of our business market for the third quarter, North America, our largest market, grew sales 29%, followed by Western Europe, our second largest region, with 24% growth.

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Q&A Session

We also have seen a steep increase in sales in our smaller markets, particularly in Eastern Europe, the Middle East and Latin America, Eastern Europe at 73%, Middle East at 48% and Latin America at 42% growth in the quarter. This is primarily related to a smaller base of sales, coupled with ongoing recovery growth as economy began to normalize. Asia Pacific, our third largest market, saw growth of 20% in the latest 3-month period, driven by sales in Australia and New Zealand. As mentioned in the earnings release yesterday, we continue to see a good sellout in China, namely for Coach, Montblanc and Ferragamo, enabling us to manage down our stocking trade levels, which we expect will provide a favorable tailwind in 2024. For the balance of 2023, we continue to anticipate only modest sales growth in China.

Please be reminded that China currently represents only a very small portion of our business. And as always, we stand ready to take on this immense market opportunity when the time is right. With respect to our European-based operations, net sales increased 18% during the quarter, primarily driven by our top-performing brands, which are Coach and Montblanc, with sales increasing 32% and 20%, respectively compared to the prior year period. Coach fragrance were in high demand during the quarter across nearly all the brand’s fragrances, and we enriched the feminine fragrance with Coach Green and Coach Love. Montblanc Fragrance saw solid performance of Montblanc Legend and Explorer franchises, with an additional boost from the extension launched earlier this year, Montblanc Legend Platinum.

Our owned brands also continued to generate strong sales. Rochas fragrance sales grew 21% during the quarter, surpassing $30 million year-to-date in 2023, with strength in the Eau de Rochas line and momentum from Rochas Girl Life. Lanvin, the other owned brand, in the absence of any major launches, grew sales by 6% during the quarter. Moving into our U.S.-based operations. Net sales grew 64% in the quarter on top of a 45% growth achieved in the same period last year. Donna Karan, DKNY fragrance sales increased 200% compared to the third quarter of 2022, having joined our portfolio in July of last year. This fashion house duo has become our second largest U.S.-based brand in only 1 year under our expertise. In August, we introduced our first brand extension for DKNY called Be Delicious Orchard St, a vibrant scent, which capture the energy of New York City Lower East Side, and the early returns are very promising.

We are on track to launch a new blockbuster fragrance for DKNY next summer. GUESS fragrance sales increased 59% during the quarter, primarily driven by the continued demand of all fragrance lines, with significant growth builds upon the 45% sales increase in last year’s third quarter. Growing demand for GUESS fragrances has been sparked by the rising popularity of GUESS fashion across the globe, particularly within the U.S., within Asia Pacific and also Europe. As we reported a few weeks ago, we recently launched the GUESS Originals trio of gender-inclusive fragrances and are now rolling out GUESS Bella Vita Paradiso. We have been working tirelessly on innovation for GUESS to ensure we capture the successful momentum of the brand. We have a rich pipeline of fragrances planned for 2024, including a new pillar of launch for GUESS, in addition to GUESS and Sexy Skin metallic.

Even in the absence of a new product launch, first quarter Ferragamo fragrance sales were very strong, increasing 55% compared to the same period last year due to the legacy scents, coupled with sister scents, Signorina and [indiscernible] collections that debuted earlier this year. Beyond the brand’s Italian borders, Ferragamo fragrances are strong seller in the Americas. New products are in the pipeline for Ferragamo in 2024. By the way, in 2 years since we commenced operations in Florence, Italy, we now have about 60 management and staff members and are expanding our brand footprint with Cavalli, but also, our Italian affiliate will be distributing all our brands in Italy. As mentioned in the first quarter sales release, we initiated Phase 1 of the Abercrombie & Fitch Fierce distribution rollout.

While we began with only introductory distribution in select markets of this iconic fragrance during the first quarter, we are on track to commence the majority of the Phase 1 distribution rollout in Europe before year-end and launch Phase 2 in Asia Pacific and Latin America during 2024. And lastly, touching on Roberto Cavalli and Lacoste, our 2 most recent license agreements. For Roberto Cavalli, we are set to begin shipping fragrance product in January 2024, and we plan to launch our first extension of Cavalli in the summer 2024. Of note, we did not buy the prior licensee’s leftover inventory. Instead, we curated the collection and produced entirely new fresh goods. Also, we partnered with one of the top luxury retailers and distributors in the Middle East, a concentrated market for the brand to further expand the brand.

We also have summer hair and body fragrance mist and Just Cavalli due on track to see shelves early and mid-summer, respectively. The Lacoste license will take into effect in January 2024. And we have been using the time since the license was signed to develop go-forward strategies. And like Cavalli, we did not buy any existing inventory. The fragrance industry remains competitive as new market participants enter the category. We are not surprised by the increased competition, as we believe there are 4 significant attractive elements. Number one, I think, is growth. The fragrance market has grown tremendously and is expected to continue to grow in the upper single digits with new consumers entering the category and existing consumers building out their fragrance wardrobe.

The second point is resiliency. Resiliency is a very attractive element. We consider it to be generally recession-proof as other beauty and consumer segments are hit harder when faced with macroeconomic instability. This is reflected in our successful almost 4 years of history. The third attractive element is the desirability. Fragrances have a desirable entry price point for consumers who want to invest in their favorite luxury brands without having to purchase the higher-priced luxury goods. And last, the demand. As new consumers enter the category, it is often rare to see this new consumer exit the fragrance market. So from a license perspective, while we actively scout for opportunities to add new brands that further complement our prestige portfolio, we also find that brand owners tend to seek us out because of our size, our expertise and excellent track record that underserved brand owners are often looking for.

Our portfolio, both in legacy and new brands, is in high demand across the globe. Additionally, all of our brands have benefited from newly launched and enhanced e-commerce site in existing markets in collaboration with our retail customers on their e-commerce site. In fact, our retail sales in the Amazon premium beauty category, an invitation-only prestige platform, have soared by an impressive 149% year-to-date through October. The remarkable growth is largely attributed to the successful launches of some of our key franchises, such as Donna Karan and DKNY. We are also developing and implementing omnichannel concepts and compelling content to deliver an integrated consumer experience. Coupled with our ongoing innovation, we are confident in our ability to continue to outpace the overall fragrance market through the end of the year.