Inter Parfums, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. Inter Parfums manufactures, markets and distributes prestige fragrances through European and U.S. operations. European operations accounted for about 74% of sales; the company’s European subsidiary, Interparfums SA, is 72%-owned.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $311.7 million | $250.7 million | +24.4%; +29% at comparable exchange rates |
| Gross profit / margin | $203.0 million / 65.1% | $158.7 million / 63.3% | Margin +1.8 percentage points |
| Operating income / margin | $90.3 million / 29.0% | $61.2 million / 24.4% | Margin +4.6 percentage points |
| Net income | $70.9 million | $46.3 million | +53.2% |
| Net income attributable to Inter Parfums | $54.1 million; diluted EPS $1.68 | $35.3 million; diluted EPS $1.10 | Attributable income +53.2% |
| Operating cash flow | $(7.4) million | $(23.9) million | Cash use narrowed |
| Cash and short-term investments | $237.8 million | $255.5 million at Dec. 31, 2022 | Cash alone rose to $149.1 million from $104.7 million |
| Borrowings | About $192.2 million | About $180.0 million at Dec. 31, 2022 | Includes $18.0 million of bank borrowings |
Working capital was approximately $489 million and the current ratio was 2.4:1. Net cash used in operating activities reflected working-capital demands, including increases in receivables and inventory. Receivables were up 22% from year-end and inventory up 10%; days sales outstanding was 69, versus 75 a year earlier. Dividends declared were $0.625 per share. The company repurchased 43,060 shares for $5.58 million.
Changes, drivers and management commentary
- European sales rose 26.4% to $230.3 million; U.S. sales rose 18.9% to $81.4 million. Sales growth reflected strong demand and brand performance, including Jimmy Choo, Montblanc and Coach in Europe, and new Donna Karan and DKNY contributions in the U.S.
- Gross-margin improvement reflected pricing and, in the U.S., favorable brand/channel mix and better absorption of fixed costs. European gross margin increased to 67.8% from 66.8%; U.S. gross margin increased to 57.6% from 53.9%.
- SG&A increased to $112.7 million from $97.4 million, while advertising and promotion expense was $35.2 million versus $34.2 million. Management anticipates full-year advertising and promotion spending of approximately 21% of net sales.
- The average dollar/euro rate was 1.07 versus 1.12 in Q1 2022. Management said currency changes affect reported sales and margins; sales increased 29% at comparable exchange rates.
- Interest and investment income included investment-security effects. The filing reports a $3.1 million gain from the sale of marketable securities and also refers to approximately $3.4 million of losses on those securities; the precise relationship is not clear from the filing text.
Outlook, risks and notable items
- Management described the quarter as a strong start and said growth catalysts outweighed headwinds, but provided no specific full-year sales or earnings guidance in the supplied filing text.
- Supply-chain constraints affecting component procurement, transportation and costs continued. The company said bottlenecks were not expected to begin lifting until the second half of 2023; prolonged disruption could materially harm sales and gross margin. Management cited advance and larger orders, multiple suppliers and, where possible, manufacturing closer to markets as mitigation measures.
- Travel retail was recovering but remained limited. Management also noted that ERP implementation affected quarterly results, particularly GUESS, with orders expected to be fulfilled in Q2.
- The Lacoste fragrance and cosmetics license is worldwide, effective January 2024 for 15 years, and carries minimum advertising and royalty commitments. The Dunhill license expires September 30, 2023 and will not be renewed; limited sell-off rights apply. The business depends substantially on third-party brand licenses.
- Borrowings include variable-rate financing, partly hedged through interest-rate swaps. The company reported $18 million drawn under short-term credit facilities at quarter-end. Foreign-exchange forward contracts totaled approximately $37 million, with maturities under one year.
- Management said it did not expect liquidity issues and considered cash, investments and credit facilities sufficient for foreseeable needs. It also noted that Q1 results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether supply-chain constraints ease as expected in the second half of 2023 and how they affect inventory, fulfillment and margins.
- Whether Q1’s sales growth and margin gains persist, including the relative contribution of pricing, product launches, channel mix and foreign exchange.
- Cash conversion and working-capital trends, particularly receivables and inventory, alongside the increase in borrowings.
- The timing and economics of the Lacoste launch, Dunhill sell-off and other license-related commitments and renewals.
- The treatment and impact of the marketable-securities gain and losses described in the filing.