Business context and reporting period
Inter Parfums, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The company develops, markets and distributes prestige fragrances, primarily under third-party licenses, through European and U.S. operations. European operations generated about 79% of first-half sales.
Key financial metrics
Amounts are U.S. dollars; financial statement figures are in millions unless stated otherwise.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $207.6 | $49.5 | $406.1 | $194.3 |
| Gross margin | $132.4; 64% | $26.8; 54% | $257.6; 63% | $115.9; 60% |
| Income (loss) from operations | $44.7 | ($5.5) | $92.6 | $12.3 |
| Net income (loss), consolidated | $29.0 | ($3.0) | $65.7 | $10.3 |
| Net income (loss) attributable to Inter Parfums | $22.7 | ($3.1) | $50.3 | $6.9 |
| Diluted EPS | $0.71 | ($0.10) | $1.58 | $0.22 |
- First-half operating margin was 22.8%, compared with 6.3% in 2020.
- Operating cash flow was $38.1 million in the first half, versus cash used of $21.3 million a year earlier. Investing activities used $146.7 million, largely reflecting the Paris headquarters acquisition; financing activities provided $118.8 million.
- At June 30, cash and cash equivalents were $149.7 million and short-term investments were $148.1 million. The company cites approximately $298 million combined. Cash flow statement cash of $175.3 million includes $25.6 million held in escrow.
- Long-term debt, including its current portion, totaled $165.5 million, versus $24.7 million at December 31, 2020. The company reported a 3.1-to-1 working capital ratio; current assets were $679.9 million and current liabilities $218.2 million.
- Accounts receivable was $176.5 million, up from $124.1 million at year-end; inventory was $163.5 million, versus $158.8 million. Management said receivables reflected record second-quarter sales and reported days sales outstanding of 79, consistent with historical norms.
Material changes versus prior periods
Sales and earnings rebounded sharply from pandemic-affected 2020 comparisons. First-half 2021 sales were also 17.9% above first-half 2019; second-quarter sales were 24.9% above Q2 2019, or 22.7% at comparable exchange rates. Management described comparisons with 2019 as more meaningful because 2020 sales were severely disrupted by COVID-19. First-half growth included strong performances in North America, Eastern Europe and Asia; Western Europe continued to face restrictions.
Gross margin improved year over year, which management attributed in part to reduced lower-margin gift-set sales, better-margin launches and improved absorption of certain costs. SG&A increased in dollars with sales, but fell as a share of sales to 40% for the first half from 53%. First-half advertising and promotion expense was $55.0 million, compared with $34.4 million.
Outlook, commentary, risks and unusual items
- Management expects the recovery trend to continue but warned that COVID-19 variants, renewed restrictions and curtailed international travel could materially adversely affect results, financial position and cash flows through at least year-end 2021.
- The company expects full-year 2021 advertising and promotion expense to be approximately 21% of net sales, as it plans increased investment behind launches and brand awareness. No full-year sales or earnings forecast is provided in the filing text.
- In July 2021, the company signed a worldwide Ferragamo fragrance license expected to begin in October 2021, with a 10-year term and a five-year optional extension, subject to conditions.
- The Paris-based subsidiary acquired its future headquarters for €125 million (approximately $149 million), financed in part by a 10-year €120 million bank loan at one-month Euribor plus 0.75%. Approximately €80 million of the variable-rate debt was swapped to a fixed rate of about 1.1%. A related €14.2 million VAT-bridge loan was repaid in July 2021 after the VAT refund.
- A French tax settlement required a €2.5 million (approximately $3.0 million) payment and lower Lanvin royalty rates for 2017–2025, with transfer of the Lanvin brand to the French subsidiary by December 31, 2025.
- A revised Rochas fashion license reduced expected royalties, prompting a $2.4 million first-quarter impairment. The licensee may buy the trademarks in June 2025 at then-current fair market value.
- The company renewed its Anna Sui license through 2026, with an optional extension through 2031. It also reported strong early sell-through and orders for MCM fragrance; the Moncler fragrance launch was scheduled for the first quarter of 2022.
- Risks include reliance on third-party brand licenses and renewals, foreign-exchange movements, pandemic disruption and interest-rate exposure. The company uses foreign-exchange forwards; at quarter-end it had contracts with maturities under one year and an interest-rate swap on part of the Paris loan.
- The company identified an ASC 842 lease-accounting error that understated lease assets and liabilities by approximately €14.0 million as of June 30, 2020. It deemed the interim impact immaterial, corrected the balances in 2021, and reported no income-statement impact.
- The quarterly dividend was reinstated in February 2021 at an annual rate of $1.00 per share, payable quarterly. Management said available cash and credit facilities should meet foreseeable operating needs. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether sales recovery and improved operating margins persist as pandemic restrictions and travel conditions evolve, and how planned advertising investment affects profitability.
- The economics, launch timing, required spending and potential contribution of the Ferragamo and other newer fragrance licenses.
- Paris headquarters project costs, completion and cash requirements, and the effect of the new debt and floating-rate exposure.
- Progress and financial implications of the French tax settlement, including the lower Lanvin royalty rates and planned brand transfer.
- Working-capital and cash-flow trends, particularly the increase in receivables and inventory, and the availability of cash held in escrow or short-term investments.
- Continued access to key licensed brands and exposure to foreign exchange, COVID-19 disruption and other risks described in the company’s filings.