Inter Parfums, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with Q1 2020. Inter Parfums manufactures, markets and distributes prestige fragrances, primarily under third-party licenses, through European and U.S. operations. Results are unaudited and interim results are not necessarily indicative of the full year.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $198.5 million | $144.8 million | Up 37.1% reported; up 32.7% at comparable exchange rates |
| Gross profit / margin | $125.2 million / 63.1% | $89.0 million / 61.5% | Margin expanded 1.6 percentage points |
| SG&A | $74.9 million | $71.3 million | Up 5.1%; 37.7% of sales versus 49.2% |
| Operating income / margin | $48.0 million / 24.2% | $17.8 million / 12.3% | Operating income up 169.7% |
| Net income | $36.6 million | $13.3 million | Parent-attributable income was $27.7 million versus $10.1 million |
| Diluted EPS | $0.87 | $0.32 | Dividends declared per share were $0.25 versus $0.33 |
| Cash from operations | $32.5 million | $(25.1) million | Working-capital items used $12.9 million, versus $40.6 million |
European-based product sales increased 40.0% to $159.7 million; U.S.-based sales rose 26.2% to $38.8 million. Company-reported largest-brand sales shares were Montblanc 20%, Jimmy Choo 18%, Coach 16% and GUESS 10%. Management cited strength across many brands and regions, new product launches, and reduced lower-margin gift-set sales. European and U.S. gross margins were 65.5% and 53.2%, respectively.
Financial position and liquidity
- At March 31, cash and cash equivalents were $143.3 million and short-term investments were $150.5 million, totaling approximately $293.9 million. Cash and investments were down from $296.3 million at year-end 2020.
- Current assets were $613.1 million and current liabilities were $152.1 million; working capital was approximately $462 million and the working-capital ratio exceeded 4:1.
- Long-term debt was $9.2 million, plus $1.1 million current portion. Lease liabilities totaled $24.8 million. The company reported $49 million of available, undrawn credit facilities and no short-term borrowings.
- Cash used in investing was $31.9 million, primarily reflecting purchases of short-term investments; financing activities used $20.8 million, including $14.3 million of debt repayment and $7.9 million of dividends paid. Cash ended the quarter at $143.3 million.
Changes, outlook and material items
- Q1 sales reached a first-quarter record and were 11.4% above Q1 2019. The 2020 comparison was affected by pandemic-related store closures and travel disruption; the company said sales improved as stores reopened and online purchases rose.
- Advertising and promotion expense was $21.8 million, or 11.0% of sales, versus $28.5 million, or 19.7%, in Q1 2020. Management expects full-year 2021 advertising and promotion expense to be approximately 21% of sales as it increases support for launches and brand awareness. This is an expense outlook, not revenue or earnings guidance.
- Management said it was prepared for increased demand and maintained inventory to support launches and potential channel replenishment. It expected the recovery trend to continue, but warned COVID-19 resurgence, variants, restrictions and limited travel could materially adversely affect results, financial position and cash flows through at least year-end 2021.
- A new Rochas fashion license effective January 1 reduced royalties; the company recorded a $2.4 million impairment of the Rochas fashion trademark. The licensee has an option to buy the trademarks in June 2025 at then-fair market value.
- In April 2021, majority-owned Interparfums SA acquired a future Paris headquarters for €125 million (approximately $149 million), including renovation. It was financed with a 10-year €120 million (approximately $143 million) bank loan. This post-quarter transaction materially increases planned financing and property commitments.
- The Anna Sui fragrance license was renewed through 2026, with a company option for an additional five years. Moncler fragrance launches were scheduled to begin in Q1 2022. The $13.4 million loan associated with the Divabox investment was repaid in February 2021.
- The company reinstated its dividend in February 2021 at an annualized $1.00 per share, payable quarterly; the next $0.25 payment was scheduled for June 30, 2021.
- A French tax audit concerns whether Swiss subsidiary IP Suisse created a French taxable presence for 2010–2018. No assessment had been made; the company contests the position and recorded no provision. Management estimated exposure at approximately $5.8 million, net of Swiss tax recoveries and excluding interest.
Investor verification points
- Check subsequent filings for the Paris headquarters loan’s final terms, use of proceeds, and effect on debt, liquidity and interest costs.
- Monitor whether the sales recovery and new-product launches persist, particularly if COVID-19 restrictions or travel weakness return.
- Compare actual 2021 advertising and promotion spending with management’s approximately 21%-of-sales expectation and assess the impact on margins.
- Track the French tax audit, potential exposure and any change in the company’s assessment or provision.
- Assess continuing dependence on third-party brand licenses, renewal terms, major-brand concentration and foreign-exchange movements.