Inter Parfums, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited consolidated results; dollar amounts below are in millions except per-share data.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $160.6 | $191.2 | $355.0 | $535.7 |
| Gross profit / margin | $97.2 / 60.5% | $114.4 / 59.8% | $213.1 / 60.0% | $331.3 / 61.8% |
| Operating income | $31.4 | $36.6 | $43.6 | $92.4 |
| Net income | $21.9 | $26.7 | $32.2 | $67.2 |
| Net income attributable to Inter Parfums | $16.5 | $20.8 | $23.5 | $52.1 |
| Basic and diluted EPS | $0.52 | $0.66 | $0.74 / $0.74 | $1.66 / $1.64 |
- Sales fell 16.0% in Q3 and 33.7% for the nine-month period. Q3 sales declined 18.3% at comparable exchange rates.
- For the nine months, European-based product sales declined 31.4% and U.S.-based sales declined 41.6%. Q3 declines were 9.6% and 35.1%, respectively.
- Nine-month operating margin was 12.3%, compared with 17.2% in 2019. SG&A was 47.7% of sales for the period versus 44.6%; advertising and promotion spending fell to $51.9 million from $92.5 million.
- Operating cash flow was negative $20.2 million in the first nine months, versus positive $6.7 million in 2019. Working-capital items used $62.4 million of cash.
Financial position and liquidity
- At September 30, cash and cash equivalents were $133.4 million and short-term investments were $70.7 million, totaling about $204.0 million. Cash declined $59.1 million from year-end 2019.
- Long-term debt, excluding the current portion, was $19.4 million; total reported debt including the current portion was about $25.1 million. The company also reported $49 million of available credit facilities and a 4.5-to-1 working-capital ratio.
- Current assets were $541.3 million and current liabilities were $119.2 million. Inventory was $178.9 million, up from $167.8 million at year-end.
- Investing cash outflow was $25.1 million, including a $14.0 million investment in Divabox and purchases of short-term investments. Financing cash outflow was $19.3 million, including $20.8 million of dividends paid during the period.
Material developments and outlook
- Management said business improved considerably in Q3 versus Q2 as stores reopened and online purchasing increased. Sales improved sequentially each month after the pandemic began, according to management.
- Management expected continued challenges through at least the end of 2020 and into 2021, including weak travel retail, renewed restrictions in parts of Europe, economic uncertainty, and reduced discretionary spending. It did not provide quantified financial guidance.
- Several launches and related marketing programs were postponed to 2021, including planned programs for Kate Spade New York, Jimmy Choo, Anna Sui and GUESS. Management anticipated sales gains from the 2021 product pipeline and said it was prepared to replenish distribution channels as conditions improved.
- The company temporarily suspended its quarterly cash dividend, imposed a hiring freeze, planned significantly lower 2020 bonuses, and curtailed promotional spending. Management said it had no short-term liquidity concerns and did not anticipate material credit losses.
- In June, the company acquired a 25% interest in Divabox, operator of the Origines-parfums e-commerce platform, for $14 million and entered into a $13.4 million three-year term loan. It also signed an exclusive five-year worldwide Moncler fragrance license, with a potential five-year extension; the first launch was scheduled for Q1 2022.
- Nine-month gross margin included an approximately $2.0 million charge related to assuming a return liability for products sold by a former licensee. Management said it did not anticipate material impairment of trademarks, licenses or other intangible assets.
Risks and contingencies
- COVID-19 caused store closures, canceled events and severe disruption to international air travel. The filing warns of further sales declines, weaker consumer demand, delayed customer payments, possible receivable write-offs, supply and shipping delays, asset impairments, productivity disruption and potential claims or litigation.
- The business depends substantially on third-party brand licenses and their continuation or renewal. Travel retail remained particularly weak, while renewed restrictions and possible recession could prolong the impact.
- French authorities are auditing IP Suisse for 2010–2018 and may seek French taxes. No assessment had been made; the company disputes the position and recorded no provision, citing its assessment that its position is more likely than not to be sustained. Estimated exposure was approximately $5.8 million, net of Swiss tax recovery and excluding interest.
- Foreign-exchange exposure is managed partly through forward contracts; at quarter-end, contracts covered approximately $48 million and £4 million, with maturities under one year.
Important facts for investors to verify
- Whether sales recovery continued after Q3, particularly in travel retail and markets affected by renewed COVID-19 restrictions.
- Whether operating cash flow and working capital improved, and whether inventory levels remain aligned with demand.
- The timing and commercial performance of postponed 2021 launches and the planned Moncler launch.
- Whether the dividend was reinstated and how marketing spending, royalties and margins evolved as business conditions changed.
- Any further developments in the French tax audit, license renewals, or COVID-related impairment and credit-loss assessments.