Inter Parfums(IPAR) - 2023 Q3 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited consolidated financial statements, management's discussion and analysis of financial condition, market risk disclosures, and internal controls Financial Statements The unaudited consolidated financial statements for the period ended September 30, 2023, show a significant increase in total assets to $1.39 billion from $1.31 billion at year-end 2022, with net sales for the first nine months of 2023 rising to $988.9 million, a 27% increase year-over-year, driving net income attributable to the company to $142.2 million, up from $104.3 million in the prior year period, and cash flow from operations improving to a provision of $24.3 million from a use of $8.2 million in the same period last year Consolidated Balance Sheets This statement details the company's financial position, showing total assets increased to $1.39 billion and total equity to $876.8 million as of September 30, 2023 Consolidated Balance Sheets (in thousands USD) | Account | Sep 30, 2023 (in thousands USD) | Dec 31, 2022 (in thousands USD) | | :--- | :--- | :--- | | Total Assets | $1,394,397 | $1,308,542 | | Total Current Assets | $876,854 | $787,724 | | Total Liabilities | $517,530 | $520,396 | | Total Current Liabilities | $363,095 | $344,567 | | Total Equity | $876,867 | $788,146 | - Key changes in the balance sheet from December 31, 2022, to September 30, 2023, include a significant increase in Accounts Receivable (from $197.6 million to $288.1 million) and Inventories (from $290.0 million to $364.3 million), reflecting higher sales activity[16] - Cash and short-term investments decreased from a combined $255.5 million to $183.5 million[16] Consolidated Statements of Income This statement presents the company's financial performance, highlighting 27.5% growth in net sales to $988.9 million and a 36.3% increase in net income for the nine months ended September 30, 2023 Consolidated Statements of Income (Nine Months Ended Sep 30, in thousands USD) | Metric | Nine Months Ended Sep 30, 2023 (in thousands USD) | Nine Months Ended Sep 30, 2022 (in thousands USD) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $988,936 | $775,865 | +27.5% | | Gross Margin | $626,368 | $494,340 | +26.7% | | Income from Operations | $232,502 | $171,091 | +35.9% | | Net Income Attributable to Inter Parfums, Inc. | $142,234 | $104,339 | +36.3% | | Diluted EPS | $4.42 | $3.26 | +35.6% | Consolidated Statements of Income (Three Months Ended Sep 30, in thousands USD) | Metric | Three Months Ended Sep 30, 2023 (in thousands USD) | Three Months Ended Sep 30, 2022 (in thousands USD) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $367,969 | $280,462 | +31.2% | | Income from Operations | $87,202 | $64,476 | +35.2% | | Net Income Attributable to Inter Parfums, Inc. | $53,214 | $41,423 | +28.5% | | Diluted EPS | $1.66 | $1.30 | +27.7% | Consolidated Statements of Cash Flows This statement outlines the sources and uses of cash, showing a significant improvement in cash provided by operating activities to $24.3 million for the nine months ended September 30, 2023 Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, in thousands USD) | Cash Flow Activity (Nine Months Ended Sep 30) | 2023 (in thousands USD) | 2022 (in thousands USD) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $24,278 | $(8,175) | | Net cash provided by (used in) investing activities | $40,504 | $(33,888) | | Net cash used in financing activities | $(90,471) | $(80,634) | | Net decrease in cash and cash equivalents | $(24,949) | $(127,110) | - The significant improvement in operating cash flow was primarily driven by higher net income, despite increased cash usage for accounts receivable and inventories[25] - Investing activities provided cash due to net proceeds from short-term investments, contrasting with cash used for property purchases in the prior year[25] - Financing activities used more cash due to increased dividend payments and treasury stock repurchases[25] Notes to Consolidated Financial Statements This section provides detailed explanations of significant accounting policies, new license agreements, inventory changes, and segment information supporting the consolidated financial statements - The company closed a new worldwide license agreement with Roberto Cavalli, effective July 2023, and is preparing for the Lacoste license to become effective in January 2024[30][31] - Conversely, the Dunhill fragrance license expired on September 30, 2023, and entered a 12-month sell-off period[32] - Inventories increased to $364.3 million as of September 30, 2023, from $290.0 million at year-end 2022, with finished goods growing from $143.2 million to $212.9 million to support sales growth and mitigate supply chain risks[42] Segment Performance (Nine Months Ended Sep 30, 2023, in thousands USD) | Segment (Nine Months Ended Sep 30, 2023) | Net Sales (in thousands USD) | Net Income Attributable to Inter Parfums, Inc. (in thousands USD) | | :--- | :--- | :--- | | United States | $327,359 | $46,067 | | Europe | $661,577 | $96,167 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports exceptionally strong performance for the first nine months of 2023, with net sales increasing 27% to $988.9 million, driven by both the European (up 21%) and U.S. (up 43%) segments, with key brands like Coach, Montblanc, Jimmy Choo, and GUESS performing well, and the newly added Donna Karan/DKNY brands contributing significantly, leading to an improved operating margin of 23.5% from 22.1% year-over-year due to strong sales growth allowing for better absorption of fixed costs, while maintaining a strong liquidity position with $183.5 million in cash and short-term investments and continuing to invest in brand growth and return capital to shareholders through increased dividends Overview This section provides an overview of the company's business segments, key brand contributions, and strategic approach to growth through new licenses and product introductions - The company operates in two segments: European based operations (67% of 9M 2023 sales) and United States based operations (33% of 9M 2023 sales)[83][84][85] Brand Contribution to Net Sales | Brand | % of Net Sales (Nine Months Ended Sep 30, 2023) | % of Net Sales (Nine Months Ended Sep 30, 2022) | | :--- | :--- | :--- | | Montblanc | 18% | 19% | | Jimmy Choo | 17% | 18% | | Coach | 15% | 15% | | GUESS | 11% | 11% | | Donna Karan/DKNY | 7% | 1% | | Ferragamo | 5% | 5% | - The company's growth strategy involves adding new brands through licenses or acquisitions and introducing new products for existing brands, supported by advertising and merchandising[90] Results of Operations This section analyzes the company's financial performance, detailing sales growth by segment, gross margin trends, and improvements in operating margin due to sales leverage Segment Sales Performance (in millions USD) | Segment | Q3 2023 Sales (in millions USD) | YoY Change | 9M 2023 Sales (in millions USD) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | European based | $233.5 | +18% | $661.5 | +21% | | United States based | $134.5 | +64% | $327.4 | +43% | | Total | $368.0 | +31% | $988.9 | +27% | - Gross margin for the first nine months of 2023 was 63.3%, slightly down from 63.7% in 2022[108] - European operations' margin decreased due to one-time inventory reserves, while U.S. operations' margin expanded significantly due to price increases, favorable product mix, and better absorption of fixed costs[109][110] - Selling, general and administrative (SG&A) expenses as a percentage of net sales decreased to 39.8% for the first nine months of 2023 from 41.7% in the prior year, driven by sales leverage over fixed costs[114] - Operating margin for the first nine months of 2023 improved to 23.5% from 22.1% in the same period of 2022, reflecting strong sales growth and operational leverage[119] Liquidity and Capital Resources This section discusses the company's financial flexibility, highlighting its strong cash position, working capital, operating cash flow generation, and capital allocation strategies including dividends - As of September 30, 2023, the company had a strong liquidity position with $183.5 million in cash, cash equivalents, and short-term investments[130] - Working capital was $514 million with a current ratio of 2.4 to 1 as of September 30, 2023[131] - Cash provided by operating activities was $24.3 million for the first nine months of 2023, a significant improvement from the $8.2 million used in the same period of 2022, primarily due to higher net income[134] - The Board of Directors increased the annual dividend to $2.50 per share in February 2023, a 25% increase from the prior year's $2.00 per share[140] Quantitative and Qualitative Disclosures About Market Risk The company manages financial exposures through a controlled risk management program, primarily using derivative financial instruments, with foreign exchange risk from receivables and future sales mitigated with foreign currency forward exchange contracts, holding contracts worth approximately U.S. $58.0 million and GB £2.0 million as of September 30, 2023, and interest rate risk managed by monitoring rates and using interest rate swaps to convert variable-rate debt to fixed-rate debt or vice versa when appropriate - The company uses foreign currency forward exchange contracts to hedge exposure from receivables and future sales denominated in foreign currencies[144][145] - As of September 30, 2023, the company had outstanding forward exchange contracts of approximately U.S. $58.0 million and GB £2.0 million, all with maturities of less than one year[148] - Interest rate risk is mitigated by monitoring interest rates and using swaps to manage exposure on floating-rate debt[149] Controls and Procedures Based on a review and evaluation as of the end of the third quarter of 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective, and there were no changes in the company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[152] - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2023[153] Part II. Other Information This section includes disclosures on equity security transactions, share repurchases, a list of exhibits filed, and the official signatures for the report Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities Under a share repurchase program authorized in December 2022, the company repurchased 85,060 shares of its common stock for $11.3 million during the first nine months of 2023, with no repurchases during the third quarter, and the remaining balance available for repurchase under the 2023 plan being 81,000 shares - In the first nine months of 2023, the company repurchased 85,060 shares at a cost of $11.3 million under its authorized share repurchase program[155] - No shares were repurchased during the three months ended September 30, 2023[155] - The company has 81,000 shares remaining for repurchase under the current plan for 2023[155] Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications from the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act, as well as interactive data files - The exhibits filed with this report include CEO and CFO certifications required by Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, along with interactive data files[159] Signatures The report was duly authorized and signed on November 7, 2023, by Michel Atwood, the Chief Financial Officer of Inter Parfums, Inc