Inter Parfums(IPAR) - 2024 Q1 - Quarterly Report

Part I. Financial Information Financial Statements The unaudited consolidated financial statements for Q1 2024 show a slight decrease in total assets, increased net sales, but a decline in net income and diluted EPS, with a significant increase in cash used in operations Consolidated Balance Sheets Total assets slightly decreased to $1.349 billion as of March 31, 2024, primarily due to reduced cash, while total equity increased to $907.9 million Consolidated Balance Sheet Highlights | Account | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 832,667 | 839,026 | | Cash and cash equivalents | 20,976 | 88,462 | | Inventories | 400,209 | 371,859 | | Total Assets | 1,349,176 | 1,369,329 | | Total Current Liabilities | 302,458 | 324,745 | | Total Liabilities | 441,289 | 477,159 | | Total Equity | 907,887 | 892,170 | Consolidated Statements of Income Net sales increased by 4% to $324.0 million in Q1 2024, but operating income and net income declined significantly due to higher costs and SG&A expenses Consolidated Income Statement Highlights | Metric | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Net Sales | 323,963 | 311,723 | +3.9% | | Gross Margin | 202,385 | 202,957 | -0.3% | | Income from Operations | 67,973 | 90,279 | -24.7% | | Net Income Attributable to Inter Parfums, Inc. | 41,048 | 54,068 | -24.1% | | Diluted EPS | $1.27 | $1.68 | -24.4% | - Dividends declared per share increased to $0.75 in Q1 2024 from $0.625 in Q1 2023[17] Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $52.0 million in Q1 2024, primarily due to higher receivables and inventories, resulting in a $67.5 million net decrease in cash Consolidated Cash Flow Highlights | Cash Flow Activity | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (51,960) | (7,358) | | Net cash provided by investing activities | 13,922 | 61,644 | | Net cash used in financing activities | (28,131) | (12,555) | | Net (decrease) increase in cash | (67,486) | 44,342 | Notes to Consolidated Financial Statements This section details new licensing agreements, segment performance showing European dominance but faster US growth, and the company's use of derivative instruments for risk management - The company began shipping Roberto Cavalli products in February 2024 and Lacoste fragrances in January 2024 under new worldwide license agreements[31][32] - The Dunhill fragrance license expired on September 30, 2023, and was not renewed; the company has a twelve-month sell-off period for remaining inventory[33] Segment Performance and Assets | Segment | Net Sales Q1 2024 ($ thousands) | Net Sales Q1 2023 ($ thousands) | Total Assets Mar 31, 2024 ($ thousands) | | :--- | :--- | :--- | :--- | | United States | 95,768 | 81,454 | 337,876 | | Europe | 230,957 | 230,269 | 1,069,258 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Net sales increased by 4% in Q1 2024, driven by U.S. growth and the Lacoste launch, but gross margin and operating income declined due to unfavorable mix and higher SG&A expenses - The company's growth strategy involves adding new brands through licenses or acquisitions and introducing new products while supporting established ones[82] Key Brand Contribution to Net Sales | Brand | % of Net Sales Q1 2024 | % of Net Sales Q1 2023 | | :--- | :--- | :--- | | Montblanc | 18% | 20% | | Coach | 15% | 15% | | Jimmy Choo | 15% | 20% | | GUESS | 10% | 9% | | Donna Karan/DKNY | 6% | 4% | Results of Operations Net sales increased by 4% to $324.0 million in Q1 2024, driven by U.S. growth and the Lacoste launch, but gross margin and operating margin declined due to higher SG&A expenses Net Sales by Segment | Segment | Net Sales Q1 2024 ($ millions) | % Change YoY | | :--- | :--- | :--- | | European based | 231.0 | +0.3% | | United States based | 95.8 | +17.6% | | Total | 324.0 | +3.9% | - The launch of the Lacoste brand added $20 million in sales during the first quarter of 2024[92] - Gross margin decreased to 62.5% from 65.1% due to unfavorable segment/geographic mix, increased trade spending, and slight cost inflation on raw materials[101] - Promotion and advertising expenses increased to $48.3 million (14.9% of sales) in Q1 2024, up from $35.2 million (11.3% of sales) in Q1 2023, reflecting a strategic shift to increase spending in the first half of the year[109] Liquidity and Capital Resources The company maintains strong liquidity with $97 million in cash and $530 million in working capital, despite increased cash usage in operations due to higher receivables and inventory, and an increased annual dividend - As of March 31, 2024, the company had $97 million in cash, cash equivalents, and short-term investments[123] - Cash used in operating activities was $52.0 million, driven by a $50.4 million increase in accounts receivable and a $34.4 million increase in inventories to support sales growth[130][25] - In February 2024, the Board of Directors increased the annual dividend to $3.00 per share from $2.50 per share[137] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks, including foreign currency and interest rate exposures, through derivative financial instruments like forward exchange contracts and interest rate swaps - The company uses foreign currency forward exchange contracts to hedge exposure from receivables and future sales denominated in foreign currencies[143] - As of March 31, 2024, the company had outstanding forward exchange contracts of approximately U.S. $78.0 million and GB £4.7 million, all with maturities of less than one year[146] - Interest rate risk is managed by monitoring rates and using swaps to manage exposure on its variable-rate debt[147] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of the quarter, the company's disclosure controls and procedures were effective[150] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[151] Part II. Other Information Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares in Q1 2024, but the Board authorized the continuation of a share repurchase program for up to 130,000 shares in 2024 - In February 2024, the Board of Directors authorized the company to continue repurchasing up to 130,000 shares of its common stock throughout 2024[153] Share Repurchase Activity | Period | Total Number of Shares Purchased | | :--- | :--- | | January 1-31 | 0 | | February 1-29 | 0 | | March 1-31 | 0 | | Total | 0 | Other Information No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2024 - No director or officer adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the first quarter of 2024[155] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by the Sarbanes-Oxley Act - The exhibits filed with the report include CEO and CFO certifications required by Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act[158]