Inter Parfums(US:IPAR)2020-08-11 19:41Financial Data and Key Metrics Changes - The consolidated second quarter gross margin declined to 54% compared to 64% in the same quarter last year [7] - The gross margin for European operations was 57% compared to 68% in the previous year [7] - U.S. operations saw a gross profit margin of 43% versus 52% in the same quarter last year, attributed to a 75% decline in net sales [8] - SG&A expenses decreased by 62% compared to last year's second quarter, but represented 65% of net sales compared to 51% in the same period last year [13] - The effective tax rate for European operations was 26% for the first half of 2020, down from 30% in the prior year [18] - The effective tax rate for U.S. operations resulted in a benefit of 33.8% for the first half of 2020, compared to an expense of 17.3% in the same period of 2019 [19] Business Line Data and Key Metrics Changes - North American net sales declined by 39%, Western Europe by 34%, Asia by 53%, Middle East by 57%, and Eastern Europe by 56% in the first half of 2020 [26] - The two largest brands, Montblanc and Jimmy Choo, experienced sales declines of 50% and 43% respectively [26] - SG&A expenses for European operations declined 66% but represented 59% of net sales compared to 54% in the same period last year [14] - U.S. operations saw SG&A expenses down 44%, but these expenses represented 91% of net sales in the second quarter, compared to 40% in the same quarter of 2019 [15] Market Data and Key Metrics Changes - The virtual cessation of international air travel significantly impacted sales, particularly in Asia [28] - Retailers are reported to have very light inventory levels, leading to increased shipments starting in July and continuing into August [52] Company Strategy and Development Direction - The company has inked two important agreements in Q2 2020, including an exclusive worldwide license with Montclair and a 25% stake in Divabox, enhancing its e-commerce capabilities [33][36] - The company aims to maintain a fixed expense level below $25 million per quarter for the next two to three quarters, with no plans for hiring [55] - The focus is on building e-commerce capabilities and understanding the fragrance market better through the investment in Origines Parfums [58] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism that the second quarter would mark a low point, with expectations for improvement in Q3 and Q4 [17][48] - Concerns were raised about the impact of deteriorating economic conditions and high unemployment on consumer demand [30] - The company remains flexible and has a strong balance sheet, indicating no immediate need for additional funding [31] Other Important Information - The company reported working capital of $386 million, including approximately $195 million in cash and equivalents, with a working capital ratio of 4.8 to 1 [20] - The company has faced delays in payment of accounts receivable, particularly from duty-free retail customers, but a significant portion of receivables is covered by insurance [21][22] Q&A Session Summary Question: Trends in July and August - Management noted that sales trends have improved since the second quarter, with positive signs in Europe and Asia, and the U.S. starting to buy again [44][46] Question: Future Expense Management - Management plans to maintain fixed expenses below $25 million per quarter for the next few quarters, with no hiring planned [55] Question: Equity Stake in Origines Parfums - The investment aims to gain insights into the e-commerce fragrance market, with no expected conflicts with competitors [60] Question: Share Repurchases and Cash Utilization - The company prefers to use excess cash for potential acquisitions rather than share buybacks, with discussions ongoing about reinstating dividends [62][67] Question: Consumer Demand for Fragrances - Management does not expect a significant drop in fragrance usage, despite changes in consumer behavior due to COVID-19 [68] Question: Expansion into Other Fragrance Areas - The company has opportunities to expand into home fragrances and personal care, but will conduct thorough research before entering these markets [71]