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Inter Parfums(IPAR) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated gross profit increased by 29% to $235 million, with a gross margin decline of 90 basis points in European operations due to an unfavorable product mix [10][11] - SG&A as a percentage of net sales decreased to 40.2% from 41.9% in the quarter, and year-to-date SG&A also declined by 190 basis points to 39.8% [11][22] - Working capital at the end of the quarter was $514 million, including approximately $184 million in cash and cash equivalents [12] - Full year 2023 net sales guidance affirmed at $1.3 billion, representing a 20% growth from fiscal year 2022, with earnings per diluted share guidance increased to $4.75 from $4.55 [13] Business Line Data and Key Metrics Changes - Owned brands saw strong sales, with Rochas fragrance sales growing by 21% to surpass $30 million year-to-date, while Lanvin sales increased by 6% [5] - GUESS fragrance sales surged by 59% during the quarter, building on a 45% increase in the same period last year [14] - U.S.-based operations net sales grew by 64%, driven by a 200% increase in Donna Karan and DKNY fragrance sales [35] Market Data and Key Metrics Changes - North America, the largest market, grew sales by 29%, while Western Europe saw a 24% increase [30] - Eastern Europe sales increased by 73%, Middle East by 48%, and Latin America by 42% [31] - Asia Pacific market grew by 20%, driven by sales in Australia and New Zealand [32] Company Strategy and Development Direction - The company aims to maintain a conservative approach in China, monitoring retail inventory levels closely [32][38] - Focus on five major franchises (Montblanc, Coach, Ferragamo, Jimmy Choo, and GUESS) for 2024, with plans for blockbuster launches [60] - The company is committed to investing in advertising and marketing to ensure sell-through at retail levels, despite potential top-line pressures [68] Management's Comments on Operating Environment and Future Outlook - Management noted the fragrance market is no longer growing at double-digit rates but emphasized the company's year-to-date sales growth of 27% [28] - The geopolitical tensions and economic instability are acknowledged, leading to a conservative guidance approach for the remainder of the year [67] - The company remains optimistic about travel retail, with improvements noted in airport traffic and sales [66] Other Important Information - Inventory levels increased by 26% from year-end 2022 to support sales growth, with lessons learned from past supply chain issues [20] - Promotion and advertising expenses increased significantly, representing 17.1% of net sales for the current quarter [22] Q&A Session Summary Question: Will gross margin improve in Q4 due to less gift sets? - Management prefers to maintain the same gross margin as the first three quarters, emphasizing significant advertising spend in Q4 [41] Question: Can Roberto Cavalli and Lacoste together add $100 million in revenue? - Management indicated that this is a fair estimate based on previous disclosures about the brands [42] Question: What is the current pricing strategy? - A modest pricing increase of around 5% was taken earlier in 2023, which offset inflationary expenses, with no further pricing actions expected at this time [53] Question: How is the current retail inventory level in China? - Management reported improved retail inventory levels in China, monitoring them weekly and seeing positive trends [51] Question: What are the key focuses for next year beyond Cavalli and Lacoste? - The focus will be on the five major franchises, with plans for blockbuster launches in 2024 [60]