Hello and welcome to the Inter Parfums Second Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Russell Greenberg. Please go ahead, sir.

Well, thank you, operator. Good morning and welcome to our 2020 second quarter conference call. Once again, it is not business as usual, but I hesitate to adopt the overused phrase, the new normal, because our plans call for the eventual return to our long-term growth and profitability goals, recognizing that there will be detours and speed bumps along the way. There is no need for me to read out the second quarter comparisons that were in the release we issued yesterday afternoon. I will devote my discussion to explanations of those results and balance sheet items, and then Jean will follow. As usual, however, I must read the following. This conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from projected results. These factors include, but are not limited to, the risks and uncertainties discussed under the headings forward-looking statements and risk factors in our Annual Report on Form 10-K for the year ended December 31, 2019, the quarterly report on Form 10-Q for the second quarter ended June 30, 2020, and other reports we file from time to time with the Securities and Exchange Commission. We do not intend to and undertake no duty to update the information discussed. One more recurring message, when we refer to our European-based operations, we are primarily talking about sales of Prestige Fragrance products conducted through our 73% owned French subsidiary, Interparfums SA. When we discuss our U.S. based operations, we are primarily referring to sales of Prestige Fragrance products conducted through our wholly-owned domestic subsidiaries. Our consolidated second quarter gross margin declined to 54% compared to 64% in last year's second quarter. The gross margin for European operations was 57% compared to 68% in last year's second quarter. Once again, the strong U.S. dollar had a small but positive effect on our gross profit margin, which was offset by product mix and by a $2 million charge relating to the assumption of a return life liabilities for products sold by a former licensee of a brand that we took over in 2019. For U.S. operations, gross profit margin was 43% versus 52% in last year's second quarter, as a consequence of the 75% decline in U.S. operations net sales; certain expenses, such as depreciation of tools and molds together with the distribution of point-of-sale materials, amplified the decline in the U.S. gross margin. As I turn to the discussion of expenses, once again, please keep in mind that at the start of 2020, our operational budgets were based upon our original projected sales of $742 million. And as we have mentioned before, our sales in January and February, with the exception of China, were pretty good. In March, as COVID-19 took hold throughout North America and Europe and as sales ground to a halt, we curtailed our ad spending. However, we had advertising and promotion campaigns already underway, and there was not much we could do to limit those expenses. By the second quarter, we were able to reduce promotion and advertising included in SG&A expenses to 11.8% of net sales, as compared to 21.9% in last year's second quarter. As you probably know by now, in a typical year, we budget around 21% of net sales for advertising and promotion, with the fourth quarter accounting for the largest percentage. There is nothing typical about 2020. Since most of our planned 2020 launches have been rescheduled for 2021, we significantly reduced our budgets for advertising and promotion expenses in dollars as well as a percentage of sales for the second half of the year, as compared to the corresponding period of the prior year. Our licensors have been extremely cooperative and accommodating during this period. They have waived or dramatically reduced our 2020 minimum royalty guarantees. Royalty expense represented 6.8% and 7.5% of net sales for the three and six months ended June 30, 2020, as compared to 7.3% of net sales for both corresponding periods of the prior year. Although SG&A expenses are down 62% compared to last year's second quarter, as a percentage of sales, SG&A expenses were 65% compared to 51% in last year's second quarter. For European operations, where second quarter sales declined 69%, SG&A expenses have declined 66% and ended up representing 59% of net sales compared to 54% in the same period one year earlier. At the end of the day, European operations remained in the black for the second quarter and for the year-to-date periods. For U.S. operations, SG&A expenses were down 44%, but represented 91% of net sales in the second quarter, compared to 40% in the second quarter of 2019. Our U.S. operations are significantly smaller than those of our European operations and carry a higher percentage of fixed costs that could not be leveraged as efficiently as those of our European operations with the precipitous decline in net sales. In our last conference call in May, we talked about the erosion of the positive leverage that we've enjoyed over the past several years, as the loss of fixed cost absorption produced the decline of our operating margin. As you can see for our previous forecast, the greater decline in the second quarter sales and margin unfortunately came true. However, we also forecasted that the second quarter would mark a low point and based on current sales and orders, that also appears to be true. That said, we are hesitant to forecast what will happen further down the road with the specter of COVID-19 still upon us along with its economic consequences. Our effective tax rate for European operations was 26% for the six months ended June 30, as compared to 30% for the corresponding period of the prior year, with the reduction due to favorable tax rates in other jurisdictions where our European operations conduct business, such as Singapore and Switzerland, as well as the United States. Our effective tax rate for U.S. operations resulted in a benefit of 33.8% for the six months ended June 30, 2020, as compared to an expense of 17.3% for the corresponding 2019 period. Due to the loss incurred in 2020 for federal tax purposes, we will be able to carry back that loss to 2015 when the federal income tax rate was 35%. We closed the quarter with working capital of $386 million, including approximately $195 million in cash, cash equivalents, and short-term investments. Our working capital ratio of 4.8 to 1, $48 million in untapped credit facilities, and only $18.9 million of long-term debt, which includes borrowings made in connection with our equity stake in the parent company of Origines Parfums just last month. While accounts receivable are down significantly from year-end levels, these are difficult times for most retailers, and some have gone bankrupt. We have faced and may continue to face increasing delays in payment of accounts receivable from our customers. This is especially true of duty-free retail customers. As John mentioned on our last conference call; however, a significant portion of our receivables are covered by insurance, so our exposure is not significant. We also closed the quarter with considerable inventory with increases from year-end levels mostly in finished goods, which optimistically translates into we are ready to sell. You will recall that on our last conference call, we had placed orders with suppliers late last year and early this year to support the 2020 new product launches. But with the exception of Coach Dreams and L'Homme Rochas, which both debuted earlier in the year, our major launches have been pushed into 2021. With business picking up, inventory levels should improve as the year unfolds. Now, I will turn the call over to Jean for a closer look at how we are doing and what we are doing.

Thank you, Russ, and good morning everyone. While our recent financial performance is disappointing, it's noteworthy that the second quarter of 2020 marked our first quarterly loss since our IPO in 1988. We navigated through events like 9/11, the 2008 recession, and the loss of our largest license in 2013, which accounted for 50% of sales, and still managed to remain profitable. This is our first quarterly loss, but I believe it will be our last, as we do not anticipate further losses in the third and fourth quarters. For the first half of the year, net sales decreased in North America, Western Europe, Asia, the Middle East, and Eastern Europe. Specifically, sales in North America dropped by 39%, 34% in Western Europe, 53% in Asia, 57% in the Middle East, and 56% in Eastern Europe. Our two largest brands, Montblanc and Jimmy Choo, saw sales declines of 50% and 43%, respectively. The next two largest brands, Coach and GUESS, experienced smaller year-to-date sales declines of 21% each, following gains in the first quarter of 31% for Coach and 29% for GUESS. The near halt of international air travel and the accompanying loss of business from duty-free stores significantly contributed to the sharp decline in net sales, particularly in Asia. Sales related to major holidays in the second quarter, such as Mother's Day and Father's Day, were disappointingly low. We hope the upcoming holiday season will show improvement, and I look forward to providing more insights during the Q&A session. So far in the third quarter, covering July and the first 10 days of August, we have seen mixed results, with positive trends in Europe, an uptick in Asia, and varying performance in the U.S. However, there are significant challenges ahead. Even where stores have reopened, they must navigate issues related to signage, sanitation, staff training, masks for employees and customers, reduced hours, and limitations on customer capacity. We are understandably concerned about how our product demand is affected by worsening economic and political conditions, including high unemployment and decreased disposable income. These factors are beyond our control, but we believe our business model has proven resilient in tough times before. In summary, our 2020 capital expenditures are modest at $24 million, and we have a lean workforce of 400 full-time employees worldwide who can work efficiently from home. Typically, around two-thirds of our expenses are variable, and our fixed costs should remain below $25 million a quarter. We maintain a strong balance sheet, which means we do not need to raise capital or increase our workforce to grow the business. Our flexibility allows us to adapt as the situation evolves. While COVID-19 has impacted us, it has not shaken our belief that we will emerge from this crisis. We are actively engaging with suppliers, distributors, licensors, and retailers mostly virtually, and due to the shared challenge posed by the virus, we are seeing increased collaboration. We recognize the pressures our partners face and our own pressures as well. On a positive note, we secured two significant agreements in the second quarter of 2020. The first is an exclusive worldwide license with Montclair, effective until 2026 with a potential five-year extension. Our first two fragrances for this esteemed global luxury brand are set to launch in the first quarter of 2022 and will be available in Montclair stores, department stores, specialty stores, and duty-free shops. Montclair is known for its outerwear collections that blend performance and style. They are selectively expanding their brand, which now includes eyewear, watches, sportswear, and footwear, making them more recognizable. Fragrance often serves as an introduction to luxury brand experiences, and we believe this partnership could yield significant results as we expand our reach and product offerings. The second agreement is a 25% stake in Divabox, the parent company of Origines Parfums, an established online platform for skincare, hair care, cosmetics, and fragrance products. While Origines has a few retail stores, 99% of its sales are through e-commerce, servicing customers across most of Europe in multiple languages and currencies, including many of our brands as well as others. This investment provides us insights into direct-to-consumer online sales and enhances our ability to introduce targeted fragrance lines and products catering to large distribution channels. Origines plans to use our investment to bolster its organization and boost its online presence, aspiring to become a leading e-commerce player in Europe for perfumes and cosmetics. We will open the floor for questions shortly, but I want to affirm that my partner Philippe Benacin and I, as co-founders of Inter Parfums, hold around 40-45% of the company’s stock, aligning our interests with those of our shareholders. Additionally, Russell and I want to express our gratitude to all our employees, suppliers, distributors, and licensors for their exceptional efforts during this challenging time. Operator, we can now take questions.

Certainly, we will now be conducting a question-and-answer session. Our first question today is coming from Joe Altobello from Raymond James.

First question, I wanted to go back to some of the trends that you guys are seeing in July and August. Obviously, sales in the quarter were down 70%, but I'm guessing that you've exited the quarter at a much better rate than that given what we saw in April. So if you can just give a sense for the year-over-year change that you're seeing in sales in July and August and in particular in Asia, are you starting to see growth in certain markets in Asia?

Russ, do you want to start answering this?

Yes, I'll start, sure. Certainly, as I said in the remarks that the second quarter was expected to be the worst; it took the brunt of the hit of this pandemic. We walked into the second quarter in April, with pretty much almost a complete shutdown of the retail environment in most countries around the world. Even as we started to move a little bit through May and June, we started to see a little bit of a pickup. We discussed a little bit of this in the last conference call, which was in early May. Sitting here today, that trend has absolutely continued. Each month, we're actually exceeding our internal projections a little bit, and it seems to be getting better as each month passes. We are still looking at a certainly difficult environment going into Q3, hopefully getting better and better as the year progresses. Jean, maybe you could talk a little bit about specific countries and things that we're seeing.

I agree that each week in July showed positive trends, and June was even better. May and the first ten days of August also appear strong. In Asia, e-commerce is particularly robust, especially for Anna Sui on Tmall. Europe is gaining momentum, and the U.S. market is starting to revive. The positive aspect is that we have ample inventory, allowing us to dispatch orders quickly, typically within a week. We're closely monitoring the retail sector, and for the past two months, our performance has aligned well with our internal forecasts, which is encouraging. We're optimistic; we believe we've seen the toughest times. The third quarter is expected to perform better than the second, and we plan to ship some gift sets in October, which should contribute to the fourth quarter. Overall, we feel more positive than we did two months ago.

That’s very helpful. Jean. I was maybe hoping for some numbers in July in particular.

But I'm not allowed to give that unless we make a public statement, but…

Yes, we probably will look to be able to reinstate some sort of guidance for the remainder of the year. Maybe in late August or early September, it's the visibility continues to get a little bit clearer then we will do something and put out some guidance at that time, but needless to say, things are looking better than the worst is behind us.

Okay. That’s helpful. And then just secondly on inventory, I mean, obviously, your inventories are up year-over-year, but that is to be expected. What do retailer inventories look like? Is the channel fairly clean at this point?

Very, very light; all the retailers have a very, very light inventory on hand. That’s why we are seeing some actually quite large shipments starting in July and continued in August.

Thanks. Our next question today is coming from Linda Bolton Weiser from D.A. Davidson. Your line is now live.

I was curious about your success in reducing expenses. You mentioned they would be below $25 million per quarter, and they were. Now that business is starting to pick up a bit, how do you plan to adjust those expenses? Do you anticipate keeping them below $25 million a quarter for the rest of the year, or will there be an increase as business activity rises? Thank you.

We do not plan to increase our expenses significantly.

We think from a fixed expense standpoint, our goal is to try to maintain that for at least the next two or three quarters, where we do have a hiring freeze; we are not looking to bring in more personnel. We've made plans with respect to the severe cutting or elimination of certain bonuses, and that is for the entire year, just not just for one quarter. So, our goal is to try to maintain profitability; if we're fortunate enough that the business continues to improve as we've seen, then, as Jean said in the opening remarks, this should be the first and only loss that Inter Parfums ever reports.

And I guess with regard to your equity stake in Origines Parfums, can you talk about what your longer-term objectives are with regard to that? And do you think that there could be some reluctance by other fragrance marketers to carry their products on the website knowing that you have an equity stake?

Russ, do you want to answer the first part? I will answer the second.

Well, sure; the initial investment is really to get a foothold in and understand what can be done with a fragrance in the fragrance e-commerce environment. This is one of several different initiatives that we have ongoing to build an e-commerce business within our organization. Today, there is a changing environment that's out there, clearly everybody is reading almost on a daily basis of retail bankruptcy or some of our retail department stores are shedding hundreds and hundreds of stores nationwide. The e-commerce environment is something that cannot be ignored. So, this is one of, as I said, several different initiatives to give us insight into how fragrance can be successfully sold in the e-commerce environment. Additionally, we can create products dedicated for this particular market and use this as a testing ground. Again, it's all from the standpoint of education.

Regarding the question about some of our competitors being reluctant to sell on a platform where we have a stake, we sell to Sephora. Sephora is owned by LVMH. LVMH is a competitor in the fragrance field. It doesn't create any problems for us. I do not expect any problems with our competitors. Let's not forget that Inter Parfums is a pure player in the fragrance category; we do not do skincare; we do very little makeup. So, the company will be independently managed, and from all the relationships that we have with our competitors, we do not see any conflict or any problems with us having a stake in this platform.

The next question today is coming from Wendy Nicholson from Citigroup. Your line is now live.

I guess the first question is: It's great to see you forging ahead, establishing new relationships and investing in the business; but I'm also curious about your stance with regard to share repurchases. You're still sitting on a ton of cash. Is it still too early from a confidence in the business perspective and liquidity perspective? Or is it now the time that you think about buying back more of your stock?

Yes, that's an interesting question. We would rather use some of our cash if we had excess cash to reinstate a dividend, which we had paid out for at least the last 15 years or so. Buying back stock in a company where the two founders still control over 45% of the shares puts us into a liquidity problem. I talk to investors all the time, and lately, over the last several years, it hasn't been bad because there is volume, trading, and activity within the stock. I remember many, many years ago when the float was much smaller than it is today, and many, many more investors saw it as an obstacle, and I don't think it would be in the company's best interest to go after that sort of environment. So right now, there are no intentions of buying back stock, but we, when the board meets, we do discuss the dividend. And when we feel comfortable that this pandemic is behind us and our cash reserves are sufficient, then we will reinstate dividends at that time.

Fair enough. And do you have a sense of kind of underlying consumer demand for fragrances? I mean, just in terms of if people really are going to have different behavior, working from home for a prolonged period of time, and socializing differently. Do you have any concerns about just the outlook for fragrance consumption or usage, if you will? Or do you still think it's something that women and men will use regularly?

Of course, we don’t have worldwide studies, but it varies from country to country; however, we do not expect a drop in the use of fragrance maybe because our products are sold in 120 different countries and each one culturally works differently. We do not expect a drop in the use of testing, but maybe it will be different from makeup, which I think will have more casualties than fragrance. But looking to our distributors, talking to our retailer, the problem today is more about traffic in the store. But even that, it's changing quite fast. Let's not forget we're getting into a better season; the second and first quarters are stronger for us in terms of brand awareness, which should help also.

The next question today is coming from Steph Wissink from Jefferies. Your line is now live.

I have a follow-up question on Wendy's question. I'm curious if you can expand any of your licenses into other fragrance areas. Can you remind us, are you only relegated to your body fragrance, or are there opportunities to get into areas of body skin that might be fragrance or home fragrances with some of your existing licenses? Just seeing those two categories seem to be performing slightly better? That's my first question. And then the second one is just to understand changes in distribution and how you're thinking about it post-COVID. If you could remind us what your penetration was online going into COVID, and certainly with the minority acquisition, you're getting some insights into online, but how you're thinking about the evolution of your distribution framework coming out of COVID?

With many other brands that we have under license, we have a possibility, if we want to do home fragrance for instance. Some other brands have opportunities to do cosmetics. Again, we will be looking at the demand for this type of product and how it relates to the brands that we have in our portfolio. It's not because we have a right to do a candle that it would be successful to do a candle for this brand or that brand. We can also have the opportunity to go into personal care, but again this will involve a lot of research before going into this category. Regarding the second part of your question, which is about our distribution network today and e-commerce, we were under, how should I say, developed in the e-commerce sales for sure because we were really counting on our brick-and-mortar partners to do business on e-commerce, for instance, macys.com, sephora.com, and all the .coms of the brick-and-mortar stores which were doing well for us. But we think that now with what we see in the distribution, we will be working much more directly and much more actively with Amazon and website platforms dedicated to the e-commerce segment. Russ, do you want to add something?

Yes, no, that's exactly the reason why one of the reasons we entered into the agreement and the equity stake in Origines Parfums. Again, this was one area; Amazon, of course, is another, and we will be trying to work with several different e-commerce partners to try to build up that part of the business. We're not going to certainly ignore the existing brick and mortar and the existing perfumeries around the world. But certainly, we believe that e-commerce will become a bigger part of the overall pie as time goes on, so we need to be intimately involved with.

Thanks. Our next question today is coming from Hamed Khorsand from BWS Financial. Your line is now live.

Hi, can you quantify your previous comments about sales looking better? Is this because the dollar is weak now? Or is it actual unit volumes being sold?

No, I'm not talking about dollars. I'm talking about the unit.

Yes, absolutely. We would always be talking about the units and the volumes that are going through the different sales channels. As I mentioned in the opening remarks, the sales that we've seen, the orders that are coming in, it's a constant flow, and each month seems to be getting a little better and better. That's why we're expecting certainly that the third quarter should be substantially better than the second quarter. Then moving on to the fourth quarter; and as I said, we are hopeful that we will be able to give you some real quantifiable numbers and some real guidance as we approach early September.

Okay. My other question was: What is your advertising spending in such an environment now, especially given that you're talking about sales increasing? Will there be an increase in percentages of ad spend to sales?

No, we do not. Again, we do not want to increase our spending this year. This year is really a year where we are going to do our best to get through. We will make money as I said in the second and first quarters, and some investments, especially before Christmas will happen, but there we keep our advertising investments to a minimum.

Yes, sorry, Russ. I was just going to say, most of the major launches that we have will be pushed to after 2021. So, we would rather see the ad spending go along with the major launches as opposed to just a continuation of business. So, we are expecting that I think I said at the end of last quarter that we're looking at an AMP spend of maybe 17% or 18% for the full year, certainly lower than the 21% that we had seen in years past.

Okay. Thank you.

But it's a good question because in a normal year when we see a fair, it is going higher when the product is, we have a tendency to spend more on advertising. But here, we're going to be very reasonable in terms of spending.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Certainly, thank you, operator, and I thank you all for tuning in to our second quarter conference call. As usual, if anybody has further questions, I can be contacted by e-mail. Stay well and stay safe. And thank you again. Bye, bye.

Thank you, and that concludes today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.