Greetings, and welcome to the Inter Parfums Inc. Third Quarter 2023 Conference Call and Webcast. This conference is being recorded. At this time, I'd like to turn the call over to Vice President at the Equity Group and Inter Parfums' Investor Relations representative, Karin Daly.

Thank you, Daryl. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar. On behalf of the company, I would like to note that 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 may be found in the company's filings with the Securities and Exchange Commission under the headings Forward-Looking Statements and Risk Factors in their most recent annual report on Form 10-K or subsequent quarterly filings on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and Inter Parfums undertakes no obligation to update the information discussed. As a reminder, Inter Parfums' consolidated results reflect their two business segments, European-based operations and United States-based operations. Certain prestige fragrance products are produced and marketed by European-based operations through their 72%-owned French subsidiary, Interparfums SA. It's now my pleasure to turn the call over to Jean Madar. Jean, you may begin.

Thank you, Karin. Good morning, everyone, and welcome to our third quarter conference call. Sadly, Michel's mother passed away yesterday, and understandably, he is unable to join us this morning. So I will try my best to cover his financial remarks. Of course, we can arrange follow-up calls upon his return as needed. And of course, I will be able to also, as I'm in New York, to answer questions if you have after the call. The strength of the global fragrance market is still compelling but no longer growing at double-digit rates from the last two-plus years. Fortunately, and by design, our year-to-date sales growth of 27% clearly indicates our ability to outperform the industry and gain market share. The success of our newer brands has been a growth catalyst for us, along with the excellent sell-through of our legacy brands, which we have enriched with innovative extensions rather than major new product launches. Our production and distribution partners are operating efficiently and effectively to ensure that the omnichannel pipeline of fragrance sellers throughout the world are well stocked with our merchandise. These drivers produced record third-quarter net sales, up 31% to $368 million, which set a new record for quarterly net sales in our 35-plus years as a public company. For the quarter, foreign exchange rates favorably impacted our net sales by 4%, and new brands represented 7% of the growth, leading to strong organic growth of 20% compared to the prior year period. Diving into detail of our business market for the third quarter, North America, our largest market, grew sales 29%, followed by Western Europe, our second largest region, with 24% growth. We also have seen a steep increase in sales in our smaller markets, particularly in Eastern Europe, the Middle East and Latin America, Eastern Europe at 73%, Middle East at 48% and Latin America at 42% growth in the quarter. This is primarily related to a smaller base of sales, coupled with ongoing recovery growth as the economy began to normalize. Asia Pacific, our third largest market, saw growth of 20% in the latest three-month period, driven by sales in Australia and New Zealand. As mentioned in the earnings release yesterday, we continue to see a good sellout in China, namely for Coach, Montblanc and Ferragamo, enabling us to manage down our stocking trade levels, which we expect will provide a favorable tailwind in 2024. For the balance of 2023, we continue to anticipate only modest sales growth in China. Please be reminded that China currently represents only a very small portion of our business. And as always, we stand ready to take on this immense market opportunity when the time is right. With respect to our European-based operations, net sales increased 18% during the quarter, primarily driven by our top-performing brands, which are Coach and Montblanc, with sales increasing 32% and 20%, respectively compared to the prior year period. Coach fragrance was in high demand during the quarter across nearly all the brand's fragrances, and we enriched the feminine fragrance with Coach Green and Coach Love. Montblanc Fragrance saw solid performance of Montblanc Legend and Explorer franchises, with an additional boost from the extension launched earlier this year, Montblanc Legend Platinum. Our owned brands also continued to generate strong sales. Rochas fragrance sales grew 21% during the quarter, surpassing $30 million year-to-date in 2023, with strength in the Eau de Rochas line and momentum from Rochas Girl Life. Lanvin, the other owned brand, in the absence of any major launches, grew sales by 6% during the quarter. Moving into our U.S.-based operations. Net sales grew 64% in the quarter on top of a 45% growth achieved in the same period last year. Donna Karan, DKNY fragrance sales increased 200% compared to the third quarter of 2022, having joined our portfolio in July of last year. This fashion house duo has become our second largest U.S.-based brand in only one year under our expertise. In August, we introduced our first brand extension for DKNY called Be Delicious Orchard St, a vibrant scent that captures the energy of New York City's Lower East Side, and the early returns are very promising. We are on track to launch a new blockbuster fragrance for DKNY next summer. GUESS fragrance sales increased 59% during the quarter, primarily driven by the continued demand of all fragrance lines, with significant growth building upon the 45% sales increase in last year's third quarter. Growing demand for GUESS fragrances has been sparked by the rising popularity of GUESS fashion across the globe, particularly within the U.S., Asia Pacific, and Europe. As we reported a few weeks ago, we recently launched the GUESS Originals trio of gender-inclusive fragrances and are now rolling out GUESS Bella Vita Paradiso. We have been working tirelessly on innovation for GUESS to ensure we capture the successful momentum of the brand. We have a rich pipeline of fragrances planned for 2024, including a new pillar launch for GUESS, in addition to GUESS and Sexy Skin metallic. Even in the absence of a new product launch, first quarter Ferragamo fragrance sales were very strong, increasing 55% compared to the same period last year due to the legacy scents, coupled with sister scents, Signorina and the new collections that debuted earlier this year. Beyond the brand's Italian borders, Ferragamo fragrances are strong sellers in the Americas. New products are in the pipeline for Ferragamo in 2024. By the way, in two years since we commenced operations in Florence, Italy, we now have about 60 management and staff members and are expanding our brand footprint with Cavalli, but also, our Italian affiliate will be distributing all our brands in Italy. As mentioned in the first quarter sales release, we initiated Phase 1 of the Abercrombie & Fitch Fierce distribution rollout. While we began with only introductory distribution in select markets of this iconic fragrance during the first quarter, we are on track to commence the majority of the Phase 1 distribution rollout in Europe before year-end and launch Phase 2 in Asia Pacific and Latin America during 2024. Lastly, touching on Roberto Cavalli and Lacoste, our two most recent license agreements. For Roberto Cavalli, we are set to begin shipping fragrance products in January 2024, and we plan to launch our first extension of Cavalli in the summer of 2024. Of note, we did not buy the prior licensee's leftover inventory. Instead, we curated the collection and produced entirely new fresh goods. We also have summer hair and body fragrance mist and Just Cavalli due on track to see shelves early and mid-summer, respectively. The Lacoste license will take effect in January 2024, and we have been using the time since the license was signed to develop go-forward strategies. Like Cavalli, we did not buy any existing inventory. The fragrance industry remains competitive as new market participants enter the category. We are not surprised by the increased competition, as we believe there are four significant attractive elements. Number one is growth. The fragrance market has grown tremendously and is expected to continue to grow in the upper single digits with new consumers entering the category and existing consumers building out their fragrance wardrobe. The second point is resiliency. We consider resiliency to be generally recession-proof, as other beauty and consumer segments are hit harder when faced with macroeconomic instability. This is reflected in our successful almost four years of history. The third attractive element is desirability. Fragrances have a desirable entry price point for consumers who want to invest in their favorite luxury brands without having to purchase the higher-priced luxury goods. Lastly, the demand. As new consumers enter the category, it is rare to see these consumers exit the fragrance market. So from a license perspective, while we actively scout for opportunities to add new brands that further complement our prestige portfolio, we also find that brand owners tend to seek us out because of our size, our expertise, and excellent track record that underserved brand owners often look for. Our portfolio, both in legacy and new brands, is in high demand across the globe. Additionally, all of our brands have benefited from a newly launched and enhanced e-commerce site in existing markets in collaboration with our retail customers on their e-commerce site. In fact, our retail sales in the Amazon premium beauty category, an invitation-only prestige platform, have soared by an impressive 149% year-to-date through October. This remarkable growth is largely attributed to the successful launches of some of our key franchises, such as Donna Karan and DKNY. We are also developing and implementing omnichannel concepts and compelling content to deliver an integrated consumer experience. Coupled with our ongoing innovation, we are confident in our ability to continue to outpace the overall fragrance market through the end of the year. So now I will turn to our financial performance. So I will do it for the first time myself because Michel, as I said before, is not able to join us. On a consolidated basis, gross profit increased 29% to $235 million. Within our European-based operations, gross margin declined 90 basis points, primarily due to an unfavorable product mix as we shipped more gift sets in this quarter compared to the prior year. On a year-to-date basis, gross margin declined only modestly due to the one-time expense related to inventory as we reported in the second quarter. Excluding this one-time adjustment, gross margin would have been in line with the nine-month period last year. In our U.S.-based operations, third-quarter gross margin expanded approximately 190 basis points from the prior year period, driven by price increases that more than offset inflationary impacts on components used for production during the quarter, coupled with an ongoing favorable brand and channel mix. Additionally, with our net sales outperformance, we are better able to absorb fixed expenses such as depreciation and point-of-sale expenses than at this time last year. SG&A as a percentage of net sales declined to 40.2% from 41.9% in the quarter. On a year-to-date basis, SG&A also declined 190 basis points to 39.8% from 41.7% in the prior year period. In our European-based operations, third-quarter SG&A increased 18%, which is comparable to the increase in net sales and generally in line as a percentage of net sales from the prior year period. In our U.S.-based operations, SG&A increased 44% on a 64% increase in net sales. Promotion and advertising are integral parts of the fragrance and beauty industry, and we have and will continue to invest heavily to support new product launches, our strongest sellers and to build brand awareness. Promotion and advertising aggregated $62.8 million and $152.6 million for the current third quarter and for the nine-month period as compared to $44.8 million and $125 million for the corresponding periods of the prior year. Promotion and advertising represented 17.1% and 15.4% of net sales for the current three- and nine-month period, respectively, as compared to 16% and 16.1% for the corresponding periods of 2022. As a reminder, as part of our strategy, the fourth quarter is typically the heaviest period for promotion and advertising, and we continue to expect to deploy 21% of net sales annually, which allocates approximately the same level of promotion and advertising year-to-date to the fourth quarter alone. Royalty expenses are included in SG&A, which ticked down slightly from the prior year period to 7.8% of net sales for the quarter, again due to changes in brand mix. Our operating margins aggregated 23.7% and 23.5% for the current three- and nine-month period as compared to 23% and 22% for the corresponding period of 2022. We closed the third quarter with working capital of $514 million, including approximately $184 million in cash and cash equivalents and short-term investments, maintaining our working capital ratio of 2.41. We closed the quarter with $129 million of long-term debt associated with the Paris headquarters and Lacoste license acquisition. From a cash flow perspective, accounts receivable is up 49% from December 31, 2022, quite reasonable based on 2023 record level sales, and reflects the combination of a high volume of shipments towards the end of the third quarter as well as some payment schedules extended going into the holiday season. Additionally, strong collection activity resulted in days sales outstanding decreasing to 72 days at the close of the quarter from 80 days at this time last year. Inventory levels at September 30 increased 26% from year-end 2022 in support of our exponential sales growth. We have learned an important lesson from the supply chain issues experienced during the pandemic, and we have aimed to carry more inventory overall, source components from several suppliers and manufacture products closer to where they are sold to ensure we protect our service levels. Finally, turning to our full-year 2023 guidance. As we announced in yesterday's release, we are affirming our full-year 2023 net sales guidance of $1.3 billion or growth of 20% from fiscal year 2022, despite geopolitical tension and a very high fourth-quarter 2022 base. We are also increasing earnings per diluted share guidance to $4.75 from our prior estimate of $4.55, which represents growth of 26% from the $3.78 for fiscal year 2022, thanks in great part to the operating leverage afforded by our significant growth. We expect to announce our initial guidance for full year 2024 later this month.

You can open the floor for questions. Our first questions come from Linda Bolton-Weiser with D.A. Davidson.

I was wondering with regard to your comments on China that your POS grew, and so you could work down some retail inventory. How do you feel about your current levels of retail inventory there in China? Do you think there's more reduction that needs to happen? Or are things in a good condition right now?

Thank you, Linda. So regarding China, this is something that we monitor on a weekly basis. We ask our distributors to give us an idea on the most important accounts like Sephora and department stores and also the different digital operators. We are in a much better shape than before, and we see an improvement week after week, quarter after quarter. We think that the inventory will be at a normal level when we start the year in 2024. But again, with China, you know we have been always super conservative. And I think we've been right to be like that because it's a big country, and things are changing super fast. So we'll take also, even for next year, a conservative approach. But I can definitely notice an improvement in the inventory, that's all.

Great. And then without Michel here, I'm not sure if you can answer this.

I'm going to give it a try since it's my first time. Please be kind to me. Just ask your questions, and I will do my best to answer them. If I don't know the answer, I will let you know, and we will find someone else in the company to provide a response within the next couple of hours. Please go ahead, Linda.

Yes. My question is just with the level of advertising that you're guiding to in the fourth quarter, it does look like gross margin is implied to improve sequentially. So I would think it would be higher in the fourth quarter versus third quarter because of less gift sets. Does that sound reasonable to you that it should be higher in the fourth quarter?

No, I think you can use the same margin as the first three quarters. It shouldn't be higher. However, we will spend a significant amount of money on advertising in the fourth quarter to ensure sell-through at the store level.

Okay. My final question is about whether Roberto Cavalli and Lacoste can together add roughly $100 million in revenue. Is that in the ballpark?

If Michel were here, he would say he cannot answer because we don't have, but I think that, look, Lacoste has been in the fragrance business, and we have disclosed already how much we were doing with the former licensee, Cavalli also. So I think that it's a fair number to use for now.

Our next questions come from the line of Ashley Helgans with Jefferies.

Some of your competitors are still taking price. Can you just talk a little bit about where you are in your current pricing journey? And then if you think consumers...

You're talking about pricing?

Yes, yes, pricing. Yes, where you guys are with your pricing journey. And if you think consumers are going to start pushing back on price at all? And then maybe any updates you can give us on the travel retail channel.

Okay. Let's discuss pricing. We implemented a modest price increase of around 5% earlier in 2023, which effectively countered inflationary expenses for the quarter. We do not plan to make any additional price increases at this time. However, we anticipate that some consumers may eventually push back against this price increase, which has been in effect for the past two years. We believe our pricing is currently appropriate. We may raise prices slightly on certain specific products for marketing purposes, not to cover inflationary costs. That's an overview of our pricing strategy. You also wanted to discuss the travel retail aspect, is that correct?

Yes.

We see a significant improvement in travel retail, although compared to our larger competitors, our base in this sector remains small. At the beginning of the year, we were around 5%, and now we are trending towards 7% or 8%. There is definitely more traffic in airports with everyone traveling, and business is noticeably more active. We are quite optimistic about travel retail worldwide. Regarding travel retail in China, we prefer to be cautious and are not setting high expectations for this market or for Chinese travelers at this time.

Our next questions come from the line of Korinne Wolfmeyer with Piper Sandler.

Congrats on a good quarter. I'd like to just touch on the guide for the year. I mean, obviously, a pretty big step down in the top line growth for Q4, and I know there's some really challenging comps, but can you just provide any color on maybe why you're not pushing a little bit higher for Q4 and kind of what you're baking into the guidance for the remainder of the year? And then maybe how we should think about the trajectory into 2024? I understand Michel's not here. So I appreciate any color you can provide.

I can attempt to address your question. I anticipated this would be asked. We have chosen to maintain our sales level because, as you noted, we are comparing against a very strong fourth quarter from last year. We have increased our EPS numbers due to the third quarter's results, but we want to exercise caution in our projections. There is some global instability, notably with the recent outbreak of conflict in a key region for the perfume industry, the Middle East. Therefore, we prefer to take a conservative approach in our guidance. That's all I can share at this time.

And then on the advertising and marketing spend, I mean, you're still planning for that to be fairly heavy. What is your willingness if we do start to see a heavier slowdown in the top line, what is your willingness to maybe pull back on that spend to preserve the profitability of the business? Or is that something that you're going to continue to invest in even if the top line gets a little more pressure?

Yes. We will continue to invest. This investment is to ensure that all our retail partners sell out what we shipped them. So we did great in the third quarter because we shipped a lot, a lot of products, and it's absolutely necessary to maintain or to increase all our expenses to make sure that our retailers worldwide have a great sell-through and we can replenish inventory coming first quarter next year. So it will be a very short-term vision to reduce advertising to show a little bit more profit. No, we are here for the long term, and we are here to gain market share. So I'm convinced that this is the right thing to do.

Our next questions come from the line of Hamed Khorsand with BWS Financial.

Just wanted to see what kind of spending changes have you seen at the retail level going into the holidays? And are you assuming that the retailers are as much stocked as they were last year? Or do you think there's ample room for them to do reorders in Q4?

That’s a great question. We are keeping a close watch on this every day. Retailers are being very cautious and not building up large inventories. We are making daily deliveries. In recent weeks, I met with various retailers, and they placed a number of smaller orders to ensure they receive products on a weekly schedule. This is our approach. They don’t have a lot of stock, but they are still making purchases. I believe this is a wise move for retailers, and I don’t see any concerns regarding their inventory levels.

Okay. And my other question was for next year, besides Cavalli and Lacoste, what other important events are you focusing on in perfume next year?

So of course, Cavalli and Lacoste are the new brands in the portfolio, but we are going to concentrate on the five biggest franchises in the portfolio. Number one is Montblanc and Coach and Ferragamo and Jimmy Choo and GUESS. So these five brands will represent maybe 70% of the sales, and we will continue to invest. What is very important is that these five big franchises will all have a blockbuster in 2024. For three out of five, we didn't launch any blockbuster in 2023. So this is positive. In a couple of weeks, we're going to give the sales guidance for 2024. We are optimistic but prudent because, again, the world conditions and these tensions are not great for business, and we have to take this into account, of course.

We have reached the end of our question-and-answer session.

I hope I was able to answer the right way. But again, I repeat, if there is more info that you need, we will be happy to have Michel's team answer, you just have to call the office. I'm sorry, operator, yeah, you wanted to say something else? No?

No, I was just going to hand the call back over to you for closing comments.

Okay. So before I end the call, I wanted to touch again on recent geopolitical tensions. As a global business with over 2,200 touchpoints across the globe, we do everything we can to help support our manufacturers and distributors. At Inter Parfums, we are in support of humanitarian efforts and the innocent people experiencing so much pain. We condemn the terrorist attacks in Israel and will continue to work to find more ways to provide support to our partners, consumers and all those affected by this war. We hope for a pathway to peace soon. And as I said, if you have additional questions, please contact Karin Daly from the Equity Group, our Investor Relations counsel. Her telephone number and her address can be found on our most recent earnings release. Since this is our last conference call of the year, Michel and I hope you have a safe and pleasant holiday season and a prosperous New Year. We look forward to the next conference call. Thank you very much, and have a good day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.