Greetings, and welcome to the Interparfums Fourth Quarter 2025 Conference Call and Webcast. As a reminder, this conference is being recorded. It is now my pleasure to introduce Devin Sullivan, Managing Director of the Equity Group. Thank you. You may begin.

Thank you, and good morning, everyone. Thank you for joining us today. Joining us on the call this morning will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood. As a reminder, 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. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. Interparfums' consolidated results include two business segments, European Based Operations through Interparfums SA, the company's 72% owned French subsidiary and United States Based Operations. It is now my pleasure to turn the call over to Jean Madar. Jean, please go ahead.

Thank you, Devin. Good morning, everyone, and thank you for joining us on today's call. 2025 was a record year for Interparfums with sales rising to $1.49 billion, including fourth quarter sales of $386 million representing our best-ever fourth quarter performance. We saw the industry, including ourselves, return to a more historically normalized level of growth. And while new and ongoing challenges such as tariffs and exchange rate pressures have influenced the environment, we have been able to manage through them with disciplined operational execution. Fragrance remains a resilient category and is widely considered an everyday essential luxury that delivers an irreplaceable experience of self-expression and daily indulgence. In 2025, we energized our portfolio through the launch of several blockbuster fragrances and new line extensions across our brands, including the introduction of Solferino, our first proprietary ultra-luxury offering, and strengthened our marketing efforts with impactful advertising and promotional support. Our diverse portfolio of fragrances attracted consumers throughout the year with impressive annual performances by several of our top brands as well as brands newer to our portfolio such as Lacoste and Roberto Cavalli. We generated growth in the majority of our markets, made meaningful progress to improve efficiencies, optimized our supply chain to mitigate cost pressure, and supported long-term growth and continued to deepen our sales reach on increasingly meaningful platforms such as digital and travel. We delivered a high level of client service, maintained a strong financial position, and continued to skillfully navigate lingering macroeconomic headwinds in certain key markets, mainly caused by the effect of tariffs and trade destocking, and, of course, geopolitical conflicts. Innovation will continue to define our success, including the rollout of brands recently signed or acquired, namely Longchamp, Off-White, and Goutal, as well as the 15-year extension of our GUESS license and our strengthening partnership with Authentic Brands Group and their exciting brand portfolio. We will touch on that shortly. I'm very proud of our team for their hard work and dedication. This record result and continuing operational progress reflect their shared commitment to our pursuit of excellence. Now on to a discussion of our results and operating activities. As we noted on last quarter's call, we expected that fourth quarter sales will be supported by new rollouts late in the third quarter and the robust holiday sales season, and that is exactly what happened. Consolidated 2025 fourth quarter sales rose 7% on a reported basis and 3% on an organic basis, driven by higher sales for both U.S. and European Based Operations. Sales by our U.S. operations increased 4% in the fourth quarter of 2025, driven by performance from our two largest U.S.-based brands, GUESS and Donna Karan/DKNY, and even greater growth from Cavalli and MCM. Excluding the phaseout of Dunhill fragrance that was completed in August 2024, full year '25 for U.S. operations, sales declined 3%. Fragrance sales of GUESS and Donna Karan returned to growth in the fourth quarter with increases of 7% and 8%, respectively. GUESS continues to benefit from the ongoing success of the Iconic and Seductive franchise as well as the Q3 introduction of GUESS La Mia Bella Vita. Donna Karan growth was mainly driven by the Cashmere Mist and DKNY Be Delicious franchises. For the full year, GUESS sales were flat and the Donna Karan/DKNY decline of 4% was mostly due to unfavorable growth comparisons related to the timing of 2024 product launches. In just the second full year under our management, Cavalli fragrance sales rose 33% in both the fourth quarter and full year, a testament to our ability to elevate a brand's profile creatively and strategically. The exclusive May-August introduction of Roberto Cavalli Serpentine at Dubai Duty Free was highly successful and has helped drive significant brand market share growth in the region. We have expanded the distribution of Serpentine globally through multiple retail channels where it is enjoying ongoing success. Additional 2025 Roberto Cavalli rollout included the Gold Collection extension, the Paradiso extension, the Paradiso Rosa, and the striking three-scents Marbleous collection and the dual-gender Just Cavalli Give Me Magic fragrance duo. In 2026, we plan to keep this momentum going with additional extensions that reflect and reinforce the brand's established allure. MCM fragrance sales rose 40% in the fourth quarter and 17% for the full year, driven by continued performance of a new six-scent MCM collection launched in early 2025. In 2026, we expect to debut new extensions to expand the brand. We are excited to be at Milan Design Week this April, where we will have an MCM-centric display highlighting the newest fragrance that we launched in early 2026. Despite a challenging year where the brand declined 9%, and despite the launch of Fiamma, fragrance sales at Ferragamo held steady in the fourth quarter, supported by the third quarter launch of Sublime Leather. We remain confident in the brand's potential heading into 2026, where we plan to roll out new extensions across pillars. Sales from our European Based Operations increased by 9% in the fourth quarter, driven equally by a 4% rise in organic growth and a 4% positive effect of foreign exchange. Coach, Lacoste, and Montblanc led the way in the fourth quarter. For the year, sales increased 7% on a reported basis and 4% organically. While channel performance was mixed among regions, sell-through has been strong thus far in 2026. Jimmy Choo, our largest brand, continued its momentum and delivered another year of sales growth. The success of the Jimmy Choo I Want Choo women's franchise has continued to strengthen since its launch in 2021. Particularly in the United States, the launch of I Want Choo With Love, combined with the strong performance of the Jimmy Choo Man franchise, helped drive 6% growth of Jimmy Choo fragrance in 2025. We have two new extensions in the works for 2026, and we'll be using the year to prepare for a new women's franchise in 2027. Coach fragrance sales increased 5% in the fourth quarter and 15% for the full year, reflecting strength across essentially all of the men's and women's lines, reinforcing its timeless, multi-generational appeal as a mainstay of casual elegance. We benefited from the launches of Coach for Men and Coach Gold in the first half of the year. We have had a wonderful relationship with the Coach brand since 2016, and we are incredibly happy to extend our agreement for an additional 5 years through 2031. We expect to introduce new extensions for the men's and women's lines in '26. And similar to Jimmy Choo, we will be using the year to prepare a new women's franchise in 2027. In much the same way that we rejuvenated Roberto Cavalli, our success with the Lacoste brand was certainly a positive highlight in 2025. In just the second full year under our management, Lacoste fragrance sales grew 23% in the fourth quarter leading to a 28% increase in the full year, reaching $108 million, exceeding our initial expectation of $100 million. The Lacoste license took effect in January '24, and we immediately went to work, crafting and implementing strategy, and then curating and introducing a collection of fragrances for men and women that key into the timeless elegance of a brand. In 2025, we enriched the original line with a new men's fragrance called Original Parfum and the line's first women's fragrance, Original Femme. We also introduced a new L.12.12. dual-gender duo, Silver Rose and Silver Grey. In 2026, we will further expand the Lacoste fragrance lines with additional extensions, leveraging the solid foundation we have built in our first 2 years overseeing the brand. Montblanc sales rose 22% in the fourth quarter, reflecting the success of Montblanc Explorer Extreme in the second half of 2025 and the strength of the original Montblanc Legend line. This strong fourth quarter performance in combination with favorable foreign exchange helped to offset the sales softness we experienced in the first part of 2025 resulting in full year 2025 sales that were broadly in line with '24. We plan to launch two new little extensions in '26 and are preparing for a big launch of a new men's franchise in 2027. The men's fragrance market remains underdeveloped in general, presenting a substantial opportunity for us to continue offering meaningful innovation and expand our reach across our entire portfolio for years to come. We remain optimistic about the future potential of Solferino, our first ultra-luxury direct-to-consumer offering that includes a collection of 10 unique premium scents designed to cater to the growing niche high-end luxury market. Our flagship store in Paris and dedicated e-commerce platform are attracting encouraging levels of consumer traffic. Solferino reached 40 doors worldwide by the end of 2025, and we are on track to expand this artisanal fragrance house to an additional 50 in the first half of 2026 with a long-term goal of up to 500 doors at the end of 2030. We are excited that Solferino has entered the U.S. with the launch of Bloomingdale's online store and in 7 store locations with additional store rollout to come this fall. We have always taken a strategic approach to portfolio expansion, adding brands that strengthen our global reach and long-term growth profile. This year, we advanced that strategy with new partnership that further enhances our competitive position. In January, we announced separate exclusive long-term worldwide fragrance license agreements with David Beckham and Nautica, along with a 15-year extension of our license agreement with GUESS that maintains the relationship through 2048. These distinctive brands reflect our approach to an increasingly global and diverse fragrance market, identify iconic category leaders, and apply our proven operational expertise to build a sustainable franchise. Our opportunity pipeline is expanding as our ability to elevate and in some cases, revive brands is becoming increasingly recognized in the market. I want to thank Authentic Brands Group, ABG, the company that co-owned and managed both the David Beckham and Nautica brands; we look forward to a continuing mutually beneficial relationship. While brick-and-mortar remains competitive, e-commerce is running strong, and we are benefiting from our expanded presence at Amazon and early foray into TikTok Shop among others. This platform significantly enhances our global visibility, delivers rich consumer insights, and enables us to introduce smaller-sized products that serve as an affordable entry point into prestige and luxury, supporting both recruitment and premiumization efforts. Amazon remains one of our largest and fastest-growing channels, generating rising consumer engagement and premiumization. We are very encouraged by our early success on TikTok Shop, most notably, select products within our Donna Karan/DKNY brands. We are continuing to explore ways to leverage the increasingly significant sales potential of this platform, which has firmly established itself as a top 10 beauty retailer in the U.S. as well as the fastest growing. The travel retail market continued to perform well with sales growing by 6% in 2025 and representing today approximately 7% of our total net sales, consistent with prior years. Brands, including Cavalli, Lacoste, and Coach performed well throughout the year. Our strong appeal among traveling consumers illustrated by the success of Cavalli Serpentine in Dubai is helping us secure additional shelf space and broaden our SKU footprint across duty-free locations. We anticipate steady growth in our travel retail business going forward. With respect to operational improvements, we've made some good progress against our stated goals in the areas of tariff mitigation, inventory management, and operating efficiencies. For example, our transition to 100% third-party providers for packing, shipping, warehousing, and order fulfillment should be completed by the end of March of this year. We are also making progress in shifting our manufacturing closer to the point of sale with a focus on changes that provide a measurable impact. For example, as of December 31, 2025, we moved production for three GUESS lines to Italy and have since diverted all components shipment from China to Europe instead of the U.S. This one change, which represented approximately 15% of our U.S. manufacturing, produced tariff savings of $3.5 million. Retailers maintained a cautious stance on inventory levels throughout 2025, carefully managing their positions amid a dynamic demand environment. However, we began to see meaningful relief in Q4 2025 as ordering patterns stabilized and inventories declined. Encouragingly, that momentum has carried into 2026 with healthy ordering patterns since the beginning of the year. The tariff situation has become increasingly dynamic given last week's Supreme Court ruling and the aftermath. While it is too early, way too early, to determine the long-term future of tariffs, we continue to focus on controlling what we can control in our own operations and have seen encouraging results. At present, we estimate that tariff costs will remain a headwind in 2026. We will continue to implement strategies and cost savings to blunt this anticipated impact. These actions will be enhanced by the select pricing actions we took during the second half of 2025 that averaged approximately 2% across our brands, primarily focused on prestige and luxury in the U.S. market. Our pricing adjustments remained more modest than the prestige fragrance industry average as of late 2025. We do not plan to implement any further pricing actions beyond what we initiated last year unless a significant change in the market occurs. Our creative innovation, the continued resilience of the fragrance market, and the breadth of our brand portfolio position us to deliver long-term growth. We expect a continuing period of transition in 2026 leading to a more stable market conditions as we prepare for what we expect will be a more favorable operating environment in 2027 and beyond. As such, we have maintained a quite conservative posture with respect to our guidance, but we will revisit it as the year evolves. Over our 30-plus year history, we have earned a global reputation for excellence, and where there is opportunity, we will be there to capitalize on it. I'm also pleased to share that I will be speaking at the Women's Wear Daily's CEO Summit in Palm Beach this May, representing our company on an exciting industry stage. With that, I will now turn it over to Michel Atwood for a review of our financial results.

Thank you, Jean, and good morning, everyone. I will start by discussing the consolidated results before providing details on our two operating segments, European and United States Based Operations. We achieved net sales growth of 7% to $386 million in the fourth quarter, contributing to a record $1.49 billion in sales for the full year in 2025. Foreign exchange movements positively affected our top line, adding 3% to growth in the fourth quarter and 2% for the full year. However, the stronger euro has also led to higher costs reflected in our financials and balance sheet. Organic sales, excluding foreign exchange and the completed phaseout of Dunhill, along with initial Solferino sales in late 2025, increased by 3% in the fourth quarter and 2% for the full year. Gross margin decreased by 20 basis points to 63.6% in 2025, mainly due to higher costs from tariffs, which accounted for about $12.8 million or 0.9% of sales. We have managed to partially offset these impacts through favorable segment and brand mix, each contributing to 20 basis points of margin improvement, alongside pricing actions, resulting in a gross margin decline of only 0.3% despite the situation with tariffs. We anticipate tariffs will continue to be a significant challenge in 2026 as we account for these tariffs over the full year. We are actively implementing cost-saving programs and tariff mitigation strategies to help minimize these effects. We project that these initiatives, combined with the full-year impacts of price increases we enacted in August 2025, will allow us to keep our gross margins stable in 2026. Moving on to SG&A, expenses as a percentage of net sales were relatively unchanged in the fourth quarter at 54.3%, compared to 53.4% in the previous year. For the full year, SG&A increased by 80 basis points to 45.5% of net sales from 44.7% last year, mainly due to higher A&P spending and an unfavorable segment mix. A&P investments rose by 10% and 5% for the fourth quarter and full year, respectively, as we continue to invest in alignment with our expected growth trends. Royalty expenses included in SG&A averaged around 8% in 2025, consistent with our 5-year average. Overall, operating income and margin decreased for both the quarter and the full year compared to the previous year due to a combination of lower gross margin and increased A&P expenses. Fourth quarter operating income was $28 million, yielding an operating margin of 7.1%, in contrast to $36 million and a 10% margin in the previous year. Full year operating income fell by 2% to $270 million, resulting in an operating margin of 18.2%, reflecting an 80 basis point decline from last year for the reasons mentioned earlier. Below the operating line, we reported other income and expense of a $1 million gain compared to a loss of $6.4 million in 2024. This year-over-year change is mainly due to a one-time gain of $7.6 million related to debt extinguishment in the fourth quarter. Additionally, interest income increased by $1.2 million to $5.8 million in 2025 from $4.6 million in 2024 as our cash position improved. Interest expenses on borrowings decreased by $0.7 million. These gains were partially offset by a foreign currency loss of $3.7 million compared to a gain of $500,000 in 2024. The significant fluctuations in the euro-dollar exchange rate throughout the year helped our top line while leading to larger-than-usual FX losses across our financials. Our consolidated effective tax rate for the year was 23.3%, down 90 basis points from 24.2% in 2024, as we benefited from a one-time net tax gain of $2 million in 2025 following favorable outcomes from prior-year tax assessments. These elements, along with our disciplined execution and cost management, allowed us to achieve net income growth despite a challenging operating environment. Fourth quarter net income reached $28 million or $0.88 per diluted share, reflecting a 16% increase from the prior year. For the year, net income totaled a record $168 million, with diluted EPS reaching $5.24, a 2% increase from 2024. Now shifting to our two business segments, I will start with European Based Operations. We experienced solid net sales growth in both the fourth quarter and the full year of 2025. Fourth quarter sales rose by 9%, driven by 4% organic growth and a 4% favorable FX impact. For the full year, reported sales increased by 7%, with 4% organic growth and a 2% favorable FX impact. Full year gross margin was 66.1%, down from 67% in 2024, primarily due to tariffs that accounted for $8.6 million in 2025. Although SG&A expenses grew by 7% to $474 million, SG&A as a percentage of net sales remained relatively stable at 46.7% compared to 46.3% in 2024. The rise in SG&A was mainly due to a 9% increase in A&P expenses that totaled $219 million for the year, representing 22% of net sales compared to 21% last year. In total, net income attributable to European operations increased by 2% to $144 million, but as a percentage of sales, it declined by 60 basis points to 14.2%. Now turning to our United States Based Operations, we achieved 4% net sales growth in the fourth quarter on a reported basis and 2% organic growth, benefiting from a 2% favorable FX impact. Excluding the phaseout of Dunhill fragrances completed in August 2024, full year 2025 operating sales declined by 3%. Gross margin improved by 40 basis points to 58.3% for the full year, influenced by a favorable brand mix from the 2024 Dunhill discontinuation, channel mix, and pricing actions that more than offset the negative impact of 0.9% from tariffs. SG&A expenses decreased by 2% for the full year, but SG&A as a percentage of net sales increased to 42% from 40.5%, largely due to decreased net sales following the discontinuation of Dunhill. In 2025, we maintained our A&P investments at 16% of net sales, comparable to 2024, and chose not to cut other areas of SG&A in anticipation of new licenses joining our portfolio in the coming years. Overall, full year net income attributable to U.S.-based operations was nearly flat at $69 million, representing 14.3% of net sales compared to 13.3% in 2024, marking an improvement in margins. At the end of 2025, our balance sheet remains robust, with $295 million in cash, cash equivalents, and short-term investments, while working capital approaches $700 million. Accounts receivable increased by 17% relative to 2024, though this balance remains reasonable based on the record sales levels of 2025 and higher FX impacts of the euro-dollar. Although days sales outstanding rose to 73 days from 66 days in 2024 due to changes in channel mix and FX, we continue to see strong collection activity and do not foresee issues with accounts receivable collections. Despite FX headwinds, year-end inventory levels decreased by 6% compared to 2024, and inventory days on hand dropped to 244 days from 259 days in 2024, achieving our lowest level since 2022. These reductions are the result of our efforts to manage down inventory levels. We have also maintained a favorable inventory mix with a higher proportion of finished goods compared to components. These enhancements position us well for further inventory efficiencies, and we will continue to optimize our inventory levels moving forward. By effectively managing our working capital in line with sales, full year operating cash flow grew to $215 million, up $27 million from the previous year, representing 103% of net income compared to $188 million or 92% of net income in 2024. We capitalized on our stronger cash position and the lower stock prices in the latter half of 2025 to proceed with our share repurchase program. In 2025, we repurchased $14 million in shares, and we will evaluate additional repurchases if the stock price remains below our perceived intrinsic value. We are also happy to maintain our annual dividend of $3.20 per share. Looking ahead, as mentioned in our earnings release from yesterday evening, we are keeping the outlook provided in November. We expect sales to remain steady at about $1.48 billion and diluted earnings per share of $4.85. This projected decline from 2025 reflects a one-time gain recognized in 2025, the effects of tariffs, and significant investments we are making to build our newest brands and support our wider portfolio for 2027. We anticipate a return to notably stronger growth in 2027, driven by improved innovation across all key brands, including the development and distribution of our newest brands. Although we are observing moderating demand in some international markets, our core fundamentals remain strong. We continue to support a robust innovation pipeline backed by longstanding relationships with global distributors and retailers. Together with a stable and resilient consumer base, these trends reinforce our confidence in delivering consistent performance and long-term value. Before commencing the Q&A portion of the call, I want to mention that we expect to file our Form 10-K early next week, with all audit and reporting processes continuing to progress smoothly. With that, I will open the floor for questions.

And your first question comes from Sydney Wagner with Jefferies.

So in terms of revisiting your guidance later in the year, what are some specific metrics that you'll be looking for or do you need to see to give you confidence to update the guide? And then just curious, like is the category or your own pipeline or innovation uptake more of the swing factor in that? And then my other question, just on promotions. Some peers have called out some pressure there. Can you share a little bit more about what you've seen?

Michel, do you want to start on guidance?

Yes. Sydney, look, I mean, we're just starting the year. We had a really strong Q4, but we're waiting to see really what happens. The environment remains very, very volatile. We are seeing a slowdown in market growth. The market growth in the fourth quarter for the markets that we're tracking was up 2%, and it's definitely starting to slow down. For the year, we're at about 3%. So definitely a slowdown in the market. The destocking situation was a lot better in the fourth quarter. We shipped better than expected, and we saw some restocking. At the same time, we believe that structurally, destocking will continue to be a factor as retailers and distributors normalize their inventory levels. It's just a normal part of the cycle. And so we're waiting to really see how all of that kind of plays out. In terms of our innovation pipeline, I mean, we have a very, very strong innovation pipeline for 2027. But for 2026, our strategy is really more of a flanking strategy. So we're waiting to see also how that basically holds up and how that's basically being received in the market before we feel comfortable updating our guidance. I don't know if you want to add anything...

Yes. Thank you, Sydney, for the question. Regarding the guidance, as you know, this company has always been conservative. And we spent a good amount of time reevaluating the guidance, and we have decided to keep it, not to change it because even though we had a quite good January and February, and I think we're going to anticipate a strong first quarter, the visibility is not great. So we are cautiously optimistic. And instead of retouching the guidance many times, I prefer to wait a little bit more. So it's not a sign that things are not going well. It's just we continue in our approach of being prudent. So that's regarding the guidance. The promotion, Michel, do you want to answer on the promotion?

Yes. As you know, the entire industry in the U.S. adjusted prices due to tariffs, and those increases were largely implemented. However, we noticed an increase in promotions during the fourth quarter, with slightly more discounting than usual. This is to be expected. In this category, we generally don't engage in heavy discounting; instead, we provide value through gift sets and GWPs. Nonetheless, I would say we experienced a bit more of these friends and family discounts than we typically see in the fourth quarter.

But nothing out of the ordinary.

Yes. Nothing significant, but maybe a slight uptick, but nothing significant, and nothing of any large magnitude.

Your next question comes from Aron Adamski with Goldman Sachs.

I have two. First, on the portfolio. After signing of the two new brands that you recently announced, do you have any further capacity to secure additional licenses? And in that context, would you prefer to add brands more in the mass end of the fragrance industry or build up the prestige presence further? And then my second question is on the flanker pipeline that you have mentioned for this year. Can you please give us a sense of your expectations of which brands do you expect to gain market share in 2026? And conversely, which parts of the portfolio are you relatively more cautious about at this stage in the year?

Okay, Aron. Let me address the first question. After signing the two new brands, David Beckham and Nautica, do we have the capacity to take on more? Before I respond, let's take a moment to consider what we can achieve with these brands. David Beckham is a well-known icon with significant name recognition, and we believe we can perform well in this lifestyle segment. This isn't our first time transferring licenses from Coty; we've previously managed successful transfers with brands like GUESS, Lacoste, and Cavalli. I see these two new brands as valuable additions to our portfolio, which is already quite diversified, ranging from high-end brands like Van Cleef, Graff, and Boucheron to lifestyle brands. Therefore, we believe this addition is a great fit for us both ways. So, do we still have the capacity to take on more after these two brands? The answer is yes, absolutely. We have the organizational structure, human resources, processes, and a strong desire to grow our portfolio. We are actively pursuing more opportunities, though we can't guarantee any announcements will follow. We're targeting significant brands. For us, evolving the portfolio is a natural progression. We plan to phase out smaller brands while introducing newer, more prominent ones. We have the capacity and distribution network, with a presence in 110 to 120 countries directly or through distributors. There is a demand for new offerings. So that's the situation regarding our portfolio and the new brands. Michel, would you like to elaborate on the flankers?

Certainly. Building on your point, our design and structure, specifically operating with two segments, enhances our ability to manage more brands. We have a hub in Italy overseen by U.S. operations, providing us with a third hub. This setup allows us to place the right brands in optimal locations to reach audiences that resonate more with them. For example, we'll manage the David Beckham brand from Italy, the Nautica brand from the U.S., and the Longchamp brand from France. Additionally, we recognize that many brands are underserved and could benefit from our expertise, as Jean highlighted. We invest significant time in seeking new opportunities and will continue to do so. It's important to note that there can be a delay between discussions and acquiring brands, especially since licenses have expiration dates. Even recently announced licenses may not be immediately available, which is a continual factor in our strategy.

Michel, you're breaking up.

Yes. Can you hear me?

Yes.

Our flankers are primarily intended to maintain market share rather than increase it, but they play a crucial role in ensuring strong revenue growth. When a product line begins to show signs of declining interest, we focus on creating new blockbusters. We have a robust pipeline of potential blockbusters slated for 2027 across all of our major brands, including Jimmy Choo, Coach, Montblanc, Lacoste, and GUESS. In addition to these, we have several new launches coming up. For the upcoming year, we expect brands like GUESS, Lacoste, and Cavalli to perform exceptionally well, while Montblanc, Jimmy Choo, and Coach are anticipated to see moderate growth. However, we are confident that our existing flanker strategy will continue to yield favorable results.

Yes, I agree. We are really looking at 2027 as a very special year because the five biggest brands in the portfolio will have five very important launches for blockbusters. It's quite unusual for us. It happens once every, I don't know, every 10 years. So we are gearing up for that. But we'll have a reasonable growth in 2026 with our strategy of flankers.

And your next question comes from Susan Anderson with Canaccord Genuity.

I guess maybe just to follow up on the gross margin. I think you guys were originally expecting maybe a little bit less deleverage in the fourth quarter. Maybe if you could just talk about what happened there versus your expectations? And then also looking to this year, how should we think about the cadence of the gross margin? Should we expect it to be, I guess, down in the first half as we still have the tariff impacts and then potentially up in the back to get to that flat for the year?

This is a perfect question for Michel. Michel, go ahead.

Thank you, Jean. Susan, the gross margin in the fourth quarter showed some concerning erosion. The 300 basis points drop is due to several factors that unfortunately all moved in the wrong direction. Typically, these elements can offset each other, but in this case, they didn't. The main issues were the full impact of tariffs, which we felt entirely, and this accounted for about 2 percentage points for the quarter. We also experienced challenges with foreign exchange. While foreign exchange was beneficial for our top line, it negatively impacted us since many products are made in Europe. Our sales, denominated in USD, suffered because costs in euros were significantly higher. Last year, the euro was at $1.07, and this year it was $1.16, which further complicated matters. Additionally, there were changes in our channel mix. We had a higher proportion of sales through distributors, which offer lower gross margins but also lower advertising and promotional expenses. In the fourth quarter, distributors accounted for about 68% of our business compared to 63% previously. All these factors combined are indeed concerning. However, looking ahead to next year, we believe we have effective strategies to help achieve a flat gross margin. Though we expect some challenges in the first and second quarters, we anticipate improvements in the third and fourth quarters as we overcome the tariff impacts and our cost-saving initiatives begin to yield results.

Your next question comes from Hamed Khorsand with BWS Financial.

Just want to ask you, you've talked a lot about the top 5 today. Is there anything in your other brands that could be a breakout situation for you to get into the top 5? Or you're not expecting that this year?

This year, breaking to top 5, I don't think so. Michel?

No, I mean, Hamed, I think our largest brands are really our engines of growth. They are diverse in various categories, price points, and genders. I believe that's where we're going to see growth moving forward. Meanwhile, the tail end of the portfolio will likely remain stable with brands like Lanvin and Rochas or may continue to decline. Eventually, these brands may fade out, presenting us with opportunities to consider exits, as Jean mentioned regarding cleaning up our portfolio.

I don't think that the top five brands are anywhere near or above $200 million. The second tier is significantly below that, so there's a notable difference between the first and second tiers. However, we will enhance our portfolio with new licenses we're acquiring. I believe Longchamp has great potential, and Nautica also shows promise. Additionally, if we consider Lacoste, we doubled sales in less than three years. With Cavalli, we boosted sales by 50% in two years. We understand how to manage new brands effectively, and I see considerable potential for the new brands in our portfolio.

Got it. And Michel, on the working capital end, there was a considerable amount of free cash flow generation in Q4. I think that's very seasonal. But is there potential for more here as you try to wind down some of the inventory? Or is that more just a function of how the industry is right now with the destocking?

Yes. Well, look, I mean, one of the upsides of sales starting to normalize is you're not investing as much in working capital. So definitely, the sales normalization has helped us basically deliver working capital improvements, but we've also done a lot of good work in terms of managing down those inventories. And I think we're going to continue to see that, and we're going to continue to see strong operating cash flow productivity going forward.

And your next question comes from Aron Adamski with Goldman Sachs.

I wanted to quickly ask about the trends you are observing in your key regions so far in 2026. Which areas are experiencing the strongest demand for your brands or for the category overall? Conversely, in which regions have you seen a slower start to the year than anticipated?

So I'm going to try, but Michel will follow this very carefully. What I see is the U.S. is doing well. In a very quick, short word, the U.S. is doing well. Southern Europe is doing fine. Northern Europe is more difficult. Eastern Europe is okay. This is for the U.S. and Europe. Asia for us, China continues to be slow, nothing new. Australia is showing some strong signs of growth. We traveled a lot in the first 2 months of the year to make sure that the Christmas went well. What I see is, in general, the level of inventory in stores or at distributors is not high, which is a good sign. Sell-through was good. Nobody is holding too much. The level of reorders is quite strong. So we're not really worried. Michel, I'm sure you can add more...

LatAm continues to perform exceptionally well, and our brand portfolio is resonating with consumers. In Asia, although sales have been a bit slower, we've improved our distribution in India and Korea, and we anticipate a positive rebound in 2026 from those changes, in addition to the positive trends in Australia.

And there are no further questions at this time. So I'll hand the floor back to Michel Atwood for closing remarks.

All right. Well, thank you again for joining our call today. Before I end the call, I'd like to express my sincere appreciation once again to our teams for their tremendous effort throughout 2025. Our achievements are a direct reflection of our people, their dedication, creativity, and the unique contributions they bring every day, and particularly the agility that we've had to deal with this year with all of the moving pieces that we all are aware of. If you have any additional questions, please contact Devin Sullivan from the Equity Group, our Investor Relations representative. And thank you, and have a great day.

Thank you. Thank you.

Thank you. This concludes today's conference.