Interparfums Inc (IPAR) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to Inter Parfums's fourth quarter 2007 conference call. At this time, I would like to inform you that this conference is being recorded, and that all participants are currently in a listen-only mode. I will now turn the conference over to Russ Greenberg, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning, and welcome to our 2007 fourth quarter and year-end conference call. If you have not received a copy of the press release we issued yesterday afternoon, please contact Linda Latman at the Equity Group. 212-836-9609, and she will either fax or e-mail a copy to you. Before proceeding further, I want to remind listeners 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 include are not limited to the risks and uncertainties discussed under the headings Forward-looking Statements and Risk Factors in Inter Parfums's annual report on Form 10-K for the fiscal year ended December 31st, 2007, and the reports Inter Parfums files from time to time with the Securities and Exchange Commission. Inter Parfums does not intend to and undertakes no duty to update the information discussed.

Okay. As most of you know, when we refer to our European based operations, we are primarily talking about sales of prestige brand name fragrances which are conducted out of France. When we discuss our United States operations, we are referring to sales of specialty retail and mass market products. Moving on to our fourth quarter financial results, as we reported yesterday, net sales rose to a record $119.4 million, up 32% from $90.2 million in the same period last year. At comparable foreign currency exchange rates, net sales were 24% ahead of last year's fourth quarter. Fourth quarter sales by our European based operations rose 37% to $96.6 million, while U.S. based operations sales increased by 15% to $22.8 million for the quarter. To repeat a point raised on our last two conference calls, our business has become far more seasonal, due to the operation of our four majority owned distribution subsidiaries, and our entry into the specialty retail arena. Due to increased consumer spending around the holiday season, the second half of the year is expected to continue to produce a greater portion of our annual sales.

Moving on to fourth quarter profitability measures, gross margin rose 58% from -- I'm sorry, gross margin rose to 58%, from 54% in 2006, with the improvement due to the higher wholesale selling prices recorded by our new distribution subsidiaries, as well as the effect of product mix within our United States based operations. As specialty retail product sales generate a higher gross margin than mass market product sales. Selling, general and administrative expenses as a percentage of fourth quarter 2007 sales was 44%, as compared to 41% in 2006. Promotion and advertising in SG&A aggregated $16.9 million for 2007, compared to $11.1 million, while royalty expense included in SG&A aggregated $9 million, as compared to $8 million in the same period in 2006. Much of the remaining increase in SG&A expenses relates to operating expenses of our European distribution subsidiaries.

Fourth quarter net income increased 57% to $8.6 million, from $5.5 million and diluted earnings per share was $0.41, up 52% from $0.27 per diluted share in the fourth quarter of 2006. I would like to point out that we took a $900,000 impairment charge in the fourth quarter, relating to Nickel, in performing our annual review of the recoverability of the carrying amount of goodwill, we determined that sales levels were less than we had originally anticipated. Therefore, the carrying amount of the goodwill exceeded fair value determined by comparisons to prices of comparable businesses. Jean will highlight some of our plans for Nickel later in this call.

Just to summarize 2007 full year results, Inter Parfums achieved record net sales of $389.6 million, up 21% from $321.1 million in 2006. At comparable foreign currency exchange rates, net sales for 2007 were up 15%. European based sales rose to $330.8 million, up 22% year-over-year, and represented 85% of consolidated sales. U.S. based sales increased 15% to $58.8 million in 2007 as compared to 2006, and was due to Inter Parfums' specialty retail businesses with Gap, Banana Republic and New York & Company stores. Net income set a new record, increasing 34% to $23.8 million, from $17.7 million in 2006 and diluted earnings per share was $1.14, up 33%, compared to $0.86 in 2006.

Moving on to other business, as most of you know, when we announced our initial 2008 guidance, we also reported that from late December 2007 through early January 2008, we purchased 350,000 shares of our majority owned subsidiary Inter Parfums SA for an average purchase price of 30 Euro per share. In February 2008, we purchased an additional 200,000 shares for an average purchase price of 25 Euro per share. The total shares purchased represent approximately 4 .5% of the approximately 12 million outstanding shares. We used $22.3 million of cash on hand to finance the share purchase. On a similar note, which we announced yesterday, our Board of Directors authorized the repurchase of up to 500,000 shares of Inter Parfums Inc. common stock and in February, 129,524 shares were repurchased at an average price of $16.95 per share. In both cases, our Board determined that the fair value of our stock and that of our subsidiary was significantly greater than market value, making shares in both a potential good, long-term investment and a prudent use of our cash, which may reward our shareholders through reduced share count and dilution.

I'd like to point out that inventory levels at year-end, while up around 50% from year-end 2006, were up only 5% from the close of the third quarter of 2007, with both parts of our business' European and U.S. running in high gear, you can expect higher levels of inventory to be the norm. Before handing the call over to Jean, I will add that we are hearing the same economic warnings as you about consumer spending, the luxury sector, the credit crunch and all the rest. Thus far, we have seen no signs of our overall business slowing down. We remain cautious. We will attempt to respond quickly if needed and intend to continue to operate our business under the fortification of a strong balance sheet. From today's vantage point, it appears that 2008 will be considerably better than our earlier guidance. As we reported yesterday, we have raised our 2008 guidance and are now looking for net sales of approximately $442 million, and net income of approximately $25.8 million, or $1.25 per diluted share. As I've said in the past, this guidance assume that's the dollar remains at current levels.

Jean?

Thank you, Russ. I join Russ in thanking you for your participation on today's conference call on both sides of the Atlantic, we can point to some rather significant accomplishments in 2007.

In Europe, the acquisition of the Lanvin trademark, the establishment of distribution subsidiaries, the addition of Van Cleef & Arpels license, and product launches S.T. Dupont, Paul Smith and Roxy were just some of the highlights of 2007. In the U.S., the launch and roll-out of Gap fragrance, personal care, men's grooming and home fragrance product was by far the most ambitious endeavor since we entered the specialty retail business. As you know, we also entered into the popular priced arena with our New York & Company agreement in April of 2007 and we launched the City Beauty collection in time for Holiday 2007 sales.

A few weeks after our last conference call, the Brooks Brothers agreement was signed, under which we are designing, manufacturing and supplying personal care products for men and women to be sold at Brooks Brothers locations in the U.S. In addition, such agreements also grant us licensing rights covering Brooks Brothers stores and specialty and department stores outside the U.S. and duty free and other travel related retailers. We are extremely honored by this new association with Brooks Brothers, an American icon since 1818 and an enduring name that has shaped the American style of dress, for fashion innovation, fine quality and personal service. Drawing upon the Brooks Brothers heritage, we are developing classic yet modern personal care products and collections for men and women. The first new products, the men's and women's fragrance are currently scheduled for launch in November 2008 at 200 Brooks Brothers retail locations in the U.S. Plans call for international distribution to begin in 2009.

As we have reported, the most ambitious launch schedule in the history of our company is now in the works. The Beat, the six Burberry fragrance family has made its way into the U.S. and France and product roll-out worldwide should be essentially complete by mid-year. In Paris, The Beat reached number one in Sephora at the Champs-Elysee store, and in the U.S., reached number one at Nordstrom during the first three weeks of launch and number two at Bloomingdale's. With The Beat, we are targeting a younger segment with a mix of rich tradition and an avant garde positioning to expand the Burberry fragrance customer base.

There is also a new women's Van Cleef & Arpels scent, a new Roxy women's fragrance, a skincare line, and a men's fragrance line in the pipeline. Additionally, in the 2008 lineup includes limited editions men's and women's fragrance for Christmas and newest flag fragrance for men and women. As Russ mentioned, retail has underperformed relative to our expectations due to disappointing sales of O-Maximum, it has been discontinued. In 2008, we intend to focus more on men's skincare products and launch several new ones to grow Nickel sales and we have engaged the U.S. distribution organization to place products and grow market penetration.

Moving on to the U.S., there will be some new products, new configuration and some special promotions. For Gap, we are creating seasonal body and skin collection programs. For the spring we have a special scent called Bloomful debuting in stores, for Banana Republic there will be a small size fragrance, miniatures, in collection bottles. We also recently added lip gloss to the New York & Company product offering.

I would like to share with you the fact that last month we celebrated our 20th year as a public company and on February 4th we rang the NASDAQ closing bell. Over the past two decades, our company has grown, evolved and prospered from our early days as a small mass market fragrance producer, in 1993, and in 2005 and we made our mark in the specialty retailer arena. I'm very proud of our growth and uninterrupted record of profitability and of our ability to fund most of our growth through cash flow from operations.

Before taking your questions, let me share with you some of our upcoming presentations. We will be speaking at the Sidoti & Company 12th annual Emerging Growth Forum on March 25th and at the Piper Jaffray Consumer Conference in June. Both conferences are in New York City. We hope that we will get to meet some of you in person at these events. Operator, you can open the floor for questions.

(OPERATOR INSTRUCTIONS). Your first question will be from the line of Joe Altobello of Oppenheimer. Please state your question.

Good morning. Just first question for Russ, I want to just drill down into sort of what happened in late '07 to make you much more optimistic for '08. I mean, how much was it you guys were too conservative on the consumer heading into the holiday season? And how much was it the very strong initial sales you're seeing in The Beat in early '08?

Well, you know, I don't really like to comment as to whether we were conservative in 2007. The reality is as we stated in the press release, and in my remarks, that going into the fourth quarter we were hearing the same stories with respect to the market with which we operate, people not looking for a very successful holiday season, so we were very cautious in entering that quarter and there are certain programs that we kind of trimmed down even a little bit. And this is one of the reasons that we exceeded our own guidance so handsomely at the end of 2007. But as we approach the fourth quarter and as we saw the final results in the fourth quarter, we also saw the impact that the new seasonality has with respect to our distribution joint ventures and going into the early part of '08, when we began to launch The Beat for Burberry because Burberry is such a large percentage of our overall business, it still represents around 52, 53, 54%, a launch of that magnitude has a huge impact on our expectations for full year results. And so far from what we've seen for the first two months and as Jean mentioned with respect to successes at certain retail locations, we're very optimistic. And as a result, that's what led us to increase our guidance for 2008.

Okay. So it sounds like it's a little bit of both.

Absolutely.

You guys were a little bit more conservative than you probably should have been. Moving on to '08 as we sort of build the model here, I'm just -- there are a number of puts and takes. I want to make sure I've got them down. It seems like the gross margin expansion you saw this year obviously would not repeat, but I would expect to see gross margins up in '08. As for SG&A, some type of leverage this year, where SG&A as a percentage of sales may be flat to even slightly down in '08?

Well, I'm not going to comment with respect to individual components. I understand your rationale with respect to gross margin. And I can agree with that, that the impact that our distribution subsidiaries had certainly will anniversary itself so you're not going to see a big shot the arm with respect to that. What's going to drive changes in gross margin is going to be changes in product mix, and that's product mix within the different product lines in Paris and product mix within the different lines here in the United States and even different growth rates between U.S. operations and Parisian operations.

Now, the -- when you get down to selling expenses, even our guidance is not looking for a huge amount of leverage, not even looking for any leverage on our growth in sales. There's a lot of different factors that are incorporated in that, and many of them we discussed at length at the end of our third quarter conference call. I'm sorry, not at the end -- at the end of the third quarter, and when we announced our guidance for 2008. Because even that initial guidance did not have leverage in the operating margins of the company. And there's a multitude of different factors that play in there, on both sides of the Atlantic.

Got it. Okay. And then last, if I could, the tax rate in the fourth quarter, it was much higher than we had anticipated and it would seem rather odd, given that a lot of the income came from overseas which tends to have a lower tax rate. What was the reason for the tax rate being so high?

You have a couple things, but I mean, I'm not sure if it was anything that was all that unusual. Ended up around 38%. There is a small amount that is related to Nickel with respect to deferred tax assets and valuation reserves that we put on deferred tax assets. I believe that I talked a little bit about that in the actual 10-K. Other than that, the -- it's how things are flowing through from all the different subsidiaries and gains and losses that occur in each of the different jurisdictions with which we now operate, that can create unusual fluctuations in our overall tax rate.

Okay.

I can't dissect it much more and honestly, I didn't look all that closely at it because overall for the year, it came in pretty close to what we would have anticipated.

It was about $0.03 for the quarter, that's why I asked, actually.

Yes, I hear you.

Great. Thanks.

Thank you.

Your next question will be from the line of Neely Tamminga of Piper Jaffray. Please state your question.

Good morning. And congratulations. That's really astounding results here.

Thank you.

Just have a couple questions here. One would be on the retail ops business, I guess kind of an overall heading. Remind me again that you guys don't actually pick up the tab on the marketing spend, I think that's done by the retailer and in that context in some the conversations we're having with these guys, it seems to me they're reining in their budgets with respect to marketing spends and various other CapEx spending. Do you think that potentially could have an impact on your retail business or are you just finding now that year and-a-half into it or so that there's really kind of no correlation that the business kind of just stands on its own with its own fixturing in store, just a conceptual question for you guys there.

I'll try to start and Jean, you can add a little in if it -- I'm assuming what you're talking about is our specialty retail business.

Yes.

Specifically where we're selling into specialty retail stores because we don't really have retail operations per se.

Yes, that's correct.

You're correct that the marketing spend with respect to that part of the business is solely the responsibility of the retailer. Whether that be New York & Company, Brooks Brothers, the Gap, Banana Republic, et cetera, et cetera. They do and clearly you're right, they have been reigning in on certain promotional -- on certain advertising but most of this business is really driven by promotion. All right. And in store types of promotion to move product through. And we work with them to create programs that they can use within their stores, whether it's a buy one, get one, or things to drive sales within the store. So far, other than the initial launch of Banana Republic where we saw some media advertising, the amount of advertising has been minimal and that's probably as you state, because they are reining in their budgets. So we're driving the business without a tremendous amount of spend on media. So if in fact in the future this changes, and budgets open up, then we can actually see even greater potential with respect to the sales there.

Okay. That's very helpful. In terms of Brooks Brothers, if you could just give me a sense of how many doors of distribution is that launch and kind of the relevant number of SKUs and is this a brand that you then can take and launch into maybe wholesale internationally, given its more international appeal as a brand, just kind of getting a sense there.

Yes, Jean answering. Brooks Brothers will start at the end of the year. We're going to try to be ready for Christmas and we will launch in 200 domestic doors. And the concept is to stay leading the doors, the same way in the U.S. we have stayed in the doors in Banana Republic or Gap. In 2009, when we start the roll out internationally, we will sell outside of their door, even though there are some Brooks Brothers doors in Europe, in Japan, at around 200 doors, we will be able to be in many doors, like you said, going wholesale, selling to perfumeries, department stores in Europe and in Paris. Also, I think that we could have some good business with duty free and airlines, as Brooks Brothers is very iconic of America, we have already identified some good demand for listing Brooks Brothers in duty free. Brooks Brothers is a brand, so Brooks Brothers is not only a retail chain, it's a brand and we are -- and that's why it has good reason to be in the personal care. The development will be very similar to Banana Republic development, where Banana Republic is not only a chain of stores, it's also a lifestyle brand.

Thank you Jean, that's very helpful. And in terms of the brand, obviously they offer both men's and women's but it is to your point iconically more of a men's brand versus a women's brand. So would you expect, relative to the Banana Republic launch, that it would be about half the SKUs on the launch, again, focusing more on the men's scents versus the female scents.

Expect to generate 70% of our volume with men's products and 30% with women's products.

The price points would be comparable then to Banana, is that what I'm hearing right?

No, the price points will be much higher than banana.

Okay.

Much higher. Price point will be very similar to department stores designer fragrances, which means 3.3-ounce will retail around $70 to $90. We're at the high end of the spectrum.

Excellent. One housekeeping question, Russ. The tax rate, I'm not sure we got the full answer from Joe. What should we be expecting to use for the tax rate?

I think that the annual tax rate is more reflective of what can be expected, which is around the 35%.

Oh, okay. Okay. I just want to make sure, just in terms of the modeling purposes. Thanks and good luck.

Your next question will be from the line of Kurt Frederick of Wedbush Morgan Securities. Please state your question.

Congratulations.

Thank you.

Couple quick things. I was just wondering on the March continuing behind the launches this year, wondering if one or two quarters is going to have a big increase or if it's going to be more spread out just due to the timing of the launches?

That's a very -- it's a very interesting question. The reality is, although we're launching Burberry The Beat in the first quarter of 2007 -- I'm sorry, 2008, a lot of the marketing spending actually comes later on during the year. There are some obligations that we have with respect to contractual obligations with Burberry and with spending and the timing with which those obligations are actually required is different than when we're actually selling the product in to our distributors, which is going to cause some distortion. And what I mean by that is that as we enter the first quarter, we're going to have a lot of shipment that go into our distributors. But the marketing requirement for Burberry is when our distributors sell the product to the retailer.

So as we approach the first quarter, we're going to probably see that we're spending less in marketing because there's not a lot of marketing expenditures that you do in January, February and March, and the fact our sales are going to be relatively high because we're selling into our distributors and the requirement of the marketing doesn't really hit until the second quarter when our distributors will move the product into the retailers. So it's going to cause some unusual fluctuations in our marketing spend and this is one of the real first times that we have a major launch of a Burberry fragrance, because I'm only talking Burberry here. This is the only one of our licenses that are written like this, and because Burberry is such a significant asset to the company and such a significant product line, this is going to cause some interesting modeling as we enter the first and the second quarter.

Okay. And that's not going to be the same then for like all the fall launches, it will be --

No, other launches with other brands are very different because all of of our license agreements other than the Burberry require a minimum spend based upon our sales.

Okay.

All right. And Burberry it's a little bit different. It's not based on our sales, it's based on our distributors sales, so you have a different timing period when this could come about. I'm going to be able to go into much more detail at the end of the first quarter, all right, and I'll probably try to put some impact that we could have even going into the second quarter. But that really is kind of the irony of what's going on with respect to that particular license.

Okay.

I would like to add as well, talking about The Beat and I mentioned some early readings from department stores, I would like to say that we didn't ship any of The Beat in 2007. So our numbers of 2007 do not include any sales of Burberry the Beat. We started to ship the Beat to distributors very early January, the first day of the year, and so we have seen in the last two months a huge amount of products going out to our distributors. Some distributors started to put it in the market and the case of the U.S. , where Proctor & Gamble is our distributor, and they started the sales. We've seen already some strong reorders from the retailers, from the stores, so it means that the selling was strong, the sell-through was strong. We had received a plan with Nordstrom and with Bloomingdale's. The roll-out is going to continue during the second quarter. But we like to compare with other launches which we have done for Burberry and by far, The Beat exceeds what we have seen for Brit, which was our latest launch before. Just to give you a feel of the market.

Okay. No, that's good. Thanks a lot. I just had one other question on the four European subs. About a year in now, just kind of wondering how they're performing versus expectations and then if what you're seeing in that time has made you like more willing to kind of look at additional markets to do that?

I could try to answer. As you know, we started on the slow pace with our subsidiaries in U.K., in Italy, in Spain and in Germany. The reason that we decided to go into ask subsidiary was really to have a better control of our marketing in these European countries, which represent a very important part of our business. So in partnership with our formal distributors, we formed these subsidiaries. They are not generating a profit from operation during the first year. We are not expecting to have losses or profits from these subsidiaries. But what is important is that it will -- we've seen already a strong, positive impact in terms of space allocated in the stores, especially in Germany. We've seen already that our presence for instance in Italy has been better this year, in 2007, versus 2006, so it's difficult to quantify with numbers, but from a positioning and from a marketing point of view, I think that we see the benefit, especially we launched like the Beat.

That sounds good. That's it for me. Thanks a lot.

Thank you.

Your next question will be from the line of Mimi Noel of Sidoti & Company. Please state your question.

Hello, Mimi.

How are you?

Very good.

Couple of questions. Russ, you said earlier that you're looking from margin compression on both sides of the Atlantic and I just want to make sure that I'm looking at that properly on the -- in Europe, on the perspective of currency and translation there and domestically the infrastructure bill to accommodate the specialty business. Is that accurate?

Yes, that's to a great extent, and that's pretty much what we said when we announced our initial guidance for 2008. Clearly, to a smaller side, it's here in the United States because of certain leveraging or inability to leverage. We didn't have all the expenses in for this business throughout the entire year of '07. From the European side, part of it is from currency translation, but the other side of it is that there are certain items of expense that are not part of the actual operations in Paris.

Okay.

All right? In other words, our subsidiary released guidance and indicated a stability in margins and the reality is is once -- there are certain intercorporate allocations, number one, and there are certain consolidating issues with respect to the minority interest that creates additional expenses in the consolidated environment of the financials. So it's -- that also contributes to the -- a little bit to the deleveraging, if you will, of our guidance for 2008.

Okay. That's helpful. And then if if you would indulge me on the SG&A line, if I'm looking at this year versus last year and in the 10-K you gave the expenses for royalty and advertising, promotional expenditure which I think you also gave on the call. And if I compare the balance, the expense this year versus last year, it looks like roughly $56 million versus $87 million, or thereabout. That increase, if my math is correct, is that primarily to accommodate specialty retail? Is that for the distribution subsidiaries in Europe? Can you give me an idea of what for accounts for the majority of the increase?

Basically you have small increases on the royalty and on the marketing. But a major portion of the increase of the overall expense is absolutely the result of the selling expenses of the distribution subsidiaries. As Jean mentioned just a couple minutes ago, that yes, we gain in the gross margin because we are selling the product at a wholesale price instead of an factory price, but these distribution subsidiaries in 2007 were not profitable. In the future, we expect a break-even, maybe even a little bit of a profitability. But all of that benefit that you get in the gross margin is coming back out in the standpoint of an SG&A expense.

Okay. I understand. And also there is a $12 million fee outlined in the 10-K. Is that -- that was in the P&L and is that recurring or non recurring?

$12 million fee for what?

Sounded like for the distribution JVs.

No, I'm not sure what you're referring to.

I'll go back and take a second look. Perhaps it's my mistake. You mentioned trimming programs towards the end of the year in 2007. Can you tell me what kind of programs were trimmed and does it maybe cause you to rethink what kind of brand product launch support you might need in the future?

No, the type of programs that were just held back was mostly in the cost of sales area and point of purchase materials, things like that. Because when you look at the overall marketing, the marketing spend as a percentage of sales on the promotion line was very consistent in 2006 versus 2007. What all -- all we were basically saying is that we took a very conservative approach as we entered into the fourth quarter. As we were hearing the same uses that you were with respect to the economic environment.

That's all I have for now. Thank you.

Thank you, Mimi.

(OPERATOR INSTRUCTIONS). Your next question will be from the line of [Mark Batellin of Sim Capital]. Please state your question.

Hi, guys. Russ, we've been through this conversation on six months ago on the net debt. Could you expand again on the amount of dividends that has been distributed by the -- that the U.S. company's entitled to, which have not been distributed by the French company. Is this question clear or -- ?

I'm going to try to answer. The question is not clear. But I think I know what you're talking about. And correct me if I'm wrong. You're referring to dividends that are paid by our Paris subsidiary to its shareholders?

Correct.

If you look at the cash flow statement.

French level.

On the French level. If you look at the cash flow statement, there is actually a line item in our financing activities that states what the dividends were that were paid to minority interests. All right. Because the dividends that are paid to Inter Parfums holding, which is owned 100%, who owns the shares of IPSA, that money is paid by the operating subsidiary, by Inter Parfums SA, to Inter Parfum holdings, which is 100% owned by Inter Parfums Inc. That money up until recently was loaned back to Inter Parfums SA and that interest, and they would pay interest at a fair market interest rate on it. But what we did more recently is the shares that we purchased of Inter Parfums SA, we used funds that were held by Inter Parfums Holding to buy those shares. That's where it came from.

Today I think that now we own 75% of our --

That's correct. We're at about 4.5%.

We went from 71% to 75% ownership of our French subsidiary and we used --

$22 million of cash.

Basically what you're saying is the money -- and I had the money tabled at 11.9 million Euros back at the half year of '07.

That's correct, approximately $12 million, something like that.

If you acquire the a additional 4% in IPSA.

That's absolutely right. We used -- IPSA recently declared a dividend to its shareholders for 2008 based upon its profitability of 2007. And that money was already used and we bought additional shares in February in anticipation of receiving that dividend.

So the 75% that you guys alluded to today includes the Feb '08 acquisition of shares.

That's correct.

That's cool. And so what the IPSA CFO had spoken to me about, which he qualified in French as 11.9 million Euros is down to zero.

That's correct.

Absolutely.

Got it. Okay. So if I look at your net debt situation, looking at your release today, it is a very straightforward calculation, taking cash and then just the current portion, non-current portion of loans payable that gets me to a $23 million position at the end of December. Is that correct?

That is correct. And I'm going to add one thing in there, if you look at our cash flow statement for the year ended December 31st, 2007, you will see that we generated over $38 million of cash from operations.

Got it. Okay. That takes care of my first question. I really apologize because I joined the call halfway, so again, you can --

We can't start again for you.

I don't mean that, but if this is bothersome, we can take this offline. There's a statement from Russ in the release that says that your guidance for '08 is $442 million at the current exchange rate. So I looked at the current exchange rate on Bloomberg, it has 154. If I look at the guidance of IPSA which is 260 million Euros and I multiply that by 154, that gets me to $400 million. So I basically have $42 million to justify.

You can't look at an exchange rate. The sales exchange rate is based on an average throughout the year.

But this guidance assumes the dollar remains at current levels. So that's the --

Currently the rate of today.

Right.

Current levels for us is --

Is an average over.

Is an average over the last -- the trend over the last two, three, four months or whatever.

Do you have that number actually? Because that enables me to figure out what the sales of the U.S. business is. I look at your business, I think as a lot of people don't, which is I look at your business as the arbitrage of the French and the U.S. business and I've got to figure out the value of the U.S. business on a stand alone basis excluding IPSA. So I have to figure out the Brooks Brothers, Banana Republic and Gap business, how much that business is worth. Obviously, I make that calculation, but I have to figure out what the sales of that business is. Which is looking at guidance and backing out from the sentence that I read from Russ, obviously I'm not using the right U.S. dollar to Euro exchange rate.

That's correct. Using exchange rate as of this moment.

Correct.

We're using an average that is representative over the past several months.

You have to understand that we are --

I completely agree and my bad. I read current as today. And obviously current is not today in your definition. Can you just give me that number. It's 1 point what? Four?

I don't think we should give a number. We are -- I want to say that today we are giving projections for the year so with the variance of the dollar over the last three months and we need to take a conservative approach, so under no circumstances will we use the rate of today which is 1.54. We are definitely below that. By how much, I don't think I want to discuss that.

Not to be anal about this, but given that the French business as disclosed the guidance that precise, you've put 260 million Euro number out there. And that the sales that you generate in your U.S. business are invoiced in U.S. dollars --

I understand.

There's no trick here. I'm not trying the to trick you guys. It's a very simple thing.

It's also -- you're not aware of what intercompany sales are. All right. And that's sales that are included in the 260 million Euro that IPSA puts out as public information. How much of that 260 million is actually sold to Inter Parfums here in the United States. That's not information that's disclosed because it's consolidated entry, and it's eliminated in consolidation. You can talk to the people in France. You can evaluate it. Maybe somebody will tell you that amount. I don't think so. All right?

But this is all information that is well beyond the amount of information that the company wants to disclose with respect to its guidance for 2008. We came up with numbers. We're telling you that we're not going to use a rate as of this moment in time. All right. But we're telling you that it is a blend over the last several months. You can look at the exchange rate, see what a blend is and make an evaluation from there.

All right. I mean, okay. I'm not sure I understand why this is not --

Okay. That's why. We will not disclose exchange rate that we have used to calculate our projections.

But it can easily be calculated.

Our domestic business is growing and but, again, as you can see, 1% change in the dollar value represents millions of dollars in sales, plus or minus.

Yes, we would really be very, very aggressive if we used $1.54 to come up with guidance today, that would be extremely, extremely aggressive. And the reality is is as the exchange rate continues to gain its average throughout 2008, we will do exactly what we did throughout 2007, and we will adjust our guidance as appropriate.

Okay. Cool. My last question is -- has to do with just the outstanding shares that Inter Parfums Inc., are we talking -- do have you that number? Can you give me that number?

At the end of December, the shares outstanding was 20,532,141.

I didn't hear you, Russ.

The actual shares outstanding was 20,532,141. And that does not -- and that includes shares -- in my remarks we indicated that we repurchased around 125,000 shares.

So that includes those?

These are included. They were outstanding as of December 31st. So yes, that number as of December 31st includes shares that we repurchased in February.

Got it. And can you comment on the number of outstanding shares of IPSA or should I talk to IPSA?

We already indicated that there's approximately in my remarks 12 million shares. I think the number was 12.1, 12.06, something along those lines. But there's approximately 12 million outstanding shares and as of today, we own approximately 75% of those shares.

Got it. Thanks, guys. Thanks for your patience. Bye.

Thank you.

There are no further questions. I will now turn the conference back to management.

Thank you. Thank you. Again, thank you for your participation on this call. Whether you're on the call live or listening via our webcast. As always, if you do have additional questions, I am available by phone. Have a great day and thanks again for joining us.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.