Interparfums Inc (IPAR) 2012 Q1 法說會逐字稿

(Operator Instructions). Greetings, and welcome to the Inter Parfums Incorporated first quarter, 2012 conference call. It is now my pleasure to introduce your host, Russ Greenberg, Executive Vice President and Chief Financial Officer for Inter Parfums. Thank you, you may begin.

Good morning. Welcome to our 2012, first quarter conference call. Following the financial review I will turn the call over to Jean Madar, Chairman and CEO, who will share some business highlights and then we will take your questions.

Before proceeding further, I want to remind listens that this conference call may contains forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. These factors include, but are not limited to the risks and uncertainties discussed under the headings Forward-looking Statement and Risk Factors in Inter Parfums' annual report on Form 10-K and the reports we file from time to time with the Securities and Exchange Commission. We do not intend to, and undertake no duty to update the information discussed.

When we refer to our European based operations, we are primarily talking about sales of prestige fragrances conducted through our 74% owned French Subsidiary, Inter Parfums S A. This business includes distribution companies owned or controlled by our French subsidiary such as, Inter Parfums Luxury brands, which took over US distribution of our European based Prestige fragrances in 2011.

It also includes our distribution subsidiaries in Germany, Italy, United Kingdom and Spain. When we would discuss our United States operations we are generally referring to sales of specialty retail and mass market products. These products are generally sold at named state stores domestically and for some brands in Department and Specialty stores in the United States and Internationally under license agreements with the brand owners.

One other point worth mentioning is that Inter Parfums' Luxury Brand completed a full year as the distributor of our Prestige products in the United States on January 1st of this year. Thus quarterly comparison's of gross margin and SG&A will be more apples to apples than they were last year, and sales increases from European based operations in 2012 reflect higher sales volume as opposed to the difference between X factory and wholesale sales in the United States.

The three months ended March 31, 2012 set a first quarter record for Inter Parfums. Net sales increased 24% to $165.4 million from 133.4 million. At comparable foreign currency exchange rates, net sales rose 26%. European based operations generated sales of $145.2 million, up 19% from $121.6 million.

And sales by US based operations were up $20.2 million up 71% from $11.8 million. Gross margin was 64.5%, compared to 64.9%. SG&A expense as a percentage of sales was 45.3% compared to 45.8% in the prior years. Operating margins were 19.2% of net sales for both periods. Net income attributable to Inter Parfums, Inc. increased 21.5% to $15.5 million, as compared to $12.8 million, and basic and diluted earnings per share were $0.51 up 24% compared to $0.41.

We've covered the subject of sales drivers in April when we announced first quarter sales, and touched upon of it again in yesterday's news release. So let's move on from there. As mentioned earlier, gross margin was just about the same for both Q1, 2012 and Q1, 2011. Now that there's been over a year since taking over Prestige product distribution in the United States by Inter Parfums luxury brands, gross margins from one period to the next are more comparable.

For the 2012 period, gains in margin from currency fluctuations were equally offset by changes in product mix. SG&A expense as a percentage of net sales was also just about the same for Q1, 2012 and Q1, 2011. Promotion and advertising included in SG&A expenses increased to $26.7 million or 16.2% of net sales from $18.3 million or 13.7% of net sales in the same period of 2011.

Although the level of spending is not near the $37.2 million incurred in the third quarter, or the $49.8 million incurred in the fourth quarter of 2011, we did significantly increase our overall advertising budget for all brands to maintain the positive sales momentum which we believe will contribute to sustained growth in market share. A few other P&L points. There was a $248,000 foreign currency gain in Q1, 2012, compared to $419,000 foreign currency losses in Q1, 2011.

And our effective tax rate was 36% compared to 33% in last year's first quarter. We have a very strong balance sheet and excellent liquidity. At the close of the first quarter, cash and cash equivalents aggregated $27.4 million and working capital aggregated $227 million resulting in a working capital ratio of 2.4 to 1.

We also had no long term debt. I recently received a number of questions regarding the Betsey Johnson Chapter 11 Bankruptcy, so I would like to address that subject. The bankruptcy filing was actually made by the Company owns the Betsey Johnson stores and should have minimal impact on us. Our license is with Steve Madden which now owns the Betsey Johnson trademarks.

The closing of the 60 or so Betsey Johnson stores is not expected to have a material effect on our Betsey Johnson fragrance business, as we do most of our sales with third party retailers such as Sephora, we do not anticipate any loss on inventories or accounts receivable. Finally, there is not much more we can say about our current guidance that wasn't said in yesterday's press release.

We recognize that our first quarter performance was well above analyst expectations, however they were in line with our internal expectations. We intend to provide a guidance update when we announce a resolution to the questions regarding our Burberry license. John, please continue.

Thank you, and good morning everyone. Thank you for your patient on today's conference call. As we have stated before, growth for our European base operation has led to (inaudible) public and more to do with building transfer of our brand and world wide distribution legwork.

During last year's first quarter, we introduced the Jimmy Choo Signature fragrance and launched in the first quarter, but we build (inaudible) with eu de toilette brand extension and the Jimmy Choo Brand says we will create 68% in the first quarter of 2012. Mont Blanc says in sales increased 77% in the first quarter of 2012 and much of that increase has to do with one of our new product launchers for men called Legend.

Burberry brand says we are up 12% thanks to the Italian fragrance family, but especially it's newest member, Burberry body. Sales have continued to grow when one of the brands oldest (inaudible) did much of the heavy lifting. Introduced in 2002, so ten years ago, has been on the market for 10 year and that fragrance website some 350 new fragrance we are launching in 2011 and if history repeats itself most will be (inaudible) few will be able to boost sales growth.

Our news release yesterday covered our plan Prestige launches for 2012 which we will agree lacked. However, in 2013 we probably have the most ambitious new product line in our history. We have fragrance launchers for Burberry, Jimmy Choo, Van Cleef & Arpels, Boucheron and (inaudible).

Moving on to a US operation, as we announce, we have quite a few new products debuting this year, which includes a new product called Wishes and Dreams for Bebe, Brookes Brothers, White Blue for Banana Republic, and (inaudible). In our Press Release and conference calls, we talk about international distribution of specialty brand and how important cross border sales have become. But there is a great deal to do to, for brand reception in different countries.

Would you be surprised to learn that in Europe, fragrance products are sold at along side luxury brands such as Channel and (inaudible), similarly fragrance are sold at Russia's largest retailer at 600 stores. When Russia see Banana Republic they put the word luxury in the brand's affordable luxury. There can be no assurance that any had be sign this year.

We are looking fragrance brands like (inaudible)before as well as fragrance (inaudible) as fragrance partner we do what they cannot do for them self. Extraordinary value we can extend the reach of our brand to new customers.

Before moving to the Q& A, I want to advise that we will have discussion with Burberry group involving the potential called Burberry fragrance (inaudible) are ongoing. As we reported in March, Burberry has exercised its right to evaluate the (inaudible) is current license.

If Burberry were to buy back the license, then I have agreed the price would be greater approximately $215 million, which is 70% of 2010 net wholesale sales of Burberry products. All evaluation by (inaudible) have until June 30 of this year to provide the valuation. Burberry had until July 31st, to determine whether it wishes to buy out an expired portion of the license or continue with the contract to run through December 31, so remain three possible outcomes.

One, the new joint operating structure with Burberry, two, buyout of remaining term of the license, or three, business as usual through 17th. Beyond that we are limited making any comments or providing any updates. One last, we will be presenting at (inaudible) conferences the city global May 23, the Piper Jaffrey Conference on June 5. And the Stevens Annual String Conference on June 6, all three are in New York. Please Operator we can open the floor for questions.

Thank you we will now be conducting the question and answer session. (Operator Instructions). First question comes from Neely Tamminga with Piper Jaffray, please state your question.

Great, thank you. Jean I have a very high level question for you as it relates to top fragrance. It just sounds like you guys are executing excellently, you have a great pipeline of opportunity in 2013. From your perspective on the demand side from the consumer, maybe thinking either by geography or by price point, could you give us a sense as to where you think the current demand is for fragrance and what that might look like over the next couple, you know, call it six to 18 months based on your own historical expertise in this space that would be helpful.

I'm going to try. If you want to start with geography, very stopping for us the first quarter I think was up 70% and we continue to that the US British market is very and still have a lot of potential growth. So US.

Where I see also great opportunity would be Asia where we are up over 20% in the first quarter and we projects we think that we will be able to maintain the type of increase. Is very strong and the first three or four months of the year up almost 40% in this region.

So geographically this is where the growth is going to be so the country mention in Europe, Europe is quiet even though has been down has been up and I would like to flat to up which is quite the performance when we know what's going on in western Europe. We from a price point of view, we think that higher end market Prestige market, the department is where the get is going to be, so we will take had in 2013 with all the shows that we have I think 2007 will be the largest ever or.

Okay. That's really helpful. Thanks, Jean.

The only thing I would add to that is of course when we mention the western European market, I believe that during our year end conference call we went into a whole expose on some of the real problem countries. Spain, and Greece sales continue to be down although both of those countries represent each individual less than 1% of our overall sales. Motion of the other page at the countries, France, the UK were basically flat to up slightly during the first three months of 2012.

That's very helpful Jean as well. I might have missed the exact kind of road map in terms of time line on the Burberry announcement. When and how would you guys plan on communicating kind of the resolution of the conversations.

Well, we would as soon as anything definitive is known, we would of course make an announcement. The deadlines themselves, the only real deadline that exists as of right now is July 31st, although the investment banker needs to provide Inter Parfums and Burberry of their valuation of the valuation of the term by June. Burberry has until July 31st, 2012 to notify us of their intent.

We of course are much more hopeful that something else might be announced before then. I can also tell you that an Investment Banker has been higher hired to do the valuation. If you remember the buyout price is the greater of the $250 million that Jean mentioned, which is 70% of 2010 wholesale sales, or a valuation that is done by an independent investment banker. So that's basically the only deadlines that exist currently.

Thank you so much guys and best of luck.

Thank you.

Thank you.

Our next question comes from (inaudible), please state your question.

Hi, guys good morning first on the guidance, I want to be clear here. Obviously, the decision to not raise guidance which I completely understand you did say the quarter was in line with what you expected internally, so without the Burberry uncertainty, so to be clear, even with out the Burberry uncertainty, you wouldn't have raised guidance given the very strong start to the year.

The answer to that is no, we would not have revised guidance based on the current plans for 2012. The Burberry issue kind of solidifies the fact that we could be dealing with different models as depending upon what the ending solution is. The one thing that I will, you know, bring to light, is that the first quarter was a relatively easier comparison on a quarter by quarter basis because of the huge growth that we achieved in the third quarter and fourth quarter of 2011 as a result of the launch of Burberry Body, Burberry Body did not exist in the first quarter of 2011.

So from a projects or internal expectation standpoint, we are above, or we are above our expectations but not significantly above. We are not significantly enough to cause us to change our guidance at this time.

Okay. Got it, thanks Russ. And then in terms of A&P spending, obviously up year over year but given the launch of theirs year that's to be expected you are obviously continuing to support those launch's.

This year you don't have nearly as many obviously big launches as you did last year, so how should we think about A&P spending because in the past you said you expected it to be relatively equal last year relative to sales, yet given the lack of, you know, launches this year, it seems a little bit, I don't know, difficult to believe.

You know, keep in mind that, yes, last year was a little bit of an exceptional year because of all the different launches we have. We have a fairly significant program for 2012 not only, for all of our brands, at this point in time, even in the first quarter of last year, Jimmy Choo was still an exclusive in certain stores in turn countries.

Now we are distributing that on a basically a world wide basis. Similar situation with Mont Blanc and of course Burberry is of course in the same boat. So overall expectations are still at this point in time similar to the spending that we had last year.

Okay.

I think if I may ad, in the first quarter, we planned something like 16% of our sales in promotion and advertising. And a lot of this money was spent on the Jimmy Choo and Mont Blanc. Of course we continued to spend on if the Burberry but not at the same rate that we did during the launch in the first quarter. But I would say that spending around 15% or 16% should be expected going forward.

Okay. I'm sorry just to clarify. The A &P spend being you said was going to be 16% or slightly more of sales this year versus 21% last year.

No, last year was 21. What I indicated before was that the spending is going to be similar to that of last year. Is it going to be exactly 21, is it going to be 20 or 19, the answer is yes. We are still putting together the final plans with respect to what's going to happen at the end as we move toward the holiday season.

Understood. Just one last one the tax rate you are expecting this year.

The tax rate 36% of the first quarter again this is all as a result of the enactment of tax increase that was enacted in France, it was actually enacted early 2012 but retroactive to 2011. That brought the French tax rate to around 36%. I think on a blend for full year 2012 we should be somewhere around 35% maybe 35.5%.

Okay. Thank you.

Our next question comes from Linda Bolton-Weiser with Caris. Please state your question.

Hello. Can you, maybe you could just give us a little bit of flavor on how you are operating with regard to the Burberry franchise right now.

Like I would be interested to know on the cosmetics side, are you continuing to roll it out in additional doors, and what's the current plan assuming nothing else was going on, like, you know, can you tell us how many new doors opened in the first quarter and what are you doing or are you just holding off and just waiting until you get everything resolved. If you could give an update on how you are currently operating that would be helpful.

Yes, I think that's a very good question. We are operating Burberry the same way that we had done probably because we have this issue that we are going to try to resolve that, we are continued to roll out of Burberry Body. We are strengthening our presence in the Department Stores.

We are launchers that are going to happen in 2013, so waiting to see what's going to happen. And by the way our sales would be up each year on Burberry. And Beauty is a very important segment for Burberry because it gives an extraordinary presence in the stores by having the stands. So we continue to invest.

We are opening give you the latest amount of doors that we have, but we are continuing to invest and we are continuing to open doors especially in Asia. And the good thing is when we, when saw where a fragrance sales increased at duty locations, because allowed to sell fragrance we make up. So for us it's not only a stronger presence in stores, but it's also another way to increase the sales.

With respect to the number of doors, at the end of 2011, we were in just about 90 doors. Our plan was to open another 30 doors so we should be somewhere between 110 and 120 as we move towards the holiday season of this year.

Thank you. And then can I just ask also to the extent you can comment on, I know in my discussions with you, it's been clear that even if you purchase bought out, your licensed by beneficial that pulled want to continue on and use the proceeds to make acquisitions et cetera.

Can you give a flavor as to whether your formulating plan be at all have you stepped up your pace at looking at possible acquisitions or are you kind of waiting to see the resolution of what's going to happen here. How have you gone by your thinking on how you are approaching that.

I would say we never stop looking at acquisition. We have been looking at last year. No, we again, we are actively talking to Burberry in order to find the best for both Companies.

We recognize that Burberry represents that 50% of our sales. But the relationship with Burberry is good and we don't wait, we first like to work because as I said before, it's business as usual. So we have to maintain our market share in stores, but at the same time like we have done before, we are looking at potential acquisition.

You know that we have no debt, so if something comes up, we can always we can absolutely look at interesting acquisitions, interesting. Okay thanks a lot.

Thank you.

Thank you, Linda.

(Operator Instructions). Your next question comes from Eric Hollowaty with Stephens, please state your question.

Russ, a quick one on the gross margin shift in the quarter. I noticed you guys did a greater percentage of your sales in the US business, versus Europe. Was that the main driver of the gross margin, the make shift impact on gross margin that you mentioned, or is there anything else we should understand about maybe some longer term shifts that are happening in the business.

No, actually contrary to that. What I've really tried to get across in the opening remarks is the fact that we are now, have now anniversaried the sales of Inter Parfums Luxury brands, which is that US distribution subsidiary, so the margins that we are achieving in the first quarter from that subsidiary are the same, very similar to what that subsidiary provided for us in the first quarter of last year.

Therefore the growth that we have received, I mean US, North America was up 70%, I believe even just the US alone was up 68%, that growth is really on increased volume and not on the difference between wholesale and X factory sales. The themselves will be they were almost identical.

Because of the exchange rate the average exchange rate in the first quarter came out to about 1.31, last year's first quarter if my memory serves me correct service it was around 1.36 or 1.37. So one would have expected a gain on the margin side because of the currency exchange rate. Product mix when we are discussing that it's really different types of products, different brands and how they play amongst themselves throughout our P&L.

Also keep in mind US operations were up 70%, 71%. US operations we have always been close historical the margins on the US side of the business are slightly less than that of our European operation. So there's where we are really coming in with what I mean by-product mix.

The gross margin was pretty stable, 64.5 compared to 64.9.

Yeah, absolutely.

Very close.

Absolutely and that's why the gain that one might have expected because of the change in currencies was almost identically mitigated by-product mix changes.

Okay. Thanks very much, and good luck.

Thank you.

Thank you.

Thank you there are no further questions at this time. I'll turn the conference over to Management for closing remarks. Thank you.

Good thank you operator. And thank you all for your participation on this conference call, whether you were live or listening in via our web cast. As usual if anybody does have additional questions, I can always be reached by phone. Thank you, have a great day.