UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(MARK ONE)
| Quarterly Report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended |
OR
| Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________to ________. |
Commission
File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of Principal Executive Offices) (Zip Code) |
| (Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| |
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act).
| Accelerated filer ☐ | |
| Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller
reporting company |
| Emerging
Growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At May 7, 2024, there were shares of common stock, par value $.001 per share, outstanding.
INTER PARFUMS, INC. AND SUBSIDIARIES
INDEX
INTER PARFUMS, INC. AND SUBSIDIARIES
Part I. Financial Information
| Item 1. | Financial Statements |
In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. We have condensed such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued by filing with the SEC. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2023, included in our annual report filed on Form 10-K.
The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results to be expected for the entire fiscal year.
Page 1
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share data)
(Unaudited)
| ASSETS | ||||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Receivables, other | ||||||||
| Other current assets | ||||||||
| Income taxes receivable | ||||||||
| Total current assets | ||||||||
| Property, equipment and leasehold improvements, net | ||||||||
| Right-of-use assets, net | ||||||||
| Trademarks, licenses and other intangible assets, net | ||||||||
| Deferred tax assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Loans payable - banks | $ | $ | ||||||
| Current portion of long-term debt | ||||||||
| Current portion of lease liabilities | ||||||||
| Accounts payable – trade | ||||||||
| Accrued expenses | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Long–term debt, less current portion | ||||||||
| Lease liabilities, less current portion | ||||||||
| Equity: | ||||||||
| Inter Parfums, Inc. shareholders’ equity: | ||||||||
| Preferred stock, $ par; authorized shares; issued | ||||||||
| Common stock, $ par; authorized shares; outstanding and shares at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost, and shares at March 31, 2024 and December 31, 2023, respectively | ( | ) | ( | ) | ||||
| Total Inter Parfums, Inc. shareholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See notes to consolidated financial statements.
Page 2
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross margin | ||||||||
| Selling, general and administrative expenses | ||||||||
| Income from operations | ||||||||
| Other expenses (income): | ||||||||
| Interest expense | ||||||||
| (Gain) loss on foreign currency | ( | ) | ||||||
| Interest and investment income | ( | ) | ( | ) | ||||
| Other expense (income) | ( | ) | ||||||
| ( | ) | ( | ) | |||||
| Income before income taxes | ||||||||
| Income taxes | ||||||||
| Net income | ||||||||
| Less: Net income attributable to the noncontrolling interest | ||||||||
| Net income attributable to Inter Parfums, Inc. | $ | $ | ||||||
| Earnings per share: | ||||||||
| Net income attributable to Inter Parfums, Inc. common shareholders: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Weighted average number of shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Dividends declared per share | $ | $ | ||||||
See notes to consolidated financial statements.
Page 3
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Comprehensive income: | ||||||||
| Net income | $ | $ | ||||||
| Other comprehensive income: | ||||||||
| Net derivative instrument loss, net of tax | ( | ) | ( | ) | ||||
| Transfer from OCI into earnings | ||||||||
| Translation adjustments, net of tax | ( | ) | ||||||
| Comprehensive income | ||||||||
| Comprehensive income attributable to the noncontrolling interests: | ||||||||
| Net income | ||||||||
| Other comprehensive income: | ||||||||
| Net derivative instrument loss, net of tax | ( | ) | ( | ) | ||||
| Translation adjustments, net of tax | ( | ) | ||||||
| Comprehensive income attributable to the noncontrolling interests | ||||||||
| Comprehensive income attributable to Inter Parfums, Inc. | $ | $ | ||||||
See notes to consolidated financial statements.
Page 4
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Common stock, beginning and end of period | $ | $ | ||||||
| Additional paid-in capital, beginning of period | ||||||||
| Shares issued upon exercise of stock options | ||||||||
| Share-based compensation | ||||||||
| Transfer of subsidiary shares purchased | ||||||||
| Additional paid-in capital, end of period | ||||||||
| Retained earnings, beginning of period | ||||||||
| Net income | ||||||||
| Dividends | ( | ) | ( | ) | ||||
| Share-based compensation | ||||||||
| Retained earnings, end of period | ||||||||
| Accumulated other comprehensive loss, beginning of period | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment, net of tax | ( | ) | ||||||
| Transfer from other comprehensive income into earnings | ||||||||
| Net derivative instrument loss, net of tax | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss, end of period | ( | ) | ( | ) | ||||
| Treasury stock, beginning of period | ( | ) | ( | ) | ||||
| Shares repurchased | ( | ) | ||||||
| Treasury stock, end of period | ( | ) | ( | ) | ||||
| Noncontrolling interest, beginning of period | ||||||||
| Net income | ||||||||
| Foreign currency translation adjustment, net of tax | ( | ) | ||||||
| Net derivative instrument loss, net of tax | ( | ) | ( | ) | ||||
| Share-based compensation | ||||||||
| Transfer of subsidiary shares purchased | ( | ) | ||||||
| Dividends | ( | ) | ||||||
| Noncontrolling interest, end of period | ||||||||
| Total equity | $ | $ | ||||||
See notes to consolidated financial statements.
Page 5
INTER PARFUMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for doubtful accounts | ( | ) | ||||||
| Noncash stock compensation | ||||||||
| Share of income of equity investment | ( | ) | ||||||
| Noncash lease expense | ||||||||
| Deferred tax provision | ( | ) | ( | ) | ||||
| Change in fair value of derivatives | ( | ) | ||||||
| Changes in: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Income taxes, net | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of short-term investments | ( | ) | ( | ) | ||||
| Proceeds from sale of short-term investments | ||||||||
| Purchases of property, equipment and leasehold improvements | ( | ) | ( | ) | ||||
| Payment for intangible assets acquired | ( | ) | ( | ) | ||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from loans payable, bank | ||||||||
| Proceeds from issuance of long-term debt | ||||||||
| Repayment of long-term debt | ( | ) | ( | ) | ||||
| Proceeds from exercise of options | ||||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Dividends paid to noncontrolling interest | ( | ) | ||||||
| Purchase of treasury stock | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | ||||||||
See notes to consolidated financial statements.
Page 6
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| 1. | Significant Accounting Policies: |
The accounting policies we follow are set forth in the notes to our consolidated financial statements included in our Form 10-K, which was filed with the Securities and Exchange Commission for the year ended December 31, 2023.
| 2. | Recent Agreements: |
Abercrombie & Fitch
In 2023, we announced our agreement to distribute Abercrombie & Fitch’s number one men’s fragrance, Fierce, in selected markets. The first phase of the agreement, which became effective on September 1, 2023, covers Fierce distribution in certain major markets, including Europe, Mexico and Australia. The second phase, which activated in February 2024, covers distribution in additional markets in Western Europe and Latin America, and may include other flankers of the Fierce family of products.
Roberto Cavalli
In
July 2023, we closed a transaction agreement with Roberto Cavalli, whereby an exclusive and worldwide license was granted for
the production and distribution of Roberto Cavalli brand perfumes and fragrance related products. Our rights under this license
are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.
Lacoste
In December 2022, we closed a transaction agreement with Lacoste, whereby an exclusive and worldwide license was granted for the production and distribution of Lacoste brand perfumes and cosmetics. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. The license became effective in January 2024 and will last for 15 years. We began shipping Lacoste fragrances in January 2024.
Dunhill
The Dunhill fragrance license expired on September 30, 2023 and was not renewed. The Company has a twelve-month sell-off period during which it will maintain the right to sell-off remaining Dunhill fragrance inventory, which is customary in the fragrance industry. All usable components have been converted to finished goods, and any remaining components will be destroyed.
Rochas Fashion
As a result of operational challenges faced by the Rochas Fashion business in prior years, we took a $2.4 million impairment charge and a $6.8 million impairment charge on our Rochas fashion trademark in the first quarter of 2021 and the fourth quarter of 2022, respectively. In 2023, the Rochas teams underwent a strategic shift to take over their own brand operations, exiting contracts with manufacturers and distributors to make this new structure operational beginning in 2024. An independent expert concluded that the valuation based on this new business model would not require additional impairments as of December 31, 2023. There have been no triggering events in the first quarter of 2024 to require additional impairment analysis.
Page 7
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Land and Building Acquisition - Headquarters in Paris
In
April 2021, Interparfums SA, our
The
purchase price included the complete renovation of the site. As of March 31, 2024, $
The
acquisition was financed by a -year € million (approximately $
| 3. | Recent Accounting Pronouncements: |
There are no recent accounting pronouncements issued but not yet adopted that would have a material effect on our consolidated financial statements.
| 4. | Inventories: |
Inventories consist of the following:
| (In thousands) | March 31, 2024 | December 31, 2023 | ||||||
| Raw materials and component parts | $ | $ | ||||||
| Finished goods | ||||||||
| $ | $ | |||||||
Page 8
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| 5. | Fair Value Measurement: |
The following tables present our financial assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.
| Fair Value Measurements at March 31, 2024 | ||||||||||||||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Short-term investments | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Foreign currency forward exchange contracts not accounted for using hedge accounting | ||||||||||||||||
| Foreign currency forward exchange contracts accounted for using hedge accounting | $ | |||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Fair Value Measurements at December 31, 2023 | ||||||||||||||||
| Total | Quoted
Prices in Active Markets for Identical Assets (Level 1) | Significant
Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| Short-term investments | $ | $ | $ | $ | ||||||||||||
| Interest rate swaps | ||||||||||||||||
| Foreign currency forward exchange contracts not accounted for using hedge accounting | ||||||||||||||||
| Foreign currency forward exchange contracts accounted for using hedge accounting | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The carrying amount of cash and cash equivalents, short-term investments including money market funds and marketable equity securities, accounts receivable, other receivables, accounts payable and accrued expenses approximate fair value due to the short terms to maturity of these instruments. The carrying amount of loans payable approximates fair value as the interest rates on the Company’s indebtedness approximate current market rates. The fair value of the Company’s long-term debt was estimated based on the current rates offered to companies for debt with the same remaining maturities and is approximately equal to its carrying value.
Page 9
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Foreign currency forward exchange contracts are valued based on quotations from financial institutions and the value of interest rate swaps is the discounted net present value of the swaps using third party quotes from financial institutions.
| 6. | Derivative Financial Instruments: |
The Company enters into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Before entering into a derivative transaction for hedging purposes, it is determined that a high degree of initial effectiveness exists between the change in value of the hedged item and the change in the value of the derivative instrument from movement in exchange rates. High effectiveness means that the change in the cash flows of the derivative instrument will effectively offset the change in the cash flows of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period and is based on the dollar offset methodology and excludes the portion of the fair value of the foreign currency forward exchange contract attributable to the change in spot-forward difference which is reported in current period earnings. Any hedge ineffectiveness is also recognized as a gain or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued, and gains and losses accumulated in other comprehensive income are reclassified to earnings. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive income are reclassified to current-period earnings.
In
December 2022, to finance the acquisition of the Lacoste trademark, the Company entered into a € million (approximately
$
In
connection with the April 2021 acquisition of the office building complex in Paris, € million (approximately $
Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income (loss) and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying consolidated statements of income. Such gains and losses were immaterial for both the three months ended March 31, 2024 and 2023.
All derivative instruments are reported as either assets or liabilities on the consolidated balance sheet measured at fair value. The valuation of interest rate swaps is included in long-term debt on the accompanying consolidated balance sheets. The valuation of foreign currency forward exchange contracts at March 31, 2024, resulted in a net asset and is included in other current assets on the accompanying consolidated balance sheet.
Page 10
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At March 31, 2024, the Company had foreign currency contracts in the form of forward exchange contracts with notional amounts of approximately U.S. $ million and GB £ million which all have maturities of less than year.
| 7. | Leases: |
The Company leases its offices and warehouses, vehicles, and certain office equipment, substantially all of which are classified as operating leases. The Company currently has no material financing leases. The Company determines if an arrangement is a lease at inception. Operating lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term.
In determining lease asset value, the Company considers fixed or variable payment terms, prepayments, incentives, and options to extend or terminate, depending on the lease. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company generally uses its incremental borrowing rate based on information available at the lease commencement date for the location in which the lease is held in determining the present value of lease payments.
As
of March 31, 2024, the weighted average remaining lease term was years and the weighted average discount rate used to determine
the operating lease liability was
| 8. | Share-Based Payments: |
The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six-year term and vest over a to -year period. The fair value of shares vested during the three months ended March 31, 2024 and 2023 aggregated $ and $, respectively. Compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally our policy to issue new shares upon exercise of stock options.
| Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
| Nonvested options – beginning of period | $ | |||||||
| Nonvested options granted | ||||||||
| Nonvested options vested or forfeited | ( | ) | $ | |||||
| Nonvested options – end of period | $ | |||||||
Page 11
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Share-based payment expense decreased income before income taxes by $ million and $ million for the three months ended March 31, 2024 and 2023, respectively, and decreased income attributable to Inter Parfums, Inc. by $ and $ for the three months ended March 31, 2024 and 2023, respectively.
| Shares | Weighted Average Exercise Price | |||||||
| Outstanding at January 1, 2024 | $ | |||||||
| Options forfeited | ( | ) | ||||||
| Options exercised | ( | ) | ||||||
| Outstanding at March 31, 2024 | $ | |||||||
| Options exercisable | $ | |||||||
| Options available for future grants | ||||||||
As of March 31, 2024, the weighted average remaining contractual life of options outstanding is years ( years for options exercisable); the aggregate intrinsic value of options outstanding and options exercisable is $ and $, respectively; and unrecognized compensation cost related to stock options outstanding aggregated $ million.
| (In thousands) | March 31, 2024 | March 31, 2023 | ||||||
| Cash proceeds from stock options exercised | $ | $ | ||||||
| Tax benefits | ||||||||
| Intrinsic value of stock options exercised | ||||||||
There were options granted during the three months ended March 31, 2024 and March 31, 2023.
Expected volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is estimated based on historic data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors maintain its current payout ratio as a percentage of earnings.
In March 2022, Interparfums SA, our 72% owned French Subsidiary, approved a plan to grant an aggregate of 88,400 shares of its stock to all Interparfums SA employees and corporate officers having more than six months of employment at grant date, subject to certain corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in June 2025.
The
fair value of the grant had been determined based on the quoted stock price of Interparfums SA shares as reported by the Euronext
on the date of grant. The estimated number of shares to be distributed of has been determined taking into account employee
turnover. The aggregate cost of the grant of approximately $
Page 12
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In
order to avoid dilution of the Company’s ownership of Interparfums SA, all shares distributed or to be distributed pursuant
to these plans will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. As of March 31,
2024 the Company acquired shares at an aggregate cost of $
All share purchases and issuances have been classified as equity transactions on the accompanying balance sheet.
| 9. | Net Income Attributable to Inter Parfums, Inc. Common Shareholders: |
Net income attributable to Inter Parfums, Inc. per common share (“basic EPS”) is computed by dividing net income attributable to Inter Parfums, Inc. by the weighted average number of shares outstanding. Net income attributable to Inter Parfums, Inc. per share assuming dilution (“diluted EPS”), is computed using the weighted average number of shares outstanding, plus the incremental shares outstanding assuming the exercise of dilutive stock options using the treasury stock method.
| Three months ended | ||||||||
| (In thousands) | March 31, | |||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Net income attributable to Inter Parfums, Inc. | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average shares | ||||||||
| Effect of dilutive securities: | ||||||||
| Stock options | ||||||||
| Denominator for diluted earnings per share | ||||||||
| Earnings per share: | ||||||||
| Net income attributable to Inter | ||||||||
| Parfums, Inc. common shareholders: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | ||||||||
Not included in the above computations are the effect of antidilutive potential common shares which consist of outstanding options to purchase 0.05 million shares of common stock for the three months ended March 31, 2024. There were no antidilutive potential common shares outstanding for the three months ended March 31, 2023.
Page 13
INTER PARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| 10. | Segment and Geographic Areas: |
The Company manufactures and distributes one product line, fragrances and fragrance related products. The Company manages its business in two segments, European based operations and United States based operations. The European assets are located, and operations are primarily conducted, in France. Both European based operations and United States based operations primarily represent the sale of prestige brand name fragrances.
Information on our operations by segments is as follows:
| (In thousands) | Three months ended March 31, | |||||||
| 2024 | 2023 | |||||||
| Net sales: | ||||||||
| United States | $ | $ | ||||||
| Europe | ||||||||
| Eliminations of intercompany sales | ( | ) | ||||||
| $ | $ | |||||||
| Net income attributable to Inter Parfums, Inc.: | ||||||||
| United States | $ | $ | ||||||
| Europe | ||||||||
| Eliminations | ( | ) | ||||||
| $ | $ | |||||||
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Total Assets: | ||||||||
| United States | $ | $ | ||||||
| Europe | ||||||||
| Eliminations | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Page 14
INTER PARFUMS, INC. AND SUBSIDIARIES
| Item 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward Looking Information
Statements in this report which are not historical in nature are forward-looking statements. Although we believe that our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. In some cases, you can identify forward-looking statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will” and “would” or similar words. You should not rely on forward-looking statements because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the risks and uncertainties discussed under the headings “Forward Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form 10-K for the fiscal year ended December 31, 2023, and the reports Inter Parfums files from time to time with the Securities and Exchange Commission (“SEC”). Inter Parfums does not intend to and undertakes no duty to update the information contained in this report.
Overview
We operate in the fragrance business, and manufacture, market and distribute a wide array of prestige fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European based operations through our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the Euronext.
We produce and distribute fragrance products through our European based operations primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 70% and 74% of net sales for the three months ended March 31, 2024 and 2023, respectively. We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lacoste, Lanvin, Moncler, Montblanc, Rochas and Van Cleef & Arpels, whose products are distributed in over 120 countries around the world. Our exclusive and worldwide license for the production and distribution of Lacoste brand perfumes and cosmetics became effective in January 2024.
Through our United States based operations, we also market fragrance and fragrance related products. United States based operations represented 30% and 26% of net sales for the three months ended March 31, 2024 and 2023, respectively. These fragrance products are sold primarily pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan, DKNY, Emanual Ungaro, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la Renta and Roberto Cavalli brands.
Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands, we license the Montblanc, Coach, Jimmy Choo, GUESS, Donna Karan/DKNY and Ferragamo brand names.
Page 15
INTER PARFUMS, INC. AND SUBSIDIARIES
As a percentage of net sales, product sales for the Company’s largest brands were as follows:
Three Months Ended
March 31, | ||||||||
| 2024 | 2023 | |||||||
| Montblanc | 18 | % | 20 | % | ||||
| Coach | 15 | % | 15 | % | ||||
| Jimmy Choo | 15 | % | 20 | % | ||||
| GUESS | 10 | % | 9 | % | ||||
| Donna Karan/DKNY | 6 | % | 4 | % | ||||
| Ferragamo | 3 | % | 4 | % | ||||
Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We primarily sell directly to retailers in France, the United States, and Italy.
We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, through new licenses, or other arrangements or outright acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling, as well as phasing out underperforming products, so we can devote greater resources to those products with greater potential. The economics of developing, producing, launching and supporting products influence our sales and operating performance each year. The introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.
Our business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general contractor and source our needed components from our suppliers. These components are received and stored directly at our third-party fillers or received at one of our distribution centers. For those components received at one of our distribution centers, based upon production needs, the components are subsequently sent to one of several third party fillers, which manufacture the finished product for us and then deliver them to one of our distribution centers.
As with any global business, many aspects of our operations are subject to influences outside our control. We believe we have a strong brand portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments behind fast-growing markets and channels to grow market share.
Our reported net sales are impacted by changes in foreign currency exchange rates. A strong U.S. dollar has a negative impact on our net sales. However, earnings are positively affected by a strong dollar, because greater than 50% of net sales of our European based operations are denominated in U.S. dollars, while almost all costs of our European based operations are incurred in euro. Conversely, a weak U.S. dollar has a favorable impact on our net sales while gross margins are negatively affected. We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.
Page 16
INTER PARFUMS, INC. AND SUBSIDIARIES
Recent Important Events
Please see our discussion of Recent Important Events, which is incorporated by reference to Note 2 to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024.
Discussion of Critical Accounting Policies
Information regarding our critical accounting policies can be found in our 2023 Annual Report on Form 10-K filed with the SEC.
Results of Operations
Three Months Ended March 31, 2024 as Compared to the Three Months Ended March 31, 2023
Net Sales:
| Three months ended March 31, | ||||||||||||
| (in millions) | 2024 | 2023 | % Change | |||||||||
| European based product sales | $ | 231.0 | $ | 230.3 | 0.3 | % | ||||||
| United States based product sales | 95.8 | 81.4 | 17.6 | % | ||||||||
| Eliminations | (2.8 | ) | — | — | ||||||||
| $ | 324.0 | $ | 311.7 | 3.9 | % | |||||||
Net sales for the three months ended March 31, 2024 increased 4% from the three months ended March 31, 2023. At comparable foreign currency exchange rates, net sales increased 3% from the first quarter of 2023. The average dollar/euro exchange rate for the current first quarter was 1.09 compared to 1.07 in the first quarter of 2023.
The current first quarter saw modest sales growth, as compared to the corresponding period of the prior year, largely due to the exceptional performance of both European and United States based operations in 2023.
For European based operations, Coach grew sales by 5% while Montblanc and Jimmy Choo saw decreases in sales of 5% and 23%, respectively, as compared to the corresponding period of the prior year. This was largely driven by the substantial increases in sales of Montblanc and Jimmy Choo in the first quarter of 2023 of 28% and 63%, respectively, as compared to the first quarter of 2022. During the first quarter of 2024, we began selling the Lacoste brand, which added $20 million in sales.
Sales by our United States based operations had a strong start growing 18% off a high 2023 base when first quarter sales had expanded 19%. This increase was driven by the addition and extension of Roberto Cavalli to our portfolio and double-digit growth for GUESS and Donna Karan/DKNY, following successful brand extensions and continued brand expansion.
Page 17
INTER PARFUMS, INC. AND SUBSIDIARIES
During the first quarter of 2024, we debuted Montblanc Legend Blue, which contributed to the continued brand strength as our largest brand. Additionally, during the first quarter of 2024, we debuted the Donna Karan Cashmere Collection, which helped the brand to see double digit growth. Many of our mid-sized brands, including Van Cleef & Arpels, Kate Spade and MCM, also achieved double digit sales gains. Additionally, we introduced brand extensions within established lines for Abercrombie & Fitch and Anna Sui.
While our first quarter grew more moderately than the first quarter of 2023, we are confident in our future as we look forward to executing our plans for the remainder of 2024. Our brands are in high demand in a robust environment for the fragrance industry, and we have many exciting developments planned for the Company. We have a large number of brand extensions across many of our brands launching throughout the year, including a new flanker for the I Want Choo line planned for the second quarter of 2024, plus the first launch of an Interparfums developed blockbuster fragrance for Lacoste, later in the year. Additionally, there is a new flanker for Roberto Cavalli Signature and a new DKNY blockbuster fragrance planned for the second half of 2024. In sum, 2024 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds.
| Net Sales to Customers by Region | Three months ended March 31, | |||||||
| (In millions) | 2024 | 2023 | ||||||
| North America | $ | 108.1 | $ | 111.2 | ||||
| Western Europe | 85.1 | 77.2 | ||||||
| Asia/Pacific | 51.8 | 46.0 | ||||||
| Central and South America | 34.4 | 26.2 | ||||||
| Middle East and Africa | 27.1 | 28.6 | ||||||
| Eastern Europe | 17.5 | 22.5 | ||||||
| $ | 324.0 | $ | 311.7 | |||||
First quarter sales in Western Europe rose 10%, followed by Asia/Pacific and Central and South America where comparable quarter sales in both regions increased 13% and 31%, respectively. Our sales in North America decreased slightly by 3% as the first quarter of 2023 saw large increases due to the new product launches previously discussed. While our sales in North America saw minimal decreases, the region is still strong and is our largest region across the Company. Additionally, our travel retail business is continuing to show signs of renewed life. Eastern Europe was adversely impacted by sourcing constraints in certain countries which resulted in sales shifting from the first quarter into the second quarter of 2024.
Page 18
INTER PARFUMS, INC. AND SUBSIDIARIES
| Gross Profit margin | Three months ended March 31, | |||||||
| (in millions) | 2024 | 2023 | ||||||
| European based operations | ||||||||
| Net sales | $ | 231.0 | $ | 230.3 | ||||
| Cost of sales | 83.2 | 74.3 | ||||||
| Gross margin | $ | 147.8 | $ | 156.0 | ||||
| Gross margin as a % of net sales | 64.0 | % | 67.8 | % | ||||
United States based operations | ||||||||
| Net sales | $ | 95.8 | $ | 81.4 | ||||
| Cost of sales | 39.6 | 34.5 | ||||||
| Gross margin | $ | 56.2 | $ | 46.9 | ||||
| Gross margin as a % of net sales | 58.7 | % | 57.6 | % | ||||
The Company’s gross profit margin as a percentage of net sales was 62.5% for the three months ended March 31, 2024 as compared to 65.1% for the three months ended March 31, 2023. The decrease was driven by unfavorable segment, geographic and channel mix, as well as increased trade spending to support our business in the absence of significant innovation. We also incurred slight cost inflation on the raw materials we purchased in 2023. We expect many of these adverse impacts to be non-recurring and should normalize over the balance of the year.
For European based operations, gross profit margin as a percentage of net sales was 64.0% and 67.8% in the first quarters of 2024 and 2023, respectively. European based operations were impacted by geographic and channel mix, as well as increased trade spending to support the business in the absence of significant new innovation in the first quarter of 2024. Additionally, cost inflation impacts on raw materials purchased in Europe were more significant as energy costs rose in the region. We expect many of these adverse impacts to be non-recurring and should normalize over the balance of the year.
For United States based operations, gross profit margin as a percentage of net sales was 58.7% and 57.6% in the first quarters of 2024 and 2023, respectively. Similar to 2023, gross margins continued to expand behind strong cost containment efforts as well as a more favorable brand and channel mix, as a higher portion of our sales are being sold directly to retailers as opposed to third-party distributors. Additionally, the significant increase in sales in the first quarter of 2024 allowed us to continue to absorb fixed expenses such as depreciation and point of sale expenses, as compared to the corresponding period of the prior year.
Generally, we do not bill customers for shipping and handling costs, and such costs, which aggregated $2.5 million and $3.9 million for the three months ended March 31, 2024 and 2023, respectively, are included in selling, general and administrative expenses in the consolidated statements of income. As such, our Company’s gross profit may not be comparable to other companies, which may include these expenses as a component of cost of goods sold. The improvement in shipping and handling costs in the first quarter of 2024 as compared to corresponding period in 2023 was a direct benefit of lower transportation costs seen globally.
Page 19
INTER PARFUMS, INC. AND SUBSIDIARIES
| Selling, general and administrative expenses | Three months ended
March 31, | |||||||
| (In millions) | 2024 | 2023 | ||||||
European based operations | ||||||||
| Selling, general and administrative expenses | $ | 90.4 | $ | 77.3 | ||||
| Selling, general and administrative expenses as a percent of net sales | 39.1 | % | 33.6 | % | ||||
| United States based operations | ||||||||
| Selling, general and administrative expenses | $ | 44.0 | $ | 35.4 | ||||
| Selling, general and administrative expenses as a percent of net sales | 46.0 | % | 43.5 | % | ||||
The Company’s selling, general and administrative expenses as a percentage of net sales was 41.5% for the three months ended March 31, 2024 as compared to 36.1% for the three months ended March 31, 2023. The increase was largely driven by increased spending on promotional and advertising activities in the first quarter of 2024 as compared to the prior year period. Additionally, starting in 2024, the Company began to amortize the cost of the Lacoste license which represented $1.6 million during the first quarter. These costs will be incurred quarterly over the remaining life of the license.
For European based operations, selling, general and administrative expenses increased 16.9% for the three months ended March 31, 2024, as compared to the corresponding period of the prior year, and represented 39.1% and 33.6% of net sales in the 2024 and 2023 periods, respectively. As discussed above, this increase is driven by increased promotion and advertising spending as well as the impact of the amortization of the Lacoste license. For United States based operations, selling, general and administrative expenses increased 24.5% for the three months ended March 31, 2024, as compared to the corresponding period of the prior year, and represented 46.0% and 43.5% of net sales in the 2024 and 2023 periods, respectively. As discussed in more detail below, these fluctuations are primarily from variations in promotion and advertising expenditures.
Promotion and advertising included in selling, general and administrative expenses aggregated $48.3 million and $35.2 million in the first quarters of 2024 and 2023, respectively, and represented 14.9% and 11.3% of net sales in the 2024 and 2023 periods, respectively. Promotion and advertising are integral parts of our industry, and we continue to invest heavily to support new product launches and to build brand awareness. We believe that our promotion and advertising efforts have a beneficial effect on sales. Historically, the Company incurred the majority of our promotional and advertising expenditures in the second half of the year. Beginning in 2024, the Company implemented a strategy to increase spending in the first half of the year to better support and drive business growth throughout the year. Additionally, as the first quarter of 2024 saw a lighter innovation program than prior years, the Company focused on increasing promotional and advertising spending to support the continued success of our existing brands and to support the initial launch of our new brands, Lacoste and Roberto Cavalli. We also continue to develop and implement omnichannel concepts and compelling content to deliver an integrated consumer experience. Long term, we continue to anticipate that on a full year basis, promotion and advertising expenditures will aggregate approximately 21% of net sales.
Royalty expense included in selling, general and administrative expenses aggregated $27.2 million for the three months ended March 31, 2024, as compared to $24.1 million for the corresponding periods of the prior year. Royalty expense represented 8.4% and 7.7% of net sales for the three months ended March 31, 2024 and 2023, respectively. This increase was primarily driven by unfavorable brand mix.
Page 20
INTER PARFUMS, INC. AND SUBSIDIARIES
Income from Operations
As a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, our operating margins aggregated 21.0% and 29.0% for the three months ended March 31, 2024 and 2023, respectively.
Other Income and Expense
Interest expense is primarily related to the financing of brand and licensing acquisitions. In December 2022, to finance the acquisition of the Lacoste trademark, the Company entered into a $54.1 million (€50 million) four-year loan agreement. The loan agreement bears interest at EURIBOR-1 month rates plus a margin of 0.825%. This variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. Additionally, in April 2021, we completed the acquisition of the headquarters of Interparfums SA. The acquisition was financed by a 10-year approximately $129.7 million (€120 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately $86.5 million (€80 million) of the variable rate debt was swapped for fixed interest rate debt with a maximum interest rate of 2% per annum. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%. Long-term debt including current maturities aggregated $145.0 million and $157.5 million as of March 31, 2024 and December 31, 2023, respectively.
We enter into foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Greater than 50% of net sales of our European based operations are denominated in U.S. dollars. Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying consolidated income statements. Such gains and losses were immaterial in the three months ended March 31, 2024 and 2023.
Interest and investment income represents interest earned on cash and cash equivalents and short-term investments. As of March 31, 2024, short-term investments include approximately $10.4 million of marketable equity securities of other companies in the luxury goods sector. In the first quarter of 2023, the Company sold marketable securities which generated a gain of $3.1 million. The Company purchased additional marketable securities throughout 2023 and in the first quarter of 2024, which generated unrealized gain of $0.9 million during the first quarter of 2024.
Income Taxes
Our consolidated effective tax rate was 23.9% and 23.4% for the three months ended March 31, 2024 and 2023, respectively. The effective tax rate for European based operations was 25% for both the three months ended March 31, 2024 and 2023. The effective tax rate for United States based operations was 17.7% for the three months ended March 31, 2024, as compared to 12.7% for the corresponding period of the prior year. Our effective tax rate differs from the 21% statutory rate due to benefits received from the exercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income, slightly offset by state and local taxes. Other than as discussed above, we did not experience any significant changes in tax rates, and none were expected in jurisdictions where we operate.
Page 21
INTER PARFUMS, INC. AND SUBSIDIARIES
Net Income
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Net income attributable to European based operations | $ | 44,940 | $ | 60,565 | ||||
| Net income attributable to United States based operations | 9,527 | 10,343 | ||||||
| Eliminations | (1,164 | ) | — | |||||
| Net income | 53,303 | 70,908 | ||||||
| Less: Net income attributable to the noncontrolling interest | 12,255 | 16,840 | ||||||
| Net income attributable to Inter Parfums, Inc. | $ | 41,048 | $ | 54,068 | ||||
Net income attributable to Inter Parfums, Inc. was $41.0 million for the three months ended March 31, 2024 as compared to $54.1 million for the corresponding period of the prior year.
Net income attributable to European based operations was $44.9 million and $60.6 million for the three months ended March 31, 2024 and 2023, respectively, while net income attributable to United States based operations was $9.5 million and $10.3 million for the three months ended March 31, 2024 and 2023, respectively. The significant fluctuations in net income for both European based operations and United States based operations are directly related to the previous discussions pertaining to changes in sales, gross margin, and selling, general and administrative expenses.
The noncontrolling interest arises from our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European based operations and aggregated 27.3% and 27.8% of European based operations net income for the three months ended March 31, 2024 and 2023, respectively. Net profit margins attributable to Inter Parfums, Inc. as of March 31, 2024 and 2023 aggregated 12.7% and 17.3%, respectively.
Liquidity and Capital Resources
Our conservative financial tradition has enabled us to amass significant cash balances. As of March 31, 2024, we had $97 million in cash, cash equivalents and short-term investments, most of which are held in euro by our European based operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments.
As of March 31, 2024, working capital aggregated $530 million and we had a working capital ratio of 2.8 to 1. Approximately 79% of the Company’s total assets are held by European based operations, and approximately $248 million of trademarks, licenses and other intangible assets are also held by European based operations.
Page 22
INTER PARFUMS, INC. AND SUBSIDIARIES
The Company is party to a number of licenses and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2039. In connection with most of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. See Item 8. Financial Statements and Supplementary Data – Note 12 – Commitments in our 2023 annual report on Form 10-K, which is incorporated by reference herein. Future advertising commitments are estimated based on planned future sales for the license terms that were in effect at December 31, 2023, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.
The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. In July 2023, we entered into a global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Roberto Cavalli brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. This license took effect in July 2023, and we began shipping products in February 2024.
In December 2022, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Lacoste brand. Our rights under this license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry. This license took effect and products started to ship in January 2024.
Cash used in operating activities aggregated $52.0 million and $7.4 million for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024, working capital items used $111.7 million in cash from operating activities, as compared to $84.8 million in the 2023 period. Although from a cash flow perspective, accounts receivable is up 20% from year end 2023, the balance is reasonable based on first quarter 2024 record sales levels and seasonality of the business. Although day’s sales outstanding was 73 days, up from 71 days in the corresponding period of the prior year, we are still seeing strong collection activity and do not anticipate any issues with collections of accounts receivable. From a cash flow perspective, inventory levels as of March 31, 2024 increased 9% from year end 2023 in support of our overall sales growth. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold.
Cash flows provided by investing activities in 2024 reflect purchases and sales of short-term investments. These investments consist of certificates of deposit with maturities greater than three months, marketable equity securities and other contracts. At March 31, 2024, approximately $2.0 million of certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.
Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we typically spend approximately $5.0 million on tools and molds, depending on our new product development calendar. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers.
Page 23
INTER PARFUMS, INC. AND SUBSIDIARIES
Cash flows used in financing activities in the first quarter of 2024 reflect issuances and repayments of debt and payment of dividends to stockholders.
Our short-term financing requirements are expected to be met by available cash on hand at March 31, 2024, and by short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2024 consist of a $25.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $8 million in credit lines provided by a consortium of international financial institutions. There was $8.3 million of short-term borrowings outstanding pursuant to these facilities as of March 31, 2024 and $18.0 million outstanding as of March 31, 2023.
In February 2023, the Board of Directors authorized an annual dividend of $2.50 per share. In February 2024, the Board of Directors further increased the annual dividend to $3.00 per share. The next quarterly cash dividend of $0.75 per share is payable on June 28, 2024, to shareholders of record on June 14, 2024.
We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.
Inflation rates in the U.S. and foreign countries in which we operate did impact operating results for the three months ended March 31, 2024, as they resulted in slightly higher costs of inventory and were not fully offset by price increases we passed onto our respective customers or operating efficiencies.
Page 24
INTER PARFUMS, INC. AND SUBSIDIARIES
| Item 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
General
We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps.
Foreign Exchange Risk Management
We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a currency other than our functional currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Interparfums SA, whose functional currency is the euro. All foreign currency contracts are denominated in currencies of major industrial countries and are with large financial institutions, which are rated as strong investment grade.
All derivative instruments are required to be reflected as either assets or liabilities in the balance sheet measured at fair value. Generally, increases or decreases in fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative is designated and qualifies as a cash flow hedge, then the changes in fair value of the derivative instrument will be recorded in other comprehensive income.
Before entering into a derivative transaction for hedging purposes, we determine that the change in the value of the derivative will effectively offset the change in the fair value of the hedged item from a movement in foreign currency rates. Then, we measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness is recognized in the income statement.
At March 31, 2024, we had foreign currency contracts in the form of forward exchange contracts of approximately U.S. $78.0 million and GB £4.7 million with maturities of less than one year. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote.
Interest Rate Risk Management
We mitigate interest rate risk by monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt.
Page 25
INTER PARFUMS, INC. AND SUBSIDIARIES
| Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on their review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarterly period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. Other Information
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Item (c).
In December 2022, our Board of Directors authorized a share repurchase program for our outstanding common stock. During 2023, the Company repurchased 116,860 shares at a cost of $15.4 million. These shares are classified as treasury shares on the accompanying consolidated balance sheet. In February 2024, our Board of Directors authorized the Company to continue repurchasing up to 130,000 shares throughout 2024.
| Inter Parfums, Inc. Purchase of Common Stock | ||||
| Period | Total Number of Shares Purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
| January 1-31 | 0 | n/a | 0 | 130,000 shares |
| February 1-29 | 0 | n/a | 0 | 130,000 shares |
| March 1-31 | 0 | n/a | 0 | 130,000 shares |
| Total | 0 | n/a | 0 | 130,000 shares |
Item 5. Other Information
Item (c). During the first quarter of 2024, no director or officer has adopted or terminated either any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as such terms are defined in the applicable regulation.
Items 1. Legal Proceedings, 1A. Risk Factors, 3. Defaults Upon Senior Securities and 4. Mine Safety Disclosures, are omitted as they are either not applicable or have been included in Part I.
Page 26
INTER PARFUMS, INC. AND SUBSIDIARIES
Item 6. Exhibits.
The following documents are filed herewith:
Page 27
INTER PARFUMS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 7th day of May 2024.
| INTER PARFUMS, INC. | |||
| By: | /s/ Michel Atwood | ||
| Chief Financial Officer | |||
Page 28