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IP

INTER PARFUMS INC (IPAR)·Q3 2023 Earnings Summary

Executive Summary

  • Record Q3 2023 net sales of $368M (+31% YoY), EPS $1.66 (+28% YoY); operating margin expanded 70 bps to 23.7% while gross margin declined 100 bps to 63.9% due to mix .
  • Management affirmed FY2023 net sales guidance at $1.3B and raised EPS guidance to $4.75 (from $4.55), citing pricing actions and scale benefits; Q4 expected to carry heavy advertising to ensure sell-through .
  • Strength was broad-based: Europe +18% (Coach +32%, Montblanc +20%), U.S. +64% (Donna Karan/DKNY +230%, GUESS +59%, Ferragamo +55%); regional growth notable in North America (+29%) and APAC (+20%) .
  • Stock-relevant catalysts: raised EPS guidance, continued market-share gains, robust brand performance, but conservative tone for Q4 given geopolitical risks in the Middle East and modest China expectations .

What Went Well and What Went Wrong

What Went Well

  • Broad-based demand drove record quarterly net sales and strong earnings; pricing offset inflation and scale lowered SG&A as % of sales to 40.2% (-170 bps YoY) .
  • Brand momentum: Coach (+32%) and Montblanc (+20%) in Europe; Donna Karan/DKNY (+230%), GUESS (+59%), and Ferragamo (+55%) in U.S., with new launches performing well .
  • E-commerce acceleration: Amazon premium beauty retail sales up 149% YTD through October, supported by DKNY launches .

What Went Wrong

  • Gross margin fell 100 bps YoY in Europe due to unfavorable mix (more gift sets), and Q4 will feature heavy advertising spend, limiting near-term margin expansion .
  • Management maintained prudence on Q4 top line despite strong YTD, citing very tough comps and geopolitical tensions in the Middle East as reasons for conservative guidance .
  • China remains modest; while sell-out improved and stock-in-trade is being worked down, management expects only modest sales for the remainder of 2023 and continues a conservative stance .

Financial Results

Consolidated P&L metrics

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Revenue ($USD Millions)$280.462 $311.723 $309.244 $367.969
Diluted EPS ($)$1.30 $1.68 $1.09 $1.66
Gross Margin %64.9% 65.1% 60.9% 63.9%
Operating Margin %23.0% 29.0% 17.8% 23.7%
Net Income ($USD Millions, attributable to IP)$41.423 $54.068 $34.952 $53.214

Q3 YoY snapshot

MetricQ3 2022Q3 2023YoY Change
Net Sales ($USD Millions)$280.462 $367.969 +31%
Diluted EPS ($)$1.30 $1.66 +28%
Gross Margin %64.9% 63.9% -100 bps
Operating Margin %23.0% 23.7% +70 bps

Segment breakdown (Net Sales)

SegmentQ3 2022 ($M)Q3 2023 ($M)YoY Change
European-based product sales$198 $233 +18%
U.S.-based product sales$82 $135 +64%
Total$280 $368 +31%

Regional growth (Q3 2023 YoY)

RegionGrowth %
North America+29%
Western Europe+24%
Asia Pacific+20%
Eastern Europe+73%
Middle East+48%
Latin America+42%

KPIs and balance sheet/cash flow (Q3 2023)

KPIValue
SG&A as % of net sales40.2%
Advertising & Promotion ($M)$62.8
A&P as % of net sales17.1%
Royalty expense as % of net sales7.8%
Working capital ($M)$514
Cash and short-term investments ($M)$183.5 (Cash $79.8 + ST inv. $103.7)
Long-term debt ($M)$128.983
Days Sales Outstanding (DSO)72 days
Inventory vs YE 2022+26%
FX impact on net sales+4% (Q3)
Amazon premium beauty retail sales (YTD through Oct)+149%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY2023$1.3B $1.3B Maintained
Diluted EPSFY2023$4.55 $4.75 Raised
Advertising & PromotionFY2023Target 21% of net sales Target 21% of net sales; heavy Q4 spend Maintained
China assumptionFY2023Only modest sales Only modest sales Maintained
New licenses inclusionFY2023Roberto Cavalli/Lacoste not included; Cavalli shipments expected Nov/Dec 2023 Not included; Cavalli shipments start Jan 2024, Lacoste license effective Jan 2024 Timeline updated; still excluded
DividendQ4 2023$0.625 per share (regular) $0.625 per share payable Dec 31 to holders of record Dec 15 Maintained
Share repurchase2023Program up to 166,060 shares 85,060 shares repurchased YTD at $11.3M; continue in 2023 Continuing

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2023)Trend
China recoveryProgressive reopening; meaningful growth later in year Conservative stance; good sell-out on Coach/Montblanc/Ferragamo; managing down stock-in-trade; modest sales for balance of 2023; inventory normalized by start of 2024 Improving but cautious
Travel retailPicked up with resumption of international travel Share trending up from ~5% to ~7–8%; traffic improving; cautious on China travel retail Improving
PricingPricing supported margins; limited cost inflation (FIFO) ~5% price increase earlier in 2023; not planning further actions; wary of consumer resistance Stable; cautious on additional hikes
Advertising investmentTarget 21% annually; heavy Q4 Heavy Q4 spend to drive sell-through; will not cut even if top line slows Aggressive
Licensing pipelineNew Fierce distribution agreement phases Cavalli shipping Jan 2024; Lacoste effective Jan 2024; 2024 blockbusters planned across top 5 franchises Ramping for 2024
Macro/geopolitics—Conservative Q4 posture due to war in Middle East; humanitarian support noted Cautious
Supply chain/inventory—Carry more inventory; multi-sourcing; manufacture closer to demand; inventory +26% vs YE 2022 Resilient posture
E-commerce—Amazon premium beauty +149% YTD; omnichannel concepts and content Accelerating

Management Commentary

  • “Record third quarter net sales, up 31% to $368 million… set a new record for quarterly net sales in our 35-plus years as a public company” .
  • “Overall, in the third quarter we were able to maintain our operating margins as our pricing actions have broadly compensated for inflationary impacts… SG&A as a percentage of sales was down 170 basis points to 40.2%” .
  • “We are affirming our FY2023 net sales guidance of $1.3 billion… We are now increasing our earnings per diluted share guidance to $4.75” .
  • “We continue to expect to deploy 21% of net sales annually [on advertising], which allocates approximately the same level… year-to-date to the fourth quarter alone” .
  • “We are in a much better shape [in China] than before… inventory will be… at a normal level when we start the year in 2024” .

Q&A Highlights

  • China inventory: management reports weekly monitoring; inventory levels improving; normalization expected by start of 2024, but approach remains conservative .
  • Gross margin trajectory: do not expect higher Q4 gross margin vs Q3; expect similar margins with heavy advertising to ensure sell-through .
  • 2024 license contribution: analyst posited ~$100M from Cavalli and Lacoste; management indicated that’s a fair placeholder but refrained from detailed guidance pending CFO’s return .
  • Pricing and travel retail: ~5% price increase taken earlier in 2023; no further actions planned; travel retail improving with share rising to ~7–8% of sales, cautious on China travel retail .
  • Q4 guide prudence: conservative stance due to tough comps and geopolitical tensions (Middle East) despite raised EPS guidance .
  • Retail ordering cadence: retailers placing smaller, sequenced orders; daily deliveries; orders extend through Christmas; inventory levels viewed as prudent but adequate .

Estimates Context

  • S&P Global consensus estimates for Q3 2023 were unavailable at retrieval due to a provider limit; as a result, explicit “vs. estimates” comparisons cannot be provided. Values retrieved from S&P Global were unavailable at time of request.

Key Takeaways for Investors

  • Momentum intact: record Q3 revenue and strong EPS with broad-based brand and regional growth, indicating continued market-share gains in a decelerating industry backdrop .
  • Guidance risk-balanced: EPS guidance raised to $4.75 while net sales held at $1.3B; heavy Q4 advertising implies management prioritizes sell-through and 2024 reorder strength over near-term margin expansion .
  • 2024 catalysts: Cavalli and Lacoste commence in January 2024; management also flagged blockbusters across top five franchises, supporting medium-term growth trajectory .
  • China watch: sell-out improving and inventory normalizing, but expectations remain modest; upside exists if reopening momentum accelerates, albeit management is cautious .
  • Pricing discipline: ~5% pricing implemented and sufficient to offset inflation; no further actions planned, reducing risk of consumer pushback and preserving volume growth .
  • Operational resilience: diversified sourcing, higher inventories, and proximity manufacturing to protect service levels amid lingering supply chain and geopolitical risks .
  • E-commerce leverage: Amazon premium beauty growth (+149% YTD) and omnichannel execution bolster sell-through and brand visibility, supporting sustained demand .