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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)
|
|
|
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| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
|
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| (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:
Yes
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).
Yes
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
November 6, 2024
, there were
INTERPARFUMS, INC. AND SUBSIDIARIES
INDEX
INTERPARFUMS, INC. AND SUBSIDIARIES
| 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 nine months ended September 30, 2024 , are not necessarily indicative of the results to be expected for the entire fiscal year.
INTERPARFUMS, INC. AND SUBSIDIARIES
(In thousands except share and per share data)
(Unaudited)
| ASSETS |
|
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| September 30, 2024 | December 31, 2023 | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ |
|
$ |
|
||||
| Short-term investments |
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||||||
| Accounts receivable, net |
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||||||
| Inventories |
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||||||
| Receivables, other |
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| Other current assets |
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||||||
| Income taxes receivable |
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||||||
| Total current assets |
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||||||
| Property, equipment and leasehold improvements, net |
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||||||
| Right-of-use assets, net |
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||||||
| Trademarks, licenses and other intangible assets, net |
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||||||
| Deferred tax assets |
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||||||
| Other assets |
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||||||
| Total assets | $ |
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$ |
|
||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Loans payable - banks | $ |
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$ |
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| Current portion of long-term debt |
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||||||
| Current portion of lease liabilities |
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| Accounts payable – trade |
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| Accrued expenses |
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| Income taxes payable |
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| Total current liabilities |
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| Long–term debt, less current portion |
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||||||
| Lease liabilities, less current portion |
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||||||
| Equity: | ||||||||
| Interparfums, Inc. shareholders’ equity: | ||||||||
|
Preferred stock, $
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||||||
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Common
stock, $
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||||||
| Additional paid-in capital |
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||||||
| Retained earnings |
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||||||
| Accumulated other comprehensive loss |
(
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) |
(
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) | ||||
|
Treasury stock, at cost,
|
(
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) |
(
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) | ||||
| Total Interparfums, Inc. shareholders’ equity |
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||||||
| Noncontrolling interest |
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||||||
| Total equity |
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||||||
| Total liabilities and equity | $ |
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$ |
|
||||
See notes to consolidated financial statements.
INTERPARFUMS, INC. AND SUBSIDIARIES
(In thousands except per share data)
(Unaudited)
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|||||||||
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Three Months Ended |
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Nine Months Ended |
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||||||||||
| September 30, |
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September 30, |
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|||||||||||||
| 2024 | 2023 |
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2024 |
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2023 |
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|||||||||
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|||||||||
| Net sales | $ |
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$ |
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$ |
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$ |
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|||||||||
| Cost of sales |
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|||||||||
| Gross margin |
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|||||||||
| Selling, general and administrative expenses |
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|||||||||
| Income from operations |
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| Other expenses (income): |
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| Interest expense |
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| Loss (gain) on foreign currency |
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(
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) |
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(
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) | ||||||
| Interest and investment loss (income) |
|
(
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) |
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(
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) |
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(
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) | |||||
| Other loss (income) |
|
(
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) |
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(
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) |
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(
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(
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) | |||||||
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| Income before income taxes |
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| Income taxes |
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| Net income |
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| Less: Net income attributable to the noncontrolling interest |
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|||||||||
| Net income attributable to Interparfums, Inc. | $ |
|
$ |
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$ |
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$ |
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||||
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|||||||||
| Earnings per share: |
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||||||||
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|||||||||
| Net income attributable to Interparfums, Inc. common shareholders: |
|
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||||||||
| Basic | $ |
|
$ |
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|
$ |
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|
$ |
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|
||||
| Diluted | $ |
|
$ |
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$ |
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$ |
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||||
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|||||||||
| Weighted average number of shares outstanding: |
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||||||||
| Basic |
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||||||
| Diluted |
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||||||
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|||||||||
| Dividends declared per share | $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
||||
See notes to consolidated financial statements.
INTER PARFUMS, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
| September 30, |
|
September 30, |
|
|||||||||||||
| 2024 | 2023 |
|
2024 |
|
|
2023 |
|
|||||||||
| Comprehensive income: |
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income | $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
||||
|
|
|
|
|
|
|
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|||||||||
| Other comprehensive income: |
|
|
|
|
|
|
|
|
||||||||
|
|
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|
|
|
|
|
|
|||||||||
| Net derivative instrument loss, net of tax |
(
|
) |
(
|
) |
|
|
(
|
) |
|
|
(
|
) | ||||
|
|
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|
|||||||||
| Transfer from OCI into earnings |
|
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(
|
) |
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||||||
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|
|||||||||
| Translation adjustments, net of tax |
|
(
|
) |
|
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(
|
) | ||||||
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|||||||||
| Comprehensive income |
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||||||
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|||||||||
| Comprehensive income attributable to the noncontrolling interests: |
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|
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||||||||
|
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|||||||||
| Net income |
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|
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||||||
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|||||||||
| Other comprehensive income: |
|
|
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|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net derivative instrument loss, net of tax |
(
|
) |
(
|
) |
|
|
(
|
) |
|
|
(
|
) | ||||
|
|
|
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|
|
|
|
|||||||||
| Translation adjustments, net of tax |
|
(
|
) |
|
|
|
|
|
(
|
) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Comprehensive income attributable to the noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Comprehensive income attributable to Interparfums, Inc. | $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
||||
See notes to consolidated financial statements.
INTERPARFUMS, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
|
|
Three Months Ended | Nine Months Ended | ||||||||||||||
|
|
|
September 30, | September 30, |
|
||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
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|||||||||
| Common stock, beginning and end of period |
|
$ |
|
|
|
$ |
|
|
$ |
|
$ |
|
||||
|
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| Additional paid-in capital, beginning of period |
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||||||
| Shares issued upon exercise of stock options |
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||||||
| Share-based compensation |
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|
||||||
| Transfer of subsidiary shares purchased |
|
|
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|
(
|
) |
|
(
|
) | ||||||
| Additional paid-in capital, end of period |
|
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||||||
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|||||||||
| Retained earnings, beginning of period |
|
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|
||||||
| Net income |
|
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|
||||||
| Dividends |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
(
|
) | ||||
| Share-based compensation |
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|
||||||
| Retained earnings, end of period |
|
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||||||
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|||||||||
| Accumulated other comprehensive loss, beginning of period |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
(
|
) | ||||
| Foreign currency translation adjustment, net of tax |
|
|
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|
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(
|
) |
|
(
|
) | ||||||
| Transfer from other comprehensive income into earnings |
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(
|
) |
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||||||
| Net derivative instrument loss, net of tax |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
(
|
) | ||||
| Accumulated other comprehensive loss, end of period |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
(
|
) | ||||
|
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|||||||||
| Treasury stock, beginning of period |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
(
|
) | ||||
| Shares repurchased |
|
|
|
|
|
|
|
|
(
|
) | ||||||
| Treasury stock, end of period |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
(
|
) | ||||
|
|
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|||||||||
| Noncontrolling interest, beginning of period |
|
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|
||||||
| Net income |
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|
|
|
|
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|
|
||||||
| Foreign currency translation adjustment, net of tax |
|
|
|
|
|
(
|
) |
|
(
|
) | ||||||
| Net derivative instrument loss, net of tax |
|
|
(
|
) |
|
|
(
|
) |
(
|
) |
(
|
) | ||||
| Share-based compensation |
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|
|
|
|
|
|
|
|
|||||||
| Transfer of subsidiary shares purchased |
|
|
|
|
|
|
(
|
) |
(
|
) |
(
|
) | ||||
| Dividends |
|
|
(
|
) |
|
|
|
(
|
) |
(
|
) | |||||
| Noncontrolling interest, end of period |
|
|
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|
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||||||
|
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|||||||||
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|
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|
|
|
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| Total equity |
|
$ |
|
|
|
$ |
|
|
$ |
|
$ |
|
||||
See notes to consolidated financial statements.
| Page 5 |
INTERPARFUMS, INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||
|
|
|
September 30, |
|
|||||
| 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 provided by 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 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 |
INTERPARFUMS, INC. AND SUBSIDIARIES
(Unaudited)
| 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 |
Van Cleef & Arpels
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.
Dunhill
The Dunhill fragrance license expired on September 30, 2023 and was not renewed. The Company had a twelve -month sell-off period during which it maintained the right to sell-off remaining Dunhill fragrance inventory, which is customary in the fragrance industry. As of September 30, 2024, all finished goods and components have been sold and we no longer carry any inventory related to Dunhill.
Rochas Fashion
As a result of operational challenges faced by the Rochas Fashion business in prior years, we took a $
INTERPARFUMS, 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
September 30, 2024
, $
The acquisition was financed by a
| 3. | Recent Accounting Pronouncements: |
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced disclosures about significant segment expenses and information used to assess segment performance and allocate resources. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods for fiscal years beginning after December 15, 2024, on a retrospective basis. Early adoption is permitted. We are currently evaluating the impact of adopting this ASU on our disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU includes amendments requiring enhanced income tax disclosures, primarily related to standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted and shall be applied on a prospective basis with the option to apply retrospectively. We are currently evaluating the impact of adopting this ASU on our disclosures.
There are no other 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) | September 30, 2024 | December 31, 2023 | ||||||
| Raw materials and component parts | $ |
|
$ |
|
||||
| Finished goods |
|
|
||||||
| $ |
|
$ |
|
|||||
| Page 8 |
INTERPARFUMS, 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 September 30, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
||||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||||
| Page 9 |
INTERPARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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 fo reign 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 €
In
connection with the April 2021 acquisition of the office building complex in Paris, €
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 loss (gain) on foreign currency on the accompanying consolidated statements of income. Such gains and losses were immaterial for the three and nine months ended September 30, 2024 and 2023 , respectively.
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 sheet. The valuation of foreign currency forward exchange contracts at September 30, 2024 , resulted in a net asset and is included in other current assets on the accompanying consolidated balance sheet.
At
September 30, 2024
, the Company had foreign currency contracts in the form of forward exchange contracts with notional amounts of approximately
USD $
INTERPARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
|
7. |
Leases: |
The Com pany 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
September 30, 2024
, the weighted average remaining lease term 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
nine months ended September 30, 2024
and
2023
aggregated $
| 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 |
|
$ |
|
|||||
INTERPARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Share-based
payment expense decreased income before income taxes by $
| Shares |
Weighted Average
Exercise Price |
|||||||
| Outstanding at January 1, 2024 |
|
$ |
|
|||||
| Options forfeited |
(
|
) |
|
|||||
| Options exercised |
(
|
) |
|
|||||
| Outstanding at September 30, 2024 |
|
$ |
|
|||||
| Options exercisable |
|
$ |
|
|||||
| Options available for future grants |
|
|||||||
As
of
September 30, 2024
, the weighted average remaining contractual life of options outstanding is
| (In thousands) | September 30, 2024 | September 30, 2023 | ||||||
| Cash proceeds from stock options exercised | $ |
|
$ |
|
||||
| Tax benefits |
|
|
||||||
| Intrinsic value of stock options exercised |
|
|
||||||
There
were
Expected volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is estimated based on historical 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
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
INTERPARFUMS, 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
September 30, 2024
the Company acquired
All share purchases and issuances have been classified as equity transactions on the accompanying balance sheet.
| 9. | Net Income Attributable to Interparfums, Inc. Common Shareholders: |
Net income attributable to Interparfums, Inc. per common share (“basic EPS”) is computed by dividing net income attributable to Interparfums, Inc. by the weighted average number of shares outstanding. Net income attributable to Interparfums, 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 |
|
Nine months ended |
|
|||||||||||||
| (In thousands) | September 30, |
|
September 30, |
|
||||||||||||
| 2024 | 2023 |
|
2024 |
|
|
2023 |
|
|||||||||
| Numerator: |
|
|
|
|
|
|
||||||||||
| Net income attributable to Interparfums, Inc. | $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
||||
| Denominator: |
|
|
|
|
|
|
|
|
||||||||
| Weighted average shares |
|
|
|
|
|
|
|
|
|
|
||||||
| Effect of dilutive securities: |
|
|
|
|
|
|
|
|
||||||||
| Stock options |
|
|
|
|
|
|
|
|
|
|
||||||
| Denominator for diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Earnings per share: |
|
|
|
|
|
|
|
|
||||||||
| Net income attributable to |
|
|
|
|
|
|
|
|
||||||||
| Interparfums, 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
INTERPARFUMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| 10. | Segment and Geographic Areas: |
The Company manufactures and distributes
Information on our operations by segments is as follows:
| (In thousands) | Three Months Ended |
|
Nine Months Ended |
|
||||||||||||
|
|
|
September 30, |
|
|
September 30, |
|
||||||||||
| 2024 | 2023 |
|
2024 |
|
|
2023 |
|
|||||||||
| Net sales: |
|
|
|
|
|
|
|
|
||||||||
| United States | $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
||||
| Europe |
|
|
|
|
|
|
|
|
|
|
||||||
| Eliminations of intercompany sales |
(
|
) |
|
|
|
(
|
) |
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income attributable to Interparfums, Inc.: |
|
|
|
|
|
|
|
|
||||||||
| United States | $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
||||
| Europe |
|
|
|
|
|
|
|
|
|
|
||||||
| Eliminations |
(
|
) |
|
|
|
(
|
) |
|
|
|
|
|||||
| $ |
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|||||
Eliminations of intercompany sales relate to European based operations products sold to United States based operations.
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Total Assets: | ||||||||
| United States | $ |
|
$ |
|
||||
| Europe |
|
|
||||||
| Eliminations |
(
|
) |
(
|
) | ||||
|
|
$ |
|
$ |
|
||||
INTERPARFUMS, INC. AND SUBSIDIARIES
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 Interparfums’ annual report on Form 10-K for the fiscal year ended December 31, 2023 , and the reports Interparfums files from time to time with the Securities and Exchange Commission (“SEC”). Interparfums 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 67 % of net sales for the nine months ended September 30, 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 produce and distribute fragrance and fragrance related products. United States based operations represented 33 % of net sales for the nine months ended September 30, 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 Jimmy Choo, Montblanc , Coach, GUESS, Donna Karan/DKNY, Lacoste, and Ferragamo brand names.
As a percentage of net sales, product sales for the Company’s largest brands were as follows:
|
Nine Months Ended September 30, |
||||||||
|
2024
|
2023
|
|||||||
| Jimmy Choo | 17 | % | 17 | % | ||||
| Montblanc | 16 | % | 18 | % | ||||
| Coach | 14 | % | 15 | % | ||||
| GUESS | 11 | % | 11 | % | ||||
| Donna Karan/DKNY | 7 | % | 7 | % | ||||
| Lacoste |
|
|
6 | % |
|
|
— |
|
| Ferragamo | 4 | % | 5 | % | ||||
| Page 15 |
INTERPARFUMS, INC. AND SUBSIDIARIES
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 and well diversified 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 as 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. 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.
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 September 30, 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.
| Page 16 |
INTERPARFUMS, INC. AND SUBSIDIARIES
Results of Operations
Three and Nine Months Ended September 30, 2024 as Compared to the Three and Nine Months Ended September 30, 2023
Net Sales:
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||||||||||||
|
|
|
September 30,
|
|
September 30,
|
||||||||||||||||||||
| (in millions) | 2024 | 2023 |
% Change
|
|
2024 |
|
|
2023 |
|
|
% Change
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| European based product sales | $ | 282.4 | $ | 233.5 | 21.0 | % |
|
$ | 739.4 |
|
|
$ | 661.5 |
|
|
|
11.8 | % | ||||||
| United States based product sales | 146.1 | 134.5 | 8.7 | % |
|
|
362.1 |
|
|
|
327.4 |
|
|
|
10.6 | % | ||||||||
| Eliminations | ( 3.9 ) | — | — |
|
|
( 10.7 | ) |
|
|
— |
|
|
|
— |
|
|||||||||
| $ | 424.6 | $ | 368.0 | 15.4 | % |
|
$ | 1,090.8 |
|
|
$ | 988.9 |
|
|
|
10.3 | % | |||||||
Net sales for the three months ended September 30, 2024 increased 15.4 % from the three months ended September 30, 2023 . At comparable foreign currency exchange rates, net sales increased 15.0 % from the third quarter of 2023 . The average dollar/euro exchange rate for the current third quarter was 1.10 compared to 1.09 in the third quarter of 2023 , while the average dollar/euro exchange rate was 1.09 for the nine months ended September 30, 2024 compared to 1.08 for the nine months ended September 30, 2023 . Net sales for the nine months ended September 30, 2024 increased 10.3 % as compared to the nine months ended September 30, 2023 .
Continuing the trend from the second quarter of 2024 , the current third quarter saw strong sales growth as compared to the corresponding period of the prior year. This was driven by both the growing global fragrance market in combination with the addition of our newest brands, Lacoste and Roberto Cavalli, which contributed 10% to the increase.
For European based operations, Jimmy Choo and Montblanc sales grew by 17 % and 10 %, respectively, compared to the corresponding period of the prior year, driven by the launch of Jimmy Choo I Want Choo Le Parfum and the ongoing strength in the Montblanc Explorer and Legend lines. Sales of Coach remained flat as compared to the corresponding period of the prior year. This was largely driven by the substantial increase in sales of Coach in the third quarter of 2023 of 32 % as compared to the third quarter of 2022 . During the first quarter of 2024 , we began selling the Lacoste brand, which added $ 29 million and $ 68 million in sales during the three and nine months ended September 30, 2024, respectively. During the third quarter of 2024 , we rolled out the international launch of Lacoste Original and launched a new Karl Lagerfeld pillar, Ikonik .
Sales by our United States based operations grew a modest 8.7 % in the third quarter of 2024 off a high 2023 base when third quarter sales had expanded 64 %. The addition and extension of Roberto Cavalli contributed to the continued growth in United States based operations with the debut of Sweet Ferocious in August of this year. GUESS and Donna Karan/DKNY rose 16 % and 4 %, respectively, compared to the corresponding period of the prior year, following the roll-out of GUESS Iconic and DKNY 24 / 7 building upon the strong performance of our legacy scents for both brands.
The third quarter growth was in line with expectations, and 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 holiday programs planned as well as the launch of the Roberto Cavalli Wild Heart duo planned for the fourth quarter. While the pace of growth in the market is starting to slow down, the power of our diverse brand portfolio, in combination with our agile operating model, should help us gain market share.
| Page 17 |
INTERPARFUMS, INC. AND SUBSIDIARIES
| Net Sales to Customers by Region | Nine Months Ended | |||||||
| (In millions) |
|
September 30, |
|
|||||
|
|
2024 | 2023 | ||||||
| North America | $ | 397.4 | $ | 369.2 | ||||
| Western Europe | 281.0 | 242.5 | ||||||
| Asia/Pacific | 154.2 | 141.5 | ||||||
| Central and South America | 88.9 | 71.7 | ||||||
| Middle East and Africa | 92.5 | 88.6 | ||||||
| Eastern Europe | 76.8 | 75.4 | ||||||
| $ | 1,090.8 | $ | 988.9 | |||||
In the nine months ended September 30, 2024, net sales in our largest market, North America, rose 8% as compared to the prior year period, followed by increases in the Western Europe and Asia/Pacific markets of 16% and 9%, respectively. Our net sales in Central and South America and the Middle East and Africa were also robust, up 24 % and 4 %, respectively in the nine months ended September 30, 2024 as compared to the prior year period. Additionally, our travel retail business is continuing to strengthen. Eastern Europe was adversely impacted by sourcing constraints earlier in the year, which returned to normal business levels in the third quarter of 2024 .
| Gross Profit Margin |
Three Months Ended
|
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Nine Months Ended |
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| (in millions) |
|
September 30,
|
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September 30, |
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2024
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2023
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2024
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2023
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| European based operations |
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| Net sales | $ | 282.4 | $ | 233.5 |
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$ | 739.4 |
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$ | 661.5 |
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||||
| Cost of sales | 95.5 | 73.3 |
|
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249.3 |
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220.6 |
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||||||
| Gross profit margin | $ | 186.9 | $ | 160.2 |
|
$ | 490.1 |
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$ | 440.9 |
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||||
| Gross profit margin as a % of net sales | 66.2 | % | 68.6 | % |
|
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66.3 | % |
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66.6 | % | ||||
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United States based operations |
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| Net sales | $ | 146.1 | $ | 134.5 |
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$ | 362.1 |
|
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$ | 327.4 |
|
||||
| Cost of sales | 59.6 | 59.7 |
|
|
151.4 |
|
|
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141.9 |
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||||||
| Gross profit margin | $ | 86.5 | $ | 74.8 |
|
$ | 210.7 |
|
|
$ | 185.5 |
|
||||
| Gross profit margin as a % of net sales | 59.2 | % | 55.6 | % |
|
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58.2 | % |
|
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56.7 | % | ||||
The Company’s gross profit margin as a percentage of net sales was 63.9 % and 63.6 % for the three and nine months ended September 30, 2024 , respectively, as compared to 63.9 % and 63.3 % for the corresponding periods of the prior year. The increase in the nine month period ending September 30, 2024 as compared to the prior year period was driven by the impact of certain one-time expenses related to inventory in 2023 partially offset by un favorable segment, brand and channel mix in the current year. Gross profit margins remained flat from the same three month period in the prior year.
For European based operations, gross profit margin as a percentage of net sales was 66.2 % and 66.3 % for the three and nine months ended September 30, 2024 , respectively, as compared to 68.6 % and 66.6 % for the corresponding periods of the prior year. European based operations were negatively impacted by brand and channel mix during the three and nine months ended September 30, 2024 as compared to the prior year period.
| Page 18 |
INTERPARFUMS, INC. AND SUBSIDIARIES
For United States based operations, gross profit margin as a percentage of net sales was 59.2 % and 58.2 % for the three and nine months ended September 30, 2024 , respectively, as compared to 55.6 % and 56.7 % for the corresponding periods of the prior year. The increase in both periods was driven by favorable brand and channel mix.
Generally, we do not bill customers for shipping and handling costs, and such costs, which aggregated $ 3.8 million and $ 8.8 million for the three and nine months ended September 30, 2024 , respectively, as compared to $ 3.9 million and $ 11.4 million for the corresponding periods of the prior year , 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 during the three and nine months ended September 30, 2024 as compared to corresponding periods in 2023 is a direct benefit of lower transportation costs seen globally.
| Selling, general and administrative expenses |
Three Months Ended |
|
Nine Months Ended |
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| (In millions) |
|
September 30, |
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September 30, |
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||||||||||
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2024 | 2023 |
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2024 |
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2023 |
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European based operations |
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| Selling, general and administrative expenses | $ | 108.1 | $ | 98.7 |
|
$ | 306.6 |
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$ | 265.2 |
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||||
| Selling, general and administrative expenses as a percent of net sales | 38.3 | % | 42.3 | % |
|
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41.5 | % |
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40.1 | % | ||||
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| United States based operations |
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| Selling, general and administrative expenses | $ | 57.0 | $ | 49.1 |
|
$ | 148.9 |
|
|
$ | 128.7 |
|
||||
| Selling, general and administrative expenses as a percent of net sales | 39.0 | % | 36.5 | % |
|
|
41.1 | % |
|
|
39.3 | % | ||||
The Company’s selling, general and administrative expenses as a percentage of net sales were 38.9 % and 41.8% for the three and nine months ended September 30, 2024 as compared to 40.2 % and 39.8 % for the three and nine months ended September 30, 2023 . The increase in the first three quarters of the year was largely driven by increased spending on promotional and advertising activities as compared to the prior year period. Additionally, starting in 2024 , the Company began to amortize the cost of the Lacoste license which represented $4.8 million during the first nine months of the year. These costs are being incurred at approximately $1.6 million quarterly over the remaining life of the license. The decrease in the third quarter was driven by the phasing of promotional and advertising activities by our European based operations discussed in detail below.
For European based operations, selling, general and administrative expenses increased 9.6 % and 15.6 % for the three and nine months ended September 30, 2024 as compared to the corresponding period of the prior year, and represented 38.3 % and 41.5 % of net sales for the three and nine months ended September 30, 2024 , respectively, as compared to 42.3 % and 40.1 % for the three and nine months ended September 30, 2023 , 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. While promotion and advertising spend increased on a year to date basis, a portion of the activities planned for the third quarter were pushed into the fourth quarter resulting in a decrease in selling, general and administrative expenses as a percentage of net sales in the current quarter as compared to the prior year period. For United States based operations, selling, general and administrative expenses increased 16.1 % and 15.7 % for the three and nine months ended September 30, 2024 , as compared to the corresponding period of the prior year, and represented 39.0 % and 41.1 % of net sales for the three and nine months ended September 30, 2024 , respectively, as compared to 36.5 % and 39.3 % for the three and nine months ended September 30, 2023 , respectively. The increase was largely driven by continued investment in infrastructure and headcount to support the growth of the business as well as increased promotional and advertising spending.
Promotion and advertising included in selling, general and administrative expenses aggregated $66.8 million and $181.5 million for the three and nine months ended September 30, 2024 , respectively, as compared to $ 62.8 million and $ 152.6 million for the corresponding periods of the prior year and represented 15.7% and 16.6% of net sales for the three and nine months ended September 30, 2024 , respectively, as compared to 17.1 % and 15.4 % for the corresponding periods of the prior year. Promotion and advertising are integral parts of our industry, and we continue to invest heavily to support new pr oduct 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 three quarters 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 launches 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.
| Page 19 |
INTERPARFUMS, INC. AND SUBSIDIARIES
Royalty expense included in selling, general and administrative expenses aggregated $34.0 million and $88.2 million for the three and nine months ended September 30, 2024 , respectively, as compared to $ 29.1 million and $ 77.2 million for the corresponding periods of the prior year. Royalty expense represented 8.0% and 8.1% of net sales for the three and nine months ended September 30, 2024 , respectively, as compared to 7.9 % and 7.8 % of net sales for the corresponding periods of the prior year. This increase was primarily driven by unfavorable brand mix.
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 25.0% and 21.9% for the three and nine months ended September 30, 2024 , respectively, as compared to 23.7 % and 23.5 % for the corresponding periods of the prior year.
Other Income and Expense
Overall, other income and expense for the nine months ended September 30, 2024 , was a loss of $7.1 million as compared to a gain of $2.2 million in the corresponding prior year period. The main drivers of this change are discussed in more detail below. These include an increase in interest expense on borrowings of $0.3 million, a loss on foreign currency of $3.7 million, and a reduction of interest income related to cash and cash equivalents and short-term investments of $1.4 million. Additionally, there was a one-time gain of $3.1 million recognized in 2023 related to the sale of marketable securities.
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 $56 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 $ 128.5 million (€ 120 million) bank loan which bears interest at one -month Euribor plus 0.75 %. Approximately $89.6 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 %. Additionally in July 2024, the Company entered into a $44.8 million (€40 million) three-year loan agreement that bears a fixed interest rate of 4.03%. The loan was used to purchase additional short-term investments. Long-term debt including current maturities aggregated $179.1 million and $ 157.5 million as of September 30, 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 and nine months ended September 30, 2024 and 2023 .
Interest and investment income represents interest earned on cash and cash equivalents and short-term investments and realized and unrealized gains and losses on marketable equity securities. Interest income was $2.5 million in the nine months ended September 30, 2024 compared to $3.9 million in the prior year period. As of September 30, 2024 , short-term investments also include approximately $8.9 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 nine months of 2024 , resulting in an unrealized loss of $0.9 million for the first nine months of 2024 .
Income Taxes
Our consolidated effective tax rate was 23.7% and 23.5 % for the nine months ended September 30, 2024 and 2023 , respectively. The effective tax rate for European based operations was 25.0% for both the nine months ended September 30, 2024 and 2023 , while the effective tax rate for United States based operations was 19.8% for the nine months ended September 30, 2024 , as compared to 18.8 % for the corresponding period of the prior year. Our effective tax rate for United States based operations differs from the 21 % statutory rate in the United States as it is a blended rate across multiple jurisdictions, and takes into account 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 20 |
INTERPARFUMS, INC. AND SUBSIDIARIES
Net Income
|
Three Months Ended
|
Nine Months Ended |
|
||||||||||||||
| (In thousands) |
|
September 30, | September 30, |
|
||||||||||||
| 2024 | 2023 | 2024 | 2023 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income attributable to European based operations | $ | 54,445 | $ | 45,965 |
|
$ | 132,572 |
|
|
$ | 133,480 |
|
||||
| Net income attributable to United States based operations | 24,263 | 20,155 |
|
|
49,015 |
|
|
|
46,066 |
|
||||||
| Eliminations | ( 1,873 | ) | — |
|
|
( 4,851 | ) |
|
|
— |
|
|||||
| Net income | 76,835 | 66,120 |
|
|
176,736 |
|
|
|
179,546 |
|
||||||
| Less: Net income attributable to the noncontrolling interest | 14,576 | 12,906 |
|
|
36,606 |
|
|
|
37,312 |
|
||||||
| Net income attributable to Interparfums, Inc. | $ | 62,259 | $ | 53,214 |
|
$ | 140,130 |
|
|
$ | 142,234 |
|
||||
Net income attributable to Interparfums, Inc. was $ 62.3 million and $ 140.1 million for the three and nine months ended September 30, 2024 , respectively, as compared to $ 53.2 million and $ 142.2 million for the corresponding periods of the prior year.
Net income attributable to European based operations was $ 54.4 million and $ 132.6 million for the three and nine months ended September 30, 2024 , respectively, as compared to $ 46.0 million and $ 133.5 million for the corresponding periods of the prior year, while net income attributable to United States based operations was $ 24.3 million and $ 49.0 million for the three and nine months ended September 30, 2024 , respectively, as compared to $ 20.2 million and $ 46.1 million for the corresponding periods of the prior year. 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 28 % of European based operations net income for both the nine months ended September 30, 2024 and 2023 . Net profit margins attributable to Interparfums, Inc. for the nine months ended September 30, 2024 and 2023 aggregated 12.8% and 14.4 %, respectively.
Liquidity and Capital Resources
Our conservative financial tradition has enabled us to amass significant cash balances. As of September 30, 2024 , we had $157.2 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 September 30, 2024 , working capital aggregated $617 million. Approximately 76% of the Company’s total assets are held by European based operations, and approximately $253 million of trademarks, licenses and other intangible assets are also held by European based operations.
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.
| Page 21 |
INTERPARFUMS, INC. AND SUBSIDIARIES
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. Discussions have been underway since 2023 with a view to renewing the Van Cleef & Arpels license agreement. The license is to be renewed for an additional 9 -year term, beginning January 1, 2025. 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 provided by operating activities aggregated $ 49.7 million for the nine months ended September 30, 2024 and compared to $ 24.3 million for the nine months ended September 30, 2023 . For the nine months ended September 30, 2024 , working capital items used $147.0 million in cash from operating activities, as compared to $ 169.1 million in the 2023 period. Although from a cash flow perspective accounts receivables are up 41% from year end 2023 , the balance is reasonable based on third quarter 2024 record sales levels and seasonality of the business. While day’s sales outstanding was 83 days, up from 71 days in the corresponding period of the prior year driven by changes in our channel mix, 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 September 30, 2024 increased 9% from year end 2023 in support of our overall sales growth as well as the building up of inventory related to the inclusion of the Lacoste and Roberto Cavalli licenses which require large inventory needs to support the launches of these brands. Additionally, as we are working to manage down our inventory levels, we have seen increased conversion of raw materials into finished goods resulting in finished goods making up 63% of our inventory levels at September 30, 2024 as compared to 58% at September 30, 2023 . Due to past supply constraints, we had strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold. These constraints have largely abated and we are gradually reversing some of these previous interventions. We are beginning to see the impacts of these recent inventory management efforts and will continue to work to optimize inventory levels.
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 September 30, 2024 , approximately $2.2 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 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.
Cash flows used in financing activities in 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 September 30, 2024 , and by short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2024 consist of a $25 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 $9.0 million of short-term borrowings outstanding pursuant to these facilities as of September 30, 2024 and $ 4.5 million outstanding as of September 30, 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 December 31, 2024, to shareholders of record on December 16, 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 United States and foreign countries in which we operate did not have a significant impact on operating results for the nine months ended September 30, 2024
| Page 22 |
INTERPARFUMS, INC. AND SUBSIDIARIES
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 September 30, 2024 , we had foreign currency contracts in the form of forward exchange contracts of approximately USD $21 million and GBP £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.
|
|
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 13 a- 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 13 a- 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.
| Page 23 |
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 .
| Interparfums, 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 |
| July 1-31 | 0 | n/a | 0 | 130,000 shares |
| August 1-31 | 0 | n/a | 0 | 130,000 shares |
| September 1-30 | 0 | n/a | 0 | 130,000 shares |
| Total | 0 | n/a | 0 | 130,000 shares |
Item (c). During the third quarter of 2024 , director or officer has adopted or either any “ ” or “ ,” as such terms are defined in the applicable regulation.
Items 1 . Legal Proceedings, 1 A. 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.
INTERPARFUMS, INC. AND SUBSIDIARIES
The following documents are filed herewith:
INTERPARFUMS, INC. AND SUBSIDIARIES
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 6th day of November 2024.
| INTERPARFUMS, INC. | |||
| By: | /s/ Michel Atwood | ||
| Chief Financial Officer | |||
| Page 26 |