Inter Parfums, Inc. (IPAR Quick QuoteIPAR - Free Report) posted first-quarter 2024 results, wherein the bottom line declined year over year and fell short of the Zacks Consensus Estimate. However, sales increased due to strength in U.S.-based operations.

The fragrance market stays vibrant, with major brands consistently experiencing robust sell-out rates and receiving positive feedback from retailers and consumers. Continued momentum in the fragrance market and the successful initial shipments of Lacoste and Cavalli fragrances drove results. Despite challenges in certain regions and shifts in sales timing, Inter Parfums remains focused on optimizing product launches throughout the year for a more balanced distribution.

Results in Detail

Inter Parfums posted earnings of $1.27 per share, down 24% from the year-ago quarter’s figure. The metric lagged the Zacks Consensus Estimate of $1.56 per share.

Quarterly net sales reported a 4% year-over-year increase, reaching $324 million, but lagged the consensus mark of $331 million. In an earlier press release, Inter Parfums announced that sales in the United States surged to $96 million, marking remarkable 18% growth compared to the previous year. However, European-based operations faced challenges, with flat net sales of $231 million compared to the exceptional performance in the first quarter of 2023.

Coming back to the current release, the company stated that its largest market, North America, showed resilience despite witnessing a 3% drop in comparable quarter sales. This decline is attributed mainly to the concentration of product launches in the early parts of 2023. Sales in Western Europe rose 10%, whereas Eastern Europe experienced a 22% decrease due to shipment delays in certain countries, causing sales to shift to the second quarter.

Asia/Pacific recorded robust 13% sales growth, driven by strong performances in Australia and India. Central and South America also saw significant growth, with a 31% increase in sales during the first quarter. However, sales in the Middle East and Africa declined by 5%, influenced by economic and social disruptions from the ongoing conflicts in those areas as well as phased product launches.

Costs & Margins

Inter Parfums’ consolidated gross margin came in at 62.5% compared with the 65.1% reported in the year-ago quarter. The gross margin contraction stemmed from a lower margin in European-based operations. We had expected the gross margin to come in at 56.3%.

In European-based operations, the gross margin contracted to 64% from the year-ago period’s figure of 67.8% due to the adverse segment, geographic and channel mix, elevated trade spend to fuel the business and raw material cost inflation stemming from escalated energy costs. Nonetheless, the gross margin for U.S.-based operations increased from 57.6% to 58.7% in the quarter due to the better brand and channel mix and an increased portion of sales being made directly to retailers rather than to third-party distributors.

Inter Parfums’ SG&A expenses were $134.4 million, up from the $112.7 million reported in the year-ago quarter. As a percentage of sales, SG&A increased to 41.5% from the 36.1% reported in the year-ago period. This was a result of increased advertising and promotional investments in both segments. Advertising and promotional expenditure is expected to form nearly 21% of net sales in full-year 2024.

The company’s operating income came in at nearly $68 million, down from the $90.3 million reported in the year-ago quarter. The operating margin came in at 21% compared with the 29% reported in the year-ago quarter. However, the year-ago period margin was fueled by a greater pipeline of new product launches, along with lower advertising and promotional costs. We had expected the metric to be 9.5% in the fourth quarter of 2023.

Other Financial Aspects

Inter Parfums ended the quarter with cash and cash equivalents of $21 million, long-term debt (excluding the current portion) of $115.9 million and total equity of $907.9 million.

Inter Parfums announced a regular dividend of 75 cents per share, payable on Jun 28, 2024, to shareholders of record as of Jun 14.

Innovation, a Key Driver

During the first quarter of 2024, several new fragrances were launched, including expansions within established lines for Oscar de la Renta and Anna Sui. New additions included Montblanc Legend Blue, Donna Karan Cashmere Collection, Van Cleef & Arpels Encens Précieux, Karl Lagerfeld Rouge, Rochas Orange Horizon, Kate Spade Bloom, and Lacoste L12.12 Blanc and L12.12 Rose. Initial sales of the Lacoste and Roberto Cavalli fragrances underscore confidence in these new brands.

GUESS, ranked as the fourth largest brand, experienced a notable 21% sales increase during the quarter, marking the highest gain among the top brands. The brand's robust innovation calendar for the year ahead indicates positive prospects for continued success. Looking at the remainder of 2024, the company has solid innovation plans, including flagship fragrances for DKNY and Lacoste, as well as line extensions for Jimmy Choo's I Want Choo and Roberto Cavalli's Signature lines.

Multiscent collections for GUESS are set to release in spring, followed by a new addition to GUESS Uomo men's fragrance line in the fall. Additionally, extensions for Hollister's Feelin' Free and Ferragamo's Signorina are likely to be introduced later in the year.

Elevated investments in advertising and promotions during the first quarter were aimed to drive business growth throughout the year, making up for fewer new product launches compared to the previous year. This strategic approach, coupled with ongoing efforts in developing compelling content and implementing omnichannel concepts, reflects confidence in achieving substantial growth in the second half of 2024.

Guidance

Management remains confident about the resilience of the fragrance market and the company's strategies to gain market share effectively. The company remains optimistic about favorable market conditions and anticipates the positive trends to outweigh any challenges faced.

For the full-year 2024, the company continues to anticipate net sales of $1.45 billion and earnings of $5.15 per share. This guidance suggests 10% growth in net sales and an 8% improvement in the bottom line from the 2023 levels.

This Zacks Rank #4 (Sell) stock has tumbled 18.2% in the past three months compared with the industry’s decline of 8.8%.

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