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Inter Parfums (IPAR) Q1 Earnings Top Estimates, Sales Drop Y/Y

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Inter Parfums, Inc. (IPAR - Free Report) delivered first-quarter 2020 results, wherein both top and bottom lines declined year over year. First-quarter results were hampered by the coronavirus outbreak, as operations were hurt by the pandemic-led hurdles for most parts of the quarter.

Inter Parfums saw a short-term suspension at its distribution facilities for the safety of employees. Further, retail outlet closures in most parts of the world affected the company’s sales. Moreover, the company has been battling major supply-chain hiccups. Management stated that it expects to see a sharp sequential as well as a year-over-year decline in second-quarter sales. Nonetheless, it expects improvements in the second half of the year.   

Quarter in Detail

Inter Parfums Inc Price, Consensus and EPS Surprise

Inter Parfums Inc Price, Consensus and EPS Surprise

Inter Parfums Inc price-consensus-eps-surprise-chart | Inter Parfums Inc Quote

The company posted earnings per share of 32 cents, which beat the Zacks Consensus Estimate of 29 cents. However, the bottom line slumped 46.7% year over year.

Net sales for the quarter amounted to $144.8 million, down 18.7% on a year-over-year basis. At comparable-currency exchange rates, net sales dropped 17.8%. Net sales declined across both U.S. and Europe-based operations. In U.S.-based operations, net sales decreased 10.9% to $30.7 million. Net sales in the Europe-based operations amounted to $114.1 million, down 20.6% year on year.

Notably, the company’s two largest brands Coach and GUESS? (GES) witnessed solid sales growth during the quarter under review. Earlier this year, Inter Parfums launched Coach Dreams that drove the brands’ sales by 35.9%. Further, the already existing products and brand extensions under GUESS? helped the brand record 28.9% sales growth in the first quarter.

However, growth in the above-mentioned brands was more than offset by declines in majority of the company’s other brands. Incidentally, comparable sales declined for other major brands due to the closure of almost all points of sale worldwide due to the coronavirus pandemic. Moreover, the company reported robust growth in brands like Montblanc and Jimmy Choo in the year-ago period, which now serves as a high benchmark in 2020 for Inter Parfums.

The Middle East and Asia were most affected, wherein net sales tumbled a respective 44% and 37%. North America and Western Europe saw declines of 1% and 11%, respectively, as staying indoors and store closure trends were executed very late in the quarter. We note that toward the end of March and the beginning of April, many parts of Asia have re-opened, led by China. Various European countries and the Middle East are also on track to reopen stores by later this month. However, the reopening process has been very limited in the United States.

Costs & Margins

Gross profit amounted to roughly $89 million, down 18.9% year on year. Further, gross margin was 61.5%, down 10 basis points (bps).  

SG&A expenses amounted to $71.3 million, down 6.4% year on year. Also, as a percentage of net sales, SG&A expenses were 49.2%. The metric declined from 42.9% in the prior-year quarter.

However, operating income came in at $17.8 million, down 46.6% year on year. Further, operating margin was 12.3%, down 640 bps.

Other Financial Aspects

The company ended the quarter with cash and cash equivalents of $142.6 million, long-term debt (excluding current portion) of $9.8 million and shareholder’s equity (excluding non-controlling interest) of $462 million. Further, the company had $47 million available under its unused credit facility.

Outlook

Management expects to see a sharp sequential as well as a year-over-year decline in second-quarter sales. Nonetheless, it expects improvements in the second half of the year. Stay-at-home as well as store closure restrictions are being lifted in many parts of the world where the impact of the pandemic is reducing. However, management doesn’t expect normal air travel to resume anytime soon, which is likely to continue hurting the travel retail business in the near term. Also, in a recessionary environment, fragrance buying is likely to take a back seat compared to essentials.

The company has undertaken several actions to revive sales and profits next year. Incidentally, the company informed last month that it has postponed the launch of various big programs for brands like Kate Spade, Jimmy Choo, Anna Sui and GUESS? until 2021. Also, advertising and promotion costs related to such events have been postponed to 2021. Going ahead, management believes that such stringent cost-containment efforts will reduce the impact of lower sales on the company’s profits. Also, Inter Parfums has significantly lowered bonuses, ceased hiring and curtailed several non-essential expenses to preserve cash flow amid the coronavirus crisis. The company also announced a temporary suspension of its quarterly cash dividend to maintain a sound financial position amid this crisis. The company doesn’t anticipate facing any liquidity issues in the near term.

Price Performance

This Zacks Rank #5 (Strong Sell) stock has lost 35.7% in the past three months compared with the industry’s decline of 24.9%.

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