Interparfums, Inc. (IPAR) Earnings Call Transcript & Summary

Hello, and welcome to Inter Parfums, Inc. 2021 Annual Meeting of Shareholders. Please note that today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Jean Madar, Chairman. Mr. Madar, the floor is yours.

Good morning. Will the meeting please come to order? As most of you know, I'm Jean Madar, Chairman of the Board and Chief Executive Officer of Inter Parfums, Inc. I would like to take this opportunity to welcome all of you to the 2021 virtual Annual Meeting of Stockholders of Inter Parfums. This is our second-ever virtual annual meeting. We are holding this meeting virtually due to public health concerns caused by the recent surge of COVID-19 as well as the travel, social distancing and meeting restrictions imposed by federal, state and local governments. Therefore, we have decided to hold our annual meeting solely by means of an audio conference that is being broadcast live via webcast. I will act today as the Chairman of the meeting; and Joseph Caccamo, our General Counsel, will act as the Secretary of the meeting. Before proceeding with the business of the meeting, there are certain technical legal matters which we must attend to in order to ensure that we are conducting a duly authorized meeting. As soon as these technicalities are out of the way, I will introduce to you the officers and directors of the company who are present here today, and then I will describe the matters for your consideration and action. The company has designated Sharon Best-Jhagroo of American Stock Transfer & Trust Company as the inspector of election, who has signed and sent us her oath of inspector of elections.

Mr. Chairman, I have received her signed and notarized oath of the inspector of election.

The record date fixed by the Board of Directors for the determination of stockholders entitled to vote at this meeting is August 9, 2021. The inspector of election has a certified list furnished by American Stock Transfer & Trust Company, the company transfer agent of the holders of common stock of the company as of the close of the business on the record date. Will all stockholders present and all holders of proxies for other stockholders, please, if they have not already done so, submit their respective vote online for tabulation? Will the inspector of election kindly read the report of the number of shares of common stock of the company represented at the meeting, either in person or by proxy and indicate whether there is a quorum of stockholders present in person or by proceeds at this meeting. Sharon?

Yes. Thank you, Mr. Chairman. I certify that there are 30,072,632 shares, which is approximately 95% of the Inter Parfums common stock represented by proxies at this meeting.

Okay. So we have 95% of the shares that have been voted. The report of the inspector of election indicates that they are present at the meeting, in person or represented by proxy, the holders of a majority of the total number of shares of common stock of the company issued and outstanding and entitled to vote at this meeting. Therefore, there is a quorum present, and the meeting is competent to transact business. Will the secretary please give his report? Secretary Joe?

Mr. Chairman, as Secretary of the meeting, I have in my possession...

Joe, I cannot hear you.

Can you hear me? Test 1, 2?

Yes, go ahead. Go ahead, Joe.

Okay. As -- Mr. Chairman, as Secretary of the meeting, I have in my possession a note -- a copy of the notice of annual meeting of stockholders dated August 13, 2021, concerning the matters to be considered and acted upon at this meeting, a copy of the proxy statement and the form of proxy, together with the transfer agent's affidavit of mailing.

Okay. Before proceeding further, I would like to introduce to you the persons who are here today. I am Jean Madar, the Chairman of the Board and Chief Executive Officer; and I have next to me Russ Greenberg, who is a director of the company and also Executive Vice President and Chief Financial Officer. Joe Caccamo is the company counsel; and Sharon Best-Jhagroo is from American Stock Transfer. Let's look at the first proposal. The first order of business is the election of directors to hold office for a term of 1 year until the next Annual Stockholder Meeting and until their successors are elected and qualified. The floor is open for nomination of directors, and I nominate the following individuals: Jean Madar, Philippe Benacin, Russell Greenberg, Philippe Santi, Francois Heilbronn, Robert Bensoussan, Patrick Choël, Michel Dyens, Veronique Gabai-Pinsky, Gilbert Harrison. There are being no other nominations, I declare the nominations closed. Second proposal. The second order of business is to vote for the advisory resolution to approve the compensation of our named executive officer. The following proposal is put forth before the stockholders. Resolved that the compensation paid to Inter Parfums, Inc. named executive officers, as disclosed in accordance with the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation table and related narrative disclosure included in the proxy statement of Inter Parfums for this annual meeting, is hereby approved. Let's look at the results of voting. We have received the preliminary voting results as of 9:00 a.m. this morning. I understand that due to the fact we are holding the meeting virtually, the final results will be available about now. So the final voting results will be reported in our SEC filings due within the next few days. So on the basis of the preliminary voting results for proposal 1, with about 85% of the votes in, we don't have more than that?

95%.

I don't have that.

It says 95%.

Yes, 95%, Jean.

Okay, no problem. With the 95% of the votes in, all directors have received an overwhelming majority for the votes for their reelection, ranging from 65% to 99%. Joe, do you have a breakdown by individual?

Yes. I will find it in 1 second, the vote.

Yes, Joe?

I'm finding it, 1 second. Sharon, I can't open the voting.

That's okay. I have it right here. And i can just tell you by the directors, do you want me to say the percentage director?

Yes.

Okay. So for director #1, which is Jean Madar, we have 98.04%.

98%?

Yes, 98.04%, correct. For director #2, Philippe Benacin, we have 96.43%. Director #3, Russell Greenberg, we have 93.47%. Director #4, Philippe Santi, we have 90.4%; Director #5, Francois Heilbronn, we have 65.11%; Director 6, Robert Bensoussan, we have 99.29%; Director 7, Patrick Choël, we have 83.85%; then we have Director Michel Dyens at 99.65%; then Veronique Gabai-Pinsky at 92.83%; and then Gilbert Harrison at 99.65%.

Impressive, all right. Thank you very much. This is very helpful, Sharon. Okay. So on the -- now we move to the second point. On the basis of a preliminary voting results for proposal 2, with about 95% of the votes in, the proposal to approve the compensation paid to Inter Parfums named executive officer as discussed in our 2021 proxy has received an overwhelming majority of the votes for. We have approximately 98% of votes for, and then it will be approved. So following the close of -- following the close of the formal portion of this meeting, we would like to give you a brief report of the events which are occurring in our company, and there are a lot of events, so I'm going to let Russ give you an update. We are now beginning of October so we have just finished the third quarter. We have not released the third quarter but we just finished third quarter. So Russ, can you tell us what's going on? And then after that, I will give you a little development on the Ferragamo acquisition that we finalized and announced yesterday and the new license with Donna Karan, I will talk about this part. But first, an idea on the state of the business.

Jean, first, we need to close the formal portion of the meeting.

Yes, there being no further business...

There being no further business to be brought before the meeting, the formal part of the meeting is hereby adjourned and we go to a discussion on the business. Thank you.

Okay. So from a financial perspective, as Jean just indicated, the most recent reports we reported was for the 3- and 6-month period ending June. We will be reporting our third quarter sales towards the end of October, and of course, our third quarter earnings early in November. But just as a little reminder, the second quarter was a phenomenal quarter for Inter Parfums. We generated net sales of over $400 million, up from just under $200 million in 2020. What was even more impressive is that they actually -- sales actually rose over 18% from 2019, a 6-month period ending June, which shows that we really kind of had a major recovery from the effects of the COVID pandemic that we had felt in 2020. From an earnings standpoint, income from operations for that 6-month period topped $90 million as compared to just about $12 million the year before. And from an earnings standpoint, we generated earnings of over $50 million for the 6 months ended June as compared to $7 million for the period before. Same comment with respect to year-to-date income. When we compare it to 2019, we were actually up approximately 61%, reaching, as I said, the $50 million compared to $31 million in 2019. From -- as I said, we will be reporting third quarter results. I think what's most important today is really the recent activity. From an acquisition standpoint, as Jean mentioned, we've recently announced 2 deals, and I'll let Jean talk a little bit about those deals.

Okay. So I understand that you cannot talk about the third quarter yet because nothing has been announced, even though we have said too many the business is quite strong. What I would like to talk about is first, Ferragamo. We have been working on this license for a long time. Ferragamo has been in the fragrance business not for license but directly operated by the Ferragamo fashion house. So the Ferragamo fashion house was the owner and the operator of the fragrance business. They decided to license it. It was a very important strategic decision for the Ferragamo family to go to an outside partner, and I want to thank them for their trust and confidence. They choose Inter Parfums because they thought we were the best company to understand and interpret their -- what Ferragamo means. We also committed to keep this business in Italy. So when we take this business in Italy, it means that the manufacturing of all Ferragamo fragrance will be in Italy. Most of the sourcing of the component that goes into Ferragamo fragrance will be from Italy. And in order to support this new activity, we have decided to take over an existing company that was owned by Ferragamo before that have employees. We have, I think, something like 25 or 30 employees that will work on finance, accounting, marketing, operations, packaging, planning, inventories, et cetera, et cetera. The deal is effective October 1 so we are today in our first week of the Ferragamo licensee. We will continue to do the business that Ferragamo was doing before. We will come up with new products, and the plan is to launch towards the end of 2023, the new [ blockbuster ]. The size of the business was not disclosed but we mentioned in the press release that Ferragamo will be in the top 5 license that the company has. We think that we can strengthen the business of Ferragamo in the [ Far East ] where the name is already very well known. And in America, where the name is known but the distribution is underdeveloped. So this is for Ferragamo. Of course, every quarter, we will keep you aware of the development. The company is quite optimistic. This is the first Italian classic fashion fragrance that we have. Of course, we have Moncler, which is also [ Italian ] but I will maintain Moncler is more lifestyle, Ferragamo is more classic. And we will be looking for more businesses, more brands from Italy or from other countries to enrich our portfolio. The second is that we have signed and announced is the Donna Karan, DKNY license agreement. We signed this license agreement with the owner of Donna Karan. It's a public company called G-III. The former licensee was Estee Lauder. They have been doing this for 20 or 30 years. And Estee Lauder is actually still closing their division in charge of the designer fragrance and Donna Karan/DKNY was part of the division. This deal will be effective July 1, 2022 so it will be in 9 months from now. We will be the new licensee of Donna Karan, DKNY. Estee Lauder will produce some inventory for us, so we are sure that there is no disruption in the market. But we'll take over the business officially in June 2020 -- in July, I'm sorry, 2022. So the DKNY/Donna Karan business will have no impact in our 2022 -- 2021 numbers but will start being introduced in our set for 2022. So these are 2 important pieces, 2 new important additions to our portfolio. The portfolio is now very well balanced. These are not small acquisitions because with these 2 acquisitions, we think that we'll reach the $1 billion sales in next, when we say Russ, 2 to 3 years.

Next 2 to 3 years.

Currently have some questions.

Yes. The first question that we have for today is from Linda Bolton-Weiser. Actually, all the questions are from Linda. But are we seeing any component shortages or supply chain logjams right now? What type specifically?

Yes, I can try to answer. There is a huge disruption on the supply chain. When I say huge, it's something that I've never seen before in my short 40 years of being in this business. The 2 problems have happened. Our suppliers of components have -- do not have the capacity to produce our needs. And also when they produce, they have a problem to find either a boat or a truck to bring it to our warehouses. So this -- so the problem of capacity, coupled with the problem to find the transportation, make the program extraordinary. This is not new. We saw it coming beginning of the year. We have increased a lot our demand for inventory and we have increased in January, February and March. Thank God, we did that in order to protect some of the business. So I will say that the third quarter was actually affected. We could have done maybe a little bit more but we shipped most of the orders. We received also in the -- at the end of the third quarter a good amount of components in order to secure a good part in the fourth quarter. We have increased -- we have done 3 things. We have increased our inventory, increased our future orders. We have taken into account a longer lead time for components. And we are sourcing from different suppliers the same component. So let's put it this way. Today, we have almost 1.5 to 2 different suppliers for each of the components that we are using in order not to be in the hands of just one. But even if we do all this, it will have an impact. Definitely, it will have an impact. What we see right now is that the demand for fragrance is way above what we forecasted. Some were able to ship, some won't be able to ship. What is important for me is the future, so we have decided to carry more inventory going into 2022. We have decided to manufacture products closer to where the sales are. And that's why Italy will be a very important point of manufacturing and the point of distribution and, of course, very definitely an inflation on components and an inflation on freight, which we have already captured in our numbers. It's something that we have a little bit anticipated. We didn't think that it will be that much. We didn't think also that it will last so long. We think that the pressure on freight will start going down towards the end of the year. But as of today, it's a very intense problem. Russ, you want to add something, please?

Yes. I think the only thing, just from a financial perspective, so far, although the actions that we've taken with respect to increasing our forecast earlier in the year have mitigated, to a great extent, what could have been a significant logjam, if you will, from a supply chain standpoint. Freight costs themselves, this is something that really started to show itself towards the end of the second quarter, and it continued to get substantially worse as we moved into the third quarter. However, we're not expecting it to have any sort of significant material impact on our overall financial results for Q3. We're hoping that we're going to start seeing some of the freight costs rationalize themselves in the fourth quarter. But so far, it really has not shown any significant reductions.

And maybe I will add an answer to a question that Linda didn't ask but she could have asked. Are we going to increase the prices going forward? The answer is yes. We have decided to do a price increase on most of our products, not all, but most of our products, we'll do a price increase starting January 1 in order to mitigate the cost of freight basically and also cost of supply. We think that this modest price increase, which we have not done for the last 8 years, we have not increased prices for 8 years. This modest price increase will be able -- should be able to cover us in terms of freight. That is for this question. So Linda has another question. Okay. What are the most significant launches planned for 2022? So Russ, you know the launches.

Well, certainly, the most exciting launch that we're looking forward to for 2022 is the launch of Moncler. Moncler for men and Moncler for women recently just actually hit women's wear daily just the other day. We will have a soft launch in a very select number of doors coming in the fourth quarter of 2021. But the main part of the launch, the global launch is really earmarked for 2022. And it's going to roll out to somewhere between 3,000 and 4,000 doors on a worldwide basis.

On the top of Moncler for 2022, we'll have a new blockbuster for Boucheron. We'll have a new fragrance for men for Coach. We'll have an extension of men's for Jimmy Choo. We'll have an extension for Montblanc. We'll have a new fragrance for [ GUESS ]. So it's going to be absolutely a busy year. 2022 will be a big year. And to finish our comments, based on the issues that varies in the supply chain and the fact that we cannot deliver all the orders that we have, we think that we anticipate the sell-through for Christmas to be stronger because they won't have all the orders that they placed. The retailers will not receive all the orders that they placed. So we anticipate a very strong first quarter 2022 because we'll have to replenish quickly after Christmas. So we are gearing up inventory for first quarter 2022. Okay. So I think that this concludes this session, the formal part was the formal part. I hope we -- even if we do not see you, we answered some of the questions that you have, and you know that Russ is always available on his -- at the office on his cell phone to answer your questions. Thank you for your time today, and we will see you -- we'll talk to most of you soon when we release our third quarter, which will happen beginning of November, I guess?

Yes.

Thank you very much, and have a good day. Bye-bye.

This concludes the meeting. You may now disconnect.