10-Q 1 ipar-20240930.htm 10-Q ipar-20240930.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2024.

 

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. 0-16469

 

INTERPARFUMS, INC.

 (Exact name of registrant as specified in its charter)

 

Delaware   13-3275609
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

551 Fifth AvenueNew YorkNew York 10176
(Address of Principal Executive Offices)          (Zip Code)

 

(212) 983-2640
(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
 Common Stock, $.001 par value per share   IPAR    The Nasdaq Stock Market

 

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 No ☐

 

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 No

 

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).

 

Large accelerated filer 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 No

 

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 32,030,280 shares of common stock, par value $.001 per share, outstanding.








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.

 

Page 1


 

INTERPARFUMS, INC. AND SUBSIDIARIES

 

 (In thousands except share and per share data)

 (Unaudited)

                 
ASSETS







    September 30, 2024     December 31, 2023  
Current assets:                
Cash and cash equivalents   $ 78,419     $ 88,462  
Short-term investments     78,783       94,304  
Accounts receivable, net     354,175       247,240  
Inventories     412,758       371,859  
Receivables, other     4,984       7,012  
Other current assets     26,788       29,458  
Income taxes receivable     533       691  
Total current assets     956,440       839,026  
Property, equipment and leasehold improvements, net     166,435       169,222  
Right-of-use assets, net     25,471       28,613  
Trademarks, licenses and other intangible assets, net     290,864       296,356  
Deferred tax assets     19,742       14,545  
Other assets     21,648       21,567  
Total assets   $ 1,480,600     $ 1,369,329  
                 
LIABILITIES AND EQUITY                
Current liabilities:                
Loans payable - banks   $ 8,957     $ 4,420  
Current portion of long-term debt     44,538       29,587  
Current portion of lease liabilities     6,189       5,951  
Accounts payable – trade     96,578       97,409  
Accrued expenses     166,156       178,880  
Income taxes payable     17,164       8,498  
Total current liabilities     339,582       324,745  
Long–term debt, less current portion     134,585       127,897  
Lease liabilities, less current portion     21,304       24,517  
                 
Equity:                
Interparfums, Inc. shareholders’ equity:                
Preferred stock, $.001 par; authorized 1,000,000 shares; none issued            
Common stock, $.001 par; authorized 100,000,000 shares; outstanding 32,029,580 and 32,004,660 shares at September 30, 2024 and December 31, 2023, respectively     32       32  
Additional paid-in capital     101,123       98,565  
Retained earnings     762,826       693,848  
Accumulated other comprehensive loss     (32,641 )     (40,188 )
Treasury stock, at cost, 9,981,665 and 9,981,665 shares at September 30, 2024 and December 31, 2023, respectively     (52,864 )     (52,864 )
Total Interparfums, Inc. shareholders’ equity     778,476       699,393  
Noncontrolling interest     206,653       192,777  
Total equity     985,129       892,170  
Total liabilities and equity   $ 1,480,600     $ 1,369,329  

 

See notes to consolidated financial statements.


Page 2


 

INTERPARFUMS, INC. AND SUBSIDIARIES

 

(In thousands except per share data)

 (Unaudited)

                 









Three Months Ended

Nine Months Ended
    September 30,  
September 30,
    2024     2023  
2024

2023
             







Net sales   $ 424,629     $ 367,969  
$ 1,090,821

$ 988,936
                 







Cost of sales     153,469       132,962  

396,519


362,568
                 







Gross margin     271,160       235,007  

694,302


626,368
                 







Selling, general and administrative expenses     165,166       147,805  

455,506


393,866
                 







Income from operations     105,994       87,202  

238,796


232,502
                 







Other expenses (income):                







Interest expense     1,978       2,397  

5,726


7,030
Loss (gain) on foreign currency     3,355     (669 )

3,085

(656 )
Interest and investment loss (income)     254     (1,062 )

(1,690 )

(8,421 )
Other loss (income)     1     (77 )

(35 )

(125 )
                 







Nonoperating Income (Expense)     5,588     589

7,086


(2,172 )
                 







Income before income taxes     100,406       86,613  

231,710


234,674
                 







Income taxes     23,571       20,493  

54,974


55,128
                 







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
                 







Earnings per share:                







                 







Net income attributable to Interparfums, Inc. common shareholders:                







Basic   $ 1.94     $ 1.66  
$ 4.37

$ 4.44
Diluted   $ 1.93     $ 1.66  
$ 4.34

$ 4.42
                 







Weighted average number of shares outstanding:                 







Basic     32,026       31,976  

32,030


32,000
Diluted     32,266       32,124  

32,266


32,149
                 







Dividends declared per share   $ 0.750     $ 0.625  
$ 2.250

$ 1.875

 

See notes to consolidated financial statements.

 

Page 3


 

INTERPARFUMS, INC. AND SUBSIDIARIES

 

 (In thousands)

(Unaudited)

                 









Three Months Ended

Nine Months Ended
    September 30,  
September 30,
    2024     2023  
2024

2023
Comprehensive income:                







                 







Net income   $ 76,835     $ 66,120  
$ 176,736

$ 179,546
                 







Other comprehensive income:                







                 







Net derivative instrument loss, net of tax     (239 )     (363 )

(1,411 )

(4,606 )
                 







Transfer from OCI into earnings          

(64 )

1,709
                 







Translation adjustments, net of tax      31,385     (15,692 )

10,891

(2,657 )
                 







Comprehensive income     107,981       50,065  

186,152


173,992
                 







Comprehensive income attributable to the noncontrolling interests:                







                 







Net income     14,576       12,906  

36,606


37,312
                 







Other comprehensive income:                







                 







Net derivative instrument loss, net of tax     (66 )     (100 )

(388 )

(327 )
                 







Translation adjustments, net of tax     8,989     (4,892 )

2,257

(1,481 )
                 







Comprehensive income attributable to the noncontrolling interests     23,499       7,914  

38,475


35,504
                 







Comprehensive income attributable to Interparfums, Inc.   $ 84,482     $ 42,151  
$ 147,677

$ 138,488


See notes to consolidated financial statements.


Page 4


 

INTERPARFUMS, INC. AND SUBSIDIARIES

 

 (In thousands)

(Unaudited) 

 

 
Three Months Ended   Nine Months Ended  


September 30, September 30,
    2024 2023   2024     2023  
 







           
Common stock, beginning and end of period
$ 32

$ 32
  $ 32     $ 32  


































Additional paid-in capital, beginning of period

100,505


95,984
    98,565       90,186  
Shares issued upon exercise of stock options

359


332
    1,729       5,523  
Share-based compensation

259


311
    780       935  
Transfer of subsidiary shares purchased



(875 )     49       (892
Additional paid-in capital, end of period

101,123


95,752
    101,123       95,752  
 







               
Retained earnings, beginning of period

724,268


669,688
    693,848       620,095  
Net income

62,259


53,214
    140,130       142,234  
Dividends

(24,022 )

(20,038 )     (71,985 )     (60,058 )
Share-based compensation

321


227
    833       820  
Retained earnings, end of period

762,826


703,091
    762,826       703,091  
 







               
Accumulated other comprehensive loss, beginning of period

(54,864 )

(48,739 )     (40,188 )     (56,056 )
Foreign currency translation adjustment, net of tax

22,396

(10,800 )     8,634     (1,176 )
Transfer from other comprehensive income into earnings




    (64 )     1,709  
Net derivative instrument loss, net of tax

(173 )

(263 )     (1,023 )     (4,279 )
Accumulated other comprehensive loss, end of period

(32,641 )

(59,802 )     (32,641 )     (59,802 )
 







               
Treasury stock, beginning of period

(52,864 )

(48,764 )     (52,864 )     (37,475 )
Shares repurchased




          (11,289 )
Treasury stock, end of period

(52,864 )

(48,764 )     (52,864 )     (48,764 )
 







               
Noncontrolling interest, beginning of period

184,129


178,733
    192,777       171,364  
Net income

14,576


12,906
    36,606       37,312  
Foreign currency translation adjustment, net of tax

8,989

(4,892 )     2,257     (1,481 )
Net derivative instrument loss, net of tax

(66 )

(100 )     (388 )     (327 )
Share-based compensation

47

36
    179       133  
Transfer of subsidiary shares purchased




(125 )     (49 )     (142 )
Dividends

(1,022 )

    (24,729 )     (20,301 )
Noncontrolling interest, end of period

206,653


186,558
    206,653       186,558  
 







               

















Total equity
$ 985,129

$ 876,867
  $ 985,129     $ 876,867  

 

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   $ 176,736     $ 179,546  
Adjustments to reconcile net income to net cash used in operating activities:                
Depreciation and amortization     18,201       12,781  
Provision for doubtful accounts     613     (560 )
Noncash stock compensation     1,768       1,887  
Share of income of equity investment     (109 )     (125 )
Noncash lease expense     4,533       4,163  
Deferred tax provision     (4,909 )     (5,075 )
Change in fair value of derivatives     (153 )     740  
Changes in:                
Accounts receivable     (102,576 )     (96,076 )
Inventories     (35,237 )     (76,786 )
Other assets     3,770     3,077
Operating lease liabilities     (4,378 )     (4,044 )
Accounts payable and accrued expenses     (17,571 )     (10,919 )
Income taxes, net     8,993     15,669  
                 
Net cash provided by operating activities     49,681     24,278
                 
Cash flows from investing activities:                
Purchases of short-term investments     (146,868 )     (145,427 )
Proceeds from sale of short-term investments     162,176       192,568  
Purchases of property, equipment and leasehold improvements     (2,889 )     (4,574 )
Payment for intangible assets acquired     (850 )     (2,063 )
                 
Net cash provided by investing activities     11,569       40,504  
                 
Cash flows from financing activities:                
Proceeds from loans payable, bank     4,348       4,501  
Proceeds from issuance of long-term debt

43,484


13,680
Repayment of long-term debt     (24,781 )     (22,527 )
Proceeds from exercise of options     1,729       5,523  
Dividends paid     (71,985 )     (60,058 )
Dividends paid to noncontrolling interest     (24,729 )     (20,301 )
Purchase of treasury stock           (11,289 )
                 
Net cash used in financing activities     (71,934 )     (90,471 )
                 
Effect of exchange rate changes on cash     641     740  
                 

Net decrease in cash and cash equivalents

    (10,043 )     (24,949 )
                 
Cash and cash equivalents - beginning of period     88,462       104,713  
                 
Cash and cash equivalents - end of period   $ 78,419     $ 79,764  
                 
Supplemental disclosure of cash flow information:                
Cash paid for:                
Interest   $ 6,578     $ 4,659  
Income taxes     48,643       44,693  

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


In 2006, Van Cleef & Arpels and Interparfums SA signed a 12-year worldwide license agreement to manufacture and distribute perfumes and related products under the Van Cleef & Arpels brand name, which was subsequently extended for a further six years until December 31, 2024. Discussions have been underway since 2023 with a view to renewing the license agreement. The new agreement will strengthen the selective distribution of Van Cleef & Arpels fragrances worldwide. The license is to be renewed for an additional 9-year term, beginning January 1, 2025. 


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. The license became effective in July 2023 and will last for 6.5 years. We began shipping Roberto Cavalli perfumes and fragrance related products in February 2024.

 

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. The license became effective in January 2024 and will last for 15 years. We began shipping Lacoste fragrances in January 2024.


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 $2.4 million impairment charge and a $6.8 million impairment charge on our Rochas Fashion trademark in the first quarter of 2021 and the fourth quarter of 2022, respectively, resulting in a net book value for the trademark of $11.9 million. In 2023, the Rochas team underwent a strategic shift to take over their own brand operations, exiting contracts with manufacturers and distributors to make this new structure operational beginning in 2024. Management has reviewed and agreed with an independent expert's conclusion that the valuation based on this new business model would not require additional impairments as of December 31, 2023. There have been no triggering events through September 30, 2024 to require additional impairment analysis. 


Page 7



INTERPARFUMS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

Land and Building Acquisition - Headquarters in Paris

 

In April 2021, Interparfums SA, our 72% owned French Subsidiary, completed the acquisition of its headquarters at 10 rue de Solférino in the 7th arrondissement of Paris from the property developer. This is an office complex combining three buildings connected by two inner courtyards, and consists of approximately 40,000 total sq. ft.

 

The purchase price included the complete renovation of the site. As of September 30, 2024, $156 million (€139 million) of the purchase price, including approximately $3 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying consolidated balance sheet. The purchase price has been allocated approximately $64.1 million (€57 million) to land and $91.9 million (€82 million) to the building. The building, which was delivered on February 28, 2022, includes the building structure, development of the property, façade waterproofing, general and technical installations and interior fittings that will be depreciated over a range of 7 to 50 years. The Company has elected to depreciate the building cost based on the useful lives of its components. 

 

The acquisition was financed by a 10-year €120 million (approximately $134.4 million) bank loan which bears interest at one-month Euribor plus 0.75%. Approximately €80 million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%.

 

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   $ 152,302     $ 158,733  
Finished goods     260,456       213,126  
                 
    $ 412,758     $ 371,859  


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   $ 78,783     $ 8,940     $ 69,843     $  
Interest rate swaps     2,462             2,462        
Foreign currency forward exchange contracts not accounted for using hedge accounting

225





225



                                 
    $ 81,470     $ 8,940     $ 72,530     $  
Liabilities:















Foreign currency forward exchange contracts accounted for using hedge accounting

216





216






















$ 216

$

$ 216

$

 

            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   $ 94,304     $ 12,868     $ 80,614     $ 822  
Interest rate swaps     3,909             3,909        
Foreign currency forward exchange contracts not accounted for using hedge accounting     359             359        
Foreign currency forward exchange contracts accounted for using hedge accounting     1,533             1,533        
                                 
    $ 100,105     $ 12,868     $ 86,415     $ 822  

 

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 foreign 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 €50 million (approximately $56 million) 4-year term loan with a variable interest rate. This variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum. This swap is a hedged derivative instrument and is therefore recorded at fair value and changes in fair value are reflected in other comprehensive income.

 

In connection with the April 2021 acquisition of the office building complex in Paris, €120 million (approximately $134.4 million) of the purchase price was financed through a 10-year term loan. The Company entered into interest rate swap contracts related to €80 million of the loan, effectively exchanging the variable interest rate to a fixed rate of approximately 1.1%. This derivative instrument is recorded at fair value and changes in fair value are reflected in the accompanying consolidated statements of income.

 

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 $21 million and GBP £7 million which all have maturities of less than one year. 


Page 10



INTERPARFUMS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

7.

Leases:

 

The Company 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 4.2 years and the weighted average discount rate used to determine the operating lease liability was 3%. Rental expense related to operating leases was $1.6 million and $4.9 million for the three and nine months ended September 30, 2024, respectively, as compared to $1.5 million and $4.5 million for the corresponding periods of the prior year. Operating lease payments included in operating cash flows totaled $4.4 million and $4.0 million for the nine months ended September 30, 2024 and 2023, respectively, and noncash additions to operating lease assets totaled $1.2 million and $5.7 million for the nine months ended September 30, 2024 and 2023, respectively.

 

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 four to five-year period. The fair value of shares vested during the nine months ended September 30, 2024 and 2023 aggregated $0.04 million and $0.10 million, respectively. Compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally our policy to issue new shares upon exercise of stock options. 

 

The following table sets forth information with respect to nonvested options for the nine months ended September 30, 2024:

 

    Number of Shares     Weighted Average Grant-Date Fair Value  
Nonvested options – beginning of period     122,100     $ 24.47  
Nonvested options granted            
Nonvested options vested or forfeited     (3,380 )   $ 12.02  
Nonvested options – end of period     118,720     $ 24.83  


Page 11



INTERPARFUMS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

Share-based payment expense decreased income before income taxes by $0.60 million and $1.77 million for the three and nine months ended September 30, 2024 respectively, as compared to $0.62 million and $1.89 million for the corresponding periods of the prior year, and decreased income attributable to Interparfums, Inc. by $0.4 million and $1.17 million for the three and nine months ended September 30, 2024 respectively, as compared to $0.41 million and $1.27 million for the corresponding periods of the prior year.

 

The following table summarizes stock option information as of September 30, 2024:

 

    Shares     Weighted Average
Exercise Price
 
             
Outstanding at January 1, 2024     308,970     $ 86.52  
Options forfeited     (380 )     73.09  
Options exercised     (24,920 )     69.39  
                 
Outstanding at September 30, 2024     283,670     $ 88.04  
                 
Options exercisable     164,950     $ 70.69  
Options available for future grants     537,745          

 

As of September 30, 2024, the weighted average remaining contractual life of options outstanding is 2.23 years (0.96 years for options exercisable); the aggregate intrinsic value of options outstanding and options exercisable is $12.6 million and $9.7 million, respectively; and unrecognized compensation cost related to stock options outstanding aggregated $2.2 million.

 

Cash proceeds, tax benefits and intrinsic value related to stock options exercised during the nine months ended September 30, 2024 and 2023 were as follows:

 

(In thousands)   September 30, 2024     September 30, 2023  
             
Cash proceeds from stock options exercised   $ 1,729     $ 5,523  
Tax benefits     272       900  
Intrinsic value of stock options exercised     1,721       6,135  

 

There were no options granted during the nine months ended September 30, 2024 and September 30, 2023.

 

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 72% owned French Subsidiary, approved a plan to grant an aggregate of 88,400 shares of its stock to all Interparfums SA employees and corporate officers having more than six months of employment at grant date, subject to certain corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in June 2025.

 

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 103,409 has been determined taking into account employee turnover. The aggregate cost of the grant of approximately $4.2 million will be recognized as compensation cost on a straight-line basis over the requisite three and a quarter year service period.


Page 12



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 96,371 shares at an aggregate cost of $4.1 million.

 

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.

 

The reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:


    Three months ended  
Nine months ended
(In thousands)   September 30,  
September 30,
    2024     2023  
2024

2023
Numerator:            





Net income attributable to Interparfums, Inc.   $ 62,259     $ 53,214  
$ 140,130

$ 142,234
Denominator:                







Weighted average shares     32,026       31,976  

32,030


32,000
Effect of dilutive securities:                







Stock options     240       148  

236


149
Denominator for diluted earnings per share     32,266       32,124  

32,266


32,149
                 







Earnings per share:                







Net income attributable to                







Interparfums, Inc. common shareholders:                







Basic   $ 1.94     $ 1.66  
$ 4.37

$ 4.44
Diluted   1.93     1.66  
$ 4.34

$ 4.42


Not included in the above computations are the effect of antidilutive potential common shares which consist of outstanding options to purchase 0.05 million shares of common stock for the three and nine months ended September 30, 2024. There were no antidilutive potential common shares outstanding for the three and nine months ended September 30, 2023.


Page 13



INTERPARFUMS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 


10. Segment and Geographic Areas:

 

The Company manufactures and distributes one product line, fragrances and fragrance related products. The Company manages its business in two segments, European based operations and United States based operations. For European based operations, assets and business operations are primarily conducted in France, and include the results and assets of Interparfums Luxury Brands, Inc., located in the United States. For Unites States based operations, assets and business operations are primarily conducted in the United States, and include the results and assets of Interparfums Italia Srl, located in Italy. Both European based operations and United States based operations primarily represent the sale of prestige brand name fragrances.


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   $ 146,101     $ 134,469  
$ 362,059

$ 327,359
Europe     282,481       233,500  

739,454


661,577
Eliminations of intercompany sales     (3,953 )      

(10,692 )


                 







    $ 424,629     $ 367,969  
$ 1,090,821

$ 988,936
                 







Net income attributable to Interparfums, Inc.:                







United States   $ 24,263     $ 20,157  
$ 49,015

$ 46,067
Europe     39,869       33,057  

95,966


96,167
Eliminations     (1,873 )      

(4,851 )


    $ 62,259     $ 53,214  
$ 140,130

$ 142,234

 

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   $ 368,375     $ 344,341  
Europe     1,130,308       1,066,684  
Eliminations     (18,083 )     (41,696 )

 

  $ 1,480,600     $ 1,369,329  


Page 14


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, MontblancCoach, 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.


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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

Nine Months Ended
    (in millions)
September 30,

September 30,
  2024
  2023

2024

2023
             





European based operations                







Net sales   $ 282.4     $ 233.5  
$ 739.4

$ 661.5
Cost of sales     95.5       73.3  

249.3


220.6
Gross profit margin   $ 186.9     $ 160.2  
$ 490.1

$ 440.9
Gross profit margin as a % of net sales     66.2 %     68.6 %

66.3 %

66.6 %
                 







United States based operations

               







Net sales   $ 146.1     $ 134.5  
$ 362.1

$ 327.4
Cost of sales     59.6       59.7  

151.4


141.9
Gross profit margin   $ 86.5     $ 74.8  
$ 210.7

$ 185.5
Gross profit margin as a % of net sales     59.2 %     55.6 %

58.2 %

56.7 %

 

The Company’s gross profit margin as a percentage of net sales was 63.9% and 63.6for 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 unfavorable 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. 

 

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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
     (In millions)
September 30,

September 30,

  2024     2023  
2024

2023
             





European based operations

               







Selling, general and administrative expenses   $ 108.1     $ 98.7  
$ 306.6

$ 265.2
Selling, general and administrative expenses as a percent of net sales     38.3 %     42.3 %

41.5 %

40.1 %
                 







United States based operations                







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 product 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.

 

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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.

 

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INTERPARFUMS, INC. AND SUBSIDIARIES

Net Income

 

    Three Months Ended
  Nine Months Ended