Inter Parfums, Inc. (IPAR) Q3 2013 Earnings Report, Transcript and Summary

Greetings, and welcome to the Inter Parfums Third Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Russell Greenberg, Executive Vice President and CFO. Mr. Greenberg, please go ahead.

Thank you, operator. Good morning, and welcome to our 2013 third quarter conference call. Following the financial review, I will turn the call over to Jean Madar, our Chairman and CEO, for a business overview, and then we will move on to your questions. Before proceeding further, I want to remind listeners that this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. These factors include, but are not limited to, the risks and uncertainties discussed under the headings Forward-looking Statements and Risk Factors in our annual report on Form 10-K and the reports we file from time to time with the Securities and Exchange Commission. We do not intend to and undertake no duty to update the information discussed. In addition, Regulation G, codification for the use of non-GAAP financial measures, prescribes the conditions for the use of non-GAAP financial information in public disclosures. We believe that the presentation of the non-GAAP financial information included in this presentation is important supplemental measures of operating performance to investors. The information required to be disclosed for the presentation of non-GAAP financial measures is disclosed in our annual report on Form 10-K, which has been filed with the Securities and Exchange Commission. This information is available on our website at www.interparfumsinc.com. Once again, when we refer to our European-based operations, we are primarily talking about sales of Prestige Fragrances conducted through our 73% owned French subsidiary, Inter Parfums SA. When we discuss our United States operations, we are primarily referring to sales of Prestige and specialty retail products, as well as travel amenities, all conducted through our wholly-owned domestic subsidiaries. Moving on to our financial results. As we reported yesterday, net sales were down 23.8% to $126.8 million, compared to $166.3 million. At comparable foreign currency exchange rates, net sales declined 23.9%. However, excluding Burberry brand sales, which were in last year's third quarter, net sales of ongoing brands increased 45% to $126.8 million from $87.2 million. European-based operations generated sales of ongoing brands of $98.1 million, up 41.2% from $69.5 million. Including Burberry brand sales, European sales were down 34%. Sales by U.S.-based operations were $28.7 million, up 62.3% from $17.7 million. Gross margin was 55.2% of net sales as compared to 60.8%. SG&A expense as a percentage of net sales was 43.7%, compared to 47.5%. Operating margins came in at 11.6% of net sales, compared to 13.3% in the prior period. Net income attributable to Inter Parfums Inc. was $7.9 million, compared to $10 million. And diluted earnings per share attributable to Inter Parfums Inc. was $0.25, compared to $0.33. We have amply covered third quarter sales drivers in our press release, so I will now focus on the dynamics impacting our profitability during the period. The decline in gross margin in the third quarter was the result of the discontinuance of Burberry product sales, which were generally sold at higher margins than ongoing brand sales. Likewise, the decline in SG&A expense as a percent of net sales was due to the absence of promotion and advertising costs associated with Burberry product sales. Even more specifically, for the current third quarter, promotion and advertising included in SG&A expenses aggregated $20.9 million or 16% of net sales as compared to $31.2 million or 19% of net sales for the corresponding period of the prior year. Royalty expense included in SG&A expenses aggregated $7.9 million or 6.2% of net sales as compared to $14.7 million or 8.8% of net sales in last year's third quarter. The $1.1 million favorable swing in other income was the result of a gain on foreign currency versus a loss in last year's third quarter and a significant increase in interest income. Our operating activities generated cash flows of $21.5 million. This cash flow further enhanced our already strong balance sheet and we closed the quarter with $418 million in working capital, including approximately $288 million in cash, cash equivalents and short-term investments or just about $9.30 per share. And we had no long-term debt as of the end of the third quarter. As you know, in September, when we raised our guidance to approximately $540 million in net sales and $1.18 per diluted share attributable to Inter Parfums Inc., we also noted that during the second half of 2013, we would be making significant investments in advertising and promotion. We anticipate that as a percentage of sales, advertising and promotion expense in the fourth quarter of 2013 will be significantly higher than the 16% incurred in the third quarter and the 19% incurred for the 9 months ended September 30, 2013. However, with results for the first 9 months being quite a bit better than we had expected, we are raising our 2013 guidance to approximately $560 million for net sales and $1.23 per diluted share attributable to Inter Parfums Inc. We also updated our 2014 guidance to factor in current developments and the new Oscar de la Renta license. We now expect 2014 net sales of approximately $495 million, which represents 15% growth in net sales for our ongoing brands. Our revised expectations for net income attributable to Inter Parfums Inc. are in the range of $0.93 to $0.98 per diluted share. And as usual, guidance for both 2013 and 2014 assumes that the dollar remains at current levels. Jean, please continue.

Thank you, Russ, and good morning, everyone. Thank you, once again, for your participation on today's conference call. 3 months ago, on our last conference call, I spoke about the big news in our brand portfolio, namely the addition of Shanghai Tang and Agent Provocateur. As you have probably read, our list of fragrance partner has continued to grow as last month, we announced an agreement with Oscar de la Renta that we plan to finalize in the beginning of December. The world-renowned house of Oscar de la Renta began in 1965 and over the decade has been couturier of choice for celebrities of all varieties from actresses to many of America's First Ladies. The designer has deep roots in the fragrance category, as in 1977 he launched his namesake women's fragrance called Oscar, which in 1991 won the Fragrance Foundation Perennial Success Award. Oscar remains a brand-leading scent. In addition to fragrance and the signature ready-to-wear apparel collections, the World of Oscar de la Renta includes accessories, bridal, swimwear, jewelry, eyewear and home collection. I suggest that listeners visit the designer website as it gives you a good sense of the extraordinary luxury and scope of the brand. This is a very, very exciting new opportunity for us. Moving on to our plans for the coming year, 2014 is turning into one of our most prolific launch years ever, as I said last time, for both our established and newer brands. We have already disclosed plan for our first fragrance line under the new brands, including Shanghai Tang, Agent Provocateur, Alfred Dunhill, Balmain, Karl Lagerfeld and now Oscar de la Renta. Here is a little more information, along with timing. Our first major launch of the year is for Balmain, which is a new women's fragrance coming this winter. The spring is going to be especially busy for us, both in Paris and New York. Also, we are unveiling Karl Lagerfeld scents for men and women, plus a new women's fragrance from Montblanc. Our Agent Provocateur program is far along with 2 new sister scents coming to the market in the spring also. Then in the summer, we have new fragrances, one each for men and one for women debuting for S.T.Dupont. And for Alfred Dunhill, we actually have 2 new men scents in the work, 1 launching in the spring and 1 in the fall. Also, late summer, we will be launching Banana Republic new collection for men and women. And for Brooks Brothers, we have also new men scents unveiling in the spring, followed in the fall with another. The new program for Shanghai Tang is a multifaceted cross-culture collection, which I realize is intentionally evasive, but we will share more details as the fall 2014 launch date approaches. All of this is in addition to a series of brand extensions, flankers and refresh packaging for many of our established scents. A few additional thoughts. Asia is very important to our future, and our sales in that region, especially in China, have been growing rapidly due in great part to the huge success of the Anna Sui fragrance franchise. We have an office in Singapore and we recently established a U.S.-owned Hong Kong subsidiary to initially use as a marketing office and, ultimately, to manage our global operations of the Shanghai Tang brand for which we have extremely high expectations. On the subject of travel amenities, we are making a more aggressive push to grow the business. As you know, we currently supply Lanvin products to the Sofitel luxury chain. With a brand like Oscar de la Renta, we envision bringing that brand into the hotel rooms and airline's cabins of Latin and South America, as well as in the U.S. I want to repeat the point I made on last quarter's conference call. Although we have been adding new names more rapidly than in the recent past and we remain on the lookout for other suitable brands, we are very careful as we search for and analyze new opportunities. We have no problem declining brands that do not fit up in this model. Since this is our last conference call for the year, Russ and I and all our team want to wish all of you the very best of the holiday season and the coming year. One last point, Russ and I will be at the Wedbush California Dreamin' Conference in New York on December 10. We hope to see you there. This ends our prepared remarks. Operator, you can open the floor for questions.

[Operator Instructions] And our first question comes from the line of Linda Bolton-Weiser with B. Riley and Company.

So I guess the thing that was a little surprising to me was the gross margin in the quarter, because you had explained how in the second quarter the Burberry sales were actually kind of lower 0 margin-type sales. So I thought that, that 55%-ish gross margin we saw in the second quarter was not normal. So I thought it would be more of a normal gross margin. So can you just explain, like, why are the Burberry product sales has so much higher gross margin? The pricing is prestige, just like a lot of your other products. So number one, maybe just explain that. And secondly, in the fourth quarter, you have a lot of gift sets and things which I think are usually a little lower gross margin. So the fourth quarter gross margin, I would think would be still around 55%, maybe not a lot higher. So can you just kind of comment on that gross margin?

Yes. Russ, I'm sure, is going to answer for that. But just a quick point. The gift sets, we are usually shipping in the third quarter. In July, August, September is when we ship gift sets for Christmas. Russ, you want to answer on the gross margin?

Yes, that's -- and that answer is actually one of the major reasons why the gross margin is lower in the third quarter. The other side of it is that the Burberry product line itself, especially some of the very successful older fragrances that we had, were generating significant gross margins, much higher -- I don't want to say much higher, but certainly higher than some of the current product we have in the ongoing brands. Some of the bottles, the amortization on the bottles had been completely absorbed and, therefore, some of those products continued to have relatively low margins. In any particular quarter, you're going to have some fluctuation as a result of product mix. But moving forward, looking at the 55%, 56% gross margin that we saw here, I think as we move into the fourth quarter, and albeit many of the gift sets are done here, there's still a little bit that will follow in the fourth quarter. I think that that's probably, give or take, a little bit of a fluctuation for product mix in the future. We're probably looking at somewhere around that 55% to 56% gross margin on a go-forward basis.

Okay, great. That's very helpful. And just similarly, on the margins on the SG&A side, on the advertising and promotional expense, you've made it very clear that fourth quarter will be heavy spending to support the brands. But I seem to --

Yes, and [indiscernible].

Right. I seem to recall back in history, though, that the fourth quarter A&P ratio would be more like 15%-ish, and then there was the year of the Burberry Body launch where it shot up to 25% in the fourth quarter because you were spending behind that launch. So what's normal for the fourth quarter then? Is it, going forward, going to be that 25%-ish type ratio or...

May I try, Russ, to answer?

Certainly, Jean.

Okay. You're absolutely right, Linda. I will say that if you look at the other advertising for the first 9 months of the year, of this year, advertising and promotion was around like 19%. That's true that when we launched Body we were running at higher numbers on that. But for fourth quarter of this year, we are really looking at increasing drastically this number because we are having a good year in terms of sales. As you can see, we have raised 3x or 4x our guidance. And to keep the momentum, we want to invest heavily in the Christmas season in Montblanc, in Jimmy Choo, in Repetto. In Anna Sui, we have big campaigns actually all over the world. Montblanc is U.S., Europe. Anna Sui is mostly Asia. So that's why we want you to think that fourth quarter of this year, I will say, Russ, you will say what? Double -- as a percentage of sales, do you think advertising and promotion will double?

Yes, I think that our guidance, clearly, is implying that this particular year, this particular fourth quarter, based upon all of the different launches that we have, we are looking at almost doubling what would be a normal advertising and promotional spend for 2013. And that's the reason that our guidance is where it is. I mean, it's pretty clear. We know that the fourth quarter, based on the guidance, we're looking at sales of just over $100 million. So when you really kind of look at absolute numbers and absolute dollar spends, although it looks like a really high percentage of sales, which it is, the absolute dollar amounts are not nearly as high as one might expect or one might have had when you had the incremental sales from Burberry, for example, for many years.

The whole idea here, if I may say, the whole idea is to continue the momentum. In the third quarter, we were able to increase our sales by 40% or 45% in Europe, 60% out of the U.S. In order to continue to take market share and to prepare next year, which is critical for us, we really want to invest heavily in the fourth quarter.

Your next question comes from the line of Joe Altobello with Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: I guess, first question, I wanted to kind of go to guidance for next year. And I know you mentioned earlier that you have raised your guidance this year a number of times. And if you -- unusual things have happened. So when you look in next year, you raised your sales guidance by $20 million and you raised your EPS by about $0.03. So kind of back of the envelope, it looks like you're assuming the incremental operating margin on that $20 million of sales is mid to high single digits. So I'm just curious why we're not getting more of that $20 million top line impact dropping down to the bottom line for next year.

I'm not sure how you did your calculation. But a $20 million incremental for the quarter, I believe, is coming down to much more than the low-single digits. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: No, for next year, Russ, in terms of sales.

For 2014? Joseph Altobello - Oppenheimer & Co. Inc., Research Division: '14, exactly, yes.

'14.

For 2014, we're basically giving a range. And even that, it's still coming out to much more than that. I think you need to check your calculation on that.

Yes. But we expect, for 2014, sales of around, what, $490 million, which represents, as we said, what, 14% growth in scents and...

Yes, it's about a 4% incremental on sales and somewhere between a 3% and 4% increase in earnings. So right, you have a point.

We have given the first guidance of 2014 a couple of weeks ago. And we already are raising it. I think it's fine to start like this. So we will see where we are. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: No, I understand. I'm not trying to quibble here. I'm just saying that if you're getting a 4% lift in sales -- and there are a fair amount of variable costs in your model, I get that, royalties and A&P. But I would've thought that you would get an even greater lift on the bottom line. But it sounds like your thought process is, we're early in the game, let's just keep the bar where it is and hopefully move it up over time.

Yes, yes. And again, I want to insist that we have so many, so many new brands in our portfolio. Next year, we are going to launch the first fragrance for Agent Provocateur, the first fragrance for Karl Lagerfeld, first fragrance for Balmain, first fragrance under Inter Parfums for Shanghai Tang and Dunhill. So we have so many things that we really, really have to establish these new brands. And, again, we are comfortable with this type of numbers, but it means also that we will spend a good amount of money in advertising and promotion to keep our momentum of growth. I said that before, but I want to reinsist on that. That's why we don't want you to expect higher numbers than what we are giving you, which has been already raised in a very short amount of time. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: Okay, okay. I understand. And then just going back to Russ. Earlier, you mentioned that you're expecting a big increase in A&P in the fourth quarter. And I apologize if I'm the only one who doesn't get this. But I think last year, you mentioned you did 25%, roughly 25% of sales on A&P. You're saying you want to -- you're going to double that. So are you saying you're going to spend half your sales on A&P in the fourth quarter?

It's going to be certainly north of 40%, probably closer to 45% in the fourth quarter.

And your next question comes from the line of Rommel Dionisio with Wedbush.

A question on infrastructure. With all the new additions of brand families and so forth, I know that you guys hadn't really taken in headcount when you sold Burberry. So I just want to -- wonder if you guys could just talk about the infrastructure you have in place, the personnel you have in place. Will it require more hiring next year as you add on these new business units -- business lines?

Yes, Russ?

Yes. Well, as I've said in the past, when the termination of the Burberry license occurred, there were certain key positions where it made sense to eliminate the positions. However, Inter Parfums has generated its sales with just around 300 employees on a worldwide basis, maybe just a little over 300 employees. So we are really -- when you look at it, we are very much a marketing company, very much reliant on the talented employees that we have around the world. We made a decision not to just outright create some sort of reorganization and terminate some really talented people, only -- knowing that within a short period of time, we have new licenses that are going to be coming on-board and we're going to need that talent again. So we did make a cognitive decision to maintain and to keep a major piece of the existing infrastructure together in order to have it and to reallocate the resources a little bit amongst some of the newest brands that have just recently come into the -- into our portfolio. So that does cause a little bit of stress, if you will, on the SG&A lines. We keep talking about promotion and advertising. And rightfully so, promotion and advertising clearly is the largest item within the SG&A realm. But there are others. I mean, it's very clear that royalties as a percentage of sales are declining. Servicing fees relating to our distribution subsidiaries are declining. However, there is a little bit of the deleverage in connection with the overall infrastructure, mainly in the investment of people. All right? Because to let people go with a shortsighted viewpoint would be really detrimental to the long-term growth potential of our business. So those are some of the kind of decisions that we made from an infrastructure standpoint.

So basically, all the people that were working for Burberry, we put them on the new brands that we have acquired over the last 6 months. And that's why we do not need, of course, to hire anybody new. But -- and that's why also I think we can see this type of growth going forward, because we have the people to manage the business.

And our next question comes from the line of Frank Camma with Sidoti. Frank A. Camma - Sidoti & Company, LLC: Just a couple of quick ones. Obviously, you pointed out you have a number of new brands here and -- obviously before you were pretty concentrated with Burberry. But going forward, you're much more diverse. Just wondering if you could -- and I'm not talking about next year's sales or anything like that, but I'm talking much longer term. Is there any one brand that gets you particularly enthusiastic? And is it like -- is there anything that kind of mirrors what you saw in Burberry, for example?

Well, I'll start, Jean, and then you can continue.

Yes, please.

It's hard to mimic a successful brand like we had with Burberry. I mean, it was at a certain time in its lifestyle -- in its life cycle that was really prime. Can that be replicated? Maybe. But to really answer your question, I think we are really excited about many different brands within our portfolio. We have quite a few relatively new, young brands, at least young from the standpoint of being part of the Inter Parfums family, like a Montblanc, like a Jimmy Choo, like a Lanvin, which today probably represents anywhere between 12% and 16% of sales, which certainly can continue to grow and become major brands within our portfolio. We even see that with some brands that are relatively new. Karl Lagerfeld is certainly one that could reach those kinds of levels. We're seeing huge success with Anna Sui. The potential for brands like a Dunhill, there's quite a few. Can one of them become another Burberry? I hope so, but I wouldn't put any guarantees on that.

Yes. I think that the portfolio is very well balanced. Russ was saying that we had a couple of brands like Lanvin, Montblanc and Jimmy Choo that represent around 15% each. And so it's a good balance. And we have also now brands like Anna Sui or Dunhill or Boucheron that are growing at a very fast pace. So we are happy with the development of these brands in the portfolio. I will say that based on the name recognition, we think that Karl Lagerfeld is 1 that has the largest potential in 2014 to '15 to be a brand over $50 million or close to $100 million in sales. Frank A. Camma - Sidoti & Company, LLC: Okay, great. The other -- only quick question I have is, so obviously, you're ramping up A&P really strongly here for the support of these new brands and ongoing brands. But as you roll out new products -- and you've given your view on the gross margin, I think, for the remainder of this year. But as you roll out new products, do those products come on incrementally slightly positive? I mean, how do we view that? Or does it just kind of fall in line with your existing margins? I'm just trying to figure out from a gross margin standpoint, does it improve things that you're rolling out new products.

No, I think it doesn't change. The fact that we're rolling out doesn't have an impact on the gross margin. Russ, you agree with that?

Yes. I think each product really kind of has to stand on its own. It depends on how ornate and how unusual the particular bottle is or the secondary packaging. There is quite a bit of fluctuation between, not even just a brand portfolio, but individual products within the brand portfolio. As you continue to generate flankers and more additional product and grow sales with sideline products, your margins can tend to increase a little bit. But we typically go in and create product with a certain kind of a margin in mind. And give or take 1 point or 2, as Jean said, it's going to fall in line.

And our next question comes from the line of David Cohen with Midwood Capital.

Quite honestly, as an investor, I was looking for a little more clarity with this quarter on what the model would look like going forward. But there are so many moving pieces, that's hard. Just to understand a little better on the fourth quarter, if I'm not mistaken, you're sort of bracketing gross margins in the mid-50s and A&P spend in the mid-40s. Is that accurate?

Gross margin, yes.

Yes. I think it's really clear. We've discussed the margins. And we -- other than some product mix fluctuation, I don't think gross margin is going to be very different than the fourth quarter versus the third. Based upon our implied guidance, you're getting -- if you take that into consideration, the implied guidance is assuming that your SG&A is going to probably be somewhere in the high 60% range, all right? And most of that, as we just spent a few minutes -- a few moments talking about, is the result of almost a doubling as a percentage of sales on the SG&A spend for the fourth quarter, all right? Now it doesn't necessarily mean that that's what it's going to be going forward. As we move into 2014 in A&P spend, and maybe this is even more relevant for Joe Altobello's question earlier with respect to the incremental guidance on sales with what he'd indicated was a relatively smaller gain on the earnings, is us trying to fine tune our advertising and promotion model for 2014. We think it's going to be a little bit higher than what we've spent currently for the first 9 months of 2013, which is around that 19%. So it's certainly going to be probably north of 20% as we move into 2014, but it won't be near the 40% to 45% that we'll probably end up seeing in the fourth quarter of 2013.

Absolutely. Does it satisfy? Is it clear?

Go ahead. Sorry, Jean. A follow-up on Russell's commentary there. I even struggle to find -- to keep SG&A below $70 million given the advertising and promotion. You're still going to have at least, I presume, somewhere in the order of $6 million on royalties and 6% on greater than $100 million of sales. And that other SG&A, which in the third quarter was just about $24 million, and it's stayed relatively consistent to your commentary about your overall infrastructure on headcount. So I mean, I add all that up and I get a number over $70 million of SG&A.

Which is very close to -- give or take a few points, is very close to a 68% to a 70% that I just mentioned. I mean, the sales guidance is implying $100 million...

The sales guidance for the fourth quarter is around $100 million, $100-something million. So yes, you're not far, absolutely.

And is this -- this seems to be, relative to historical patterns, a pretty significant sequential decline in revenue. I don't know that we've seen that for quite some time. Is that -- I guess, what are the dynamics that has made Q3 such a strong revenue quarter that doesn't continue in Q4? Is this just a lot of selling into wholesale of the new product and we just don't know what the sell-through is yet?

Let me try this. Give me 1 second. First is [indiscernible].

There is no particular pattern. We usually, if there is new fragrance to be introduced, we will introduce in the third quarter, not in the fourth quarter. The goods will have to be already in the stores. So it means that our invoicing will happen in the third quarter. Fourth quarter is usually, for us, a sell-through quarter. Now if there is a big launch in the third quarter of the year after, it could happen that the fourth quarter will be bigger because we will ship it in October and November in order to have it in-store for January and February. Do you understand?

I do. I'm just looking at [indiscernible].

Okay. So it really varies based on the launches that we have.

Yes. It -- our business, clearly, is much more concentrated in the third quarter because that is when you really are shipping in for your holiday season. And I just want to point out that fourth quarter, even if we're implying guidance of around $102 million, excluding Burberry sales last year, it's still a 15% growth rate on sales of ongoing brands. And to do that in the fourth quarter where you're not typically launching a new product in that quarter, I -- we're very comfortable with that and that's our guidance, all right?

And our next question comes from the line of Adam Joseph with West Main Partners.

Two questions, if I could, please. Can we assume that with the lift that you're going to have in the advertising and promo spend in Q4, that those will be geared towards new initiatives? Or will this be a spend that is really just more in the same categories?

That's a good point. The advertising that we will have in the fourth quarter is really for products that we have shipped this year. We do not spend advertising before the goods are in the store. So this is to answer your question. Russ, you want to add something?

Yes. It's clearly to support the existing initiatives that we have. It's the current launches that we did in 2013. It's the Jimmy Choo Flash for Jimmy Choo. It's the new Lanvin. It's the new Montblanc. It's stuff that is in support for a holiday season. And when you're advertising, you're just not advertising a particular fragrance. You're advertising the brand, and the brand is a fragrance. And our goal here is we've got these brands that are performing unbelievably well. And our intention is to try to keep that momentum going in support of 2014. But the advertising themselves, the ads and so on and so forth, will be in support of current initiatives.

And I would like to comment, if I may. If I may, I would like to use your question to add certain comments because there is a lot of questions about this advertising, which I think is very interesting. If you take, in the third quarter for instance, a brand like Montblanc has grown by 57% in the third quarter. Jimmy Choo has grown 56%. These are very, very high number in an industry where growth is in the single or low digits. In order to try to maintain this type of high growth, it's mandatory to increase our advertising budget because we see customers who like these fragrance, who like these brands and we want to make this very big. This is the reason we are doing it. So for me, it's a very positive thing. We spend advertising on things that sells. We do not spend advertising on things that do not sell.

Okay, excellent. And then my final question is, how should we think about the cash levels? Right now, $137 million in cash and $150 million in the short term. So for next year, with the guidance that you gave, where you're going to have a boost of around $20 million right now with revenues for '14, should we expect the SG&A, the spend levels, to incrementally increase? I guess we're kind of looking for color on, at the current cash position now which is pretty healthy, are there additional initiatives that you could share with us? Are there assumptions that more acquisitions could be had? Are you better off staying with the advertising and promo channels? Just to try to get a feel for what we should look for, for next year.

It's really a 2-part question, but I'm going to try to take a stab at it. I think the first thing that I want to say is that our initiatives, with respect to advertising and promotion, are really done on an annual basis based upon internal projections as to what we think a brand can do. The brand is doing better than expected, we're going to put more money behind it to continue that momentum. However, under no circumstances do we make investments that could result in losses for a particular brand. So the cash position is, yes, you use cash in order to spend, but hopefully you have the sales and the profits from those sales in order to subsidize what you're spending from an SG&A and from an advertising and promotion standpoint. Moving on to the cash position that the company has, we've said repeatedly that we want to maintain a little bit of a cash hoard, if you will, to be as opportunistic as possible from the standpoint of looking with opportunities that may or may not come our way. Clearly, with the loss of the Burberry license and the influx of cash that, that generated, combined with the free cash flow that's generated just from our operations year in and year out, clearly, we have plenty of dollars to spend. And if we could spend it all on incremental businesses that are within the industry that we know best, that we think we're pretty good at, we know that, that would be the most accretive use of the cash. However, we're also realistic. It's very difficult, unless something very unusual comes along or very opportunistic that would require an abnormal amount of cash up front, which could happen and hopefully, it does. But there's no guarantee of that. So we'd like to spend the money and invest it in our business. If we can't, we might have to look at other alternative uses for those funds. As Jean has mentioned before, and I'm sure he'll comment after my commentary, whether we use it for buybacks or dividends and things like that, this is something that is yet to be determined, but it's certainly an alternative use of the cash. But primarily, if we can invest it all, that would really be the best of all worlds.

[Operator Instructions] Our next question comes from the line of Linda Bolton-Weiser with B. Riley.

Just -- I was just curious if you could say anything about the Miu Miu license that went to Coty. Was that -- it seems like that would be something you would have looked at. Was Coty just really aggressive in getting it?

Yes, Miu Miu is a great brand that belongs to Prada. And it's definitely something that we -- that was in our radar, let's put it this way. So -- but they sign with Coty. So we are very happy for Coty and we wish them good luck. It's a fantastic brand.

So in licenses like that, is it simply a matter of who -- the royalty rate and who will pay the most?

No.

Or is it a bunch of other subjective factors?

Thank God it's not only about who will pay the most. Of course, the level of royalty and minimum guarantees and minimum spending are very important factors for a licensor to make a decision when they look for fragrance licensee. But thank God, it's not the only one. We -- a brand, we look for the distribution, the organization and also, the size of the company they want to deal with. A lot of brands want to do business with Inter Parfums because of our size. We are big enough to handle a worldwide launch, but we work with the brand, we have a team that work with them and we sometimes let them in the kitchen and they work with us. We let them work with us in the choice of the fragrance, in the choice of the bottle. So this is our business model, which is different if you go to L'Oreal or Procter & Gamble. Russ, you would like to add something?

Yes, no. I think that this -- as important as some of the metrics of a license are in evaluating, I think there's also a very large relationship aspect to where a brand ultimately goes, all right? You're basically going to be doing business with that company for the next 10, 12, 20 years. So relationships really do mean quite a bit.

Thank you. And it seems we have no further questions at this time. I'd like to turn the floor back over for any additional comments.

Thank you. And again, thank you, all, for your participation on this conference call, whether you are live on the call or listening via our webcast. As usual, if you have any additional questions, I'm always available by phone. Thank you, and have a great day. Bye.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.