Greetings and welcome to the Inter Parfums’ fourth quarter and year end 2019 conference call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [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 Chief Financial Officer. Thank you sir, you may begin.

Thank you, operator. Good morning and welcome to our 2019 fourth quarter and year-end conference call. We will proceed with our standard format. After I review financial performance, Jean Madar, our Chairman and CEO, will provide an overview of our business and update you on our future plans. Then, we will open the floor to questions. Before proceeding further, I just 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. When we refer to our European-based operations, we are primarily talking about sales of prestige fragrance products conducted through our 73% owned French subsidiary Interparfums SA. When we discuss our United States-based operations, we are primarily referring to sales of prestige fragrance products conducted through our wholly owned domestic subsidiaries. Before I review the final quarter and full-year results, please be mindful that a strong U.S. dollar has a negative impact on our sales, but a positive effect on our gross profit margin. This is because over 45% of net sales of our European operations are denominated in dollars, while almost all costs of those operations are incurred in euro. The average dollar/euro exchange rate for the 2019 fourth quarter was 1.11 compared to 1.14 in the fourth quarter of 2018. The difference for the full year is over 5% as the average dollar/euro exchange rates were 1.12…

Thank you, Russ. And good morning to you all. We will talk later. I’m sure you have questions about our plans during these Corona Virus crises. But before moving on to our future plans, I will review our sales performance by region and the message that I wish to convey here is that we are building upon successive years of growth. For example in North America, our largest market, 2019 sales were 11% ahead of 2018, which were 19% ahead of 2017. Similarly, sales growth in Western Europe of 2.5% in 2019 comes on the heels of 9% sales gains in 2018. Also in Eastern Europe, net sales rose nearly 5%, layering upon the 7% gain in the preceding year. The biggest percentage gainer was in the Middle East where in 2019 sales increased 22% over 2018, which were 17% ahead of 2017. Also in Asia, our third largest market, we are down nominally in actual dollars in 2019, but ahead in constant dollars, which we consider quite respectable in light of trade tariffs on goods coming in and out of China from the United States. Also keep in mind, our sales in Asia climbed 24% in 2018, setting a high bar for the year just ended. Our smallest market, Central and South America, has continued to decline. Moving on to brand news. We are moving forward with our plans to build two new fragrance enterprise with the Kate Spade brand, which we signed agreements in June of last year respectively. As we have reported, we are retaining two popular legacy scents, Live Colorfully and Walk On Air for which distribution should commence in the next several weeks and we will unveil an entirely new women’s scent in end of the summer, beginning of the fall. We are also very…

Thank you. [Operator Instructions] Our first question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.

Yes. Hi, how are you.

Good morning, Linda.

Hi. So, just on the coronavirus impact, so I guess what we did in our model is we just reduced the revenue and earnings for the first quarter since that is what we are seeing as the current impact. Can you give us some sense of what you are seeing in your markets and the magnitude of the declines. I guess, we were thinking of travel retail is 20% of your revenue. Maybe it is down 50%. So, maybe your revenues down 10% or 12% in the first quarter. Am I thinking along the right lines? Maybe you could just give us a little color on what you are seeing.

Russ, you want to?

Yes, sure. You are actually very, very close. Looking at the numbers for January and February, the sales are actually surprisingly holding up surprisingly well. It is really the March month that we are anticipating the most significant decline. For those of you who saw the press release that was put out by our European operations, we have indicated that sales for the European operations, we are anticipating that they are going to be down approximately 10% for this first quarter. U.S. operations so far, as I just mentioned, we really have not seen a significant impact. We think that sales at best will be flat, but I think we can actually achieve that. So far from what we have seen with the orders that we have in the system, those sales should be able to come in very, very similar to that of last year. So with that, the combination, we are looking at first quarter somewhere down maybe 8% or 7.5%, something along those lines.

Yes, I agree. If I may add to give you a little bit more color, when this Corona Virus started at the very beginning, we were worried first about the supply of certain components coming from China because we have some plastic and some metal and some special cartons coming from China. But because of the tariff that started with China in the middle of last year, we had already started to look at alternative sourcing before the Corona Virus. So we are not worried about any serious or material impact on the supply of components coming from China. Actually, not only we have alternative sources, but we have seen factories going back to work at a rate of maybe 25% to 30% two weeks ago. Maybe now we are up to 50%. So we are receiving parts from China. The problem is really the sales and the sales, of course, we immediately moved some launches, especially the Anna Sui launches which we are going to do in the second quarter, we moved it to third and fourth quarter for all the Asian region, but the problem like you said and that is not only China. It is the whole region, it is the travel retail, it is the Chinese tourist buying in Europe or elsewhere. And this is what will be missing, but that is true that so far January and February were started okay. I mean, quite good, but we are going to start feeling the pressure in March.

Thanks. And then, just on the cost side, as you face a little bit of sales decline here in the first quarter, are you doing anything cost wise to try to mitigate the negative operating leverage or are you just kind of keeping things as I guess, your SG&A is running at about 36 million per quarter. Is that something you can reduce in the near term or just keep the same business as usual?

Well I certain - I’m sorry, go ahead, Jean.

No, you are the expert, but I will say that as we have moved some launches toward later in the year, a lot of advertising money will be spent later in the year, but that other services for the marketing and advertising, but besides that, our G&A is the same. Russ.

Yes, that is exactly right. The fixed G&A is not something that we can really move the needle on very easily, but fortunately for us, a good portion of our SG&A expenses is of the variable nature and therefore those will follow however the fluctuations are with respect to sales. Marketing, as John mentioned is one area where you can control and we always typically spend much less marketing in the early part of the year than we do in the later part of the year. So hopefully, we won’t see too much of a significant erosion from the positive leverage that we have seen over the last couple of years.

Okay, thank you very much.

You have got it, Linda.

Thank you.

Our next question comes from the line of Wendy Nicholson with Citigroup. Please proceed with your question.

Hi. My question actually bigger picture, taking a step away from Corona Virus, Russ, the operating leverage you talked about, I mean, the margin you put up for 2019 is higher than, I think, we have ever seen or at least in a very long time. And so, how do you feel about that and where we go from here, just structurally? Again, I know 2020 is going to be an anomaly and there are lots of moving pieces, but sort of longer term, how much more juice is there and how much higher can those margins go?

Linda, it is a great question. Thank you for asking the question. It is actually very, very pleasing for us because back just a few short years ago, we kept talking about achieving 14% to 15% operating margin. We came in this quarter to 14.7% operating margin, which did not reach the highest we have ever been. We have exceeded 15% and actually got pretty close to 16% in a full-year back several years ago. Our goal was always to kind of reach that 15%. I think that, again, barring the unfortunate situation that we are seeing in 2020, as we move forward, if we can continue to grow our top line like we have over the last several years. I think, we can start approaching that 16% operating margin level, which is probably one of a very high level for our industry. So, that is an achievement that we are very, very proud of.

Got it. And then just generally, can you talk, this is sort of big picture, I mean, part of what helps you get there is strong revenue growth. I know your market shares have been great and you have had a tremendous amount of brand activity that is been successful, but also, we have been in this kind of multi-year period were fragrance is generally have been a good space. So, can you just talk about kind of your outlook on maybe just what you saw through the course of 2019, how much of your growth is being driven by sort of the increased willingness on the part of Asian consumers to use fragrance, again, for getting the Corona Virus, just high level on what is your take on the industry dynamics today? Thanks.

Jean, you want to...

Maybe you can start, Russ. Yes. I can try. It is true that with the portfolio that we have, we have been quite pleased with the growth because we have been able to grow quite strongly in many parts of the world. We have Montblanc that is strong in more than one market, but we have also some brands like Oscar de la Renta or Abercrombie that are strong in only regionally, but when you look at our growth in 2019, 30% in the U.S., 20% in Europe. It is quite impressive. What is going with Asia, it is absolutely true that we believe that Asian population will use more fragrance than before and we have seen this years after years because people used to say that, Asia is only a market for skincare, of course, and makeup, but we think that we have seen, especially, Southeast Asia growing very strongly with our fragrance. If on the top of that we give them some brands that they recognize such as Coach or Jimmy Choo or Lanvin or those that we have in the portfolio, this will accelerate the growth. So Corona Virus aside, we think that we are very well positioned and 2020 was going to be a good year Corona Virus on the side, but long term, we think the portfolio is well balanced. We think we can leverage, again our G&A. So, we are quite confident. Let’s not forget also that with the existing structure that we have, the existing people, we can do more sales than what we have. We can have -- we could sign a new license and we are working on some deals right now. So, we will definitely not stop increasing the portfolio.

Great, thank you very much.

Our next question comes from the line of Steph Wissink with Jefferies. Please proceed with your question.

Hi, good morning everyone. Russ, just a couple of questions.

Good morning.

Good morning, Jean, as well. I mean, you mentioned the delayed launch for Anna Sui and I just want to make sure we had calibrated all of the changes in the timing of the calendar. Was that the only launch that was pushed from the first half to the second half?

Yes. Today, I have decided to keep all the launches almost I mean, plus or minus a couple of weeks, but almost on time, except for Anna Sui because Anna Sui, 90% of the business of Anna Sui is in Asia. So we do not change the calendar of launches. We will maybe spend a little more than what we thought during the launches in order to have some money left to re-promote toward the end of the year if need be and I think we will need to re-promote to keep our market share toward the end of the year.

Hey, great, thank you. And then maybe, Russ, for you, just a question and follow-up to Linda’s question regarding Corona Virus. Can you help a sequence the staging of actions, whether it is on your supply recalibrating or as you were talking about some of the demand changes? Are you seeing reduced reorders right now or is it that your future orders are being cut back as the channel supply is not working through? So, maybe just give us a sense of what the cadence of actions are that you are seeing coming through March and how we should think about potentially a bit longer of a drift of the impact beyond just the immediate demand?

Yes. It is a very difficult question to answer because we are just starting to see some of the impact just now within the last few weeks. Things change [indiscernible].

Or even today.

Yes, exactly. Things change very, very quickly as this virus has spread. I mean just think of what is happened over the past two weeks. Look at your stock market, it really has declined within a one-week period. So, it is really difficult for us to try to predict what is going to happen in the future. Right now, we do see some effect, of course, in the travel retail. That is the area that has been mostly hit as certain areas have become no fly zones, but to the extent of how that is going to spread and to the extent of how long or the duration of these no-fly zones are going to last, this is something that is really unknown and almost impossible to try to make a prediction at this time.

Yes. I’m going to try to add and to give you some color, because we have been on the phone with many distributors and many operators in the last week actually. And what we see is definitely a big downside in travel retail. Some airports are completely empty. So, of course if there is no travelers, there is no sales. On the other hand, and I want to stay very, very prudent and very conservative, but in China, in Mainland China, where as you know there is a lot of sales done through e-commerce, the e-commerce was quite strong in the last three weeks. So, I was looking at sales actually. They were much better than what we expected. So, of course, the business is down, because of our strength in e-commerce in China, I think that it is going to be a little bit better than what we think and I think also, but this is a personal opinion, that China will be the first to recover. We are more worried about travel retail in general. Europe, as you know, Italy has been hit. We don’t know what is going to happen in France or in Germany in the next hours or days. This is why we have almost zero visibility today on this very important market.

Thank you very much.

I hope that helps you. Thank you.

Thanks.

Very, very helpful. Thank you. Russ, could you just remind us - final question for us, quick one, on the Jimmy Choo license, when that expires?

Jimmy Choo license, that should…

Jimmy Choo.

That was [indiscernible]. Obviously if I can quickly type, I think it is 2030 something, but let me see if I can quickly find it.

We will find that. Maybe we take another question and we find out.

Yes.

I have it right here. December 31, 2031.

Thank you.

So we have another 10 years. Yes.

Yes. So at least 10 years. Yes. We had recently renewed that license, if you remember. When Jimmy Choo was taken over by the Michael Kors group, just shortly after that acquisition, we had signed a new license with Jimmy Choo and added to the existing license. Thank you, Steph.

Our next question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

Hi. So, first off, just to get corona out of the way, what kind of component sourcing are you conducting right now or is there any shortages on that front for you?

As Jean just indicated, just a few minutes ago that we really have not seen any significant impact from the standpoint of the supply chain. There were processes put into place even back in early in 2019 when we started to see the effects of the tariffs that were enacted between the United States and China. We had just begun to create alternative sources for our components. In addition, the virus also hit right at the same time as the beginning of the Chinese New Year. So, even for those parts that we still do acquire from China, most of the parts that we needed, at least for the first portion of 2020, we had already received because we knew that China was going to close down for several weeks for Chinese New Year. So and today, as Jean mentioned, shipments are starting to come in. We were fortunate enough that we did not have any factories in the area that was most hit with the Corona Virus in China. So, so far we really have not seen any significant impact from the supply chain standpoint.

Okay. And my other question was in the change in the sales composition, just given what is happening in travel retail, how is that changing your ad strategy and is there going to be a change in the cost estimate for this year?

No. I think it is really just a change in the allocation of dollars. We have certainly have gone with more dollar spending in social media type activities and content-related activities for the advertising. I will still stand at the approximately in a normal year I should say, at right around 21%. 2019 came in at 20.3% compared to 20.7% in 2018, but from an overall budgeting standpoint, I think, we are still looking at right around 21% of sales to be spent in A&P.

Okay, thank you.

Thank you, Hamed.

If I may, before we take the next question, I would like to answer a question that people have not asked. It is regarding inventory because I think it is important to say that we have not really lowered our goal of inventory, meaning that we think that when this Corona Virus will be finished, the market is going to need a lot of products in a very short period. So, we think it is important to maintain what could look maybe a higher level of inventory for the next two months, three months, or four months because when the demand, especially in Asia, will come back, we will have to supply, very, very fast. Okay, next question.

We have no further questions at this time. Mr. Greenberg, I would now like to turn the floor back over to you for closing comments.

Okay. Thank you, Christine. Thank you all for tuning into our conference call and as usual, if anybody does have any further questions, they can contact me at my office. Everybody have a great day and thank you so much. Bye.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.