Greetings. And welcome to the Inter Parfums First Quarter 2023 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I’d like to turn the call over to Vice President at the Equity Group and Inter Parfums Investor Relations representative, Karin Daly.

Thank you, Daryl. On behalf of the company, I would like to note 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 may be found in the company’s filings with the Securities and Exchange Commission under the heading Forward-Looking Statements and Risk Factors in our most recent annual report on Form 10-K. Forward-looking statements speak only as of the date on which they are made, and Inter Parfums undertakes no obligation to update the information discussed. It’s now my pleasure to turn the call over to Jean Madar, Chairman and Chief Executive Officer of Inter Parfums. Jean, you may begin.

Thank you, Karin, and good morning, everyone. And welcome to our first quarter conference call. [Inaudible] I will start the discussion and then Michel Atwood, our CFO, will review our financial performance, outlook and related issues. For anyone new to Inter Parfums, keep in mind that when we refer to our European based operations, we are talking about our 72% owned French subsidiary called Interparfums SA. And when we refer to our U.S. based operations, we are talking about our wholly-owned domestic subsidiaries. So 2023 already has the hallmarks of another spectacular year for our company. We admit that some of that exuberant is because of the strength in the fragrance market. But we also believe that our stellar performance is driven by the high quality operation by our talented staff every day and our ability to execute sustainable innovation. This confluence resulted in the best quarterly sales in our history. Let’s move on to our business by region. In North America, our largest market, net sales increased by 36%. You may recall that in last year’s first quarter, the change in logistics software of our logistic -- one of our logistic operator tempered 2022 first quarter sales, but that result as we completed the year up 22% in North America last year. Western Europe and Asia-Pacific also had a strong start to the year, with sales ahead 21% and 8%, respectively. Our business in Central and South America is really gaining traction as sales rose 43%, while Eastern Europe and the Middle East grew by 25% and 5%, respectively. Our business in the duty-free sector is steadily improving and we expect to see continued momentum as the year progresses. The dollar has weakened somewhat in 2023, but the foreign exchange impact continues to provide favorability on our European based…

Thank you, Jean, and good morning, everyone. We issued our consolidated earnings release and 10-Q filing yesterday evening. I encourage you to review them on our company website. And while the providing materials and Jean’s remarks covered a lot of ground with respect to our first quarter results, there are a few points that I believe are notable. So first, we say this pretty much every time, over 50% of our net sales in our European based operations are denominated in U.S. dollars, while almost all of its costs are incurred in Europe, a strong dollar depresses our sales in dollars can boost our gross margin. In the first quarter of 2023, the sizable gap in the euro-dollar versus the prior year period has narrowed from $1.12 to $1.07 and there was only a negative 2% foreign exchange impact on the first quarter sales. By comparison, in the final quarter of 2022, there was a negative 10% foreign exchange impact versus the prior year’s fourth quarter with the euro-dollar going from $1.14 to $1.02. So it’s normalizing and we are starting to see pretty much some of these streams FX impacts having less of an impact and we hope to see that going forward. Now moving on to gross margins. Overall, we expanded gross margins by 180 basis points. The biggest driver of this expansion has been pricing. As many of you know, we took a price increase at the beginning of the year. However, this increase was only marginally countered by higher cost of goods, because of the age of associated inventory and FIFO accounting. We expect this benefit to partially phase out in quarter two, but mostly in the back half of the year. For European based operations, the convergence of pricing actions and growing sales in the…

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

Yes. Hi. Congratulations on such a strong quarter. So it’s interesting to hear about your expanded relationship with Abercrombie. I am a little curious why the adding of the distribution of the Fierce brand wouldn’t add to your EPS for the year to your earnings. So do you expect that to be accretive to earnings when you start doing that later in the year?

I don’t know. Did I say that it will not be accretive to earnings, if I said that, I know it’s a mistake, it will definitely, we are going to make -- this business of Fierce will be a very profitable business?

Yeah. So, Linda, as you know, we did take our guidance also, we were ready to announce this partnership already a few weeks ago when we were just kind of tightening up the communication. So, yes, this is definitely built into our guidance at this point in time, and yes, it is accretive to our business.

Okay. Great. And then, with regard to Hainan, Jean, your comments were very interesting. As you already latter said that they stopped that there was some shifting of interest -- consumer interest towards other luxury goods, like, handbags and things like that. Did you sense that at all and what is your exposure in Hainan? Do you -- like do you sell a lot in Hainan and are there particular brands that you have that are strong there?

So I am not going to -- it’s difficult for me to comment on comments of Estee Lauder, which is a company I respect a lot. What I saw in Hainan is a huge, huge shopping malls full of people buying that to not only fragrance, cosmetics, but also leather goods, clothing, et cetera. What I -- but you remember, we said at the end of last year that we are going to have to be very prudent on the opening of China, because we think that it’s going to take a little bit more time than what people think, and rightfully so, I think that there was a lot of inventory, there is a lot of people buying. So it’s a good sign, not as much as what maybe people can think. But there is no problem in Hainan. Hainan is there to stay. They are going to build even more selling space. So I don’t see -- mid-term, long-term, I don’t see any problems. It’s just a timing thing, but we think that our second quarter will be better, third quarter will definitely improve. But for me, it’s a slow, yeah, it’s slower than expected. How is our business? I think our business is not big enough in duty-free. It could be bigger. I mean, Singapore right now talking at the conference on travel retail and I am meeting also a lot of operators for travel retail. The good news is that Hainan is capturing a lot, a lot of travel retail of Chinese that were traveling before in Korea. So the business in Korea is affected negatively, but the business in China is positively affected. Overall, I am quite optimistic.

Okay. Sounds good. Thanks. I will pass it on.

Thank you, Linda.

Thank you. Our next questions come from the line of Ashley Helgans with Jefferies. Please proceed with your questions.

Hi. This is Sidney on for Ashley. A couple from us. So, first one, just again kind of on the comment we have heard from some competitors on the inventory situation in China and travel retail. Any further color you can kind of give from what you are seeing from your vantage point there? And then the second question was just on have you seen any shift in trend towards maybe smaller form factor kind of the mini or roller vault size of fragrances as consumers maybe trade down or just own more SKUs? Thank you.

Inventory, well, the thing is for companies that are overdeveloped in travel retail which is great, like Estee Lauder or L’Oréal. Of course, the recovery is not fast enough. But for us, unfortunately, travel retail is at the rate today at 5%. We want to grow to 7% or 8%. So we still have room. And again, because we are prudent in our guidance, we took that into account and if there is a faster improvement will, of course, revise or review our numbers. But for the first part. Regarding the second part of your question, I do not see at all a trend on smaller size or less expensive products. At the contrary, I see a premium -- premiumization or if it’s English of products. I see people buying more expensive products or larger sizes, more concentrated products and this is a trend not only in Asia, but also in the U.S. and in Europe. That’s what I can say for now.

Thank you.

Thank you. Our next questions…

Thanks.

… come from the line of Korinne Wolfmeyer with Piper Sandler. Please proceed with your questions.

Hey. Good morning and congrats on the quarter. Thanks for taking the questions. So, first, I’d like to just kind of dive into the updated guidance for the year. I mean it seems like you raised by about the beat maybe slightly a little bit more. But I do know some of us were hoping for maybe a little bit more improvement in that EPS number. Can you just talk about maybe why we are not seeing as much growth there? I know we are seeing some higher investments in marketing and some pressures on the gross margin line. But anything beyond that to call out of why we maybe aren’t seeing as much upside in that bottom line earnings number?

Yeah. Maybe I will take that, Jean. Yeah.

Yeah. Okay.

So, I mean, really, it’s about grade, I mean, if you look at the building blocks, I think, the gross margin expansion that we have seen over the last few quarters has been in large part driven by pricing, has also been driven by foreign exchange. We are starting to see that trend kind of move in a slightly opposite direction. And as I explained also in the prepared remarks, what we are seeing very clearly as well is we use FIFO accounting. So first and first half, a lot of the stuff that we are selling right now, because we have close to nine months of inventory are things that we bought last year. So as we now start to -- so we are seeing the sales uplift coming from higher pricing, which just hasn’t been a fact, but the COGS aren’t really necessarily make their way through. So we do expect gross margins to start being more impacted in the back half of the year. We will also already see a small effect most profit in quarter two. So that’s really the big block. And then the second one is really the A&P relief. I mean we have said this a couple of times. We like to plan our financial planning in a prudent way. We plan our spending based on a certain assumption in terms of market growth. We continue to see an upside surprise. The good news is everybody is seeing an upside surprise, not just us. So we don’t feel we are being uncompetitive in the market. But it is something that we need to be closely watching for and we are looking to get to that 21% margin. So that is -- I’d say those are the two real main building of why you are seeing more prudent EPS growth for the balance of the year. I mean, it’s still a pretty nice number. We are looking at 15% topline, 12% EPS. So I think nothing to be [inaudible] especially in the current context.

Yeah. Definitely. That’s super helpful. And then can you just touch a little bit more on the increased marketing spend this year? What does that look like? What kind of initiatives are you putting in place? And then as we think about kind of like the ROI on these investments, what kind of return are you baking into your internal expectations with this increased marketing spend? Thanks.

Hey, Jean. Do you want to take the question on the marketing expense?

Yes. For me, the marketing you mentioned a couple of times that you want this to be at 21%, right on an average for the year, Michel, that’s what you said?

Yeah. That’s right, Jean.

Yeah.

I think the question on where we are investing our marketing on, if I understand correctly, Korinne’s question.

You can answer. You can answer, Michel. Go ahead.

Yeah. I mean, typically, I mean, we have all seen the shifts, right? The shift has gone from the shift of marketing this expense has gone from the traditional media to more of the social media. So we have a very active campaign on active campaigns on social media, all the things that you, I think, everybody is very familiar with, whether it’s TikTok, Instagram, Facebook, all of these things. We are really -- our goal is to really communicate where the shoppers in the are basically interested in building our brands and we do that in partnership with the fashion houses. So that’s the first place, and obviously, we continue to invest in store. The store is an important point of where people make purchase decisions and you want to make sure your brands look good and competitive when they are in the store and they have to make that decision. In terms of ROI, I think, it’s really the traditional question around, you have -- does your media payout. I think people always say, we don’t need to work. We just don’t know which part doesn’t work, right? But, overall, we do know is that when you build brands and you invest behind the brands and their desirability. We know what are the key business drivers that will drive the brand equity and those are typically the levers that we follow, and of course, we make sure that where we are investing either we are getting the best return for our money either short-term or long-term. So yeah, of course, we look at ROI.

Very helpful. Thank you.

Thank you. Our next questions come from the line of Hamed Khorsand with BWS Financial. Please proceed with your questions.

Hi. Just a follow-up on the ad spend. Is there a threshold where you think that your sales is going to be too big to support a 21% ad spend and to get the same return that you are looking for?

No. I mean the reality is, I think, if you look at our brands, our largest brands are roughly in the $200 million range, there are significantly larger brands out there that spend significantly more. I think at the end of the day, there is a correlation between share and share of spend, as long as you are investing in the right vehicles over time, there is some gradual growth that can happen there. So I don’t think we feel that would be the case. But I do want to get to insist on the fact that, underinvesting over a sustained period will result in us not delivering the growth that we want, right? So this is why we are very keen to invest and to continue to invest. And I think, again, the only thing that’s helped us so far is that this has been pretty much across the industry. Everybody has been surprised by the market growth and so everybody has relatively been underinvesting in A&P. So our share of investment hasn’t come down, but I know we are very -- we are keeping a very close eye on that, making sure that, we are seeing as much abreast to what the market is doing as possible and trying to anticipate that, and anticipate with the spending, because otherwise, it’s a big miss opportunity for us. Our focus remains topline growth.

Got it. And then my other question was just given the shortfall in sales this past quarter. How are you doing as far as getting the pumps and the glass that you need and fulfilling the Q2 and Q3 orders as they come in?

So I think there are a couple of things, right? And [Technical Difficulty]

Michel? Michel, disturbance. When you say shortfall, first, we have published record the first quarter. So, but that’s true that we could have done more if we had all the components for our inventory just to put things in perspective. So we have made some improvement in the supply chain by plants that we started a couple of years ago, which is to diversify the sourcing, especially on glass. So, today for bottles we have more than one supplier per type of bottle. So we are today in a much better position than before. But still the growth was unexpectedly higher than anticipated, and that’s why in Europe, we shipped around 80% of our orders and in the U.S. 70%. It doesn’t mean that these orders are lost. It means that we will see them later on in the quarter. Michel, you wanted to add something?

Yeah. Yeah. Just to build on [inaudible]. I was going to make that comment, which was that, if you miss a case, it doesn’t necessarily, we do have lost consumption. There’s inventory in the trade, there’s inventory with our distributors and so it’s not going to result in lost consumption. It’s something that we expect to make up.

Okay. Great. Thank you.

Thank you.

Thank you. There are no further questions at this time. I would now like to hand the call back to Michel Atwood for any closing remarks.

Thank you, Daryl. Thank you all for tuning in for our conference call. If you have any further questions, please contact Karin Daly from the Equity Group who is our IR counsel for her telephone number and email address can be found in our earnings release. Thank you again for your time and looking forward to meeting some of you in the upcoming conferences that in June.

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.