Greetings, and welcome to Interparfums Inc.'s 2024 Third Quarter Earnings 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] Please note, this conference is being recorded. At this time, I'd like to turn the call over to Karin Daly, Vice President at the Equity Group and Interparfums Investor Relations representative. Thank you. You may begin.

Thank you, Diego, and good morning, everyone. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood. 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 headings Forward-Looking Statements and Risk Factors in its most recent annual report on Form 10-K. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. As a reminder, consolidated results reflect the Company's two business segments, European-based operations through its 72% owned French subsidiary headquartered in Paris, Interparfums S.A. and United States-based operations through its wholly owned subsidiaries headquartered in New York. It's now my pleasure to turn the call over to Mr. Jean Madar. Jean?

Thank you, Karin, and good morning, everyone, and thank you for joining us today. Once again, I'm happy to report that the fragrance market remains robust and is continuing to grow, but of course, at a more sustainable pace than in the past two years. The strong market only goes so far. Equally important to our success is our ability to swiftly adapt to changing consumers' preferences, new trends as well as the ever-changing challenges of a global business while delivering our products sustainably and efficiently to our retailers and distributors. Historically, our third quarter has been our strongest, owing to the pre-holiday season shipments and the third quarter of this year did not disappoint. In terms of sales, it was not only the best third quarter, but also the best quarter in our history. Michel in a couple of minutes, will provide insight into our financial results. So third quarter sales across all markets were strong. Our three largest markets, North America, Western Europe and Asia Pacific grew sales by 12% for North America, 25% for Western Europe and even 15% for Asia Pacific. Central and South America sales also continued on its positive trajectory with a 20% growth. Sales in Eastern Europe bounced back after being impacted by sourcing constraints earlier in the year, achieving third quarter sales growth of 23%. Also, our Travel Retail business continues to strengthen slowly, but surely. In the first nine months of the year, it has increased 24% from this time last year, representing approximately today 7% of net sales, getting us closer to our target of 10% of annual net sales. Regarding our presence in China, we recognize that we are currently underpenetrated in this market, and we are fortunate to have remained insulated from the huge volatility and challenges that…

Thank you, Jean, and good morning, everyone. By all measures, the 2024 third quarter was the best quarter in our history as laid out by Jean. I'll drill down the P&L for some also of the highlights. On a consolidated basis, gross margin was unchanged from last year's third quarter at 63.9%. We did see some movements within the two segments, but these were primarily driven by brand and channel mix. On a year-to-date basis, consolidated gross sales expanded 30 basis points to 63.6%, and we expect full year 2024 gross margins to be slightly ahead of '23 at approximately 64%. On the A&P side, A&P expenditures increased 6% to about 16% of net sales and 19% to 16.6% of net sales for the third quarter and the first nine months of 2024, respectively. We're really seeing the results of our investments on our top line achievements and acutely supporting sustainable growth for the future. We continue to work towards our target A&P expense of 21% of net sales for 2024 with significant spending planned for the fourth quarter of 2024 to ensure a successful holiday season and strong start to 2025, similar to what we have done every year. Also included in SG&A expenses, royalty expenses approximated 8% of net sales for both the current quarter and year-to-date, and this is broadly in line with our historical rates. Once again, the amortization of the cost of the Lacoste license, which amounted to $4.8 million during the first nine months of 2024 or $1.6 million quarterly will continue over the 15-year life of the contract. Overall, SG&A expenses increased 12% and 16% for the third quarter and the first nine months of 2024, representing 38.9% and 41.8% of net sales, respectively. In the same period last year, SG&A expenses were…

[Operator Instructions] Our first question comes from Ashley Helgans with Jefferies.

This is Sidney on for Ashley. Can you talk a little bit more about the changes in consumer preferences you called out? It sounds like maybe there's a bit of a trend of the gap closing between men's and women's fragrance, but curious if there's any more trends you would highlight?

I can try to answer this. So yes, we see definitely some trends quarter after quarter, month after month. The men's part of the business is getting stronger. We see also no resistance to price elasticity. We even say that there is a trend to premiumization on the fragrance. More and more people are willing to pay more for fragrance. And we are even talking about younger people that are willing to pay more. That's why there is such a growth in the collections, niche, things that are less commercial, has more signature, the distribution is more selective. This is the new trend. But on the other hand, the classing business, the commercial business, the designer fragrance business that we have with our brands, could be Coach or GUESS or Montblanc, it's still doing quite well. So this is for me the important trend that I can identify.

And our next question comes from Korinne Wolfmeyer with Piper Sandler.

This is [indiscernible] for Korinne. I just have one on sell-in trends. What are those expectations for Q4? And then what are you seeing with retail order patterns for both the U.S. and internationally? And then just how far off is sell-in versus sell-out right now?

Michel?

Yes. So in terms of sell-in, I think as we laid out in our prepared remarks, we're projecting double-digit growth in the fourth quarter. And at this point in time, what we've seen in the first nine months is sell-in, this is not only true for us, but what we're seeing, this is also for our competitors. Sell-in has been slower than sell-out. And what we're seeing is destocking continuing to happen across the industry. So there's still a small disconnect between sell-in and sell-out, and it's been about a point, and it really varies from geography to another. So at this point in time, that's kind of what we're projecting for the fourth quarter. But our stock seems to -- our retailers are well stocked. And so far, the holiday season is going pretty well.

Our next question comes from Hamed Khorsand with BWS Financial.

A follow-up on this last question is, I'm just trying to get a hand on the sequential decline figure. I mean based on the current guidance, it's a 15% sequential decline in sales. And IPAR has never had that kind of degree of decline going into Q4 from Q3. So I just want to see if there's anything special there.

Michel, to you.

Yes. I mean, I think, Hamed, at the end of the day, sequential declines are very -- this is a very highly cyclical and seasonal business. Year-over-year, there can be various impacts. There can be launches, large launches, you can have new brands. So if you think about, for example, 2021, we added the Ferragamo brand in the middle of the year. So at the end of the day, it's always very difficult to look at these things on a sequencing basis. But if you look at our growth rates, I mean, our growth rates are projected to be for the fourth quarter, in line with what we've delivered on a year-to-date basis, which is about 10%. And do recall last year, we did have a very, very elevated year-to-date at the end of the third quarter, where we were up 27%. So overall, we are starting to lap some of the high-growth periods that we had last year. And that's one of the reasons why you're seeing a more normalized growth this year and also going forward.

Okay. And if I may, what is the benefit or impact of selling more gift sets versus the traditional individual?

I think that the customer is looking for a gift. These are value offers. And this is also a way to thank the loyal customer and to give him once a year some gift. Again, we can afford it. This is a practice. And you will see people going to department stores and really looking for this. For the people who don't know what it is, it's basically the same product, but we are giving away on the top of a regular size, a body lotion or a smaller size or -- I think it's a way to keep our customer close to the brand. It's also to thank them for being close to the brand. And for us, of course, it has a little impact on the margin, but we are able to manage it. It was a very, very important in the U.S. for years. It's becoming more important in Europe. We see trends that this is going to be important almost every year. So we'll continue to manage it. We don't want, of course, this business to be too big. But in the first quarter, it's quite normal to have gift sales. Yes, Michel.

No, I was just going to build on Jean, which is, every business has some level of promotionality. You can either promote based on price or you can promote through these kinds of mechanisms. These mechanisms tend to be a lot healthier in terms of long term and preserving the long-term value of your products in the market. So this is really -- at the end of the day, it's a much more effective and luxury supporting promotional mechanism.

Got it. Okay. And then could you just -- if I missed it, excuse me, but is there an update on the luxury line for release in 2025?

Michel?

Yes. I think the plan is to launch in the summer of next year. That is the current plan. I do want to insist this is still really going to be very small. I mean, obviously, we're -- this is a very important strategic play for us to enter this space. But these brands take time to be built up. So this is not going to represent a significant building block for next year.

And our next question comes from Oliver Chen with TD Cowen.

The fragrance market in terms of somewhat moderating, when do you expect that to abate as we are -- we continue to be in this normalization phase or a catalyst for it to perhaps reaccelerate in the future? Also, it's nice that you're driving higher demand across Europe and Middle East sell-in relative to the U.S. Just what's driving that and helping us compare and contrast these markets could be useful for us as well. China has also been a tough market, and I know you spoke about promos and tactics, but what do you see for China? Some of the overhang macroeconomically could be structural and multiyear in nature. So I would love your thoughts on how to compete in that market as well.

Michel, do you want to answer the first part? I will answer the second.

Oliver, we continue to see pretty healthy demand across the market. And the markets are growing. We continue to see double-digit growth across the market. We're not really -- this is what the NPD data is kind of telling us. But when we look at our competitors and when we look at overall what's happening from a sell-in standpoint, there seems to be a bit of a disconnect there. And again, I think this is in part driven by some of the adjustments that are being done within the inventory levels and the stock and trade levels. We keep thinking that the market is going to slow down, and I think that is always reflected in our guidance. And I think we've all been happily surprised quarter after quarter that the market hasn't slowed down. I think a lot of the trends continue to be good, particularly, I would say, in the U.S., where we are seeing an increase in penetration, very strong increase in penetration and usage. And I think that has been really fueling the market.

Okay. And...

I'm sorry, if I may. I would like to add that we have seen a double-digit growth. We have grown at a rate of 10% in the first nine months of the year. But we think that with a stronger sellout than sell-in, we anticipate the growth going forward to slow down. I don't think we are going to see the same type of growth that we had in the last two to three years, which is fine. I mean we -- before COVID, this industry -- fragrance segment of the industry was growing at a 2% rate. So we'll do better than that for sure. But when you see our peers and when you see the market, I think we have to be prudent on the growth. So the good news is we have brands in our portfolio that are at the beginning of their life cycle. Lacoste is not even one year old under our management, and we have a lot, a lot to do with our -- with this new brand. Roberto Cavalli is also new in the portfolio, and we have blockbuster launching in 2025. So because of the activity and because of the portfolio, we think we will continue to lead our peers. But I want everybody to be reasonable and do not expect in the future what we have done in the past for sure.

Very helpful. And Michel, on your destocking comments, when might that end? And we're definitely seeing that across the industry as well. And then Jean Madar, as we look to next year, which product launches are most material? Are you most excited about if you had to prioritize a few?

Yes. So Oliver, I think the destocking has been slowing down. I mean it was much stronger at the beginning of the year, and it has been slowing down. I think overall, in the third quarter, it was broadly in line with our historical sell-out growth. So I think at this point in time, I think we're feeling that the destocking is behind us.

So regarding the brands with some very interesting new launches next year. Let's mention Jimmy Choo, let's mention Lacoste, let's mention, of course, Roberto Cavalli, Ferragamo. And GUESS has also very interesting programs for 2025. So almost all our largest brands have new pillars or new blockbuster. So we are quite confident.

And we have reached the end of our question-and-answer session. I'll now turn the call over to Michel Atwood for closing remarks.

All right. Well, thank you again for joining our call today. Before I end the call, I would like to announce a few upcoming events. We'll be providing initial guidance for 2025 next Tuesday, November 12 at the close of the market. On December 5, D.A. Davidson will be visiting our New York headquarters as part of its seventh Annual Holiday Beauty and Wellness Bus Tour. And on December 9 and 10, I'll be participating in the Raymond James Consumer Conference here in New York City. So if you are interested in attending any of these events, please reach out to their respective sales representative. I also want to take this opportunity as we get into the end of the year to really thank our teams and our organization. Clearly, these results are very strong. We wouldn't achieved a record year without the help and support of our entire organization. So I really wanted to tip my hat again to the team. We don't get these results without a lot of hard work and dedication. So this is really a big nod to the organization, to the IP organization for all their hard work and support this year. If you have any additional questions, please contact Karin Daly from the Equity Group. She's our Investor Relations representative, and her telephone number and e-mail address can be found in our most recent earnings release. So, we look forward to the next conference call, and thank you, and have a great day.

Thank you. All parties may now disconnect. Have a good day.