# Interparfums Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [Interparfums Inc](/companies/ipar.md) (CIK 822663)
- Form: 10-Q
- Filed: 2023-08-08
- Accepted by EDGAR: Aug 8, 2023, 16:20 ET
- Period: 2023-06-30
- Accession: 0001753926-23-001015
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/822663/000175392623001015/g083669_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/822663/000175392623001015/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $309.2m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $621.0m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $120.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $229.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $188.4m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $391.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $133.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $246.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $55.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $145.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $2.3m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $4.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $13.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $34.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $35.0m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $89.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $1.09 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $2.77 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $1.09 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $2.78 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 32,162 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 32,161 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $6.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $3.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $40.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-06-30 | $74.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $823.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $1.35bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $341.7m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-06-30 | $138.6m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $29.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-06-30 | $668.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,874 characters.

### 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 Inter Parfums’ annual report on Form 10-K for the fiscal year ended December 31, 2022, and the reports Inter Parfums files from time to time with the Securities and Exchange Commission (“SEC”). Inter Parfums 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 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 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 NYSE Euronext.

We produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 69% and 70% of net sales for the six months ended June 30, 2023 and 2022, respectively. We have built a portfolio of prestige brands, which include *Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, S.T. Dupont, Rochas* and *Van Cleef & Arpels*, whose products are distributed in over 120 countries around the world. In addition, our exclusive and worldwide license for the production and distribution of Lacoste brand perfumes and cosmetics becomes effective in January 2024.

Through our United States operations, we also market fragrance and fragrance related products. United States operations represented 31% and 30% of net sales for the six months ended June 30, 2023 and 2022, 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, Ferragamo, Graff, GUESS, Hollister, MCM, Oscar de la Renta* and *Ungaro* brands. In addition, our exclusive and worldwide license for the production and distribution of Roberto Cavalli brand perfumes and fragrance related products became effective in July 2023.

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 *Montblanc, Coach, Jimmy Choo* and *GUESS* brand names.

As a percentage of net sales, product sales for the Company’s largest brands were as follows:

|  | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| Montblanc | 19% | 19% |
| Jimmy Choo | 18% | 15% |
| Coach | 15% | 15% |
| GUESS | 11% | 12% |

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 and the United States.

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, through new licenses, other arrangements or out-right 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. Our 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 at one of our distribution centers and then, based upon production needs, the components are 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 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. A strong U.S. dollar has a negative impact on our net sales. However, earnings are positively affected by a strong dollar, because almost 50% of net sales of our European operations are denominated in U.S. dollars, while almost all costs of our European operations are incurred in euro. Conversely, a weak U.S. dollar has a favorable impact on our net sales while gross margins are negatively affected. 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.

### Impact of COVID-19 Pandemic

Please see our discussion of the Impact of the COVID-19 Pandemic, 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 June 30, 2023.

### Recent Important Events

Please see our discussion of Recent Important Events, which is incorporated by reference to note 3 to the Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

### Discussion of Critical Accounting Policies

Information regarding our critical accounting policies can be found in our 2022 Annual Report on Form 10-K filed with the SEC.

### Results of Operations

### Three and Six Months Ended June 30, 2023 as Compared to the Three and Six Months Ended June 30, 2022

### Net Sales:

*(in millions)*

|  | Three months ended June 30, 2023 | 2022 | % Change | Six months ended June 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| European based product sales | $197.8 | $166.3 | 19.0% | $428.1 | $348.5 | 22.8% |
| United States based product sales | 111.5 | 78.4 | 42.1% | 192.9 | 146.9 | 31.3% |
|  | $309.3 | $244.7 | 26.4% | $621.0 | $495.4 | 25.3% |

Net sales for the three months ended June 30, 2023, increased 26% from the three months ended June 30, 2022. At comparable foreign currency exchange rates, net sales increased 25% from the second quarter of 2022. The average dollar/euro exchange rate for the current second quarter was 1.09 compared to 1.06 in the second quarter of 2022, while for the first half of 2023, the average dollar/euro exchange rate was 1.08 compared to 1.09 in the first half of 2022. Net sales for the six months ended June 30, 2023 increased 25% as compared to the first half of 2022. At comparable foreign currency exchange rates, net sales increased 26% from the first half of 2022.

Continuing the trend from the first quarter 2023, the current second quarter was exceptionally strong for both European and United States based operations, as net sales increased 19% and 42%, respectively, as compared to the corresponding period of the prior year.

For European based operations, our largest brands, Coach, Jimmy Choo, and Montblanc sales rose 28%, 21% and 16%, respectively, as compared to the corresponding period of the prior year. Continuing the growth trend of the first quarter of 2023, second quarter sales by our U.S. operations grew substantially, up 42% largely from the continued success of GUESS fragrances which performed exceedingly well during the quarter across all geographies and was up 30% from the second quarter of 2022. This is driven by the sales of our newest pillars, *Seductive Blue* and *Uomo Acqua*. Second quarter GUESS brand sales more than made up for the first quarter logjam we experienced due to the ERP implementation. Of note, the significant growth in the quarter builds upon the 39% sales increase we reported for the second quarter of 2022. We also had strong sales of Ferragamo fragrances, which we have recently enriched with sister scents for the *Signorina* and *Storie di Seta* collections. Oscar de la Renta also performed strongly during the quarter. The increase was also driven by the addition and extension of Donna Karan and DKNY to our portfolio. They have climbed to become our second largest U.S. based brand in just one year under our expertise.

The first half of 2023 started on a strong note, and we look forward to executing our plans for the remainder of the year. Our brands are in high demand in a robust environment for the fragrance industry. We have a large number of brand extensions across many of our brands launching in the second half of the year, plus Abercrombie & Fitch *Fierce* joining our portfolio and the launches of Guess *Bella Vita Paradiso,* Karl Lagerfeld *Les Parfums Matiéres* and Van Cleef & Arpels *Thé Amara*, later in the year. In sum, 2023 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds, most notably somewhat limited travel retail business in Asia and supply chain disruptions which are slowly abating.

*(In millions)*

| Net Sales to Customers by Region | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: |
| North America | $218.8 | $167.4 |
| Western Europe | 153.9 | 124.4 |
| Asia | 98.5 | 87.2 |
| Middle East | 51.0 | 44.9 |
| Central and South America | 46.9 | 38.7 |
| Eastern Europe | 45.6 | 28.4 |
| Other | 6.3 | 4.4 |
|  | $621.0 | $495.4 |

In the first half of 2023 our largest market, North America, rose 31%, followed by Western Europe and Asia where comparable half year sales in both regions increased 24% and 13%, respectively. Our sales in Eastern Europe, Central and South America and the Middle East were also robust, up 60%, 21% and 14%, respectively. Additionally, our travel retail business is continuing to show signs of renewed life.

### INTER PARFUMS, INC. AND SUBSIDIARIES

*(in millions)*

| Gross Profit margin European operations | Three months ended June 30, 2023 | 2022 | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $197.8 | $166.3 | $428.1 | $348.5 |
| Cost of sales | 73.1 | 55.1 | 147.4 | 115.6 |
| Gross margin | $124.7 | $111.2 | $280.7 | $232.9 |
| Gross margin as a % of net sales | 63.0% | 66.9% | 65.6% | 66.8% |
| **United States operations** |  |  |  |  |
| Net sales | $111.5 | $78.4 | $192.9 | $146.9 |
| Cost of sales | 47.7 | 35.8 | 82.2 | 67.4 |
| Gross margin | $63.8 | $42.6 | $110.7 | $79.5 |
| Gross margin as a % of net sales | 57.2% | 54.3% | 57.4% | 54.1% |

For European based operations, gross profit margin as a percentage of net sales was 63.0% and 65.6% for the three and six months ended June 30, 2023, respectively, as compared to 66.9% and 66.8% for the corresponding periods of the prior year. A key driver in the decrease in gross profit margin for European based operations in 2023 is due to an increase in inventory reserves in the first half of 2023 related to certain underperforming brands. As the Company experienced long lead time in obtaining and building inventory during COVID high levels of inventory investments were required to protect service levels. Excluding these one-time adjustments, gross margin as a percentage of sales for European based operations would be more favorable as compared to the prior period, driven by increases in pricing and product mix, partially offset by cost inflation.

For United States operations, gross profit margin was 57.2% and 57.4% for the three and six months ended June 30, 2023, respectively, as compared to 54.3% and 54.1% for the corresponding periods of the prior year. The significant margin expansion stems from a number of factors. Firstly, for the most part, the price increases we took early 2023 weren’t fully offset yet by a higher cost of goods given our inventory coverage and FIFO accounting. Secondly, we are seeing favorable brand and channel mix, as a higher portion of our higher priced fragrances are being sold directly to retailers as opposed to third-party distributors. Lastly, the significant increase in sales in the first half of 2023 allowed us to better absorb fixed expenses such as depreciation and point of sale expenses, as compared to the corresponding period of the prior year.

Generally, we do not bill customers for shipping and handling costs, and such costs, which aggregated $3.6 million and $7.5 million for the three and six months ended June 30, 2023, respectively, as compared to $2.8 million and $5.5 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 the gross profit of other companies, which may include these expenses as a component of cost of goods sold.

### INTER PARFUMS, INC. AND SUBSIDIARIES

*(In millions)*

| Selling, general and administrative expenses European Operations | Three months ended June 30, 2023 | 2022 | Six months ended, June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $89.2 | $78.8 | $166.5 | $147.8 |
| Selling, general and administrative expenses as a percent of net sales | 45.1% | 47.4% | 38.9% | 42.4% |
| **United States Operations** |  |  |  |  |
| Selling, general and administrative expenses | $44.2 | $29.6 | $79.6 | $58.1 |
| Selling, general and administrative expenses as a percent of net sales | 39.7% | 37.8% | 41.3% | 39.5% |

For European operations, selling, general and administrative expenses increased 13.2% and 12.6% for the three and six months ended June 30, 2023 as compared to the corresponding period of the prior year, and represented 45.1% and 38.9% of net sales for the three and six months ended June 30, 2023, respectively, as compared to 47.4% and 42.4% for the three and six months ended June 30, 2022, respectively. For United States operations, selling, general and administrative expenses increased 49.3% and 37.1% for the three and six months ended June 30, 2023, as compared to the corresponding period of the prior year, and represented 39.7% and 41.3% of net sales for the three and six months ended June 30, 2023, respectively, as compared to 37.8% and 39.5% for the three and six months ended June 30, 2022, respectively. As discussed in more detail below, the increased selling, general and administrative expenses as a percent of net sales are primarily the result of increases in promotion and advertising expenditures as well as the annualization impact of the structural investments in our US operations that we made throughout 2022 in order to support the new licenses of $7.0 million for the first half of 2023.

Promotion and advertising included in selling, general and administrative expenses aggregated $54.6 million and $89.8 million for the three and six months ended June 30, 2023, respectively, as compared to $45.9 million and $80.1 million for the corresponding periods of the prior year. Promotion and advertising represented 17.7% and 14.5% of net sales for the three and six months ended June 30, 2023, respectively, as compared to 18.8% and 16.2% 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 had a beneficial effect on online net sales. All of our brands have benefited from newly launched and enhanced e-commerce sites in existing markets in collaboration with our retail customers on their e-commerce sites. We also continue to develop and implement omnichannel concepts and compelling content to deliver an integrated consumer experience. We anticipate that on a full year basis, promotion and advertising expenditures will aggregate approximately 21% of net sales, which is in line with pre-COVID historical averages.

Royalty expense included in selling, general and administrative expenses aggregated $24.0 million and $48.1 million for the three and six months ended June 30, 2023, respectively, as compared to $18.9 million and $38.3 million for the corresponding periods of the prior year. Royalty expense represented 7.8% and 7.7% of net sales for the three and six months ended June 30, 2023, respectively, as compared to 7.7% of net sales for both the corresponding periods of the prior year.

### 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 17.8% and 23.4% for the three and six months ended June 30, 2023, respectively, as compared to 18.6% and 21.5% for the corresponding periods of the prior year.

### Other Income and Expense

Traditionally, interest expense was primarily related to the financing of brand and licensing acquisitions. However, in April 2021, we completed the acquisition of the headquarters of Interparfums SA. The acquisition was financed by a 10-year €120 million (approximately $130.4 million) bank loan which bears interest at one-month Euribor plus 0.75%. Also in 2021, approximately €80 million of the variable rate debt was swapped for variable rate debt with a maximum interest rate of 2%. The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%.

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. Gains and losses on foreign currency transactions have not been significant. Almost 50% of net sales of our European operations are denominated in U.S. dollars.

Interest and investment (income) loss represents interest earned on cash and cash equivalents and short-term investments. As of June 30, 2023, short-term investments include approximately $0.9 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. Interest and investment (income) loss for the three and six months ended June 30, 2023, includes approximately $3.4 million of losses on such marketable equity securities.

### Income Taxes

Our consolidated effective tax rate was 23.4% and 24.2% for the six months ended June 30, 2023 and 2022, respectively.

The effective tax rate for European operations was 25% for each of the six months ended June 30, 2023 and June 30, 2022.

Our effective tax rate for U.S. operations was 17.4% for the six months ended June 30, 2023, as compared to 22% for the corresponding period of the prior year. Our effective tax rate differs from the 21% statutory rate due to 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.

### Net Income

*(In thousands)*

|  | Three months ended June 30, 2023 | 2022 | Six months ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income European operations | $26,950 | $24,529 | $87,515 | $64,305 |
| Net income United States operations | 15,568 | 9,991 | 25,911 | 16,506 |
| Net income | 42,518 | 34,520 | 113,426 | 80,811 |
| Less: Net income attributable to the noncontrolling interest | 7,566 | 6,903 | 24,406 | 17,895 |
| Net income attributable to Inter Parfums, Inc. | $34,952 | $27,617 | $89,020 | $62,916 |

Net income attributable to European operations was $27.0 million and $87.5 million for the three and six months ended June 30, 2023, respectively, as compared to $24.5 million and $64.3 million for the corresponding period of the prior year. Net income attributable to United States operations was $15.6 million and $25.9 million for the three and six months ended June 30, 2023, respectively, as compared to $10.0 million and $16.5 million for the corresponding period of the prior year. The significant fluctuations in net income for both European operations and United States operations are directly related to the previous discussions relating to changes in sales, gross margin, and selling, general and administrative expenses.

The noncontrolling interest arises from our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 28% of Interparfums SA shares trade on the NYSE Euronext. Net income attributable to the noncontrolling interest is directly related to the profitability of our European operations and aggregated 28% of European operations net income for all periods presented. Net margins attributable to Inter Parfums, Inc. for the six months ended June 30, 2023 and 2022 aggregated 14.3% and 12.7%, respectively.

### Liquidity and Capital Resources

Our conservative financial tradition has enabled us to amass significant cash balances. As of June 30, 2023, we had $187 million in cash, cash equivalents and short-term investments, most of which is held in euro by our European operations and is readily convertible into U.S. dollars. We have not had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term investments. As of June 30, 2023, short-term investments include approximately $2.2 million of marketable equity securities.

As of June 30, 2023, working capital aggregated $482 million and we had a working capital ratio of 2.4 to 1. Approximately 77% of the Company’s total assets are held by European operations, and approximately $252 million of trademarks, licenses and other intangible assets are also held by European operations.

The Company is party to a number of licenses and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring at various dates through 2039. In connection with certain of these license agreements, the Company is subject to minimum annual advertising commitments, minimum annual royalties and other commitments. *See* Item 8. Financial Statements and Supplementary Data – Note 12 – Commitments in our 2022 annual report on Form 10-K, which is incorporated by reference herein. Future advertising commitments are estimated based on planned future sales for the license terms that were in effect at December 31, 2022, without consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

The Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a proprietary basis or as a licensee. In July 2023, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Roberto Cavalli brand. This license took effect in July 2023, and we target to start shipping products as of November-December 2023. In December 2022, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances and fragrance-related products under the Lacoste brand. This new license takes effect January 2024.

Cash provided by operating activities aggregated $6.8 million for the six months ended June 30, 2023 compared to cash used in operating activities of $28.5 million for the six months ended June 30, 2022, respectively. For the six months ended June 30, 2023, working capital items used $115.4 million in cash from operating activities, as compared to $117.2 million in the 2022 period. Although from a cash flow perspective accounts receivable is up 18% from year end 2022, the balance is reasonable based on second quarter 2023 record sales levels and reflects strong collection activity as day’s sales outstanding was 68 days, down from 76 days in the corresponding period of the prior year. From a cash flow perspective, inventory levels as of June 30, 2023, increased 23% from year end 2022 in support of our overall sales growth. Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold.

Cash flows provided by investing activities in 2023 reflect purchases and sales of short-term investments. These investments include certificates of deposit with maturities greater than three months. Approximately $34 million of such certificates of deposit contain penalties where we would forfeit a portion of the interest earned in the event of early withdrawal.

Our business is not capital intensive as we do not own any manufacturing facilities. On a full year basis, we typically spend approximately $5.0 million on tools and molds, depending on our new product development calendar. Capital expenditures also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers.

Our short-term financing requirements are expected to be met by available cash on hand at June 30, 2023, and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2023 consist of a $25 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $8 million in credit lines provided by a consortium of international financial institutions. There was $5 million of short-term borrowings outstanding pursuant to these facilities as of June 30, 2023 and no short-term borrowings outstanding as of June 30, 2022.

In February 2022, our Board authorized a 100% increase in the annual dividend to $2.00 per share. In February 2023, the Board of Directors further increased the annual dividend to $2.50 per share. The next quarterly cash dividend of $0.625 per share is payable on September 30, 2023, to shareholders of record on September 15, 2023.

We believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.

Inflation rates in the U.S. and foreign countries in which we operate did not have a significant impact on operating results for the six months ended June 30, 2023.

## Market risk

As filed, 2,588 characters.

### General

We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps.

### Foreign Exchange Risk Management

We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a currency other than our functional currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Interparfums SA, whose functional currency is the euro. All foreign currency contracts are denominated in currencies of major industrial countries and are with large financial institutions, which are rated as strong investment grade.

All derivative instruments are required to be reflected as either assets or liabilities in the balance sheet measured at fair value. Generally, increases or decreases in fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative is designated and qualifies as a cash flow hedge, then the changes in fair value of the derivative instrument will be recorded in other comprehensive income.

Before entering into a derivative transaction for hedging purposes, we determine that the change in the value of the derivative will effectively offset the change in the fair value of the hedged item from a movement in foreign currency rates. Then, we measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness is recognized in the income statement.

At June 30, 2023, we had foreign currency contracts in the form of forward exchange contracts of approximately U.S. $38.0 million and GB £2.0 million with maturities of less than one year. We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote.

### Interest Rate Risk Management

We mitigate interest rate risk by monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt.

## Controls and procedures

As filed, 979 characters.

### Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on their review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our Company's disclosure controls and procedures were effective.

### Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) that occurred during the quarterly period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Filed Aug 8, 2023.
Source: SEC EDGAR, the filing index for accession 0001753926-23-001015. Last ingested by Listed: Nov 4, 2026, 18:31 ET. No prices; not investment advice.