Russell Greenberg - EVP & CFO Jean Madar - Chairman & CEO.

Wendy Nicholson - Citi Research Joel Altobello - Raymond James Maria Vizuete - Piper Jaffray Linda Bolton Weiser - B. Riley & Co. Vahid Khorsand - BWS Financial.

Welcome to the Inter Parfums First Quarter 2015 Conference Call. [Operator Instructions]. It's now my pleasure to introduce your host, Russell Greenberg, Executive Vice President and CFO. Please go ahead, sir..

Thank you, operator. Good morning and welcome to our first quarter conference call. Following the financial review, Jean Madar, our Chairman and CEO, will provide a business overview and then we'll move on to your 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 of forward-looking statements and risk factors in our annual report on Form 10-K and the reports that 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're primarily talking about sales of prestige fragrances conducted through our 73% owned French subsidiary, Inter Parfums SA.

And when we discuss our United States operations, we're primarily referring to sales of prestige and specialty retail fragrance products, as well as travel amenities that are all conducted through our wholly-owned domestic U.S. subsidiaries. Moving on to first quarter results, net sales were $109.2 million compared to $121.7 million.

But at comparable foreign currency exchange rates, net sales declined only 2.8%. European-based operations generated net sales of $86.7 million compared to $102.3 million. Sales by U.S.-based operations rose 16% to $22.5 million from $19.4 million. Gross profit margin was 61.9% of net sales as compared to 56.9% in 2014.

SG&A expenses as a percentage of net sales was 42.6% for both periods. Operating income was $21.1 million, up 20.9% as compared to $17.4 million. Operating margin rose to 19.3% compared to 14.3%. Net income attributable to Inter Parfums, Inc. was $10 million or $0.32 per diluted share, compared to $8.9 million or $0.29 per diluted share.

As we have covered sales drivers in our Q1 news release, I will focus on other P&L points. Our gross profit margin was 61.9% of net sales compared to 56.9% which once again for European-based sales, this increase was primarily attributable to the strength of the U.S.

dollar relative to the euro in the first quarter of this year as compared to last year's first quarter. The average dollar-euro exchange rate for the three months ended March 31, 2015 was 1.13 as compared to 1.37 for the 2014 period.

As was the case in the fourth quarter of 2014, the increase in gross margin for U.S.-based operations was due to a higher concentration of higher-margin prestige brand product sales as compared to lower-margin specialty retail product sales.

Selling, general and administrative expenses as a percent of net sales was 43% for both the current and prior year's first quarter. Promotion and advertising, including in selling, general and administrative expenses was 11.5% of net sales in the current first quarter and slightly higher at 11.9% of net sales in the first quarter of 2014.

These factors help explain the over 20% increase in operating income. The bottom line increase came in at 12.4%, as we incurred foreign currency losses of approximately $2 million in the 2015 period versus a negligible foreign currency gain in the 2014 period.

The 2015 loss primarily represents losses incurred on inter-company balances between our foreign subsidiaries that were not hedged by the use of foreign currency forward exchange contracts. Our balance sheet remains very strong. We closed the quarter with a working capital ratio of almost 4.5 to 1.

At March 31, 2015 we had $356 million in working capital, including $243 million in cash, cash equivalents and short-term investments. We stand by our current 2015 guidance which calls for sales of approximately $470 million which in constant dollars implies an approximate 7% sales increase from 2014.

We also continue to maintain our guidance for net income per share in the range of $0.98 to $1 per diluted share. Our guidance for 2015 assumes that the dollar remains at current levels and does not include any potential sales of Coach or Rochas brand products to acquisitions that we recently made that Mr.

Madar will go into some detail in a little bit - actually now.

Jean, why don't you continue?.

Yes, of course, I can continue. Thank you, Russ and good morning, everyone. I'm calling you from our Paris office. To start, I will repeat some of the points made in our first quarter earnings release regarding the new product pipeline for 2015.

For our European operation, the year started off with a man's and a woman's fragrance duo by Boucheron called Quatre, collection number 4. As the year progresses, we have several women's scents rolling out.

More importantly, a woman's version of Montblanc Emblem, a new woman's fragrance from Jimmy Choo called Blossom, Repetto Eau Florale and also a new fragrance from Van Cleef & Arpels. It's going to be quite busy.

For men we will be unveiling a scent from Balmain and one each for men and for women for Lanvin and a second fragrance duo for Karl Lagerfeld call Private Klub. So this is from our French subsidiary. For our U.S. operations we will be launching a new fragrance for bebe called Glam during the summer.

And in the fall, we'll have a very important launch for Anna Sui, a new fragrance called Romantica. We will continue the rollout of the collection of fragrance for Shanghai Tang. We just had its official launch a couple of weeks ago in different regions.

But if I may give you a first idea of the launch this year, we have really, really good results with a new fragrance called Icon by Dunhill. Now we're almost in worldwide distribution. Icon will reach U.S. shows in the fall with a launch at Neiman Marcus and Icon is really showing some early signs of becoming a classic scent.

We have some great results in duty free and local markets. Already we have some ranking like top ten in the Dubai duty free. Dubai is a very important market; it's one of the top in the world.

Because of this success, we look at launching a new product for Icon, a product called Icon Absolute, that we have scheduled to debut later with Harrods [ph] as an exclusive prior to global distribution.

Still another big success on the woman's side has been Extraordinary, the new fragrance for Oscar de la Renta that we launched this spring at Macy's, Lord & Taylor, Neiman Marcus and we have the worldwide distribution under way.

In addition to international expansion for the Extraordinary has gotten a great deal of publicity, in a wide array of general and women's interest press, including People Magazine, Glamour and online media. In recent months we've made two big announcements, a definitive contract to acquire the Rochas brand from P&G and a new license with Coach.

On March 19 our French subsidiary, Inter Parfums, S.A. has entered into an agreement with Procter and Gamble to acquire the Rochas brand. This is not a license, we're acquiring the whole brand, the trademark, the fashion and the beauty. So it's covering all brand names and registered trademarks for beauty and fashion.

This fashion house and fragrance house was founded in 1925, so it has quite a heritage. It started as a fashion house and has expanded into the custom fashion business encompassing ready-to-wear, accessories, jewelry and watches.

It's currently operating for approximately of 15 licenses, so it's not a direct corporate - we will continue to farm out with these licenses for fashion. Much as we've done with Montblanc since 2004, we believe we can reawaken the sleeping beauty [ph] within the Rochas brand and really build a larger aspirational customer base across the globe.

As our own brand owner, we're now developing a business plan for the fragrance and fashion business without the demand of a certain brand in there. The all cash $108 million purchase price will be financed entirely through a medium-term loan and the transaction should close by midyear.

If you have questions, I will answer on that the reason to use a loan as opposed to our cash. In addition, as we previously announce that Inter Parfums and Coach entered into an 11-year exclusive license agreement.

I'm sure you all know the name, but just in case, Coach is a leading design house of modern luxury accessories, a lifestyles collection, rich heritage and very innovative design. Like our typical license agreement, we recreate, produce and distribute new fragrances, including men's and women's scents.

Global distributions for these new products will begin before 2016 in department stores and specialty stores and also duty free shops, as well as in Coach retail stores. We signed in April.

We have already have presented the mock-up of a product to Coach and they really liked it, so we're well under development which of this effort for an interested marketing and communications campaigns, including national print and web among global market. Coach existing fragrance business has done reasonably well with its signature and fragrance.

Coach was hired to looking forward which fragrance into a much larger global opportunity and given our track record of creating and growing fragrance lines for fashion and luxury brands, we were selected to take the business to the next level.

We really look forward to developing new fragrances that capture the spirit of the Coach brand and also to bringing the portfolio to a larger, global audience. Coach has a very good name recognition in Asia. Before opening the floor to questions, I would like to talk to the addition of Abercrombie & Fitch and Hollister, we signed late last year.

Abercrombie and Hollister will be a part of our Rochas, Coach portfolio. We will sell some existing products under the name of [indiscernible] to some support close towards the end of the year, but the business will start really next year. The man's and the woman's fragrance for Abercrombie and the man's and the woman's fragrance for Hollister.

But we shouldn't stop here and our search continues as we have infrastructure in place to support a much larger business. We also have, as you know, a very strong balance sheet which is just another inducement to grant owners to partner with us.

Most of all we have a stellar reputation, built on a track record of success creating and commercializing new products that enhance the brands of our fragrance partners and expand their brands' reach. With that, operator, we should open the floor for questions..

[Operator Instructions]. Our first question today is coming from Wendy Nicholson from Citi Research. Please proceed with your question..

I had a couple of questions. First, Jean, if you could talk about the acquisition of Rochas and the fact that's coming with the fashion business.

I know you operate that through licenses, but should we read that as a change in your strategy? That you're open to diversifying into different types of businesses? Or are you going to remain a fragrance company through and through?.

Thank you to start with this question because a lot of people are asking me the same thing. Rochas was a great opportunity. It has been with P&G for a long time. Their business in fragrance was original around $30 million to $40 million. And they managed the fashion through license, so they are a licensor and they have maybe 15 or 20 licensees.

The three points that are very important for us for Rochas is, A, we will absorb the fragrance business and we will develop the fragrance business. So maybe the first year of the business will go down as we usually do, to grow bigger we have to clean up the distribution, clean up the line.

So we expect the business to grow maybe in the $30 million next year in order to grow bigger. From the fashion point of view, we will continue for now the licensing agreement that we have with the partners involved with Rochas.

But what is it important is that we'll create some synergies in terms of distribution and in terms of authorizing and marketing. So when our licensee and ourself will spend money on the launch of the new Rochas fragrance, it will help the whole brand. So it's a great opportunity to be a landlord instead of a tenant.

We don't have any royalties to pay and we have it forever..

And then Russ, just a question - obviously you came in quite a bit ahead of the consensus earnings expectation for the first quarter. But you're encouraging us to keep our estimates in line with your prior guidance.

Can you give us any direction in terms of over the next three quarters? Is there any particular seasonality we should expect to the advertising spending? Or anything, so we can help with modeling maybe for the second or the third quarter in particular? Thank you..

Yes certainly, Wendy. It's very clear in this quarter that the benefits from the exchange rate fluctuation greatly helped our gross margin. We also, however, because of the time of the year, spent around only 11% or 11.5% of sales on promotion and advertising.

As we move forward into the year and as some of the new product launches that Jean enumerated in his opening remarks, as they start coming out and start building more towards holiday seasons in the second quarter, third quarter, that advertising spend is going to go up significantly, certainly significantly higher than 11.5%.

I think we ended last year somewhere around 17% or 18% on a full-year basis. I think that we'll probably be on the high end as we move towards this year, as we reinvest some of the benefits we're getting from that gross margin improvement into the products and the new product launches that we have for the year..

The next question today is coming from Joel Altobello from Raymond James. Please proceed with your question..

I just want to follow-up on the last comment you made, Russ, about A&P spending.

In terms of the new licenses, if you look at Coach and Abercrombie and Hollister, do you think you'll have to spend more early on to get those brands growing again? Or will they be similar to the current spending that you're doing right now?.

Each brand is going to be slightly different. But certainly for Coach, I think the answer is, yes, we're going to have to increase spend, especially in the initial years of a new product launch for the Coach brand. Abercrombie will be more in line with where we'd normally end up with respect to most of our brands. I think it's going to fall in step.

And Rochas, as Jean said, the key here is spending the money wisely, linking the fashion together with the fragrance so we can get clear synergies between the two. And that's going to help get the message across, utilizing all of our different portfolio licensors..

So in terms of timing of the revenue recognition for those brands, it sounds like Abercrombie and Hollister and Rochas start first quarter next year, Coach fourth quarter of next year..

Again, Rochas, we're still looking for a closing mid-year this year. We're expecting it to close maybe late May or early June. With that being the case, we will have some Rochas business that could be generated in 2015. I think we indicated that we could possibly do approximately $10 million in Rochas sales this year.

Abercrombie, Jean mentioned in his remarks, we're doing a small test, if you will, with some fierce fragrance. But that's really going to be pretty much - not very material. The main part of Abercrombie is the new men's and women's lines for both Abercrombie and Hollister which will be second quarter 2016..

Okay, so the $10 million for Rochas that is potential for this year, is that in guidance? Because it doesn't seem like it is..

No, it's not..

No, we have decided not to include it in the guidance because it's a moving number. It will depend of how much invent to P&G we have at year-end - at closing in May or June. So this number could be lower. So we prefer not to put it in the guidance. But apparently we will have some sales of Rochas..

My last question in terms of the acquisition for Rochas is $108 million. You're funding it with a term loan despite the fact that you have a fair amount of cash on your balance sheet. Can you tell us what the M&A market looks right now for licenses and other trademarks and how active it is for you guys? Thanks..

I can try to answer first and of course, Russ, you will comment. I think it was important for us to finance this acquisition because we really wanted for keep our treasure chest intact for our acquisitions. Not that we need money because right now we're going to be quite busy with Coach and Rochas.

But we were able to - some banks came to us and offered some financing that was so attractive that we decided to go. The cost of the loan is going to be around 1% per year so - and we pay back quickly from the cash flow that we're generating.

We could have used the cash but we think that some opportunities come in three months, in six months or in two years, we wanted to have this cash available.

Russ, you want to add on?.

I think you answered it perfectly. That's exactly what I would have said..

Your next question is coming from Stephanie Wissink from Piper Jaffray. Please proceed with your questions..

It's actually Maria Vizuete on for Steph. Thanks for taking our questions. I was wondering if you can provide any color on the differences in margin structures between the new license versus the Gap license? How are you thinking about owned versus licensed brands and the opportunity to repay for revenue Gap under term? Thank you..

I don't think I heard everything..

I think I understood the question, so I'm going to try to answer it and if you need me to clarify, let me try. For the U.S. for part of our business, from our U.S.-based operations, historically we were concentrating more on a specialty retail business that existed with Gap, Banana Republic, Bebe folks and others.

As time has gone on and as we've been able to build and utilize an international distribution network, we found those specialty retail products are actually brands in the international marketplace.

And we've built an international network that enabled us to bring on more brands, like an Oscar de la Renta and Dunhill, Anna Sui and bring those products into our normal international distribution. As such, the profit margins or the gross margins, are much higher on the prestige part of our business, the prestige fragrance licenses if you will.

As opposed to specialty retail partnerships where we provide product for domestic U.S. or North American stores for Gap and Banana Republic. Across all of our brands the gross margins are fairly consistent within the individual prestige product or prestige licenses.

Even from a standpoint whether we own them [Technical Difficulty] like we do for Lanvin, like we will for Rochas, as compared to those that are licensed products.

Because we're the sole manufacturer and we're the general contractor that buys all the components, the gross margins between the different brands, although they can vary but they're fairly consistent. So I don't see any potential change from a gross margin standpoint with respect to those brands that we own rather than those that we license.

The big difference comes in how we handle the advertising. And of course the fact that there's no royalty expenses on either Lanvin, nor will there be any on Rochas, because those are brands that we'll own proprietarily..

On Rochas, when you think about it, if normal royalty is 8%, we're offsetting 8% against that. We have maybe 1% from financing of the acquisition, so we have - gross margin is higher so what do we do with it? We can spend more money to reestablish the brand and eventually it will be more profitable.

Agree, Russ?.

Absolutely..

And lastly we're wondering if you can talk a little bit about what you're seeing in the fragrance market broadly. Maybe touch on some of the competition or what you're seeing in terms of pricing or new entrants. Thank you..

That one I didn't get..

Yes, yes.

You want to know about an idea what's happening in the market, right?.

Right..

Okay. Very quickly a snapshot, China is still very difficult. Our distributors are really - how should I say - they're working hard to regain they sales that they had a year ago, two years ago, but our sales right now in China is lower than last year. It's compensated by Southeast Asia, Malaysia, Indonesia, Singapore which are very dynamic.

And the Middle East also very dynamic in this region, our sales were up something like 30%. I was talking about local markets, the duty free markets attached to these regions are also quite dynamic. And I will say that the U.S. retail is in good shape. So this is a snapshot of what's happening for us.

And I think for our competition it should be the same or quite similar..

Our next question today is coming from Linda Bolton Weiser from B. Riley and company. Please proceed with your question..

Hi. I believe that - Karl Lagerfeld I think you mentioned had a real hard comparison in the first quarter because you actually did ship in quite a bit in the first quarter last year.

Can you remind us roughly the magnitude in the remaining quarters of the year last year? Were the sales half of what it was the first quarter? And also which quarter is the Karl Lagerfeld launch going to occur in 2015?.

Last year we did in the first quarter for selling around $13 million versus $2.5 million this year. And in the first quarter of last year, we did more than 50% of the sales of Karl Lagerfeld. So for sure our sales would be lower, still the second and so forth on Karl Lagerfeld.

But this is already taken in our projections, taken into account in our projections..

The new Karl Lagerfeld launch I believe is scheduled for late second quarter, so hopefully that will help a little bit. It's going to be a little bit easier comparisons in the second, third and fourth quarter for Karl Lagerfeld. It's really the first quarter where you have that $13 million versus $2.5 million swing.

I believe for the rest of the year we did somewhere between $3 million to $4 million each quarter in Karl Lagerfeld sales..

Which we should be able to do again. The new line is positioned at a little bit more democratic price. We lowered the price comparing to the original line by 25%. So a new line will be positioned to be lower. We think we that should attract a younger crowd..

And then can you comment on the Rochas fashion licensees? Do they have requirements under their licenses to advertise the brand as well as you were advertising on the fragrance? Or do you do the total amount of advertising connected to the brand?.

It's difficult to go into details, but basically the Rochas license, we have an obligation for marketing expense. But Rochas, the brand has also an obligation of giving them design and approving designs and doing fashion shows, things like that.

Today, the income from the royalties of fashion is offset by all the expenses associated with the fashion which is the studio, the designers and the fashion shows. Tomorrow, we think we can be more aggressive in the sense that we want them to participate to the different effort the demand is going to do to rejuvenate.

And we will also review the selection of licenses. But for Procter and Gamble, I think it was quite affordable to have this group of people continuing to produce products. We'll have a second look. We'll try to extend it very certain categories that have not been touched.

So it's going to be - someone before asked me is it going to be very different now that Rochas is a fashion and fragrance house. I would say no because we have been a licensee for many brands for a long time, so I think we can become a good licensor. We could select good partners and we can really any trouble make Rochas a big brand.

And we have plenty of time, there is no limitation. It could take five years or ten years, but we're going to build an extraordinary asset and we’ll own it 100% which is very important for us..

And then, Russ, finally can you remind us, usually I think the tax rate in the second quarter is usually a little higher than normal because of, I think, something related to the dividends on the French subsidiary.

Would that be the case again in the second quarter?.

Yes, you will have approximately the same effect as we did last year. The dividend coming out of Paris, it's slightly higher than it was last year. So the effect on the taxes which I think are about somewhere around $600,000 or $700,000 will be affected in the second quarter, same as last year.

But then for the full year I do expect the tax rate, as we did last year, for it to come down a little bit in the third and fourth quarter. So we should end up with a blended rate that's somewhere very, very close to last year..

[Operator Instructions]. Our next question today is coming from Vahid Khorsand from BWS Financial. Please proceed with your question..

First question, you have some product launches coming in the next few quarters.

Why would you not expect revenue to go higher? Is there a certain ramp that we should be expecting?.

As with many of our new product launches, you typically use an exclusive distributor for a short period of time, at least the first month, sometimes the first 60 days of a new product launch.

The other thing, too, with respect to our revenue guidance, keep in mind that we're in an environment with a very, very unusual volatility between the euro-dollar exchange rate. So even though it looks like our sales are declining, if you will or expect it to decline in an absolute dollar standpoint for the remainder of the year.

Our guidance actually implies a 7% increase if the dollar remains at the same level against the euro that it is today..

Okay.

And my next question was, could you share what your strategy would be if the Montblanc and Jimmy Choo sales slowdown or don't go as expected?.

What would be our strategy? We follow - the strategy of Montblanc and the strategy of Jimmy Choo is to maintain the business of existing fragrances and launch every year or every other year new fragrances. Strategy would be not to cannibalize with new products, the old products and maintain the market share.

It's a strategy that we apply to all our brands. So what will happen if Montblanc and/or Jimmy Choo will slow down Montblanc and Jimmy Choo are performing month after month of acquisition. It's been like this from the beginning. So we feel very comfortable. We're always beating our internal projections on these brands.

And again, the market is telling us that there is a great appetite for a very classic brand like Montblanc and very fashionable brands like Jimmy Choo. We launched Jimmy Choo for men which was, we thought, was going to be a niche because Jimmy Choo is known for their accessories and shoes for women. It's already in the top ten in the U.S.

men's [scents]. From the beginning we've had great surprises, but we're absolutely ready if things come back to normal..

My final question, earlier you alluded to the advertising spend as a percentage of revenue.

Is that a reason why you would expect some brands to do better than others in terms of demand? Is that where that demand is rooted from? Or is there something else that makes one brand stronger than the other brand?.

I think it's there's a lot that has to be said for the individual brands themselves. Some brands just naturally are in certain markets, more known, more available, better received and so on and so forth.

That really will dictate with approximately what we choose to spend with respect to building our advertising and promotional budgets for each of the brands. Keep in mind that under standard licensing terms we're required to spend a certain percentage of our sales on advertising.

However, it never really comes up in conversation because most of the time, between us and our distributors, we spend well in excess of what the required amount is. It's really the evaluation of each brand in each market where you can get the best bang for the buck from the standpoint of advertising dollars..

No, we've actually reached the end of our question and answer session. I'll turn the call back over to management for further closing comments..

Thank you, Operator. Okay, before signing off I just want to mention real quickly that tomorrow, on May 13, I will be presenting at the B. Riley Consumer Conference in Los Angeles and on May 28 at the Citibank Consumer Conference in New York.

On June 9, I will be participating at the Raymond James Boston Spring Investors Conference and the following day at the Piper Jaffray Consumer Conference in New York. Again thank you for your participation on this conference call, whether you're live or listening via our webcast. And if you have additional questions, as usual I am available by phone.

Thank you very much and have a great day..

Thank you. That does include today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..