Fragrance and perfume company Inter Parfums (NASDAQ:IPAR) fell short of analysts' expectations in Q1 CY2024, with revenue up 3.9% year on year to $324 million. On the other hand, the company's outlook for the full year was close to analysts' estimates with revenue guided to $1.45 billion at the midpoint. It made a GAAP profit of $1.27 per share, down from its profit of $1.68 per share in the same quarter last year.
Inter Parfums (IPAR) Q1 CY2024 Highlights:
- Revenue: $324 million vs analyst estimates of $328.7 million (1.4% miss)
- EPS: $1.27 vs analyst expectations of $1.54 (17.5% miss)
- The company reconfirmed its revenue guidance for the full year of $1.45 billion at the midpoint (EPS as well)
- Gross Margin (GAAP): 62.5%, up from 57.4% in the same quarter last year
- Market Capitalization: $3.84 billion
With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ:IPAR) manufactures and distributes fragrances worldwide.
The company was founded in 1982 by Jean Madar and Philippe Benacin. Inter Parfums initially began as a distributor of imported European fragrances in the United States. Today, the company focuses on fragrances for the luxury to premium market with a capital-light model where Inter Parfums owns no manufacturing facilities but instead acts as a general contractor that sources from suppliers.
In addition to the brands mentioned, Inter Parfums portfolio of brands and partnerships include Coach, Jimmy Choo, Lacoste, and Montblanc. The Inter Parfums core customer is therefore consumers who seek out elevated brands that boast a combination of recognition and exclusivity. The buyers of these fragrances view personal scent as a key ingredient in their presentation and appearance, as important as clothing and accessories.
Inter Parfums' products are predominantly found in upscale department stores, specialty retailers, and duty-free shops across the globe. To maintain the luxury posture, products tend not to be available at discount retailers, drugstores, and lower-tier department stores.
Personal Care
While personal care products products may seem more discretionary than food, consumers tend to maintain or even boost their spending on the category during tough times. This phenomenon is known as "the lipstick effect" by economists, which states that consumers still want some semblance of affordable luxuries like beauty and wellness when the economy is sputtering. Consumer tastes are constantly changing, and personal care companies are currently responding to the public’s increased desire for ethically produced goods by featuring natural ingredients in their products.
Competitors in the luxury fragrance market include Estée Lauder (NYSE:EL) and L'Oréal (ENXTPA:OR).Sales Growth
Inter Parfums is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale. On the other hand, one advantage is that its growth rates can be higher because it's growing off a small base.
As you can see below, the company's annualized revenue growth rate of 30.9% over the last three years was incredible for a consumer staples business.
This quarter, Inter Parfums's revenue grew 3.9% year on year to $324 million, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 11.4% over the next 12 months, an acceleration from this quarter.
Gross Margin & Pricing Power
Gross profit margins tell us how much money a company gets to keep after paying for the direct costs of the goods it sells.
This quarter, Inter Parfums's gross profit margin was 62.5%, up 5.1 percentage points year on year. That means for every $1 in revenue, $0.38 went towards paying for raw materials, production of goods, and distribution expenses.
Inter Parfums has best-in-class unit economics for a consumer staples company, enabling it to invest in areas such as marketing and talent to stay one step ahead of the competition. As you can see above, it's averaged an exceptional 56.7% gross margin over the last two years. Its margin has also been trending up over the last 12 months, averaging 1.3% year-on-year increases each quarter. If this trend continues, it could suggest a less competitive environment where the company has better pricing power and more favorable input costs (such as raw materials).
Operating Margin
Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.
This quarter, Inter Parfums generated an operating profit margin of 21%, down 8 percentage points year on year. Conversely, the company's gross margin actually increased, so we can assume the reduction was driven by operational inefficiencies and a step up in discretionary spending in areas like corporate overhead and advertising.
Zooming out, Inter Parfums has been a well-managed company over the last eight quarters. It's demonstrated it can be one of the more profitable businesses in the consumer staples sector, boasting an average operating margin of 18.3%. However, Inter Parfums's margin has declined by 2.2 percentage points on average over the last year. Although this isn't the end of the world, investors are likely hoping for better results in the future. EPS
These days, some companies issue new shares like there's no tomorrow. That's why we like to track earnings per share (EPS) because it accounts for shareholder dilution and share buybacks.
In Q1, Inter Parfums reported EPS at $1.27, down from $1.68 in the same quarter a year ago. This print unfortunately missed Wall Street's estimates, but we care more about long-term EPS growth rather than short-term movements.
Between FY2021 and FY2024, Inter Parfums's EPS grew 147%, translating into an astounding 35.1% compounded annual growth rate. Thanks to the magic of compound interest, this means that Inter Parfums will more than quadruple its EPS in five years if it can maintain this rate of growth.
Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 25.2% year-on-year increase in EPS.
Return on Invested Capital (ROIC)
EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit a company makes compared to how much money the business raised (debt and equity).
Inter Parfums's five-year average ROIC was 25.1%, placing it among the best consumer staples companies. Just as you’d like your investment dollars to generate returns, Inter Parfums's invested capital has produced excellent profits.
The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last few years, Inter Parfums's ROIC averaged 5 percentage point increases. The company has historically shown the ability to generate good returns, and its rising ROIC is a great sign. It could suggest its competitive advantage or profitable business opportunities are expanding.
Key Takeaways from Inter Parfums's Q1 Results
We struggled to find many strong positives in these results. Its operating margin missed analysts' expectations and its EPS missed Wall Street's estimates. That it reaffirmed previously-given full year guidance is somewhat comforting, but the market will question whether that is achievable now given this quarter's miss. Overall, the results could have been better. The company is down 1.3% on the results and currently trades at $122 per share.
Is Now The Time?
Inter Parfums may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
There are several reasons why we think Inter Parfums is a great business. For starters, its revenue growth has been exceptional over the last three years. And while its brand caters to a niche market, its EPS growth over the last three years has been fantastic. On top of that, its impressive gross margins are a wonderful starting point for the overall profitability of the business.
Inter Parfums's price-to-earnings ratio based on the next 12 months is 23.1x. Looking at the consumer staples landscape today, Inter Parfums's qualities really stand out and we like it at this price.
Wall Street analysts covering the company had a one-year price target of $169.80 per share right before these results (compared to the current share price of $122), implying they saw upside in buying Inter Parfums in the short term.
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