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Inter Parfums (NASDAQ:IPAR) Q3: Beats On Revenue


Full Report / November 13, 2023

Fragrance and perfume company Inter Parfums (NASDAQ:IPAR) beat analysts' expectations in Q3 FY2023, with revenue up 31.2% year on year to $368 million. On the other hand, its full-year revenue guidance of $1.3 billion at the midpoint came in 1.2% below analysts' estimates. Turning to EPS, Inter Parfums made a GAAP profit of $1.66 per share, improving from its profit of $1.30 per share in the same quarter last year.

Inter Parfums (IPAR) Q3 FY2023 Highlights:

  • Revenue: $368 million vs analyst estimates of $354.3 million (3.8% beat)
  • EPS: $1.66 vs analyst estimates of $1.26 (31.7% beat)
  • The company reconfirmed its revenue guidance for the full year of $1.3 billion at the midpoint (but raised its full year EPS outlook)
  • Free Cash Flow of $16.1 million, up 21% from the previous quarter
  • Gross Margin (GAAP): 56%, down from 56.6% in the same quarter last year

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

Personal care products include lotions, fragrances, shampoos, cosmetics, and nutritional supplements, among others. While these 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. As with other consumer staples categories, personal care brands must exude quality and be priced optimally given the crowded competitive landscape. 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 larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.

As you can see below, the company's annualized revenue growth rate of 34.6% over the last three years was incredible for a consumer staples business.

Inter Parfums Total Revenue

This quarter, Inter Parfums reported wonderful year-on-year revenue growth of 31.2%, and its $368 million in revenue exceeded Wall Street's estimates by 3.8%. Looking ahead, analysts expect sales to grow 7.9% over the next 12 months.

Gross Margin & Pricing Power

All else equal, we prefer higher gross margins. They usually indicate that a company sells more differentiated products and commands stronger pricing power.

Inter Parfums's gross profit margin came in at 56% this quarter. in line with the same quarter last year. That means for every $1 in revenue, $0.44 went towards paying for raw materials, production of goods, and distribution expenses. Inter Parfums Gross Margin (GAAP)

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 55.6% gross margin over the last two years. Its margin has also been consistent over the last year, suggesting it has stable 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 23.7%, in line with the same quarter last year. This indicates the company's costs have been relatively stable.

Inter Parfums Operating Margin (GAAP)

Zooming out, Inter Parfums has been a well-managed company over the last two years. It's demonstrated elite profitability for a consumer staples business, boasting an average operating margin of 17.6%. On top of that, its margin has improved by 5.1 percentage points on average each year, a great sign for shareholders.

EPS

Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q3, Inter Parfums reported EPS at $1.66, up from $1.30 in the same quarter a year ago. This print beat Wall Street's estimates by 31.7%.

Inter Parfums EPS (GAAP)

Between FY2020 and FY2023, Inter Parfums's adjusted diluted EPS grew 211%, translating into an astounding 70.5% average annual growth rate. This growth is materially higher than its revenue growth over the same period, showing that Inter Parfums has excelled in managing its expenses.

Wall Street expects the company to continue growing earnings over the next 12 months (although at a much slower pace), with analysts projecting an average 3.6% year-on-year increase in EPS.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Inter Parfums's free cash flow came in at $16.1 million in Q3, down 10.4% year on year. This result represents a 4.4% margin.

Inter Parfums Free Cash Flow Margin

Over the last eight quarters, Inter Parfums has shown solid cash profitability, giving it the flexibility to reinvest or return capital to investors. The company's free cash flow margin has averaged 4%, above the broader consumer staples sector. Furthermore, its margin has averaged year-on-year increases of 14.5 percentage points. Shareholders should be excited as this will certainly help Inter Parfums achieve its strategic long-term plans.

Return on Invested Capital (ROIC)

We like to track a company's long-term return on invested capital (ROIC) in addition to its recent results because it gives a big-picture view of a business's past performance. It also sheds light on its management team's decision-making prowess and is a helpful tool for benchmarking against peers.

Inter Parfums's excellent track record of profitable investments over the last five years shows it's led by a competent management team. Its five-year average ROIC was 24.7%, beating other consumer staples companies by a wide margin.

Key Takeaways from Inter Parfums's Q3 Results

Sporting a market capitalization of $4 billion, Inter Parfums is among smaller companies, but its more than $183.5 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We were impressed by how significantly Inter Parfums blew past analysts' operating margin expectations this quarter. We were also excited its EPS outperformed Wall Street's estimates by a meaningful amount. On the other hand, its full-year revenue guidance slightly missed Wall Street's estimates (although EPS guidance for the full year was raised and outperformed expectations). Overall, this quarter's results still seemed fairly positive and shareholders should feel optimistic. 

Is Now The Time?

Inter Parfums may have had a favorable 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 projected EPS for the next year is lacking, its impressive gross margins are a wonderful starting point for the overall profitability of the business, which has led to impressive operating margins.

Inter Parfums's price-to-earnings ratio based on the next 12 months is 24.3x. Looking at the consumer staples landscape today, Inter Parfums's qualities stand out and we like the stock at this price.

Wall Street analysts covering the company had a one-year price target of $169.2 per share right before these results, implying that they saw upside in buying Inter Parfums even in the short term.

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