Increased expenses hit Intern Parfums profits

Related tags Burberry brit Revenue Burberry

Inter Parfums has reported that in its first quarter ending March
31, net earnings dropped nearly 8 per cent following increased
expenditures relating to both royalties and marketing, reports
Simon Pitman.

Net sales rose 22 per cent to $71.1 million from $58.4 million. Taking into account currency exchange rates, a strengthened dollar meant that net sales were up 20 per cent for the period. As in the previous quarter it was the licensing of the Burberry Brit line, that accounted for a significant part of the sales growth.

On the back of the sales increase, profit margins were not so rosy. Net income from operations was $9.0 million, down 11 per cent from $10.1 million, while the overall net income declined 7.8 per cent to $4.4 million, from $4.8 million.

Jean Madar, chairman of the board and CEO, stated, "Our sales mix continues to skew more heavily toward prestige products which were up 29 per cent over last year's first quarter and accounted for 88 per cent of consolidated sales.

"Approximately 40 per cent of the sales gain was organic stemming from the geographic rollout of Burberry Brit for Men and the continued expansion of Burberry Brit Red distribution. In addition, the first quarter also included initial sales of our new Celine fragrance, Fever. Sales generated by Nickel, our majority owned men's skin care business acquired in April 2004 and by Lanvin fragrances, whose license we acquired in July 2004, accounted for the balance of the top line growth."

Madar went on to explain that the product mix as well as an increase in selling prices to distributors for Burberry fragrances caused the gross margin percentage to increase to 57 per cent, from 49 per cent in the corresponding quarter in 2004.

However, as the company has previously warned, higher royalties and advertising expenditures required under new license with Burberry were primarily responsible for the increased level of selling, general and administrative expense in the quarter.

Company wide, royalty expense came to $7.7 million in the current first quarter, up from $3.4 million in last year's first quarter. Similarly, promotion and advertising included approximated $11.1 million, up from $4.6 million in last year's first quarter.

Explaing the new product line-up for the remainder of the year, Madar said, "A new Christian Lacroix fragrance family called Tumulte will be unveiled this summer, and before year-end, we plan to have our first Lanvin fragrance called Arpege Pour Homme on the market. For the 2005 holiday season, a limited edition Burberry Brit Gold will be launched at Burberry stores and select specialty stores in major markets."

For 2006, Madar explained that a number of new innovations are in the pipeline, " We have two global launches in development - the first is the fifth Burberry fragrance family for both men and women. The second is a new women's Lanvin fragrance. With regard to men's products, a special, limited edition Burberry Brit is also under development. In addition, we are also developing new men's scents for S.T. Dupont, Nickel and Paul Smith. We also have a Christian Lacroix fragrance for women in the works. Finally, we are formulating products and marketing strategies for an expanded cosmetics and skin care business drawing upon our existing brands."

Madar also drew attention to the fact that the general retail environment in the US was slow and that consumers are continuing to remain budget conscious. On top of that, he also said that sluggish economies in the Mexico, Central and South American had further contributed to a decline in mass market sales.

Inter Parfums​ said that on the back of the recent results it was standing by the results it had predicted for the full financial year in 2005. This means projected sales should come in at around $280 million, a 19 per cent increase compared with 2004, while net income is expected to be level with 2004 earnings, at approximately $15.8 million - assuming the dollar remains at current levels.

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