Headquartered in New York City, Inter Parfums, Inc. is a worldwide marketer of prestige and mass-market perfumes, cosmetics and health specializes in prestige fragrances with a focus on licensed designer brands. Prestige fragrances represent 89% of total sales. Inter Parfums has nine major brands, of which Burberry accounted for 57% of sales. Other fragrance and personal care product brands include Lanvin Arp ge (15.2% of sales), Paul Smith (7.4%), S.T. Dupont (4.5%), Christian Lacroix (2.5%), Celine (1.0%), and Diane Von Furstenberg. The mass market business (11% of sales), which is located in the U.S., sells products under the Jordache and Aziza brand names. Two recent agreements and beauty aids with a portfolio of well-recognized, licensed fashion brands. The Company signed with Gap, Inc. and Quiksilver provide new business opportunities with the development of product lines under the Gap, Banana Republic, Quiksilver, and Roxy brand names. Inter Parfums also has a 68% controlling interest in Nickel SA (prestige men's skin care products with spas in Paris, New York, and San Francisco), primarily for product design purposes. Only 33% of sales are generated in North America, since the majority of Inter Parfums' sales are generated by the 73% owned French subsidiary, Inter Parfums S.A.
Inter Parfums, Inc. trades on NASDAQ and reports quarterly. Chairman and CEO Jean Madar and Vice Chairman and President Philippe Benacin own 55.3% of Inter Parfums, Inc. Inter Parfums S.A., the company's 72% owned French subsidiary, is headquartered in Paris and trades on the Eurolist-Euronext. Inter Parfums S.A. reports earnings semi-annually in Euros according to IFRS (International Financial Reporting Standards).
Management's three pronged growth strategy is focused on growing the company's existing fragrance brands, extending existing brands into new categories, and acquiring new brands. Initially formed in 1985 as Jean Philippe Fragrances, the company adopted the name of one of its subsidiaries, Inter-Parfums, in 1999. Management's long-term financial goals are 10% sales growth and 12% EPS growth.
Management has brand building expertise and the proven ability to develop a family of prestige fragrances and target geographic market product launches with its global distribution network. Also, the company has the skill and experience to outsource ingredients and packaging through competitive bids. The process to design, develop, and produce prestige fragrances requires 12 to 18 months therefore, management plans a major launch for each major brand almost every year.
The company's new product pipeline continues to be strong and robust in fragrances. In 2005, the company launched Celine Fever, Burberry Bit Red, the Tumulte line of Christian Lacroix, Paul Smith Floral, and Arp ge pour Homme by Lanvin. In the first half of 2006, Burberry London for women, S.T. Dupont Noir for men, and Nickel Eau Maximum were introduced. In the second half, the company launched Burberry London for men, Paul Smith Story for men, and S.T. Dupont Rumeur by Lanvin for women. For 2007, the new product pipeline includes S.T. Dupont Blanc for women, and women s fragrances in Christian Lacroix, Burberry, and Roxy (September). In May, more than 70 new bath and body products were unveiled in over 150 Gap Body stores and in June, the new Gap eau de toilette line was introduced. In the Burberry fragrance line, Beat will be introduced for women in March 2008, followed by the men s version in 2009. Management plans to launch a new woman s Van Cleef & Arpels scent, along with two more Roxy women's fragrance (Love and Heart), a quicksilver skin care line, and a men's fragrance line in late 2007 or by early 2008. Moreover, the 2008 launch includes limited editions of men's and women's fragrance for Paul Smith, a Lanvin women's fragrance, and the newest S.T. Dupont fragrances for men and women.
Part of the company's growth strategy is dependent upon acquiring exclusive worldwide licenses in order to develop a family of brand names. In 1993, the company signed a worldwide exclusive license with Burberry. Management describes the process as renting a brand name and paying royalties. Starting with the introduction of the prestige fragrance Burberry in 1995, Inter Parfums developed a portfolio of perfumes by subsequently introducing Weekend (1997), Touch (2000), Baby Touch (2002), Brit (2003), Brit for Men (2004), and London (2006). Over the last five years, Burberry-related sales have grown at 23% CAGR.
Other license agreements followed as Inter Parfums increased its portfolio. In 2004, the worldwide rights of Lanvin (a French fashion house) were acquired resulting in the fragrances of Arp ge, clat d'Arp ge, Arp ge pour Homme (2005) and Rumeur by Lanvin (2006). The Paul Smith (London-based) agreement resulted in Paul Smith (2000), Extreme (2002), London (2004), and Story (2006). An 11-year agreement with S.T. Dupont was signed in 1997, which allowed the development of the following fragrances: S.T. Dupont (1998), Essence Pure (2002), L eau de S.T. Dupont (2004) Noir (2006). In 2006, the agreement was extended three years to June 30, 2011. Most recently, the company entered into a 12-year agreement with Van Cleef & Arpels to manufacture and distribute perfumes and related products under the Van Cleef & Arpels brand name. In 2007, management plans to build upon the Van Cleef & Arpels (VCA) $20 million sales base by promoting the two strongest brands (First and Tsar) and to launch an entirely new fragrance line in 2008.
The company is well-positioned in the prestige fragrance segment, but management is also advancing into new categories such as personal, sun care, skin care, cosmetics, and hair care under existing brand names. The new Burberry license expands the breadth of products to skin care. The acquisition of 68% of Nickel SA in April 2004 will aid in the product design of prestige men's skin care products. Nickel operates men's spas in Paris, New York, and San Francisco, and has plans to open spas in London, Berlin, Barcelona, Milan, Los Angeles and Miami. Management has stated that future acquisitions will be additive.
In July 2005, Inter Parfums entered into the specialty retail channel through a four-year exclusive agreement (partnership) with Gap, Inc. to develop, formulate, produce, and distribute fragrance and personal care products to be sold in the 1,527 Gap and 503 Banana Republic stores. The initial launch in the fall of 2006 consisted of 50 SKU's of shower gel, body lotion, mists, and bath & body products in the Banana Republic stores. Headlining the program was the Discover Collection of fragrances in heavy glass bottles with attractive wood outside packaging. The first five Discover fragrances (three for women and two for men) were launched in the North American stores during September 2006. In May 2007, Inter Parfums launched a separate line of personal care products with more than 70 new bath and body products in over 150 Gap Body stores in North America. A new Gap eau de toilette line, five high-end fragrances for both men and woman under the "Individuals" brand, three new men's fragrances (Bold, Spike, and Mixed) and an extensive men's grooming and skin care line were launched in Gap stores during the third quarter of 2007.
In March 2006, Inter Parfums signed an exclusive worldwide 12-year license with Quiksilver for the creation, development, and distribution of fragrance, sun care, skin care and other cosmetic-related products under the Quiksilver and Roxy brand names. Quiksilver will allow the company to enter the outdoor lifestyle market while Roxy targets teens and young women. Management launched the company's first new Roxy fragrance in the fall of 2007.
Accounting for 57% of Inter Parfums' sales, the company is dependent on the Burberry agreement and the success of Burberry products. Burberry had strong negotiating power in renewing its licensing agreement in July 2004. As a result, under the new 25 year Burberry license agreement, Inter Parfums was subject to a significant rise in royalty payments and was required to increase advertising expenditures beginning in January 2005. To fund the incremental expenses of the new license agreement, management raised prices to distributors without allowing them to raise prices to retailers, implemented cost saving initiatives with suppliers, and decided to establish company-owned distribution entities in select markets (Italy, Germany, Spain, and the U.K.) on or after December 31, 2006 when the distribution agreements expired. Therefore, the financial model of Inter Parfums has changed with the EBITDA margin declining 274 basis points from 15.8% to 13.1% in 2005. In 2006, the EBITDA margin modestly declined by 21 basis points and showed signs of stabilizing.
All of the exclusive agreements into which Inter Parfums enters require renewal. Since the company is quite successful in developing and launching products, the licensing agreement becomes very important to Inter Parfums hence, the company loses bargaining power as in the case of the new Burberry agreement. For example, in April 2006, when the agreement with S.T. Dupont was extended three years to June 30, 2011, an additional upfront fee of 0.35 million ($0.44 million) had to be paid.
Though management is attempting to reduce its dependence on Burberry by diversifying the company's sales base with licenses from other companies, higher development and marketing costs are associated with the initial development of product lines. The major launches of 250 SKU's for Gap and Quiksilver will impact the company's profitability in the near-term.