What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-09 · 295 added, 441 removed, 56 unchanged (93% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Forward Looking Information

Statements in this report which are not

historical in nature are forward-looking statements.

Although we believe that our plans, intentions and expectations reflected

in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be

In some cases, you can identify forward-looking statements by forward-looking words such as “anticipate,”

“believe,” “could,” “estimate,” “expect,” “intend,” “may,”

“should,” “will” and “would” or similar words.

You should not rely on forward-looking statements

because actual events or results may differ materially from those indicated by these forward-looking statements as a result of

a number of important factors.

These factors include, but are not limited to, the risks and uncertainties discussed under the headings

“Forward Looking Statements” and “Risk Factors” in Inter Parfums’ annual report on Form 10-K for

the fiscal year ended December 31, 2021, and the reports Inter Parfums files from time to time with the Securities and Exchange

DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Looking Information

in this report which are not historical in nature are forward-looking statements.

Although we believe that our plans, intentions

and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions

or expectations will be achieved.

In some cases, you can identify forward-looking statements by forward-looking words such as

“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,”

“may,” “should,” “will” and “would” or similar words.

You should not rely on forward-looking

statements because actual events or results may differ materially from those indicated by these forward-looking statements as

a result of a number of important factors.

These factors include, but are not limited to, the risks and uncertainties discussed

under the headings “Forward Looking Statements” and “Risk Factors” in Inter Parfums’ annual report

on Form 10-K for the fiscal year ended December 31, 2022, and the reports Inter Parfums files from time to time with the Securities

and Exchange Commission.

Inter Parfums does not intend to and undertakes no duty to update the information contained in this report.

We operate in the fragrance business, and

manufacture, market and distribute a wide array of fragrances and fragrance related products.

We manage our business in two segments,

European based operations and United States based operations.

Certain prestige fragrance products are produced and marketed by

our European operations through our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as

27% of Interparfums SA shares trade on the NYSE Euronext.

We produce and distribute our European based

fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented

approximately 70% and 79% of net sales for the nine months ended September 30, 2022 and 2021, respectively.

We have built a portfolio

of prestige brands, which include Boucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, S.T.

Dupont, Rochas and Van Cleef & Arpels , whose products are distributed in over 120 countries around the world.

Through our United States operations, we

also market fragrance and fragrance related products.

United States operations represented 30% and 21% of net sales for the nine

months ended September 30, 2022 and 2021, respectively.

These fragrance products are sold primarily pursuant to license or other

agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan, DKNY, Ferragamo, Graff, GUESS, Hollister,

MCM, Oscar de la Renta and Ungaro brands.

Substantially all of our

prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and

renewal of such licenses.

With respect to the Company’s largest brands, we license the Montblanc , Coach , Jimmy

Choo and GUESS brand names.

INTER PARFUMS, INC.

operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products.

We manage our business in two segments, European based operations and United States based operations.

Certain prestige fragrance

products are produced and marketed by our European operations through our 72% owned subsidiary in Paris, Interparfums SA, which

is also a publicly traded company as 28% of Interparfums SA shares trade on the NYSE Euronext.

produce and distribute through our European operations, fragrance products primarily under license agreements with brand owners,

and European based fragrance product sales represented approximately 74% and 73% of net sales for the three months ended March

31, 2023 and 2022, respectively.

We have built a portfolio of prestige brands, which include Boucheron, Coach, Jimmy Choo,

Karl Lagerfeld, Kate Spade, Lanvin, Moncler, Montblanc, Rochas and Van Cleef & Arpels , whose products

are distributed in over 120 countries around the world.

In addition, our exclusive and worldwide license for the production and

distribution of Lacoste brand perfumes and cosmetics becomes effective in January 2024.

our United States operations, we also market fragrance and fragrance related products.

United States operations represented 26%

and 27% of net sales for the three months ended March 31, 2023 and 2022, respectively.

These fragrance products are sold primarily

pursuant to license or other agreements with the owners of the Abercrombie & Fitch, Anna Sui, Donna Karan, DKNY, Ferragamo,

Graff, GUESS, Hollister, MCM, Oscar de la Renta and Ungaro brands.

Substantially

all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation

and renewal of such licenses.

With respect to the Company’s largest brands, we license the Montblanc , Coach ,

Jimmy Choo and GUESS brand names.

INTER PARFUMS,

AND SUBSIDIARIES

As a percentage of net

sales, product sales for the Company’s largest brands were as follows:

Nine Months Ended

September 30,

Quarterly sales fluctuations are influenced

by the timing of new product launches as well as the third and fourth quarter holiday season.

In certain markets where we sell

directly to retailers, seasonality is more evident.

We primarily sell directly to retailers in France and the United States.

We grow our business in two distinct ways.

First, we grow by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions

Second, we grow through the introduction of new products and by supporting new and established products through advertising,

merchandising and sampling as well as phasing out underperforming products so we can devote greater resources to those products

with greater potential.

The economics of developing, producing, launching and supporting products influence our sales and

operating performance each year.

Our introduction of new products may have some cannibalizing effect on sales of existing

products, which we take into account in our business planning.

Our business is not capital intensive, and

it is important to note that we do not own manufacturing facilities.

We act as a general contractor and source our needed components

from our suppliers.

These components are received at one of our distribution centers and then, based upon production needs, the

components are sent to one of several third party fillers, which manufacture the finished product for us and then deliver them

to one of our distribution centers.

As with any global business, many aspects

of our operations are subject to influences outside our control.

We believe we have a well diversified and strong brand portfolio

with global reach and potential.

As part of our strategy, we also plan to continue to make investments behind fast-growing markets

and channels to grow market share.

Our reported net sales are impacted by changes

in foreign currency exchange rates.

a percentage of net sales, product sales for the Company’s largest brands were as follows:

Three Months Ended

sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season.

In certain markets where we sell directly to retailers, seasonality is more evident.

We primarily sell directly to retailers in

France and the United States.

grow our business in two distinct ways.

First, we grow by adding new brands to our portfolio, either through new licenses or other

arrangements or out-right acquisitions of brands.

Second, we grow through the introduction of new products and by supporting new

and established products through advertising, merchandising and sampling as well as phasing out underperforming products so we

can devote greater resources to those products with greater potential.

The economics of developing, producing, launching

and supporting products influence our sales and operating performance each year.

Our introduction of new products may have

some cannibalizing effect on sales of existing products, which we take into account in our business planning.

business is not capital intensive, and it is important to note that we do not own manufacturing facilities.

We act as a general

contractor and source our needed components from our suppliers.

These components are received at one of our distribution centers

and then, based upon production needs, the components are sent to one of several third party fillers, which manufacture the finished

product for us and then deliver them to one of our distribution centers.

with any global business, many aspects of our operations are subject to influences outside our control.

We believe we have a strong

brand portfolio with global reach and potential.

As part of our strategy, we plan to continue to make investments behind fast-growing

markets and channels to grow market share.

reported net sales are impacted by changes in foreign currency exchange rates.

A strong U.S.

dollar has a negative impact on our net sales.

However, earnings are positively

affected by a strong dollar, because almost 50% of net sales of our European operations are denominated in U.S.

dollars, while

almost all costs of our European operations are incurred in euro.

dollar has a negative impact on our

However, earnings are positively affected by a strong dollar, because above 50% of net sales of our European operations

are denominated in U.S.

dollars, while almost all costs of our European operations are incurred in euro.

Conversely, a weak U.S.

dollar has a favorable impact on our

net sales while gross margins are negatively affected.

We address certain financial exposures through a controlled program of risk

management that includes the use of derivative financial instruments and primarily enter into foreign currency forward exchange

contracts to reduce the effects of fluctuating foreign currency exchange rates.

INTER PARFUMS, INC.

AND SUBSIDIARIES

The Russian invasion of Ukraine has negatively

impacted our operations in both Russia and Ukraine.

Since the invasion, we have been following regulations and sanctions which

vary by country.

In fiscal 2021, our operations in Ukraine and Russia accounted for approximately 4% of consolidated net sales.

Future impacts on our business, including sanctions and counter-sanctions, are difficult to predict due to the high level of uncertainty

as to how these developments will evolve.

We are monitoring the effects of this conflict,

including the risks that may affect our business, and expect that we will adjust our plans accordingly as the situation progresses.

We do not expect any material credit losses as most of our receivables on sales to Russia and Ukraine are covered by insurance

or are being paid in advance.

For the nine months ended September 30,

2022, the activities related to Russia and Ukraine did not have a material impact on our consolidated financial statements.

Impact of COVID-19 Pandemic

A novel strain of coronavirus (“COVID-19”)

surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a pandemic.

In response, various national,

state, and local governments issued decrees prohibiting certain businesses from operating and certain classes of workers from reporting

Retail store closings, event cancellations

and a shutdown of international air travel brought our sales to a virtual standstill and caused a significant unfavorable impact

on our results of operations in 2020.

Business significantly improved in the second half of 2020 and continued to improve throughout 2021 and thus far in 2022, as retail stores reopened, and consumers increased online purchasing.

While we expect this trend to continue, the introduction of variants of COVID-19 in various parts of the world has caused the temporary re-implementation of governmental restrictions to prevent further spread of the virus.

In addition, international air travel remains curtailed in many jurisdictions due to both governmental restrictions and consumer health concerns.

While COVID-19 has significantly restricted international travel, the travel retail business is beginning to pick up.

We remain confident that travel retail will once again be a source of growth over the long-term.

Lastly, the improved economy has put significant strains on our supply chain causing disruptions affecting the procurement of components, the ability to transport goods, and related cost increases.

These disruptions have come at a time when demand for our product lines has never been stronger or more sustained.

We have been addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities.

Since 2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture products closer to where they are sold.

We do not expect the supply chain bottlenecks to begin lifting until the second half of 2023.

Therefore, despite recent business improvement, the impact of the COVID-19 pandemic might continue to have adverse effects on our results of our operations, financial position and cash flows through at least the first half of 2023.

INTER PARFUMS, INC.

AND SUBSIDIARIES

Recent Important Events

Salvatore Ferragamo

In October 2021, we closed on a transaction

agreement with Salvatore Ferragamo S.p.A., whereby an exclusive and worldwide license was granted for the production and distribution

of Ferragamo brand perfumes.

Our rights under this license are subject to certain minimum advertising expenditures and royalty

payments as are customary in our industry.

The license became effective in October 2021 and will last for 10 years with a 5-year

optional term, subject to certain conditions.

With respect to the management and coordination

of activities related to the license agreement, the Company operates through a wholly-owned Italian subsidiary based in Florence,

that was acquired from Salvatore Ferragamo on October 1, 2021.

The acquisition together with the license agreement was accounted

for as an asset acquisition.

The following table summarizes the estimated

fair values of the assets acquired and liabilities assumed on October 1, 2021.

All amounts have been translated to U.S.

at the October 1, 2021 exchange rate.

(In thousands)

Trademarks and licenses

Assets acquired

Liabilities assumed

Total consideration

Emanuel Ungaro

In October 2021, we

also entered into a 10-year exclusive global licensing agreement a with a 5-year optional term subject to certain conditions, with

Emanuel Ungaro Italia S.r.l, for the creation, development and distribution of fragrances and fragrance related products under

the Emanuel Ungaro brand.

Our rights under this license are subject to certain minimum advertising expenditures and royalty payments

as are customary in our industry.

Donna Karan and DKNY

In September 2021, we entered into a long-term

global licensing agreement for the creation, development and distribution of fragrances and fragrance related products under the

Donna Karan and DKNY brands.

Our rights under this license are subject to certain minimum advertising expenditures and royalty

payments as are customary in our industry.

With this agreement, we are gaining several well-established and valuable fragrance

franchises, most notably Donna Karan Cashmere Mist and DKNY Be Delicious , as well as a significant loyal consumer

base around the world.

In connection with the grant of license, we issued 65,342 shares of Inter Parfums, Inc.

common stock valued

at $5.0 million to the licensor.

The exclusive license became effective July 1, 2022, and we are planning to launch new fragrances

under these brands in 2024.

INTER PARFUMS, INC.

dollar has a favorable impact on our net sales while gross margins are negatively affected.

We address certain financial exposures

through a controlled program of risk management that includes the use of derivative financial instruments and primarily enter

into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates.

INTER PARFUMS,

AND SUBSIDIARIES

Land and Building Acquisition –

Future Headquarters in Paris

In April 2021, Interparfums SA, our 73%

owned French Subsidiary, completed the acquisition of its headquarters at 10 rue de Solférino in the 7 th arrondissement

of Paris from the property developer.

This is an office complex combining three buildings connected by two inner courtyards, and

consists of approximately 40,000 total sq.

The purchase price includes the complete

renovation of the site and includes the purchase of several apartments in the surrounding area to

be used as additional office space .

As of September 30, 2022, $135.5 million of the purchase price, including approximately

$4.1 million of acquisition costs, is included in property, equipment and leasehold improvements on the accompanying balance sheet

as of September 30, 2022.

The purchase price has been allocated approximately $55.9 million to land and $79.6 million to the building.

The building, which was delivered on February 28, 2022, includes the building structure, development of the property, façade

waterproofing, general and technical installations and interior fittings that will be depreciated over a range of 7 to 50 years.

The Company has elected to depreciate the building cost based on the useful lives of its components.

Approximately $3.4 million

of cash held in escrow is included in property, equipment and leasehold improvements on the accompanying balance sheet as of September

The acquisition was financed by a 10-year

€120 million (approximately $117 million) bank loan which bears interest at one-month Euribor plus 0.75%.

Approximately €80

million of the variable rate debt was swapped for variable interest rate debt with a maximum rate of 2% per annum.

Discussion of Critical Accounting Policies

Information regarding our critical accounting

policies can be found in our 2021 Annual Report on Form 10-K filed with the SEC.

Results of Operations

Three and Nine Months Ended September 30, 2022 as

Compared to the Three and Nine Months Ended September 30, 2021

of COVID-19 Pandemic

see our discussion of the Impact of the COVID-19 Pandemic, which is incorporated by reference to note 2 to the Consolidated Financial

Statements contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Important Events

see our discussion of Recent Important Events, which is incorporated by reference to note 3 to the Consolidated Financial Statements

contained in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

of Critical Accounting Policies

regarding our critical accounting policies can be found in our 2022 Annual Report on Form 10-K filed with the SEC.

of Operations

Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022

Three months ended March 31,

(in millions)

Three months ended

September 30,

Nine months ended

September 30,

European based product sales

United States based product sales

PARFUMS, INC.

sales for the three months ended March 31, 2023 increased 24% from March 31, 2022.

At comparable foreign currency exchange rates,

net sales increased 29% from the first quarter of 2022.

The average dollar/euro exchange rate for the current first quarter was

1.07 compared to 1.12 in the first quarter of 2022.

current first quarter was exceptionally strong for both European and United States based operations, as net sales increased 26%

and 19%, respectively, as compared to the corresponding period of the prior year.

European based operations, our largest brands, Jimmy Choo, Montblanc and Coach sales rose 63%, 28% and 24%, respectively,

as compared to the corresponding period of the prior year.

operations also had a strong start growing 19% off a high

2022 base when first quarter sales had expanded 77%.

This increase was driven by the addition and extension of Donna Karan and

DKNY to our portfolio and double-digit growth for Ferragamo and Oscar de la Renta, following successful brand extensions.

INTER PARFUMS,

AND SUBSIDIARIES

Net sales for the three months ended September 30, 2022, increased 7% from the three months ended September 30, 2021.

At comparable foreign currency exchange rates, net sales increased 12% from the third quarter of 2021 of which 9% is related to new brands.

The average dollar/euro exchange rate for the current third quarter was 1.01 compared to 1.18 in the third quarter of 2021, while for the nine months ended September 2022 the average dollar/euro exchange rate was 1.06 compared to 1.19 in the nine months ended September 2021.

Net sales for the nine months ended September 30, 2022, increased 16% as compared to the nine months ended September 2021.

At comparable foreign currency exchange rates, net sales increased 21% from the nine months ended September 2021 of which 8% is related to new brands.

Despite supply chain disruptions, inflation,

lockdowns, transportation issues, the strength of the dollar, sanctions, the slow recovery of international travel, logistics difficulties

caused by a change in shipping software by our local partner in the first half of this year, and the war in Eastern

Europe, 2022 is proving to be an exceptionally strong year for us on both sides of the Atlantic.

operations growth was

substantially due to the incremental sales of Ferragamo, Donna Karan and DKNY.

New flankers which launched this year includes Away

by Abercrombie & Fitch, and Wave X by Hollister.

For the three months ended September 30,

2022, the surge in the dollar masked the gains by our leading brands within our European operations.

Montblanc, for example, net

sales declined by 6% in dollars but grew 10% in euro.

Similarly, Jimmy Choo brand sales rose 12% in dollars and 32% in euro, while

Coach sales decreased 12% in dollars and grew 3% in euros.

In fact, in total, our European operations generated sales growth of

12% in euro but decreased 4% in dollars.

This year, we launched Coach Open Road and Jimmy Choo I Want Choo Forever, along

with the continued rollouts of the Moncler duo and Montblanc Legend Red , Jimmy Choo Man Aqua , Lanvin Mon Éclat ,

Kate Spade Sparkle and Coach Wild Rose .

The favorable trends in the first half continued into the third quarter and we look forward to executing

our plans for the remainder of the year.

the first quarter of 2023, we debuted Jimmy Choo Rose Passion and Montblanc Signature Absolue, which contributed

to the double digit brand sales gains.

Many of our mid-sized brands, including Boucheron, Ferragamo, Karl Lagerfeld, and Oscar

de la Renta, also achieved double digit sales gains.

Additionally, we introduced brand extensions within established lines for

Abercrombie & Fitch, and MCM.

After the challenging lockdowns, the progressive reopening of China buoyed the Ferragamo and

Anna Sui brands.

expected, the implementation of our enterprise resource planning software weighed on our quarterly results, impacting GUESS disproportionately,

which was flat off a high base in 2022, but we have strong orders that we will be fulfilling during the second quarter.

overall our first quarter started the year on a strong note, and we look forward to executing our plans for the remainder of the

Our brands are in high demand in a robust environment for the fragrance industry.

a number of new product launches in the fourth quarter of the year, including Cosmic Sky for Anna Sui, Ferragamo AMO

Oriental Wood and Signorina Limited Edition for U.S.

In addition, during the fourth quarter of the year,

we will continue the distribution of existing Donna Karan and DKNY fragrances.

For European operations, Kate Spade Cherie and

a new member of the Collection Extraordinaire by Van Cleef & Arpels will debut.

In sum, 2022 has all the earmarks

of another superb year as the growth catalysts currently far outweigh the headwinds.

PARFUMS, INC.

AND SUBSIDIARIES

Sales to Customers by Region

months ended September 30,

and South America

distribution subsidiary

for European based products had encountered shipping related issues following a change in the distribution software by its logistics

partner in the first half of 2022.

Although those issues have been resolved, U.S.

sales of European brands were negatively impacted.

As a result, sales in our largest market, North America, rose only 4% as compared to Western Europe and Asia where comparable sales

increased 34% and 23%, respectively.

Our sales in the Middle East, and Central and South America, were also robust, up 41% and

28%, respectively.

Only sales in Eastern Europe declined owing to the war in Ukraine.

Profit margin

We have a large number of brand extensions

across many of our brands launching throughout the year, plus Montblanc Explorer Platinum, Coach Green and Coach

Love , later in the year.

In sum, 2023 has all the earmarks of another superb year as the growth catalysts currently far

outweigh the headwinds, most notably limited travel retail business and supply chain disruptions.

Net Sales to Customers by Region

Three months ended March 31,

(In millions)

North America

Western Europe

Central and South America

Eastern Europe

First quarter sales in our largest market, North America, rose 36%, followed by Western Europe and Asia/Pacific

where comparable quarter sales in both regions increased 21% and 8%, respectively.

Our sales in Central and South America, Eastern

Europe and the Middle East were also robust, up 43%, 25% and 5%, respectively.

Additionally, our travel retail business is beginning

to show signs of renewed life.

Gross Profit margin

Three months ended March 31,

(in millions)

European operations

Cost of sales

margin as a % of net sales

States operations

Gross margin as a % of net sales

United States operations

Cost of sales

margin as a % of net sales

For European based operations, gross profit margin as a percentage of net sales was 69.5% and 67.8% for

the three and nine months ended September 30, 2022, respectively, as compared to 66.6% and 66.3% for the corresponding periods

of the prior year.

We carefully monitor movements in foreign currency exchange rates as almost 50% of our European based operations

net sales is denominated in U.S.

dollars, while most of our costs are incurred in euro.

From a margin standpoint, a strong U.S.

dollar has a positive effect on our gross margin while a weak U.S.

Gross margin as a % of net sales

INTER PARFUMS,

AND SUBSIDIARIES

European based operations, gross profit margin as a percentage of net sales was 67.8% and 66.8% in the first quarters of 2023

and 2022, respectively as we have benefited from our pricing actions and favorable exchange rate.

We carefully monitor movements

in foreign currency exchange rates as more than 50% of our European based operations net sales are denominated in U.S.

dollars, while

most of our costs are incurred in euro.

From a gross margin standpoint, a strong U.S.

dollar has a positive effect on our gross

margin while a weak U.S.

dollar has a negative effect.

The average dollar/euro exchange

rate was 1.01 in the 2022 third quarter compared to 1.18 in the third quarter of 2021.

The margin gains in 2022 are primarily the

result of the stronger U.S.

Our pricing actions as well as favorable mix, resulting from less giftset sales compared to

the prior year, also added to our gross margin gains, however, increased

transportation and component costs offset much of those benefits.

The average dollar/euro exchange rate was 1.07 in the 2023 first quarter

as compared to 1.12 in the first quarter of 2022.

For United States operations, gross profit margin

was 57.6% and 53.9% in the first quarters of 2023 and 2022, respectively.

The significant margin expansion stems from a number

Firstly, for the most part, the price increases we took early 2023 weren’t offset by a higher cost of goods given

our inventory coverage and FIFO accounting.

Secondly, we are seeing favorable brand and channel mix, as a higher portion of our

sales are being sold directly to retailers as opposed to third-party distributors.

Lastly, the significant increase in sales in

the first quarter of 2023 allowed us to better absorb fixed expenses such as depreciation and point of sale expenses, as compared

to the corresponding period of the prior year.

previously mentioned, supply chain disruptions affecting the procurement of components, the ability to transport goods, and related

cost increases have and are expected to continue to have a negative impact on sales and gross margin.

We have been addressing

these issues and have implemented processes to mitigate the potential impact.

PARFUMS, INC.

AND SUBSIDIARIES

For United States operations, gross profit margin was 53.8% and 54.0% for the three and nine months ended

September 30, 2022, respectively, as compared to 53.1% and 53.2% for the corresponding periods of the prior year.

in sales for the nine months ended September 30, 2022, as compared to the corresponding period of the prior year, allowed us to

better absorb fixed expenses such as depreciation and

point of sale expenses, and we also benefited from favorable giftset mix.

we do not bill customers for shipping and handling costs, and such costs, which aggregated $5.5 million and $11.0 million for

the three and nine months ended September 30, 2022, respectively, as compared to $3.3 million and $7.1 million for the corresponding

periods of the prior year, are included in selling, general and administrative expenses in the consolidated statements of income.

As such, our Company’s gross profit may not be comparable to other companies, which may include these expenses as a component

of cost of goods sold.

general and administrative expenses

months ended,

general and administrative expenses

general and administrative expenses as a percent of net sales

States Operations

general and administrative expenses

general and administrative expenses as a percent of net sales

For European operations, selling, general and administrative expenses increased 4.4% and 10.0% for the

three and nine months ended September 30, 2022, as compared to the corresponding period of the prior year, and represented 42.1%

and 42.3% of net sales for the three and nine months ended September 30, 2022, respectively, as compared to 38.8% and 39.9% for

the three and nine months ended September 30, 2021, respectively.

United States operations, selling, general and administrative expenses increased 71.1% and 76.5% for the three and nine months

ended September 30, 2022, as compared to the corresponding period of the prior year, and represented 41.4% and 40.2% of net sales

for the three and nine months ended September 30, 2022, respectively, as compared to 35.1% and 36.8% for the three and nine months

ended September 30, 2021, respectively.

As discussed in more detail below, the increased selling, general and administrative expenses

as a percent of net sales are primarily the result of increases in promotion and advertising expenditures.

Additionally, as the

US based operations have been growing, expenses related to salaries and benefits has grown more rapidly as we build the organization

to support the growth.

and advertising included in selling, general and administrative expenses aggregated $44.8

million and $124.9 million for the three and nine months ended September 30, 2022, respectively, as compared to $40.3 million

and $95.3 million for the corresponding periods of the prior year.

Promotion and advertising represented 16.0% and 16.1% of net

sales for the three and nine months ended September 30, 2022, respectively, as compared to 15.3% and 14.2% for the corresponding

periods of the prior year.

Throughout 2021, sales rebounded far more rapidly than originally anticipated causing us to

play catchup with promotional and adverting programs throughout the year.

Promotion and advertising are integral parts of our

industry, and we continue to invest heavily to support new product launches and to build brand awareness.

We believe that our

promotion and advertising efforts have had a beneficial effect on online net sales.

All of our brands have benefitted from newly

launched and enhanced e-commerce sites in existing markets in collaboration with our retail customers on their e-commerce sites.

We also continue to develop and implement omnichannel concepts and compelling content to deliver an integrated consumer experience.

We anticipate that on a full year basis, promotion and advertising expenditures will aggregate approximately 21% of net sales,

which is in line with pre-COVID historical averages.

PARFUMS, INC.

While we have been addressing

these issues and have implemented processes to mitigate the impact, prolonged disruption could have a material negative effect

on our sales and gross margin.

we do not bill customers for shipping and handling costs, and such costs, which aggregated $3.9 million and $2.7 million for the

three months ended March 31, 2023 and 2022, respectively, are included in selling, general and administrative expenses in the

consolidated statements of income.

As such, our Company’s gross profit may not be comparable to other companies, which may

include these expenses as a component of cost of goods sold.

Selling, general and administrative expenses

(In millions)

European Operations

Selling, general and administrative expenses

Selling, general and administrative expenses as a percent of net sales

United States Operations

Selling, general and administrative expenses

Selling, general and administrative expenses as a percent of net sales

European operations, selling, general and administrative expenses increased 12.0% in the 2023 first quarter, as compared to the

corresponding period of the prior year, and represented 33.6% and 37.9% of net sales in the 2023 and 2022 periods, respectively.

For United States operations, selling, general and administrative expenses increased 24.7% in the 2023 first quarter, as compared

to the corresponding period of the prior year, and represented 43.5% and 41.5% of net sales in the 2023 and 2022 periods, respectively.

As discussed in more detail below, the increased selling, general and administrative expenses as a percent of net sales are primarily

the result of increases in promotion and advertising expenditures as well as the annualization impact of the structural investments

in our US operations that we made throughout 2022 in order to support the new licenses of $4.0 million.

INTER PARFUMS,

AND SUBSIDIARIES

Royalty expense included in selling, general and administrative expenses aggregated $23.1

million and $61.4 million for the three and nine months ended September 30, 2022, respectively, as compared to $20.5 million and

$52.0 million for the corresponding periods of the prior year.

Royalty expense represented 8.3% and 7.9 % of net sales for the

three and nine months ended September 30, 2022, as compared to 7.8% of net sales for both the corresponding periods of the prior

Royalty expense as a percentage of net sales increased in 2022 as the mix of sales with a royalty basis has increased year

and advertising included in selling, general and administrative expenses aggregated $35.2 million and $34.2 million in the first

quarters of 2023 and 2022, respectively, and represented 11.3% and 13.6% of net sales in the 2023 and 2022 periods, respectively.

Promotion and advertising are integral parts of our industry, and we continue to invest heavily to support new product launches

and to build brand awareness.

We believe that our promotion and advertising efforts have had a beneficial effect on online net

All of our brands have benefitted from newly launched and enhanced e-commerce sites in existing markets in collaboration

with our retail customers on their e-commerce sites.

We also continue to develop and implement omnichannel concepts and compelling

content to deliver an integrated consumer experience.

We anticipate that on a full year basis, promotion and advertising

expenditures will aggregate approximately 21% of net sales, which is in line with pre-COVID historical averages.

expense included in selling, general and administrative expenses aggregated $24.1 million for the three months ended March 31,

2023, as compared to $19.4 million for the corresponding periods of the prior year.

Royalty expense represented 7.7% of net sales

for both the three months ended March 31, 2023 and 2022.

from Operations

a result of the above analysis regarding net sales, gross profit margins and selling, general and administrative expenses, our

operating margins aggregated 23.0% and 22.1% for the three and nine months ended September 30, 2022, respectively, as compared

to 25.7% and 24.0% for the corresponding periods of the prior year.

operating margins aggregated 29.0% and 24.4% for the three months ended March 31, 2023 and 2022, respectively.

Income and Expense

Traditionally, interest

expense was primarily related to the financing of brand and licensing acquisitions.

However, in April 2021, we completed the acquisition

of the headquarters of Interparfums SA.

The acquisition was financed by a 10-year €120 million (approximately $117 million)

bank loan which bears interest at one-month Euribor plus 0.75%.

Also in 2021, approximately €80 million of the variable rate

debt was swapped for variable rate debt with a maximum interest rate of 2%.

We enter into foreign currency forward exchange

contracts to manage exposure related to receivables from unaffiliated third parties denominated in a foreign currency and occasionally

to manage risks related to future sales expected to be denominated in a foreign currency.

Gains and losses on foreign currency

transactions have not been significant.

Almost 50% of net sales of our European operations are denominated in U.S.

Interest and investment

income for the three months ended September 30, 2022, includes a gain of $2.3 million, as compared to a loss of $0.1 million for

the corresponding period of the prior year, resulting from the interest rate swap.

For the nine months ended September 30, 2022,

the Company recognized a gain of $6.4 million related to the interest rate swap which was largely offset by losses of $5.3 million

on marketable equity securities during the same period.

PARFUMS, INC.

Traditionally,

interest expense was primarily related to the financing of brand and licensing acquisitions.

However, in April 2021, we completed

the acquisition of the headquarters of Interparfums SA.

The acquisition was financed by a 10-year €120 million (approximately

$130.5 million) bank loan which bears interest at one-month Euribor plus 0.75%.

Also in 2021, approximately €80 million of

the variable rate debt was swapped for variable rate debt with a maximum interest rate of 2%.

The swap effectively exchanges the variable interest rate to a fixed rate of approximately 1.1%.

enter into foreign currency forward exchange contracts to manage exposure related to receivables from unaffiliated third parties

denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign

Gains and losses on foreign currency transactions have not been significant.

Above 50% of net sales of our European

operations are denominated in U.S.

and investment (income) loss represents interest earned on cash and cash equivalents and short-term investments.

As of March 31,

2022, short-term investments include approximately $20.7 million of marketable equity securities of other companies in the luxury

goods sector.

In the first quarter of 2023, the Company sold these marketable securities which generated a gain of $3.1 million.

Interest and investment (income) loss for the three months ended March 31, 2023, includes approximately $3.4 million of losses

on such marketable equity securities.

INTER PARFUMS,

AND SUBSIDIARIES

consolidated effective tax rate was 23% for the nine months ended September 30, 2022, as compared to 28% for the corresponding

periods of the prior year.

effective tax rate for European operations was 25% for the nine months ended September 30, 2022, as compared to 30% for the corresponding

period of the prior year.

As previously disclosed, a global settlement agreement was reached with the French Tax Authorities in

June 2021, whereby Interparfums SA agreed to pay €2.5 million (approximately $3.0 million) relating to activities between

Interparfums SA and its wholly owned subsidiary, Inter Parfums (Suisse) Sarl.

The balance of the decline is primarily the result of a decrease in

the French corporate income tax rate from 28% to 25%.

Our effective tax rate for U.S.

operations was 11% for the nine months ended September 30, 2022,

as compared to 17% for the corresponding period of the prior year.

Our effective tax rate differs from the 21% statutory rate due

to state, local and foreign taxes, offset by benefits received from the exercise of stock options as well as deductions we are

allowed for a portion of our foreign derived intangible

Additionally, in the third quarter our U.S.

operations recognized a one-time tax benefit of $2.5 million associated with

the 2021 Salvatore Ferragamo acquisition.

At the time of the acquisition, we had not recognized deferred tax benefits as there

were uncertainties concerning its potential recoverability;

however, as of September 30, 2022, the recoverability is deemed likely.

The lower effective tax rate in 2021 is primarily a result of discrete tax items related to benefits received from the exercise

of stock options.

consolidated effective tax rate was 23.4% and 24.4% for the three months ended March 31, 2023 and 2022, respectively.

effective tax rate for European operations was 25% for both the three months ended March 31, 2023 and 2022.

effective tax rate for U.S.

operations was 12.7% for the three months ended March 31, 2023, as compared to 20.7% for the

corresponding period of the prior year.

Our effective tax rate differs from the 21% statutory rate due to benefits received from

the exercise of stock options as well as deductions we are allowed for a portion of our foreign derived intangible income, slightly

offset by state and local taxes.

than as discussed above, we did not experience any significant changes in tax rates, and none were expected in jurisdictions where

PARFUMS, INC.

AND SUBSIDIARIES

September 30,

income European operations

income United States operations

Three Months Ended

(In thousands)

Net income attributable to European operations

Net income attributable to United States operations

Net income attributable to the noncontrolling interest

income attributable to Inter Parfums, Inc.

income attributable to European operations was $42.4 million and $106.7 million for the three and nine months ended September

30, 2022, respectively, as compared to $41.5 million and $96.8 million for the corresponding period of the prior year.

attributable to United States operations was $10.9 million and $27.4 million for the three and nine months ended September 30,

2022, respectively, as compared to $8.4 million and $18.7 million for the corresponding period of the prior year.

The fluctuations

in net income for both European operations and United States operations are directly related to the previous discussions relating

to changes in sales, gross margin, and selling, general and administrative expenses.

Net income attributable to Inter Parfums, Inc.

income attributable to European operations was $60.6 million and $39.8 million for the three months ended March 31, 2023 and 2022,

respectively, while net income attributable to United States operations was $10.3 million and $6.5 million for the three months

ended March 31, 2023 and 2022, respectively.

The significant fluctuations in net income for both European operations and United

States operations are directly related to the previous discussions pertaining to changes in sales, gross margin, and selling,

general and administrative expenses.

noncontrolling interest arises from our 72% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company

1 unchanged sentence

Net income attributable to the noncontrolling interest is directly

related to the profitability of our European operations and aggregated 28% of European operations net income for all periods presented.

related to the profitability of our European operations and aggregated 27.8% and 27.6% of European operations net income for the

three months ended March 31, 2023 and 2022, respectively.

Net margins attributable to Inter Parfums, Inc.

for the nine months ended September 30, 2022 and 2021 aggregated 13.4% and 13.3%,

respectively.

as of March 31, 2023

and 2022 aggregated 17.3% and 14.1%, respectively.

INTER PARFUMS,

AND SUBSIDIARIES

and Capital Resources

conservative financial tradition has enabled us to amass significant cash balances.

As of September 30, 2022, we had $177 million

As of March 31, 2023, we had $238 million

in cash, cash equivalents and short-term investments, most of which is held in euro by our European operations and is readily

2 unchanged sentences

such cash and cash equivalents and short-term investments.

As of September 30, 2022, short-term investments include approximately

As of March 31, 2023, short-term investments include approximately

$0.7 million of marketable equity securities.

of September 30, 2022, working capital aggregated $459 million and we had a working capital ratio of 2.9 to 1.

Approximately 77%

of the Company’s total assets are held by European operations, and approximately $146 million of trademarks, licenses and

other intangible assets are also held by European operations.

PARFUMS, INC.

AND SUBSIDIARIES

of March 31, 2023, working capital aggregated $489 million and we had a working capital ratio of 2.4 to 1.

Approximately 80% of

the Company’s total assets are held by European operations, and approximately $253 million of trademarks, licenses and other

intangible assets are also held by European operations.

Company is party to a number of license and other agreements for the use of trademarks and rights in connection with the manufacture

2 unchanged sentences

is subject to minimum annual advertising commitments, minimum annual royalties and other commitments.

Statements and Supplementary Data – Note 12 – Commitments in our 2021 annual report on Form 10-K.

Future advertising

commitments are estimated based on planned future sales for the license terms that were in effect at December 31, 2021, without

consideration for potential renewal periods and do not reflect the fact that our distributors share our advertising obligations.

Statements and Supplementary Data – Note 12 – Commitments in our 2022 annual report on Form 10-K, which is incorporated

by reference herein.

Future advertising commitments are estimated based on planned future sales for the license terms that were

in effect at December 31, 2022, without consideration for potential renewal periods and do not reflect the fact that our distributors

share our advertising obligations.

Company hopes to continue to benefit from its strong financial position to potentially acquire one or more brands, either on a

proprietary basis or as a licensee.

As we recently reported, we entered into a long-term global licensing agreement for the creation,

development and distribution of fragrances and fragrance related products under the Donna Karan and DKNY brands.

took effect on July 1, 2022.

Opportunities for external growth are regularly examined, with the priority of maintaining the quality

and homogeneous nature of our portfolio.

However, we cannot assure you that any new license or acquisition agreements will be

Cash used in operating activities aggregated $8.2 million for the nine months ended September

30, 2022, as compared to cash provided by operating activities of $101.3 million for the corresponding period of the prior year.

For the nine months ended September 30, 2022, working capital items used $159.2 million in cash from operating activities, as compared

In December 2022, we entered into a long-term global licensing agreement for the creation,

development and distribution of fragrances and fragrance-related products under the Lacoste brand.

This new license takes effect

January 2024.

used in operating activities aggregated $7.4 million and $23.9 million for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023, working capital items used $84.8 million in cash from operating activities, as compared

to $73.2 million in the 2022 period.

Although from a cash flow perspective accounts receivable is up 22% from year end 2022, the

balance is reasonable based on 2022 record sales levels and reflects a combination of high volumes of shipments towards the end

of the third quarter as well as some payment schedules extended going into the holiday season resulting in day’s sales outstanding

increasing to 80 days, up from 70 days in the corresponding period of the prior year.

While the day’s sales outstanding has

increased, we are still seeing strong collection activity and do not anticipate any issues with collections of accounts receivable.

From a cash flow perspective, inventory levels as of September 30, 2022, increased 55% from year end 2021.

As of December 31, 2021,

although inventories include product needed to support new launches, the overall balance was lower than historic levels due primarily

to supply chain disruptions.

We have been addressing this issue by ordering well in advance of need and in larger quantities.

2021, we have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture

balance is reasonable based on first quarter 2023 record sales levels and reflects reasonable collection activity as day’s

sales outstanding was 69 days, down slightly from 75 days in the corresponding period of the prior year.

From a cash flow perspective,

inventory levels as of March 31, 2023, increased 10% from year end 2022.

Although inventories include components needed to support

new product launches, the overall balance is lower than historic levels due primarily to supply chain disruptions.

addressing this issue since the beginning of 2021, by ordering well in advance of need and in larger quantities.

Since 2021, we

have strived to carry more inventory overall, source the same components from multiple suppliers and when possible, manufacture

products closer to where they are sold.

We believe that our inventory levels are reasonable to support our projected sales and

new product pipeline while not exceeding reasonable levels and creating excess and obsolete liabilities.

flows used in investing activities in 2022 reflect purchases and sales of short-term investments.

Cash flows provided by investing activities in 2023 reflect purchases and sales of short-term investments.

These investments include certificates

2 unchanged sentences

where we would forfeit a portion of the interest earned in the event of early withdrawal.

INTER PARFUMS,

AND SUBSIDIARIES

business is not capital intensive as we do not own any manufacturing facilities.

1 unchanged sentence

$5.0 million on tools and molds, depending on our new product development calendar.

During the nine months ended September 30,

2022, approximately $23.7 million was added to property costs relating to our new Paris corporate headquarters.

Capital expenditures

also include amounts for office fixtures, computer equipment and industrial equipment needed at our distribution centers.

PARFUMS, INC.

AND SUBSIDIARIES

short-term financing requirements are expected to be met by available cash on hand at September 30, 2022, and short-term credit

lines provided by domestic and foreign banks.

Capital expenditures also include amounts

for office fixtures, computer equipment and industrial equipment needed at our distribution centers.

short-term financing requirements are expected to be met by available cash on hand at March 31, 2023, and short-term credit lines

provided by domestic and foreign banks.

The principal credit facilities for 2023 consist of a $20.0 million unsecured revolving

1 unchanged sentence

international financial institutions.

There were no short-term borrowings outstanding pursuant to these facilities as of both

September 30, 2022 and 2021.

February 2021, our Board of Directors authorized an annual dividend of $1.00, payable quarterly.

In February 2022, our Board authorized

a 100% increase in the annual dividend to $2.00 per share.

The next quarterly cash dividend of $0.50 per share is payable on December

30, 2022, to shareholders of record on December 15, 2022.

There was $18 million of short-term borrowings outstanding pursuant to these facilities

as of March 31, 2023 and no short-term borrowings outstanding as of March 31, 2022.

April 2020, as a result of the uncertainties raised by the COVID-19 pandemic, the Board of Directors authorized a temporary suspension

of the quarterly cash dividend.

In February 2021, our Board of Directors authorized a reinstatement of an annual dividend of $1.00,

payable quarterly and in February 2022, our Board authorized a 100% increase in the annual dividend to $2.00 per share.

2023 the Board of Directors further increased the annual dividend to $2.50 per share.

The next quarterly cash dividend of $0.625

per share is payable on June 30, 2023, to shareholders of record on June 15, 2023.

believe that funds provided by or used in operations can be supplemented by our present cash position and available credit facilities,

1 unchanged sentence

rates in the U.S.

and foreign countries in which we operate did not have a significant impact on operating results for the nine

months ended September 30, 2022.

and foreign countries in which we operate did not have a significant impact on operating results for the three

months ended March 31, 2023.

INTER PARFUMS,

AND SUBSIDIARIES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis