What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-08 · 375 added, 371 removed, 24 unchanged (97% 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, 2022, and the reports Inter Parfums files from time to time with the Securities and Exchange

Commission (“SEC”).

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

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 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.

We produce and distribute our European based

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

approximately 69% and 70% of net sales for the six months ended June 30, 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, S.T.

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

addition, our exclusive and worldwide license for the production and distribution of Lacoste brand perfumes and cosmetics becomes

effective in January 2024.

Through our United States operations, we

also market fragrance and fragrance related products.

United States operations represented 31% and 30% of net sales for the six

months ended June 30, 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.

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

of Roberto Cavalli brand perfumes and fragrance related products became effective in July 2023.

INTER PARFUMS, INC.

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 (“SEC”).

Inter Parfums does not intend to and undertakes no duty to update the information

contained in this report.

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 our European based fragrance products primarily under license agreements with brand owners, and European

based fragrance product sales represented approximately 67% and 70% of net sales for the nine months ended September 30, 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, S.T.

Dupont, 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 33%

and 30% of net sales for the nine months ended September 30, 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, Roberto Cavalli 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 , GUESS, Donna Karan/DKNY and Ferragamo brand names.

This diversified portfolio of top brands represented

74% of total sales for the first 9 months of 2023 up from 69% in 2022.

PARFUMS, INC.

AND SUBSIDIARIES

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.

As a percentage of net

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

Six Months Ended

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, through new licenses, 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

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

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 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.

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:

Donna Karan/DKNY

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, the United States, and Italy.

grow our business in two distinct ways.

First, we grow by adding new brands to our portfolio, through new licenses, 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 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.

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.

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.

PARFUMS, INC.

AND SUBSIDIARIES

Impact of COVID-19 Pandemic

Please 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 June 30, 2023.

Recent Important Events

Please 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 June 30, 2023.

Discussion of Critical Accounting Policies

Information regarding our critical accounting

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

Results of Operations

Three and Six Months Ended June 30, 2023 as Compared

to the Three and Six Months Ended June 30, 2022

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 September 30, 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 September 30, 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

and Nine Months Ended September 30, 2023 as Compared to the Three and Nine Months Ended September 30, 2022

(in millions)

Three months ended June 30,

Six months ended June 30,

European based product sales

United States based product sales

Net sales for the three months ended June

30, 2023, increased 26% from the three months ended June 30, 2022.

At comparable foreign currency exchange rates, net sales increased

25% from the second quarter of 2022.

The average dollar/euro exchange rate for the current second quarter was 1.09 compared to

1.06 in the second quarter of 2022, while for the first half of 2023, the average dollar/euro exchange rate was 1.08 compared to

1.09 in the first half of 2022.

Net sales for the six months ended June 30, 2023 increased 25% as compared to the first half of

At comparable foreign currency exchange rates, net sales increased 26% from the first half of 2022.

Continuing the trend from the first quarter

2023, the current second quarter was exceptionally strong for both European and United States based operations, as net sales increased

19% and 42%, respectively, as compared to the corresponding period of the prior year.

INTER PARFUMS, INC.

based product sales

States based product sales

sales for the three months ended September 30, 2023, increased 31% from the three months ended September 30, 2022.

At comparable

foreign currency exchange rates, net sales increased 27% from the third quarter of 2022 of which 7% is related to new brands.

The average dollar/euro exchange rate for the current third quarter was 1.09 compared to 1.01 in the third quarter of 2022, while

for the nine months ended September 2023 the average dollar/euro exchange rate was 1.08 compared to 1.06 in the nine months ended

September 2022.

Net sales for the nine months ended September 30, 2023, increased 27% as compared to the nine months ended September

At comparable foreign currency exchange rates, net sales increased 26% from the nine months ended September 2022 of which

7% is related to new brands.

the trend from the first half of 2023, the current third quarter was exceptionally strong for both European and United States

based operations, as net sales increased 18% and 64%, respectively, as compared to the corresponding period of the prior year.

As previously disclosed, the third quarter growth rate is favorably impacted by a lower base in 2022 where more gift sets were

shipped in the fourth quarter due to supply chain disruptions.

We currently expect this phasing to adversely impact our fourth

quarter growth rates.

PARFUMS, INC.

AND SUBSIDIARIES

For European based operations, our largest

brands, Coach, Jimmy Choo, and Montblanc sales rose 28%, 21% and 16%, respectively, as compared to the corresponding period of

the prior year.

Continuing the growth trend of the first quarter of 2023, second quarter sales by our U.S.

operations grew substantially,

up 42% largely from the continued success of GUESS fragrances which performed exceedingly well during the quarter across all geographies

and was up 30% from the second quarter of 2022.

This is driven by the sales of our newest pillars, Seductive Blue and Uomo

Second quarter GUESS brand sales more than made up for the first quarter logjam we experienced due to the ERP implementation.

Of note, the significant growth in the quarter builds upon the 39% sales increase we reported for the second quarter of 2022.

also had strong sales of Ferragamo fragrances, which we have recently enriched with sister scents for the Signorina and

Storie di Seta collections.

Oscar de la Renta also performed strongly during the quarter.

The increase was also driven by

the addition and extension of Donna Karan and DKNY to our portfolio.

They have climbed to become our second largest U.S.

brand in just one year under our expertise.

The first half of 2023 started on a strong

note, and we look forward to executing our plans for the remainder of the year.

Our brands are in high demand in a robust environment

for the fragrance industry.

We have a large number of brand extensions across many of our brands launching in the second half of

the year, plus Abercrombie & Fitch Fierce joining our portfolio and the launches of Guess Bella Vita Paradiso,

Karl Lagerfeld Les Parfums Matiéres and Van Cleef & Arpels Thé Amara , later in the year.

2023 has all the earmarks of another superb year as the growth catalysts currently far outweigh the headwinds, most notably somewhat

limited travel retail business in Asia and supply chain disruptions which are slowly abating.

Net Sales to Customers by Region

Six months ended June 30,

European based operations, our largest brands, Coach, Montblanc, and Jimmy Choo sales rose 32%, 20% and 6%, respectively, as compared

to the corresponding period of the prior year.

Continuing the growth trend of the first half of 2023, third quarter sales by our

United States operations grew substantially, up 64%, largely from the continued success of GUESS fragrances which performed exceedingly

well during the quarter across all geographies and was up 59% from the third quarter of 2022.

This was driven by the continued

growth in sales of the Seductive line within GUESS.

Of note, the significant growth in the quarter builds upon the 45%

sales increase we reported for the third quarter of 2022.

We also had strong sales of Ferragamo fragrances, which we have enriched

with sister scents for the Signorina and Storie di Seta collections.

During the quarter, we initiated Phase 1 of

the Abercrombie & Fitch Fierce distribution roll-out.

We began with introductory distribution of this iconic fragrance

in select markets and expect the majority of the Phase 1 distribution to roll-out during the fourth quarter.

The increase was

also driven by the addition and extension of Donna Karan and DKNY to our portfolio.

They have climbed to become our second largest

United States based brand in just one year under our expertise.

favorable trends in the first half of the year continued into the third quarter and we look forward to executing our plans for

the remainder of the year.

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

We have a large number

of brand extensions across many of our brands launching in the fourth quarter of the year, including Guess Bella Vita Paradiso .

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

the somewhat limited travel retail business in Asia and supply chain disruptions that have largely abated.

Sales to Customers by Region

months ended September 30,

(In millions)

1 unchanged sentence

Western Europe

Central and South America

Eastern Europe

In the first half of 2023 our largest market,

North America, rose 31%, followed by Western Europe and Asia where comparable half year sales in both regions increased 24% and

Central and South America

the first three quarters of 2023, sales in our largest market, North America, rose 30%, followed by Western Europe and Asia where

comparable three quarter year sales in both regions increased 24% and 15%, respectively.

Our sales in Eastern Europe, Central

and South America and the Middle East were also robust, up 65%, 28% and 25%, respectively.

Additionally, our travel retail business

is continuing to show signs of renewed life.

PARFUMS, INC.

AND SUBSIDIARIES

Profit margin

margin as a % of net sales

States operations

margin as a % of net sales

Company’s gross margin percentage was 63.9% and 63.3% for the three and nine months ended September 30, 2023 as compared

to 64.9% and 63.7% for the three and nine months ended September 30, 2022, respectively.

This decrease in gross margin percentage

was largely driven by unfavorable segment mix as well as certain one time expenses related to inventory as discussed further below.

Overall, the Company’s pricing actions have broadly compensated for cost inflation impacts.

European based operations, gross profit margin as a percentage of net sales was 68.6% and 66.6% for the three and nine months

ended September 30, 2023, respectively, as compared to 69.5% and 67.8% for the corresponding periods of the prior year.

As previously

disclosed, a key driver in the decrease in gross profit margin for European based operations in 2023 was due to an increase in

inventory reserves in the second quarter of 2023 related to certain underperforming brands.

As the Company experienced long lead

times in obtaining and building inventory during the COVID-19 Pandemic, high levels of inventory investments were required to

protect service levels.

Excluding these one-time adjustments, gross margin as a percentage of sales for European based operations

would be in line with the prior period, driven by increases in pricing and product mix, offset by cost inflation.

United States operations, gross profit margin was 55.6% and 56.7% for the three and nine months ended September 30, 2023, respectively,

as compared to 53.8% and 54.0% for the corresponding periods of the prior year.

The significant margin expansion stems from a

number of factors.

Firstly, for the most part, the price increases we took in early 2023 weren’t fully offset by a higher

cost of goods given our cost containment efforts.

Secondly, we are seeing favorable brand and channel mix, as a larger portion

of our higher priced fragrances are being sold directly to retailers as opposed to third-party distributors.

Lastly, the significant

increase in sales in the first three quarters 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.

PARFUMS, INC.

AND SUBSIDIARIES

we do not bill customers for shipping and handling costs, and such costs, which aggregated $3.9 million and $11.4 million for

the three and nine months ended September 30, 2023, respectively, as compared to $5.5 million and $11.0 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 that of other companies, which may include these expenses as

a component of cost of goods sold.

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

Company has seen selling, general and administrative expenses decrease as a percentage of net sales to 40.2% and 39.8% for the

three and nine months ended September 30, 2023 as compared to 41.9% and 41.7% for the three and nine months ended September 30,

2022, respectively.

Our sales in Eastern Europe, Central and South America and the Middle East were also robust, up 60%, 21% and

This decrease of selling, general and administrative expenses as a percentage of net sales was largely driven

by sales growth for the three and nine month periods allowing to better absorb certain fixed operating costs, and favorable segment

European operations, selling, general and administrative expenses increased 18% and 15% for the three and nine months ended September

30, 2023, as compared to the corresponding period of the prior year, and represented 42.3% and 40.1% of net sales for the three

and nine months ended September 30, 2023, respectively, as compared to 42.1% and 42.3% for the three and nine months ended September

30, 2022, respectively.

Additionally, our travel retail business is continuing to show signs of renewed life.

INTER PARFUMS, INC.

For United States operations, selling, general and administrative expenses increased 44% and 40% for the

three and nine months ended September 30, 2023, as compared to the corresponding period of the prior year, and represented 36.5%

and 39.3% of net sales for the three and nine months ended September 30, 2023, respectively, as compared to 41.4% and 40.2% for

the three and nine months ended September 30, 2022, respectively.

As discussed in more detail below, the decreased selling, general

and administrative expenses as a percentage of net sales are primarily the result of high sales growth offset in part by increases

in promotion and advertising expenditures as well as the annualization impact of the structural investments of $9.0 million in

our United States operations that we made throughout 2022 in order to support the new licenses for the first three quarters of

and advertising included in selling, general and administrative expenses aggregated $62.8

million and $152.6 million for the three and nine months ended September 30, 2023, respectively, as compared to $44.8 million

and $124.9 million for the corresponding periods of the prior year.

Promotion and advertising represented 17.1% and 15.4% of net

sales for the three and nine months ended September 30, 2023, respectively, as compared to 16.0% and 16.1% for the corresponding

periods of the prior 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 sales.

All of our brands have benefited 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.

Long term, we anticipate that on a full year basis, promotion

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

PARFUMS, INC.

AND SUBSIDIARIES

Gross Profit margin

Three months ended

Six months ended

(in millions)

European operations

Cost of sales

Gross margin as a % of net sales

United States operations

Cost of sales

Gross margin as a % of net sales

For European based operations, gross profit

margin as a percentage of net sales was 63.0% and 65.6% for the three and six months ended June 30, 2023, respectively, as compared

expense included in selling, general and administrative expenses aggregated $29.1 million

and $77.2 million for the three and nine months ended September 30, 2023, respectively, as compared to $23.1 million and $61.4

million for the corresponding periods of the prior year.

Royalty expense represented 7.9% and 7.8% of net sales for the three

and nine months ended September 30, 2023, as compared to 8.3% and 7.9% of net sales for the corresponding periods of the prior

year, due to changes in brand mix.

from Operations

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

operating margins aggregated 23.7% and 23.5% for the three and nine months ended September 30, 2023, respectively, as compared

to 23.0% and 22.1% for the corresponding periods of the prior year.

A key driver in the decrease in gross profit margin for European

based operations in 2023 is due to an increase in inventory reserves in the first half of 2023 related to certain underperforming

As the Company experienced long lead time in obtaining and building inventory during COVID high levels of inventory investments

were required to protect service levels.

Excluding these one-time adjustments, gross margin as a percentage of sales for European

based operations would be more favorable as compared to the prior period, driven by increases in pricing and product mix, partially

offset by cost inflation.

For United States operations, gross profit

margin was 57.2% and 57.4% for the three and six months ended June 30, 2023, respectively, as compared to 54.3% and 54.1% for the

corresponding periods of the prior year.

The significant margin expansion stems from a number of factors.

Firstly, for the most

part, the price increases we took early 2023 weren’t fully offset yet 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 higher priced fragrances

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

Lastly, the significant increase in sales in the first

half 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.

Generally, we do not bill customers for

shipping and handling costs, and such costs, which aggregated $3.6 million and $7.5 million for the three and six months ended

June 30, 2023, respectively, as compared to $2.8 million and $5.5 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 the gross profit of other companies, which may include these expenses as a component of cost

of goods sold.

INTER PARFUMS, INC.

Income and Expense

Traditionally,

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

The increase in interest expense

related to prior year acquisitions is the main driver of the increase in other income and expense during 2023.

As previously disclosed,

in April 2021 we completed the acquisition of the headquarters of Interparfums SA.

The acquisition was financed by a 10-year €120

million (approximately $127.1 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.

Almost 50% of net sales of our European

operations are denominated in U.S.

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

As of September 30,

2023, short-term investments include approximately $8.8 million of marketable equity securities of other companies in the luxury

goods sector.

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

Company purchased additional marketable securities in the second and third quarter of 2023, which generated unrealized losses

of $0.5 million in the three months ended September 30, 2023.

Interest and investment income for the three months ended September

30, 2022, includes a gain of $2.3 million, 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.

AND SUBSIDIARIES

Selling, general and administrative expenses

Three months ended

Six months ended,

(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

For European operations, selling, general

and administrative expenses increased 13.2% and 12.6% for the three and six months ended June 30, 2023 as compared to the corresponding

period of the prior year, and represented 45.1% and 38.9% of net sales for the three and six months ended June 30, 2023, respectively,

as compared to 47.4% and 42.4% for the three and six months ended June 30, 2022, respectively.

For United States operations, selling,

general and administrative expenses increased 49.3% and 37.1% for the three and six months ended June 30, 2023, as compared to

the corresponding period of the prior year, and represented 39.7% and 41.3% of net sales for the three and six months ended June

30, 2023, respectively, as compared to 37.8% and 39.5% for the three and six months ended June 30, 2022, respectively.

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 $7.0 million for the first half of 2023.

Promotion and advertising included in selling,

general and administrative expenses aggregated $54.6 million and $89.8 million for the three

and six months ended June 30, 2023, respectively, as compared to $45.9 million and $80.1 million for the corresponding periods

consolidated effective tax rate was 23.5% and 22.6% for the nine months ended September 30, 2023 and 2022, respectively.

The effective

tax rate for European operations was 25% for each of the nine months ended September 30, 2023 and 2022.

Our effective tax rate

operations was 19% for the nine months ended September 30, 2023, as compared to 11% for the corresponding period

of the prior year.

Promotion and advertising represented 17.7% and 14.5% of net sales for the three and six months ended June 30,

2023, respectively, as compared to 18.8% and 16.2% for the corresponding periods of the prior 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

benefited 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.

Royalty expense included in selling, general

and administrative expenses aggregated $24.0 million and $48.1 million for the three and

six months ended June 30, 2023, respectively, as compared to $18.9 million and $38.3 million for the corresponding periods of the

Royalty expense represented 7.8% and 7.7% of net sales for the three and six months ended June 30, 2023, respectively,

as compared to 7.7% of net sales for both the corresponding periods of the prior year.

INTER PARFUMS, INC.

AND SUBSIDIARIES

Income from Operations

As a result of the above analysis regarding

net sales, gross profit margins and selling, general and administrative expenses, our operating margins aggregated 17.8% and 23.4%

for the three and six months ended June 30, 2023, respectively, as compared to 18.6% and 21.5% for the corresponding periods of

the prior year.

Other 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 $130.4 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%.

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) loss represents

interest earned on cash and cash equivalents and short-term investments.

As of June 30, 2023, short-term investments include approximately

$0.9 million of marketable equity securities of other companies in the luxury goods sector.

In the first quarter of 2023, the Company

sold marketable securities which generated a gain of $3.1 million.

Interest and investment (income) loss for the three and six

months ended June 30, 2023, includes approximately $3.4 million of losses on such marketable equity securities.

Our consolidated effective tax rate was

23.4% and 24.2% for the six months ended June 30, 2023 and 2022, respectively.

The effective tax rate for European operations

was 25% for each of the six months ended June 30, 2023 and June 30, 2022.

Our effective tax rate for U.S.

was 17.4% for the six months ended June 30, 2023, as compared to 22% 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.

Other than as discussed above, we did not

experience any significant changes in tax rates, and none were expected in jurisdictions where we operate.

INTER PARFUMS, INC.

AND SUBSIDIARIES

Three months ended

Six months ended

(In thousands)

Net income European operations

Net income United States operations

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.

Additionally, in the third quarter of 2022 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 was

deemed likely.

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

in jurisdictions where we operate.

September 30,

income European operations

income United States operations

Net income attributable to the noncontrolling interest

income attributable to Inter Parfums, Inc.

Net income attributable to European operations

was $27.0 million and $87.5 million for the three and six months ended June 30, 2023, respectively, as compared to $24.5 million

and $64.3 million for the corresponding period of the prior year.

Net income attributable to United States operations was $15.6

million and $25.9 million for the three and six months ended June 30, 2023, respectively, as compared to $10.0 million and $16.5

million for the corresponding period of the prior year.

The significant 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.

The noncontrolling interest arises from

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.

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.

Net margins attributable to Inter Parfums,

for the six months ended June 30, 2023 and 2022 aggregated 14.3% and 12.7%, respectively.

Liquidity and Capital Resources

Our conservative financial tradition has

enabled us to amass significant cash balances.

As of June 30, 2023, we had $187 million in cash, cash equivalents and short-term

investments, most of which is held in euro by our European operations and is readily convertible into U.S.

had any liquidity issues to date, and do not expect any liquidity issues relating to such cash and cash equivalents and short-term

As of June 30, 2023, short-term investments include approximately $2.2 million of marketable equity securities.

As of June 30, 2023, working capital aggregated

$482 million and we had a working capital ratio of 2.4 to 1.

Approximately 77% of the Company’s total assets are held by

European operations, and approximately $252 million of trademarks, licenses and other intangible assets are also held by European

The Company is party to a number of licenses

and other agreements for the use of trademarks and rights in connection with the manufacture and sale of its products expiring

at various dates through 2039.

In connection with certain of these license agreements, the Company is subject to minimum annual

advertising commitments, minimum annual royalties and other commitments.

Financial Statements and Supplementary

Data – Note 12 – Commitments in our 2022 annual report on Form 10-K, which is incorporated by reference herein.

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.

income attributable to Inter Parfums, Inc.

was $53.2 million and $142.2 million for the three and nine months ended September

30, 2023, respectively, as compared to $41.4 million and $104.3 million for the corresponding period of the prior year.

attributable to European operations was $46.0 million and $133.5 million for the three and nine months ended September 30, 2023,

respectively, as compared to $42.4 million and $106.7 million for the corresponding period of the prior year.

Net income attributable

to United States operations was $20.2 million and $46.1 million for the three and nine months ended September 30, 2023, respectively,

as compared to $10.9 million and $27.4 million for the corresponding period of the prior year.

The significant 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.

INTER PARFUMS, INC.

AND SUBSIDIARIES

The 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.

July 2023, we entered into a long-term global licensing agreement for the creation, development and distribution of fragrances

and fragrance-related products under the Roberto Cavalli brand.

This license took effect in July 2023, and we target to start shipping

products as of November-December 2023.

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.

Cash provided by operating activities aggregated

$6.8 million for the six months ended June 30, 2023 compared to cash used in operating activities of $28.5 million for the six

months ended June 30, 2022, respectively.

For the six months ended June 30, 2023, working capital items used $115.4 million

in cash from operating activities, as compared to $117.2 million in the 2022 period.

Although from a cash flow perspective accounts

receivable is up 18% from year end 2022, the balance is reasonable based on second quarter 2023 record sales levels and reflects

strong collection activity as day’s sales outstanding was 68 days, down from 76 days in the corresponding period of the prior

From a cash flow perspective, inventory levels as of June 30, 2023, increased 23% from year end 2022 in support of our overall

sales growth.

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.

Cash flows provided by investing activities

in 2023 reflect purchases and sales of short-term investments.

These investments include certificates of deposit with maturities

greater than three months.

Approximately $34 million of such certificates of deposit contain penalties where we would forfeit a

portion of the interest earned in the event of early withdrawal.

Our business is not capital intensive as

we do not own any manufacturing facilities.

On a full year basis, we typically spend approximately $5.0 million on tools and molds,

depending on our new product development calendar.

Capital expenditures also include amounts for office fixtures, computer equipment

and industrial equipment needed at our distribution centers.

Our short-term financing requirements are

expected to be met by available cash on hand at June 30, 2023, and short-term credit lines provided by domestic and foreign banks.

The principal credit facilities for 2023 consist of a $25 million unsecured revolving line of credit provided by a domestic commercial

bank and approximately $8 million in credit lines provided by a consortium of international financial institutions.

million of short-term borrowings outstanding pursuant to these facilities as of June 30, 2023 and no short-term borrowings outstanding

as of June 30, 2022.

noncontrolling interest arises from 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.

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.

Net margins attributable to Inter Parfums, Inc.

for the nine months ended September 30, 2023 and 2022 aggregated 14.4% and 13.4%,

respectively.

and Capital Resources

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

As of September 30, 2023, we had $183.5 million

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

convertible into U.S.

We have not had any liquidity issues to date, and do not expect any liquidity issues relating to

such cash and cash equivalents and short-term investments.

As of September 30, 2023 short-term investments include approximately

$10.2 million of marketable equity securities.

of September 30, 2023, working capital aggregated $514 million and we had a working capital ratio of 2.4 to 1.

Approximately 78%

of the Company’s total assets are held by European operations, and approximately $245 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

and sale of its products expiring at various dates through 2039.

In connection with most of these license agreements, the Company

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

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.

In July 2023, we entered into a long-term global licensing agreement for the creation, development

and distribution of fragrances and fragrance-related products under the Roberto Cavalli brand.

This license took effect in July

2023, and we target to start shipping products in January 2024.

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.

provided by operating activities aggregated $24.3 million for the nine months ended September 30, 2023, as compared to cash

used in operating activities of $8.2 million for the corresponding period of the prior year.

For the nine months ended

September 30, 2023, working capital items used $169.1 million in cash from operating activities, as compared to $159.2

million in the 2022 period.

Although from a cash flow perspective accounts receivable is up 48.6% from year end 2022, the

balance is reasonable based on 2023 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.

Strong collection activity

resulted in day’s sales outstanding decreasing to 72 days, down from 80 days in the corresponding period of the prior

From a cash flow perspective, inventory levels as of September 30, 2023, increased 26% from year end 2022 in support of

our overall sales growth.

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.

INTER PARFUMS, INC.

AND SUBSIDIARIES

In February 2022, our Board authorized a

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

In February 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 September 30, 2023, to shareholders

of record on September 15, 2023.

We believe that funds provided by or used

in operations can be supplemented by our present cash position and available credit facilities, so that they will provide us with

sufficient resources to meet all present and reasonably foreseeable future operating needs.

Inflation rates in the U.S.

countries in which we operate did not have a significant impact on operating results for the six months ended June 30, 2023.

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

These investments include

certificates of deposit with maturities greater than three months.

Approximately $2 million of such certificates of deposit contain

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

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

On a full year basis, we typically spend approximately

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

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 September 30, 2023, and short-term credit

lines provided by domestic and foreign banks.

The principal credit facilities for 2023 consist of a $25 million unsecured revolving

line of credit provided by a domestic commercial bank and approximately $8 million in credit lines provided by a consortium of

international financial institutions.

There was $4.5 million of short-term borrowings outstanding pursuant to these facilities

as of September 30, 2023 and no short-term borrowings outstanding as of September 30, 2022.

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

In February 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 December 31, 2023, to shareholders of record on December 15, 2023.

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

so that they will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs.

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, 2023.

INTER PARFUMS, INC.

1 unchanged sentence

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What changed 10-Q

Item 2. Management’s Discussion and Analysis