Greetings, and welcome to the Inter Parfums, Inc. Third Quarter conference call and webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Russell Greenberg, Executive Vice President and Chief Financial Officer. Thank you, sir. You may begin.

Thank you. Good morning, and welcome to our 2016 third quarter conference call. Once again, I will start with a financial overview, and then Jean Madar, our Chairman and CEO, will discuss current business and upcoming plans. After that, we will take your questions. Before proceeding further, I want to remind listeners that this conference call may contain forward-looking statements which involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from projected results. These factors include, but are not limited to, the risks and uncertainties discussed under the heading forward-looking statements and risk factors in our annual report on Form 10-K, and the reports we file from time to time with the Securities and Exchange Commission. We do not intend to, and undertake no duty to update the information discussed. In addition, Regulation G codifications for the use of non-GAAP financial measures proscribes the conditions for use of non-GAAP financial information in public disclosures. We believe that the presentation of the non-GAAP financial information included in this discussion is important supplemental measures of operating performance to investors. The information required to be disclosed for the presentation of non-GAAP financial measures prescribes the conditions for use of non-GAAP financial information in public disclosures. We believe that the presentation of the non-GAAP financial information included in this discussion is important supplemental measures of operating performance to investors. The information required to be disclosed for the presentation of non-GAAP financial measures is disclosed in our September 30, 2016, quarterly report on Form 10-Q, which has been filed with the Securities and Exchange Commission. This information is available on our website at www.interparfumsinc.com. When we refer to our European-based operations, we are primarily talking about sales of prestige fragrance products conducted through our 73%-owned French…

Thank you, Russ. And good morning, everyone. We pushed the call back an hour from our usual 11:00 AM time, which may be good for those who stayed up late last night, like me, watching the election results. It still delights me to report that our three largest markets have also been our fastest-growing markets. Year-to-date sales in Western Europe were up 26%, while North American sales increased 18% from the first 9 months of last year. Our other sales in Asia, our third-largest market, were 6% ahead of the first 9 months of the year, with Korea and Japan making up some of the shortfall from China, where the market there remains a little depressed. I should point out that we remain committed to the Chinese market, and we are putting substantial resources behind that commitment, because we want to maintain our market share in a country where the market potential for fragrance is really enormous. Historically, the Chinese have generally viewed fragrance as a gift item, so encouraging fragrance as a self purchase is our marketing goal. Getting back to the subject of year-to-date sales by region, Central and South America are running about the same as last year. But Eastern Europe and the Middle East remain down. As we indicated in our previous conference call, much of our growth within our European operations has come from the inclusion of Rochas and the launch of our first woman's scent for Coach primarily in the U.S. While the new Coach scent for the Western market is an eau de parfum, the fragrance is somewhat different for the Asian market, as we are testing an eau de toilette in Hong Kong, Korea, and Singapore. The launch in China and Japan will happen in 2017. I know I have said it…

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Linda Bolton Weiser with B Riley. Please proceed with your question.

Hi. So I was just curious about the A&P ratio. It's strong, certainly year to date, a good investment behind the brands. What are you planning on for the fourth quarter? Traditionally it's been pretty high. Is that going to be similar? I guess I could do the math. You said it was about 20% or so for the year. So what would that imply for the fourth quarter?

Russ, do you want to answer?

I have not done the-- I don't have the computation in front of me of exactly. But we are at 16% so far for the first 9 months. And we indicated that we're going to be at least 20% for the full year. That is implying a significant number. I don't off the top of my head know exactly what it is. But you can easily do the computation based upon our guidance as far as sales goes.

I think it's very important to continue to increase our A&P. And we can do it, because this will help us grow our brands and take market share in the markets. I've been saying this for the last 24 months. And Linda, I'm sure you noticed that in the last two years we have increased this percentage. And that's why I think we are able to get to this kind of growth.

Right. And so was the mix in terms of how it affected the gross margin, was that pretty much as you expected in the quarter? And I mean, did you intentionally sort of reduce A&P a little bit to offset that? I mean how was it all relative to plan? And then I would expect the gross margin to be a little better sequentially in the fourth quarter. Is that accurate?

Well, you got a whole bunch of questions in there. But the main answer is yes, the expectation for a slight margin decrease was planned based upon the amount of promotional activity. In addition, keep in mind that there's a lot more brands that we have out there this year that in the past that required that additional promotional activity from the standpoint of gift sets and gift items sold with a purchase. As far as the overall advertising spend, we were down approximately 2 percentage points from the corresponding period of the prior year. Most of that is really just some of the timing on the individual launches. There's a lot of activity that is planned in the fourth quarter. Just quickly while you were talking with Jean, the plan is to spend at least almost $40 million in Q4 alone to bring us to approximately that 20% full-year spend on promotion and advertising.

Yes. And I can-- I mean I would like to say that the launch of Coach, which happened in the third quarter and of course will continue in the fourth quarter, is very promising. So that's why we will continue to spend heavily during the launch. It has launched in the US and in certain countries of Europe. Let's not forget, like we said before, that Asia will happen in 2017. So we'll have a nice pocket of growth next year. And we'll, of course, continue in 2017 to spend at a rate, we can say, Russ-- at a rate of 20%.

Okay. And I noticed that the French subsidiary did release their guidance for 2017. And it looked like they were guiding to at least 8% sales growth for their business unit. And I mean that looks kind of in the ballpark range of what the Street is expecting for you guys for next year. Can you give any color at all about whether that's true, or would there be something--

We are going to release on Monday. So today is the first day. Maybe we can wait another two days, unless Russ, you can talk about it. I don't know.

No. I think we have to massage the numbers that come through Paris. Keep in mind that there are intercompany eliminations and things of that sort. We are working through our--

The exchange rate also has an impact.

Yes, yes. So we are working through ours. We will be issuing our release on Monday, November 14th. So I'd rather reserve any comment to be indicated in the release on Monday.

Our next question comes from the line of Joe Altobello with Raymond James. Please proceed with your question.

Thanks. Hey, guys. Good afternoon. I just wanted to follow up on gross margin. It sounds like the heavy promo and gift sets in the third quarter wasn't a timing issue where you were shipping ahead of holiday, but more so a change in the product portfolio from what it's been historically. So how do we think about that as we head into '17? Is there a lot of puts and takes on the gross margin line for you guys next year? Currency is probably not one of those. But distribution mix and things like that sort of play into next year. So how should we be thinking about gross margin in 2017?

You're correct. One of the bigger factors that normally affects gross profit margin is the currency effect, as certainly we saw it last year as the dollar gained strength throughout the year. Here very similar to what we had in the first and second quarter, currency impact was almost insignificant in connection with this particular quarter. So what we really are dealing with is product mix. The most significant factor affecting the product mix is the concentration today of much more designer type product that's out there, especially for the U.S. side of our business, including Abercrombie and Hollister. The number of gift sets that we're selling into the market, typically that sale is usually made during the third quarter, and then it's sold through the retail marketplace in the fourth quarter. With just more type of activity from those designer brands, Abercrombie & Fitch, Hollister, Coach; that is what impacted the margin here in this particular third quarter. And again, it wasn't very significant. Overall we're talking about for the three months we're down just about 2%. But overall for the full year, we are still with an expanded margin, and most of that remains the fact that we are selling more of our product through our own distribution subsidiaries. They will generate higher margins than when we sell product on an ex-factory basis through our distributors. So we do expect that to continue to benefit gross margin. And I think that will all play out in 2017.

Right. So I guess my question is, does the distribution mix offset the product mix for next year?

For next year, I think the product mix is going to be similar. So the distribution may help us a little bit more. Again, and that is excluding the fact of what happens with currency. Because I cannot predict where the currency is going to be in 2017.

Okay. And just one last one on the competition for new licenses, has that changed dramatically in the last six months? Are you seeing more fragrance companies sort of competing with you guys for new licenses?

I don't think there is a change from before. We still have the same players competing for the same brands. But you know of course, the merger of Coty and Procter & Gamble has created a real big competitor. But there is no newcomers, per se, in the business.

Our next question comes from the line of Wendy Nicholson with Citi. Please proceed with your question.

Good afternoon. This is Samantha Berger on for Wendy today. I just had a question, if you would be able to give a little more color on consumer trends, meaning are consumers more brand driven and gravitating towards higher margin kind of each products, or is promotional activity driving growth?

It's a vast question. When you look at our portfolio, we see that the brands that are performing really well are the brands that are positioned at the high end of the market. We are performing a little bit less with brands that are positioned lower, such as Karl Lagerfeld, for instance. But regarding to consumer trend, I think that the consumers are different from one country to another. Sales in department stores in the US have been strong. But then in certain countries of Europe have been weak. Very important, I will say, thing is that for us we have a very balanced distribution per worldwide, between Asia, Americas, and Europe. So we're able to cover a little bit of different tastes. Russ, do you want to add something?

No. I think you've hit on it. And the only other thing I would add is the trends here in the United States, although fragrance is still being sold very strongly in department store distribution, there is that trend of moving away from departments stores and more into the Sephora and Ulta type of distribution for the U.S. But again, and I think that bodes well--

And of course, the internet also.

Absolutely, absolutely.

Thank you. And as a follow-up, you've been very strategic about the brands you bring into your portfolio. How is your approach evolved most recently, and does that mean-- are you now more open to, say, certain celebrity fragrances at all? Or does the focus remain on designer brands, or again, is that just market specific?

I think we will continue to be very selective when we add a license in our portfolio. You know that we have not participated to celebrity fragrance. Because we saw that these fragrances were launched in department stores, year one. But after that, they had to go to the mass market year two. And this is not at all our strategy. The lifecycle is too short for us. But going forward, we are-- how should I say-- open to see if there is other ways to sell a fragrance. But today we are very concentrated to designer fragrance or lifestyle brands such as Abercrombie or even very classic ones such as Lanvin and Rochas. Russ, do you need to add?

No. I agree. I agree.

Our next question comes from the line of Frank Camma with Sidoti. Please proceed with your questions.

Good afternoon, guys. Congratulations. Hey, can you give us a little more color on Coach? Last call you had kind of given us some estimates on the number of doors that you thought you'd be in by end of 2017. But I think you kind of gave us an estimate of number of doors initially. Can you maybe share that data with us?

Yes. You're talking about Coach, right?

Yes. I'm sorry, yes. Just Coach, yes.

Yes. Coach, so we launched a women's fragrance for Coach. And we were also very strategic where we launched it. We decided not to put it yet in Asia. But the first results that we have in the Middle East we were in the top three. In the US, we are in the top five. In UK, we are in the top 10. I'm looking at my numbers. Give me a second. We started also in certain duty free. And the answer is really great. So for us, we are above, well above, our budget, our sales budget for Coach. So we will continue to, as I said before, we'll continue to spend. Because this rollout is really a 2016-2017. So we only at the very beginning of the launch.

Yes. I understand. I'm sorry, were you going to say something?

Yes. As Jean mentioned, the primary, in his remarks, the primary market where Coach launched currently was here in the United States. We originally indicated at the end, during the conference call in June, that we would enter approximately 3,000 doors. We did hit that 3,000-door market, which includes Macy's, Ulta, Sephora, Nordstrom, Dillards and Bell. We are pretty much exactly on plan. The sell-in was slightly better than expected. But everything is running pretty much according to the original plan.

Okay. Hey, and I guess just a takeaway there, I know it's hard to compare these two. But this one clearly early read very successful as it compared to like Karl Lagerfeld a couple years back, which I think obviously you had some high hopes for it. Was there anything you might have learned from that that kind of helped you with this? Or is that just comparing apples and oranges?

I think Karl Lagerfeld was positioned at a little bit too high. And the market for it was not here, at least in Europe. In the US, there was not a real appetite. But for Coach, we're talking about a real luxury brand, affordable but luxury. And we are very, of course we always learn from mistakes. But I look at Coach a little bit like we looked at Burberry sometime a while ago. This is a brand that has a lot of fans, a lot of people are very much into the products. They go to the stores. They buy. So, our goal is really to make the fragrance the entry level price of Coach products. And again, we are just at the beginning. But when I see that at Macy's. I see that at Macy's we're in the top five for the first 2 or 3 weeks of a launch, this gives us some good hopes.

Yes. And it has to help that the Coach brand itself is in a bit of an upswing too right now, right?

Absolutely. And we really feel it, even in Russia, for instance, where the brand is not really known. We spent a lot on advertising. But we are at the end of September we were number four. In, as I mentioned, the Middle East, also it did quite well. And so the advertising is well-received. So we have increased a little bit our forecast for 2017. I think we have a good upside, and we will launch also a men's fragrance towards the end of the year of 2017 for Coach.

Great. Thank you.

Coach has a potential to be the third or the fourth pillar of IP.

Our next question comes from the line of Jason Gere with Keybanc Capital Markets. Pleease proceed with your question.

Okay, great. Thanks. Good afternoon, guys. I guess the question goes back to the A&P that you're talking about in the fourth quarter. It would imply something up over 20% year over year. So in the context of the sales guidance that you've given, I guess how should we be thinking about Europe versus the U.S.? Obviously U.S. has got Abercrombie and it's got the Hollister launches that are out there. And you had some good growth in the third quarter. Where is the majority of that spend going? I'm just trying to understand which of the segments you're expecting to kind of have a more outlasted kind of growth or a momentum really continuing. Because they both did well in the third quarter. So I'm trying to just put my hands around that a little bit. And I do understand you guys don't typically change your guidance too often. And we're only halfway through the quarter. But I was just trying to get a little bit more color on what you're seeing out there, and why the sales guidance kind of shakes out.

I'll try to answer that one. The key, and most of the promotion and advertising spend is through our European operations. And that makes sense, because almost 80% of sales runs through our European operations. Although I clearly want to indicate that there is a significant spend that is associated with the launch of the Abercrombie & Fitch and Hollister fragrance lines for the U.S. business. But most of the sales and the sell-in that occurs in the lines we have for our European operations typically the Q3 is always the strongest quarter of the year. And this quarter clearly even followed that trend from a sales standpoint. From an advertising spend standpoint, you're going to advertise during those periods where your retailers are really trying to put the product in the market and move the product through the market. So it has always been the case, at least for the last several years with the fashion brands in our portfolio that the lion's share of your A&P spend is going to occur in the fourth quarter, simply because of the seasonality or the holiday type sell through in our business. I mentioned that we spent somewhere around $60 million through the first nine months. I think the number was maybe 61 million, 62 million in A&P spend through the first nine months. Using a 20% factor, based on our sales guidance, you're going to be over 100 million for the whole year. So that's where I get the approximate 40 million, which comes out to almost 31% of the fourth quarter projected sales.

And this money will be spent for Mont Blanc, Jimmy Choo, Coach, and Abercrombie. This is where we'll concentrate our spending. So that is not only advertising. It's advertising, marketing, merchandising in stores, gifts with purchase, et cetera, et cetera. But--

So…

Yes? I'm sorry.

Oh, I'm sorry. I didn't mean to interrupt. I guess I'm trying to understand though with-- and again, I know Inter Parfums USA put out the release yesterday, saying €350 million sales. So when you translate that it calls for-- it seems like about $390 million. And again, you're point about some of the eliminations may factor in. But that would imply-- it would imply that your growth in the fourth quarter would be flattish for that European business. So with an outstretched A&P spending, I would just think that that number would be higher. So is there something that I'm missing in the logic here? Or is this just-- and we're in the midpoint of November. So half of the quarter is done but the holiday season is yet to start. So I'm just wondering if you can just provide a little context like what could be the upside case why it would be better than what's being kind of laid out?

You know, guidance is strictly all it's meant to be. It's giving an indication as to where we believe that the yearend sales is going to fall. And we issue guidance only on two numbers, and that is the sales and on the EPS side. We've indicated that we expect it to be on that high end. Can these numbers be exceeded slightly? Perhaps. I don't know. Until the quarter is done and we report the final year results, all we can do is indicate where we think we're going to end up. We don't-- but much more than that, I don't know. I don't know how to respond. If you want to build a different kind of a model that models something slightly different that's fine. But our models are showing that this is where we're looking to end up. And it does imply that your earnings are going to be different than your sales growth in that fourth quarter. And that's strictly because of the type of spending that we have. And if you look at prior years, you'll also see that the earnings have been significantly lower in the fourth quarter. Based upon implied guidance this year, we're looking at an overall consolidated sales growth of somewhere around in that high single digit. But you're looking at a significant growth on the EPS side. That's what guidance is all about When we have the final results, we'll report the final results.

Okay. Is there anything…

Go ahead, Jean.

I'm sorry, Jean. Go ahead.

No, no. I wanted to say that -- to add that we think we updated -- we confirmed the guidance, and we want to say that if we have some money extra, we will spend it in order to promote the brands. This will be very helpful in the future. So the goal is not really to make more profit by spending less. The goal is to make more profit by selling more and to prepare the sales of next year and the years after. We really need to boost the spending.

No. That's fair. There just seemed to be a little disconnect between the huge step up in the A&P and what the immediate benefits could be in that fourth quarter, as opposed to maybe what trickles into a little bit next year.

That's true. But again, we are happy with we're being on the high end of guidance for this year. And I think it's enough.

Our next question comes from line of Steph Wissink with Piper Jaffray. Please proceed with your question.

Good afternoon. This is Lauren Wolff on for Steph. Thank you for taking our questions. First, we have been noticing a trend in wholesale inventory rationalization in the US among some of your peers. Have you experienced similar trends? And does this support your strategic expansion into specialty rather than wholesale, like with Abercrombie, Hollister, et cetera? And secondly, could you just talk a bit more about the pipeline for development, particularly within China? You mentioned transitioning to fragrance as a self-purchase versus a gift item. Are there other markets that you are currently technical difficulty towards fragrance? And how generally do you plan to help affect this buyer behavior shift?

By what? I'm sorry, the last sentence was?

Oh, just how do you plan to help affect the shift in buyer behavior?

Of course. Russ, do you want to try to answer the first part?

Yes. The first part, I think there's a little bit of a disconnect. Because our business with respect to Abercrombie and Hollister is not really specialty retail. There are some sales, and we will be selling product for their individual stores. But the premise behind our license agreement and the driver of the sales that we've launched so far in 2016 is sales in international markets. It's sales around the world, in duty-free, in perfumeries, in territories such as the UK and Germany, in France; all international sales. Abercrombie is deemed to be a fashion brand outside the United States, although we might think of it here in the United States as a specialty retail brand. All of our business, including even the rest of the US business, is much more so fashion brand international prestige product distribution around the world. Very, very little of our sales are actually into what we call-- what you referred to as specialty retail. I hope that clarifies the first part. The second part regarding China, Jean, do you want to take?

Yes. The brands that are strong for us in China for instance is Anna Sui. It's also Lanvin. So in order to increase sales, we are looking to sell more smaller-size to have a lower entry price point, in order for people to try for their own consumption, as opposed to only use fragrance as a gift. We are doing also besides the smaller size, we are doing also a lot of promotions in secondary and tertiary cities in China. So as I said in my remarks, we are continuing to invest in marketing in China, even though our sales are definitely hurt this year.

Our next question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

Hi. Just really a follow-up from earlier questions you received. I too have difficulty understanding the guidance that you're providing. I just want to try and understand. I mean is there less inventory being bought by retailers into Q4? Because this year you have a lot more products than you've had in the last three or four years, and you're guiding for sequential decline that's much greater than you've had in these four years.

It is a sequential decline? Russ? You're talking about the guidance for the fourth quarter for this year? Because we have not released anything for 2017.

Correct, the fourth quarter, yes. The implied fourth quarter guidance.

Fourth quarter, current implied guidance is assuming it's a low-single-digit growth in the fourth quarter on the top line to bring us at the 510-511, somewhere right around there. On an earnings side from a standpoint of reaching the high end of our guidance, we're looking at a gain on earnings of close to 75%, better this year in the fourth quarter than in the prior years. So I'm not sure where your disconnect is. There is a significant sell-in that happens during the third quarter. Our push on advertising in the fourth quarter is to make sure that the sell-through happens. As Jean indicated, as we get good results on the sell-through, if there is some reorders that take place, that money will probably be reinvested into our business, so we can drive sales continuing into 2017. This is how we have been operating this business for years. And I don't see any reason to change that at this point in time. So just implied guidance, just to repeat, is up 5%-6% in the fourth quarter with earnings up almost 75%. That's based upon - go ahead.

No. I understand you're up 5% to 6% calculation. What I was referring to that it's implied being down somewhere around 22-23% from Q3. You've never had that kind of decline.

Which

Which is typical.

Well, you have a lot more, one of the reasons, if you remember, the gross margin decline was because there is a lot more of promotional type items. The reason there's a lot more promotional type items is because of the launches that we have. The two major brands, actually more than two, but between Coach, Mont Blanc, and Abercrombie, that required a significant amount of higher promotional type selling in the third quarter. You're not going to have that in the fourth quarter. The fourth quarter is merely additional sales in. But most of it is concentrated on to make sure that the sell-through happens. And that's…

It's because if we do not spend money-- if we don't spend enough money in the fourth quarter to help the sell-through, how can I get preorders for 2017? This is quite simple strategy. We spend money so the stores sell their product, and we can replenish next year, on the top of new products that we launch every quarter. So there is absolutely no changes in our strategy. We have been doing it forever. And honestly, I don't talk too much at sales-- I don't compare sales and profit from one third to fourth quarter. I will compare fourth quarter of this year against fourth quarter of last year.

And last question here is just with this year's buying habits from retailers. Could you provide any insights as to if the quantities they're buying, if it's a certain size, if it's the smaller size of perfumes they're buying or if it's the larger sizes ones. How are you seeing the trends with retailers with inventory before the holiday season?

We do not see a change in particular, especially in the US from department stores or specialty stores or-- I do not see a change. Usually the US market is a large size market. The Asian market is a small size market. The trend is definitely all our retailers are managing very well the inventory better and better. Everybody is on EDI. They buy only what they need. So it's very, very important to ensure sell-through and push out regular product or gift sets for Christmas. Because if they are-- if they do not sell, they will not generate what they call open to buy, and without open to buy, there is no reorder. So it's a cycle that we go through. But I would not-- we have not seen particular changes this year versus last year.

Thank you. Our final question is a follow up question from Linda Bolton Weiser with B Riley. Please proceed with your questions.

So with regard to next year, there was a little rundown of some of the launches in the French subsidiary press release. And I seem to recall that there was supposed to be maybe a Mont Blanc next year. And it didn't really mention that. Am I mistaken? Or do you have plans for that next year?

For Mont Blanc in 2017 you're talking?

Yes.

One second, for Mont Blanc 2017, yes, yes. We do have definitely an initiative on Mont Blanc. And you know that Mont Blanc is -- but it's more of a flanker, more of a new franchise.

Okay. And then the Jimmy Choo initiatives in the first half that was mentioned, is that like major, or is that more a major, or is that more a flanker? Is that as major as Illicit, for example?

Hold on, one second.

No. Those are also flanker scents to be addendums to the Jimmy Choo Signature and the Jimmy Choo Man line.

Yes. These are new, these are important initiatives for Jimmy Choo, another Man, and the Signature.

But not as, important, but as major as Illicit? Is that the way to think about it?

Yes. You can think like that.

Yes. That's correct.

Mr. Greenberg, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Okay. Thank you. Thank you, Operator. One last point I just wanted to make is I will be presenting at the Keybanc Capital Markets Consumer Conference on December 8th here in New York. I hope to see some of you at this event. And once again, thank you all for your participation on this conference call, whether you were on the call live or listening via our webcast. If any of you have additional questions, as usual, I am available to take your calls. Thank you very much, and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.