Greetings, and welcome to the Inter Parfums First Quarter 2022 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and -- will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Russell Greenberg, Executive Vice President and Chief Financial Officer of Inter Parfums. Mr. Greenberg, you may begin.

Thank you, operator. Good morning, and welcome to our first quarter conference call. As always, 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 calls. These factors include, but are not limited, to the risks and uncertainties discussed under the headings, Forward-looking statements and Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021, and other reports we file from time to time with the Securities and Exchange Commission. We do not intend to and undertake no obligation to update the information discussed. When we refer to our European-based operations, we are primarily talking about sales of Prestige Fragrance products, managed through our 73% owned French subsidiary, Inter Parfums SA. When we discuss our U.S.-based operations, we are primarily referring to sales of Prestige Fragrance products, managed through our wholly owned domestic subsidiaries. Moving on to today's business. You may recall that on our year-end conference call, Jean mentioned that sales in January and February were well ahead of budget. Well, March was more of the same. And as a result, 2022 first quarter net sales rose 26% over Q1 2021, which, by the way, was 37% better than Q1, 2020. For European-based operations, gross profit margin was 66.8% and 65.5% in the first quarters of 2022 and 2021, respectively. The margin gain in 2022 is primarily the result of the stronger US dollar. For US operations, gross profit margin was 53.9% and 53.2% in the first quarter of 2022 and 2021, respectively. With that improvement due to the significant increase in sales, which allowed us to better absorb fixed costs such as depreciation, mostly of tooling and point-of-sale expenses. Jean will address the array…

Thank you, Russ, and good morning, everyone. We are benefiting from a robust fragrance industry across the globe. North America, our largest market, achieved sales growth of 12% despite this IT problems by our U.S. distribution subsidiary. Comparable quarter sales in both Western Europe and Asia Pacific, our second and third largest markets, increased 41%. Our sales in the Middle East increased 27% and in Central and South America, sales rose 38%. With most of our shipment made early in the first quarter, sales in Eastern Europe rose 13%. Finally, Travel retail is making a slow but steady comeback despite stops and starts stemming from regional pandemic recurrences and lockdowns. Strong performance of legacy fragrance and several product launches, notably Kate Spade, Sparkle, Montblanc Legend Red, Coach, Wild Rose and GUESS Do More contributed to the increase in sales. Of course, incremental sales of Ferragamo, Ungaro, MCM and Moncler products factored into our top line growth. First quarter sales in North America will have been considerably better had there not been a bottleneck at our US distribution subsidiary, following a change in the software by its logistics partner that resulted in shipping related issues. About half of the orders that we couldn't fulfill in the first quarter are being shipped in the second quarter. Our big spend in advertising and promotion in the final quarter of 2021 has been paying dividends in this current year. Once again, about 80% of our investment in promotion and advertising is devoted to digital ads, social media, like Instagram, Snapchat, Tik Tok and WeChat, influencers in the beauty, music, acting and sports field as well as TV and billboards. As I mentioned on our last call, we are doing more business on Amazon, and we have devoted advertising dollars to that effort and we…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Linda Bolton-Weiser with D.A. Davidson. Please proceed with your question.

How are you doing?

Great, Linda. Thank you.

Good. So can you just – you talked a little bit about China. And it sounds like you are being impacted. Sorry, if I missed that, but did you actually say what China, how it performed in the first quarter or in March, like how much it was down in March. Can you give us some sense?

Yes. In March lockdown more than 60%, in April, we are down also double digit -- high double digits. We do not think that, it's going to improve before end of May. But again, I'm still optimistic because I know that when they reopen, they're going to need a lot of merchandise. So we have this inventory ready. Our warehouse in Shanghai, we have a distribution center in the duty free zone in Shanghai is full of products. We have also products on – in transit to Hong Kong. So as soon as China reopens, I think we'll be back to a strong business. So we don't drop the ball, but it just a setback, because of this lockdown.

Right. I understand. And roughly what percent of sales is China for you normalized? Is it like less than 10%?

In 2021, China represented approximately 4% of sales. So that's somewhere around between $36 million to $40 million.

Okay. That's helpful. And then, is there any way to quantify how much the Ferragamo and Ungaro sales contributed to growth in the quarter, like what portion of the growth rate?

Yes. I'm sure, Russ, maybe look at the question – yeah go ahead, Russ.

What I was going to say is we had indicated that Ferragamo in its heyday was generating sales of somewhere close to $80 million, and that got cut in half, which is one of the reasons why we were able to take over the business itself. So that would mean that, the business overall would be somewhere around $40 million, $45 million or so. And it's pretty much right on target during the second quarter. Our sales were very, very close to that $10 million will have a little over the 10 million mark.

During the first quarter.

In the first quarter.

Okay. Okay. Thank you. And then finally, just this updating of your inventory management system that you mentioned. Can you just describe what that entails? And do you have to make like duplicative inventory for safety stock? And what's the timing of this implementation?

This implementation – go ahead, Jean.

No, no, go ahead.

The implementation is not just the inventory management system, it's our entire ERP system. This has been ongoing now for almost a year. We are upgrading to a cloud-based system and using third-party programs to assist in inventory management, warehouse management systems, scanning systems and things of that sort for our warehouse. If a project is, as I said, it's been going on for well over a year. We expect to transition it probably sometime between either the third quarter or at year-end for 2022. It's basically revamping all of our systems, not just inventory management. But inventory management is really the impetus as to why we entered into this endeavor.

Okay. Thank you so much. I'll pass them now. Thanks.

Thank you.

Thank you, Linda

[Operator Instructions] Our next question comes from Stephanie Wissink with Jefferies. Please proceed with your question.

Hi, good morning. This is Grace on for Steph. Thanks for taking my question. Wondering if you can highlight the pacing of launches for the remainder of the year? And then tangentially, how should we be thinking about the quarterly cadence from here? Thank you.

Yes, of course, we can do that. So for Q1, you remember that we launched -- we had a launch for three brands Coach, Moncler, of course, being number one, Moncler for men and for women. We'll continue with more men's rollout, basically GE shoe man, Aqua. And after that, in the -- starting July, you're going to have the takeover of Dona Karan and DKNY. So it's not a launch, but it's a new business for us, and we're going to start quite strong because we are taking over a worldwide distribution starting July 1. And the rest of the brands will have what we call flankers. So it's a good year of -- it's a good mix of blockbuster and flankers.

That’s helpful. Thank you/

Thank you. Our next question is from Hamed Khorsand of BWS Financial. Please proceed with your question.

Could you just talk about how the consumer is reacting with -- especially in Europe, with the weaker euro and how if you're adjusting pricing there to compensate for the weaker euro?

The customer in Europe not -- doesn't have to react really because we have not changed our retail price in euro. So even though the dollar is much stronger, we have not changed retail price yet. But it's true that American products for our distributors will be a little bit more expensive. That's why we'll have to do a second wave of pricing. We have to be careful with price increase. I think it has its limits. There are certain brands that is more acceptable than others for Boucheron or Van Cleef or [indiscernible] to have a $5 retail price higher, it's not a big deal. But when it comes to more democratic brands like GUESS or Abercrombie, I think we have to be disciplined and be careful because we want to keep this customer. We don't want him to go and buy something else. So we are monitoring very, very carefully, and we are looking at it very selectively. We don't do the same thing for everywhere.

Yes. And then my other question was, is the current macro environment making you change any of your plans for next year as far as the release schedule is concerned?

No, no. We are not changing our plans. Actually, we kept everything the same. We had -- again, we had a big setback with China, but we know that it's temporary. We have not decreased our inventory. We have not decreased, for instance, the launches and the rollout that we'll have in China in 2023. So, no, for us, even though we had a setback at the end of March in China, even though we cannot ship any -- I mean, cannot ship a lot of products in Russia, of course, in Ukraine now, we have maintained our sales guidance. And like Russell said in the press release and earlier today, we will, I hope, revisit the guidance for profit and sales towards June and July when we are sure that China has reopened.

Okay. Thank you.

Thank you.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

Thank you. All right and thank everybody for tuning in today for our conference call. Just a quick reminder, I will be presenting at the Jefferies Consumer Conference, which runs from June 21st and 22nd in Nantucket. Thank you, Steph, for the invitation and how nice it will be to be in-person at the event. If any of you have any further questions, please contact me by e-mail. Stay well and stay safe. Thank you again.

Thank you. This concludes today's conference. You may disconnect at this time. Thank you for your patience.