Greetings, and welcome to the Inter Parfums Inc. Third Quarter 2023 Conference Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Vice President at the Equity Group and Inter Parfums' Investor Relations representative, Karin Daly.

Thank you, Daryl. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar. On behalf of the company, I would like to note 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 may be found in the company's filings with the Securities and Exchange Commission under the headings Forward-Looking Statements and Risk Factors in their most recent annual report on Form 10-K or subsequent quarterly filings on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and Inter Parfums undertakes no obligation to update the information discussed. As a reminder, Inter Parfums' consolidated results reflect their 2 business segments, European-based operations and United States-based operations. Certain prestige fragrance products are produced and marketed by European-based operations through their 72%-owned French subsidiary, Interparfums SA. It's now my pleasure to turn the call over to Jean Madar. Jean, you may begin.

Thank you, Karin. Good morning, everyone, and welcome to our third quarter conference call. Sadly, Michel's mother passed away yesterday and understandably, he is unable to join us this morning. So I will try my best to cover his financial remarks. Of course, we can arrange follow-up calls upon his return as needed. And of course, I will be able to also, as I'm in New York, to answer questions if you have after the call. So the strength of the global fragrance market is still compelling but no longer growing at double-digit rates from the last 2-plus years. Fortunately, and by design, our year-to-date sales growth of 27% clearly indicates our ability to outperform the industry and gain market share. The success of our newer brands has been a growth catalyst for us, along with the excellent sell-through of our legacy brands, which we have enriched with innovative extensions rather than major new product launches. Our production and distribution partners are operating efficiently and effectively to ensure that the omnichannel pipeline of fragrance sellers throughout the world are well stocked with our merchandise. These drivers produced record third quarter net sales, up 31% to $368 million, which set a new record for quarterly net sales in our 35-plus years as a public company. For the quarter, foreign exchange rates favorably impacted our net sales by 4%, and new brands represented 7% of the growth, leading to strong organic growth of 20% compared to the prior year period. Diving into detail of our business market for the third quarter, North America, our largest market, grew sales 29%, followed by Western Europe, our second largest region, with 24% growth. We also have seen a steep increase in sales in our smaller markets, particularly in Eastern Europe, the Middle East and Latin…

[Operator Instructions]. Our first questions come from the line of Linda Bolton-Weiser with D.A. Davidson.

I was wondering with regard to your comments on China that your POS grew, and so you could work down some retail inventory. How do you feel about your current levels of retail inventory there in China? Do you think there's more reduction that needs to happen? Or are things in a good condition right now?

Thank you, Linda. So regarding China, this is something that we monitor on a weekly basis. We ask our distributors to give us an idea on the most important accounts like Sephora and department stores and also the different digital operators. We are in a much better shape than before, and we see an improvement week after week, quarter after quarter. We think that the inventory will be in at a normal level when we start the year in 2024. But again, with China, you know we have been always super conservative. And I think we've been right to be like that because it's a big country and things are changing super fast. So we'll take also, even for next year, a conservative approach. But I can definitely notice an improvement in the inventory, that's all.

Great. And then without Michel here, I'm not sure if you can answer this.

I'm going to try. I'm going to -- it's my first. So be nice with me. Just tell me, I will try to answer. But again, if I'm -- if I don't know, I will tell you, I don't know, and we'll ask someone in the company to answer you in the next couple of hours. But go ahead, Linda.

Yes. My question is just with the level of advertising that you're guiding to in the fourth quarter, it does look like gross margin is implied to be sort of improved sequentially. So I would think it would be higher in the fourth quarter versus third quarter because of less gift sets. Does that sound reasonable to you that it should be higher in the fourth quarter?

No, I think you can -- for gross margin, I prefer that you use the same margin as the first 3 quarters. You don't -- it shouldn't be higher. But as I said, we will spend a very big amount of money in advertising in the fourth quarter to ensure the sell-through at store level.

Okay. And then just my final question is about -- I know you don't want to get detailed into 2024 yet, but I'm thinking that Roberto Cavalli and Lacoste can together add $100 million of revenue roughly. Is that about in the ballpark range?

If Michel were here, he will say he cannot answer because we don't have but I think that, look, Lacoste has been in the fragrance business, and we have disclosed already how much we were doing with the former licensee, Cavalli also. So I think that it's a fair number to use for now.

Okay. Thank you very much, Jean. Thank you. I appreciate it.

Our next questions come from the line of Ashley Helgans with Jefferies.

Some of your competitors are still taking price. Can you just talk a little bit about where you are in your current pricing journey? And then if you think consumers...

You're talking about pricing?

Yes, yes, pricing. Yes, where you guys are with your pricing journey. And if you think consumers are going to start pushing back on price at all? And then maybe any updates you can give us on the travel retail channel.

Okay. Let's try on pricing. We took a modest pricing earlier in 2023, something around 5%, which more than offset inflationary expenses during the quarter. And we do not expect to take further pricing actions at this time. But because like you said, we think that some consumers will eventually resist this price increase that, by the way, has been going on for the last 2 years. So we think that our pricing is at the right level. And we will not -- except maybe for certain particular SKU, we'll position it a little bit higher, but this is more for marketing reason, not to offset any inflationary expense. So that's about pricing. And you wanted to talk about the travel retail. This is your second question?

Yes.

We see definitely a big improvement for us in travel retail, but again, as opposed to our larger competitors, our business is -- our base is small on travel retail, we were roughly at 5% in the beginning of the year, and we are trending now something around 7% or 8%. So definitely improvement, definitely more traffic in the airports. I mean, everybody is traveling, and you can see that business is definitely more active. So we have -- we are quite optimistic for travel retail worldwide. If your question is more about travel retail in China, this is, I will say, enough a point also where we want to be conservative, and we are not putting big numbers for travel retail in China or for Chinese travelers. That's what I can tell you for now.

Our next questions come from the line of Korinne Wolfmeyer with Piper Sandler.

Congrats on a good quarter. I'd like to just touch on the guide for the year. I mean, obviously, a pretty big step down in the top line growth for Q4, and I know there's some really challenging comps, but can you just provide any color on maybe why you're not pushing a little bit higher for Q4 and kind of what you're baking into the guidance for the remainder of the year? And then maybe how we should think about the trajectory into 2024? I understand Michel's not here. So I appreciate any color you can provide.

I can try. But I knew that you were going -- someone was going to ask me this question. We have decided to keep the level of sales at -- because as you said in your question, we are against a very strong fourth quarter last year. We have increased the EPS numbers because of the results of the third quarter, of course. But we want to maintain this prudence in our numbers. There is some instability in the world, as you know, 2 weeks ago, a war started in a very important region for perfume, which is the Middle East. So we have to be prudent. And that's why we prefer to stay conservative in our guidance. That's what I can tell you for now.

And then on the advertising and marketing spend, I mean, you're still planning for that to be fairly heavy. What is your willingness if we do start to see a heavier slowdown in the top line, what is your willingness to maybe pull back on that spend to preserve the profitability of the business? Or is that something that you're going to continue to invest in even if the top line gets a little more pressure?

Yes. We will continue to invest. This investment is to ensure that all our retail partners sell out what we shipped them. So we did great in the third quarter because we shipped a lot, a lot of products, and it's absolutely necessary to maintain or to increase all our expenses to make sure that our retailers worldwide have a great sell-through and we can replenish inventory coming first quarter next year. . So it will be a very short-term vision to reduce advertising to show a little bit more profit. No, we are here for the long term, and we are here to gain market share. So I'm convinced that this is the right thing to do.

Our next questions come from the line of Hamed Khorsand with BWS Financial.

Just wanted to see what kind of spending changes have you seen at the retail level going into the holidays? And are you assuming that the retailers are as much stocked as they were last year? Or do you think there's ample room for them to do reorders in Q4?

A good question. This is also something that we are monitoring on a daily basis. Retailers are quite prudent. They are not taking massive inventory. We are delivering daily. I was with many retailers in the last couple of weeks, and we have -- they have given us a lot of smaller orders, but more sequenced in order for, I guess, to receive products in a cadence that is on a weekly basis. And that's what we are doing. So they are not -- they don't have a huge amount of stock, but they are continuing to buy. And we have, I think, orders to ship up to Christmas. So I think it's a prudent attitude from retailers, but I do not see any issue with their inventory level.

Okay. And my other question was for next year, other than Cavalli and Lacoste, what are you focused on as being important events for -- into perfume next year?

So of course, Cavalli and Lacoste are the new brand in the portfolio, but we are going to concentrate on the 5 biggest franchise in the portfolio. Number one is being Montblanc and Coach and Ferragamo and Jimmy Choo and GUESS. So these 5 brands will represent maybe 70% of the sales, and we will continue to invest. And what is very important is that this 5 big franchise will all have a blockbuster in 2024, where for 3 out of 5, we didn't launch any blockbuster in 2023. So this is positive. In a couple of weeks, we're going to give the sales guidance for 2024. We are optimistic but prudent because, again, the world conditions, these tensions also are not great for business, and we have to take this into account, of course.

We have reached the end of our question-and-answer session.

I hope I was able to answer the right way. But again, I repeat, if there is more info that you need, we will be happy to have Michel's team answer, you just have to call the office. I'm sorry, operator, yeah, you wanted to say something else? No?

No, I was just going to hand the call back over to you for closing comments.

Okay. So before I end the call, I wanted to touch again on recent geopolitical tensions. As a global business with over 2,200 touch points across the globe, we do everything we can to help support our manufacturers and distributors. At Inter Parfums, we are in support of humanitarian efforts and the innocent people experiencing so much pain. We condemn the terrorist attacks in Israel, and we'll continue to work to find more ways to provide support to our partners, consumers and all those affected by this war. We hope for a pathway to peace soon. And as I said, if you have additional questions, please contact Karin Daly from the Equity Group, our Investor Relations counsel. Her telephone number and her address can be found on our most recent earnings release. Since this is our last conference call of the year, Michel and I hope you have a safe and pleasant holiday season and a prosperous New Year. We look forward to the next conference call. Thank you very much, and have a good day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.