Prestige product sales perk up Inter Parfums Q2 gross margin

12 Aug '05

5 min read

He went on to say, "As expected, the impact of the higher Burberry royalty rate and marketing expenses that went into effect in July 2004 and January 2005, respectively, were responsible for the decline in profitability. Company-wide royalty expense aggregated $7.1 million and $14.8 million for the current second quarter and first half, respectively, compared to $2.6 million and $6.0 million in the same periods of 2004. Similarly, promotion and advertising totaled $7.9 million and $19.0 million for the 2005-second quarter and first half, respectively, as compared to $5.7 million and $10.3 million, for the respective periods in 2004. They are very pleased that increased gross margins mitigated much of these increased expenses."

Discussing the recently signed agreement with Gap Inc. under which Inter Parfums will develop, produce, manufacture and distribute personal care and home fragrance products under the Gap and Banana Republic brand names to Gap and Banana Republic retail stores in the United States and Canada, Madar noted, "Company have established a dedicated operating unit and have begun staffing it. Eventually, this unit will employ between 15 to 25 people. We are also engaging a third party design and marketing firm to work with us on concept and formulations. As this is an important new dimension to business, they intend to devote the resources, human, financial and creative, that may be required to make these programs successful."

As previously reported, they have budgeted between $1.5 million and $2.5 million in Gap-related start-up expenses for the second half of 2005. The short-term impact of these expenses on their profitability is, they believe, a small price to pay for this potentially exceptional long-term growth opportunity. Also as previously reported, their schedule calls for the initial collections of personal care products to be in North American Banana Republic stores in the fall of 2006 and in Gap stores the following year, and for new merchandise to be added as our relationship ensues. One of the many aspects of this agreement that has special appeal is that Gap is responsible for in-store sales, advertising and marketing. This is quite different from our licensed prestige brands. They hope to have more to report on these programs before year-end."

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