Inter Parfums, Inc. Aktie

Greetings, and welcome to Interparfums Inc. First Quarter 2026 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Devin Sullivan, Managing Director at the Equity Group and Interparfums Investor Relations representative. Thank you. You may begin.

Thank you, Rob. Good morning, everyone, and thank you for joining us today. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood.

As a reminder, 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 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. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. Interparfums' consolidated results include two business segments: European-based operations through Interparfums SA, the company's 72% owned French subsidiary; and United States-based operations.

It is now my pleasure to turn the call over to Jean Madar. Jean, please go ahead.

Thank you, Devin, and good morning, everyone, and thank you for joining us on today's call. We started off the year broadly in line with expectations with consolidated sales increasing 2% on a reported basis, reflecting growth from both our U.S. and European-based operations despite mixed results across the portfolio, aided by favorable foreign exchange movements. We were able to generate significant growth across several key markets, operating in a more difficult environment, while enhancing profitability. Our results reflect the strength of our underlying business, the appeal of our brands and the disciplined execution of our strategy across a diverse global footprint.

Consolidated sales growth in the first quarter reflected strong brand execution and solid performance in select regions, partially offset by macro and regional headwinds. North America, our largest market, increased by 7%, driven by continued category growth and innovative brand extensions, particularly from Coach. Central and South America grew 23%, supported by strong momentum in women's and men's Coach franchises and the Montblanc Legend line. Western Europe sales were flat, driven by slow consumer demand.

These results, however, were partially offset by softer performance in other parts of the world. Eastern Europe declined 12%, driven by operational difficulties in certain markets, which disproportionately impacted Lanvin and Lacoste. Middle East and Africa declined 12%, primarily due to recent intensifications of regional wars and the conflicts in the region. Asia Pacific sales decreased 7%, driven by distribution changes we implemented in 2025 in South Korea and India and softer consumer demand in Australia and New Zealand, which were partially compensated by strong growth in China.

Moving to performance by brand, we saw solid growth from several of our larger brands. Coach increased 30%, reflected strong sell-in following the launches of new extensions with Coach women and Coach men franchises, Coach Cherry and Coach Platinum as well as sustained healthy demand across most existing lines.

Montblanc rose 14%, driven by the launch of Legend Elixir, the first launch for the Legend franchise since 2024 and the success of the Explorer Extreme line launched last year and a lower sales base in last year's first quarter. GUESS, our largest U.S. brand -- U.S.-based brand, grew 11% in the first quarter, driven by ongoing success of the Iconic franchise, supported by launches of new extensions within the Iconic and Seductive pillars.

Roberto Cavalli continued to generate robust results to start 2026, achieving a 32% increase in net sales. Our blockbuster launch from last year, Serpentine, remains substantial success, opening a lot more doors for us across the world. The product was a finalist for the Prestige & Popular Packaging of the Year award at the Fragrance Foundation last month. And growth during the quarter was also fueled by the latest innovation, Just Cavalli Wild Heart extension dual gender duo, Wild Pink and Wild Blue and Verde Assoluto, the newest fragrance within the Uomo pillar.

Other key brands reflected tougher comparisons. Lacoste declined 12%, driven by last year's strong innovation-led growth and weaker Eastern Europe conditions. We launched a new extension late in the first quarter called Original Aqua for men, and we plan to launch several other extensions throughout the year to further elevate the brand.

While Donna Karan/DKNY declined 3% off a high prior-year base, we did see a 16% rebound in Be Delicious Core, indicating renewed consumer demand and improving franchise momentum. The Cashmere Mist deodorant also remains an extremely successful product within the Donna Karan/DKNY brand as it continues to be incredibly popular on TikTok Shop and Amazon.

Overall, with a global fragrance market normalizing towards historical growth rates following several years of exceptional performance, capturing market share has taken on greater importance as a key source of momentum. In order for us to do that, our portfolio offerings must both be diverse and distinguished to reach and appeal to multiple large consumer audiences, especially in a more difficult operating environment.

In addition to launching new exciting innovation across our existing portfolio, we are expanding our portfolio with new brands to further amplify our offerings and appeal. During the first quarter, we resumed distribution of the existing lines of Annick Goutal and reopened 2 store locations in Paris with another one to open soon. We will continue to develop the brand's reach and offering within the high-end fragrance market. Also, we are continuing to develop brand-new fragrances for Longchamp and Off-White and these launches will happen in 2027. We expect these two new brands to help us elevate our positioning in the high-end fragrance category.

And in January, we announced a separate exclusive long-term worldwide fragrance license agreements with David Beckham and Nautica. When these brands join our portfolio, Beckham in '28 and Nautica in 2030, respectively, both will be essential for us to expand our offerings in the lifestyle, fragrance space that we know quite well.

Fragrance continues to stand apart within the beauty for its resilience, supported by its role as an accessible luxury and everyday form of self-expression that consumers continue to prioritize even amid macroeconomic and geopolitical uncertainty and more deliberate spending behavior. The category is also benefiting from powerful e-commerce tailwinds with an increasing number of fragrance products purchased through nontraditional retailers, including Amazon, underscoring the growing importance of digital marketplaces in both discovery and conversion.

Consumers are also increasingly seeking personalization, which they find through fragrance layering as well as personalized AI-driven recommendations. Whether through social media, major e-commerce platforms or physical retail, the way consumers discover, evaluate and engage with fragrance is rapidly evolving. These are powerful channels for discovery, and we are actively leaning into that shift with a focus on storytelling that can bridge multiple channels and offer consumers immersive and consistent brand experience.

To be successful, brands must inspire desire, whether as a gateway into the world of an iconic fashion house such as Jimmy Choo, Ferragamo or Coach, or that of a celebrity like the one we will do with Beckham. We are continuing to develop our portfolio to maintain desirability across all our brands.

The travel retail market continued to perform well, representing approximately 7% of total net sales, consistent with prior periods. Brands including Roberto Cavalli, GUESS and Coach have performed well to start the year with travel retail overall currently showing strength in Europe, in particular. We anticipate steady growth in our travel retail business going forward.

Despite a dynamic macroeconomic environment, the global fragrance category remains resilient, and we will -- and we are well positioned to deliver on our goals this year. We remain cautiously optimistic for the balance of 2026, reflecting war and disruption in the Middle East, while capturing improving dynamics in other regions. We are confident in our ability to navigate near-term volatility, continue to operate efficiently and profitably and drive disciplined, sustainable long-term growth in service of our customers, brand partners and consumers.

With respect to the Middle East, I realize that oftentimes we can fall into the trap of viewing different parts of the world primarily through the lens of how it impacts our business. But our concern for our colleagues and partners in the whole Middle East extends directly to them, their families and communities. We truly appreciate and acknowledge their contribution during this time of heightened conflict and of course, we pray for better days ahead.

Before I close, I want to highlight that alongside operating our business, strengthening our ESG profile remains a key priority. Our ESG strategy is now in its first year and is going strong. We have seen a great return on our investment in this program across supply chain visibility, our ability to respond to new regulatory requirements and our external investor ratings. These actions and enhanced measures resulted in Interparfums receiving its third consecutive ESG rating increase from MSCI. We now sit at BBB and have our sights set on A. Our goal is to continue addressing the environmental and social risks that are most financially material to our business. This approach pairs long-term return on investment, focused resiliency with ESG performance.

With that, I will now turn it over to Michel for a review of our financial results. Michel?

Thank you, Jean, and good morning, everyone. I will begin by discussing the consolidated results before breaking them down into our two operating segments, European and United States-based operations.

As Jean pointed out, we delivered sales of $345 million, representing a 2% increase on a reported basis. On an organic basis, which excludes the impact of foreign exchange and the headwinds generated by the Middle East conflicts, sales declined 3%. Excluding the 1% headwind related to the war in the Middle East, organic sales declined by a more moderate 2%.

Foundations of our business remain strong and continue to go from strength to strength. For instance, our top 20 brand-region combinations, which represents 86% of our global sales in Q1, grew 9%. Our direct-to-retail channel, which represents 43% of our sales in Q1, grew 16%. This significant growth has had a sizable positive impact on our P&L as the direct retail channel has significantly higher gross margins but also requires more SG&A, especially A&P and logistics.

Our reported growth benefited from a favorable 4.6% foreign exchange tailwind. While the stronger euro has continued to favor our top line, it also increases our cost base across the P&L and our balance sheet. We are continuing to implement a variety of actions to mitigate that impact and have been pleased with the results.

Delving into gross margins, they expanded by 140 basis points to 65.1% from 63.7% of sales. And this is primarily driven by favorable segments, brand, channel mix as described above as well as lower-than-expected destruction costs, which reflect enhanced efficiencies in areas such as inventory management and forecasting.

These gains were partially offset by tariffs, which represented an expense of about $6 million during the first quarter of 2026. We are pleased with the positive effect of our tariff mitigation activities and ongoing cost savings initiatives. Our manufacturing optimization whereby we are shifting manufacturing closer to the point of sale, continues to contribute favorably to our operations and our cost structure. In combination with select pricing actions we took last year, we expect gross margin stability in 2026.

SG&A expenses as a percentage of net sales rose 200 basis points to 43.6% compared to the prior year period of 41.6% of sales. The increase resulted from a number of factors, royalty costs grew ahead of sales due to the GUESS license extension and unfavorable brand mix. We also had FX impacts, as described above, and higher logistics costs related to supply chain transitions and channel mix. Our A&P spending was stable at $52 million, approximately 15% of sales, and we continue to invest in line with anticipated sell-out by retailers to help drive traffic across all distribution channels, which we believe are higher than our reported sales.

Overall, our consolidated operating income was $74 million for the quarter, a 1% decline from the prior-year period, resulting in an operating margin of 21.5% or a 70 basis point decrease from the very, very high 22.2% in the first quarter of '25. Below the operating line, we reported a gain of $1.1 million in other income and expense compared to a loss of $1.7 million, leading to a positive year-over-year impact of $2.7 million compared to the 2025 first quarter. There was within these numbers, a $1 million increase in interest income behind the stronger ROI on our excess cash.

Moving to tax. Our consolidated effective tax rate was stable at 24.6% compared to 24.5% in the prior-year period. These factors led to a net income of $43 million or $1.35 per diluted share, representing an increase of 2% compared to net income of $42 million and $1.32 per diluted share in the prior-year period. As a percentage of net sales, net income rose to 12.6%, broadly in line with the prior-year period.

Now moving to our two business segments. I will start with European-based operations. For our European-based operations, net sales rose 2% but declined by 4% on an organic basis. Gross margin expanded by 190 basis points to 67.4% from 65.5% and this was driven by favorable brand and channel mix as well as lower-than-expected destruction costs and some of the pricing that we took last year. These were partially offset by tariffs, which represented an expense of $4 million.

SG&A increased by 9% to $104 million, with SG&A as a percentage of net sales rising 270 basis points to 41.4% of sales compared to prior-year period. The increase in SG&A was driven by foreign exchange impacts, along with increases in employee-related costs as we are building up our Korean subsidiary and higher logistics costs related to increased warehouse fees. Royalty costs also grew ahead of sales, driven by unfavorable brand mix.

Overall, net income attributable to European operations grew 4% to $50 million for the quarter, representing 19.8% of sales compared to 19.4% in the prior-year period.

Now turning to United States-based operations. Net sales rose 2%, helped by a positive foreign exchange tailwind, organic sales were broadly flat. Gross margin remained essentially flat at 58.9% compared to 58.7% with favorable brand and channel mix as well as lower-than-expected destruction costs offsetting the tariffs, which represented an expense of about $2 million.

Now while SG&A expense increased 3%, SG&A as a percentage of net sales remained essentially flat at 47.9% compared to 47.6% in the prior-year period. Overall, net income attributable to the U.S.-based operations was broadly flat at $8 million for the quarter, representing 9% of sales. This also reflected a higher effective tax rate of 19.7% in the first quarter of '26 compared to 18.1% in the prior period, which was driven by a lower tax gain from stock-based compensation.

March 31, our balance sheet remains strong with $237 million in cash, cash equivalents and short-term investments as well as working capital of close to $700 million. From a cash flow perspective, accounts receivable was up 6% and days sales outstanding was at 78 days, up from 74 days in the prior-year period, driven by foreign exchange and changes in channel mix. Despite the increase, we are still seeing strong collection activity, and we do not anticipate any issues with collections or accounts receivable.

Even amid foreign exchange headwinds on our costs, inventories declined significantly to $370 million as of March 31, 2026, from $396 million a year ago. This represented a 17-day reduction in inventory on hand to 259 days. By effectively managing working capital relative to our sales growth, we again significantly improved our operating cash flow. Cash flow generated from operating activities was positive during the quarter compared to operating cash usage of $7 million during the 2025 first quarter. We continue to expect strong free cash flow productivity in 2026.

Now turning to our guidance and outlook. As outlined in our earnings release issued last evening, we are maintaining our full year outlook. We continue to expect sales of approximately $1.48 billion and diluted earnings per share of $4.85. Our EPS guidance does not include any benefit from potential tariff refunds. While we remain proactive in mitigating the impacts of tariffs on our cost structure, we're also monitoring the possibility of IEEPA tariffs refunds this year, which could total approximately $17 million.

These potential tariff refunds are not included in our outlook for 2026. However, should they occur, we would likely take the opportunity to reinvest, at least partially, in support of our brands and fuel momentum where we think we can get a strong long-term ROI.

We continue to anticipate a return to stronger growth in 2027, driven by enhanced innovation, including the development and distribution of our newest brands. Overall, we are seeing moderating demand in several international markets, along with tariff-related pressures on our cost structures, and we are continuing to closely monitor potential inflationary impacts as suppliers adjust pricing. Nevertheless, we remain well positioned with a strong innovation pipeline, enduring global partnerships and a resilient consumer base that collectively reinforce our confidence in our long-term growth and value creation.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from Sydney Wagner with Jefferies.

So gross margin obviously expanded during the quarter, which was great. So just curious, looking ahead, which of those benefits do you view as structural versus more quarter-specific?

And then on the category, you've obviously spoken to seeing some normalization. But you've also noted pockets of strength where we're seeing maybe above-category growth. So how do you feel about the portfolio's ability to capture those pockets of above-fragrance algo growth?

All right. Thanks. So maybe, look, gross margin was really a combination of everything going favorably for us this quarter. We had the impact of the pricing increases that we took last year. We had a significantly favorable mix impact coming from our direct-to-retail channel. As you know, the gross margin on our direct-to-retail are significantly higher than when we sell through distributors. It was really a perfect storm.

At this point in time, we expect this to kind of normalize over the balance of the year, and this is one of the reasons why we're maintaining our gross margin target flat for the year. I would expect to see some of this mitigating particularly over the course of the second and third quarter.

Regarding the portfolio. Yes, go ahead, Jean, do you want to touch on the portfolio piece?

Yes. Regarding the portfolio, I would like to say that our bigger brands are doing better than our smaller brands. So when you look at Coach, Jimmy Choo, GUESS, Montblanc, DKNY, they are all in good shape and they will grow this year. We definitely -- we will look at the smaller brands. And in time, we will definitely [ edit ] the portfolio. Maybe brands that are doing less than $10 million should not be part of the portfolio. But -- and that's why we are looking at always increasing the portfolio of brands, looking for bigger brands, bigger potential, and we are happy to have signed in the first quarter of this year, two new license, one with Beckham, one with Nautica, even though they will start later on, they will be a great addition to the portfolio.

Regarding geography, we think that there is a good potential in the U.S. We see some strength in the U.S., primarily department stores, Amazon U.S., TikTok U.S., we think will perform better than other parts of the world.

Yes. Maybe just to build on Jean, we did see very, very strong growth in the market in the U.S. The market was up 7% in the quarter. And actually, it was very, very strong in March. It was up close to 9%. So that is -- that's really driving and fueling the momentum. Reiterating our core portfolio, our core portfolio, our top 7 brands grew actually 8% this quarter. So we have a very, very strong portfolio, and I think we have a very, very long tail that we need to continue to streamline over time. But overall, I would say, a very healthy core.

And then in terms of emerging consumer segments, we are playing in some of these smaller sized, trial size, probably lower price points when you think about TikTok. And we're also, as you know, with Goutal, as well as with Solferino, we're starting to play in the space where -- the higher luxury space, which we know has also historically been one of the faster-growing segments in this space.

If I can just poke in one quick follow-up. So on that 9% growth you saw in March, are you still seeing that level of growth quarter-to-date? Or how did the trends in April compare?

I haven't seen the April numbers yet. I think we'll be getting them most probably in the next couple of days. But yes, I mean, we're not hearing or seeing anything that seems to be limiting the growth. I mean, I think still growth in the U.S. continues to be very healthy.

Our next question comes from Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on -- so it sounds like you guys feel really good about the U.S. growth, I guess, continuing maybe even into the back half. I guess, how are you guys feeling about Europe and just globally in kind of a little bit more of a normalized fragrance growth environment?

And then also just in terms of your newness, no big launches this year, but I guess, are you expecting more kind of newness to roll out in the back half versus the first half to kind of maintain that share until we get to kind of some more blockbuster launches next year and some new licenses?

Michel, do you want to answer on Europe?

Yes, sure. I mean, look, as much as the U.S. continues to do well. I think Europe is more of a mixed bag. You saw our numbers for Eastern Europe. Eastern Europe is particularly impacted by the war in Ukraine and the challenging economic situation there. There's been a dramatic slowdown in purchasing and consumption. And it's definitely impacting certain brands that have a strong presence there.

If you look at Western Europe, it's also a bit of a mixed bag. There are certain markets like Spain, that continue to do well, but we're definitely seeing a significant slowdown in markets like France and Germany, which are very, very large markets. So those are really two markets where we're actually seeing very sluggish growth, even actually some decline in the last couple of quarters, have been declining in France, and that is a very large fragrance market.

Conversely, on the positive side, Latin America continues to do well. I think as the economies improve, as the middle class expands, that will represent, I think, a long tail of growth in the future. And I think Asia has been a little bit more -- I think it's more temporary. We've had to make some changes in our distribution, both in Korea and in India, and that's kind of weighing down a little bit on our growth, but that should eventually pick up once those -- that situation has improved.

And then Jean, I'll let you address...

Yes. The second part of your question, Susan, was are we going to have a blockbuster in the second part of the year. The answer is really like we have said before, this year of 2026 is not a big year for blockbuster. We really have a concentration of new launches, new big blockbuster in 2027. We knew that. That's why we animate the portfolio with flankers. So we still have innovation, but not as big as what we will expect in 2027. It's just a coincidence that we have so many new big launches in 2027. Actually, all our biggest brands will have a new franchise, a new pole in 2027. So for a year without a huge innovation, I think that we are doing quite well.

Okay. Great. And then maybe just one follow-up on pricing. So I think you'll start to lap the price increases you took last year in August. And you talked a little bit about inflation, too, maybe impacting COGS a little bit. So how should we think about pricing kind of as we start to cycle those price increases from last year? Are you expecting to take any more price this year?

Yes. I mean our priority is generally to make sure that we're offering the right consumer value with our offering. We have historically always been very, very prudent with pricing. I mean last year, we had to take pricing because of the tariffs. And we mostly took pricing here in the U.S. Outside of the U.S., there was very, very little pricing. So at this point in time, unless we see something dramatic happening, it's unlikely we'll take any pricing, especially in light of our -- in light of the innovation program.

Now we may take some pricing through -- as we launch new lines next year. It's always an opportunity when you launch something new to elevate the brand, elevate the lineup and price up, but you're not taking straight pricing on the existing lines. It's going to be more innovation pricing. Jean?

Yes. I totally agree. We don't like too much pricing here. We do it when we are really forced that pricing is not the right answer to maintain or increase sales. We think that the retail price of our fragrance is well adapted at the prestige level or at the more democratic level. So I don't see unless something like tariffs happened last year where we were forced -- like everybody else in the industry, we were forced to react. But today, it's not the case.

[Operator Instructions] Our next question comes from Hamed Khorsand with BWS Financial.

Just wanted to ask you, given that you're seeing the growth in the marketplace with demand that's outpacing your competitors, is this consumers just trying out your products because they're seeing your advertisements? Or is there some sort of loyalty to your brands that you're all of a sudden seeing this year that you weren't seeing in prior years?

Great question, Hamed. It depends on the brand. I think it's a little bit of both. We have some loyal customers coming back when the bottle is empty and they buy again the fragrance. And we have also a lot, a lot of curious new customers that are targeted by our digital aggressive advertising and they come and buy a fragrance from our portfolio.

For instance, I was looking at young boys anywhere from 13 to 17 years old, buying a lot on TikTok, buying a lot on Amazon. And buying quite expensive fragrances. They have apparently the resources to do it. They find it anyway. And this is very interesting for us and we are going in the future to look at these customers. Of course, teenagers, girls were always part of our target. But this is for us a new trend, and we're going to look at this carefully.

Michel, do you want to add something?

Yes. I would just say, I mean, this category is a category where people are always exploring and you have people that are loyal to a fragrance and they wear the same fragrance forever and some of them have a core fragrance that they keep and then they have a couple of new ones that they try on special occasions. But yes, I don't think there's any specific rule.

What's important really is to always be present when the consumer is top of mind. It's one of the reasons that we have spread out our A&P more evenly across the year. As you recall, we used to spend everything in the fourth quarter. We're now spending more regularly. And I think that's helping us sustain demand. And it's also the importance of always looking good in store and being present in all the right channels. And I think a lot of the work we've done in -- whether it's with Amazon or with TikTok in anticipating emerging channels, I think, have been quite successful for us.

Yes, that's going to be my follow-up for both of your comments there actually. So given that you're seeing some sort of efficiency in some ways or response to your advertising online, does that make you want to change your A&P in any way or try to put more weight towards something that you're seeing response? I'm just trying to gauge if there's possibility of upside sales here.

Yes, Michel, you can...

Yes, Hamed. I know you love asking us questions about A&P ROI. And look, the challenge with A&P is you know that it works. You don't always know how everything works. I would say I think the tools have gotten better. But generally speaking, I think we have plenty more opportunities to spend more to get a better return. And I think it's about managing profitable growth, and it's managing the short term, midterm and long term. Certainly -- and that's one of the reasons why you probably heard this in my prepared remarks, if we see more upside coming through in the form of tariffs, we will try to reinvest some of that. We believe that there is more upside here. Again, we want to do this responsibly in terms of managing the top and the bottom line.

And so I would say, we are constantly looking at ROI. If you look at 10 years ago, we were -- everybody was doing TV and now everybody is doing digital, right? So we're constantly evolving. We're investing a lot right now on Amazon, TikTok. So we're always looking for that edge and that ROI, and I think that's a constant optimization opportunity.

Our next question comes from Fraser Donlon with Berenberg.

It's Fraser here from Berenberg. I've got two or three questions, and I'll just ask them one by one, if that's okay. So the first is just about Lacoste. I wondered if you could maybe just help us understand how you're looking at the year as a whole for Lacoste, given the kind of soft start, and I understand the comment on Eastern Europe, but I guess it's quite an important growth lever for EU Ops generally speaking. And I'm just curious if you feel like you can kind of recover some of what you lost in Q1 for that brand specifically?

Do you want to share your three questions, just one or...

I can answer on Lacoste, if you want. I'm not worried at all on Lacoste, to be honest with you. The first quarter, we had a difficult comparison in the first quarter of this year. But I think we can recoup definitely towards the end of the year. And what is important is in 2027, we're going to have a very, very important launch on Lacoste. I saw the product, it was great. The advertising will look great. So Lacoste is in a very good shape. That's true that Eastern Europe was too slow, this explains a weak first quarter, but nothing to worry. Michel?

Yes, I would just add, Q1 and Q2 last year were really insane growth. We grew 30% in the first quarter. We grew 60% in the second. We had a huge amount of innovation, but we're feeling pretty good about Lacoste overall as a brand. And some of the challenges we're seeing this quarter really related to geographic footprint and disproportionate impact. I mean, Lacoste is primarily strong in Europe. And as growth slows down, it's impacting the brand disproportionately, but the brand is very healthy. And I think we're feeling really good about it.

Perfect. And the second question, if I may, was just to ask a little bit how kind of orders trended through Q1, maybe putting Middle East on one side, which is a kind of exceptional circumstance, like do you feel more positive on the rest of the countries now than you did in, say, January or February? And I know that's something that I think the kind of EU Ops management team had commented on at one point that maybe orders improved a little bit as the quarter went on. And on one side, the Middle East.

I can try to answer that. We put our guidance for 2026 in, what, November '25, when we said that we do $1.48 billion. We have not changed our guidance even though there is a big conflict in an important region, the Middle East, which represents 7% of our sales. So it means that we think that we will be able to find some growth outside.

That's also a good thing to have a conservative guidance at the beginning of the year because we sell in 120 countries and with so many geopolitical threat that we can absolutely not control. We do not have to lower guidance, even though there is some difficult times in important regions. So as of now, business is doing well. The orders that we received are in line with our projections.

Michel, do you want to add something?

Yes, I would say we've had -- our orders have been broadly in line with our expectations. We did -- obviously, the dip in the Middle East really -- happened really in March and impacted March disproportionately. We do expect that quarter 2 will also be impacted disproportionately behind this. So today, if we think about Q2, we're seeing Q2 as being, I would say, flattish versus last year also. I think until we see how this thing settles and eventually re-picks up, I think we're going to continue to be prudent.

Clear. And then just third and final question on my side was about the kind of direct-to-retail channel. I know you've, I think, taken in-house Korea because you kind of had to. But are there any markets where you feel like you're close to reaching a scale where you could potentially in-source those? I think you might have referenced those in previous analyst calls. I'd just be interested to hear more about any projects internally you're working on there.

I would say -- yes, go ahead, Jean. No, no, go ahead.

No, no, no. Please, Michel.

Yes. I would say we're very happy with the partnership. At the end of the day, the question is what are you looking for? Are you looking for gross margin? Or are you looking for total shareholder return? And I would say that I think in a lot of the markets where we're currently present, we've got great distributor partners, many of them that we've been working with actually for many years. And I think we're quite pleased with the level of progress and the return on investment. So there's always opportunities, particularly as we grow to consider certain large markets.

But the question is what do you get for it? Yes, you'll get maybe a better gross margin, but you'll also get more expense, you'll have more inventory to manage, you'll have more accounts receivable. So at the end of the day, the way I look at this is, where am I going to get the best TSR? And I think that with the footprint we have, I think we have the best TSR. And if something else comes up at some point in time, which makes more sense, we may consider it. But at this point in time, we're not really looking to convert distributors to affiliates. Jean?

Yes, yes. I totally agree. Korea was an opportunity, we took it. But we can reevaluate, but there is nothing will force us to change from distributors to subsidiaries, absolutely.

We have reached the end of the question-and-answer session. I'd now like to turn the call back to Michel Atwood for closing comments.

All right. Well, thank you again for joining us today. Thank you to our teams also for their continued dedication and agility in navigating in this uncertain environment and also helping us drive the efficiencies and supporting our ongoing success.

I'd like to mention that I'll be participating in the Jefferies Conference in Nantucket on June 16 and 17, so if you'd like to participate, please reach out to your sales representative at Jefferies for information. And if you have any additional questions, please contact Devin Sullivan from the Equity Group, our IR representative. And thank you, and have a great day.

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.

Greetings, and welcome to the Interparfums Fourth Quarter 2025 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Devin Sullivan, Managing Director of the Equity Group. Thank you. You may begin.

Thank you, and good morning, everyone. Thank you for joining us today. Joining us on the call this morning will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood.

As a reminder, 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. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. Interparfums' consolidated results include 2 business segments, European-based operations through Interparfums SA the company's 72 owned French subsidiary and United States-based operations.

It is now my pleasure to turn the call over to Jean Madar, Jean, please go ahead.

Thank you, Davin. Good morning, everyone, and thank you for joining us on today's call. 2025 was a record year for Interparfums with sales rising to $1.49 billion, including fourth quarter sales of $386 million representing our best ever fourth quarter performance. We saw the industry, including ourselves, returned to a more historically normalized level of growth. And while new and ongoing challenges such as tariffs and exchange rate pressures have influenced the environment. We have been able to manage through them with disciplined operational execution. Fragrance remains a resilient category and is widely considered an everyday essential luxury that delivers an irreplaceable experience of self-expression and daily indulgence.

In 2025, we energized our portfolio through the launch of several blockbuster fragrances and new line extensions across our brands, including the introduction of Solférino, our first proprietary ultra luxury offering and strengthen our marketing efforts with impactful advertising and promotional support. Our diverse portfolio of fragrances attracted consumers throughout the year with impressive annual performances by several of our top brands as well as brands newer to our portfolio such as Lacoste and Roberto Cavalli. We generated growth in the majority of our markets made meaningful progress to improve efficiencies and optimize our supply chain to mitigate cost pressure and support long-term growth and continue to deepen our sales reach on increasingly meaningful platforms such as digital and travel.

We delivered a high level of client service, maintained a strong financial position and continued to skillfully navigate lingering macroeconomic certain key markets, mainly caused by the effect of tariffs and trade destocking and, of course, geopolitical conflicts. Innovation will continue to define our success, including the rollout of brands recently signed or acquired, namely Longchamp, Off-White and Goutal as well as the 15-year extension of our gas license and our strengthening partnership with Authentic Brands Group and their exciting brand portfolio. We will touch on that shortly.

I'm very proud of our team for their hard work and dedication. This record results and continuing operational progress reflect their shared commitment to our pursuit of excellence. Now on to a discussion of our results and operating activities. As we noted on last quarter's call, we expected that fourth quarter sales will be supported by new rollouts late in the third quarter and the robust holiday sales season and that is exactly what happened. Consolidated 2025 4th quarter sales rose 7% on a reported basis and 3% on an organic basis, driven by higher sales for both U.S. and European-based operations.

Sales by our U.S. operations increased 4% in the fourth quarter of 2025, driven by performance from our 2 largest U.S.-based brands, GUESS and Donna Karan/DKNY and even greater growth from Cavalli and MCM. Excluding the phaseout of Dunhill fragrance that was completed in August 2024, full year '25 for U.S. operations, sales declined 3%. Fragrance sales of GUESS and Donna Karan returned to growth in the fourth quarter with increases of 7% and 8%, respectively. GUESS continues to benefit from the ongoing success of the iconic and selective franchise as well as the Q3 introduction of GUESS [indiscernible].

Donna Karan growth was mainly driven by the [indiscernible] BTNY [indiscernible] franchises. For the full year, GUESS sales were flat and the Donna Karan/DKNY declined of 4% was mostly due to unfavorable growth comparisons related to the timing of 2024 product launches. In just the second full year under our management, Cavalli fragrance sales rose 33% in both the fourth quarter and full year, a testament to our ability to elevate a brand profile creatively and strategically. The exclusive May August introduction of Roberto Cavalli [indiscernible] at Dubai Duty Free was highly successful and has helped drive significant brand market share growth in the region. We have expanded the distribution of [indiscernible] globally through multiple retail channels where it is enjoying ongoing success. Additional 2025 Roberto Cavalli rollout included the gold collection extension, the Paradiso extension, the Paradiso [indiscernible] and the striking [indiscernible] sub collection and the dual gender [indiscernible] Cavalli, give Magic Fragrance Door.

In 2026, we plan to keep this momentum going with additional extension that reflects and reinforce the brand established [indiscernible]. MCM fragrance sales rose 40% in the fourth quarter and 17% for the full year, driven by continued performance of a new [indiscernible] MCM collection launched in early 2025. In 2026, we expect to debut new extension to expand the brand. We are excited to be at Milan Design Week with April, where we will have an MCM centric display, highlighting the newest fragrance that we launched in early 2026 where the brand declined 9%. And despite the launch of [indiscernible], fragrance sales at Ferragamo held steady in the fourth quarter, supported by the third quarter launch of [indiscernible].

We remain confident in the brand's potential heading into 2026, where we plan to roll out new extensions across pillars. Sales from our European-based operations increased by 9% in the fourth quarter, driven equally by a 4% rise in organic growth and a 4% positive effect of foreign exchange. Coach, Lacoste and Montblanc led the way in the fourth quarter. For the year, sales increased 7% on a reported basis and 4% organically. While channel performance was mixed among regions, sell-through has been strong thus far in 2026. [indiscernible] our largest brand continued its long term and delivered another year of sales growth. The success of the Jimmy Choo [indiscernible] women's franchise has continued to strengthen since its launch in 2021.

Particularly in the United States, the launch of I Want Choo with Love, combined with the strong performance of the Jimmy Choo franchise helped drive 6% growth of Jimmy Choo fragrance in 2025. We have 2 new extensions in the world for 2026, and we'll be using the year to prepare for a new women's franchise in 2027. Coach fragrance sales increased 5% in the fourth quarter and 15% for the full year, reflecting strength across essentially all of the men's and women's line reinforcing its timeless multi-generational appeal as a mainstay of casual elegant. We benefited from the launches of Coach for men and Coach Gold in the first half of the year. We have had a wonderful relationship with the Coach brand since 2016, and we are incredibly happy to extend our agreement for an additional 5 years through 2031.

We expect to introduce new extensions for the men's and women's line in '26. And similar to Jimmy Choo, we will be using the year to prepare a new women's franchise in 2027. In much of the same way that we rejuvenated Roberto Cavalli, our success with the Lacoste brand was certainly a positive highlight in 2025. In just the second full year under our management, like cost fragrance sales grew 23% in the fourth quarter leading to 28% increase in the full year, reaching $108 million, exceeding our initial expectation of $100 million. The La Coste license took effect in January '24, and we immediately go to work crafting and implementing strategy, and then curating and introducing a collection of fragrances for men and women that key into the timeless elegance of a brand.

In 2025, we enriched the original line with a new men's fragrance called Original [indiscernible] woman fragrance original farm. We also introduced a new [indiscernible] dual gender duo, silver rose and silver gray. In 2026, we will further expand the Lacoste fragrance lines with additional extension, leveraging the solid foundation we have built in our first 2 years overseeing the brand. Montblanc sales rose 22% in the fourth quarter, reflecting the success of Montblanc Explorer Extreme in the second half of 2025 and the strength of the original Montblanc lesion line. This strong fourth quarter performance in combination with favorable foreign exchange helped to offset the sales softness we experienced in the first part of 2025 resulting in full year 2025 sales that were broadly in line with '24.

We plan to launch 2 new little extension in and are preparing for a big launch of a new men's franchise in 2027. The men's fragrance market remains underdeveloped in general, presenting a substantial opportunity for us to continue offering meaningful innovation and expand our reach across our entire portfolio for years to come. We remain optimistic about the future potential of Solferino, our first ultra-luxury direct-to-consumer offering that includes a collection of 10 unique premium sands designed to cater to the growing niche high-end luxury market. Our flagship store in Paris and dedicated e-commerce platform are attracting encouraging levels of consumer traffic. Solferino reached 40 doors worldwide by the end of 2025, and we are on track to expand this artisanal house to an additional 50 in the first half of 2026 with a long-term goal of up to 500 doors at the end of 2030.

We are excited that Solférino has entered the U.S. with the launch of Bloomingdale's online store and in 7 store locations with additional store rollout to come this fall. We have always taken a strategic approach to portfolio expansion, adding brands that strengthen our global reach and long-term growth profile. This year, we advanced that strategy with new partnership that further enhance our competitive position. In January, we announced separate exclusive long-term worldwide fragrance license agreement with David Beckham and Nautica, along with a 15-year extension of our license agreement with GUESS that maintains the relationship through 2048. These distinctive brands reflects our approach to an increasingly global and diverse fragrance market identify iconic category leaders and apply our proven operational expertise to build a sustainable franchise. Our opportunity pipeline is expanding as our ability to elevate and in some cases, revive brands is becoming increasingly recognized in the market.

I want to thank Authentic Brands Group, ABG, the company who co-owned and manage both the David Beckham and Nautica brands, we look forward to a continuing mutually beneficial relationship. While brick-and-mortar remains competitive, e-commerce is running strong, and we are benefiting from our expanded presence at Amazon and early foray into TikTok shop among us. This platform significantly enhanced our global visibility, deliver rich consumer insights and enable us to introduce smaller-sized products that serves as an affordable entry point into prestige and luxury, supporting both recruitment and premiumization efforts. Amazon remains one of our largest and fastest growing most notably, select products within our Donna Karan/DKNY brands. We are continuing to explore ways to leverage the increasingly significant sales potential of this platform, which has firmly established itself as a top 10 beauty retailer in the U.S. as well as the fastest growing.

The travel retail market continued to perform well with sales growing by 6% in 2025 and representing to the approximately 7% of our total net sales, consistent with prior years. Brands, including Cavalli, Lacoste and Coach performed well throughout the year. Our strong appeal among traveling consumers illustrated by the success of Cavalli [indiscernible] in Dubai is helping us secure additional shelf space and broaden our SKU footprint across duty 3 locations. We anticipate steady growth in our travel retail business going forward.

With respect to operational improvements, we've made some good progress against our stated goals in the areas of tariff mitigation, inventory management and operating efficiencies. For example, our transition to 100% third-party providers for packing, shipping, warehousing and order fulfillment should be completed by the end of March of this year. We are also making progress in shifting our manufacturing closer to the point of sales. with a focus on changes that provide a measurable impact. For example, as of December 31, 2025, we moved production for 3 gas lines, Italy, and have since diverted all components shipment from China to Europe instead of the U.S. This one change, which represented approximately 15% of our U.S. manufacturing produced tariff savings of $3.5 million. Retailers maintained a cautious stance on inventory levels throughout 2025, carefully managing their positions amid a dynamic demand environment.

However, we began to see meaningful relief in Q4 2025 as ordering patterns, stabilized and inventories declined. Encouragingly, that momentum has carried into 2026 with healthy ordering patterns since the beginning of the year. The tariff situation has become increasingly dynamic given last week's Supreme Court ruling and the aftermath. While it is too early, way too early to determine the long-term future of tariffs, we continue to focus on controlling what we can control in our own operations and have seen encouraging results. At present, we estimate that tariff costs will remain a headwind in 2026. We will continue to implement strategies and cost savings to blunt this anticipated impact.

These actions will be enhanced by the select pricing actions we took during the second half of 2025 but averaged approximately 2% across our brands. primarily focused on prestige and luxury and the U.S. market. Our pricing adjustments remained more modest than the prestige fragrance industry average as of late 2025. We do not plan to implement any further pricing actions beyond what we initiated last year unless a significant change in the market occurs. Our creative innovation, the continued resilience of the fragrance market and the breadth of our brand portfolio position us to deliver long-term growth. We expect a continuing period of transition in 2026 leading to a more stable market conditions as we prepare for what we expect will be a more favorable operating environment in 2027 and beyond.

As such, we have maintained a quite conservative posture with respect to our guidance, but we will revisit it as the year evolves. Over our 30-plus year history, we have earned a global reputation for excellence and where there is opportunity, we will be there to capitalize on it. I'm also pleased to share that I will be speaking at the womenswear [indiscernible] Summit in Pulp Beach this May, representing our company on an exciting industry stage.

With that, I will now turn it over to Michel Atwood for a review of our financial results. Michel?

Thank you, Jean, and good morning, everyone. I will begin by discussing the consolidated results before breaking them down into our 2 operating segments, European and United States-based operations. As reported, we delivered net sales growth of 7% to $386 million during the fourth quarter, leading to a record $1.49 billion in sales for the full year in 2025. Foreign exchange movements positively impacted our top line, contributing 3% to growth in the fourth quarter and 2% for the full year. However, as outlined in recent quarters, the stronger euro has also driven higher costs across the rest of our P&L as well as on our balance sheet. Organic sales, excluding FX and the completed phaseout of Dunhill and initial sulfur Reno sales in late 2025 rose 3% in the fourth quarter and 2% for the full year, respectively.

Gross margin contracted 20 basis points to 63.6% in 2025, and this was primarily driven by the higher costs due to tariffs. Tariff resulted in about $12.8 million in higher costs in 2025 or 0.9% of sales. We have been able to partially mitigate these impacts through favorable segment and brand mix which each contributed to 20 basis points of margin expansion as well as pricing and leaving us with a gross margin erosion of only 3%, considering the situation and the tariffs. We expect tariffs will continue to represent a significant headwind in 2026 as we annualize these tariffs for the full year. We continue to actively work on cost saving programs and tariff mitigation strategies to help limit these impacts. We estimate that these programs in combination with the full year impacts of the price increases we took in August 2025 will enable us to maintain our gross margins flat in 2026.

Moving to SG&A. SG&A expenses as a percentage of net sales were relatively flat in the fourth quarter at 54.3% compared to 53.4% in the prior year period. For the full year, SG&A increased 80 basis points to 45.5% of net sales from 44.7% last year, and this was driven by higher A&P spending as well as an unfavorable segment mix. A&P investments rose 10% and 5% for the fourth quarter and full year periods as we continue to invest ahead of our growth and in line with our expected sell-out trends. Royalty expenses, which are included in SG&A, average approximately 8% in 2025, in line with our 5-year run rate.

Overall, consolidated operating income and margin declined for both the quarter and the full year as compared to the prior year periods, due primarily to the combination of lower gross margin and higher A&P. Fourth quarter operating income was $28 million for the quarter, resulting in an operating margin of 7.1% as compared to $36 million and 10% operating margin in the prior year period. Full year operating income declined by 2% to $270 million, resulting in an operating margin of 18.2% or 80 basis points decline from the prior year for the reasons laid out before, just above. Below the operating line, we reported a gain of $1 million in other income and expense compared to a loss of $6.4 million in 2024.

The year-over-year change primarily reflects the following factors: first, we realized a onetime gain of $7.6 million related to a debt extinguishment during the fourth quarter. The second factor was a $1.2 million increase in interest income to $5.8 million during 2025 compared to $4.6 million in 2024 as our cash position improved. Third was a reduction in interest expenses on borrowings of $0.7 million. These gains were partially offset by a loss on foreign currency of $3.7 million compared to a gain of $500,000 in 2024. The significant swings in the euro dollar exchange rate throughout the year helped our top line but have led to larger-than-usual FX losses throughout our P&L. Our consolidated effective tax rate for the year was 23.3%, down 90 basis points from 24.2% in 2024 as we benefited from a onetime favorable net tax gain of $2 million in '25, following a positive outcome from prior year tax assessments.

These factors, combined with our disciplined execution and cost management enabled us to deliver net income growth despite the challenging operating environment. Fourth quarter net income was $28 million or $0.88 per diluted share a 16% increase from prior year period. For the year, net income reached a record $168 million with a diluted EPS reaching $5.24, also a 2% increase compared to 2024.

Now moving to our other -- moving to our 2 business segments. I'll start with European-based operations. We delivered solid net sales growth in both the fourth quarter and full year of 2025. Fourth quarter sales increased 9%, driven by 4% organic growth and 4% favorable FX impact. For the full year, reported sales rose 7%, including a 4% organic growth and 2% favorable FX impact. Gross margin for the full year was 66.1% and as compared to 67% in 2024. The bulk of the 90 basis points erosion in gross margin was driven by tariffs, which represented $8.6 million in 2025. While SG&A expenses increased 7% to $474 million SG&A as a percentage of net sales remained relatively flat at 46.7% compared to 46.3% in 2024. The increase in SG&A was primarily driven by a 9% rise in AP expenses the total $219 million for the year, representing 22% of net sales compared to 21% last year.

Overall, net income attributable to European operations rose 2% to $144 million, but as a percentage of sales declined 60 basis points to 14.2%. Now turning to our United States-based operations. In the fourth quarter, we achieved a 4% net sales growth on a reported basis and 2% organic growth, aided by a 2% favorable FX impact. Excluding the phaseout of Dunhill, fragrance that was completed in August 2024. Full year '25, operating sales declined 3%. Gross margin expanded by 40 basis points to 58.3% for the full year driven by favorable brand mix, driven by the 2024 Dunhill discontinuation, channel mix and pricing actions, which more than offset the negative 0.9% impact of tariffs.

SG&A expenses decreased 2% for the full year. However, SG&A as a percentage of net sales rose to 42% from 4.5%, and this was largely driven by our lower net sales with the discontinuation of Dunhill. Additionally, in 2025, we kept our A&P investments steady at 16% of net sales compared to 2024 and made the choice not to reduce other areas of SG&A in light of new licenses, which will be joining our portfolio in future years. Overall, the full year net income attributable to U.S.-based operations was essentially flat at $69 million, representing a 14.3% of net sales compared to 13.3% in 24 so improving margins.

At December 2024, our balance sheet remains strong, was $295 million in cash, cash equivalents and short-term investments and working capital of close to $700 million. Accounts receivable was up 17% compared to 2024 on a reported basis. However, the balance is reasonable and based on 2 record sales levels and higher FX impacts of the euro dollar. While day sales outstanding was 73 days, up from 66 days in 2024, driven by changes in channel mix and FX, we are still seeing strong collection activity and do not anticipate any issues with collections of accounts receivable. Despite FX headwinds, inventory levels were down 6% at year-end compared to 2024, and inventory days on hand decreased to 244 days compared to 259 days in 2024 marking our lowest level since 2022. These decreases are a direct result of our effort to manage down inventory levels.

We have also preserved a favorable inventory profile with a higher mix of finished goods relative to components. These improvements position us well to continue to drive further inventory efficiencies, and we will continue to optimize our inventory levels going forward. By effectively managing our working capital in line with sales, full year operating cash flow increased to $215 million, up $27 million from prior year period, and representing 103% net income compared to $188 million or 92% of net income in 2024. We also took advantage of our stronger cash position and the lower stock price levels in the back half of '25 to continue to share our share repurchase program.

In 2025, we purchased $14 million in shares, and we'll continue to evaluate additional share repurchases if the stock price remains below what we believe is the intrinsic value. In the same vein, we are pleased to be able to maintain our annual dividend of $3.20 per share. Now moving to guidance. As shared in our earnings release published yesterday evening, we are maintaining the outlook we provided in November. We expect sales to remain steady at approximately $1.48 billion and diluted earnings per share of $4.85. A decline from 2025 that is referenced above, included a onetime gain recognized in 2025, impacts from tariffs and significant investments we are making to develop our newest brands and support our broader portfolio for 2027.

We continue to anticipate a return to significantly stronger growth in 2027, driven by enhanced innovation across all of our key brands, including the develop and distribution of our newest brands. While we are seeing moderating demand in some international markets, our core fundamentals remain solid. We continue to advance strong innovation pipeline supported by a long-standing relationship with global distributors and retailers. Combined with a stable and resilient consumer base, these trends reinforce our confidence in delivering consistent performance and long-term value.

Before we begin the Q&A section of the call, I want to note that we are anticipating filing our Form 10-K early next week. All audit and reporting procedures are continuing to progress. With that, I'll open up for questions.

[Operator Instructions] And your first question comes from Sydney Wagner with Jefferies.

So in terms of revisiting your guidance later in the year, what are some specific metrics that you'll be looking for? Or do you need to see to give you confidence to update the guide? And then just curious, like is the category or your own pipeline or innovation uptake more of the swing factor in that? And then my other question just on promotions, some peers have called out some pressure there. Can you share a little bit more about what you've seen?

Michel, do you want to start on guidance?

Look, I mean we're just starting the year. We had a really strong Q4 but we're waiting to see really what happens. The environment remains very, very volatile. We are seeing a slowdown in market growth. The market growth in the fourth quarter for the markets that we're tracking was up 2%. And and it's definitely starting to slow down. For the year, we're at about 3%. So definitely a slowdown in the market. The destocking situation was a lot better in fourth quarter. We shipped better than expected, and we saw some restocking. At the same time, we believe that structurally destocking will continue to be a factor as retailers and distributors normalized their inventory levels, it's just a normal part of the cycle. And so we're waiting to really see how all of that kind of plays out. In terms of our innovation pipeline, I mean, we have a very, very strong innovation pipeline for 2027.

But for 2026, our strategy is really more of a flanking strategy. So we're waiting to see also how that basically holds up and how that's basically being received in the market before we feel comfortable updating our guidance. I don't know if you want to add.

Yes. Thank you, Sydney, for your question. Regarding the guidance, as you know, this company is -- has always been conservative. And we spent a good amount of time reevaluating the guidance, and we have decided to keep it not to change it because even though we had a quite good January and February, and I think we're going to -- we are anticipating a strong first quarter. The visibility is not great. So we are cautiously optimistic. And instead of retouching the guidance many times, I prefer to wait a little bit more. So it's not a sign that things are not going well. It's just we continue in our approach of being prudent regarding the guidance. The promotion, Michel, do you want to answer on the promotions?

Yes. I mean we've -- as you know, we -- pretty much the whole industry in the U.S. took pricing related to tariffs. Those price increases largely went through -- but we did see an uptick in promotions in the fourth quarter, a little bit more discounting than usual. I think this is normal. In this category, as we don't typically do a lot of discounting. We typically offer the consumer value in the form of giftsets [indiscernible] but I would say there was a little bit more of these friends and family discounts than we have seen in -- normally in the fourth quarter.

Nothing out of the ordinary.

Yes. Nothing significant, but maybe a slight uptick, but nothing significant and nothing of any large magnitude.

Your next question comes from Aron Adamski with Goldman Sachs.

I have 2. First, on the portfolio. After signing of the 2 new brands that you recently announced, do you have any further capacity to secure additional licenses? And in that context, would you prefer to add brands more in the mass end of the finance industry or build up the prestige presence further? And then my second question is on the flank pipeline that you have mentioned for this year. Can you please give us a sense of your expectations of which brands do you expect to gain market share in 2026? And conversely, which parts of the portfolio are you relatively more cautious about at this stage in the year?

Okay, Aron. Let me try on the first one. Do we have a capacity to take more after the signing of these 2 new brands, which are David Beckham and Nautica before I answer the question, let's take 2 minutes to analyze what we think we can do with these 2 brands. David Beckham is an icon. David become as a huge name recognition and we think that in this lifestyle world, we can do well. This is not the first transfer of license that we'll do from Coty. We've done it with GUESS. We've done it with Lacoste. We've done it with Cavalli, all went well. I think that these 2 new brands are a good addition to the portfolio.

Let's not forget that the portfolio of [indiscernible] is very diversified. We go on very high end [indiscernible] to very lifestyle. So we think that this addition and what it brings to us and what we can bring to them is a great fit. So this being said, do we still have capacity after these [indiscernible] And the answer is yes, absolutely. We have the structure, we have the human structure and also the process and the desire to grow the portfolio. So we can take we can take more. And we are working on more and without any guarantees to we'll be able to make announcement. We are working on very important brands. So for us, the evolution of the portfolio is a natural thing to do. We will edit some smaller brands. We will add newer and more important brands. We have the capacity. We have a distribution also.

Let's not forget that we are present in 110 countries, 120 countries through either directly through our distributors, and there is an appetite for newness. So this is for the portfolio and the new brands. Michel, do you want to answer on the [indiscernible]?

Yes. Maybe I'll just maybe just build a little bit on what you said. I think are coming back to our design and our structure. I mean the fact that we operate with 2 segments gives us a lot more capacity to manage bigger brand -- to manage more brands. We also have our hub in Italy which is run by [indiscernible]. So that gives us a third hub. And it gives us the opportunity also to put the right brands in the right places where they will get more will they have access to people that will have more affinity with the brand.

So for example, we will be managing the David Beckman out of Italy whereas we'll be managing the Nautica brand out of the U.S. and obviously, the [indiscernible] out of France. So again, that's part of this. Now I think the other thing is we believe there are many brands out there that are underserved and that could benefit from expertise, as Jean pointed out, we spend a lot of time looking for new opportunities, and we will continue to do so. The timing obviously, between the moment when we have conversations and we get brands, it can take time because, as you know, license it of an expiration date. And if you look at what we've announced recently, even if we have announced the licenses, we don't get them immediately. So that's always a factor, and that continues to play in that fact.

And then on flankers, look, are flankers are really designed to hold share, not necessarily to build share, but they are necessary to drive healthy top and bottom line growth. line starts to basically get a little bit more out. That is when we go out and design basically new blockbusters. And we have a significant pipeline of new blockbusters in 2027 across all of our key brands, whether it's Jimmy Choo, Coach, [indiscernible], Lacoste, GUESS. So we have a significant amount on top of the new launches that will be coming. So really, for next year, what we believe is we still have brands like GUESS, Lacoste and Cavalli will outperform. And [indiscernible], I think, will be more moderate growth, but we'll continue to do well, we believe, with our existing flanker strategy.

Yes. I agree. We are really looking at 2027 as very special year because the 5 biggest brands in the portfolio will have 5 very important launches for blockbuster. And it's quite unusual for us. It happens once every, I don't know, every 10 years. So we are gearing up for that. But we'll have a reasonable growth in 2026 with our strategy of flankers. .

And your next question comes from Susan Anderson with Canaccord Genuity.

I guess maybe just to follow-up on the gross margin. I think you guys were originally expecting maybe a little bit less deleverage in the fourth quarter. Maybe if you could just talk about what happened there versus your expectations? And then also looking to this year, how should we think about the cadence of the gross margin? Should we expect it to be I guess, down in the first half as we still have the tariff impacts and then potentially up in the back to get that flat for the year?

This is a perfect question for Michel. Michel, go ahead.

Yes. Look, I mean, the gross margin in quarter 4 looks pretty erosion, looks pretty scary. I think when you see the 300 bps and it's a combination of a lot of puts and calls that all basically went in the opposite direction, right? So sometimes these things tend to neutralize themselves. But in this particular case, basically, they were all unfavorable. So really, if you really look at what happened, first of all, you have the tariff impact, which hit us fully. We -- there's always a ramp-up with the FIFO and as we buy inventory, it kind of makes its way through. It made its way fully into the fourth quarter, and that basically represented about 2 points for the quarter. The other thing that we talked about is foreign exchange.

So foreign exchange to help us on the top line, but really hurt us significantly because a lot of the products that we sell are actually made in Europe. And so what the cost base in euros were [indiscernible] were basically in USD. So that represented and just for perspective, the euro was at $1.07 last year. And was it [indiscernible] this year. So that represented about 50% of our sales are denominated in dollars. So that would also had a significant impact. And the last piece is it's a little technical, but it's channel mix.

As you know, some of our businesses would direct to retailers with higher gross margin but also higher A&P and some of our businesses with distributors with lower gross margins and lower A&P. And in the fourth quarter, we had significantly more of our business was through the distributors rather than direct to retail. It was about 68% mix of business versus 63. So it's a combination of all those factors, and it's true that it looks a little bit scary. But overall, going back to next year, we feel that we have good mitigation strategy in place that will enable us to kind of get to roughly a flat gross margin. And yes, we should see some hurts in the first and second quarter. And we should see improvements in the third and fourth quarter as we lap our tariff impacts in the back half of the year and our cost savings and cost savings and efficiency programs actually start to kick in.

Your next question comes from Hamed Khorsand with BWS Financial.

Jean, I just wanted to ask you, you've talked a lot about the top 5, [indiscernible]. Is there anything in your other brands that could be a breakout situation for you to get into the top 5? Or you're not expecting that this year?

This year, breaking to top 5, I don't think, so -- Michel.

No. I mean, Hamed, look, I mean, I think our top our is brands are really basically are really -- our engines of growth and their diverse they mean in the various categories, price points, gender. I think those are really where we're going to get the growth going forward. And I think, effectively, the tail end of the portfolio will either be stable with brands like [indiscernible] or we'll probably continue to decline. And then those will eventually bleed out and probably be opportunities for us to consider exits. As Jean talked about cleaning up our portfolio.

I don't think that the top 5 are brands that are anywhere above or around the $200 million the second tier is really below that. So there is quite a difference between the first year and the second year. But we will add with new license that we are taking. I think that [indiscernible] has a great potential. We think that Nautica has a great potential. David became also. So let's not forget, if we take Lacoste, we took Lacoste, we doubled the sales in less than 3 years. We took Cavalli. We increased the sales 50% in 2 years. So we know how to -- what to do with new brands. And I think that there is a lot of potential for the new brand in the portfolio.

Got it. And then Michel, on the working capital and there was a considerable amount of free cash flow generation in Q4. I think that's very seasonal. But is there potential for more here as you try to wind down some of the inventory? Or is that more just a function of how the industry is right now with the destocking?

Yes. Well, look, I mean one of the upsides of sales starting to normalize as you kind of -- you're not investing as much in working capital, right? So definitely, the sales normalization has helped us basically deliver working capital improvements, but we've also done a lot of good work in terms of managing out those inventories. And I think we're going to continue to see that, and we're going to continue to see strong operating cash flow productivity going forward.

And your next question comes from Aron Adamski, with Goldman Sachs.

I wanted to quickly ask on the trends that you're seeing across your key regions or by geography so far in 2026. Where are you seeing the strongest whether it's your own -- the demand for your own brands for the category as a whole so far in 2026. And conversely, in which geographies have you seen maybe a relatively slower start to the year than you expected?

I'm going to try, but Michel follow this very carefully. What I see is the U.S. is doing well very quick short words. The U.S. is doing well. Southern Europe is doing fine. Northern Europe is more difficult. Eastern Europe is okay. This is for the U.S. and Europe. Asia for us, China continues to be slow, nothing new. Australia is showing some sign of -- some strong signs of growth. We traveled a lot in the first 2 months of the year to make sure that the Christmas went well. What I see is, in general, the level of inventory in stores or our distributors is not high, which is a good sign. Sell-through was good. Nobody is holding too much the level of reorders is quite strong. So we're not really worried. Michel, I'm sure you can add.

Yes, I would just build on that, Jean, say LatAm, obviously continues to do very, very well. I think our brand portfolio is really resonating well with the consumers. And then in Asia, while we had a little bit slower sales, we fixed our distribution in India and Korea, and I think we'll expect to see some good bounce back in 2026 behind that intervention on top of what effectively you just said for Australia.

And there are no further questions at this time. So I'll hand the floor back to Michel Atwood for closing remarks.

All right. Well, thank you again for joining our call today. Before I end the call, I'd like to express my sincere appreciation once again to our teams for their tremendous effort throughout 2025. Our achievements are a direct reflection of our people, their dedication, creativity and the unique contributions they bring every day and particularly the agility that we've had to deal with this year with all of the moving pieces that we all are aware of. If you have any additional questions, please contact David Sullivan from the Equity Group, our Investor Relations representative. And thank you, and have a great day.

Thank you. Thank you.

Thank you. This concludes today's conference. All participants may disconnect.

Greetings, and welcome to Interparfums Inc.'s 2025 Third Quarter Conference Call and Webcast. [Operator Instructions] As a reminder, this conference call is being recorded.

At this time, I'd like to turn the call over to Karin Daly, Vice President at The Equity Group and Interparfums' Investor Relations representative. Thank you. You may begin.

Thank you, operator. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood.

As a reminder, 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. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. Interparfums' consolidated results include 2 business segments: European-based operations through Interparfums SA, the company's 72% owned French subsidiary; and United States-based operations.

It's now my pleasure to turn the call over to Jean Madar. Jean?

Thank you, Karin. Good morning, everyone. Consistent with what we started to see in the second quarter, sales continued to moderate in the third quarter as macroeconomic conditions remain uncertain. We are leaning further into innovation across our portfolio, focusing on product enhancement and new launches that better meet the dynamic preferences of consumers around the world. These efforts are backed by compelling advertising and promotional support, increase brand awareness, drive consumer penetration and strengthen our overall competitive position.

As announced last month, third quarter and year-to-date sales were up 1% for both periods, with European-based operations sales rising 5% for the first quarter, building on top of last year's momentum, plus a stronger euro compared to the dollar, while U.S.-based operations sales declined 5% for the third quarter, excluding Dunhill. For our largest brand, Jimmy Choo Fragrance sales surged 16% during the quarter, largely driven by the I Want Choo fragrance family and also Jimmy Choo Man. In addition, the 6% quarter-over-quarter growth in Coach fragrance sales was fueled by its established lines and the launch of Coach Gold, while Montblanc fragrance sales dipped slightly due to innovation phasing and Lacoste fragrances are on track for $100 million in sales this year. I would like to note that in the first 9 months of 2024, sales by U.S.-based operations rose 11% with the addition of Roberto Cavalli into our brand portfolio, setting a high bar for this year.

In 2025, we are further capitalizing on this newer brand through the successful launch of Serpentine, the new feminine fragrance from Cavalli. Additionally, we are seeing increasing consumer demand in Donna Karan fragrance adjacencies such as the very popular deodorants. We also had new products roll out late in the third quarter that will mostly support fourth quarter sales in our U.S.-based operation, which include La Mia Bella Vita for GUESS, Sublime Leather from Ferragamo, 2 new extensions for DKNY, a new subcollection of Roberto Cavalli called Marbleous, plus the Just Cavalli duo, Give Me Magic, and Abercrombie & Fitch Fierce Reserve. We started Phase 3 of the distribution of Fierce rollout in May to additional countries, including the U.K., and launched Fierce and Fierce Reserve together at nearly 50 different points of sale. We see the momentum accelerating and look to further the brand's reach.

The third quarter was also a milestone for us with the introduction of our first ultra-luxury direct-to-consumer offering, the [ 10-tank ] Solférino collection. Our flagship boutique opened in the heart of Paris' luxury district, and we are now selectively building relationships with approximately 40 retail stores, rolling out the brand thoughtfully. By next September, we have set our sights on 100 doors with the goal of product placement in 500 stores by the end of 2030. As we refine our craft in luxury and artisanal fragrance, we will leverage the insights we gain to elevate and better serve the other brands within our portfolio. We invite you to discover the passion behind Solférino that you can see it in our website, our first fully owned, direct-to-consumer e-commerce channel.

So fragrance sales are accelerating across digital platforms as e-commerce has firmly established itself. In fact, according to Euromonitor fragrance has roughly 50% market share within the beauty category on Amazon. We are seeing similar trends as e-commerce platform continues to be a bright spot for us.

Our business on Amazon is strong. Divabox and TikTok Shop allow us to market and transact smaller sized products, increasing our visibility to consumers looking to play in prestige and luxury with more affordability. All told, the influencer magic of social media plays a powerful role in driving both traffic and purchases on Amazon.

Another important but relatively small channel for us is travel retail, which grew 13% in the third quarter compared to last year, driven by Lacoste, Jimmy Choo [ coats ] and GUESS, as well as others in our portfolio. The popularity of our products across traveling consumer is helping us in securing more shelf space and expand SKU presence at [ duty free venues ]. We anticipate incremental growth in our travel retail business going forward.

Turning to other key operational updates. We are always looking for ways to improve efficiencies and streamline our supply chain to help manage cost per share and support long-term growth. We are confident in the steps we have recently taken, including transitioning to 100% first party providers for packing, shipping, warehousing, and order fulfillment. We expect this to be completed by the end of the year.

We are also actively shifting our manufacturing closer to the point of sale for certain U.S. products produced SKU stalled primarily in Europe and other regions. These operational improvements will help us navigate the ongoing geopolitical or macroeconomic uncertainties with more agility while allowing us to maintain strong service levels.

Regarding tariffs, our view remains largely consistent with that of 3 months ago. We have successfully implemented many of the interventions we had previously identified to limit the expected impact for imports into the United States. Our immediate actions and strategic supply chain initiatives have proven effective, and our last remaining step is to implement a more cost-effective approach, leveraging the [ first sale ] rule for the finished goods that we've brought into the U.S. that are made in Europe by our European-based operations. This will require additional IT development, which we expect to have implemented by the second quarter of 2026.

As noted previously, we also began implementing pricing actions in August, and we are now starting to see the effects. Early indicators show that these higher prices will help offset higher input cost in dollars, but will still likely result in some gross margin erosion. We are also [ being ] more pricing -- we're also seeing more pricing in the fragrance and cosmetic market, namely in the U.S., where we saw unit prices increase during the third quarter by an average of 5.9%, up from 1.2% at the end of June. During the month of September, unit price increases averaged 7.2% for the industry, indicating 5% to 6% pricing mix making its way to the consumer, which will likely slow overall growth.

Of note, we have only taken pricing on select brands, mostly prestige and luxury, as lifestyle brand consumers tend to be more sensitive to price increase. At the company level, our 2% average price increase will continue to take effect through year-end and into 2026. At this time, we do not plan to implement any further pricing actions unless a significant change in the market occurs.

On the inventory front, some retailers are using AI and other tools to optimize their inventory levels. While store level sales have been growing, we are not yet seeing the same strength in new orders as sell-through outpaces sell-in. That said, we are ready to move quickly to make sure retailers have our products on their shelves, should they choose to replenish.

Before I turn things over to Michel, I am proud to share some great news. Women's Wear Daily has named Interparfums the Beauty Company of the Year in the Public Company category. This recognition is truly rewarding and reflects the strength of our brands, the creativity of our teams and the enduring partnership we have built with fashion houses, distributors and retailers around the world. So I was at this event to accept the award on behalf of our talented team and leadership, and I look forward to continuing to explore new ideas and help shape the world of fragrance together with each of you.

So with that, I will turn it over to Michel. Michel?

Thank you, Jean, and good morning, everyone. As reported, we delivered net sales of $430 million for the third quarter, resulting in a 1% increase for both the 3 and 9 months ended September 30, 2025. The impact of foreign exchange aided our top line performance, contributing to 2 points of growth in the third quarter and 1% on a year-to-date basis. But the stronger euro also increased our cost base in the rest of the P&L and our balance sheet.

Organic sales, excluding FX and Dunhill, declined 1% in the third quarter but rose 1% for the first 9 months of the year. Gross margin for the first 9 months expanded by 80 basis points to 64.4% from 63.6% during the prior year period. This was driven by favorable segment, brand and channel mix in the first 9 months of 2025. In the third quarter, however, gross margins declined by 40 basis points to 63.5%, as these favorable tailwinds were more than offset by the impact of higher tariffs on our U.S. imports, which represented about $6 million for the quarter. Although we implemented price increases and also tariff interventions, these price increases happened later in the quarter and only had a minor benefit on the results for the quarter. If we exclude the tariffs, gross margins would have improved by 100 basis points.

SG&A expenses as a percentage of net sales were 38.2% and 42.4%, respectively, for the third quarter and first 9 months of 2025 as compared to 38.9% and 41.8% for the prior year periods. The decrease during the quarter and increase year-to-date reflect a more even distribution of A&P activities over the course of 2025, which totaled $66 million or 15.3% of third quarter sales and $186 million or 16.9% of year-to-date net sales, respectively. We continue to invest in A&P activities ahead of our growth and in line with our expected sellout trends, and we will continue to do so in the fourth quarter.

Overall, consolidated operating income and margin improved for both the quarter and year-to-date compared to prior year periods. Operating income was $109 million for the quarter, a 2% increase, resulting in an operating margin of 25.3% or a 30 basis points expansion from prior year. On a year-to-date basis, operating income increased by 2% to $243 million, with an operating margin of 22% or 10 basis points improvement versus prior year.

Now looking below the operating line. We reported a loss of $7.7 million for the first 9 months of 2025. And this is pretty close to what we had last year, where we had a loss of $7.1 million. The year-over-year change primarily reflects a couple of factors. First, we have higher losses on foreign currency. We lost $4.6 million compared to $3.1 million in the prior year period. And as you know, the significant swings in the euro exchange rate throughout the year have helped our top line, but have led to larger than usual FX losses.

The second factor was the impact on marketable securities where we recorded a loss of $2.5 million in the first 9 months of 2025 compared to a loss of $800,000 in the first 9 months of 2024. Conversely, and thanks to the strengthening cash positions, changes in interest expenses and interest income were favorable year-over-year, with net interest expenses of $1.8 million during the first 9 months of this year as compared to a net interest expense of $2.9 million in the prior year period. Our consolidated effective tax rate on a year-to-date basis was 23.5%, down 20 basis points from 23.7% in the prior year period as we benefited from a onetime favorable tax gain of $2 million in the quarter following a positive outcome from prior year tax assessments. And essentially, it was a mutual agreement procedure that we successfully got through.

These factors, combined with our disciplined execution and cost management, led to third quarter net income of $66 million or $2.05 per diluted share, which is a 6% increase over last year's third quarter. And for the first 9 months of the year, net income is consistent at $140 million, with diluted earnings up modestly $0.02 to $4.36.

Moving to our 2 business segments, starting with European-based operations. As Jean pointed out, net sales rose 5% and 6% on a reported basis and 1% and 4% on an organic basis for the first 3 and 9 months ended in September. Gross margin was 66% for the quarter and 66.6% year-to-date compared to prior year periods of 66.2% and 66.3%. The slight quarterly decline reflects tariff impacts on our European operations, which were partially offset by pricing gains in the United States and favorable brand and channel mix.

While SG&A expenses increased 1% and 5% for the quarter and year-to-date, respectively, SG&A as a percentage of net sales declined by 110 basis points and 40 basis points, respectively. A&P expenses totaled $44 million for the quarter and $133 million on a year-to-date basis, representing 15% and 17% of net sales. Overall, net income attributable to European operations as a percentage of net sales exhibited strong growth, with net income margin expanding 230 basis points for the quarter and 50 basis points for the year.

Turning to our United States-based operations. Net sales declined by 5% and 6%, excluding the phaseout of Dunhill for the 3- and 9-month period. The phaseout of Dunhill Fragrances was completed in August 2024. So at this point in time, we've completely lapped that event.

Gross margin declined by 110 basis points in the third quarter due to transitional tariff impacts and brand and channel mix, but expanded by 80 basis points to 59%, largely due to the discontinuation of the low-margin Dunhill sales that impacted the prior year period. On the SG&A side, SG&A decreased 4% for the quarter and 2% for the year as we put in place strong cost containment measures. However, SG&A as a percentage of net sales rose to 39.7% and 44% for the first 3- and 9-month period, reflecting really, the lower sales. A&P expenses represented 16% of net sales for the quarter and year-to-date basis, representing $21 million and $53 million, respectively.

Overall, net income attributable to United States operations declined 14% to $21 million for the quarter and 20% to $39 million year-to-date, primarily reflecting these lower sell-in. At September 30, our balance sheet remains strong, with $188 million in cash and cash equivalents and short-term investments and working capital of $688 million. Accounts receivable was up 3% from last year's third quarter, slightly ahead of growth, driven by channel mix and foreign exchange.

We continue to have a strong collection activity. We've also made meaningful progress on inventory management this quarter. Inventory levels as of September 30, 2025 decreased 6% and from 2024 third quarter as we remain focused on executing on inventory reduction strategy. The composition of our inventory has also improved with a higher mix of finished goods relative to components. This shift positions us well to continue to drive inventory efficiencies as we get into the year-end.

By effectively managing our working capital in line with sales, year-to-date operating cash flow increased $68 million, up $18 million from prior year period, reflecting 38% of net income compared to $50 million or 28% of net income in the same period last year. Obviously, the cash always is higher in the run up until the last quarter of the year and should get better at the end of the year.

We also took advantage of our stronger cash position and the recent drop in the stock price to continue our share repurchase program. Year-to-date, we have repurchased $7.5 million in shares and will continue to evaluate additional share repurchases if the stock price remains below what is believed -- what we believe is the intrinsic value.

As we have communicated in the past, our fully owned French subsidiary, Inter Parfums Holding S.A., essentially an empty shell, will merge into our French subsidiary, Interparfums SA, which is a public entity. Since IPH hasn't conducted any business, we do not expect this merger to have any material impact on our shareholders. Following the completion of the merger next month, our company, Interparfums Inc., will continue to own roughly 72% of Interparfums SA, but this will now be a direct ownership as opposed to an indirect ownership and will supply -- simplify our corporate structure.

Moving to our current year guidance. And as per our earnings release yesterday evening and reflective of current market dynamics and year-to-date trends through September, we are refining our full year 2025 outlook. We now expect sales of approximately $1.47 billion, representing 1% year-over-year growth, and diluted earnings per share of $5.12, which is in line with 2024. Additionally, while we will provide more formal full year 2026 guidance on Tuesday, November 18, we currently anticipate moderate top and bottom line growth in that year, generally in line with what we are seeing this year. We anticipate a return to stronger growth in 2027, driven by enhanced innovation, including the development and distribution of our newest licenses, Off-White -- Off-White, Longchamp, as well as Goutal.

While demand has moderated in several international markets, our core business and fundamentals remain strong. We have a robust pipeline of innovation, enduring partnerships with global distributors and retailers and a resilient consumer base. Overall, we remain confident in the strength of our business model and our ability to deliver sustainable performance and long-term value, as we have for more than 4 decades.

Okay.

[Operator Instructions] Our first question comes from the line of Ashley Helgans with Jefferies.

This is Sydney on for Ashley. Just curious if you can share a little bit more about what you're seeing heading into holiday maybe that gives you confidence or caution there? And then in terms of the price increase, I would love to hear what feedback you guys received from retailers as well as the consumers. Any extra color there would be helpful.

I can try to answer on the holiday, what do we see for the holiday. We had a strong October. We continue to sell [ gift sets ] in October. Gift sets will arrive in stores in November or December. And our forecast for November is also quite strong. So it means that retailers are continuing to buy. The inventory at store level is not high, as we are monitoring this. in department store on a daily basis, Amazon sales are starting to pick up. But of course, this type of purchase will be done in the last 2 weeks of the year. So this year, we are not worried for the holiday.

Season. Pricing, the second part of your question is about pricing. We took a very modest pricing compared to other companies. And it was, I will say, quite well accepted. We didn't increase prices across all our brands. We selected the most prestige, the most elevated. This is where we think there is more elasticity. And we did not increase prices on the more democratic lines that we have or the more lifestyle brands that we have in the portfolio. But we didn't see too much resistance, neither from retailers nor our consumers.

Yes. Maybe just to build on Jean. I mean, ultimately, I think everybody was expecting that with the impact of tariffs, there were going to be inevitably, some of that was going to be passed on to the consumer. I think clearly, we've seen this across the board and particularly in the U.S. in the third quarter. As I was saying before, we're seeing before year-to-date June, unit pricing, which reflects, obviously, pricing, mix and other factors was up by about 1.2% versus prior year. And we've clearly seen an acceleration in the third quarter. Our unit pricing is up close to 6% and if your really zoom into September, it's close to 7%.

So definitely, there's been a lot of pricing that's been taken. It's not -- it is very selective from brand to brand, but generally speaking, we are seeing that acceleration. And it hasn't really significantly impacted units. Unit sales are roughly growing about 1%. So the market growth is driven by pricing again in this third quarter.

That's helpful. If I can maybe just poke one more in there. And I apologies if I missed, but there was some talk last quarter about just shipment timing maybe shifting between Q3 and Q4. Maybe I missed if you guys mentioned kind of where that ended up shaking out?

Michel?

I mean, we've certainly seen a little bit less holiday sets being sold into the third quarter relative to what we normally see. And we have seen some of that pick up during the month of October, but it isn't significant. I think the main thing here, really, Ashley, is -- Sydney, sorry, is that we continue to see a bit of a disconnect between sell-in and sell-out there. There is -- continues to be a couple of points difference.

The markets are still up. The market actually in the U.S. for the third quarter was up 7% and is up 4% on a year-to-date basis. So consumption remains very, very healthy. We're just seeing -- continuing to see a small disconnect of a couple of points between sell-in and sell-out. And not only for us, but also for our competitors. I'm sure you've all seen all of our competitors have now published their earnings. And pretty much everybody, with the exception of maybe Coty, which was an outlier on the way down, and [ Water ] now on the way up. Everybody has been hovering around 2%, which is pretty consistent in what we posted.

So overall, I think we are seeing at a macro level, this continued destocking that's impacting us. By the way, this isn't any different than what we're doing as well because if you look at our inventories, our inventories are also down as we're trying to get more efficient with our inventory. And of course, everybody is basically doing that.

Our next question comes from the line of Susan Anderson with Canaccord Genuity.

I guess maybe if you could just talk about kind of looking out over the next 2 years, you have a number of new brands rolling out. I guess, how should we think about just that growth profile in terms of what will be driving the growth? Do you think that the combination of these new brands, I guess, how much growth are you expecting them to drive as well as just continuing to grow your existing brands, whether that be the smaller ones or the larger ones?

Yes. I can try to answer. So when you look at the portfolio today, we have added 2 -- excuse me, 3 important license or [indiscernible] trademark. One is Off-White, and we will see sales of Off-White in 2027. We bought also the business of Goutal, which is a prestige line of fragrance. And you will start seeing some business in '26, but more in '27. And more important, I think the largest potential with the license that we signed with Longchamp. Longchamp is a great bag manufacturer. As you know, we have a great journey with Coach. And we think that Longchamp has a great brand territory, which we can exploit for fragrances for Longchamp will be -- can be 3 to 5 years, $100 million. And that's what we are doing. So 2026 will be, I will say, my best because the growth will be modest because we will be working for the important launch at the end of '26, beginning of '27. Michel?

Yes, I would just also say that we have also added quite a lot of brands, quite a lot of large brands over the last couple of years with Cavalli, Donna Karan, Lacoste, and [ the year before ], Ferragamo. At this point in time, if we look at the portfolio that we've added these are large brands, and they're growing -- but obviously, the smaller brands in our portfolio are kind of pulling us down. So there is going to continue to be some work on cleaning up the portfolio and -- so that we can really focus on the largest brands that will drive the business more sustainably going forward.

Okay. Great. And then...

We're still seeing that GUESS, Coach, Jimmy Choo and Montblanc can go at a good pace.

And maybe if I could just add one more on the model. I guess for fourth quarter, how should we think about gross margin now that the price increases have flowed through? I think you said if it wasn't for the tariff, third quarter would have been better by 100 bps. So I guess should we expect that to be fully offset now in fourth quarter on the gross margin front?

Look, it's a great question. The reality is we've done a really great job in realigning our supply chain and looking at tariffs. There is one big item that is -- takes a lot of time to do, which is all the U.S. stuff -- all the European stuff that we import into the U.S. It's a pretty sizable business. And we've been hit not only with 10% tariff, but it's been up to 15%.

It's going to take us a bit of time to basically get the cost of those tariffs down with the first sale rule, as Jean pointed out in the prepared remarks. That's going to, I think, continue to impact us in the first -- in the fourth quarter and in the first quarter of next year. It should get better in the second quarter. So no, I am expecting gross margins to slightly erode, I'd say probably about 50 bps, something similar to what we saw in the third quarter.

We've reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Atwood for any closing remarks.

All right. Thank you very much, and thank you, all, for joining our call today. With this being our final conference call of the year, Jean and I extend our warmest wishes for a safe and joyful holiday season and healthy and fulfilling new year.

I would like to mention that we will be hosting the Canaccord Genuity team at our corporate headquarters on December 4 for their annual [ Beauty Bus ] Tour. If you would like to participate, please feel free to reach out to the Canaccord Genuity team. If you have any additional questions, please contact Karin Daly from The Equity Group, our Investor Relations representative. And thank you, and have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Greetings, and welcome to the Interparfums, Inc's., Second Quarter 2025 Conference Call and Webcast. [Operator Instructions] [indiscernible] Investor Relations Representative. Please go ahead.

Thank you, Joe. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood.

As a reminder, 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 heading Forward-Looking Statements and Risk Factors. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed.

Interparfums consolidated results include 2 business segments: European-based operations through Interparfums SA, the company's 72% owned French subsidiary and United States-based operations.

With that, it's now my pleasure to turn the call over to Jean Madar. Jean?

Thank you, Karin, and good morning, everyone, and thank you for joining us on today's call. We began the year on a strong note, and that is continuing, but at a slower pace and with more speed bumps along the way than in recent years. Even so, the measures undertaken months ago, including price increases that will come into effect beginning this month and strategically shifting some of our sourcing and manufacturing, along with product innovation and effective advertising and promotional programs have enabled us to maintain and fulfill demand for our fragrance products.

There is no question that momentum eased in the second quarter for us and many others in our industry and some of the challenges we faced will likely continue into the second half of the year. That said, our lean, adaptable operating model, combined with the support from our distributor, retail and manufacturing partners as well as the proactive and timely actions we have taken position us to fully resolve these challenges by 2026.

As we reported last month, for the first 6 months, organic net sales, which excludes the impact of foreign exchange and the discontinuation of the Dunhill license rose 3% with first quarter shipments ahead of budget and second quarter below. European-based operations reported net sales grew 6% in the second quarter and 7% in the first half, with robust performance in the U.S. that outpaced the broader fragrance industry, led by Jimmy Choo fragrances.

In our U.S.-based operations, reported second quarter net sales were down 20%, with 8% of that due to sellout of the remaining Dunhill inventory last year, which concluded in August. On an organic basis, U.S. operations sales were down 14% in the second quarter and down 6% in the first half.

As I review regional performance, I will be focusing on the first half of the year rather than the second quarter, which was unusually volatile this year. We experienced solid in our 2 largest markets, North America and Western Europe. North America sales rose 7%, and Western Europe rose 3%. Central and South America sales increased 7% with the success of Lacoste fragrances and a nice growth in Coach fragrances and generally a healthy growing market. Sales in Eastern Europe were up 14% as compared to the first half of 2024, when we encountered sourcing constraints at the time. Asia Pacific fragrance sales were down 12% in the first half. We were against strong sales last year in Australia, but we have very high challenges in South Korea.

Positive takeaway for the region is that overall trends in China and Japan become a little bit more favorable. Middle East and Africa declined 19%, and it's an important region for us reflecting the exit of the Dunhill license, excluding the impact of Dunhill, net sales declined 6%. We have a strong fragrance lineup in the works for the remainder of the year for our European-based brands we will be launching the latest edition of the Jimmy Choo, I Want Choo franchise called I Want Choo with Love. And while Montblanc sales were broadly flat during the quarter, we are already encouraged by the promising response to the recent debut of Montblanc Explorer Extreme and we'll continue to strengthen the brand with extension to a Montblanc [indiscernible] line alongside an exciting addition to [ Caligaricotic ] franchise.

Since joining our portfolio, Lacoste fragrances have delivered outstanding results and we are eager to build on that momentum with the upcoming introduction of Lacoste Original Fun. We are adding new numbers also to the Moncler collection as well. Additionally, we are moving the debut of our first fragrance release for our owned brand called Solférino. This collection of 10 fragrances crafted by master perfumers stays true to artisanal routes, through carefully selected distribution and premium merchandising, ensuring a truly exceptional experience for our customers. Next month, we will open our flagship boutique in the heart of Paris, alongside the launch of our e-commerce platform and the products were just introduced this week at sales figures in London, allowing us to connect with customers both locally and globally.

This marks a new chapter for Interparfums filled with the promise of growth and discovery in the heart of artisanal and luxury fragrance flagship. And the insights we gain will not only enrich these lines of [indiscernible] but further empower us to elevate and better serve the entire family of brands within our portfolio. For our U.S.-based operations, we are set to introduce several scents, including [ Justice ] blockbuster duo for Roberto Cavalli less several extensions for guests, for DKNY, Ferragamo and [indiscernible].

As announced last month, Interparfums has been selected as the exclusive fragrance licenses for Longchamp labor goods, a French labor goods in fashion brand that was established in 1948 and has approximately 400 stores across 80 countries. By combining Longchamp's rich heritage and creativity with our expertise in fragrance development, we plan to launch their first ever women's fragrance in 2027 with a focus on Europe and Asia Pacific. So we are very happy to have signed this new fragrance license. And of note, there was more opportunity to obtain this license.

Before I hand it over to Michel to discuss the financial results, I want to touch on a few operational updates that have been front and center across region, platforms like Vivabox and TikTok shop are also gaining traction and showing promising growth. In fact, we are developing special programs tailored for e-commerce, such as TikTok specific SKUs, typically smaller size at lower price point to better meet the expectations of these customers who are often looking for more -- for the old version -- options, I'm sorry. Amazon continues also to be a key focus. The good news is that thanks to our success there, more brands are now willing to sell on Amazon after we demonstrated strong numbers. their business on Amazon has been growing steadily. It's important to note that Amazon Beauty is very much a controlled platform that we can't overlook the platform shares influence and reach. Vivabox, currently the #2 e-commerce platform for fragrance in France is another exciting area for us.

On the traditional retail side, there are no major changes big retailers and specialty stores like [ Macy's and Rota ] continue to hold steady market share and remained strong business. As we discussed on our previous call, we are making strong progress and remain on track with the transition out of our own operated facility in Dayton, New Jersey. This move will likely happen just after the summer with a target to be fully relocated to the new facility and working with a third-party logistics partner by the end of Q3. At that point, we expect to be fully utilizing third-party providers for packing, shipping, warehousing and order fulfillment.

As it relates to tariffs, and I'm sure if you have more questions, I will answer this during the session of the Q&A. But we've got some good news recently, the agreement to keep tariffs on goods from Europe at 15% and to eliminate tariffs on U.S. export to Europe. Earlier projections had us bracing for 30% to 50% plus also reciprocal tariff in Europe. So this is a meaningful improvement, even though the increase from 10% to 15% for imports to the U.S. is higher than we had initially planned. The recent agreements finalized with South Korea, Vietnam and the Philippines as well as a preliminary deal with China provide greater clarity on the global trade environment and confirm the immediate action and longer-term plans we put in place 3 months ago remain the right ones.

On our sourcing strategy, first, just to clarify, we do not feel or finish any of our goods in China, that said, we do still source a lot of components from there, including plastic caps, certain pumps, some metal parts and we have already started moving towards alternative sourcing options outside of China. It's a transition, and there may be some short-term impact, but between this and other steps we are taking, we expect to absorb it without major disruption.

Another key step is localizing production where it makes sense, we are shifting manufacturing closer to the end market. This is mostly valid for certain SKUs that are produced in the U.S., but where most of the businesses in Europe or other region. This shift will help us to minimize the U.S. import tariff employments. As it relates to pricing, we have taken a very selective approach, meaning it hasn't been applied across the board. We implemented more aggressive mid-single-digit percentage price increase in the U.S. where the tariff on imported finished goods have had the biggest impact. In other markets, we've generally held entry-level pricing steady and smaller sizes to maintain accessibility while applying more pricing adjustments to larger sizes or on brands that are less price sensitive.

Overall, we are looking at approximately 2% average price increase at the total company level, which will progressively take effect between now and the end of the year.

The next 3 months are going to be critical as we focus on the holiday selling. In the first half of the year, sell-through outpaced selling and store inventory levels are still relatively low. It will be a key market to see how retailers stock up for the holiday season. We already started Phase I [indiscernible] and on the orders and have this phase perform will sell the tone. One thing to keep in mind, the holiday seasons continue to shift later and later. If retailers don't carry heavy inventory now, we will need to be ready to ship deeper into the season, potentially even in the beginning of December that puts added pressure on logistics and manufacturing. So we are making sure we are ready to respond quickly. As we continue to navigate the current landscape, we remain confident in our ability to deliver on our goals for the year by making progress across all areas of our business.

With that, I will turn it over to Michel Atwood. Michel?

Yes. Thank you, Jean, and good morning, everyone. Let me start with our overall results, and then I'll go through the details for our European and United based operations.

As Jean shared and as previously reported, we delivered net sales of $334 million, a slight decline from the 2024 second quarter, due in part to the shift of some of the sales from the second quarter into the first quarter, we had disclosed in the first quarter release. On an organic basis, our first half sales grew by 3%, and we remain on track to meet our guidance for the year, supported by a balanced mix of legacy sand sales, key brand extensions, the seasonal lift we typically see from gift set sales in the third and fourth quarter, and favorable foreign exchange impacts.

Gross margin expanded by 170 basis points to 66.2% and 150 basis points to 65% for the second quarter and first 6 months of the year. This was driven by favorable brand and channel mix and namely the impact of the discontinuation of Dunhill which drove a big part of the improvements on the U.S. operations during the quarter, which you've seen as well. SG&A expenses as a percentage of net sales were 48.5% and 45% for the second quarter and first half of 2025 as opposed -- as compared to 45.6% and 43.6% for the comparable period in 2024. With A&P expenses of $69 million or 20.6% in the second quarter and $120 million or 18% of first half net sales rose respectively.

Our A&P investments grew 5% in the first half compared to 2024 as we continue to execute our successful strategy of investing in [indiscernible] a 9% decrease from the prior period resulting in an operating margin of 17.7% or 120 basis points decline from the 2024 second quarter. Year-to-date, however, operating income increased by 1% to $134 million with operating margin at 20%, 10% -- 10 basis points improvement from the prior year period. Below the operating line in the first half of the year, there was a loss of $6.7 million as compared to a loss of $1.5 million in the corresponding period last year. Two factors were behind the swing. The first is foreign exchange. There was a loss of $2.4 million in the first half of 2025 compared to a gain of $300,000 in the first half of 2024. As you know, the significant swings in the euro USD, which went from 1.03 in early February to 1.17 at the end of June helped our top line but resulted in larger than usual FX losses.

The second factor was the impact on our marketable securities where we recorded a loss of $3.4 million in the first half of 2025 compared to a loss of $600,000 in the first half of 2024. We did not experience a significant change in our blended effective tax rate when it was at 24.3%, up 40 basis points from 23.9% over the prior year period.

Moving on to our 2 business segments and given the volatility experienced in the second quarter, which is largely isolated and not reflective of ongoing trends, we will focus our discussion on the first half results. European-based operations net sales rose by 7% on a reported basis and 6% on an organic basis. Gross margin expanded by 60 basis points to 66.9% driven by favorable brand and channel mix. While SG&A expenses increased 7% to $212 million. SG&A as a percentage of net sales remained flat at 43.4%, benefiting from economies of scale with higher sales. A&P expenses grew 8%, slightly ahead of sales and totaled $89 million and represented 18% of European-based net sales for the first half. Overall, net income attributable to European-based operations increased 3% to $81 million. For European-based operations, net sales declined by 12% on a reported basis as the bulk of the Dunhill impact was absorbed during this period, which accounted for approximately 6 percentage points of decline, as such, net sales declined 6% on an organic basis.

Gross margin expanded by 220 basis points to 59.7% largely due to the discontinuation of Dunhill in the prior year period. While SG&A expenses declined by 1% to $91 million, SG&A as a percentage of net sales increased to 47.8% from 42.5% of net sales in the prior year period and that's largely driven due to the lower sales. A&P expenses, which remained broadly flat despite the sales drop and in order to protect sell-out totaled $31 million and represented 17% of United States-based net sales for the first half. Overall, net income attributable to the United States-based operations decreased 26% to $18 million, again, due in large part to the lower sell-in.

At June 30, our balance sheet remains strong with $205 million in cash, cash equivalents and short-term investments and working capital of $654 million. From a cash flow perspective, accounts receivable was down 1% from year-end 2024 and days sales outstanding rain consistent at 74 days, similar to the 72 days in the prior year period driven by changes in channel mix. By effectively managing working capital relative to our sales, we continue to improve our operating cash flow by $31 million shifting from a $26 million of cash consumption in the first half of 2024, $25 million cash generation in the present 6-month period. We expect to achieve similar productivity in the back half of 2025.

With a healthy sellout in the first half, driven by the strength of our portfolio and disciplined execution, we look ahead with cautious optimism about achieving our full year objectives and continue to maintain the guidance we outlined in November 2024. We believe that the continued resilience of the fragrance category, tariff-driven pricing actions in the second half and ongoing foreign exchange tailwinds will support us in meeting our goals. As such, we are reaffirming our 2025 guidance, which calls for net sales of $1.51 billion and earnings per diluted share of $5.35.

With that, operator, please open the line for questions.

[Operator Instructions] And the first question comes from the line of Ashley Helgans with Jefferies.

This is Sydney on for Ashley. First wondering, can you just talk about what you saw in terms of promotional levels, maybe how that progressed versus Q1 and then throughout the quarter? And then any more color you can provide kind of on what you're seeing from the destocking? It sounded like that wasn't a huge concern last quarter so wondering if you do feel like that's kind of worsened in Q2 and maybe what you've seen from a trend perspective there? And then just any comments on end demand and kind of more granularity around that.

Sure. Yes. So maybe Sydney, I'll probably take the question around the -- your last 2 and then Jean can address the promotional levels. So I mean destocking is always a very difficult one to assess. As you know, we sell to distributors who sell to retailers. So if you think about it as like it's kind of like when you get to a toll booth and somebody hits the break on the highway, everything kind of starts to back up and things start to slow down. We've certainly seen a slowdown in the market, and as a result, the retailers have been more prudent and the distributors have also been more prudent. And I think that, that little disconnect between sell-in and sellout is largely basically is factored and trigger that.

Now related to that, your last question around the demand. Actually, the end demand was pretty good, was pretty good this quarter. The market was up overall for the top 7 markets that we track. The market was up 5% in the second quarter and is up 3% on a year-to-date basis. So it's actually quite healthy. And actually, if you look at how we did versus the market, we actually did a little bit better. We grew share in the first quarter, if we also grew share in the second quarter. So overall, we have performed slightly better than the market. Now when we look at our competitors, we're seeing very similar situation, which is their sell-out typically is looking better than they're selling and as you know, obviously, [ CODI ] and [ Stelter ] haven't published yet, but we see that pretty clearly through given the numbers from [ LDH ] and L'Oreal that actually had pretty -- had actually flat to slightly declining numbers for the first -- for this quarter.

So overall, I think we're seeing pretty similar trends from our key competitors, which is sell-in is growing more slowly, and I think that really does show that it's a broad industry-wide situation that's kind of happening related to the slowdown, right? And Jean, on the promotional level?

I will add -- before promotion level, I would like to add something. As you know, we have been in this business for many years, more than 35, it's not the first time that we see a gap between sell-in and sellout. And what I remember is it's usually a response to a lack of visibility. The sellout is good, but the distributors or the retailers do not want to buy as much and take this opportunity to reduce their inventory. When it happens at this time of the year, I told my team that we have to be very ready to answer big surge of orders that could happen in September, in October, in November is a very, very late stage. So we need to be agile, we need to -- and that's why we kept our guidance at this level because we think that due to the fact that the product are selling, our distributors are going to need merchandise very soon.

Regarding for the destocking. Regarding the first -- can you remind me the first question?

The promotional levels, Jean.

Nothing in particular, nothing different than before. It's not more or less the business, as you know, is already very promotional we're using a lot of tools like gift with purchase and sampling, et cetera, but very -- I don't see any in new things going on in the promotion.

The next question comes from the line of Susan Anderson with Canaccord Genuity.

I think just a follow-up really quick on the tariff-related impacts the second quarter by that. I guess did you just mean retailers pulling back on ordering because of the tariffs? So I guess, similar to the destocking?

No, I will -- the retailers are not subject to tariff, we give a price but distributors, for sure, but this is part of this uncertain time, lack of visibility that I was mentioning before, as of a couple of weeks ago, we are talking about much higher tariffs, and we were also talking about reciprocal tariff which [indiscernible] did not happen. But no, we cannot say that the lack of purchasing or lack of the level of purchasing is lower because of tariff.

And just generally, people are being, I think, a little bit more prudent, I think, is really what you're hearing from Jean. That inevitably can drive a point or 2.

And then I guess just looking out over the next couple of years, you've added quite a few brands, I guess, to the lineup, especially now with Longchamp, they have Off-White, Solférino. I guess, do you think you'll still be looking to add, like do you think you have capacity to take on more? Or is this going to kind of be the lineup in terms of new brands coming on board in the next couple of years?

This is a very good question. We always look for diversifying the portfolio. And I think the addition of the latest addition of Longchamp. Longchamp is a great company, selling bags, we have very, very good experience and results with a brand like Coach. So it was a very natural to capture the Longchamp brand. So between Longchamp, the Lacoste that are very well recognized and also more less non-brand like Off-White or [indiscernible]. We think that these are good complements to the portfolio.

What does -- does it mean we can take more definitely, we can absolutely take more brands. We will, of course, with time exit the portfolio. There are some brands, smaller brands that may be in a year or 2 or 3, will not be part of the portfolio. It's a natural life of the company.

Great. Good luck for the rest of the year.

And the next question comes from the line of Hamed Khorsand with BWS Financial.

I just want to ask you about your comment about the retailers and how they're waiting on purchasing. What kind of risk is that? Does that impose for you? Is there a chance where you get a big slug of your revenue gets pushed into Q4?

Yes, yes. I mean, definitely, when you have this kind of uncertainty, the September period, August, September period is generally a pretty big period for gift sets. It's very easy for things to kind of move from 1 week to another and could shift from September to October. I mean it's very difficult to kind of plan. It's also one of the reasons why we typically don't guide by quarter, we generally guide for the year. But again, I think what Jean said is that what we're clearly seeing is that there is pent-up demand. We're seeing it through the market growth through the consumption of our brands and it's not only the case for us, but it's also the case for our competitors. So we believe that there's definitely some pent-up demand. And if the market continues to be strong. I think we'll certainly see probably some orders picking up in the third and fourth quarter.

I think the other thing that people are going to wait and see and particularly in the U.S. is the impact of the pricing that is being taken to offset some of the cost of the tariffs. And I think that's probably why also some of the retailers in the U.S. are being a little more prudent.

Okay. And then to your comments about the Amazon and TikTok, would you entertain a bigger portion of your manufacturing to smaller quantities, the smaller size packaging?

We will do that not for every brand, but we noticed that there is some relevant price on price point on TikTok that if you're above your sales drop immediately. So in order to do that, we have to create a special programs. This was something that we started to work at the beginning of the year, and we'll have it ready for Christmas. So it will be interesting. But it's not right for all the brands, but some brands that are on TikTok needs a lower price.

Lower price means for us we've given a smaller size. It's becoming more of a paid sampling. And it's -- the margins are good, margins are actually the same. So I'm absolutely for these kind of programs. Amazon is a different animal. We really start to have some very, very good business on Amazon. We advertise with them, we work with them. It's growing at a double-digit pace. We are opening also Amazon in Europe. We start to work with them in Europe in case. I'm quite happy with the business on Amazon. And as you know, we own 25% of a very important website based in France called Vivabox that is going to do over 100 million in sales. We don't consolidate the sales because it's an investment in the company. But we meet with them on a regular basis, and we learn from them what work, what doesn't work. This helps us a lot in our decision-making.

Okay. And Michel, sorry if you've answered this earlier, but what was the reason for the debt going up as much as it did Q1 to Q2?

Yes, Hamed, great question. I mean we essentially took out a loan. We made a few purchases at the end of last year and particularly in the first quarter. And I just -- we felt that it was time now to just kind of -- we like to manage our finances very conservatively. So we was largely to fund that. And also we've been buying some additional space around our head offices in Paris. So it's really -- it was really to buy assets, particularly like [ Guda and Extra Space ].

This concludes the question-and-answer session. I'd like to turn the call back to Michel Atwood for closing remarks.

All right. Well, thanks a lot, Joe. All right. Well, thank you all for joining our call today. And Jean and I really want to thank our incredible team, partners, brands and all of our stakeholders. Your dedication, trust and collaboration continue to drive our success, especially as we navigate through these uncertain times together.

I would also like to mention a couple of upcoming events. We will be hosting our Annual Meeting in person here in New York on September 10. And I will also be participating in the Wells Fargo Consumer Conference in Laguna Niguel, California on September 16 and 17. So if you'd like to participate in these events, please reach out to your sales representative at Wells Fargo. And if you have any additional questions, please contact Karin Daly from the Equity Group, our Investor Relations representative. Her telephone number and e-mail address can be found in most of our recent earnings releases.

We look forward to meeting with you all at these events or the next conference call. Thank you again, and have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.