IPAR - Inter Parfums: Positive Outlook

2023-03-10 05:57:58 ET

Summary

• Inter Parfums has recently raised its 2023 guidance, and its actual financial performance might be even better than what it is currently guiding for.
• The mid-to-long-term outlook for IPAR is also positive, considering a new brand licensing agreement for Lacoste, and the company's stance on brand investments.
• My Buy rating for IPAR stock is premised on the company's positive outlook for both the short and long term.

Elevator Pitch

I assign a Buy investment rating to Inter Parfums, Inc.'s ( IPAR ) stock.

My opinion of IPAR's growth prospects for the near term and long run is favorable, and I don't think the positive outlook for the company has been adequately priced into its valuations based on a peer comparison. This explains my decision to rate IPAR as a Buy.

Company Description

Having been in business since 1982, IPAR describes itself as a company that manufactures and sells "prestige fragrance and fragrance related products under license agreements with brand owners" in its March 2023 corporate presentation slides . The Americas, EMEA (Europe, Middle East, and Africa), and Asian geographics markets represented 47%, 39%, and 14% of Inter Parfums' revenue, respectively for full-year fiscal 2022.

Inter Parfums' Brand Portfolio

Inter Parfums' Short Term Outlook

Inter Parfums is expecting to achieve decent growth in its top line and bottom line for this year, as revealed in IPAR's most recent Q4 2022 and FY 2022 earnings press release .

Specifically, IPAR has lifted its FY 2023 top line guidance by +4% from $1.15 billion previously to $1.20 billion now, which translates into a +10% revenue growth as compared to the company's 2022 sales of $1,087 million. Also, Inter Parfums raised the company's diluted earnings per share guidance for 2023 by +7% from $3.75 earlier to $4.00 currently, and this is equivalent to a +6% bottom line expansion in the current year.

The upward revision in Inter Parfums' financial guidance is supported by its encouraging 2023 year-to-date and Q4 2022 performance.

IPAR noted in its most recent quarterly results media release that "2023 started out on a strong note" for the company, and it has "sizable orders already booked" as of end February. The actual revenue and EPS for Inter Parfums in the fourth quarter of 2022 beat the sell-side analysts' consensus financial projections by +6% and +79% , respectively. As per S&P Capital IQ's data, IPAR's Q4 2022 gross profit margin and operating profit margin were +4.0 percentage points and +3.1 percentage points higher than the market's consensus profitability estimates, respectively.

More importantly, Inter Parfums' actual 2023 results could potentially beat the current management guidance and the market's expectations (current sell-side consensus numbers are aligned with the company's guidance).

At its FY 2022 results briefing on March 1, 2023, IPAR highlighted that its "2023 guidance barely factors in China." But the company acknowledged that it "will need to revisit the subject of guidance" if China's reopening turns to have a greater than expected positive impact. A recent March 2, 2023 research commentary published by UBS ( UBS ) mentioned. that "China's reopening is on track" based on various "mobility measures" like "road traffic." It is likely that IPAR has been too conservative in its expectations for the recovery in the Chinese market, and there is a decent chance of Inter Parfums' actual 2023 performance surprising on the upside.

Medium To Long Term Growth Prospects For IPAR

Looking beyond 2023, the intermediate to long term outlook for Inter Parfums is excellent considering three key factors.

The first factor is the addition of the new Lacoste brand licensing agreement which should come into effect for 2024. IPAR revealed at its recent quarterly investor call that Lacoste achieved in excess of $100 million of revenue last year, which implies that Lacoste will be among the company's leading brands in time to come.

The second factor is that IPAR's licensing agreement for the Montblanc brand, IPAR's most significant revenue contributor with 2022 sales of $194 million, was lengthened by an additional five years to expire at the end of 2030. This increases the predictability of Inter Parfums' revenue and earnings for the mid-to-long term.

The third factor relates to Inter Parfums' willingness to invest for the long run, rather than just focus on maximizing short term profitability. IPAR noted at its Q4 2022 earnings briefing that it plans to increase its sales & marketing spending as a proportion of revenue from 19.5% in 2022 to 21.0% for 2023 and stressed that "our brand is our insurance for the future."

IPAR's Valuations Are Attractive Compared With Its Key Peer

The market values Inter Parfums at a substantial discount as compared to its peer The Estée Lauder Companies Inc. ( EL ).

Based on S&P Capital IQ's consensus data, the sell-side analysts are predicting that IPAR's and EL's revenue will grow by +10.6% and +10.8%, respectively, in calendar year 2023. While both of these companies' expected top line expansion rates for the current year are similar, there is a meaningful valuation gap between the two companies.

IPAR currently trades at consensus forward next twelve months' EV/EBITDA and normalized P/E multiples of 20.6 times and 33.4 times, respectively. On the contrary, EL is valued by the market at 23.4 times forward EV/EBITDA and 38.3 times forward P/E. On a relative basis, Inter Parfums' valuations are more appealing.

Concluding Thoughts

I assign a Buy rating to Inter Parfums. I have a favorable view of IPAR as an investment candidate, taking into account both its outlook and valuations.

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