Inter Parfums, Inc. (NASDAQ:IPAR) Q3 2022 Earnings Conference Call November 10, 2022 11:00 AM ET
Company Participants
Karin Daly – Investor Relations, The Equity Group
Jean Madar – Chairman and Chief Executive Officer
Michel Atwood – Chief Financial Officer
Conference Call Participants
Linda Bolton-Weiser – D.A. Davidson
Kurt Anderson – Jefferies
Hamed Khorsand – BWS Financial
Korinne Wolfmeyer – Piper Sandler
Operator
Greetings, and welcome to the Inter Parfums Third Quarter 2022 Conference Call and Webcast. Presently, all participants are in a listen-only mode. An issue-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, I’d wish to remind you that this conference is being recorded.
Presently, I’d wish to turn the decision over to Vice President at The Equity Group in Inter Parfums Investor Relations representative, Karin Daly.
Karin Daly
Thanks, Daryl. On behalf of the corporate, I would love to notice that this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties and other aspects which will cause actual results to be materially different from projected results.
These aspects could also be present in the corporate’s filings with the Securities and Exchange Commission under the headings Forward-Looking Statements and Risk Aspects of their most up-to-date Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q. Forward-looking statements speak only as of the date on which they’re made, and Inter Parfums undertakes no obligation to update or revise the data discussed.
It’s now my pleasure to show the decision over to Mr. Jean Madar, Chairman and Chief Executive Officer of Inter Parfums. Jean, it’s possible you’ll begin.
Jean Madar
Thanks, Karin. Good morning, everyone, and thanks for participating in today’s call. Joining me might be Michel Atwood, who became our CFO on September 6 of this 12 months, three weeks before the close of the quarter. As I discussed on our last call, Michel got here to us from Estee Lauder as Vice President, Finance and Strategy. Within the short time he has been on Board, Michel has been instrumental in exploring ways to make our company more efficient and productive by driving scale and operational efficiencies across the corporate in addition to taking on the leadership of our finance functions.
For anyone recent to Inter Parfums, take into account that after we seek advice from our European-based operations, we’re talking about our 73% owned French subsidiary, Interparfums SA, while our U.S.-based operations seek advice from our wholly-owned domestic subsidiaries. On each side of the Atlantic, our business is primarily prestige fragrances and related products.
Within the 4 years, that I’ve been within the business, I don’t recall so many moving parts and forces outside of our control. The dollar-euro exchange rate, the war in Eastern Europe, the holdups in transportation and the provision chain, the regional resurgence in COVID and concurrent lockdowns and political turmoil throughout the world to call a couple of.
And despite these headwinds, we’ve got once more raised our guidance for 2022, based on a record level of October sales and order backlog. As we reported yesterday, we now search for net sales to are available at roughly $1 billion – I even have to get used to it, $1.025 billion and diluted EPS of $3.40.
As our forecast indicates, the vacation season is shaping up thoroughly, and we’re looking forward to a powerful fourth quarter, which we’re again supporting with a large promoting and promotional campaign to stimulate holiday season retail and set the stage for healthy retail orders within the Recent 12 months.
Moving on to our business by region. Since North America is our largest market, I’ll devote a while to why year-to-date sales are up by only 4%. In the event you recall, last 12 months, North American sales rose 140% for the primary nine months in comparison with one 12 months earlier as U.S. customers schedule most of their holiday shipments within the third quarter in anticipation of supply chain problems, while this 12 months, a number of the gift set shipments originally scheduled for delivery in the present third quarter didn’t get shipped until the fourth quarter.
To date this 12 months, our other major markets have achieved very healthy growth. Despite the strength of the dollar, our sales in Western Europe rose 34%. And although our business in China is down because of lockdowns and travel restrictions, our overall sales in Asia are up 23%. Our sales within the Middle East and Central and South America were also robust, up 41% for the Middle East and 28% for Central and South America.
Sales in Eastern Europe are understandably down 16% as we should not shipping products from the U.S. to Russia. Excluding China, travel retail has made a powerful comeback. A recent report by the International Air Transport Association stated that in July 2022, international traffic rose 150% versus July 2021, which builds upon the upward trend because the start of the 12 months.
Pre-COVID, our travel retail business range between 10% and 15% of net sales today, I’ll say it’s around 8%, with still room to grow in 2023 and 2024, but with a significant recovery from the near cessation through the worst days of the pandemic, with pent-up demand for vacation travel in addition to the resumption of business travel. Our European-based brands achieved nearly 10% growth year-to-date in constant euro, but in dollar, it was only 4%.
Taking a look at our three largest brands, Montblanc’s nine-month sales were 19% ahead of last 12 months in euro, but only 6% in dollars. Jimmy Choo sales were up 23% in euro, but just 9% in dollars. And Coach sales were up 17% in euro, but only 4% in dollars. European brand sales also got a pleasant boost from Moncler with the debut of our first ever scents earlier within the 12 months. Over 2022, recent product launches included Montblanc Legend Red, 3 Coach fragrances Wild Rose and Dreams Sunset for ladies and a recent pillar for men called Open Road.
We also launched Kate Spade Sparkle, Jimmy Choo Man Aqua and I Want Choo Perpetually, Lanvin Mon Éclat and Boucheron Singulier. Plus, there have been many, many extensions and flankers for our other brands. Staying with European operations, we’re thrilled concerning the recent model for our largest brand, Montblanc, Zinédine Zidane, the brand new face of Montblanc is widely considered the very best football player or as a few of you call soccer and is one of the crucial achieved coaches in soccer. Zidane is already appearing in our Montblanc Legend promotional campaign.
Moving on to U.S.-based operations, GUESS, our largest brand throughout the group and our fourth largest brand overall, achieved year-to-date sales growth of 24%. The launch of Uomo this 12 months and the continued success of the Bella Vita fragrance pillar accounted for much of that growth. In fact, the addition of latest brands, namely Ferragamo, Ungaro, Donna Karan and DKNY, was answerable for much of the 62% the year-to-date top line growth, although the 2 latter brands didn’t kick in until late July.
A lot of our midsized brands have also been strong performers. Nine-month sales, as an example, for Abercrombie are up 32%, Hollister 27%, Oscar de la Renta 24%. The mixing of Donna Karan and DKNY has been smooth despite some major supply chain glitches. We began by servicing U.S. malls, and we’re in the midst of replenishing inventory in Europe and South America.
Come the Recent 12 months, we’ll take over responsibility for production from the previous licensee, and the brand new pillar is already within the works for launch in 2024. It’s just over a 12 months since we signed the Ferragamo license agreement. Our office in Florence, Italy, operates the Ferragamo fragrance business with management, a growing sales team and production conducted in Italy.
The timing of our agreement couldn’t have been higher with the recent appointment of fashion superstar Maximilian Davis as Ferragamo’s Creative Director. Davis has been reenergizing Ferragamo’s appeal, attracting younger, deeply engaged, digitally savvy and value-driven customer, which has helped drive the Ferragamo fashion business up by 23% in the primary half of last 12 months.
That bodes well for each legacy scent and people under development, including a completely recent collection debuting in 2024. The Ferragamo trajectory is upward, and it’s well on its technique to becoming one among the highest brands in our portfolio. For 2023, once more, we’ve got recent product launches within the pipeline. For European operations, there might be a recent fragrance for Kate Spade and for U.S. operation, a recent pillar for MCM. But for a lot of the others, we’re constructing on the foundations of existing collections with extension and industrial innovation.
Just as our growth just isn’t exclusively depending on recent product launches, it is usually not depending on adding recent brands. This being said, as most of , it’s an ongoing pursuit. We now have two sorts of targets, those brands with established businesses and fragrance offerings for aspirational brands with great potential.
Today’s most pressing problems, China, Russia, inflation and provide chain, may reverse. But invariably, recent challenges will emerge. While we all know that there are still some headwinds beyond our control, we consider we’ve got robust plans and robust momentum, due to our diverse portfolio of brands and the proven resilience of our organization to beat adversity.
While a few of these headwinds have the facility to slow us down within the short-term, they are going to not stop us. Because of this we’ve got taken on more room at our Recent York City headquarters and are well established in Florence and in Paris. To support our growing U.S.-based operations, our Recent Jersey distribution warehouse is undergoing refurbishment. And over time, additional space could also be called for. As I discussed on our last call, the brand new ERP implementation is nearing the finish line, and it is going to help support our next stage of growth.
Now, I’ll turn the decision over to Michel for a more detailed financial review. Michel?
Michel Atwood
Yes. Thanks, Jean, and good morning, everyone. I’m delighted to be on today’s conference call, my first at Inter Parfums. With two months under my belt, I’m more convinced than ever that I made the fitting profession move. It’s an amazing organization under the leadership of Philippe and Jean, with amazingly talented and dedicated people in any respect levels and in all locations.
Along with my finance, M&A and strategy responsibilities, I even have been given carte blanche to drive scale across all the company, with the last word goal of building the constructing blocks and framework to support our next billion in sales.
Moving on to our financial results. Foreign currency exchange rates proceed to have a big impact on the third quarter and year-to-date performance. The U.S. dollar relative to the euro hasn’t been this strong for 20 years. And as by now, a powerful U.S. dollar has a negative impact on our sales. Actually, the typical dollar-euro exchange rate depressed sales by 5% for the third quarter and nine-month period. On the flip side, a powerful dollar boost gross margins because almost 50% of net sales of our European operations are denominated in U.S. dollars, while just about all of its costs are incurred in euro.
As we reported last month, third quarter sales rose 7% to a record $280 million from $263 million within the third quarter of 2021. Comparable foreign exchange rates, third quarter net sales increased 12%. It bears repeating that our 2021 third quarter net sales were 64% ahead of 2020 third quarter, making for a difficult comparison. 12 months-to-date sales rose 16% to $776 million from $669 million within the prior 12 months.
For our European-based operations, third quarter gross margin was 69.5% in comparison with 66.6% one 12 months earlier, with an almost 300 basis point increase attributable to the strong U.S. dollar, favorable mix and our pricing actions, offset somewhat by increased transportation and component costs.
For U.S. operations, third quarter gross margin rose 70 basis points to 53.8% from 53.1%, with the advance because of scale advantages, pricing actions in addition to favorable brand and gift set mix. On a consolidated basis, third quarter gross margin rose to 64.9% from 63.7% within the prior period.
Moving on to SG&A expense. You might recall that last 12 months, our sales far exceeded expectations in every quarter, and so we underspend on promoting and promotion throughout 2021. This 12 months, we’re back to more normalized A&P spending, resulting in a rise in SG&A.
On a consolidated basis, A&P represented 16% and 16.1% of net sales for the 2022 three and nine-month periods in comparison with 15.3% and 14.2% for the respective periods last 12 months. For European operations, SG&A expenses increased to 42.1% and 42.3% of net sales for the present three and nine-month periods, respectively, as in comparison with 38.8% and 39.9% for a similar period one 12 months earlier. For U.S. operations, SG&A expenses were 41.4% and 40.2% of net sales for the third and nine-month periods as in comparison with 35.1% and 36.8% within the prior 12 months.
Along with more normalized A&P spending, for U.S. operations, the rise in SG&A also reflects the increased investments we’re making in staffing, organization and infrastructure to support our recent brands.
Based upon our $1.025 billion sales guidance for 2022, you possibly can expect one other $90 million of A&P expenditures to satisfy our annual goal of 21% of net sales. Once more, the fourth quarter is after we activate the large A&P spending to drive holiday sales and keep momentum moving into the primary quarter of the next 12 months.
Our 2021 third quarter operating margin was 25.7%, which is kind of impressive. This 12 months, it was 23%, still exceptional but probably not sustainable if we really need to have a long-term plan to grow our business. By the use of comparison, within the third quarter of 2019 and 2018, the operating margin was 19.2% and 19.7%, respectively. Over the long-term, the high teens are probably the sweet spot we might be aiming for.
Below the operating line, there have been several noteworthy items. First, interest and investment income for the present third quarter features a $2.3 million gain as in comparison with last 12 months’s lack of $100,000, resulting from the rate of interest swap on our real estate loan in Paris. For the present nine-month period, we recognized a gain of $6.4 million related to this rate of interest swap, which was largely offset by an unusual one-time lack of $5.3 million on marketable equity securities through the same period.
Moving on to taxes. Our consolidated effective tax rate was 23% for the primary nine months ended September 30, 2022, as in comparison with 28% last 12 months over the identical period. In 2021, we settled the claim by the French tax authorities with a payment of roughly $3 million regarding assist subsidiary. Also, the French corporate income tax rate dropped from 28% to 25%. Our U.S. operations tax rate was also lower as we recognized a one-time tax advantage of $2.5 million related to the 2021 Ferragamo acquisition.
On the time of the acquisition, we’ve got not recognized deferred tax advantages, and there have been uncertainties concerning their potential recoverability. Nonetheless, as of September 30 of this 12 months, the recoverability is deemed likely. Our balance sheet stays very strong. We closed the third quarter with working capital of $459 million, including roughly $177 million in money, money equivalents and short-term investments and a working capital ratio of two.9:1.
The $108 million of long-term debt relates primarily to the acquisition of the brand new headquarters of Interparfums SA. Although accounts receivable is up 56% from year-end 2021, it’s driven by a record sales, combined with our high level of shipments towards the top of the third quarter in addition to some prolonged payment schedules. While days outstanding increased to 80 days, up from 70 days within the corresponding period of the prior 12 months, we’re still experiencing strong collection activity and don’t foresee any problems with collections.
Inventory levels at end of September 2022 increased 55% from year-end 2021 when inventories were lower than optimal for the dimensions of the business we aspire thus far. We now have no qualms about carrying high levels of inventory in an environment where shortages abound and transportation might be unreliable.
In our experience, it is healthier to hold more inventory than lose the sales because of a scarcity of products. As , our inventory doesn’t go stale because of color, size or season, protecting us from any risk of obsolescence. To limit any potential risk on sales, we’ll proceed to take care of over sufficiency on inventory of components and finished goods until we feel the present supply chain disruptions are behind us.
With respect to our customers’ inventory, the U.S. and European retailers do not need excess inventory and sellout is definitely quite strong. Against this, inventory levels in China remain elevated, which is smart, and sales are down, and business on the whole is stagnant because of lockdowns.
Now operator, please open the lines for questions.
Query-and-Answer Session
Operator
Thanks. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the road of Linda Bolton-Weiser with D.A. Davidson. Please proceed together with your query.
Linda Bolton-Weiser
Yes. Hello, and congratulations on a superb quarter.
Jean Madar
Thanks.
Linda Bolton-Weiser
So only one little housekeeping item. It looks to me just like the special – the 2 special items were about $0.14 per share. So is it true that you just roughly raised the guidance by that quantity? Is that the technique to give it some thought?
Michel Atwood
Yes, that’s the fitting technique to take a look at it, yes.
Linda Bolton-Weiser
Okay. After which so it’s nice to see the rebound in like what I take a look at is organic sales growth within the fourth quarter. It looks prefer it’s going to be a nicely double-digit number. In order that’s really excellent. Is there any technique to quantify the impact on sales of the component shortages within the quarter? Like how much higher sales could there have been when you hadn’t had those problems?
Michel Atwood
Yes. So Linda, we – I feel you’ve backed out the numbers appropriately. Our guidance assumes about 18% growth in quarter 4, which is pretty near what we did year-to-date at 16%. Obviously, there’s 6 points of FX headwinds. So on an all-in basis, we’re actually – or an organic basis, we’re on the lookout for 24% of growth. We had about $10 million of sales that we shipped in Q4, which we probably must have had in Q3. In order that’s going to represent about 5% of growth.
Linda Bolton-Weiser
Okay. Thanks. That’s helpful. After which, I mean, Coty did lots of talking on their call as well concerning the component shortages. So it’s definitely a big industry problem. What’s the status of that now? I mean has it improved? It appears like it’s higher since you’re with the ability to ship more sales. But can you simply give a little bit more color on exactly what the problems are with those components?
Jean Madar
I can try. In order that’s true that we’ve got moved some sales from third quarter to fourth quarter. But still – I still think that we’ve got missed due to a component shortage, we’ve got missed some sales, some reorders that we are able to – we just cannot ship. How concerning the situation? I feel it continues to be bad. It was terrible in the primary, I’d say, six, seven months. But we’ve got taken some actions to put more orders to anticipate also higher components. And we’ve got also decided to diversify our sources of supply.
In order we’ve got taken this motion quite early within the 12 months, we’re seeing a few of positive impact now. But I don’t see the situation improved, especially on glass and particularly on pumps. And as , if we don’t have glass, we cannot fill the product. In order that’s primary.
On the highest of that, to make things even worse, we had some major price increase on glass because glass use lots of energy. To make glass, you utilize lots of energy. And the pricing is increasing quite a bit. So against that, we’ve got decided to do one other price increase starting of January. And so all our customers are – know that we’ll have a price increase in January. Is it helpful, Linda?
Linda Bolton-Weiser
Okay. Yes, absolutely. Thanks. And just the ultimate query for me, if I could. You talked about just the strength in fragrances. So the demand is so strong, and Coty reaffirmed that as well. So that you said possibly no big launches in 2023. I’m inquisitive about on A&P spending, does the identical theory apply? In other words, why do it’s essential spend all that on A&P possibly in 2023 when demand is so robust anyhow? What are your thoughts on that?
Jean Madar
I’m going to try to reply that. I feel that the spending of A&P may be very vital to make sure the sell-through, especially on this critical moment. The business is sweet for nearly everybody. However it doesn’t mean that we’ve got to stop spending. And that’s why we’ll proceed to spend at a level of, I feel Michel mentioned, around 20%, 18%, 20%, something like that. It’s quite high, but we expect it’s mandatory.
We still think that there’s a strong demand for fragrance, on the whole, for our brands specifically. I feel that we’re still in a position to increase market share in an increasing – in an industry that’s increasing at a quick pace for fragrance. So we’ll – though the market is robust, we’ll wish to proceed to speculate in promoting. Michel, you must try to reply?
Michel Atwood
Yes. I’d also just add that, I mean, even when demand is robust, I mean, at the top of the day, it’s a really competitive environment, right? And we’d like to make sure that that our brands are top of mind and that we’re driving the fitting level of awareness, the fitting level of trial with our sampling programs. So at the top of the day, it’s also about maintaining the fitting level of share of voice to be competitive on this industry. Sorry.
Jean Madar
Surething.
Linda Bolton-Weiser
Okay. Thanks a lot.
Jean Madar
Thanks. Thanks very much, Linda.
Operator
Thanks. Our next query is come from the road of Kurt Anderson with Jefferies. Please proceed together with your questions.
Kurt Anderson
Hey guys, it’s Kurt on for Ashley. Congrats on an amazing quarter.
Jean Madar
Hi, Kurt.
Kurt Anderson
So just first query here, as you guys are desirous about 2023 and the recovery of travel retail in China, how are you guys planning the business around our repatriated demand from China to other markets as travel retail type of resumes outbound from China? And what do you type of envision being – remaining domesticated so far as once travel retail opens up within the region?
Jean Madar
Michel?
Michel Atwood
Yes. So I mean, essentially, as you’ve seen while the China business has been slow, our overall Asia-Pacific business is up 23%. So we’ve got made sure that we’re investing heavily within the domestic markets, though we probably lost some sales related to China and the Chinese traveling consumers. So we’ve got been monitoring inventory levels very closely, particularly in China, and we’ve got been working in partnership with our distributors there. So I feel that type of covers off the piece on how we’re coping with China currently.
The opposite thing is we’re obviously monitoring very closely how the markets reopen. And we’re obviously ready with our distributors to reinvest in China and put the business back on the expansion trajectory. As , China has been growing quite significantly. The fragrance business has been growing quite quite a bit within the last couple of years. And we consider that there’s huge potential within the China market. We’ll proceed to speculate there. But obviously, at this cut-off date, it doesn’t really make lots of sense to do this, but we’re monitoring this very closely.
Kurt Anderson
Got it. Thanks. Only a follow-up…
Jean Madar
If I’ll add, I would love to say that in our projections for 2023, and we’ll release them, I feel, what, in a few weeks, Michel, we should not counting on the business – on a powerful business in China not less than for the primary and second quarter of 2023. So we’re going to be very conservative in our numbers regarding China. We don’t think that the situation will improve before possibly the primary three quarters of last 12 months.
So we’ll take a really conservative approach. It’s okay. We – so long as it’s in our – it is going to be in our numbers, we’ll accept. But we’ve got – the excellent news is that we’ve got other markets which might be continuing to grow, and that’s where we’ll find the expansion next 12 months.
Kurt Anderson
Got it. Thanks. You simply answered one among my – half of my follow-up query. So is it prudent to plan a recovery of the travel retail business type of along the identical timeline as you’re desirous about the Chinese business?
Jean Madar
Michel?
Michel Atwood
Yes, I’d say, yes. I mean, probably the travel retail business, we expect, will pick up more rapidly because I feel once they reopen, there’s probably lots of pent-up travel. I feel if we just take a look at what’s happened in Europe and within the U.S., reopening has triggered quite lots of travel. So which may pick up a little bit bit faster.
Kurt Anderson
Got it. Okay. After which just another for me. Taking a look at the A&P spend in Q2 and just the actions which were taken with Zinédine Zidane type of within the front end for – I feel you said it was Moncler – I’m sorry, Montblanc. How are you guys trying to type of parlay the World Cup with the vacation season? You guys aren’t the primary to tap a footballer ahead of an enormous tournament.
I feel your – just replaced Johnny Depp last 12 months with Gilead and Bupa, after which HUGO BOSS also activated various footballers ahead of 2018’s World Cup. Just type of wondering the way you guys need to leverage that event in the worldwide type of stage that it’s going to demand?
Jean Madar
Yes, it’s a excellent point. We expect that the soccer players and all of the activities across the football, soccer, especially across the World Cup is an interesting point of communication for our brands. I just got here back from a visit within the Middle East because we’ve got – we are only beginning to advertise strongly with Zidane on Montblanc. And we can have, through the World Cup in Qatar within the Emirates in Dubai and Abu Dhabi, where individuals are going to travel quite a bit. We’re going to have lots of our billboard and promoting. So we expect it’s a superb medium. It’s a superb – it’s a really positive personality. So we expect that it is going to help the sale of Montblanc.
Kurt Anderson
Great. And what are your thoughts on France’s possibilities to repeat as World Cup champion this 12 months?
Jean Madar
I wish, but I feel that the competition is fierce. We’ll take a look at this. Absolutely.
Kurt Anderson
It’s too big a tournament. Thanks quite a bit for the time and congrats on an amazing quarter.
Jean Madar
Thanks very much. Thanks.
Operator
Thanks. Our next questions come from the road of Hamed Khorsand with BWS Financial. Please proceed together with your query.
Jean Madar
Hello, Hamed.
Hamed Khorsand
Hi, my first query was regarding inventory. You’ve been growing that each one 12 months foreseeing this sort of tightness. What do you think that is a superb inventory number, going forward? And are you ordering more of the glass and the pumps just in case? How are you that for 2023?
Jean Madar
Also a excellent questions. As Michel said, we expect that there’s a low risk to hold more inventory of glass and pumps and caps because there isn’t any seasons, because, like Michel mentioned, there isn’t any risk of – for these components to turn into obsolete after three months, six months, nine months or perhaps a couple of years. So we expect that with the margins that we’ve got, it’s higher to hold a little bit bit more inventory.
Let’s not – I don’t think we must always get carried away and go to an extreme. But Michel, I’m sure, offers you a more precise answer than me. But me, I’ll say that if we go to 5 months of sales for inventory, so if we turn our inventory a little bit bit lower than 2 times a 12 months, I feel it’s acceptable. But Michel, you’re going to inform me that it’s too high, right?
Michel Atwood
Yes. Actually, we’ve been having these conversations with Jean. I mean, historically, our inventory levels are at about 180 days. We’re a little bit bit higher because we’ve got, I feel, made it not only have we made inventory bets, but as you all know, constructing a fragrance is type of like making a cake. In the event you’re lacking one among the ingredients, you possibly can actually convert that into the finished product.
And so I feel we probably have a bit more components than we would love for that reason at this cut-off date. But I’d say, our goal is I feel 180 is where we’ve been. And definitely, I feel five months could be a superb stretch goal to be working towards at this cut-off date. However it obviously requires relooking at make – sometimes inventory may also be a trade-off between your margins – your gross margins and your inventory levels. You possibly can all the time get lower inventories. But then it’s possible you’ll find yourself paying more on gross margins, for instance. So I feel it’s really about finding what’s the optimal level of inventory that drives total shareholder return and I’d say, that might be within the range of what Jean has laid out, five months to 6 months, for us.
Hamed Khorsand
Okay. After which the opposite query I had was I understand demand remains to be strong, but it surely looks like everyone’s have been facing these component situations. Is there a risk where the market actually shrinks because nobody can actually address demand next 12 months due to these component issues?
Jean Madar
I don’t think that we cannot address the demand. I mean we still have a record sales. So we’re doing more quarter-after-quarter, year-after-year. So I don’t think the market could shrink. There’s a requirement. We’re supplying the demand, possibly not as much as we could or as fast as we would love. But I feel that – I don’t see from all my travel and all my meetings with distributors, I don’t see an indication of slowing down. There’s more interest within the fragrance, on the whole.
And this is admittedly all around the world, Europe and the U.S. I wish you – we had the identical thing in China. But possibly it’s good for us that China is slowing down because I feel we won’t have had enough inventory to produce them. So we – that’s why we don’t anticipate the primary – I mean, sales in the primary six months to nine months in China next 12 months. Or after I say we don’t anticipate strong sales in China for the primary nine months of next 12 months. Michel?
Michel Atwood
Yes. Just to construct on Jean, I feel your query also pertains to – I mean, keep in mind that we’re not the one ones which were increase inventory. I feel you see that just about across the Board with all of our competitors, whether it’s Coty or Lauder or L’Oréal, I feel everybody has been increase inventory.
And I feel to a certain extent, that probably has put quite a bit more strain on the provision chain, as everybody was making those bets. So I feel going forward, we must always see – I feel everybody is beginning to normalize. We’re seeing that also within the conversations we’re having with our suppliers.
The orders are getting back to more normal levels. And I feel people need to eventually eat those inventories. So I feel that ought to help offset for any of the expansion that we may be seeing, going forward.
Hamed Khorsand
Okay. Thanks.
Jean Madar
Thanks.
Operator
Thanks. Our next questions come from the road of Korinne Wolfmeyer with Piper Sandler. Please proceed together with your questions.
Korinne Wolfmeyer
Hey, thanks for taking the questions and congrats on the quarter. So simply to type of touch a little bit further on that last query. So how are you feeling about your ability to satisfy the demand in Q4? And what’s all baked into guidance? Like are we just playing catch-up from Q3? Will fund and are you expecting some demand from Q4 to get pushed into Q1? Just how are you desirous about your small business to fill back demand here in Q4?
Jean Madar
Whether that – yes, go ahead. Go ahead, Michel.
Michel Atwood
Yes. In order I said before, right, our guidance mainly assumes 18% growth for quarter 4. And when you exclude the FX, we’re – we’re looking more at somewhere within the range of 24%. I feel we feel that we’ve got the inventory levels to satisfy that demand. I feel lots of the inventory that we’ve got without delay and that we’re ordering can be to enable us to get off to a quick starting quarter in 2023 and to satisfy our future growth. So we’re not concerned about our ability to hit these numbers.
And clearly, we’re working towards doing more. We had a record quarter – record month of October. I feel this was our highest sales ever. We sold $115 million, $120 million in October, and we were in a position to meet lots of the demand. So not a priority for us at this cut-off date, and we feel pretty confident about our ability to hit our guidance.
Korinne Wolfmeyer
That’s very helpful. Thanks for the colour.
Jean Madar
Yes. I’ll add that we knew that October might be strong because, like we said, we moved a number of the shipments of gift sets into the start of the fourth quarter, so through the month of October. But on the highest of the balance of gift sets that we didn’t ship in September that we’ve got shipped in October, we had an infinite amount of orders. Also, reorders from those that we’ve got shipped in August and September. We began to receive some orders in October, which is kind of flat. So we all know that stores are selling through quite fast. The primary 10 days of November are also very, very, very high.
Korinne Wolfmeyer
Very helpful. Thanks a lot. And that’s awesome to listen to the October number. Just pushing on the gross margin a little bit bit, too. Can you simply provide a little bit bit more color on what could be the right run rate going forward? Once these FX type of tailwinds are past us, is – are the pricing actions you’re taking in a position to fully offset a few of these like cost pressures? Just how are you desirous about the expansion opportunities here?
Michel Atwood
Yes. I’d say, there’s all the time a trade-off, which is at what level do you are feeling of the gross margin is true? So I’d say that there are really two answers to your query, right there. I mean the primary one is, we’ll obviously proceed to take pricing where we are able to. We’ll obviously attempt to enjoy elaborated on the indisputable fact that we’ve taken pricing this 12 months. We’re going to take one other 5% early next 12 months. But ultimately, our goal really is to recuperate in that area. But when we are able to, we’ll obviously try to have a look at efficiencies to maintain our costs reasonably priced to the consumers and meet the fitting price points.
Now when it comes to long-term, I feel at this cut-off date, I mean, these are the gross margins that we’re type of targeting long-term. We’re not trying to necessarily expand gross margins for multiple reasons because at the top of the day, it’s about value equation to the buyer. You’re selling a product at a certain price point, but you’re also selling value to the buyer in the shape of a phenomenal packaging and an amazing juice.
And we wish to make sure that that our innovation is competitive and our products are competitive. So we’re not necessarily trying to expand our gross margins. We need to reinvest any efficiencies and gains into our products and into our future innovation.
Korinne Wolfmeyer
Very helpful. Thanks.
Jean Madar
Thanks.
Operator
Thanks. Our next query has come from the road of Linda Bolton-Weiser from D.A. Davidson. Please proceed together with your questions.
Linda Bolton-Weiser
Yes. Hi, only one follow-up here. I’m just curious on the fourth quarter gross margin. I mean it was quite strong here within the third quarter as you talked concerning the FX profit. So that you’ll still have that FX profit in fourth quarter, but you’ll have more gift set shipments, which dampened gross margin. So do you think that gross margin might be higher or lower within the fourth quarter?
Michel Atwood
At this cut-off date, we’re assuming that gross margins might be consistent with what we’ve done in the primary nine months of this 12 months. We – while we definitely have the gift set impact, which is able to barely hurt us, we even have favorable mix and brand mix and particularly on brands like DKNY which might be recent, that we’re selling more of our businesses being sold direct into the malls, which is accretive to our gross margins.
Linda Bolton-Weiser
Great. Thanks very much.
Jean Madar
Thanks, Linda.
Michel Atwood
Thanks, Linda.
Operator
Thanks. There are not any further questions at the moment. I’d now wish to turn the decision back over to Michel Atwood for any closing comments.
Michel Atwood
All right. Well, thanks very much, everyone, to your time. Only one last point. The D.A. Davidson Beauty and Wellness Bus Tour is making a stop at Inter Parfums on December 13, and Jean and I might be welcoming Linda Bolton-Weiser and her clients at the moment. And since that is our last conference call of the 12 months, Jean, I wanted to only send our greatest wishes for a joyful and peaceful holiday season, together with the great health for you and your families in the approaching 12 months.
We also wish to take this chance to again thank our teams for all of the exertions and commitment during 2022. It has been one other difficult 12 months in lots of elements with a number of its challenges. So I actually desired to thanks for joining us this morning. If you may have further questions, please contact Karin Daly on the Equity Group, and she or he’ll be completely satisfied to assist. Stay well and stay protected.
Jean Madar
Thanks, everyone.
Operator
Thanks. This does conclude today’s teleconference. We appreciate your participation. You might disconnect your lines at the moment. Enjoy the remaining of your day.
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