UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE )ONE)

☒Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2020.

OR

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from ___________to ________.

Commission File No.0-16469

INTER PARFUMS, INC.

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act).

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Securities registered pursuant to Section 12(b) of the Act:

At May 6, 2019,11, 2020, there were 31,449,06531,531,958 shares of common stock, par value $.001 per share, outstanding.

INTER PARFUMS, INC. AND SUBSIDIARIES

INDEX

INTER PARFUMS, INC. AND SUBSIDIARIES

Part I. Financial Information

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. We have condensed such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Therefore, such financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued by filing with the SEC. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 20182019 included in our annual report filed on Form 10-K.

The results of operations for the three months ended March 31, 20192020 are not necessarily indicative of the results to be expected for the entire fiscal year.

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except share and per share data)

(Unaudited)

See notes to consolidated financial statements.

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share data)

(Unaudited)

See notes to consolidated financial statements.

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

See notes to consolidated financial statements.

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

(Unaudited)

See notes to consolidated financial statements.

INTER PARFUMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

See notes to consolidated financial statements.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The accounting policies we follow are set forth in the notes to our consolidated financial statements included in our Form 10-K, which was filed with the Securities and Exchange Commission for the year ended December 31, 2018.2019.

A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and has spread around the world, including to the United States and France. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has disrupted our business operations and caused a significant unfavorable impact on our results of operations.

In response to the COVID-19 pandemic various national, state, and local governments where we, our suppliers, and our customers operate, have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. As of the date of this filing, we have implemented travel restrictions, and we are following social distancing practices. In the U.S. and France, we are endeavoring to follow guidance from authorities and health officials including, but not limited to, requiring our personnel to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitization routines at our distribution centers as the health and safety of our employees are paramount. Our teams are set up and now work from home and carry on business as efficiently as possible. Those decrees however, have resulted in a shutdown of a majority of retail stores selling fragrance products, a slowdown in air traffic, effecting our travel retail business, and supply chain disruption. Additionally, our distribution facilities have also experienced a short-term suspension of operations for COVID-19 employee health concerns.

The duration and intensity of this global health emergency and its related disruptions are uncertain. We anticipate that retail store closings, the slowdown in air traffic, potential supply chain disruptions and short-term suspensions of activities in our distribution centers will continue to unfavorably impact our business. We also anticipate significant challenges for the remainder of 2020 due to uncertain market conditions. We expect a larger net sales decline in the second quarter of 2020, as many retail stores in our major markets may remain closed for the entire period. In addition, the COVID-19 pandemic has led to high levels of unemployment and deteriorating economic conditions in many of the countries where our products are sold, forcing many consumers to limit discretionary purchases. We believe it is possible that the impact of the COVID-19 pandemic could have a material adverse effect on the results of our operations, financial position and cash flows as of and for the year ending December 31, 2020.

In August 2017,June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”)Instruments,” as updated in 2019 and 2020, which require a financial asset measured at amortized cost basis to improve accounting for hedging activities.be presented at the net amount expected to be collected. The objective ofnew rules eliminate the ASU is to improve the financial reporting of hedging relationships in order to better portray the economic results ofprobable initial recognition threshold and, instead, reflect an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the applicationcurrent estimate of hedge accounting guidance. This ASU isall expected credit losses. The new rules are effective for annualthe Company in the first quarter of 2020 and interim periods beginning after December 15, 2018 and early adoption is permitted. We have evaluated the standard and determined that there has beenwas no material impact on our consolidated financial statements.

In February 2016, the FASB issued an ASU which requires lessees to recognize lease assets and lease liabilities arising from operating leases on the balance sheet. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. The standard requires entities to recognize a lease liability to cover lease payments and a lease asset representing its right to use the underlying asset for the lease term. The Company has adopted the standard on January 1, 2019 using the modified retrospective method in the year of adoption with certain transition practical expedients with no restatement of prior period amounts. Upon adoption, the Company recognized right-of-use assets of $31.8 million and lease liabilities of $32.4 million and made no adjustments to retained earnings. Adoption of the new standard did not materially impact our consolidated net income and cash flows.

There are no other recent accounting pronouncements issued but not yet adopted that would have a material effect on our consolidated financial statements.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Inventories consist of the following:

The following tables present our financial assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The carrying amount of cash and cash equivalents including money market funds, short-term investments, accounts receivable, other receivables, accounts payable and accrued expenses approximates fair value due to the short terms to maturity of these instruments. The carrying amount of loans payable approximates fair value as the interest rates on the Company’s indebtedness approximate current market rates.

Foreign currency forward exchange contracts are valued based on quotations from financial institutions and the value of interest rate swaps are the discounted net present value of the swaps using third party quotes from financial institutions.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company enters into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and occasionally to manage risks related to future sales expected to be denominated in a foreign currency. Before entering into a derivative transaction for hedging purposes, it is determined that a high degree of initial effectiveness exists between the change in value of the hedged item and the change in the value of the derivative instrument from movement in exchange rates. High effectiveness means that the change in the cash flows of the derivative instrument will effectively offset the change in the cash flows of the hedged item. The effectiveness of each hedged item is measured throughout the hedged period and is based on the dollar offset methodology and excludes the portion of the fair value of the foreign currency forward exchange contract attributable to the change in spot-forward difference which is reported in current period earnings. Any hedge ineffectiveness is also recognized as a gain or loss on foreign currency in the income statement. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses accumulated in other comprehensive income are reclassified to earnings. If it is probable that the forecasted transaction will no longer occur, then any gains or losses accumulated in other comprehensive income are reclassified to current-period earnings.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In connection with a 2015 brand acquisition, $108 million of the purchase price was paid in cash on the closing date and was financed entirely through a 5-year term loan. As the payment at closing was due in dollars and we had planned to finance it with debt in euro, the Company entered into foreign currency forward contracts to secure the exchange rate for the $108 million purchase price at $1.067 per 1 euro. This derivative was designated and qualified as a cash flow hedge.

Gains and losses in derivatives designated as hedges are accumulated in other comprehensive income (loss) and gains and losses in derivatives not designated as hedges are included in (gain) loss on foreign currency on the accompanying income statements. Such gains and losses were immaterial for both three month periods ended March 31, 20192020 and 2018.2019. For the three months ended March 31, 20192020 and 2018,2019, interest expense was reduced by a gain of $0.1$0.02 and $0.05 million relating to the interest rate swap.

All derivative instruments are reported as either assets or liabilities on the balance sheet measured at fair value. The valuation of interest rate swaps resulted in a liability which is included in long-term debt on the accompanying balance sheets. The valuation of foreign currency forward exchange contracts at March 31, 2019,2020, resulted in a liabilityan asset and is included in accrued expensesother current assets on the accompanying balance sheet.

At March 31, 2019,2020, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately U.S. $26.5$40.0 million, GB £2.1£1.0 million and JPY ¥90.0¥170.0 million which all have maturities of less than one year.

The Company leases its offices and warehouses, vehicles, and certain office equipment, substantially all of which are classified as operating leases. The Company currently has no material financing leases and historically has not entered into such leases. The Company determines if an arrangement is a lease at inception. Operating lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease expense is recognized by amortizing the amount recorded as an asset on a straight-line basis over the lease term.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In determining lease asset value, the Company considers fixed or variable payment terms, prepayments, incentives, maintenance, and options to extend or terminate, depending on the lease. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company generally uses its incremental borrowing rate based on information available at the lease commencement date for the location in which the lease is held in determining the present value of lease payments.

As of March 31, 2019,2020, the weighted average remaining lease term was 7.76.3 years and the weighted average discount rate used to determine the operating lease liability was 2.9%2.8%. For the three months ended March 31, 2019,Rental expense related to operating leases was $1.8 million operatingfor both periods ending March 31, 2020 and 2019. Operating lease payments included in operating cash flows totaled $1.6 million for both three months ended March 31, 2020 and 2019 and noncash additions to operating lease assets totaled $0.7 million and $31.8 million.

Maturities of lease liabilities subsequent tomillion for the three months ended March 31, 2020 and 2019, are as follows:respectively.

The Company has additional lease liabilities of $4.2 million which have not yet commenced as of March 31, 2019, and as such, have not been recognized on the Company’s consolidated balance sheet. These leases are expectedINTER PARFUMS, INC. AND SUBSIDIARIES

Notes to commence during the second quarter of 2019 with a terms of five years.Consolidated Financial Statements

The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six-year term and vest over a four to five-year period. The fair value of shares vested during the three months ended March 31, 2020 and 2019 and 2018 aggregated $0.06$0.08 million and $0.04$0.06 million, respectively. Compensation cost, net of forfeitures, is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally our policy to issue new shares upon exercise of stock options.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table sets forth information with respect to nonvested options for the three month period ended March 31, 2019:2020:

Share-based payment expense decreased income before income taxes by $0.96$0.12 million and $0.51$0.96 million for the three months ended March 31, 20192020 and 2018,2019, respectively, and decreased net income attributable to Inter Parfums, Inc. by $0.58$0.18 million and $0.32$0.58 million for the three months ended March 31, 20192020 and 2018.2019.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes stock option information as of March 31, 2019:2020:

As of March 31, 2019,2020, the weighted average remaining contractual life of options outstanding is 3.853.78 years (2.33(2.38 years for options exercisable); the aggregate intrinsic value of options outstanding and options exercisable is $23.6$5.3 million and $10.3$3.9 million, respectively; and unrecognized compensation cost related to stock options outstanding aggregated $4.6$5.6 million.

Cash proceeds, tax benefits and intrinsic value related to stock options exercised during the three months ended March 31, 20192020 and March 31, 20182019 were as follows:

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The weighted average fair values of the options granted by Inter Parfums, Inc. during the three months ended March 31, 2020 and 2019 were $12.16 and 2018 were $14.83 and $10.72 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the fair value of options granted. The assumptions used in the Black-Scholes pricing model for the periods ended March 31, 20192020 and 20182019 are set forth in the following table:

Expected volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is estimated based on historic data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors would increase as the earnings of the Company and its stock price continue to increase.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

In September 2016,December 2018, Interparfums SA, our 73% owned French subsidiary, approved a plan to grant an aggregate of 15,100 shares of its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to officers and managers, subject to certain corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in September 2019 so long as the individual is employed by Interparfums SA at the time, and in the case of officers and managers, only to the extent that the performance conditions have been met. Once distributed, the shares will be unrestricted and the employees will be permitted to trade their shares.

The fair value of the grant of €18.56 per share (approximately $22.00 per share) has been determined based on the quoted share price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant. The estimated number of shares to be distributed of 157,324 has been determined taking into account employee turnover and has been adjusted for stock splits. The aggregate cost of the grant of approximately $3.4 million is being recognized as compensation cost by Interparfums SA on a straight-line basis over the requisite three year service period

To avoid dilution of the Company’s ownership of Interparfums SA, all shares to be distributed pursuant to this plan will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. In 2016 and 2018, a total of 150,000 shares had been acquired at an aggregate cost of $3.7 million. During the three months ended March 31, 2019, an additional 7,324 shares were acquired at an aggregate cost of $0.3 million. All share purchases have been classified as equity transactions on the accompanying balance sheet.

In December 2018, Interparfums SA approved an additional plan to grant an aggregate of 26,600 shares of its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to officers and managers, subject to certain corporate performance conditions. The shares, subject to adjustment for stock splits, will be distributed in June 20222022. In order to avoid dilution of the Company’s ownership of Interparfums SA, all shares to be distributed pursuant to the plan will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA in prior years.

In March 2020, due to the potential impact on future net sales and will followoperating results resulting from the same guidelines asCOVID-19 pandemic, the September 2016 plan.estimated number of shares to be distributed, after forfeited shares, was reduced from 142,571 to 82,162. As the Company had already purchased shares in contemplation of the higher anticipated distribution, shares purchased in excess of the reduced anticipated distribution were transferred to treasury shares at Interparfums SA level. Employee turnover was also taken into account in the calculation.

The fair value of the grant of €30.20 per share (approximately $34.00 per share) hashad been determined based on the quoted stock price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant. The estimated number of shares to be distributed of 135,331 has been determined taking into account employee turnover. The aggregateoriginal cost of the grant ofwas approximately $4.9$4.4 million, will be recognized as compensation cost by

Interparfums SA onand the March 2020 revaluation resulted in a straight-line basis over the requisite three and a half year service period.

INTER PARFUMS, INC. AND SUBSIDIARIES

Similar to the September 2016 plan, in order to avoid dilutionreduction of the Company’s ownershipcost, to approximately $2.5 million. As a result, a $0.3 million reduction of Interparfums SA, all shares to be distributed pursuant to this plan will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. Duringcost, net, was recorded for the three months ended March 31, 2019, the Company acquired 14,276 shares at an aggregate cost of $0.6 million. All share purchases have been classified as equity transactions on the accompanying balance sheet.

For the three months ended March 31, 2019, $0.5 million of compensation cost has been recognized in connection with these plans.2020.

Net income attributable to Inter Parfums, Inc. per common share (“basic EPS”) is computed by dividing net earnings attributable to Inter Parfums, Inc. by the weighted average number of shares outstanding. Net earnings attributable to Inter Parfums, Inc. per share assuming dilution (“diluted EPS”), is computed using the weighted average number of shares outstanding, plus the incremental shares outstanding assuming the exercise of dilutive stock options using the treasury stock method.

The reconciliation between the numerators and denominators of the basic and diluted EPS computations is as follows:

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Not included in the above computations is the effect of antidilutive potential common shares which consist of outstanding options to purchase 0.37 and 0.18 million shares of common stock for both the three months ended March 31, 2020 and 2019, and 2018.respectively.

The Company manufactures and distributes one product line, fragrances and fragrance related products. The Company manages its business in two segments, European based operations and United States based operations. The European assets are located, and operations are primarily conducted, in France. European operations primarily represent the sale of prestige brand name fragrances and United States operations primarily represent the sale of prestige brand name and specialty retail fragrance.

INTER PARFUMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Information on our operations by geographical areas is as follows:

S.T. Dupont

In January 2020, we renewed our license agreement with S.T. Dupont for the creation, development and distribution of fragrance products through December 31, 2020, without any material changes in terms and conditions. Our initial 11-year license agreement with S.T. Dupont was signed in June 1997, and had previously been extended through December 31, 2019. The agreement will be extended annually in September of each year upon mutual consent.

Certain prior year’s amounts in the accompanying consolidated balance sheet and statements of cash flows have been reclassified to conform to current period presentation.

INTER PARFUMS, INC. AND SUBSIDIARIES

Forward Looking Information

Statements in this report which are not historical in nature are forward-looking statements. Although we believe that our plans, intentions and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. In some cases you can identify forward-looking statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will”"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and “would”"would" or similar words. You should not rely on forward-looking statements because actual events or results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, the risks and uncertainties discussed under the headings “Forward Looking Statements” and “Risk Factors”"Risk Factors" in Inter Parfums’Parfums' annual report on Form 10-K for the fiscal year ended December 31, 20182019 and the reports Inter Parfums files from time to time with the Securities and Exchange Commission. Inter Parfums does not intend to and undertakes no duty to update the information contained in this report.

Overview

We operate in the fragrance business, and manufacture, market and distribute a wide array of fragrances and fragrance related products. We manage our business in two segments, European based operations and United States based operations. Certain prestige fragrance products are produced and marketed by our European operations through our 73% owned subsidiary in Paris, Interparfums SA, which is also a publicly traded company as 27% of Interparfums SA shares trade on the NYSE Euronext.

We produce and distribute our European based fragrance products primarily under license agreements with brand owners, and European based fragrance product sales represented approximately 81%79% and 87%81% of net sales for the three months ended March 31, 20192020 and 2018,2019, respectively. We have built a portfolio of prestige brands, which includeBoucheron, Coach, Jimmy Choo, Karl Lagerfeld, Kate Spade New York, Lanvin, Montblanc, Paul Smith, Repetto, Rochas, S.T. DupontandVan Cleef & Arpels, whose products are distributed in over 100120 countries around the world.

Through our United States operations, we also market fragrance and fragrance related products. United States operations represented 19%21% and 13%19% of net sales for the three months ended March 31, 20192020 and 2018,2019, respectively. These fragrance products are sold or to be sold primarily pursuant to license or other agreements with the owners of theAbercrombie & Fitch, Agent Provocateur, Anna Sui, bebe, Dunhill, French Connection, Graff, GUESS, Hollister, Lily AldridgeMCM andOscar de la Rentabrands.

INTER PARFUMS, INC. AND SUBSIDIARIES

Substantially all of our prestige fragrance brands are licensed from unaffiliated third parties, and our business is dependent upon the continuation and renewal of such licenses. With respect to the Company’s largest brands, we license the Montblanc, Jimmy Choo, Coach and CoachGUESS brand names and own the Lanvin brand name for our class of trade.names. As a percentage of net sales, product sales for the Company’s largest brands were as follows:

Quarterly sales fluctuations are influenced by the timing of new product launches as well as the third and fourth quarter holiday season. In certain markets where we sell directly to retailers, seasonality is more evident. We sell directly to retailers in France as well as through our own distribution subsidiaries in Spain and the United States.

We grow our business in two distinct ways. First, we grow by adding new brands to our portfolio, either through new licenses or other arrangements or out-right acquisitions of brands. Second, we grow through the introduction of new products and by supporting new and established products through advertising, merchandising and sampling as well as phasing out underperforming products so we can devote greater resources to those products with greater potential. The economics of developing, producing, launching and supporting products influence our sales and operating performance each year. Our introduction of new products may have some cannibalizing effect on sales of existing products, which we take into account in our business planning.

Our business is not capital intensive, and it is important to note that we do not own manufacturing facilities. We act as a general contractor and source our needed components from our suppliers. These components are received at one of our distribution centers and then, based upon production needs, the components are sent to one of several third party fillers, which manufacture the finished product for us and then deliver them to one of our distribution centers.

As with any global business, many aspects of our operations are subject to influences outside our control. We believe we have a strong brand portfolio with global reach and potential. As part of our strategy, we plan to continue to make investments behind fast-growing markets and channels to grow market share.

We believe general economic and other uncertainties exist in select markets in which we do business, and we monitor these uncertainties and other risks that may affect our business.

Our reported net sales are impacted by changes in foreign currency exchange rates. A strong U.S. dollar has a negative impact on our net sales. However, earnings are positively affected by a strong dollar, because over 45% of net sales of our European operations are denominated in U.S. dollars, while almost all costs of our European operations are incurred in euro. Conversely, a weak U.S. dollar has a favorable impact on our net sales while gross margins are negatively affected. Our Company addressesWe address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. Weinstruments and primarily enter into foreign currency forward exchange contracts to reduce the effects of fluctuating foreign currency exchange rates. We continue to carefully monitor currency trends in the United Kingdom as a result of the volatility created from the United Kingdom’s decision to exit the European Union. We have evaluated our pricing models and we do not expect any significant pricing changes. However, if the devaluation of the British Pound worsens, it may affect future gross profit margins from sales in the territory.

INTER PARFUMS, INC. AND SUBSIDIARIESImpact of COVID-19 Pandemic and the Resulting Changes to our 2020 Financial Outlook

A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and has spread around the world, including to the United States and France. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has disrupted our business operations and caused a significant unfavorable impact on our results of operations.

In response to the COVID-19 pandemic various national, state, and local governments where we, our suppliers, and our customers operate have issued decrees prohibiting certain businesses from continuing to operate and certain classes of workers from reporting to work. As of the date of this filing, we have implemented travel restrictions; and we are following social distancing practices. In the U.S. and France, we are endeavoring to follow guidance from authorities and health officials including, but not limited to, requiring our personnel to wear masks and other protective clothing as appropriate, and implementing additional cleaning and sanitization routines at our distribution centers as the health and safety of our employees is paramount. Our teams are set up and now work from home and carry on business as efficiently as possible. Those decrees however, have resulted in a shutdown of a majority of retail stores selling fragrance products, a slowdown in air traffic, effecting our travel retail business, and supply chain disruption. Additionally, our distribution facilities have also experienced a short-term suspension of operations for COVID-19 employee health concerns.

The effects of the COVID-19 pandemic on the beauty industry began in early March 2020. Retail store closings, event cancellations and the slowdown of air travel brought our sales to a virtual standstill. Customer orders were cancelled and shipping activities were minimal. As a result, we estimate that approximately $34 million ($28 million for our European operations and $6 million for our U.S operations) in sales were lost in the three months ended March 31, 2020 as compared to our initial expectations. Furthermore, due to the sudden nature of the shutdown, advertising and promotional programs in the period were well underway and could not be curtailed in time. As a result, advertising and promotional expenses aggregated $28.5 million or 19.7% of net sales for the three months ended March 31, 2020, as compared to $27.3 million or 15.4% for the corresponding period of the prior year.

The duration and intensity of this global health emergency and its related disruptions are uncertain. We anticipate that retail store closings, the slowdown in air traffic, potential supply chain disruptions and short-term suspensions of activities in our distribution centers will continue to unfavorably impact our business. We also anticipate significant challenges for the remainder of 2020 due to uncertain market conditions. We expect a larger net sales decline in the second quarter of 2020, as many retail stores in our major markets may remain closed for the entire period. In addition, the COVID-19 pandemic has led to high levels of unemployment and deteriorating economic conditions in many of the countries where our products are sold, forcing many consumers to limit discretionary purchases. We believe it is possible that the impact of the COVID-19 pandemic could have a material adverse effect on the results of our operations, financial position and cash flows as of and for the year ended December 31, 2020. Accordingly, we have withdrawn our 2020 guidance on net sales and earnings and cannot issue new guidance until we gain greater visibility.

Operationally, we are preparing for increased demand in the post-COVID-19 environment, with business in Asia already showing signs of a comeback. We have seen a resumption of more normalized sales levels in South Korea and China, with internet sales especially strong. We are gearing up to be prepared to rapidly fill the distribution channels once the crisis is behind us. In that regard, we have maintained reasonable inventory levels of components and finished goods, and we are gaining local market intelligence from our distributors and production capacity data from our suppliers. We do not anticipate any material impairment of trademarks, licenses and other intangible assets.

Our conservative financial tradition has enabled us to amass hefty cash balances and nominal long-term debt. As of March 31, 2020 we had $204 million in cash, cash equivalents and short-term investments, only $9.8 million of long-term debt. We also have $47 million available in untapped credit facilities. Nonetheless, we have taken several actions to minimize expenses and protect cash flow. Our operating cost structure, of which variable costs historically accounts for over two-thirds of net sales, should enable us to minimize the impact of reduced net sales on our bottom line. In that regard, we have postponed the launch of several programs originally scheduled for this year until 2021 and moved related advertising and promotion expenses to 2021 as well. That includes our planned launches for the Kate Spade New York, Jimmy Choo, Anna Sui and GUESS brands. We have also taken several actions with an eye toward minimizing fixed expenses. While we have not terminated or furloughed any employees, we have instituted a hiring freeze and plan on significantly cutting bonuses and other expenses for 2020 in an effort to keep fixed expenses under $25 million per quarter. We have also temporarily suspended our quarterly cash dividend. While these actions are expected to have a favorable impact on the Company’s fixed expenditures and cash flow, our cash and credit management teams, together with our executive management teams are paying particular attention to the management of working capital. As a result of the above, we do not anticipate any short-term liquidity problems, nor do we anticipate any material credit losses.

Recent Important Events

Lily Aldridge LicenseS.T. Dupont

In January 2020, we renewed our license agreement with S.T. Dupont for the creation, development and distribution of fragrance products through December 31, 2020, without any material changes in terms and conditions. Our initial 11-year license agreement with S.T. Dupont was signed in June 1997, and had previously been extended through December 31, 2019. The agreement will be extended annually in September of each year upon mutual consent.

Abercrombie & Fitch and Hollister

In November 2019, we extended our license for both the Abercrombie & Fitch and Hollister brands until December 31, 2022, and added automatic renewals unless terminated on 3 years’ notice.

MCM

In September 2018, Interstellar Brands LLC, a wholly-owned subsidiary of the Company, announced the development of a new fragrance line in collaboration with supermodel Lily Aldridge. The license agreement with Lily Aldridge runs through December 31, 2023, and is subject to royalty payments as are customary in our industry. This deal marks the beginning of a strategic partnership between Interstellar and IMG Models, which manages Lily Aldridge, to develop direct-to-consumer e-commerce fragrance and beauty businesses for IMG Models’ diverse and dynamic client base. Our initial fragrance product launch, a multi-scent collection, is planned for September 2019.

Graff License

In April 2018, the Company2019, we entered into an exclusive, 8-year10-year worldwide license agreement with London-based GraffGerman luxury fashion house MCM for the creation, development and distribution of fragrances under the GraffMCM brand. Our rights under such license agreement are subject to certain advertising expenditures and royalty payments as are customary in our industry. Initial product development includes a multi-scent collection planned for a late 2019 or early 2020 launch. Additionally, we are exploring opportunities for luxury travel amenities, including five star hotels.

GUESS License

In February 2018, the Company entered into an exclusive, 15-year worldwide license agreement with GUESS?, Inc. for the creation, development and distribution of fragrances under the GUESS brand. This license took effect on April 1, 2018, and our rights under such license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.

Oscar de la Renta

In 2018, our sales efforts were focused on existing fragrances; inSeptember 2019, we plan to add several flankers to existing productextended our license through December 31, 2031, and added an additional five-year extension option through December 31, 2036. The original license agreement, signed in 2020, an entirely new fragrance line is scheduled for launch.October 2013, would have expired on December 31, 2025.

Kate Spade New York

In June 2019, we entered into an exclusive 11-year worldwide license agreement with Kate Spade New York for the creation, development and distribution of fragrances under the Kate Spade brand. Our rights under such license are subject to certain minimum advertising expenditures and royalty payments as are customary in our industry.

Discussion of Critical Accounting Policies

Information regarding our critical accounting policies can be found in our 20182019 Annual Report on Form 10-K filed with the SEC.

INTER PARFUMS, INC. AND SUBSIDIARIES 

Results of Operations

Three Months Ended March 31, 20192020 as Compared to the Three Months Ended March 31, 20182019

Net sales for the three months ended March 31, 2019 increased 3.8%2020 declined 18.7% to $178.2$144.8 million, as compared to $171.8$178.2 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales increased 7.4%declined 17.8%. For the 20192020 first quarter, the average U.S. dollar/euro exchange rate was 1.141.10 as compared to 1.231.14 in the first quarter of 2018.2019.

European based product sales decreased 3.8%20.6% to $143.7$114.1 million for the three months ended March 31, 2019,2020, as compared to $149.5$143.7 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales were relatively unchanged.declined 19.5%. The successful launch of MontblancCoach ExplorerDreams was the catalyst behind the brand’s 9.9% sales gain and is expected to continue to contribute to sales growthearly in the second quarter. Foryear spurred the 35.9% increase in Coach brand sales. Comparable quarter sales declined for our other major brands following the closure of virtually all points of sale throughout the world due to the global COVID-19 pandemic. In addition, for certain major brands like Montblanc and Jimmy Choo, the 9.9% and 25.7% increaserespective increases in comparablebrand sales for the 2019 first quarter established a high benchmark in 2020. Net sales reflectsfor the recent launchMontblanc and Jimmy Choo brands declined 33.4% and 28.3% for the three months ended March 31, 2020, respectively, as compared to the corresponding period of the Jimmy ChooFloral line and the continued popularity of the brand’s entire suite of fragrances, including Jimmy ChooMan Blue and Jimmy ChooFever, which debuted last year in April and September, respectively. Coach, our third largest brand, saw a 22.3% drop in net sales, but factoring in last year’s 242.1% increase in first quarter brand sales, fueled in part by the launch of CoachFloral, the current quarter decline is understandable. Our distributors are awaiting the imminent release of Lanvin’sA Girl in Capri, which is expected to reverse the 18.9% decrease in first quarter Lanvin brand sales. While we have brand extensions and flankers unveiling for most of our European brands throughout the year, the next major launch is planned for the fall, and that is a new men’s fragrance pillar for Jimmy Choo.prior year.

United States based product sales increased 54.8%decreased 10.9% to $34.5$30.7 million for the three months ended March 31, 2019,2020, as compared to $22.3$34.5 million for the corresponding period of the prior year. The inclusionAs with our European operations, comparable quarter sales declined for most brands within our U.S. operations following the closure of virtually all points of sale throughout the world due to the global COVID-19 pandemic. Offsetting the decline, GUESS legacy scents was far and away the primary contributor to the 54.8%brand extensions launched in 2019 drove a 28.9% increase in first quarter net sales, as GUESS brand sales began duringfor the period.

We anticipate that the effects of the COVID-19 pandemic will continue to unfavorably impact our business. We also anticipate significant challenges for the remainder of 2020 due to uncertain market conditions. We expect a larger net sales decline in the second quarter of 2018. While2020, as many retail stores in our major markets may remain closed for the entire period. In that regard, we have postponed the launch of several programs originally scheduled for this year until 2021 and moved related advertising and promotion expenses to 2021 as well. That includes our planned launches for the Kate Spade New York, Jimmy Choo, Anna Sui fragranceand GUESS brands.