Inter Parfums: Wake up and smell the perfume
You may have lost your job but that doesn’t mean you can’t smell nice.
Judging by the recent success of Inter Parfums, Inc. (Nasdaq:IPAR), that’s exactly what a lot of people are thinking. The New York-based company, which sells high-end and affordable fragrances, and personal care products under a long list of labels from Lanvin to The Gap Inc. (NYSE:GPS), recently announced a 32% jump in fourth-quarter sales and an even more impressive 57.1% surge in net income over the same period.
It might seem that consumers would limit their spending to the barest of essentials in this tough economy, but clearly, plenty of people continue to buy perfume, one of the most frivolous consumer items out there.
That, in turn, has sent investors flocking to shares of Inter Parfums. The company’s shares have risen almost 30% since the start of the year, and closed Tuesday at $23.32 per share, up from $18.47 on Jan. 2 and a 52-week low of $13.55.
Inter Parfums’ success, however, is not so much an isolated phenomenon but part of a well-documented trend in which demand for unnecessary, feel-good items spikes during grim times. Estee Lauder (NYSE:EL) chairman Leonard Lauder coined the term “the lipstick indicator” in 2001 to explain a sharp rise in U.S. lipstick sales in the United States in the weeks following the Sept. 11 attacks.
The explanation for this pattern seems part psychological and part economic. There’s a basic human desire to make yourself look better on the outside when you’re not doing too well inside. There’s also the logic, which would apply to Inter Parfums’ more affordable lines of fragrance such as those sold through The Gap and Banana Republic factory outlet stores, that an inexpensive cosmetic is an affordable feel-good item when you don’t have the money for a $1,000 handbag.
Still, Inter Parfums is not one of those counter-cyclical companies that are doing well specifically because of the tough economy. Rather, it is doing well despite the poor economy, and it has a long track record of growth that suggests it is likely to remain a winner in good times and bad. As the company has an array of offerings that appeal to both the middle-class consumer and the luxury set, Inter Parfums seems better buffered to weather an economic downturn than other firms that may have concentrated revenues.
Inter Parfums’ revenue grew to $389.6 million in fiscal 2007, from $321.1 million in 2006. Net income rose to $23.8 million in 2007 from $17.7 million in 2006. In the wake of the company’s announcement last month that fiscal 2008 results would exceed earlier forecasts, the five analysts who follow the company are now forecasting revenue will grow to $443.2 million in 2008 and $483.2 million in 2009. They also see net income growing to $1.26 per share in 2008 and $1.43 per share in 2009, from $1.14 per share in fiscal 2007.
In full disclosure, Inter Parfums has enjoyed an extra bump recently from favorable currency exchange rates, since it derives the majority of its revenue from the sale of fragrances in Europe. It said that the recent 32% rise in fourth-quarter sales would have been just 24% had exchange rates remained the same as a year earlier. But 24% growth is still nothing to sniff at; it’s a rate of growth that Inter Parfums’ has carefully plotted. The company has an aggressive growth strategy based on the constant addition of new brands to its product line, and new fragrances within each brand.
In 2007, for instance, Inter Parfums launched a line of fragrance and personal-care products for The Gap, and entered a new agreement to make personal-care products for Brooks Brothers, which should be in stores later this year. Other fragrance brands include Burberry, Van Cleef & Arpels and Jordache.
Besides strong sales, another factor that has helped the company’s stock price is its aggressive repurchasing of shares. In February it bought 129,000 shares, and in March authorized the repurchase of up to 500,000 shares in a sign of faith that its buoyant stock still had room to grow.
Clearly in uncertain economic times, stocks in general need to be considered extra carefully. The so-called “lipstick indicator” may be fun to talk about, but in all seriousness, it is not a real indication that feel good items will continue to move off store shelves if the economic contraction is prolonged.
Inter Parfums’ products are spread across a range of price points, though, and it continues to churn out new products at a pace that leaves it less dependent on the success of its existing ones. And no matter which way you spritz it, success always smells sweet.
