Inter Parfums: Zacks’ Bear of the Day Play

Surging U.S. dollar and economic weakness in Europe and Asia have resulted in a challenging operating environment for companies deriving majority of their earnings outside the US.

Based in New York, Inter Parfums (IPARSnapshot Report) is a global marketer of prestige perfumes and beauty products with a portfolio of well-recognized fashion brands, both licensed and owned.

In 2013, Europe accounted for 40% of sales, followed by Americas (35%) and Asia Pacific (25%).  Negative earnings momentum sent the stock back to Zacks Rank # 5 (Strong Sell) recently.

Third Quarter Results and Preliminary Guidance for 2015

The company reported its Q3 results on November 10. Net sales increased 6% to $134.2 million from $126.8 million. European operations generated sales of $103.4 million, up 5.7% from $98.1 million. Sales by US operations were $30.8 million, up 6.9% compared to $28.7 million.

Net earnings for the quarter were $0.36 per share, slightly ahead of the Zacks Consensus Estimate of $0.35 per share.

On November 17, the company announced preliminary 2015 guidance. They expect net sales for 2015 of approximately $500 million, based on current exchange rates.  Net income is expected in the range of $0.95 to $0.98 per share compared to the 2014 guidance range of $0.93 to $0.95 per share.

Downward Revisions

Analysts have been cutting their estimates for the company after disappointing guidance. Zacks Consensus Estimates for the next quarter and next year are now $0.26 per share and $0.97 per share respectively, down from $0.33 per share and $1.14 per share, 60 days ago. Declining estimates sent the stock back to Zacks Rank # 5. It fact it has been # 4 or # 5 since the end of October 2014.

The Bottom Line

Strengthening dollar and ongoing weakness in its key markets–Europe and Asia—are expected to weigh heavily on the company’s performance this year. Lack of visibility in Eastern Europe and the Middle East adds to the uncertainty. Further, they have not yet fully recovered from the loss of Burberry license in 2013.

Zacks Industry Rank for “Cosmetics & Toiletries” industry is currently 226 out of 265 (Bottom 15%) . There is no Zacks Rank #1 or # 2 stock in this industry as of now. It is thus best to avoid this stock for the time being.

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