Inter Parfums Inc

NASDAQ:IPAR

Earnings Call Analysis

Company Reports Strong 2023 Results, Cautious 2024 Outlook

In 2023, the company enjoyed robust U.S. margin growth due to price increases, cost-containment, and favorable sales channel shifts. Overall sales increased, absorbing fixed costs and enhancing operating margins by 120 basis points to 19.1%. Earnings per diluted share rose to $4.82, a 22% increase. For 2024, the company projects 10% sales growth to $1.45 billion, expecting first-half growth in high single digits but double-digit growth in the second half, leading to an 8% rise in earnings per share to $5.15. The board authorized a share buyback of up to 130,000 shares and boosted the dividend by 20% to $3 per share, with a quarterly dividend of $0.75 payable on March 29, 2024.

Record Sales Amidst Economic Headwinds

Despite a backdrop of persistent inflation, the company has managed to achieve a milestone with consolidated net sales growing by 6%. This was largely driven by a notable 13% growth in U.S.-based operations and a modest 2% in European-based operations. The increase in net sales has propelled the company to hit record sales and earnings for the year. While the last quarter's growth seems modest compared to the whole, it is significant when analyzed against the more stable year of 2019, where both quarter and full-year sales jumped an impressive 85%. Adding to the financial fortitude is a margin expansion, with consolidated gross margin rising 30 basis points from the previous quarter to 64.7%, culminating in a full year gross margin of 63.7%.

Geographical Margin Dynamics

Geographical divides presented mixed results in terms of margin performance. In Europe, gross margins dipped by 100 basis points to 67.2%, influenced primarily by an inventory write-off in Q2. Without this anomaly, the erosion stood at a minor 20 basis points. Conversely, the U.S. operations celebrated a surge in gross margins, soaring from 54.7% to 57% in a single year. Factors fueling these gains included early year price increases, cost-containment successes, and a lean towards direct retailer sales over third-party distribution.

Elevated Spending on Advertising and Promotions

The company's strategic focus on advertising and promotions (A&P) saw an investment of 19.7% of net sales, still below the targeted 21%, primarily due to an unanticipated sales boom. Fourth quarter spending notably increased by 23% compared to the previous year, accounting for a substantial 33% of net sales. This aggressive push in A&P during the critical last quarter aligns with the company's vision of fortifying market competitiveness and supporting sell-through during high sales seasons.

Maintaining Operational Efficiency

The company's operational prowess is evident in its operating margin, which grew by 120 basis points to 19.1% in 2023. Executives are working towards stabilizing gross margins for the upcoming year, hoping to continue offsetting inflation with carryover pricing strategies. Furthermore, a focus on balanced advertising and promotion spend is expected, as the company seeks to excel in market projection accuracy. Meanwhile, operating margins across U.S. and European operations are converging, with Europe boasting higher gross margins contrasted by increased A&P spending.

Growth Expectations and Guidance

Embarking on a new fiscal year, the company boasts an 8% anticipated increase in earnings per share (EPS), setting the target at $5.15. This positive outlook is slightly tempered by incorporating the Lacoste noncash amortization impact, which may reduce EPS by about $0.11. Nonetheless, even with this factor, the company projects an EPS growth of 11% when compared to 2023. As for sales, a robust 10% growth to approximately $1.45 billion is forecasted, with accumulated gains expected in the second half due to the seasonality of the industry's innovation cycle and new brand integrations into the portfolio.

Capital Allocation and Dividend Potentials

With healthy operational growth and a strategic approach to inventory and accounts receivable management, the company is optimistic about generating increased free cash flow relative to earnings. This financial stability supports their continued approach to dividend payouts, with the latest increase being a substantial 20%. Newly acquired inventory for licenses like Lacoste and Cavalli are set to normalize, contributing to the cash flow stream and bolstering investor confidence in the dividend's sustainability.

Prudent Forecast Amidst Market Volatility

The company's guidance may err on the side of conservatism due to volatility, especially in markets like the Middle East, which is significant for brands like Cavalli. Nonetheless, with expectations of receiving orders inciting much optimism, executives state that if market desires hold steady, both Lacoste and Cavalli could exceed the conservative $90 million sales target set for them, contributing to a 4-5% growth from base business and additional revenue from new licenses.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings, and welcome to the Inter Parfums Inc. 2023 Fourth Quarter and Full Year Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I'd like to turn the call over to Karin Daly, Vice President at the Equity Group and Inter Parfums Investor Relations representative. Thank you. Please go ahead.

[Karin Daly]

Thank you, Diego. Joining us on the call today will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood.

On behalf of the company, I would like to note that this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. These factors may be found in the company's filings with the Securities and Exchange Commission under the heading Forward-Looking Statements and Risk Factors in their most recent annual report on Form 10-K.

Forward-looking statements speak only as of the date on which they are made, and Inter Parfums undertakes no obligation to update the information discussed.

As a reminder, the company's consolidated results reflect its 2 business segments, European-based operations and United States-based operations. Certain Prestige Fragrance products are produced and marketed by their European-based operations through its 72% owned French subsidiary Inter Parfums SA.

When the company refers to their U.S.-based operations, they are talking about their wholly-owned subsidiaries. It is now my pleasure to turn the call over to Mr. Jean Madar. Jean, you may begin.

[Jean Madar, executive]

Thank you, Karin. Good morning, everyone, and thank you for participating in today's call. We are seeing ongoing momentum in the fragrance market particularly within the Prestige and Premium category in which we play. Much of the growth we have seen can be attributed to premiumization as consumers are increasingly seeking high-quality and higher concentration fragrances in today's market.

The ongoing demand in our Prestige portfolio of brands led to a record net sales of $1.3 billion in 2023, an increase of 21% compared to 2022. At comparable foreign currency exchange rates, net sales increased 20% in 2023, of which 5% was related to new brands.

Similar to 2022, our successful growth during the year was attributable to our established brands and our new product pipeline dominated by extensions. Sales for each of our largest brands, Jimmy Choo, Montblanc and Coach rose above $200 million for the year, representing 49% of our total sales. Our fourth largest brand, GUESS grew sales by a robust 23% and with a strategically planned pipeline of innovation, we believe GUESS is well on its way to also surpassing $200 million in sales in the coming years.

In our European brands, there were also significant gains made by our midsized brands in 2023, including Rochas, Karl Lagerfeld, Van Cleef & Arpels increasing, respectively, 11%, 24% and 12%. As you may recall, Donna Karan/DKNY joined us in July 2022. This explains the significant 200% growth in 2023. We anticipate that the substantial growth rate will normalize but will remain healthy, and the brand will well exceed $100 million in sales in 2024, as it continues to benefit from our expertise.

Relative to our newest brand, we began shipping Lacoste fragrance in January of this year, after rebooting the brand's existing fragrance portfolio and creating all new freshly-developed goods for our retail partners and consumers alike.

Our Cavalli fragrance reboot coincides with the fashion house renaissance efforts to revamp the powerful creativity of [indiscernible] while opening new stores and increasing visibility. We have blockbuster launches in the west for our both brands later this year.

As you may recall, our entry into Italian operations in 2021 was strategically timed coinciding with the signing of the Ferragamo license. This decision, I think, was well founded as the Italian fragrance market witnessed a plus 12% sales growth in 2023. In fact, Ferragamo fragrance well outperformed the market, achieving 21% sales growth in the last year. [indiscernible] Italy are noted that they expect to see similar sales expansion in 2024.

While we have seen new entrants into the Italian market across the industry recently, driving healthy competition, we are confident our Italian affiliate will take advantage of the booming demand in Italy and across borders. We have also leveraged this new affiliate to serve as an anchor point to attract other Italian brands and increased company's scale. After starting to distribute all the brands from the United States-based operation in January 2023, our team in Italy has also started to distribute the brands from our European-based operation since January 2025 -- '24 I'm sorry.

With our Italian operations managing our distribution for both segments, we will expand cross-company synergies in that market and continue to improve gross margin as we sell directly -- through a distributor. The team in Italy also started shipping Roberto Cavalli fragrance at the beginning of February 2024, and we look forward to fully capturing the potential of this brand.

Abercrombie & Fitch also achieved significant sales growth of 25% in 2023 in part due to the sustained popularity of their legacy scents. Our initial success in the Phase 1 distribution rollout of Fierce was a leading contributor to the brand's growth in the back half of the year, and we expect to see further sales expansion as we commence Phase 2 in the first quarter of this year.

On another note, I've spent a lot of time traveling to meet with retailers, buyers and wholesalers across the globe. 2024 is off to a great start. In fact, I recently visited Mexico to meet with buyers, and I was very encouraged by what I saw, including empty shelves, representing healthy sellout particularly for Ferragamo, Montblanc, GUESS, and [indiscernible]. With the holiday season behind those and strong reorders, we are enthusiastic of the growth prospects in that region.

Turning to our stimulating pipeline of innovation during the first quarter of 2024, we debuted new fragrance collection. For Moncler, we introduced 5 new ultra-luxurious, unisex fragrances called Les Sommets Moncler, and we developed also a premium [ outlet ] quarter of other partners of Donna Karan called Cashmere Collection. [indiscernible] and more concentrated fragrance were unveiled in conjunction with the relaunch of Donna Karan fashion business and the reveal of the Spring 2024 campaign. These premium fragrances debuted in more than 200 department stores across the United States.

We have an invigorating lineup of product set for the balance of 2024 in addition to the new blockbuster fragrance for Cavalli and Lacoste as I mentioned earlier. Whereas the new GUESS fragrance planned for the second quarter as well as one more flanker in the third quarter. Extensions of Jimmy Choo [indiscernible], Montblanc Legend, Coach Dreams, and Roberto Cavalli signature are set to debut throughout the year.

Furthermore, brand extension are also in the works for Ferragamo, MCM, Abercrombie, Hollister, and Oscar de La Renta. With ongoing innovation in the development and marketing of our portfolio of fragrances, coupled with the overall strength in the fragrance market, we are poised for a dynamic year ahead. We have successfully onboarded over 80 new team members just for our United States-based operations, exemplifying our unwavering commitment to developing robust operations capable of effectively managing and optimizing our diverse portfolio of prestige brands.

In the ever-changing world of beauty, fragrance innovation is at the forefront for our brands [ ethos ] with category penetration on the rise in the United States and in Asia, and the continued shift towards more premium fragrances, we believe that the consumers heighten appreciation and curiosity for fragrances will be a compelling force for the future.

I will now turn the call over to Michel for a more detailed financial review. Michel?

[Michel Atwood, executive]

Thank you, Jean, and good morning, everyone. As we reported yesterday, consolidated net sales grew 6% in the final quarter, reflecting 13% and 2% growth in our U.S.-based and European-based operations respectively.

For the full year, we are pleased to have achieved record sales and earnings results. As previously disclosed, the quarterly growth rate in comparison to the full year reflects the elevated sales baseline from the preceding year. Compared to 2019, which was a much stabler year, our sales were up 85%, both for the fourth quarter and the full year 2023.

On a consolidated basis, gross margin expanded 30 basis points from the fourth quarter of 2022 to 64.7%, leading to a full year gross margin of 63.7% broadly in line with the prior year with higher selling prices and channel product mix offsetting the inflation headwinds and segment mix.

In 2023, European operations gross margin eroded by 100 basis points from 68.2% to 67.2%. However, as previously disclosed, the bulk of the erosion was attributed to the inventory write-off in the second quarter. Excluding this impact, gross margins would only have eroded by 20 basis points with pricing and regional mix almost entirely offsetting higher inflationary costs in Europe.

U.S.-based operations gross margin on the other hand, continued to expand significantly from 54.7% in 2022 to 57% in 2023. The U.S. margin expansion stems from several factors including price increases we took early in 2023 that were not fully offset by higher cost of goods due in part to our ongoing cost-containment efforts. We also had favorable brand and channel mix as a larger portion of our higher-priced fragrances are being sold directly to retailers as opposed to third-party distributors. An example of that is what Jean explained is happening in Italy. But we're also seeing that in the U.S. with the U.S. market growing faster than the rest of the other regions.

And then lastly, a significant increase in sales in 2023, which has allowed us to absorb fixed cost, namely manufacturing and depreciation of tooling. As expected, selling and general and administration expenses as a percentage of net sales were 59% for the quarter, which is 450 basis points higher than the prior year period mainly due to higher promotion and advertising spending.

For the full year, SG&A expenses as a percentage of net sales were at 44.6% compared to 45.3% in 2022. This decrease was largely driven by continued sales growth during 2023, allowing for better absorption of fixed operating costs and favorable segment mix.

As previously disclosed, we continue to invest heavily in A&P to build brand awareness, remain competitive and sustain our growth. During the year, we dedicated 19.7% of net sales to advertising and promotion. And while we again spent below our target A&P of 21% of net sales, due in part to higher-than-expected sales growth we continue to deliberately converge towards this figure. In fact, in the critically important fourth quarter of 2023, spending was 23% higher than in the prior year period representing 33% of net sales, up from 28% in the fourth quarter of 2022.

As you know, our fourth quarter, we typically spend double what we spent in the other quarters. Royalty expenses are included in SG&A and average approximately 8% in 2023, generally in line with the last 3 years.

And finally, our operating margins aggregated to 19.1% for 2023 or 120 basis points improvement from 2022. We closed the year with working capital of $514 million, including approximately $183 million in cash and cash equivalents and short-term investments resulting in a working capital ratio of 2.6:1.

Our long-term debt at December 31, 2023, was $128 million, associated with the Paris headquarters and Lacoste license acquisitions were our 2 main investments in the last couple of years. From a cash flow perspective, accounts receivable was up 19% from year-end 2022, the balance is reasonable based on 2023 record sales levels and reflects a strong collection activity as day of sales outstanding decreased slightly to 60 days in 2023 as opposed to -- as compared to 64 days in 2022.

Additionally, inventory levels are up 25% from year-end 2022, of which inventory days on hand increased to 249 days in 2023 from 231 days in 2022. This increase was fully anticipated and is primarily explained by the buildup of inventory related to the newly acquired licenses for Lacoste and Cavalli, which began shipping to customers in 2024. We expect inventories to start normalizing now that we have sales and this inventory in our base.

And finally, touching on our 2023 execution and 2024 guidance. Not only did we surpass our sales target of $1.3 billion in 2023 and achieve our all-in bottom line goal of $4.75 earnings per diluted share, but on an adjusted basis and excluding the onetime tax assessment undergone by our European operations, we largely beat our bottom line guidance and achieved $4.82 earnings per diluted share, representing the growth of 22%.

For 2024 guidance, as we reaffirmed in yesterday's earnings release, the fragrance market, particularly in the Prestige and Luxury category remains robust. This coupled with healthy stock and trade level gives us the confidence we can continue to grow and achieve approximately 10% annual sales growth to $1.45 billion. We expect first half growth to be a more modest high single digit due to the seasonality of our pipeline of innovation and the sell-in of the newest brands of our portfolio. However, we expect double-digit growth in the second half. This will lead to an 8% increase in earnings per diluted share to $5.15.

Of note, included in our guidance, the Lacoste noncash amortization impact of the acquisition cost is expected to reduce our 2024 earnings per diluted share by approximately $0.11. Excluding this impact, we are projecting EPS growth of 11% versus 2023. While we are confident in the strength of the market and our ability to gain share with our overall portfolio, we have always remained -- we've always taken a conservative stance in our guidance. And this year, we are particularly keen on being cautious, especially in light of the ongoing conflicts in the Middle East and in Eastern Europe.

Given the potential for volatility and the lack of visibility at this time, we will revisit the subject of guidance as the year progresses and as we attain greater clarity on the market and the successful offtake and expansion of our 2 new licenses.

Lastly, as announced in our press release, given our strong results, future prospects and robust financial standing, our Board of directors authorized the company to continue to purchase up to 130,000 shares through 2024. They also approved a 20% increase in the annual dividend to $3 per share from $2.50 per share. The next quarterly cash dividend of $0.75 per share is payable on March 29 to shareholders of record on March 15, 2024. With that, operator, please open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Linda Bolton-Weiser with D.A. Davidson.

[Linda Bolton-Weiser, analyst]

So I was just wondering if you could comment a little more, give us some color on those 2 regions of the world that you mentioned a little bit of lack of visibility, but Eastern Europe and the Middle East and specifically, on the Eastern Europe, I know you have been shipping some still to Russia, I think, in 2023. How much was that kind of roughly in revenue in 2023? And is that going to go down a lot in 2024? Can you just give us some more color on that?

[Jean Madar, executive]

Yes, I can try to -- good morning Linda. Yes, we see, of course, like everybody distances in Europe. And even though they -- today, it doesn't have a real impact on our sales. It makes us put some conservative light regarding the guidance. When it comes to Russia, for Russia it's very simple. It does not change. We ship to Russia some -- the products that are made in Italy or in France. We do not ship to Russia products that are made in U.S.A. The business [indiscernible] in Russia is what we're focused on to -- of our total sales, something like that.

[Michel Atwood, executive]

Yes, it's $50 million Linda. Yes, Linda, it's about $50 million, and that's kind of what we've -- it's actually disclosed in our 10-K.

[Jean Madar, executive]

Do we expect this business to go up? No. But what we see is that the news are not great from this part of the world. And any sparks could not only stop the business that we have [indiscernible] we have in Russia, but it's also a tension in this region, Poland, et cetera, which represents a nice business. That's why even though business is very strong, we have no reason to reveal. I prefer to have an approach that is more conservative. When it comes to the Middle East, we do business -- as you know, we have a very strong business in Saudi Arabia, in Kuwait and The Emirates which represent, Michel, can give you a percentage?

[Michel Atwood, executive]

Yes, it's about 8%. That's about 8% in Middle East and...

[Jean Madar, executive]

I was in the region 2, 3 weeks ago. Everybody is fine. We continue to sell. But we think that if anything happens, immediately, we'll see an impact on the region. So that's why we prefer to wait and see. But our business, for instance, on Cavalli -- Roberto Cavalli, more than 50% of the business is in the Middle East. So this is to give you some color of our conservatism.

[Michel Atwood, executive]

And just to build on Jean, I think the tone of caution is not relative to our business. The tone of caution is more coming from the macroeconomic environment, which we obviously don't control. But we're certainly feeling very good about the health of our brands, the level of offtake that we've had over year-end and our ability to replenish and to successfully launch our 2 brands. But again, we are being prudent more because of the macro environment than by any concerns we might have with our business.

[Jean Madar, executive]

We think that we will wait a couple of months before I would say, when we release the first quarter, we will review. I hope we'll be able to review this guidance, but not now.

[Linda Bolton-Weiser, analyst]

Okay. And then I know, Michel, you were giving some color, I think, previously that you felt gross margin in 2024 could be flattish. And then are you still shooting also for the A&P ratio to be about that 21% target in the year?

[Michel Atwood, executive]

Linda. Certainly, we're working towards a flat gross margin for next year with pretty much the carryover of the pricing that we took this year offsetting some of the inflationary cost that we might still expect. But broadly, I think the costs are contained and looking good for now.

On the A&P, I think we've been very clear. We want to remain competitive. Some of the reasons why we've been below our 21% goal is because we continue to see a lot more market growth than potentially anticipated and that obviously has an impact on our denominator as we divide the spending by lower sales. We continue to plan more. We're gating and gating our investments so that we can land that number better. And I think I've been very clearly indicating that now for a few quarters that we're refining our ability to forecast and plan these expenses as the sales come in. So yes, you should assume that we will continue to work in that direction.

There's another element that's actually quite important to keep in mind here, and it's not always very obvious, but if you compare our European operations to our U.S. operations, while the margins are roughly the same overall operating margins and have been converging. There's a big difference in our operating model, which is European operations has much higher gross margins, but also much higher A&P spending.

And if you compare that to U.S. operations, it's the opposite, lower margins and lower A&P spending. As the U.S. operations becomes more and more like the European operations, you're starting to see the gross margins converging, but you can also expect to see the A&P also increasing as that business looks -- starts to look more and more like the European one. That creates some segment mix both on the COGS, which was going to be favorable, but on the A&P, which will be unfavorable.

[Jean Madar, executive]

If I may add, in 2023 our operating margin was high at 19%. I think it's a great level. It's higher than what it was in 2022. But one of the reasons Linda, that we want to spend this money in advertising is that -- on this advertising, we spent a lot in the fourth quarter to ensure the sell-through. And when I see that our gift set and all of our [ parfums ] are sold through by the end of the year is really reassuring for the year after. So I think it's very important to continue to spend at this level.

[Linda Bolton-Weiser, analyst]

Yes. And then my final question just has to do with capital allocation and that's a nice healthy dividend increase, 20% and you've had big increases in the last few years. Quite frankly, your free cash flow in 2023 was not too much above the dividend amount. So I'm wondering like kind of are you expecting to have more robust free cash flow and a better -- a bigger margin of safety. I just wonder if we should worry that your dividend is getting actually too high relative to your cash flow.

[Michel Atwood, executive]

Yes. So if you look at really what's been going on for the last couple of years, right? I think we've been delivering very healthy operating profit growth. The challenge is that a lot of the -- that has been consumed in free cash flow, either through the inventory and the AR build-up, which is commensurate with our growth, particularly, I would say inventory. So inventory has consumed a lot of cash. What we're seeing at this point in time is that we're getting to a level of inventory that we feel is quite comfortable.

We have now, as I laid out in my prepared remarks, we have built the inventory now for Lacoste and for Cavalli. And so we are expecting going forward that a lot less of our operating profit will be consumed through an increase in inventory. And so that will definitely provide us with some good tailwinds.

And then the last piece is, we have made 2 significant investments that have consumed cash in the last couple of years. There's been the acquisition of our headquarter in Paris, and there's also the Lacoste purchase, which, as you all know, is not typical in this industry. But -- so overall, we're feeling very, very good about our prospects for next year and our ability to generate more free cash flow from our earnings.

[Operator]

Our next question comes from Korinne Wolfmeyer with Piper Sandler.

[Korinne Wolfmeyer, analyst]

I'd like to touch on how you're thinking about the outlook for both the Lacoste and Cavalli licenses this year. It does seem like the guidance you laid out is factoring and maybe a little bit more conservatism and it does sound like you're being more prudent with expectations, especially with what's going on in the Middle East. But can you just provide a little bit more color on how you're thinking about the trajectory for both these licenses this year and maybe how we could -- how or when or in one areas could we see some upside to build these licenses this year?

[Jean Madar, executive]

Yes. Go ahead, go ahead Michel.

[Michel Atwood, executive]

So, Korinne, right now, we are assuming in our forecast about $90 million in combination both for Lacoste and for Cavalli for the total year. So far, we've been able to get some healthy sell-in. And so overall, that's kind of the number we're working towards. As Jean explained, the Middle East remains a pretty volatile region and half of Cavalli is pretty much going to be in the Middle East. So while we currently have about $90 million in our forecast, we're probably in our guidance, assuming a slightly smaller number than that. So right now, if you look at our building blocks of 10%, we're looking at about kind of 4% to 5% coming from the base business and then the balance coming from the new licenses. And we understand that, that's a little conservative. Right now, we do expect the market to be more around high mid-single digits, call it, around 6%. But again, we are being prudent at this point in time.

[Korinne Wolfmeyer, analyst]

Very helpful. And then can you just touch on kind of your longer-term expectations for A&P spend? And I know you're not guiding beyond 2024, but how should we be thinking about like the proper run rate for operating margin beyond this year? If you are keeping that A&P spend heightened. And specifically, like is it reasonable to think we could get to levels delivered here in 2023 over the coming years? Or is it going to be sustainably a little bit lower due to the spend?

[Michel Atwood, executive]

At this point in time, we're comfortable with the level of margins we have. I don't think we're necessarily looking to further expand. I think we've had a really, really good run. We're comfortable with the level we have. I think as the business continues to grow, we will continue to have operating efficiencies and scale gains. I think that would potentially drive a little bit of margin appreciation. But we are being very vigilant. And again, as I was explaining before, we have a lot of -- there's some mix impact -- segment mix impacts that can kind of throw some of these things off. If you look at our A&P right now, we're at 19.7%. But if you look at our European operations, they're at 22%.

And the reason why we're lower than that is because U.S. operations is more in the 15% to 16% range. And it's the same thing on COGS. So I think what you can probably expect to see really over the long term is, U.S. operations gross margins will probably continue to improve. A&P will continue to increase. And that -- but overall, margins will remain roughly the same.

[Jean Madar, executive]

Excuse me, I would like to -- if we have time, I would like to go back to this interesting point of Lacoste and Cavalli, which are the 2 new license that just started. We took them over January 1. I think we're going to see some good surprise on both because the former licensee didn't put a lot of inventory in the market.

And there is -- from the orders that we are receiving in the first quarter, we see that there is large appetite for our Lacoste products and also for Cavalli from the trips that I make, we see empty shelves, and we have to replenish the shelf quickly. So there is -- if it continues at the level that we are seeing now, we have a lot of chance to make bigger numbers than that for Cavalli and for Lacoste for this year.

[Operator]

Our next question comes from Ashley Helgans with Jefferies.

[Unknown Analyst]

This is [indiscernible] for Ashley. I was just wondering if you can talk a little bit about what you're seeing in terms of consumer price sensitivity and maybe with also sensitivity to promotion. And then any kind of color you can give in terms of what you're expecting for the broader fragrance category, promotional environment looking out through 2024?

[Jean Madar, executive]

Well, I can try to answer. But as I said before, we have seen a premiumization in the market for sure. There is -- there are more and more consumers willing to spend more for higher quality fragrance. When I say higher quality, meaning more concentrated fragments. So instead of buying Eau de toilette they will buy Eau De Parfum. So it could be more expensive. We see no price resistance when it comes to fragrance. We see also worldwide more people buying larger size, which is also a sign. Our fragrance come usually in 3 sizes, let's call it, small, medium and large. More than 50% of the sales are in the large size. So this, of course, helps the business. It has not always been like that. And we see this trend continue. We see it in a brick-and-mortar business and of course, in the very important e-commerce business. Michel, you have something to add?

[Michel Atwood, executive]

Yes. No I think I would say the market has been generally very strong. So even if there is -- even if there were to be any price elasticity related to pricing, we're certainly not seeing it or there's a very strong underlying trend that's kind of pushing the market up that would be offsetting that.

And on the promotion side, we're not really seeing any significant increases in the promotional levels, typically holiday where you get your normal gift sets. There are some various events throughout the holiday season to facilitate sell-through, but we haven't really seen any significant increases in promotional activity there.

[Unknown Analyst]

That's helpful. And then just one more from us was any updates you can kind of give us on the travel retail channel and what you're seeing there?

[Jean Madar, executive]

Travel retail is really back. We have all the operators, the largest operators and there is less than a dozen of them going back very strong with a lot of programs at a higher price and in Europe, in the U.S. and in Asia except China -- except China, we will see a nice increase in our Travel retail.

[Operator]

Our next question comes from Hamed Khorsand with BWS Financial.

[Hamed Khorsand, analyst]

The first thing I wanted to ask you is, are you seeing any difference? Can you hear me?

[Jean Madar, executive]

Yes.

[Hamed Khorsand, analyst]

Are you seeing any difference in your relationship with the retailers and what's going on with you going direct and how beneficial that is for you? Are they buying more because you're having -- establishing relationship? Or how is it different?

[Jean Madar, executive]

I am not sure. Michel?

[Michel Atwood, executive]

So let me try to take that, and then, Jean, you can maybe fill in. I mean, obviously, there's always a benefit in going direct because if you go direct, you can obviously pick up a piece of the overall value that is out there. If you can do it, obviously, efficiently.

The second benefit that you get is effectively you're closer to the business, you're closer to the pulse of the business. When you're selling through a distributor, you don't necessarily have as much visibility on what the retailers are doing. Obviously, you have ongoing conversations with your distributor, you stock -- you track stock and trade, you track their stock levels, you look at offtake. But when you're one step closer to that consumer, to that retailer, it definitely helps the relationship. You also are the one talking about your brands. And obviously, we always know how to talk about our brands, even if our partners are also very well trained. We definitely are one step closer as well. So I think all of that just creates positive momentum and inevitably kind of helps us.

[Jean Madar, executive]

We have direct relationship with retailers in many countries. And of course, we can respond much more faster when you have a distributor in the middle for sure.

[Hamed Khorsand, analyst]

And then have you changed up any of your time line for new releases this year? Or are you staying put?

[Michel Atwood, executive]

Yes. I think there was some -- if you really look at the business overall, typically, what you see is from a seasonality standpoint, I mean a lot of -- if you look at a stable FMCG business, it's pretty much everybody's buying every quarter, roughly a quarter or quarter-on-quarter. What you see on the fragrance business, it's much more skewed to the second half of the year. And if you look at what we did this year, this year, we are about roughly 47% of our business was in the first half and 53% was in the second half.

Normally, it's more like a 46-54 split, and this year was a bit of an outlier because we had a very, very strong Q1 last year with a lot of innovation, particularly on Montblanc and Jimmy Choo. So this is one of the reasons why we're guiding to a slightly slower growth relative to last year. It's more driven by seasonality of this market and this industry, which was a little bit off last year versus what we normally see.

[Operator]

There are no further questions at this time. I'll turn the floor back over to Michel Atwood for closing remarks.

[Michel Atwood, executive]

Okay. Well, thank you really all for joining our call today. Really before I end the call, I wanted to take this opportunity to really thank our teams. They're really the unsung heroes here. They're not on this call, but they're all behind us. For those that have been following us for a while, I think you've all seen the pace of growth and transformation over the last few years. It's been really considerable, and we could not have achieved this not only achieved and sustained these record results without all of their hard work and dedication. So really, again, I wanted to really thank our teams today to all of you.

Last thing I would like to do is just also maybe announce some upcoming events. So first, Jean, I will be joining our D.A. Davidson inaugural Best-of-Breed Bison virtual conferences on March 8. And separately Jean will also be attending the Raymond James Beauty leaders dinner in London on March 19. So please reach out to the respective sales representatives if you're interested in partaking in these events.

Obviously, if you have any additional questions, you can contact Karin Daly from the Equity Group, our Investor Relations representative. Our telephone number and e-mail address can be found in our most recent earnings release. And obviously, I'm always available as well to answer any questions. We look forward to the next conference call. And we really wanted to thank you again, and wish you all a great day.

[Operator]

Thank you. And that concludes today's conference. All parties may disconnect. Have a good day.