Inter Parfums Inc

NASDAQ:IPAR

Greetings, and welcome to the Interparfums Inc. 2024 Fourth Quarter and Year-End Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karin Daly, President at the Equity Group and Interparfums' Investor Relations representative. Thank you. You may begin.

Thank you, Shamali. 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 risks 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. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. As a reminder, Interparfums consolidated results include 2 business segments: European-based operations through Interparfums SA, the company's 72% owned French subsidiary and United States-based operations.

It is now my pleasure to turn the call over to Jean Madar. Jean?

Thank you, Karin, and good morning, everyone, and thank you for joining us on today's call. 2024 was a great year for us. We closed it on a high note with record fourth quarter sales and earnings. Our sales cumulated to $1.452 billion and the adjusted earnings before an impairment was $5.18 per diluted shares for the year, beating our guidance of $5.15.

It was also the year we initiated distribution and sales for the 2 new brands, Lacoste and Roberto Cavalli. We also renewed our license agreement with Van Cleef & Arpels extending our 18 years partnership into the next decade. And we also signed an agreement that will bring the off-price fragrance business under our direction starting 2026. We have also been recognized for a number of awards and achievements this year, but the ones that we are the most proud of was our inclusions in Time magazine, World's Best Companies - Sustainable Growth ranking, which rewards the 500 most exemplary companies in terms of economic growth and environmental commitment over the period 2021, 2022. Specifically, our 72% owned subsidiary, Interparfums SA ranked #44 out of 500 among all the companies in the world.

Talking to business -- talking about business. For the second year in a row, Jimmy Choo, the largest brand in our portfolio increased sales by 7% for the year largely driven by the ongoing success of the I Want Choo franchise.

GUESS also had a stellar year, growing 13% as a result of the continued robust performance of its legacy scents, plus the initial success of our new pillar, GUESS Iconic. The brand entered 2025 with very strong programs and momentum from the fashion house. Donna Karan/DKNY fragrances, which joined our portfolio mid-2022, generated already sales in excess of $100 million.

I would like now to take an opportunity to provide an update on Ferragamo. As you know, we took the license 3 years ago, and the initial focus was to clean up the distribution which we did. The largest market for Ferragamo are U.S.A., Italy and Mexico. And very important for us is that we are going to launch a new blockbuster, a first blockbuster for Ferragamo in the last 4 years.

It is called Fiamma, and we plan to invest over $20 million on the brand in 2025 behind the new visual merchandising approach and the new advertising company. So Fiamma will be the first major blockbuster launch developed with accretive vision of Maximilian Davis, Creative Director of Ferragamo. And it incorporates the core elements of the brand, especially of the brand new aesthetic, the organic shapes, the fluidity, the texture and it represents a true design innovation.

Regarding the advertising, we shot the advertising with super photographer, Mario Sorrenti and it features a top model, the top model Karolina Spakowski. The new campaign is set against the backdrop of the city of Florence. Florence is the birth place and headquarter of the brand, and it expresses the vision of modern community. So we have a big hope for this new blockbuster Fiamma.

Touching on our newest brands, Lacoste far exceeded our expectations in its first year under our management, achieving over $84 million in sales or 6% of our total sales with strong popularity worldwide. We did not just relaunch Lacoste Original, we redefined its place in the market. Through a blend of strategy, creativity, market insight and commercial innovation, we are transforming Lacoste presence setting a new standard in its space. And in 2025, this year, we'll also expand the original line for both men and women and the L. 12.12. line.

Regarding Roberto Cavalli, Roberto Cavalli met our expectations in its first year in our prestige portfolio, adding 2% to our top line at $31 million in sales in less than 11 months. Earlier in the year, we revamped the inherited fragrances and launched a new scent called Sweet Ferocious. We also introduced Just Cavalli Wild Heart, and the collection of hair & body mist. In 2025, we have a very important blockbuster fragrance for Cavalli, it is called Serpentine. And our partnership with Cavalli brand comes at the perfect time with new store openings, widespread buzz in fashion media and social platform and fashion icons embracing its bold designs, Cavalli resurgence is in the full swing.

In December '24, we signed for all Off-White brand names and registered trademarks for Class III fragrance and cosmetic products. And in 2026, Interparfums will begin commercial use of a fragrance brand. Today Off-White fragrance for men and women are sold in department stores like Saks and Neiman Marcus specialty store and, of course, online.

Our 3 largest markets North America, Western Europe and Asia Pacific attained gains of 6% for North America, 21% for Western Europe and 3% for Asia Pacific in 2024 compared to 2023. The Middle East and Africa, Eastern Europe and Central and South America also grew sales by 5%, 14% and 17%, respectively. Interesting to notice is Travel Retail sales continued to strengthen and increased by 20% from 2023.

Travel Retail is an important channel, and our goal is to continue to focus on brand building versus trying to get quick wins for promotion. As always, we will continue to prioritize our retail and wholesale partners, consistent with our established strategy. In 2024, direct sales to retailers, including travel retail, represented approximately 49% of our net sales, up from 47% 1 year earlier.

As previously disclosed, beginning in 2024, our Italian hub began managing sales in Italy for all our brands. This model has demonstrated its success and we are actively exploring opportunities to expand it into new markets, including U.K. and Spain. Much of the success we achieved in 2024 is due in part to our omnichannel services, including our e-commerce business, specifically on Amazon and Divabox one of the largest e-commerce channels in France.

We also recently launched our own page on TikTok shop. And while it started very small, it has been gaining momentum rapidly with purchases increasing week-over-week since its inception. Consumers are growing increasingly confident in purchasing fragrances online driven by content creators and influencers across various social media platforms who are sparking the excitement around niche and luxury scents. This digital shift has not only fueled discovery, but also increased online fragrance sales.

One of our greatest strengths is our ability to stay ahead of emerging trends from the growing demand for premium, ultra-premium and luxury fragrances to the right of multi scent collections, we anticipate what consumers want. We have seen a surge in fragrance use among males, particularly among teens, along with the shift towards gender neutral scents and highly concentrated long-lasting formulas.

Our brands are in demand across the globe as evidenced by increased sales in all major markets in 2024 compared to 2023. We also understand the art of capturing the consumers' attention, enticing them to pick up a fragrance, experience its scent and connect with it on a deeper emotional level.

This engagement where our fragrance becomes a true reflection of their identity is the lens through which we evaluate our brands and uncover new opportunities for growth. While the past 2 years have primarily focused on extension, in 2025, we will introduce bold new fragrances that energize our brands.

From new blockbusters to pillars and elevated extension, we are crafting high-quality, highly concentrated scents aligned with the evolving preferences of today's fragrance consumers. With regards to product launches in our 2025 pipeline, we have blockbusters debut for Ferragamo, as I mentioned before, also for Rochas, also for Cavalli.

We also have fragrance duo for Karl Lagerfeld and the new collections for DKNY for MCM and for Ungaro. GUESS will see iconic for men in stores in the spring. And of course, we have extension across nearly all the rest of our portfolio including our 3 largest brands, Jimmy Choo, we have a new men extension and Montblanc, we are enlarging the multi-scent collection with Starwood, and we are also expanding the Explorer family with Explorer Extreme.

Coach for Men, welcomed Road perfume version early this year in keeping with increased demand for highly concentrated long-lasting scents. 2025 will also mark the creation of our first proprietary brand called Solférino. It is a collection of 10 niche fragrances developed by star perfumers to be launched initially through an ultra-selective distribution channel, no more than 100-point of sales, will also open a store in Paris entirely dedicated to the brand and along with e-commerce dedicated sites.

With the Solférino collection, our goal is to gain insight that can be applied across our portfolio while also strengthening our position in the robust high-end fragrance market. As we step into the high-end fragrance market, we are also thoughtfully pruning our portfolio of smaller brands in 2024 and end of 2024, we discontinued Dunhill.

And in 2025, the Boucheron license will expire. Both of these brands represent a small part of our portfolio, and our goal will be to make up for these losses through new brands like Off-White and Solférino and other new license while also growing our core brands faster.

We are also streamlining our supply chain. For our European-based operations, we have historically relied on third-party logistic providers for services such as packing, shipping, warehousing and order fulfillment. And in the U.S., we recently decided to transition our warehouse in New Jersey that we have operated on our own for 30 years through the same model of 3PL in an effort to streamline operations and reduce our overhead costs. As our business continues to grow, leveraging third-party logistic partners will enhance efficiency and enable us to better serve our customers while focusing on our core competencies. We plan to complete this transition by June 2025.

Looking ahead, the momentum in the global fragrance market continues its positive trajectory, but at a slower pace than in more recent years. We are also facing a range of other headwinds, including potential tariffs, regulatory challenges and currency fluctuations. On the tariff side, we source our components from multiple regions and are actively working with our suppliers, particularly in China, to navigate potential tariff evolutions. We buy certain components from China, like plastic and metal caps.

While an increase in tariffs on components remains a possibility this year, our goal is to mitigate cost impact, so we don't have to pass them on to our retail and wholesale partners. Additionally, as an exporter of American-made finished goods to neighboring countries and an importer of finished goods made in Europe, we are closely monitoring potential changes in U.S. import and export taxes.

Should these costs rise, we will explore all possible strategies to offset the impact on imports, including potential pricing adjustments. While this factor pauses challenge, we believe they do not represent significant cause for concern as we believe that most of the industry is taking this approach.

On the regulatory side, our team will continue to ensure our product meets the highest standards of safety and compliance worldwide. And we are all prepared to navigate the complex regulatory landscape to mitigate any potential disruptions. While we are seeing unprecedented changes, we have strategies in place to address them effectively and minimize disruptions. This includes chemical safety where we are reformulating a lot of our products as necessary to ensure compliance while continuing to innovate within safe parameters.

There are a few banned substance that are prevalent in many fragrances. We expect that we need to reformulate about 80% of our formulas and packaging over the next 3 years, we have successfully gone through a similar process when lilial was banned in the recent past. On listing and registration, The Modernization of Cosmetics and Regulation Act called MoCRA represents a major shift in FDA oversight of cosmetics.

We have implemented rigorous compliance measures to meet MoCRA requirements so that we abide by mandatory product listing, safety substantiation and facility registration. Given the focus on deregulation, we are also already anticipating and prepared to navigate increased legislative activity at the state level.

To close our innovative and creative expertise, combined with the strength of the current fragrance market and the depth and diversity of our brand portfolio position us well for another year of record sales and earnings, while economic and geopolitical uncertainties prevail, our agile workforce and ability to adapt to evolving conditions are key to sustaining our success.

I will now turn it over to Michel for a review of our financial, Michel?

Yes. Thank you, Jean, and good morning, everyone. I will begin by discussing the consolidated results before breaking them down into our 2 operating units, European and U.S.-based operations.

Overall, as you've seen from our earnings release, we delivered significant top line growth while expanding margins. We also beat our sales and earnings guidance. As we reported, consolidated net sales grew 10% in both the final quarter and the full year to $362 million and $1.452 billion, respectively, for the year.

Gross margin was broadly in line with the prior year periods at 64.5% and 63.9% for the fourth quarter and full year. SG&A as a percentage of net sales was largely consistent with 2024 at 44.7%, which is up only 10 basis points from 1 year earlier. We maintained significant investments in A&P to strengthen brand awareness, stay competitive and support on ongoing growth, especially with 2 new brands in our portfolio.

In total, we devoted $281 million in A&P, which is 7% higher than last year. However, as a percentage of net sales, A&P was 19.3% which is below our target of 21% as we phased some of our A&P investments into the first half of 2025 where we believe we will get a higher ROI.

Royalty expenses, which are included in SG&A, averaged approximately 8% in 2024, generally in line with our 5-year run rates. That brings our 2024 consolidated operating income before impairment loss to $279 million, a year-over-year increase of 11% and an operating margin that is best-in-class at 19.2% and slightly ahead of prior year period.

Our effective tax rate for the year was 24.2%, which is a blended rate between our U.S., french and Italian entities. This rate improved by 60 basis points from the 24.8% in 2023 when we had a $3 million tax assessment.

Now moving into our different segments. For our European-based operations, we finished the year on a strong note, achieving 6% sales increase in the fourth quarter and leading to a 10% sales increase for the year. Gross margins were lower by 30 basis points to 67% for the full year as a result of unfavorable brand and channel mix, but they did expand slightly in the fourth quarter by 20 basis points, reaching 69%.

SG&A expense increased on a dollar basis for the fourth quarter and the full year, but decreased as a percentage of net sales by 80 basis points for the full year compared to the prior year period as we face some of our A&P expenses into the first half of 2025. We expect higher A&P expenses from our European-based operations in the first half of 2025 as a result of this shift as we continue to rebalance our investments across the year to achieve better ROI consistently with what we did in 2024.

As previously communicated during the fourth quarter, our French subsidiary, which manages our European-based brands recorded a supplemental nonrecurring, noncash impairment charge of $4 million relating to Rochas fashion business. To provide some context, when we acquired Rochas in 2015, we acquired both the fragrance and the fashion business for $108 million. We allocated $20 million to the fashion trademarks and the balance to fragrances. Fragrances continues to perform ahead of expectation in line with our core competency and expertise.

But the fashion business has been more challenging. At this time, we are actively discussing and seeking alternative solutions for the Rochas' fashion business which triggered this need to impair the asset. After this impairment, we will have $7 million on our balance sheet of the original $20 million that we started out with. All told, net income attributable to European-based operations grew 12% to $140 million for the full year.

Now turning to U.S.-based operations. It's a similar story, we achieved 16% sales increase in the fourth quarter, leading to a 12% gain for the year. Gross margin was down 60 basis points from 57.9% in the fourth quarter of 2024, but this was driven by unfavorable product and channel mix. However, for the year, gross margin expanded by 90 basis points to 57.9% as a result of favorable brand and channel mix.

As Jean noted, we are expanding our direct to retail channel in the U.S., which is gross margin accretive. We will continue to focus on this strategy while maintaining strong relationships with key wholesalers as our preferred partners. Similar to European-based operations, SG&A increased on a dollar basis but as a percentage of net sales decreased 190 basis points from the prior year's fourth quarter.

On a full year basis, SG&A as a percentage of sales increased by 70 basis points to 40.5% as a result of continued investment in infrastructure and employee headcount to support the growth of the business as well as increased A&P activities. Overall, net income attributable to U.S.-based operations grew 8% to $69 million for the full year.

We closed the year in a strong financial position with $235 million in cash, cash equivalents and short-term investments and working capital of $582 million. With 10% sales growth, we managed to keep inventory flat compared to last year as the benefit of our inventory optimization program started to bear fruit throughout the year. We also significantly improved our cash conversion cycle, delivering operating cash flow of $188 million in 2024, which is the equivalent to 92% of net income and this is up from $106 million or 56% of net income in 2023. Our long-term debt approximated $157 million and was primarily driven by the loans that we took out to acquire our headquarters.

From a cash flow perspective, accounts receivable was up 17% from prior year 2023, while days outstanding increased from 66 -- to 66 days in 2024 from 62 days in '23. It reflects the change in our channel mix, as just discussed, but with strong partnerships, we do not anticipate any issues with collections.

As announced in our press release yesterday, given the confidence in our long-term growth prospects, operating cash generation and solid balance sheet, our Board of Directors approved a 7% increase in our annual dividend to $3.20 per share, up from $3 per share in 2023. This represents a 60% payout on 2025 expected EPS.

Before we open the call for questions, I wanted to address 2025 guidance. As Jean and for that matter, most of our peers have stated the fragrance markets momentum is continuing, but at a more modest pace. While we did beat our guidance on sales and earnings in 2024, competition slowed down and their operating margins contracted as the category becomes more competitive. We're also seeing foreign exchange headwinds for the first time in 2 years, with the euro reaching $1.02 against the dollar in January against -- versus $1.08 throughout most of 2024 and actually $1.09 in January 25.

We already know that these FX headwinds will impact us in the first quarter of 2025 by about 2 points and possibly extend into the rest of 2025. Despite these headwinds and eroding competitive margins, we remain confident that 2025 will be another record year and are maintaining our guidance of $1.51 billion in net sales and EPS of $5.35 per share, both a 4% growth across the board. We will update this guidance as the year progresses.

With that, operator, please open the lines for questions.

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

Yes. So I was wondering if you could talk about -- I think in the press release, there was a mention of destocking in the industry. And I was curious if you could give us a sense of what's going on there? Because I know you had that issue last year in 2024, but I thought it was completed and that you felt things were in good shape. Can you just kind of tell us where you think the channel inventory stand at this point?

Linda, thank you for your question. I will say that we did a good sell-in in November and December, anticipating a good Christmas sell-through, which happened, by the way. And I will say that in the last 2, 3 months, the gap between sell-in and sell-out reduced. So it's not going to be as severe as it was in the whole year of 2024. Michel, you want to add something?

Yes. I would say, as you know, Linda, we saw about 2 to 3 points of destocking effect, a gap between our sell-in our sell-out. Most of that happened in the first 9 months of the year. There was still a small difference in the fourth quarter, but it was really moderate. And I think at this point in time, we're feeling comfortable that the worst is behind us in this area.

Okay. Sounds good. And then I was kind of curious about when you talked about the competition, just now at the end of your remarks, I mean the category has always been competitive, big players and yourself gaining market share over time. What do you mean by competition kind of changing? And do you expect that you can gain market share in 2025?

Okay. So Linda, I mean, if you look at the data is really -- we like to look at the outside and understand what's really happening out there. So we are looking at our competitive peers, obviously, the ones that are publicly traded. And what we can see really is across the board, the growth of our peer group has been below the overall market. So while the market has been very, very good and very, very strong, the sell-in, which is obviously reflected in our peer group sales, has been lower. And I think this whole destocking thing has probably impacted the broader industry, not just us.

On the margins, if you look at our trailing 12 months margins where we've actually been able to hold our operating margins flat, what we see very clearly is most of our competitors have had eroding operating margins. Again, it's always difficult to go into the details when you're looking at this based on what's been disclosed. But we are seeing a pretty strong trend of eroding margins across our competitors. And I think if you look at what's been happening in the past, I think the whole industry was surprised by the market and probably was investing less. And I think as the market slows down and people start to anticipate that growth, I think the category is definitely getting more competitive. Jean?

Yes, yes, I tend to agree. The -- are we going to gain market share in 2025? We think that the level of innovation that we have for most of the brands is quite impressive. I mean we have blockbuster for Ferragamo, blockbuster for Rochas, for Cavalli, for MCM. It's an important year of blockbuster. We have very important extensions on important brands like Jimmy Choo and Montblanc and Coach. So yes, I think it will continue at a more moderate pace, but I think we have the tools to gain market share.

And then just my last question is the Ferragamo blockbuster that sounds exciting. What month or what part of the year do you think it launches in? And will it be a gradual rollout or more of a global launch?

It's going to start in the second quarter. We're going to start seeing some sales in second quarter accelerating in the third quarter. Important markets will be, as I said, U.S.A. But I'm going to China next week to see how is the market there. As you know, it has been quite challenging for a while, but we think that with the right level of promotion, we can promote the new Ferragamo in China also.

Even though China, as you know, has been not in terms of percentage of sales, we are below our competitors. I think it represented only 4% for us. We think that we have some possibility -- some interesting possibilities with Ferragamo. But the largest market will be Italy, U.S. and also Mexico as the market share of Ferragamo in Mexico is quite high. That's for Ferragamo.

Our next question comes from the line of Ashley Helgans with Jefferies.

So just first, you said that you'd expect for this year, the market is going to remain robust, but moderate off of the strong years we've seen in the last few years. Just curious if you can maybe talk about specific markets, if you're seeing any more moderation in certain markets versus others. And then as the market normalizes, what should we expect for promotional levels?

Okay. So I'll maybe take -- Ashley, I'll probably take the first question. I mean if you look at the market overall, I mean, in 2024, things started off really, really strong. And I'm going to give you a couple of data points. U.S. was up 20% in the first quarter. And it was up also 20% in the third quarter. What we saw is really the fourth quarter was more moderate and still very strong, but 11% growth, okay?

That's just to give you an illustration on the U.S. numbers. We saw that pretty much at a global level. First quarter was 15%. The second quarter was 10%. Quarter 3 was still very strong and then quarter 4 was slower. So we finished the year at about 11% at the global level for the top markets that we track and 9% in the fourth quarter.

So we did see a pretty significant slowdown in that growth versus what we had in the first half of the year. Going forward, I think the industry is seeing mid-single digit, which is still kind of what we have -- historically been able to grow by. On promotionality, Jean, do you want to maybe take that? I can then chime in.

Yes. Yes, I don't think we will see more promotionality in 2025 than in 2024, I think it's going to be almost at the same level. I would like to say that, like Michel mentioned in his remarks, the money that we're investing in advertising and promotion is really very strong.

We have invested around on our side, almost $300 million in advertising and promotion. And this is without counting what our partners, distributors are spending, which I estimate another $100 million. This money that we spend in the market is really what's going to ensure sales in the future for us.

Yes. I would also just maybe build on Jean, as we talk about promotionality. As you know, this is not a category where people typically discount on price. I think when you talk about promotionality, it's generally usually more about offers. And we did see an uptick in the number of gift sets in the fourth quarter because I think a lot of the -- there has been a lot of pricing.

As you know, we did not take a lot of pricing. We took no pricing in 2024, and we're not planning to take pricing in 2025, but there has been a lot more pricing taken by our competitors. And I think that for some of those brands that are maybe priced themselves up a lot, they have had to offer more value in the form of more gift sets. And I think we saw that pretty clearly in the fourth quarter.

Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler.

I'd like to touch a little bit on kind of the building blocks of the performance by brands in 2024. So our understanding is the addition of Lacoste and Cavalli added about 9 points. There was maybe a headwind from Dunhill. And then there was some commentary in the press release that the top 70% grew about 4%, if I'm correct.

So that means the rest of the business was struggling a little bit or didn't grow as much or maybe was negative. So can you touch a little bit on what's going on with some of those softer brand performances and what gives you confidence and maybe those recovering a bit here in 2025.

Michel?

Yes. So Korinne, I mean, inevitably, when you add a lot of brands and new brands and large brands, you want to focus on the biggest parts of the portfolio. Some of the declines can be driven by a number of things. If you take a brand like Lanvin, for example, which has declined this year, this is entirely driven by the footprint. So a lot of the Montblanc business is in Russia and Eastern Europe where we know there have been issues as well as in China, where the market has been softer.

So inevitably, not -- what we want to do is really focus on our largest brands, to make sure we're growing those disproportionately. And then on the little ones, we continue to focus and give them the right level of attention and investments. Sometimes this all could be driven by phasing of innovation and things like that. So the smaller brands typically are going to be a little -- always going to be a little bit more volatile because of their size inevitably and more sensitive to innovation and geographic footprint? Jean?

Yes, yes, totally. I will say that we work hard on the brands that are smaller. They are not less important, but they are smaller in size, a very important brand for us is Oscar de la Renta. We have a great footprint in the U.S. But internationally, it is more challenging. But we are able to maintain the sales. We are able also to maintain sales on the Van Cleef, which is a smaller brand for us. But of course, in this super competitive environment, it's already not bad to maintain the level of sales for this brand.

Also, innovation is key for -- is even more important for this smaller brand, and it depends on the timing. We know, for instance, that a brand like MCM is going to grow in 2025 because we have a great collection that will be launched -- that is launching now where we have already some indication that will have a nice growth.

Very helpful. And then maybe, Michel, if you could just give us a little bit more context on what you're baking in as far as gross margin and operating margin performance over the course of the year and the puts and takes we should be thinking about from a quarterly cadence perspective?

Okay. So on the top line, as you know, we don't generally like to provide a quarterly guidance because we like to run our business for the next 10 years, not necessarily the next quarter. Overall, what I would say is on the top line, we have 2 factors that are going to impact us in the first quarter.

The first one is obviously the loss of Dunhill, which is going to impact the first 3 quarters because we phased it out at the end of September. We know that, that's about 1 point across the year and across the portfolio. The other thing is FX. And as you -- as I indicated in my prepared remarks, FX last year was close to $1.09 in the first quarter.

Right now, we don't really know where we're going to land, but it oscillates between $1.04 $1.05. So we believe that just rule of thumb, FX hits us by about half of that impact. So if you look at a $1.09 or versus a $1.05, that's about 2 points, okay? So we are expecting right now the first quarter to be about flat, but it's mostly driven by the FX of the Dunhill impacts.

On gross margins at this point in time, we're not really expecting any significant -- obviously, there's the normal seasonality of when we sell in gift sets and things like that, but generally speaking -- and channel footprint. But generally speaking, we're not expecting any significant changes in our gross margin for the year nor on a by quarter basis.

On the SG&A side, I think as you clearly probably read through my prepared remarks, we did face some A&P into the first quarter. I think behind a lot of the blockbuster launches that we have, we felt that we would get a much better ROI for our money. We also believe that we need to balance our spending more. Historically, we have spent a significant amount only in the fourth quarter. And our strategy has not been necessarily to reduce the fourth quarter, but when we're adding dollars, we're adding them where we think that we will get a better ROI. And we did that successfully this year in the first quarter. And we will most probably continue to do that again next year. So you can expect that A&P will be higher and more than likely, the operating margins will erode in the -- as a result of that in the first quarter.

Our next question comes from the line of Susan Anderson with Canaccord Genuity.

I guess maybe just following up on that building block question, maybe looking at 2025, if you could give some color just on how you think the performance of your top brands will trend? I guess should we expect the larger top brands to be more like a low single-digit growth, whereas maybe a little bit of upside from there then is coming from the newer launches such as Ferragamo or continued growth from the Lacoste business? Or maybe if you could just give some color there.

I'll chime in and then maybe, Jean, you want to -- you can build on this. If you look at our innovation, I think what that -- what the innovation clearly points to is where we're going to have significant growth. We're going to have significant growth on GUESS. We're going to have significant growth on Ferragamo, on Cavalli, on Lacoste, on MCM and on Donna Karan/DKNY, those brands because of that's where we have significant innovation. We'll grow disproportionately, and you will see more growth from those brands next year.

In terms of the larger brands like Montblanc, Jimmy Choo and Coach, where the pace of innovation is going to be more like a flankers like we've seen this year, the growth will be more moderate, but we believe that, that is the right strategy for those brands. And we are ramping up our innovation program for 2026 on all 3 of those brands, and we are looking to build those brands and accelerate the growth when that happens in 2026.

And then on the -- some of the smaller brands in our portfolio, we'll probably continue to see some decay including what we basically said before with Dunhill, which is leading our portfolio and Boucheron, which will eventually phase out by the end of 2025. Jean?

Yes. I wouldn't add much as largest Jimmy Choo, Montblanc, Coach will have important extensions where the brands that are smaller will have blockbusters. This is what we had -- what we have for 2025. We are also working now on 2026 and '27 in order to have a blockbuster for our important -- we are looking at the growth of 4% for 2025. And I think it will be interesting to see that this growth will be -- will come with profitability. We are not going to -- we are not anticipating, for instance, to have more gift sets or more promotion next year. So it's going to be very clean.

And then maybe I don't know if you could talk about just kind of what you're seeing the start 2025 and throughout the first quarter so far. Just I guess, in general trends around fragrance, if you're still seeing the same dynamic between sell-in and sell-out. And then as everyone knows, beauty in general had a rough start, I guess, to the year. Maybe if you could talk about you're seeing a similar trend and if anything has changed as whether it may be improved in some regions.

Michel?

Jean? Yes, okay. Okay. So maybe I'm going to address your point around sell-in versus sell-out. I think we're seeing, as we said, in the first 3 -- first 9 months of the year, we did see a pretty significant difference between our sell-in and our sell-out, it was between 2 to 3 points. In the fourth quarter, it was significantly smaller. And I think at this point in time, we're feeling pretty comfortable. As I said, when I got the question from Linda, we certainly believe that this is a broad base across the industry, particularly when we looked at our competitive set and we look at their sell-in versus their sell-out in the overall market. So I think this is an industry trend that probably was a carryover effect of 2023.

And at this point in time, I think we're feeling pretty good that we're there. In terms of trends, I think a lot of the trends have remained the same in the U.S., and we're seeing them everywhere else, which is more men. No, historically, fragrance has been underpenetrated in men versus female. We are seeing more men, younger men entering the category.

We are seeing people looking for more long-lasting fragrances. And I think we will continue to see that trend, I think, going forward, as people become more sophisticated. I'd like to use the analogy of you start with a -- you start with a beer and then you move on to craft beer, and you become -- as you become more knowledgeable of the category, I think you see this pretty much everywhere whether it's with beers, whether it's with wine, whether it's with cognac. And we see this also with fragrances, which is as people become more knowledgeable about the category, they start to invest more. They start to use more. And typically, they become more sophisticated. Jean?

Yes, to answer your questions on the growth by quarter. We don't like to give guidance by quarter. But as I said, we are looking at 4% for the year. When is it going to happen? How is it going to happen? I will say first and second quarter will be lower than third and fourth because of the flow of blockbuster, rolling out of blockbuster coming.

So I'm not going to put some numbers, but I will say I will not be surprised if it's a little flat in the first quarter, increase in the second and much better third and fourth in order to get to this 4% growth that we think we're going to achieve in 2025.

Thank you. We have reached the end of the question-and-answer session. I would like to turn the floor back to Michel Atwood for closing remarks.

All right. Thank you very much, and thank you all for joining our call today. Before I end the call, I'd like to again thank our teams for all their hard work in 2024. Our success is a direct reflection of our people. And the unique contribution they make each day, and I think you see the extent of the work that we do across the board, whether it's the brands, the geographies and the functions that get us to where we are and behind a lot of these results.

I'd like to also mention a couple of upcoming events. So tomorrow, I will be hosting meetings at the TD Cowen Glowing Ahead Beauty Summit here in New York City. And then on March 7, Jean and I will be joining the D.A. Davidson Best-of-Breed Conference, which is going to be held virtually. And Linda, thanks for inviting us. If you have any additional questions, please contact Karin Daly from the Equity Group, our Investor Relations representative. Her telephone number and e-mail lasers can be found in our most recent earnings release. And we really look forward to the next conference call, and thank you, and have a good day.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.