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Inter Parfums (NASDAQ:IPAR)
Q4 2017 Earnings Conference Call
March 14, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Inter Parfums' Fourth-Quarter 2017 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Russ Greenberg, executive vice president and chief financial officer. Thank you. You may begin.

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Thank you, operator. Good morning and welcome to our 2017 fourth-quarter conference call. Our format will be as usual. I will start the call with a financial overview and then Jean Madar, our chairman and CEO, will discuss our current business, recent developments, and some of our upcoming plans.

After that, we will take your questions.Before proceeding further, I just want to remind listeners 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 include, but are not limited to, the risks and uncertainties discussed under the heading Forward-Looking Statements and Risk Factors in our annual report on Form 10-K and the reports we file from time to time with the Securities and Exchange Commission. We do not intend to, and undertake no duty to, update the information discussed. In addition, Regulation G, codifications for the use of non-GAAP financial measures, prescribes the condition for use of non-GAAP financial information in public disclosures.

We believe that the presentation of the non-GAAP financial information that is included in this discussion is an important supplemental measure of operating performance to investors. The information required to be disclosed for the presentation of non-GAAP financial measures is disclosed in our December 31, 2017, annual report on Form 10-K, which has been filed with the Securities and Exchange Commission. This information is available on our website at www.interparfumsInc.com. When we refer to our European-based operations, we are primarily talking about sales of Prestige Fragrance products conducted through our 73%-owned French subsidiary, InterParfums SA.

When we discuss our United States-based operations, we are primarily referring to sales of Prestige Fragrance products, conducted through our wholly owned domestic subsidiaries.Moving on to comparable fourth-quarter results; net sales were $149.5 million, up 10.9% from $134.8 million. At comparable foreign currency exchange rates, net sales increased 6%. Net sales by European-based operations rose 15.5%, to $115.4 million, from $99.9 million. Net sales by U.S.-based operations were $34.1 million, down 2.2% compared to $34.9 million.

Gross profit margin was 66.1%, compared to 63.7%. SG&A expenses as a percentage of net sales were 61.4%, compared to 59%. Operating income was $4.8 million, as compared to $5.4 million, and net income attributable to Inter Parfums increased 12%, to $4.4 million, compared to $3.9 million. And finally, net income attributable to Inter Parfums Inc.

per diluted share rose 11.1%, to $0.14 from $0.13. Thus for the year as a whole, net sales increased 13.5%, to $591.3 million, as compared to $521.1 million in 2016. At comparable foreign currency exchange rates, net sales increased 12.2%. Net income attributable to Inter Parfums increased 24.8% to $41.6 million or $1.33 per diluted share from 2016's $33.3 million or $1.07 per diluted share.We covered sales information in our Q4 sales release last month, so I will focus first on operating-profitability factors.

First up is currency fluctuation. Despite the recent strengthening of the euro, exchange rates had only a minor effect on gross margins for 2017, as well as 2016. You will recall that a weaker dollar has a favorable impact on our net sales and a negative impact on gross margin, and this is because approximately 45% of net sales by our European operations are actually denominated in dollars, while all costs are incurred in euro. For 2018, if the euro-to-dollar exchange rate strengthens further, we may see a greater impact on gross margin.

The catalyst of our gross margin expansion has been increasing sales by our European-based operations, made through our own distribution subsidiaries. For example, Inter Parfums' luxury brands, which is responsible for U.S. distribution, has been growing sales of our two largest brands, Montblanc and Jimmy Choo, as well as the very fast-growing Coach brand. Also of note, Rochas brand fragrances are concentrated in France, where we sell directly to retailers, and Spain, where we sell to retailers through our own distribution subsidiary.For the year, our consolidated gross margin was 63.6%, up from 2016's 62.7%.

For our European operations, gross margin was 67.1%, up from 66.4% in 2016, while for the United States operations, gross margin was 49.3%, compared to 49.7% in 2016, and that slight decline was attributable to higher promotional product sales within the overall sales mix. With the seasonal increase in advertising and promotion around the holidays, our SG&A expense is historically highest in the fourth quarter, and as we reported yesterday, 2017 was no exception. Promotion and advertising included an SG&A expense aggregated $123.7 million, or 20.9% of net sales, essentially in line with our 21% projection. In 2016, that amount was $99 million, or 19% of net sales.For the year, operating income rose 17.9%, to $78.6 million, and that's compared to $66.7 million in 2016.

There was impairment loss taken in both years' fourth quarter, and in 2017, we set in motion a plan to discontinue several of our small mass-market product lines over the next few years. In that regard, as of December 31, 2017, we recorded an impairment loss of $2.1 million and increased our inventory-obsolescence reserves by $1.5 million relating to those mass-market product lines. Excluding the gain from the buyout of the Balmain license in 2016 and the impairment losses in both 2017 and 2016, as well as the additional inventory reserve, income from operations would have aggregated $81.2 million in 2017, which is an increase of 20% as compared to 2016; and in 2016, income from operations would have aggregated $67.7 million. Operating margins would have aggregated 13.7% and 13% in 2017 and 2016 respectively.

We are therefore getting closer to our operating-margin goal of at least 14%.We gave the subject of taxes a great deal of space in our 2017 10-K, none of which is complex, but all of it makes for a complex comparison. Our effective income tax rate was 29.2% and 35.5% in 2017 and 2016 respectively. In 2016, and as we have reported in SEC filings and releases, there was a $1.4 million non-recurring tax settlement, attributable to InterParfums SA. For 2017, on the plus side, we filed a refund claim of $3.6 million for taxes paid on dividends, which was deemed unconstitutional by the French courts.

For 2017 on the minus side, after making reasonable estimates of the effects of the tax act and arriving at our initial analysis in the fourth quarter of 2017, we recorded a $1.1 million tax expense relating to the revaluation of deferred-tax assets and liabilities that was caused by the new lower U.S. corporate tax rate. We will save you the time of calculating a normalized rate, by reporting that excluding the effects of the tax act and the claim for refund, and the 2016 settlement, our actual tax effective rate was 32.4%, 32.7%, and 35.6% in 2017, 2016, and 2015 respectively.One last thing, just to clarify, in 2017, after considering the non-recurring items, including the impairment charge, the inventory reserve, as well as the tax adjustments, or net of taxes and any applicable minority interest, there was really no effect on our diluted EPS. These plus and minus factors, in essence, canceled each other out, and the details of those calculations are included in the MD&A section of our 2017 10-K, which we filed yesterday.

Lastly, we closed the year with working capital of $382 million, including approximately $278 million in cash, cash-equivalents and short-term investments; a working capital ratio of nearly 3.3 to 1; and only $60.6 million of long-term debt, including current maturities, which was incurred in connection with the acquisition of the Rochas brand. Based on a full-time staff of 355 worldwide, we generated nearly $1.7 million in net sales per employee in 2017, and our CAPEX was only $3 million.Jean, please continue.

Jean Madar -- Chairman and Chief Executive Officer

Well, thank you, Russ, and good morning, everyone. The big news for us is landing the GUESS license. Last month, we signed a 15-year exclusive worldwide license with this iconic fashion company. GUESS was established in 1981, and it began as a jeans company and has successfully grown into a global lifestyle brand.

Over the past 35 years, GUESS has gained global recognition with a presence in wholesale, e-commerce, and over 1,700 retail locations worldwide, with amazing ambassadors to promote the brand. The [Inaudible] has a personal fashion identity: smart, confident, glamorous, strong, and adventurous. This is the ideal clientele for magic we do when we develop fragrance. We intend to fine tune as well as build upon the existing GUESS fragrance portfolio of men's and women's scent, and plan to launch our first new product under the GUESS brand in early 2020.

As we typically do when new products are launched, we plan to make a major investment in A&P to ensure initial success and longevity of the new scent and collections. That said, we do not envision a significant change in our SG&A as a percent of sales, with the addition of GUESS. Both companies have agreed not to disclose the specifics of our agreement, but I can assure you, the terms are in line with brands that have strong legacy fragrance business, which is nearly 30 years old. We are purchasing existing inventory from the prior licensee during the first week of April, and we will continue to sell existing lines of GUESS fragrance.As stated in our news release yesterday, once we purchase the GUESS inventory from the brand's former licensee and determine how long it will take to build new inventory, we plan to increase our 2018 guidance to factor in the GUESS contribution, which we anticipate will begin as early as the second quarter of this year.

Our target date for announcing the expected increase in our sales and earnings guidance to include GUESS is when we announce our 2018 first-quarter results in May. Thus, for the time being, we are maintaining our previously disclosed 2018 guidance, which calls for net sales of approximately $620 million and net income attributable to Inter Parfums Inc. of approximately $1.44 per diluted share. Guidance for 2018 assumes the dollar remains at the current level.

You are probably wondering if further licensing agreement is in our plan, and the answer is yes. We are always on the lookout for growth opportunities in terms of new license and acquisition that fit our business model and makes sense.Moving along to other topics. As mentioned in our news release yesterday, we had year-over-year sales gain in all of our markets in 2017, the year in which North America emerged as our largest market, having spent nearly 21% [ph] of net sales on advertising and promotion, we had one overriding goal in mind, growing market share. This is just that last year and in past years.

Earlier this month, Citi Research published another review of the fragrance industry. From Citi and Euromonitor [ph] research, we see that globally, our $49.5 billion industry grew at a rate of 6.5% in 2017. Our sales rose 13.5%. The five-year compounded annual growth rate of the industry was 5.2%, while ours was 10.9%.We have talked about European brand sales in our releases, but I want to emphasize two special winners.

One is Jimmy Choo, which had a 20% increase in fragrance sales in 2017, surpassing the $100 million mark in sales. Sharing the spotlight with Jimmy Choo was Montblanc, which continues to exceed our expectation. While I am on the subject of Jimmy Choo, on the previous call, the subject of our license came up, because the brand was sold to Michael Kors. As we announced in December 2017, our license agreement was amended and 10 more years were added, so we are the fragrance licensee for the Jimmy Choo brand, at least through 2031.

We are also extremely pleased with Coach brand sales, which had year-over-year growth of 149%, quickly making it our fourth largest brand. This was achieved in less than two years and without the benefit of a legacy fragrance business.Some other entries for 2018 have already debuted, including Dance with Repetto, Coach Floral, and just last week, we introduced Modern Princess Eau Sensuelle by Lanvin. Additionally, for European operations, we have extensions of Jimmy Choo's women's signature scent in the pipeline. Along with our new [Inaudible] of our super hit Éclat d'Arpège by Lanvin, and the Coach signature scents for men, which also welcome a new family member this year.Moving on to U.S.

operations. With the recent introduction of Bella Blanca by Oscar de la Renta, our 2018 launch schedule is on track for new products for Abercrombie, Hollister, Dunhill, and Anna Sui coming to market throughout the year. Others in the pipeline are Dunhill Century [ph], a new fragrance family debuting in the summer. For the first quarter of 2018, we have scheduled two brand extensions for Abercrombie & Fitch, First Instinct for Men in the second half of 2018, [Inaudible] Abercrombie & Fitch First Instinct extension owner.In the second half of 2018, we will introduce an entirely new fragrance family for Hollister.

Lastly, we have Fantasia Mermaid, a brand extension for Anna Sui, debuting in the summer. I want to share some happy news with you. Last month, our company celebrated our 30 years as a public company, by ringing the closing bell on NASDAQ on February 14. The NASDAQ representative reminded us that at the time of our IPO, our market cap was $7.5 million, and we had total sales of $4.5 million.

We have come a long way. There is a photo of the event on the homepage of our website.In closing, we have what it takes to build on our success: a diverse portfolio of brands, a distribution network encompassing 100 countries, and an industrywide reputation for growing fragrance franchises that enhance each brand and enrich brand owners, a very strong balance sheet, and [Inaudible] organization.Now, operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions]. Our first question comes from the line of Linda Bolton-Weiser with DA Davidson. Please proceed with your question.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Hi. Thank you. So congratulations on the GUESS license. So we were able to find some information just a little bit, about the sales level way back when Parlux used to market it, and we saw that there was a level of at least $46 million of sales.

Do you have a good historical knowledge, was that the actual peak sales for GUESS or were there points where it was actually higher? And your comments about it being the biggest in your U.S.-based operations -- it does indicate that it's over $20 million is what you're thinking in terms of annualized run-rate revenue. So can you give a little more color on, is my thinking correct here that it could be $20 million, $30 million, even $35 million of annualized run rate, right off the bat?

Jean Madar -- Chairman and Chief Executive Officer

As I said in my comments, we will give you more information on GUESS when we release our first quarter. I am confirming the information about the historical sales that you mentioned, Linda, and we see that in the next 24 months when the [Inaudible] is normalized in terms of inventory and distribution, which should be around $50 million or so for GUESS. Russ, do you have a comment?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Yeah. I really can't talk. Parlux was a public company, so I'm sure that those numbers that they have disclosed, those are correct. With respect to other sales data, we are not sure of the accuracy of any of the data that we had heard.

But as Jean said, in two years from now, we think that this business can be built, so that it should approximate somewhere close to that overall $50 million number.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. And then, I know in the past sometimes when you have acquired something where there is an existing line, you feel like sometimes you want to clean out some of the product line or the SKUs or something, and I see that there are very low-priced SKUs that are being sold under the GUESS brand, $13 to $15 at the retail price. That seems quite a bit lower than the prestige price point you're used to. So can you comment on what your thoughts are on what you might want to do initially with it?

Jean Madar -- Chairman and Chief Executive Officer

You're right. We are going to have to decide here, have a look at the portfolio. We are going to have to clean up some of the distribution. That's why we have a very long-term license, we have a 15-year license, so we'd take the time, and I want to use the next 12 months to clean up.

We have got to come up with a new fragrance, with a new line of fragrance in, I would say, around 18 months from now. And the goal will be this year to put back GUESS with, I would say, affordable luxury segment. We want to be maybe the first price, or the first level of selective distribution. We think the price could be higher than where they are today.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. And then, is there any way that you could comment -- did the Coach Floral launch occur here in the first quarter, and how significant is that? Is that a minor flanker, or is that kind of more major than maybe what I am thinking? And how is the trend of the business? We're almost done with the first quarter, is there anything you can say how things are trending after a very good holiday that you had?

Jean Madar -- Chairman and Chief Executive Officer

No, we are not going to comment on the first quarter. Yes, Coach is doing great, not only the flanker, but we are rolling out worldwide, and Coach is doing a little bit better than our actual projections.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. And then just one final one, I notice that your year-end inventory was up about 40% or so year over year, why would that be? Is that [Inaudible] anticipation of the launches here in the first half, or what's going on with that?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Yeah. Our inventory levels are always a function of when new product is being launched into the marketplace. When you look overall at where we are from a business standpoint, turnover and things of that sort are very, very consistent, not only for inventory but also for receivables. So it's really a function of what is needed to cover the anticipated sales of the next three to six months.

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

OK. Thank you very much.

Operator

Thank you. Our next question comes from Joe Altobello with Raymond James. Please proceed with your question.

Joe Altobello -- Raymond James -- Analyst

Thanks. Hey, guys, good morning. The first question on the gross margin-- that was the biggest surprise for us, since the dollar has been weaker, as you noted, and I think you have mentioned in your last earnings call that you didn't see a ton of upside on the gross margin number. So if you could just tell us a bit first, what percent of your sales today is through your own distribution subsidiaries, versus where that was, let's say, a year ago?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

That's information that we haven't disclosed. So I can't just throw that out here. But needless to say, there is a little bit of anomaly, because one would have ordinarily expected the gross margin to decline a little bit, because of the strength of the euro against the dollar. But it is being mitigated to a great extent, because some of the biggest markets that are growing, as Jean mentioned, North America, is now the largest market that we have, and in addition the brands that are growing, as I mentioned, Rochas and Coach, these are brands where the growth of the distribution is significant within our distribution subsidiaries.

So that is what's causing this anomaly. Again, as we grow different brands, in different markets around the world, this trend, I am not really expecting it to continue. This was a consolidation year, there was not a major launch from some of the major brands, therefore the impact actually showed a little bit more than we originally expected. But I do not expect significant gross margin expansion, as a result of product mix going into the future.

Joe Altobello -- Raymond James -- Analyst

OK, understood.

Jean Madar -- Chairman and Chief Executive Officer

And let's not forget, that fourth quarter, as you said, [Inaudible] are shifting to third quarter. So this could explain also why the fourth quarter was higher than anticipated.

Joe Altobello -- Raymond James -- Analyst

That's also a good point. In terms of the mass brands you guys are discontinuing, could you quantify how much sales they represent, and maybe if that was anticipated in your original guidance of $620 million?

Jean Madar -- Chairman and Chief Executive Officer

Today, the sales are less than $10 million, and historically, the company always kept these mass or semi-mass products. So we think that in the next two or three years, there is no reason for the company to continue selling these products [Inaudible] less than $10 million. So we wanted to start cleaning the inventory. And also, the trademarks associated with this segment.

Joe Altobello -- Raymond James -- Analyst

OK. And that's in your guidance for this year? $620 million?

Jean Madar -- Chairman and Chief Executive Officer

It is.

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Yes.

Joe Altobello -- Raymond James -- Analyst

One last one. The expected tax rate for 2018, Russ?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Off the top of my head, I don't remember if it was disclosed or not, and I think when we changed our guidance, we might have come up with an effective tax rate. I don't have that information right at my fingertips right now, but I would imagine, it's going to be somewhere around 14 points below ... I am sorry, it's not. I don't have that information in front of me. I will try to put it together and get it to you.

Joe Altobello -- Raymond James -- Analyst

OK. Thank you, guys.

Operator

Thank you. Our next question comes from Jason Gere with KeyBanc Capital Markets. Please proceed with your question.

Jason Gere -- KeyBanc Capital Markets -- Managing Director

Hey, good morning, guys, or good afternoon. Jean, I guess the first question, you were talking about I think, when you factor in GUESS, you were saying that SG&A would be pretty steady going forward. A&P spending, we have seen step-up last year in some of the big launches, 21%. So I guess I am just trying to think about, how we should think the next couple of years of A&P spending, the ROI you are getting on that, obviously, has been pretty good.

Probably wouldn't anticipate a big step-up this year, but maybe '19 with some of the bigger launches. So I was just trying to think about the trade-off between core SG&A that you talked about with GUESS in there, and then maybe the A&P spending, with some new bigger launches coming on the GUESS line, and other launches that you have in the docket?

Jean Madar -- Chairman and Chief Executive Officer

I think that A&P at 21% is what we can expect going forward. I think it's already at a high level. As you can notice, we have increased the percentage year after year. We are comfortable with this number now.

We spent more than $120 million in A&P this year and that's why we are able to grow our sales faster than the market. But I am comfortable with this number going forward.

Jason Gere -- KeyBanc Capital Markets -- Managing Director

OK. That's fair. And then I guess the other question, the last question you talked about direct-to-consumer, more on e-commerce -- I was just wondering if you could talk about what you are seeing in beauty in general, in terms of where customers are buying their fragrances between online, brick-and-mortar, and I know you have to support both channels there, but maybe if you could talk about the mix of the two, and how you see that progressing the next couple of years, and maybe what's changing in consumer behaviors, in terms of where they're buying their fragrances? Thank you.

Jean Madar -- Chairman and Chief Executive Officer

Internet sales obviously are growing at a faster pace, but we start from a smaller number. We have two types of internet sales. We have the website of our retailers, so our retailers manage also a website, and people buy from macys.com or sephora.com, and this is a big part of the business, and there are also some sales done by websites that are specialized in fragrance. This business is still for us less than 10% of our total sales.

Either we sell directly or we sell it through distributors. But definitely, it's growing at a faster pace, that's what I can tell you for now.

Jason Gere -- KeyBanc Capital Markets -- Managing Director

OK, great. Thank you. That's all for me.

Operator

Thank you. Our next question comes from Wendy Nicholson with Citi Research. Please proceed with your question.

Wendy Nicholson -- Citi -- Analyst

Hi.

Jean Madar -- Chairman and Chief Executive Officer

Hello, Wendy.

Wendy Nicholson -- Citi -- Analyst

Hello. My question goes back to Russ, your comment in your remarks that you are now closing in on the long-term margin target that you have been talking about for a long time. So congratulations on that, that's awesome. But I guess the question is, where do we go from here? I think you have made the point several times that, advertising and promotion is probably going to stay in that 20ish% range, but if I look at the other SG&A as a percentage of sales, you closed in at almost 23% last year, and that's a bit higher than you were four or five years ago, and so I am wondering, do you think that given your larger sales base, is there room for operating leverage? Do you think you can get your operating margin up kind of 14%, 15% or the reinvestment opportunity is so significant, you kind of want to stay in the 13%, 14% range? Does that make sense?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Yeah, I understand the question exactly. And you are 100% right, there is no reason to stay. Now that we've reached, what was an initial target, there is no reason why we can't exceed it if, in fact, we can continue to grow the top line. As Jean just mentioned, we think that 21%, which is up significantly from the little over 19% last year, and a little less than 18% the year before, 21% is a decent amount of funds that is being used to reinvest and to build market share.

So if we can grow the top-line sales and the numbers or enter into more license agreements like we have with GUESS, there is no reason that that operating margin can't -- the next target is going to be 15%. I think, you can max out somewhere, maybe it's around 15%, maybe even 16%, I think that's probably the highest we've ever had historically, for a year or so, where we might have just touched at that particular level but, clearly, we are expecting to gain additional operating leverage, as we continue to grow the top line.

Wendy Nicholson -- Citi -- Analyst

Got it. And then just broader, congratulations on GUESS, it sounds like it's going to be a terrific addition, but you still got a ton of cash on the balance sheet and I assume there are no changes in terms of your capital-allocation plans. You still want to keep the powder dry. But still you think you have got the management bandwidth internally, to continue to look for even more acquisitions above and beyond GUESS, do you think you need to hit a pause at some point or kind of, what's your thinking about your ability to take on brands above and beyond GUESS? Thanks.

Jean Madar -- Chairman and Chief Executive Officer

We do not want to pause at all to accelerate the [Inaudible]. We said for a long time we can manage in our portfolio more brands than what we have. We have the organization set in place. So GUESS is a perfect example.

We are going to be able to absorb GUESS in a very short amount of time. The team has started to work in the last what, month or so, and we will be able to have some sales starting as early as the next month, even though, in order to take full advantage of events, it's going to take six months to 12 months. But we will not pause. We have other plans, other ideas [Inaudible] we are working on and the cash that we have, we are[Inaudible] to use a lot of this cash for GUESS, but I think, so it is very important to have it in our book because opportunities will be available for us.

Russ, do you want to complete?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

No, I think you hit it. We are definitely not pausing at all. There are several different other initiatives that we are looking at. GUESS is a great addition to the U.S.

side of our operations. We clearly have room to grow additional brands, either in the U.S. or even through InterParfums SA, our European subsidiaries.

Wendy Nicholson -- Citi -- Analyst

Got it. Terrific. Thank you very much.

Operator

Thank you. Our next question comes from Ashley Hogan with Jefferies. Please proceed with your question.

Ashley Hogan -- Jefferies -- Analyst

Hi. This is Ashley on for Steph Wissink. Thanks for taking our question. In regards to the GUESS license, how should we think about distribution of the brand? And then also, as you guys pull back from the mass fragrance, is there something in the mass-fragrance business, that suggests it's maybe in a long-term state of underperformance?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Jean, do you want to take the first part about GUESS and then I could address the mass?

Jean Madar -- Chairman and Chief Executive Officer

Yeah. For GUESS, the brand has great recognition outside of the U.S. I was just last week in Russia, checking the potential for GUESS business and GUESS is opening a lot of stores in Russia, and I think we can expect a lot of business coming from this part of the world. We will position GUESS as a luxury brand outside of the U.S.

In the U.S., it's a different story because GUESS is not sold in the department stores. So we are going to really put a big emphasis on the sales in GUESS stores. We will have a very large presence, from a merchandising point of view, in GUESS stores, and but outside of the U.S., GUESS is definitely considered as a very important American brand. So the second brand that we announced internationally, such as Abercrombie or other brands that we have in our portfolio.

Russ, you want to answer the second part of the question regarding the mass market?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Yeah. The mass-market business that is remaining is really a legacy business for the company that goes back to the 1990s. This is not a business that we have really been concentrating significantly on, over the last, at least 15 to 16 years. So it has been in a somewhat of a steady decline.

It's just at a point now, that, as we mentioned, the sales data is under $10 million for a company that's doing almost $600 million, it clearly, it doesn't make sense for us to concentrate on that. So we've just made a cognitive decision that certain lines that are not really generating the profitability that they should, should easily be discontinued. It also enables us to reallocate warehouse space and things of that sort, to be more efficient, if you will, and that's kind of where the mass-market business has been for quite some time now.

Ashley Hogan -- Jefferies -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Hamed Khorsand with BWS Financial. Please proceed with your question.

Hamed Khorsand -- BWS Financial -- Analyst

Hi. Just a couple of questions here. I didn't hear in your comments earlier, is there a new Montblanc coming out, is that still on time for this year?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

A new family fragrance for Montblanc is not going to come out until 2019, maybe even early 2020. What we have launched over last year and this year are, I'll call them flankers, but Montblanc is such a strong brand, that these flankers have actually significantly been outperforming even our own expectations. Montblanc Legend Spirit, which was last year, and Montblanc Legend Night this year, clearly have exceeded all expectations. Jean, anything to add there?

Jean Madar -- Chairman and Chief Executive Officer

Yes, yes, yes. Montblanc Legend Night is a fragrance that we are launching. But it's what we call, a flanker. The new franchise, a new pillar for Montblanc, will happen next year, beginning of next year, which will be the third pillar for Montblanc.

Hamed Khorsand -- BWS Financial -- Analyst

Can you hear me? Hello? And then my other question was going to be, any changes to marketing plans? Just kind of what you have learned from last year, one for your existing business and two, if there's any change to that plan now that GUESS will be part of the lineup?

Jean Madar -- Chairman and Chief Executive Officer

No changes. We continue to -- we will support all the existing brands in our portfolio, either from our France subsidiaries of Montblanc, Lanvin, and Jimmy Choo, of course, Rochas and Coach, or in the U.S. with Oscar de la Renta, Anna Sui, and Abercrombie, and Hollister. So absolutely no changes.

GUESS will [Inaudible] our presence in store internationally and domestic, but no particular changes to our strategy.

Hamed Khorsand -- BWS Financial -- Analyst

OK. And then as far as the marketing goes and the ad spend, and last, you had said it felt like you were generating more sales per ad dollar spent, is that because of the mix as far as going direct with your distribution or changing up how you were doing advertising versus the retailers doing advertising? Any details you could give on that?

Jean Madar -- Chairman and Chief Executive Officer

No, I don't think that we generated more sales per dollar being spent last year. I think it's been quite the same. Said for a long time we need to reinvest some of our profit into advertising in order to maintain the growth for each of our brands. Russ, you have something to add?

Russel Greenberg -- Executive Vice President and Chief Financial Officer

No. I think that you are exactly right. I really don't see a change at all. The investment level today is the level we intended to get to, because of the importance of reinvesting in our brands.

Hamed Khorsand -- BWS Financial -- Analyst

Thank you.

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Thank you so much, Hamed.

Operator

Thank you. There are no further questions. I'd like to turn the call back over to Russ Greenberg for any closing remarks.

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Thank you. And just a quick note, I will be a presenter at the D.A. Davidson Brands and Experience Forum in Chicago on June 14, and I will also present at the Jefferies Consumer Conference in Nantucket on June 20. I want to take this opportunity to thank you all for tuning in to our call, and if you have any further questions, please just, as usual, contact my office, and have a great day.

Thank you very much.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Duration: 48 minutes

Call Participants:

Russel Greenberg -- Executive Vice President and Chief Financial Officer

Jean Madar -- Chairman and Chief Executive Officer

Linda Bolton-Weiser -- D.A. Davidson -- Analyst

Joe Altobello -- Raymond James -- Analyst

Jason Gere -- KeyBanc Capital Markets -- Managing Director

Wendy Nicholson -- Citi -- Analyst

Ashley Hogan -- Jefferies -- Analyst

Hamed Khorsand -- BWS Financial -- Analyst

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