Fragrance house Inter Parfums has reported Q1 net sales of $111.5 million, a rise of 2 percent year on year, despite agreeing to a hefty $1.9 million for a previously disclosed and pending tax assessment and settlement with the French Tax Authorities during the same quarter.

While ranges such as Montblanc and Rocha brands helped keep the company on track to reach its full year sales goals, its bottom line was affected by the effect of the tax charges.

The main issues challenged by the French Tax Authority related to the Lanvin commission rate and royalty rate paid to Interparfums SA subsidiaries in Singapore and Switzerland, respectively, said Russell Greenburg, Executive Vice President and CFO during a Q1 Earnings Call.

Net income for the same period dropped to $7.3 million, or 24 cents per share, from $10 million, or 32 cents.

And speaking of the full year net sales, Greenburg stated he expected it, “to be in the range of $500 million to $510 million. Excluding the impact of the nonrecurring tax settlement, we would be on track to meet our net income attributable to Inter Parfums Inc. goal of between $1.05 and $1.10 per diluted share; inclusive of the tax settlement, we expect net income attributable to Inter Parfums Inc. to come in between $1.01 and $1.06 per diluted share.”

Meanwhile sales by European-based operations rose 5 percent to $92.1 million compared to $86.7 million, however, sales by US-based operations declined 14 percent to $19.4 million compared to $22.5 million.

Much of the success was attributed to the Montblanc and Rochas brands, with Montblanc reporting sales up $35 million, up 29percent, while Rochas achieved $6.4 million in incremental sales.

Speaking of the negative impact of the tax settlement, Greenburg stated, “While we disagree with the French Tax Authorities and believe that we have strong argument to support our positions, due to the subjective nature of the issues involved, in April of 2016, Interparfums SA reached an agreement in principle to settle the entire matter with the French Tax Authorities.
“The settlement requires Interparfums SA to pay a tax assessment of $1.9 million, covering the issues for not only the 2012 tax year, but also covering the issues for tax years ended 2013 through 2015. The settlement also includes an agreement as to future acceptable commission and royalty rates, which is not expected to have a significant impact on cash flow. The settlement is subject to formal documentation with the French Tax Authorities.”