Greetings, and welcome to the Inter Parfums First Quarter 2022 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the call over to Russell Greenberg, Executive Vice President and Chief Financial Officer of Inter Parfums. Mr. Greenberg, you may begin.
Thank you, operator. Good morning and welcome to our first quarter conference call. As always, 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 risk factors and uncertainties discussed under the heading Forward-Looking Statements and Risk Factors in our annual report on Form 10-K for the year ended December 31, 2021, and other reports we file from time to time with the Securities and Exchange Commission. We do not intend to and undertake no obligation to update the information discussed. Give me one second. When we refer to our European-based operations, we are primarily talking about sales of prestige fragrance products managed through our 73% owned French subsidiary, Interparfums SA.
When we discuss our U.S.-based operations, we are primarily referring to sales of prestige fragrance products managed through our wholly owned domestic subsidiaries. Moving on to today's business. You may recall that on our year-end conference call, Jean mentioned that sales in January and February were well ahead of budget. Well, March was more of the same, and as a result, 2022 first quarter net sales rose 26% over Q1 2021. Which, by the way, was 37% better than Q1 2020. For European-based operations, gross profit margin was 66.8% and 65.5% in the first quarters of 2022 and 2021, respectively. The margin gain in 2022 is primarily the result of the stronger U.S. dollar.
For U.S. operations, gross profit margin was 53.9% and 53.2% in the first quarters of 2022 and 2021, respectively. With that improvement due to the significant increase in sales, which allowed us to better absorb fixed costs such as depreciation, mostly of tooling and point-of-sale expenses. Jean will address the array of supply chain issues and what we have done to mitigate their impact. Our ability to transport goods and related cost increases have and will continue to have a negative impact on sales and gross profit margin into the foreseeable future. Yet it's a little hard to complain when sales and earnings are at record levels. For European operations, selling, general and administrative expenses represented 37.9% and 37.2% of net sales in the 2022 and 2021 periods.
For U.S. operations, SG&A expenses represented 41.5% and 39.9% of net sales in the 2022 and 2021 periods. The increase in both segments relate to our investment in promotion and advertising. In the current first quarter, we spent 13.6% of net sales on promotion and advertising versus 11% in the same period last year. Even at 13.6% of net sales, we are still below pre-pandemic levels. In the first quarters of 2019, 2018 and 2017, promotion and advertising represented 15.4%, 15.6% and 16% of net sales, respectively.
As compared to last year, we are in a better position to allocate our advertising and promotion spending, such that on an annual basis, we expect to be at approximately 21% of net sales. Our operating margin was approximately 24% for both the 2022 and 2021 first quarters. Our consolidated effective tax rate was 24% and 27% for the first quarters of 2022 and 2021, respectively. That difference is due primarily to the lower tax rates in France. After backing out minority interest, we earned $1.10 per diluted share, which was 26% ahead of last year's first quarter. At March 31, inventory rose to $227 million, up from $199 million at 2021 year-end. Better for sure, but not yet ideal.
We closed the quarter with working capital of $484 million, including approximately $265 million in cash equivalents, and short-term investments, and we had a working capital ratio of approximately 2.9: 1. The $125 million of long-term debt relates primarily to the acquisition of our new Interparfums SA corporate headquarters, which is now fully operational. Yesterday, we affirmed our 2022 guidance, calling for net sales of $975 million, resulting in $3 per diluted share. However, we will be in a better position to revisit the subject of guidance once the lockdowns in China are lifted. Our guidance comes with the usual caveats regarding the euro/dollar exchange rate, the COVID-19 pandemic, and of course, the geopolitical situation in Eastern Europe. Now I will turn the call over to Jean.
Thank you, Russell, and good morning, everyone. We are benefiting from a robust fragrance industry across the globe. North America, our largest market, achieved sales growth of 12% despite these IT problems by our U.S. distribution subsidiary. Comparable quarter sales in both Western Europe and Asia Pacific, our second and third largest markets, increased 41%. Our sales in the Middle East increased 27%, and in Central and South America, sales rose 38%. With most of our shipment made early in the first quarter, sales in Eastern Europe rose 13%. Finally, travel retail is making a slow but steady comeback, despite stops and starts stemming from regional pandemic recurrences and lockdowns. Strong performance of legacy fragrance and several product launches, notably kate spade new york Sparkle, Montblanc Legend Red, Coach Wild Rose, and GUESS Uomo, contributed to the increase in sales.
Of course, incremental sales of Ferragamo, Emmanuel Ungaro, MCM, and Moncler products factored into our top line growth. First quarter sales in North America would have been considerably better had there not been a bottleneck at our U.S. distribution subsidiary following a change in the software by its logistics partner that resulted in shipping related issues. About half of the orders that we couldn't fulfill in the first quarter are being shipped in the second quarter. Our big spend in advertising and promotion in the final quarter of 2021 has been paying dividends in this current year. Once again, about 80% of our investment in promotion and advertising is devoted to digital ads, social media like Instagram, Snapchat, TikTok and WeChat, influencers in the beauty, music, acting and sports field, as well as TV and billboards.
As I mentioned on our last call, we are doing more business on Amazon, and we have devoted advertising dollars to that effort, and we are very pleased by that return on investment. Our multiple engines of growth have enabled us to capitalize on the heightened demand for fragrance, with sales increasing in both brick-and-mortar and e-commerce venues. Explanations for the surge in fragrance industry sales growth abound. Fragrances are increasingly recognized as an affordable luxury. Scent, like fashion, is an avenue for self-expression. More men are buying and wearing fragrances. Social media and the growing number of influencers are driving fragrance popularity. During the height of the pandemic, the homebound Gen Z population became infatuated with fragrance, and that has not diminished. Sales of more expensive, higher concentration Eau de Parfum and luxury brands are growing rapidly.
Of course, China, and you, I'm sure I will answer your questions on China. Much is being written about the lockdowns in China, and yes, these closures have been severely hampering sales and exacerbating supply chain problems. That said, the fragrance opportunity in China is immense, with only 9% penetration of urban women and 3% of urban men. That is why much of our big spend in the final quarter of 2021 was focused on China. We have directed much of our attention on the Gen Z zoomers who are looking for the most premium, luxury, and expensive brands. For us, that means Ferragamo, Moncler, Jimmy Choo, and Van Cleef & Arpels are in great demand. Thanks to a strong January and February, sales of our European-based brands almost doubled in China in the first quarter.
Came lockdowns in dozens of cities with quarantines, restricted trucking services, and factory shutdowns. Our distribution operations in Shanghai ground to a halt. Nothing came in and nothing went out. Our sales in China at the end of March and April, and thus far in May, have been reduced severely, and so has our advertising. Hopefully soon, lockdowns will lift, and we look for business to steadily rebuild. Moving on. While problems still persist, the actions initiated in 2021 have gotten us beyond the critical point in the supply chain saga. We have been carrying more inventory overall, sourcing similar components from multiple suppliers, ordering well in advance of need, utilizing the resources of our new Italian subsidiary, producing closer to where products are sold, all of which have reduced our sourcing and production challenges.
I'm very pleased to report that to a great extent, products consumed in the U.S. are being produced in the U.S., and our Christmas sets, for instance, that will be sold in Europe are being made in Europe. As we relayed on our prior call, we are upgrading our inventory management systems and brought on more staff to address this crucial function. Now I will turn to the inflation. The prices of components including glass, cardboard, wood, aluminum, have been rising. Add to that dramatically higher energy and shipping costs. At the start of the year, we raised prices between 3% and 5%. We hadn't raised prices in a number of years, so for the most part, and until recently, we got minimal blowback from distributors and retailers. That is changing, and we are facing greater resistance now.
What they and we are finding is that consumers who can pay more do so, but those who cannot forgo the purchase or make a more affordable selection. The inflation spiral is a major concern, and I don't look forward to our next price increase in the fall. While some of our customers have tried ordering ahead of a price increase, we've done our best to limit hoarding. We don't want to overstock customers so that goods pile up and sit in inventory. It is hard to speak about the business implications of a tragic war in Ukraine without sounding heartless. I must. Needless to say, the Russian invasion of Ukraine has negatively impacted our operation in both countries as we adhere to the regulations and sanctions which vary from country to country.
Having made shipments to Russia in the early part of the first quarter, we protected most of our Russian accounts receivable with credit insurance and payment in advance is a business condition imposed on our Russian distributor. Despite all the uncertainty stemming from inflation, the war in Ukraine, and the temporary China lockdowns, supply chain obstacles, 2022 is poised to be another record year. The official launch of scents for Moncler, Moncler Pour Homme and Moncler Pour Femme, has begun, and the rollout will ultimately reach 3,000 doors. During the second quarter, a major advertising and promotion campaign is being activated to support this rollout, focusing on the U.S., the U.K., and Japan. We also have major men's fragrance launches for Coach with Open Road and for Boucheron with Singulier.
Most of our new products are brand extensions, including Jimmy Choo Man Aqua, Lanvin Mon Éclat. Our timing is good as flankers and extensions put less strain on the supply chain because they often use many of the same components as their predecessors. We are very excited about the Donna Karan and DKNY fragrances joining our portfolio starting July 1. We'll be buying inventory from a stakeholder, the former licensee, so we should be able to hit the ground running. We have assigned a seasoned brand managers and the new products debuting next year are under development. Both of these brands have strong legacy scents. If you saw Marie Claire's April 2022 issue, Be Delicious made its list of the best fragrance of all time.
While in February of this year, Women's Wear Daily included Cashmere Mist by Donna Karan in its list of the greatest fragrances of all time. The hunt for additional brands is ongoing. We have two types of target, those with established businesses and start-up enterprises with great potential. We are also cutting our portfolio, allowing smaller, less promising licenses to expire. We will talk, I'm sure during your question about the guidance that we have decided to maintain. I seem to always end our conference calls on why Inter Parfums is an attractive partner for brand owners. Maybe the consistency of this message overrides its redundancy. Here it goes. As a pure-play fragrance, we have a know-how, talent and commitment necessary to grow a licensor's fragrance business that translates to higher royalties and greater brand recognition for the brand owners.
Our distribution network encompasses now 120 countries, each with proficiency in their local markets. Inter Parfums also has a very strong balance sheet and a motivated management ready to take action when the right opportunities arise. We've now got even greater bandwidth with our new Paris headquarters and operations in Florence, Italy. Now, operator, you can open the lines for questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we call for questions. Thank you. Our first question comes from Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.
Hello, how are you doing?
Thank you. Great, Linda. Thank you.
Good. Can you just you talked a little bit about China, and it, you know, it sounds like you are, you know, being impacted. Sorry if I missed it, but did you actually say what China, how it performed in the first quarter or in March? Like, how much it was down in March? Can you give us some sense?
Yes. In March, we are down more than 50%. In April, we are down also high double-digit %. We do not think that it's gonna improve before end of May. Again, I'm still optimistic because I know that when they reopen, they're gonna need a lot of merchandise. We have this inventory ready. Our warehouse in Shanghai, we have a distribution center in the duty-free zone in Shanghai, is full of products. We have also products in transit to Hong Kong. As soon as China reopens, I think we'll be back to a strong business. We don't drop the ball, but it's just a setback because of the lockdown.
Right. I understand. Roughly, what percent of sales is China for you normalized? Is it, like, less than 10%?
In 2021, China represented approximately 4% of sales, so that's somewhere around between $36 million-$40 million.
Okay. Thank you. That's helpful. Is there any way to quantify how much the Ferragamo and Emmanuel Ungaro sales contributed to growth in the quarter? Like, what portion of the growth rate?
Yes. I'm sure Russell can make the recalculation.
Yeah. We've indicated.
We started with. Yeah, go ahead, Russell.
What I was gonna say is, we had indicated that, you know, Ferragamo in its heyday was generating sales of somewhere, you know, close to $80 million, and that got cut in half, which is one of the reasons why we were able to take over the business itself. So that would mean that the business overall would be somewhere around $40-$45 million or so. It's pretty much right on target. During the second quarter, our sales were very close to that $10 million. A little, actually, a little over the $10 million mark.
During the first quarter, yeah.
In the first quarter.
Thank you. Finally, just this updating of your inventory management system that you mentioned, can you just describe what that entails? Do you have to make, like, duplicative inventory for safety stock? What's the timing of this implementation?
This implementation has been ongoing.
It's a long.
Go ahead, Jean.
No, no, go ahead.
The implementation is not just the inventory management system. It's our entire ERP system. This has been ongoing now for almost a year. We are upgrading to a cloud-based system using third party programs to assist in inventory management, warehouse management systems, scanning systems and things of that sort for our warehouse. It's a project, as I said. It's been going on for well over a year. We expect to transition it probably sometime between either the third quarter or at year-end for 2022. It's basically revamping all of our systems, not just inventory management. Inventory management is really the impetus as to why we entered into this endeavor.
Okay, thank you so much. I'll pass it on now. Thanks.
Thank you.
Thank you. Thank you, Linda.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our next question comes from Stephanie Wissink with Jefferies. Please proceed with your question.
Hi, good morning. This is Grace on for Steph. Thanks for taking our question. I'm wondering if you can highlight the pacing of launches for the remainder of the year. Tangentially, how should we be thinking about the quarterly cadence from here? Thank you.
Yes, of course, we can do that. For Q1, you remember that we launched, we had a launch for three brands. Coach, Moncler, of course, being number one, Moncler for men and for women. We'll continue with more men's rollout, basically Jimmy Choo Man Aqua. After that, in the starting July, you're gonna have the takeover of Donna Karan and DKNY. It's not a launch, but it's a new business for us. We're gonna start quite strong because we are taking over the worldwide distribution starting July 1. The rest of the brands will have what we call flankers. It's a good mix of blockbuster and flankers.
That's helpful. Thank you.
Thank you.
Thank you. Our next question is from Hamed Khorsand with BWS Financial. Please proceed with your question.
Could you just talk about how the consumer is reacting with, you know, especially in Europe with the weaker euro and how, you know, if you're adjusting pricing there to compensate for the weaker euro at all?
The customer in Europe doesn't have to react really because we have not changed our retail price in euro. Even though the dollar is much stronger, we have not changed retail price yet. It's true that American products for our distributors will be a little bit more expensive. That's why we'll have to do a second wave of pricing. We have to be careful with price increase. I think it has its limits. There are certain brands that is more acceptable than others. For Boucheron, or Van Cleef & Arpels, or Graff, to have a $5 retail price higher is not a big deal.
When it comes to more democratic brands like GUESS or Abercrombie & Fitch, I think we have to be disciplined and be careful because we want to keep this customer. We don't want him to go and buy something else. We are monitoring very, very carefully, and we are looking at it very selectively. We don't do the same thing everywhere.
Yeah. Then my other question was, is the current macro environment making you change any of your plans for next year as far as the release schedule is concerned?
No, we are not changing our plans. Actually, we kept everything the same. We had, again, a big setback with China, but we know that it's temporary. We have not decreased our inventory. We have not decreased, for instance, the launches and the rollouts that we'll have in China in 2023. For us, even though we had a setback at the end of March in China, even though we cannot ship any, I mean, cannot ship a lot of products in Russia, of course, in Ukraine now, we have maintained our sales guidance.
Like Russ said in the press release and earlier today, we will, I hope, revisit the guidance for profit and sales towards June and July when we are sure that China has reopened.
Okay. Thank you.
Thank you.
Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.
Thank you. All right, thank everybody for tuning in today for our conference call. Just a quick reminder, I will be presenting at the Jefferies Consumer Conference, which runs from June 21st and twenty-second in Nantucket. Thank you, Steph, for the invitation and how nice it will be to be in person at the event. If any of you have any further questions, please contact me by email. Stay well and stay safe. Thank you again.
Thank you. This concludes today's conference. You may disconnect at this time. Thank you.