Count me among the doomsayers.
Fragrance distributor Inter Parfums (Nasdaq: IPAR) reported second-quarter sales of $46.8 million and first-half sales of $105.2 million, up 33% from last year. It also raised its guidance for the rest of the year from $222 million to $225 million. While it won't report operational results until next month, I'm firmly in the doom-and-gloom camp here.
Inter Parfums licenses brands such as Burberry, Diane von Furstenberg, Christian Lacroix, S.T. Dupont, and Paul Smith for distribution. It also has a controlling interest in the men's skin-care company Nickel, which sports a line of products and spas. Male primping is a growing trend, and the company has been recognized as a hot commodity lately: It recently made BusinessWeek's top 100 Hot Growth Companies as well as the FSB 100, Fortune Small Business' list of fast-growing small companies.
So why am I so gloomy?
When Tom Gardner looks for Hidden Gems, he likes to see sales growing. Not just incremental growth, but accelerating growth. Middleby (Nasdaq: MIDD) went from low-single-digit sales growth to double-digit growth. FARO Technologies (Nasdaq: FARO) has been growing quarterly sales over 55%. With Inter Parfums, I don't see accelerating growth. I see faltering growth. And with a decline in sales comes a hit to earnings.
Back in March, the company reported fourth-quarter sales up 33%, followed by first-quarter sales growing 55%. Now second-quarter sales are down 20% from the first quarter, and more importantly, year-over-year, they're off 75%! It's like the robot from the classic sci-fi TV series Lost in Space waving its arms about, "Danger, Will Robinson! Danger!"
If we look only at revenue growth in dollars, the warning signs are not apparent. It's only when we look at the percentages that we can see where the danger lies (e = estimated; nm = not meaningful).
| Revenue growth $ (in millions) |
|
|
|
|
|
FY04 |
FY03 |
FY02 |
FY01 |
| First quarter |
58.4 |
37.6 |
28.4 |
31.0 |
| Second quarter |
46.8 |
41.4 |
27.4 |
26.3 |
| Third quarter |
57.8e |
57.4 |
37.4 |
27.6 |
| Fourth quarter |
62.0e |
49.2 |
37.1 |
27.3 |
| Revenue growth % |
|
|
|
|
|
FY04 |
FY03 |
FY02 |
FY01 |
| First quarter |
55.3 |
32.4 |
(8.4) |
39.6 |
| Second quarter |
13.0 |
51.1 |
4.2 |
8.2 |
| Third quarter |
0.7e |
53.5 |
35.5 |
6.6 |
| Fourth quarter |
26.0e |
32.6 |
35.9 |
(6.5) |
| Earnings growth $ (in millions) |
|
|
|
|
|
FY04 |
FY03 |
FY02 |
FY01 |
| First quarter |
0.23 |
0.13 |
0.10 |
0.16 |
| Second quarter |
0.16e |
0.15 |
0.10 |
0.15 |
| Third quarter |
0.20e |
0.23 |
0.14 |
0.10 |
| Fourth quarter |
0.18e |
0.18 |
0.14 |
0.00 |
| Earnings growth % |
|
|
|
|
|
FY04 |
FY03 |
FY02 |
FY01 |
| First quarter |
76.9 |
30.0 |
(37.5) |
45.5 |
| Second quarter |
6.7e |
50.0 |
(33.3) |
25.0 |
| Third quarter |
(13.0e) |
64.3 |
40.0 |
25.0 |
| Fourth quarter |
0.0e |
28.6 |
nm |
nm |
Growth is coming to a screeching halt, and earnings are about to stop growing, too. If we accept analyst estimates of $0.16 per share (and that was based on Inter Parfums selling more than it did), we'll be seeing EPS drop more than 85% this quarter, followed by losses. That's why I feel that declines in sales growth of 50% or more year-over-year are a red flag.
Investors shrugged off the slowing growth on Friday, pumping up the share price more than 7%, to almost $18.50 a share. Based on estimates of future growth, I see Inter Parfums as being wildly overpriced. I may be a lone voice here, the Dr. Smith afraid of his own shadow, but the only thing I smell is a skunk.
Fool contributor Rich Duprey masks his own scent with Eau de Coors Light. He does not own any of the stocks mentioned in this article.
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