Perfume, Protection Drive Growth

Sorry, reality fans. This isn't a story about Ms. Hilton's latest employment odyssey on Fox'sSimple Life.

Today we're just going to update you on a pair of companies from the Motley Fool Hidden Gems portfolio of also-rans. Neither Parlux Fragrances (Nasdaq: PARL  ) nor Lakeland Industries (Nasdaq: LAKE  ) has received the formal nod from Motley Fool Co-Founder Tom Gardner -- but they're both on his radar as possible picks: Parlux as a "watch list" stock, and Lakeland as one of those little dynamos that we term "Tiny Gems." The two companies both reported earnings yesterday -- Parlux for the end of its fiscal 2005, Lakeland for its first quarter of fiscal 2006. The news: Both of these companies are maintaining the strong growth that got our attention in the first place.

Smells like teen profits
The company responsible for bottling the essence of Paris, Parlux reported a 25% bump in revenues and a 73% increase in profits in fiscal 2005 from the prior year. Not all of this filtered down to the per-share level, though, because the company continued its diluting ways, ending the year with 7.6% more shares than it had at the beginning of the year. Parlux credited its Perry Ellis, XOXO, and Paris Hilton perfume brands with producing much of the profits, and promised continued growth. It will introduce new fragrances, branded GUESS? and Maria Sharapova, as the year progresses. It will also release a line of watches and leather goods under the Paris Hilton name.

Of greatest importance to investors, however, is the news that Parlux's products are now gaining broader market acceptance. For the past two years, Parlux's sales (to related and unrelated parties) have split nearly 50-50. But there was a marked divergence between the two markets during the past three months, with related-party sales declining 10% and sales to independent parties nearly doubling.

Profit from peril
Like Parlux, protective clothier Lakeland turned in a none-too-shabby performance yesterday. For the first quarter of its 2006 fiscal year, profits increased 20% over the year-ago period. Also like Parlux, share dilution was felt at the per-share level -- but not dilution of the stock-options kind. As we've previously written, Lakeland conducted a secondary stock offering last year, and recently completed a "stock dividend." Combined, those two actions added 1.7 million new shares to its share count, and with so many more shares among which to divide earnings, per-share profits necessarily declined this quarter, down 15% year over year to $0.34 per diluted share.

That said, Foolish investors should keep their eyes on the ball. Lakeland's dilution is well-explained and reasonably well-paid-for -- and its business purpose benefited existing shareholders (raising funds with which to pay down debt), so the drop in per-share earnings becomes a non-issue. This time, it's better to focus on the 20% firm-wide profits growth.

For more on these two little-noticed companies, read:

• Three Tiny Treasures
• Fulfilling Float for Lakeland
• The Smell of Success
• Parlux's New Fragrance: Paris Hilton?

At Motley Fool Hidden Gems, we keep track of even the tiniest of our picks -- and as you can see from the above, the tiniest of our not-quite picks, as well. Afree trial is yours for the asking. Fool contributorRich Smithowns no shares in any company mentioned in this article.