It's been a while since I last looked at Inter Parfums (NASDAQ:IPAR), a distributor of such fragrances as Burberry Brit for Men, Christian Lacroix, and Diane von Furstenberg. Despite a stable of well-known brands, it seemed to me that the company promoted its premium names at the expense of its mass-market lines, ultimately hurting profits and margins.

That seems to be the case with the 2005 fourth-quarter results that will be released after the market's close today. While sales are expected to rise by 3% over last year to $273 million, profits will come in 8% lower at $0.71 a share. While that number includes a $0.03 hit for stock options that companies are now required to account for, that still puts it behind last year's $0.77 per share and just about equal to what it earned two years ago. For the quarter, profits will be 1% below last year at $0.51 per share.

In the coming year, Inter Parfums will be challenged to continue to expand its distribution lines. In a crowded field that includes competitors such as EsteeLauder (NYSE:EL), Elizabeth Arden (NASDAQ:RDEN), and Revlon (NYSE:REV), differentiating itself will be no small feat. The company did extend and expand its prior agreement with Motley Fool Stock Advisor pick Gap (NYSE:GPS) to manufacture and market personal-care products for Gap and Banana Republic factory and outlet stores. The products for Banana Republic will not appear until this fall, while the Gap lines should appear in 2007.

For 2006, Inter Parfums anticipates 10% revenue growth to $301 million, with nearly $17 million ($0.83 per share) in profits. That's a 17% increase over today's expected numbers. These results will hinge on the continued expansion of its premium lines; its Burberry line should be helped by promotions underscoring the brand's 150th anniversary. Again, though, increased marketing costs might cut into the company's margins.

Net margins are expected to be around 5.5% for 2005, down from the 6.6% the company recorded the year before and the 7.4% in 2003. The quarterly margin numbers have been deteriorating as well:

Q405

Q305

Q205

Q105

Q404

Q304

4.9% (est.)

5%

5.2%

6.2%

5.5%

6%


The stock has traded between $15 and $20 per share for a year now, and while it never dipped as low as my predicted $12 forecast (nor certainly down to the $10 level where I'd consider buying in), it's going to take more than just the Burberry brand's anniversary to move this stock forward. In the meantime, investors can take solace in the $0.16-per-share annual dividend that Inter Parfums pays (yielding around 1%) as they wait to catch a whiff of improvement.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Fool has a disclosure policy.