At face value, Bare Escentuals (NASDAQ:BARE) had a good quarter. Sales increased 29%, to $124.1 million, and operating earnings grew nearly 16% to $39.4 million. But when I looked deeper, I uncovered a disconcerting trend.

The company's margins have been falling.

This is the result of an increased reliance on the wholesale segment. The company operates two segments -- retail, which sells to end users through company-owned boutiques and infomercials, and wholesale, which sells to resellers through home shopping television, specialty beauty retailers, spas and salons, and international distributors. For the latest quarter, sales in the infomercial channel accounted for 25.4% of total sales, a sharp decline from the 33% a year ago. The first quarter also saw a decreased reliance on infomercials, as women tend to like to see and test products before they buy.

Bare Escentuals also faces a host of competition, particularly from celebrity-backed products. For instance, at QVC, a part of the Liberty Media (NYSE:L) empire, it is the best-selling beauty brand. But QVC also sells Bobbi Brown and Laura Geller.

For the quarter, gross margins were 69.7%, 230 basis points lower, and operating margins fell 370 basis points, to 31.7%. Management expects the infomercial business to weaken further, with a 10% decline forecast for the second half of the year. This would likely pressure margins further. There has been no solution or alternatives given to raise margins.

Management reaffirmed its $0.89-$0.94 earnings forecast for the year. The weaker-than-expected performance from infomercials could cause earnings revisions down the road. Its multichannel approach has worked in the past, with sales growing at an annual rate of 57% through the end of 2006. But with the stock trading at a P/E of 31, the expectations are lofty. This doesn't leave a lot of room for error should one of its key areas falter.

Fool contributor Larry Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. Feel free to email him. He doesn't have any positions in the companies mentioned.