Revenues came in 29% higher for fragrance distributor Inter Parfums
The company said sales of its leading Burberry line of fragrances was the primary reason why it was able to beat not only consensus estimates, but its own guidance too. Moreover, it has some new lines due out throughout the year on which it expects to realize significant sales. It projects sales of $280 million in 2005, a 19% increase over 2004.
Am I just being obstinate by saying I'm not wholly convinced the rose is so sweet-smelling just yet?
Fourth-quarter earnings will come in at $0.17, a penny less than last year on 29% more revenues, or $0.77 for the year. But a portion of those revenues was derived from currency exchange fluctuations. Even though Inter Parfums is projecting growth in sales next year, it is also anticipating earnings to be flat because of increases in royalties that it must pay for Burberry, as well as increased advertising and promotional expenses. So the more it sells, the more it's costing it to make those sales.
The point I've been making all year long is that while sales are growing, the rate of growth is slowing. Admittedly, however, the slowing rate of growth is somewhat faster than previously anticipated.
So why do I think Inter Parfums is overvalued, or at best, fairly valued? Historically, the company has traded at a multiple to earnings of around 15. Sure, it's had a price-to-earnings ratio as high as 45, but that was right before its fall last year when the stock was trading at its 52-week peak of $33 a stub. At a P/E of 15, though, the stock should be worth about $13. Even if we assign it a higher multiple based on the potential sales for the new lines due out, if we give it a P/E of 25, or about what competitors Estee Lauder
Even though the stock rose as high as $17 after the last earnings report, it has since fallen back and traded in the range of $15 to $16 a share. Despite a strong stable of brands, including Christian Lacroix and Diane von Furstenberg, with new fragrances Celine and Lanvin due out later this year, I do not look to Inter Parfums to outperform over the next 12 months. Share price growth follows earnings, which follow sales. With sales slowing and earnings flat, I do not see much hope for outsized appreciation, though it may give us an inflection point at which to buy.
Inter Parfums is not the wilted flower I had written about last year, but it is not a ramblin' rose just yet either.
Fool contributor Rich Duprey has had middling success growing roses. He does not own any of the stocks mentioned in this article.