When it comes to smelling good, fragrance distributor Inter Parfums (NASDAQ:IPAR) has a nose for the business. Until recently though, it's seemed that the seller of Christian Lacroix, Diane von Furstenberg, Lanvin, and most importantly Burberry, has had a bad head cold.

Sales in the second half of 2006 have shown a marked improvement over the early part of the year, and indeed, over the prior two years. Where sales growth had been anemic or non-existent in the first half of the year, fourth-quarter sales -- particularly in the U.S. -- saw strong growth to $90.2 million, a 37% leap. Domestic sales grew by 141% to nearly $20 million thanks to partnerships with both Gap (NYSE:GPS) and its Banana Republic stores. And when new body and bath lines debut later this year at Gap stores, it should push sales growth further along. The company will also be unveiling a new Roxy brand of fragrances for Quiksilver (NYSE:ZQK) stores that it hopes will attract new customers unfamiliar with its traditional brands.

While the domestic sales have been uplifting for the company, it remains Inter Parfum's European prestige brands that drive a majority of revenue. For the quarter, sales of Burberry, Lanvin, and Paul Smith were key in generating 22% growth in sales, rising to more than $70 million.

Looking at Inter Parfums' balance sheet, the company's position remains strong. Long-term debt decreased to $6.6 million from $9.4 million last year and while receivables increased 34%, net sales rose 37%, so it is not yet a concern. However, its days sales outstanding has increased to 110 days for the year from 104 days the year before, as it pushed holiday programs at Gap stores for which the company has not yet been paid.

On the other hand, inventories have shipped out at a much faster rate, turning over 2.4 times per year rather than the previous 2.1 times. That might change in the coming months since Inter Parfums will now carry inventory of the Burberry and Van Cleef & Arpels lines, which was previously carried by its distributors. In addition, inventory requirements for its pipeline of new fragrances and for its Gap lines will require the company to keep a well-stocked perfume shelf. While Inter Parfums believes it can generate more sales that will negate the higher carrying costs associated with these agreements, it may serve to drag down performance until it does.

Inter Parfums seems to have turned around the sluggish results it had been churning out for the first part of the year. Looking forward, the plans the company has in place for Gap, Banana Republic and Roxy -- which was one of Quiksilver's top-selling brands when all else was basically mush -- bode well for the fragrance distributor and makes it hard for investors to turn up their noses at the stock.

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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 Motley Fool has a disclosure policy that smells like roses.