Parlux Fragrances Roller Coaster
You know that nauseous feeling you get in the pit of your stomach after an intense roller coaster, I have that feeling right now after taking in Parlux Fragrances (PARL) for too long. Not being a huge fan of roller coasters to begin with (or for that matter perfume), I badly want off the crazy ride that Parlux Fragrances has given me.
Parlux Fragrances (PARL) has become a serious concern for the Special Situations Real Money Portfolio. Let me detail the timeline of how the Special Situations Real Money Portfolio got involved with Parlux Fragrances and what has happened since.
- June 13, 2006 – A member of Fat Pitch Financials Contributor’s Corner posted a message in our Special Situation Discoveries Forum (membership required) regarding PF Acquisition’s intent to take Parlux Fragrances private by acquiring all outstanding shares for $29.00 per share. The shares closed that day at $18.74. I saw huge profit potential, so with greed in my eyes I put in a limit order that night.
- June 14, 2006 openning bell – My order was filled first thing in the morning for 200 shares at $21.73. I expected the price to continue to climb up.
- June 14, 2006 mid morning – I discovered Herb Greenberg just wrote a negative article on the Parlux deal. From that article, I discoved that Bill Mann of the Motley Fool also wrote up a warning about Parlux Fragrances and its CEO Ilia Lekach back in 2003. At first I was worried about Herb Greenberg’s article but there seemed to be some question regarding his journalism. However, Bill Mann’s comments should have caused me to act, since I’ve met Bill Mann and trust his research and opinion. I do remember checking to see if Bill would also write about this latest Parlux event but he didn’t. I really wish he had. It might have knocked some sense into me.
- June 15, 2006 – Members if Contributor’s Corner (subscription required) point out some concerns with this deal. The Miami Herald and MarketWatch both issue negative articles. In the Miami Herald article, I noted analyst Paul Kaump’s comment, ”For [Ilia Lekach] to not follow through on this would be catastrophic to the company’s value and management’s credibility.” Given Mr. Lekach’s past failed attempts, I figured he would have to follow through on his offer. I was so naive.
- June 20, 2006 – I head off to the hospital with my wife whose water has broken. Thoughts of the stock market leave my mind as I wait for my daughter to be born.
- June 29, 2006 – Parlux Fragrances delay filing their 10-K.
- July 5, 2006 – Nasdaq sends Parlux a delisting notice.
- July 12, 2006 – Ilia Lekach withdraws the buyout offer. PF Acquisition indicates that they called off the deal because they have received several offers from third parties for some of Parlux Fragrances brands.
- July 24, 2006 – The 10-K is finally filed.
- August 10, 2006 – Herb Greenberg disses Parlux results, notes the company is blaming its woes on short-sellers, and that the 10-Q filing will also be late. Ugh! I start looking for an exit.
- August 16, 2006 – Parlux Fragrances announces it is going to sell Perry Ellis rights for a total of $140 million to Victory International (USA) LLC. I look for a big jump in stock price but apparently no one believes this deal is for real at this point.
- August 17, 2006 – The 10-Q is delayed again and on cue the ambulance chasers (i.e., lawyers) announce shareholder lawsuits.
- August 23, 2006 – The NASDAQ once again gets a delisting notice and a Form 4 announces that Ilia Lekach sold 62,720 shares to satisfy a margin requirement. This reminds me of some other insider activity I wrote about earlier.
My only hope is that this Parlux roll coaster doesn’t suddenly drop into the abyss. I made several mistakes here and there are some obvious lessons here for others to learn. Here are some of the lessons:
- Always google the CEO, even for short-term investments in special situations. (I thought I had already learned this one.)
- Never swim with the sharks or you’ll end up as shark bait. When short-sellers outnumber everyone else, run for safety.
- When the reason you purchased something is no longer valid SELL. (I have discovered I really have a problem with my serious bias against selling my losers. I definitely need more practice with this one.)
- Listen to the warnings of trusted and seasoned financial writers. These are few and far in between but valuable.
I’m expecting many of you will have fun commenting on this post. It’s taken me forever to write this one because of the pain it is causing me, but I guess no pain no gain. There are a lot of other things I want to write about but this post on Parlux seems to be holding everything up. At the least, I hope you appreciate my openness and honesty with this post.
I’m equipping my armor ahead of time so fire at will. Lean forward from my backseat and take a good look at my rear view mirror. Share what you would have done and what you would do now if you were me.
[Full Disclosure: I still own shares of Parlux Fragrances this morning. Don’t ask me why.]
This is a truly bizarre situation and, like you, I’ve dropped quite a bit of money into this stock. However, there’s nothing to indicate that the offer to buy the Perry Ellis brand isn’t legitimate and, absent fraud, the company is trading at about 40% of intrinsic value.
I don’t know enough to rule out fraud, but it feels more like incompetence than fraud. So I’m holding on until at least the Q is filed…
Hi Doug! It’s good to know that I’m not the only one holding this dog. I wish I had your confidence that this is more incompetence than fraud. All the third-party related transactions on the books makes me nervous.
I also am invested into Parlux. The roller coaster ride you speak of is there and my stomach turns with every twist and turn Parlux makes. I am waiting for the news that the 10Q is filed before I decide to get off this roller coaster for now. I am really hoping that Ilia hasn’t taken this roller coaster with so much potential and totally destroyed it. I am still hoping that I can get off safely with some money left in my pocket. But only time will tell.
I read your story and wanted to comment. I bought shares a month or two before you did. I based my buy on the earnings, P/E, cash flow, guidence with the new line, past performance with new brands, balance sheet, and overall thoughts on the business. I belive that no matter what men will buy perfume for there lovers, girlfriends, spouses during the holiday season. I also saw the articles about the CEO and what he had done in the past. It should be noted that it was his son whe tried to buy out ECMV and it was the CEO that tried to buy PARL.
I read the articles about the whole mess before I bought any shares. I also watched the shares go from 16 bucks to over 36 bucks and then come back down to 25 bucks before I ever made a buy. I also noted that the company bought back shares with excess profit and was alittle concerned about the warrants but since the insiders were not selling shares I bought anyway.
Once I bought shares I watched as the short interest increased and the price kept going down. I was going to take losses myself but the CEO came in and stated he was going to take the company private at 29 bucks a share. Call it greed or call it confidence based on knowledge that the fundamentals were still in place. The media coverage intensified and alot of negative information came out. The share price tanked but I was looking for a little pop to exit the trade. The CEO withdrew because of another offer that the company confirmed. This prompted me to hold the shares and wait to see about the other offers. There was not way to find out information about the offer and the company was not telling the investors anything. The accounting issues could be understood as Sarbanes Oxley has reaked havoc on lots of growing companies period. I understood the cost associated with it so I was optimistic since Deloitte and Touche was doing the accounting. They signed off on the 10K. They are also working on the current 10Q. It must be more difficult then any of us can understand or there truly is a problem with the company that happened in the past 3 months? The company finally tell us they have received an offer for the PERRY ELLIS brand and we then find out the numbers were going to alot less then projected because of known expenses that were buried in the 100 plus page 10K. This is wrong for the company to bury information after they have already sold shares in the markets during the same time frame. That is why the share price is down and has not recovered. The guys running the company knew they were going to have some big expenses to launch the new line of handbads and cosmetics. I believe if they would have told the investors how much money they needed to spend and projected the costs to the EPS the whole matter would have not resulted in share price decline. It was the management of the company trying to hide some known expenses from the shareholders or short sellers that resulted in the share price destruction. I am way down on alot of shares as I avg into the losses and then doubled down on the shares when the accouting was signed off on. I had to sell some shares for big losses just to keep afloat. I still have shares as I belive they will recover but I cannot see the company every fully regaining trust in the market place in the future if they feel the need to hide or bury expenses so the average investors cannot figure it out.
I guess I am guilty too of being a little greedy based on known information. It is the unknowns that got me. It is hard to always assume that high short interest in a company is always a sign that stocks are going to go down. There were no options on the stock and it very well could be that big holders are boxing there position by taking a long and short position.
Good luck with your shares we are in the same boat.
I should leave well enough alone but I am going to add this information to my post as well. It should also be noted that in the past 90 days WhiteBox capital reports buying over 5% of the outstanding shares, Pike Capital reports buying over 5% of the oustanding shares, Wellington reports buying 11% of the outstanding shares, LotsOff capital reports adding almost 5% of the outstanding shares and a few others are listed as taking smaller positions. These shares were all bought during the same time frame that the share price went from 13 dollar range to the 8 dollar range. We are not the only ones that bought shares during this fiasco.
PARL had the stink of manipulation from day 1.
Speaking of scams. The recent trading in BB stock ACTC is a perfect case of the insiders/market makers bagging the public big time.
They knew full well on the day they ran this to 1.90 , then 2.40 on the open the next day, that there would be huge diluition and a repricing of options. The repricing of options, a dubious practice at best, was certainly leaked to the market makers.
They were very happy to short stock into this , knowing they would be able to cover any shares. Stock is now down 50% + from the highs, in just two days.
alot has been written about Parlux which remains on the SHO list with over 67% reported as short. The short selling in this seems overdone. I dont know the CEO , his son, or the related company organization but what I say is this: The perfume business along with accessories is a good market during recessions especially when you can buy into an existing enterprise for a valuation that is so compelling which is what we have here now. I dont understand for one second why a CEO would make a bid only to have shareholder dissent on that. for fear of conflict of interest , the offer was dropped and so did the shares. The people here are more greedy then the management which has done a remarkeable job in the face of adversity and high growth. I see this as being an out of the ordinary situation with alot of emotions flying around.
Like you men, I would like to see a little more conservatism on the management team, lets get this accounting together and move forward. I am altogether negative on this company’s prospects. With or without these related companies, Parlux seems to have a nice composition of proven brand names and new and exciting emerging brands. One must really consider the work and effort involved in getting a Hilton contract like that, she could use anyone but Parlux arranged that deal. Perry Ellis, Guess, XOXO and others are serious brands. They will sell well for XMAS and Valentines day, so friends, I am not sure who would short now or not cover at this point, but I will end with this GREED has gotten the best of some smart investors and they went a little to heavy on their enthusiasm for this good story. The institutions are going to settle this, not the court of public opinion.
While I hope I will make some money on this, it is a risky play which could pay off or put me in the house of pain with the rest of the herd. To be continued….
clarify:
I am NOT altogether negative on Parlux. Excuse the typo. Thanks
The SEC has been asleep at the switch for not stopping all trading in Parlux until all filing issues are resolved. The management is clearly gaming investors and our so-called regulators are allowing it. They would rather play politics or serve their patron investment banks than enforce the law. My son foolishly purchased some shares believing he was getting the facts — and he wasn’t!
There are so many things that smell in this package that the U.S. Attorney would have a field day if he wasn’t proccupied with politics. The problem isn’t terrorism; it’s government! If you are a shareholder and believe that you have been defrauded, sue! Not just the company, but the regulators and the U.S. Attorney and demand that they do their duty as regulators and law enforcement officers.
The government claims that it has the right and obligation to protect investors — compel them to do so by getting a lawyer conversant with our security laws and our constitution to compel them! Oh, and expect to spend money before winning, which you will if you stay the course.
Where is the agreement to sell the Perry Ellis rights? Where are the personal financial statements of the clowns that are managing Parlux? What compensation do they derive from all their related companies? Where are the auditors? Their silence is deafening.
I believe this was mismangement, instead of fraud. I maybe on the wrong side of the falling knife, but I just got a stake into parlux and believe it will be above 8 before the end of sept. I got in at 6, at $5.70, and again at $5.30. Folks its assets looks like should have it covered. Am I blind, miss something, or just jumped under a falling piano….
Looks like a buy to me from here to $6 and ride it on up…. i would welcome your comments.
ron
Ok, so now the 10-Q is out and there’s nothing that terrible in it. The gross margin is down, inventories are a bit large, Paris Hilton sales are sluggish, but none of this should cause the company to trade this low. Still seems like a buy to me…
First, did you not look at the cash flow statement showing negative cash from ops and investing, and cash inflow from financing? Bad signs.
Second, never catch a falling knife. Just look at the chart, is it falling? Don’t buy. Wait until it stops falling, then buy. Don’t catch falling knives, let them hit the ground, then bounce, then settle – then buy.
Third, you are probably leaving the stock at the absolute worst time. NOW is the time to buy, not then. That is, if you think it’s a good value …