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WHAT'S STILL SIZZLING--AND WHAT MELTEDTwo years ago, Parlux Fragrances Inc. (PARL) exuded the sweet smell of success. The perfume maker had turned in double-digit profit increases throughout the 1990s, fueled by its Perry Ellis line. Under the leadership of Ilia Lekach, a Russian immigrant who began his American business career selling watches, Parlux garnered $8 million in earnings on $68 million in sales for the year ended March, 1996. That was enough to land the company in the No.32 spot on BUSINESS WEEK's 1996 Hot Growth list. Since then, though, Parlux' performance has been stinko. After losing $6.7 million for the fiscal year ended Mar. 30, 1997, it expects to report red ink for the 1998 year, too. The stock is down 81%, to 2 1/4, as of Apr. 30. Lekach, whose family owns about 15% of Parlux, admits it ''suffered from a series of mistakes.'' One problem was Parlux' mid-1996 launch of Perry Ellis America, the latest in the Ellis line. The fragrance, named after the clothing designer who died in 1986, couldn't compete with a similar product that appeared at the same time--Tommy, from the very much alive and in-vogue designer Tommy Hilfiger (TOM). Lekach says Parlux' woes are history and predicts a comeback this year. WRONG WAY. Parlux' sorry situation is a cautionary tale that shows just how quickly a hotshot small company can fizzle. If Wall Street's lofty earnings expectations are dashed, the outcome is often bloody. Indeed, the losers on our 1996 list outnumbered the winners 3 to 2. Dragged down by a large number of high-tech and health-sciences companies that got slammed in those fast-changing fields, the class of 1996 managed a cumulative total return of only 2.6%. That compares with a 38% rise for the small-cap Russell 2000 index over that period. The large-cap Standard & Poor's Industrials returned an even better 71%. The worst performer was Lafayette Industries Inc., whose stock plummeted 99.9%, to 0.5 cents. Why? The onetime maker of display cabinets for stores moved into such things as debit-card vending machines, but the shift did not work out. Lafayette hasn't filed 1997 results, and the 1996 filings had sparse financial information. In March, 1997, NASDAQ delisted the stock from its Small-Cap Market. Attempts to reach the company were unsuccessful. Another casualty is Netmanage Inc. (NETM), whose leading-edge software allowed desktop PCs to access the Internet when it ranked No.44 on our list two years ago. An ocean of red ink followed as Microsoft Corp.'s (MSFT) popular Windows 95, which bundles in the same Net feature, gobbled up Netmanage's business. So Netmanage is switching gears, with a product that lets employees with Windows view data on their company's IBM mainframe. GLOVES AND CHIPS. Of course, the '96 roster also had highfliers that kept soaring. At the top of the class: Safeskin Corp. (SFSK), which sells latex gloves to medical professionals. Thanks to concerns about the transmission of AIDS and other contagious diseases, sales have soared. The stock, too, has taken flight, surging 387%, to about 36. Not far behind was Micrel Inc. (MCRL), with a 362% gain. The San Jose (Calif.) maker of analog integrated circuits for cellular phones and PCs showed great agility as it sidestepped the meltdown in South Korea and elsewhere in Asia. Micrel, which had relied on Asia for close to 40% of sales, recognized the threat early, when December orders from the region fell short. So CEO Raymond D. Zinn ramped up other lines, particularly its foundry business, which manufactures other companies' products in Micrel's U.S. factories. The quick reaction kept the damage down. ''Nobody moved as fast as we did,'' he says. Zinn also acted swiftly to protect Micrel's stock, offering an early warning to Wall Street of its Asian troubles. ''They kept the Street tuned in,'' says Mark F. Fitzgerald, a Merrill Lynch & Co. analyst. Employees control half Micrel's shares, so sensitivity to investors comes naturally to Zinn. He personally owns 15% of the company. Despite the troubles, Micrel's last two quarters proved its best ever. Such prowess keeps Wall Street happy, and buoys faith that small caps can be gold mines.
By Larry Light in New York RELATED ITEMS
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Updated May 21, 1998 by bwwebmaster
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