Insider Buy Signal at Parlux Fragrances

How many times have you reflected on events in your life and thought, “If I had only done this, my life would be different?” Some people might think of different educational or career choices they might have made. Others may think of improving relationships, physical fitness or certainly their finances. Perhaps buying and holding shares of Dell (DELL), Microsoft (MSFT), or, more recently, Google (GOOG) or MasterCard (MA) would come to mind.

There is little doubt that since February 2006, these thoughts have not occurred to Mr. Frank Buttacavoli, the CFO of Parlux Fragrances (PARL). Between June 2004 and February 2006, Mr. Buttacavoli was shrewd enough to exercise options for 125,000 shares and sell them for nearly $3.2 million. As it turns out, Mr. Buttacavoli timed his sales to near perfection; since his last sale in February 2006, shares of Parlux have fallen by over 75% to just over $3 per share. While Mr. Buttacavoli likely paid around 35% of his proceeds for federal income taxes, he still pocketed an estimated $2.0 million after taxes. While this is certainly a tidy sum, it is not so large that we would expect to find Mr. Buttacavoli retired in a waterfront villa in the south of France. In fact, Mr. Buttacavoli can still be found toiling away at Parlux Fragrances as its current COO.

I have written on several occasions about the turnaround of Parlux Fragrances under Neil Katz, Parlux’s CEO since early 2007. In August 2007, Mr. Buttacavoli essentially endorsed Katz’s direction and progress by exercising options to buy 205,000 shares at a cost of $190,000 at a time when the stock price was around $6.50. Mr. Buttacavoli did not sell and still holds these shares. More recently, for a second time in March 2008, less than six months prior to the launch of the new Jessica Simpson fragrance, Mr. Buttacavoli has exercised options for an additional 195,000 shares at a cost of $180,000 at a time when the stock price was around $3.00.

Again, Mr. Buttacavoli did not sell the shares. In addition to investing $370,000 to exercise options and hold the shares, Mr. Buttacavoli likely created a federal income tax liability for himself estimated at as much as $520,000 by exercising and not selling “in-the-money” options. Effectively, Mr. Buttacavoli has purchased 400,000 shares for just under $900,000 and has essentially put nearly 50% of his $2.0 million windfall from the sale of Parlux Fragrances at risk. As a side note, between August 2007 and February 2008, Parlux’s current CFO, Mr. Raymond Balsys, has also purchased 10,000 shares at a cost of $37,000.

It is a fact that Mr. Buttacavoli, in his role as COO, has intimate knowledge about Parlux Fragrances and its business prospects. It is also beyond dispute that Mr. Buttacavoli has in the past profited very handsomely on very timely share sales of Parlux Fragrances. With these facts in mind, it is interesting to note that Mr. Buttacavoli has essentially taken a much larger position in shares of Parlux Fragrances. However, this time Mr. Buttacavoli is putting significant personal funds at risk. When one considers these facts in combination, it is easy to speculate that Mr. Buttacavoli is very bullish on the prospects of the Jessica Simpson fragrance line launch and Parlux Fragrances in general. Given his past success with shares of Parlux Fragrances, this writer believes that Mr. Buttacavoli is once again positioning himself so that he will not have regrets about a missed investment opportunity in Parlux Fragrances. Since actions truly do speak louder than words, Mr. Buttacavoli appears to be telling us that shares of Parlux Fragrances and its shareholders have much brighter days ahead.

Disclosure: Author has a long position in PARL

Comments

[JohnPseudonym]

WoW! $19 down to $3 in a year...ouch!

I'd wait for the trend to turn up solidly. There are a lot people holding that stock and gritting their teeth because of the huge loss they took. The first solid rise in price will likely trigger a round of "get some of my money back" selling.

[timemachine]

This story certainly makes sense to me!