The Timberland Company reported a second-quarter net loss of $19.2 million and a loss per share of 31 cents. These results compare to a second-quarter 2006 net loss of $16.6 million, and loss per share of 26 cents. Second quarter revenue of $224.1 million was down 1.1% compared to the
prior year as gains in the casual footwear business and in Timberland
PRO® series were offset by anticipated declines in the boots and kids'
businesses as well as declines in the apparel business. Foreign
exchange rate changes increased second quarter revenues by $4.3
million, or 1.9%.
The second-quarter net loss was $18.6 million and EPS was ($0.30) when adjusted to exclude restructuring costs principally related to globally restructuring its organization around key consumer groups.
International revenue grew 7.5%, or 3.4% on a constant dollar basis, supported by growth in the casual footwear and outdoor businesses which offset declines in the apparel business. U.S. revenues decreased 8.5%, due to the anticipated declines in boots and kids' sales as well as declines in the apparel business which offset strong growth in Timberland PRO® series footwear and gains in SmartWool® brand apparel and accessories.
Second-quarter results reflected global gains in the casual footwear, SmartWool® and Timberland PRO® series businesses. Global footwear revenues of $154.5 million were up 2.5% compared to the prior year period as strong gains in casual footwear and in Timberland PRO® series offset anticipated declines in boots and kids', which were impacted in part by proactive steps to maintain a premium brand positioning through the Company's strategy to restrict sales of the iconic boot product. Apparel and accessories revenue decreased 7.0% to $66.5 million driven by declines in Timberland® apparel, which were partially offset by strong growth in SmartWool.
Global wholesale revenue decreased by 3.3% to $150.9 million. Worldwide consumer direct revenue increased 3.8% to $73.2 million reflecting strong sales in Asia and gains in foreign currency. Overall, global comparable store sales declined 6.2% reflecting decreases in the U.S., Europe and Asia.
The operating loss for the quarter was $31.5 million, compared to a loss of $20.2 million in the prior year period. The operating loss excluding the above noted restructuring costs was $30.5 million. These results were consistent with the Company's performance expectations, reflecting anticipated gross profit pressures from higher levels of off-price sales and markdowns as well as increased product costs, including approximately $1 million related to the final implementation of European Union duties. For the quarter, foreign exchange rate changes reduced the operating loss by approximately $0.6 million.
Timberland ended the quarter with $97.5 million in cash and no debt outstanding. In the second quarter, the Company was unable to enter into new share repurchase agreements as a result of the restatement process that it undertook in the first quarter of 2007. Timberland currently has 3.2 million shares remaining under existing share repurchase authorizations.
The Company continues to expect significant sales declines in boots and kids' sales in 2007, likely in the range of $100 million globally, which will offset strong gains in other parts of the portfolio, and believes that full year revenue will likely decline by low-single digits compared to the prior year. Lower boots and kids' sales, higher levels of promotional activity, and increased product costs will place continued pressure on operating margins, with expectations for full-year declines in the range of 350 basis points compared to prior-year levels excluding restructuring costs.
Timberland anticipates that these impacts will be greater in the third quarter, with relatively improved performance in the fourth quarter. For the third quarter, Timberland anticipates revenue declines in the mid to high single digit range compared to the prior year. For the fourth quarter, it is targeting relatively flat revenues and operating margin, due in part to benefits from cost savings actions implemented for the second half of the year.
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, stated, “We are focused on continuing to put into action key components of our long-term strategy to build the Timberland® brand and enterprise. Our product development efforts focused on key consumer segments are enabling us to create more relevant products that better reflect the needs of our key consumer groups. At the same time, we are working to drive better returns for our shareholders and improve the efficiency of our entire organization to deliver against our long-term objectives for strong revenue growth and a 15% operating margin.”
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
For the Quarter For the Six Months
Ended Ended
-------------------- --------------------
June 30, June 30,
2006 2006
June 29, (As June 29, (As
2007 Restated) 2007 Restated)
-------- ----------- --------- ----------
Revenue $224,126 $226,605 $560,455 $576,416
Cost of goods sold 124,959 123,854 299,709 299,735
-------- ----------- --------- ----------
Gross profit 99,167 102,751 260,746 276,681
-------- ----------- --------- ----------
Operating expense
Selling 99,547 95,119 209,630 199,868
General and administrative 30,091 27,376 61,442 56,010
Restructuring costs 988 431 7,514 912
-------- ----------- --------- ----------
Total operating expense 130,626 122,926 278,586 256,790
-------- ----------- --------- ----------
Operating income/(loss) (31,459) (20,175 ) (17,840 ) 19,891
-------- ----------- --------- ----------
Other income
Interest income, net 666 666 1,796 1,771
Other income/(expense), net 1,441 (6,382 ) 818 (6,953)
-------- ----------- --------- ----------
Total other
income/(expense) 2,107 (5,716 ) 2,614 (5,182)
-------- ----------- --------- ----------
Income/(loss) before
provision/(benefit) for
income taxes (29,352) (25,891 ) (15,226 ) 14,709
Provision/(benefit) for
income taxes (10,126) (9,269 ) (5,253 ) 5,266
-------- ----------- --------- ----------
Net income/(loss) $(19,226) $(16,622 )$( 9,973 ) $ 9,443
======== =========== ========= ==========
Earnings/(loss) per share
Basic $ (.31) $ (.26) $ (.16) $ .15
Diluted $ (.31) $ (.26) $ (.16) $ .15
Weighted-average shares
outstanding
Basic 61,473 63,035 61,288 63,308
Diluted 61,473 63,035 61,288 64,566
