The Timberland Company reported record third quarter net income of $68.6 million and diluted earnings per share of $1.92, compared with third quarter 2003 net income of $53.3 million and diluted EPS of $1.47. Timberland's record results reflected strong global revenue gains and continued benefits from gross margin expansion, which enabled delivery of strong profit growth while supporting increased investment against global brand building initiatives.
Third quarter revenue increased 11.3% to $493.9 million, driven by gains in both U.S. and international markets. U.S. revenues grew 6.0%, reflecting balanced growth from footwear and apparel offerings – and across wholesale (+6.0%) and retail channels (+6.0% on a 1.3% comparable store sales gain). International results (+19.3% or +10.6% in constant dollars) reflected double-digit constant dollar sales growth in Asia and strong constant dollar gains in Europe. Overall revenue growth benefited from favorable foreign exchange rate changes – which added $15.3 million (or 3.4%) to third quarter revenue.
Third quarter results were supported by strong global footwear sales. Global footwear revenues expanded 13.6% to $388.2 million, driven by strong growth in men's and women's casual and kids' categories. Global apparel and accessories revenue grew 3.1% to $101.4 million, as gains in Timberland(R) brand apparel in the U.S. and Asia offset constant dollar declines in Europe and lower levels of Timberland PRO(R) series apparel sales.
Operating profit for the quarter increased 26.9% to $106.0 million, and operating margin rose 2.7 percentage points to 21.5%. Profit gains reflected strong revenue growth and significant gains in gross margin, which benefited from foreign exchange rate changes, lower product-related costs, lower markdowns and favorable business mix. For the quarter, foreign exchange rate changes contributed approximately $11.4 million to operating profit.
— EPS for the quarter expanded 30.6% to $1.92, reflecting profit gains and continued benefits from share repurchases. During the quarter, the Company repurchased 978 thousand shares at a total cost of $54.8 million. For the year to date, Timberland has repurchased 1.3 million shares at a total cost of $75.0 million. The Company currently has 3.3 million shares remaining under its existing share repurchase program.
Timberland ended the quarter with $119.8 million in cash and no debt outstanding. Timberland drove improvement in annual inventory turns and days sales outstanding, supporting an increase in return on capital from 28.1% to 32.5%.
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, stated, “Timberland delivered record third quarter results, reflecting continued progress in developing the Timberland(R) brand portfolio and continued benefits from our efforts to enhance total system execution. We continue to drive solid growth across major product categories and geographies through a consistent focus on delivering against the enduring equities of the Timberland brand – while adapting our go-to-market strategies to better serve the needs of the broad range of Timberland consumers across the globe. We also continue to benefit from our focus on delivering superior customer service, leveraging a strengthened value chain that is supporting stronger growth and improved operating efficiencies. We are further refining our brand building approach through our Make it Better(TM) marketing campaign which powerfully communicates Timberland's brand essence and values – and deepens our relationship with Timberland consumers.
We are pleased to have delivered strong financial results in the third quarter. We are targeting mid single-digit revenue growth for the balance of this year and believe that we are on track towards delivering strong revenue growth and double-digit profit gains in 2004. Looking ahead to 2005, we intend to drive solid revenue gains and continued strong earnings growth, leveraging strategies focused on capturing the great potential we see for the Timberland brand.”
THE TIMBERLAND COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
For the For the
Three Months Ended Nine Months Ended
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Oct. 1, Sept. 26, Oct. 1, Sept. 26,
2004 2003 2004 2003
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Revenue $493,933 $443,960 $1,045,920 $926,690
Cost of goods sold 250,161 241,160 521,200 498,886
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Gross profit 243,772 202,800 524,720 427,804
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Operating expense
Selling 110,761 98,202 287,429 246,203
General and
administrative 26,994 21,072 71,436 59,487
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Total operating
expense 137,755 119,274 358,865 305,690
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Operating income 106,017 83,526 165,855 122,114
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Other expense (income)
Interest expense 147 328 547 767
Other, net (548 ) 305 (1,594 ) (226 )
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Total other expense
(income) (401 ) 633 (1,047 ) 541
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Income before income
taxes 106,418 82,893 166,902 121,573
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Provision for income taxes 37,778 29,620 59,250 43,158
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Net income 68,640 $53,273 $107,652 $78,415
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Earnings per share
Basic $1.96 $1.51 $3.08 $2.20
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Diluted $1.92 $1.47 $3.00 $2.15
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