Timberland reported revenue in the first quarter grew 1.2% to $340.4 million as foreign exchange rate changes, strong gains in SmartWool products and Timberland PRO series footwear and moderate growth in Timberland casual footwear offset declines in boots and kids’ footwear and decreases in Timberland apparel revenue in North America. Foreign exchange rate changes increased first-quarter 2008 revenue by approximately $16 million, or 4.8%, due to the strength of the Euro and the British Pound, and increased operating income by approximately $6 million.


North America revenue declined 4.7% to $137.7 million, or 5.1% on a constant dollar basis, reflecting soft consumer spending in both the U.S. and Canada. Europe revenue increased 6.9% to $164.8 million driven by gains in foreign currency, but decreased 1.6% on a constant dollar basis. Asia revenue increased 0.7% to $37.9 million driven by gains in foreign currency, but decreased 6.3% on a constant dollar basis. Geographic results reflect the introduction of new reporting segments, a change that the company believes will better reflect the way it now manages its business.


Apparel and accessories revenue increased 2.7% to $97.9 million compared to $95.4 million in the first quarter of 2007, driven by double-digit growth of SmartWool socks and apparel. These gains offset declines in Timberland brand apparel in North America. In February 2007, the company announced that it would transition this business to a licensing arrangement with Phillips-Van Heusen, beginning with the launch of men’s apparel in time for Father’s Day 2008. The company will cease sales of in-house North American casual apparel product in the second quarter of 2008 but will continue selling its own line of apparel in International markets. Global footwear revenue was $236.6 million, up slightly compared to the prior year as gains in casual and the Timberland PRO series footwear offset declines in boots and kids’ footwear.


Global wholesale revenue decreased 1.5% to $255.5 million. Worldwide consumer direct revenue increased 10.2% to $84.9 million, driven by comparable store sales gains of 5.7%.


Restructuring and related charges were $0.6 million in the first quarter of 2008, compared to $6.5 million for the first quarter of 2007.


Operating income for the quarter was $23.2 million, up 70.7% from the prior-year period. Operating income excluding restructuring and related costs was $23.8 million, 18.1% above the comparable prior year level. Profit increases reflect benefits from foreign currency translation as well as a 5.4% reduction in operating expenses excluding restructuring and related costs.


For the first quarter 2008, the tax rate was 39.0% compared to 34.5% for the first quarter of 2007. This increase in the effective tax rate resulted from a change in the geographical mix of profits.


In connection with its continuing stock buyback program, Timberland repurchased approximately 668 thousand shares in the first quarter at a total cost of $9.6 million. It ended the quarter with $134.8 million in cash and no debt. Inventory at quarter end was $180.2 million, down 1.8% versus 2007 first-quarter levels due to the company’s disciplined inventory management in the face of tough market conditions. Accounts receivable increased 1.0% to $201.8 million.


First-quarter 2008 net income reached $18.0 million and diluted earnings per share (EPS) of $0.30. First quarter diluted EPS was $0.31 when adjusted to exclude restructuring and related costs. These results compare to first-quarter 2007 net income of $9.3 million and diluted EPS of $0.15, or $0.22 when adjusted to exclude restructuring and related costs.

 

Timberland is maintaining its full-year outlook as favorable foreign exchange benefits are anticipated to offset continued challenges in retail markets globally. The company is targeting mid-single digit revenue declines, due in part to its decision to close underperforming retail stores. It also anticipates operating expenses in the range of $550 million, flat to modest operating margin improvement excluding restructuring costs, and a tax rate in the range of 40%.

For the second quarter, Timberland anticipates mid to high-single digit revenue declines and an operating loss excluding restructuring costs in the range of $30 million to $35 million, consistent with the first half outlook provided in its fourth-quarter earnings release. The company also anticipates an additional $4 million in restructuring costs in the second quarter, reflecting its previously announced retail closure plan, which will result in total plan costs in the range of $15 million to $16 million, $1 million to $2 million below its original estimate.


Jeffrey B. Swartz, Timberland’s President and chief executive officer, stated, “I am encouraged by our start to 2008 and pleased with our performance in a difficult retail environment. Over the past year, our management team has taken significant corrective actions to simplify our business and streamline our global operations. While the overall market remains challenging, I am confident that we are on the right path strategically to deliver better, consumer informed products rooted in Timberland’s brand heritage, enhance overall profitability and drive improved returns for our shareholders.“