The Timberland Company reported second quarter net income of $7.9 million and diluted EPS of 22 cents per share, compared net income of $5.8 million and diluted EPS of 16 cents per share in the year-ago period.
Second quarter revenue increased 8.7% to $230.2 million, driven by solid gains in both U.S. and international markets. U.S. revenues grew 7.6%, reflecting balanced growth from footwear and apparel offerings – which supported strong wholesale results (+8.4%) – and continued gains in Timberland's consumer direct business (+5.2% on a 1.3% comparable store sales decline). International results (+10.5% or +3.7% in constant dollars) reflected double-digit constant dollar sales gains in Asia, which offset flat constant dollar sales performance in Europe. Overall revenue growth benefited from favorable foreign exchange rate changes — which added $5.6 million (or 2.6%) to second quarter revenue.
Second quarter results reflected solid global growth in footwear, apparel and accessory sales. Global footwear revenues expanded 6.7% to $173.4 million, driven by strong growth in kids, men's casual and women's casual categories. Global apparel and accessories revenue grew 17.1% to $54.7 million, benefiting from double-digit growth in U.S. and Asian apparel and moderate gains in European apparel sales.
Operating profit for the quarter increased 33.3% to $12.1 million, and operating margin rose 0.9 percentage points to 5.2%. Profit gains reflected solid revenue growth and significant gains in gross margin, which benefited from favorable foreign exchange rate changes and lower product related costs. For the quarter, foreign exchange rate changes contributed approximately $3.7 million to operating profit. Margin improvements were achieved while supporting increased investment behind global brand building efforts and product development capability.
EPS for the quarter expanded 37.5% to $0.22, reflecting profit gains and continued benefits from share repurchases. The Company did not execute share repurchases in the second quarter, reflecting the timing of completion of share sales under its shelf registration statement. The Company currently has 4.3 million shares remaining under existing share repurchase programs.
Timberland ended the quarter with $163.6 million in cash and no debt outstanding. Timberland drove improvement in annual inventory turns, supporting an increase in return on capital from 27.8% to 31.0%.
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, stated, “Timberland's second quarter results reflect the power of the Timberland® 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 also continuing to refine our brand building approach, leveraging innovative vehicles to enhance our communication of Timberland's brand essence and values – and deepen our relationship with Timberland consumers.
We are pleased to have delivered strong financial results in the second quarter. We believe that we are on track for solid performance in 2004 and are targeting mid to high single-digit revenue growth for the balance of this year. We remain committed to delivering solid revenue growth, double-digit profit gains and strong cash flow in 2004, 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 Six Months Ended
------------------- -------------------
July 2, June 27, July 2, June 27,
2004 2003 2004 2003
--------- --------- --------- ---------
Revenue $230,210 $211,733 $551,987 $482,730
Cost of goods sold 115,713 112,957 271,039 257,726
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Gross profit 114,497 98,776 280,948 225,004
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Operating expense
Selling 81,316 70,449 176,668 148,001
General and administrative 21,101 19,266 44,442 38,415
--------- --------- --------- ---------
Total operating expense 102,417 89,715 221,110 186,416
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Operating income 12,080 9,061 59,838 38,588
--------- --------- --------- ---------
Other expense (income)
Interest expense 167 222 400 439
Other, net (286) (103) (1,046) (531)
--------- --------- --------- ---------
Total other expense
(income) (119) 119 (646) (92)
--------- --------- --------- ---------
Income before income taxes 12,199 8,942 60,484 38,680
--------- --------- --------- ---------
Provision for income taxes 4,331 3,130 21,472 13,538
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Net income $7,868 $5,812 $39,012 $25,142
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Earnings per share
Basic $.22 $.16 $1.11 $.70
========= ========= ========= =========
Diluted $.22 $.16 $1.09 $.69
THE TIMBERLAND COMPANY
REVENUE ANALYSIS
(Amounts in Thousands)
For the Three Months Ended For the Six Months Ended
July 2, June 27, % July 2, June 27, %
2004 2003 Change 2004 2003 Change
--------- ---------------- --------- -----------------
Revenue by
Segment:
US Wholesale $104,432 $96,306 8.4% $215,780 $200,308 7.7%
US Consumer
Direct 34,590 32,870 5.2% 72,367 65,701 10.1%
--------- -------- --------- ---------
Total US 139,022 129,176 7.6% 288,147 266,009 8.3%
International 91,188 82,557 10.5% 263,840 216,721 21.7%
Revenue by
Product
Footwear 173,360 162,486 6.7% 412,741 356,213 15.9%
Apparel and
Accessories 54,701 46,700 17.1% 134,028 120,411 11.3%
Royalty and
Other 2,149 2,547 (15.6%) 5,218 6,106 (14.5%)
Revenue by
Channel
Wholesale 161,756 149,355 8.3% 408,728 359,177 13.8%
Consumer
Direct 68,454 62,378 9.7% 143,259 123,553 15.9%
Note: Domestic
Retail
Comparable
Store Sales (1.3%) (1.9%) 2.4% (3.1%)
THE TIMBERLAND COMPANY
RECONCILIATION OF TOTAL AND INTERNATIONAL REVENUE INCREASES
TO CONSTANT DOLLAR REVENUE INCREASES
(Amounts in Millions)
Total Company Revenue Reconciliation:
For the Three Months For the Six Months
Ended July 2, 2004 Ended July 2, 2004
---------------------- --------------------
$Change %Change $Change %Change
----------------------------------------------------------------------
Revenue increase (GAAP) $18.5 8.7 $69.3 14.3
Increase due to foreign
exchange rate changes 5.6 2.6 24.5 5.1
Revenue increase in
constant dollars 12.9 6.1 44.8 9.2
International Revenue Reconciliation:
For the Three Months For the Six Months
Ended July 2, 2004 Ended July 2, 2004
------------------------ -------------------
$Change %Change $Change %Change
----------------------------------------------------------------------
Revenue increase (GAAP) $8.6 10.5 $47.1 21.7
Increase due to foreign
exchange rate changes 5.6 6.8 24.5 11.3
Revenue increase in
constant dollars 3.0 3.7 22.6 10.4
